<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOPNOW.COM INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 7374 91-1628103
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code
Number)
</TABLE>
411 FIRST AVENUE SOUTH
SUITE 200 NORTH
SEATTLE, WASHINGTON 98101
(206) 223-1996
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
DWAYNE M. WALKER
CHIEF EXECUTIVE OFFICER
411 FIRST AVENUE SOUTH
SUITE 200 NORTH
SEATTLE, WASHINGTON 98101
(206) 223-1996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
JOHN A. FORE STEVEN C. KENNEDY
PATRICK J. SCHULTHEIS JAMES E. NICHOLSON
PAUL W. HARTZEL W. MORGAN BURNS
Wilson Sonsini Goodrich & Rosati GORDON S. WEBER
Professional Corporation Faegre & Benson LLP
5300 Carillon Point 2200 Norwest Center
Kirkland, Washington 98033-7356 90 South Seventh Street
(425) 576-5800 Minneapolis, Minnesota 55402-3901
(612) 336-3000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, 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,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share........................................... $86,250,000 $23,978
</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of computing the
amount of the registration fee.
------------------------------
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 HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 18, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES OUR
REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is the initial public offering of ShopNow.com Inc. common stock. We are
selling shares. We anticipate that the initial public offering price will
be between $ and $ per share. Application has been made to have our common
stock listed on the Nasdaq National Market under the symbol "SPNW" upon
completion of this offering.
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public offering price..................................................................... $ $
Underwriting discounts and commissions.................................................... $ $
Proceeds, before expenses, to ShopNow..................................................... $ $
</TABLE>
The underwriters have a 30-day option to purchase up to additional
shares of common stock from us to cover over-allotments, if any.
--------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-------------
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.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
U.S. BANCORP PIPER JAFFRAY
SOUNDVIEW TECHNOLOGY GROUP
WIT CAPITAL CORPORATION
, 1999
<PAGE>
[INSIDE FRONT COVER]
[SHOPNOW LOGO]
THE SHOPNOW NETWORK: CONNECTING SHOPPERS AND MERCHANTS
One of the Internet's fastest growing shopping destinations--aggregates more
than 1 million products and services from more than 29,000
merchants--ShopNow.com delivers on its promise: A Better Way to Shop. The
ShopNow Network, our online marketplace, comprised of ShopNow.com, MyShopNow.com
and the Web sites of our merchant customers.
[Picture of the ShopNow.com Home Page]
OVER 29,000 MERCHANTS
ShopNow.com serves online and traditional retailers, catalog companies,
manufacturers and individuals; from the major brands to small and home-based
businesses.
OVER 1 MILLION PRODUCTS
Twenty-seven categories, from fashion to electronics, allow merchants multiple
opportunities to promote their online stores.
[LOGOS OF SHOPNOW'S MERCHANT CUSTOMERS]
THE SHOPNOW.COM SHOPPING CATEGORIES
- -Fashion & Apparel -Travel
- -Fashion Accessories -Food & Beverage
- -Personal Care -Cars & Motorcycles
- -Sports & Recreation -Electronics
- -Books & Magazines -Telecommunications
- -Music & Movies -Computers
- -Home & Garden -Computer Services
- -Parenting -Personal Finance
- -Kids -Career
- -Pets -Small & Home Office
- -Flowers & Gifts -Business Services
- -Select Catalogs -General Services
- -Hobbies -Health Services
- -Auction
<PAGE>
[INSIDE FRONT COVER (CONTINUED)]
SHOPNOW PROVIDES MERCHANTS WITH EFFECTIVE
E-COMMERCE SOLUTIONS
DIRECT MARKETING SERVICES
ONLINE AND TRADITIONAL SALES AND MARKETING
E-COMMERCE TECHNOLOGY PLATFORM
ORDER AND PAYMENT PROCESSING
FRAUD PREVENTION
FULFILLMENT AND CALL CENTER
[Picture of a MyShopNow Web Page]
MERCHANTS HAVE MORE CHOICES TO ATTRACT SHOPPERS ON THE SHOPNOW NETWORK
ShopNow drives shoppers to our merchant customers' online stores and offers a
range of marketing options from online direct marketing to advertising,
merchandising and more, all available through the ShopNow Network.
A variety of online advertising and direct marketing services are available
including product offer based e-mail, banner ads, sponsorships and hyperlink
advertisements that enable merchants to prominently feature their products and
services.
ShopNow's direct marketing and creative capabilities serve the needs and
interests of merchants in creating value-added online product presentations and
in selling effectively across online and traditional channels.
[Picture of the ShopNow.com Home Page]
[Picture of ShopNow's Merchant Customer's Web Sites Designed and
Maintained by ShopNow.]
[SHOPNOW LOGO]
MYSHOPNOW.COM ENABLES EACH SHOPPER TO CREATE A PERSONALIZED SHOPPING SITE
MyShopNow personal store owners can select the types of products and services
that they want offered to them. They can also choose to receive through their
personalized MyShopNow stores complimentary access to third-party content,
including news, sports scores, weather reports, horoscopes, greeting cards and
stock quotes. As an added benefit, shoppers receive incentives to shop at their
MyShopNow personal store.
[Picture of an Online Shopper Browsing the ShopNow.com Web Site]
[Picture of Products Sold on ShopNow.com]
ShopNow offers merchants a broad array of effective e-commerce solutions
including Web store design and maintenance, payment processing, fraud
prevention, online sales and marketing services, fulfillment and call center
management.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. This prospectus is not an offer to sell, nor is
it seeking an offer to buy, these securities in any state where the offer or
sale is not permitted. The information in this prospectus is complete and
accurate as of the date on the front cover, but the information may have changed
since that date.
"ShopNow," "TechWave" and "Internet Mall" are trademarks registered to
ShopNow, and we have applied for trademark registration for each of the
following additional marks: "ShopNow.com," "MyShopNow.com" and "CommerceTrust."
This prospectus also contains trademarks of companies other than ShopNow.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 8
Forward-Looking Statements..................... 20
Use of Proceeds................................ 20
Dividend Policy................................ 21
Capitalization................................. 21
Dilution....................................... 22
Selected Pro Forma Combined Financial Data..... 23
Selected Consolidated Financial Data........... 24
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations................................... 25
Business....................................... 34
Management..................................... 48
<CAPTION>
PAGE
-----
<S> <C>
Related Transactions with Executive Officers,
Directors and 5% Shareholders................ 56
Principal Shareholders......................... 58
Description of Capital Stock................... 59
Shares Eligible For Future Sale................ 62
Underwriting................................... 64
Legal Matters.................................. 65
Experts........................................ 66
Change in Independent Public Accountants....... 66
Where You Can Find More Information............ 66
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. BEFORE MAKING AN INVESTMENT DECISION YOU SHOULD READ THE ENTIRE PROSPECTUS,
INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS, THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION AND RELATED NOTES. THE TERMS "WE" AND "SHOPNOW"
MEAN SHOPNOW.COM INC. AND ITS SUBSIDIARIES. EXCEPT AS OTHERWISE STATED, ALL
INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
SHOPNOW.COM INC.
ShopNow provides shoppers and merchants with a dynamic online marketplace
and a broad array of effective e-commerce and direct marketing solutions. The
ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the individual Web sites of our merchant customers.
ShopNow.com aggregates more than 1 million products and services from more than
29,000 merchants at one Web site that can be rapidly and efficiently searched by
category, merchant or product. MyShopNow.com enables shoppers to create
personalized online stores by selecting the types of products and services
offered to them. Since August 1998, more than 1.3 million MyShopNow personal
stores have been created. In May 1999, the ShopNow Network attracted more than 2
million visits. We believe that our online marketplace focused principally on
shopping will continue to attract an increasing number of Internet users who are
interested in purchasing products and services on the Web. As the number of
shoppers on the ShopNow Network increases, we believe that we will attract
additional merchant customers by providing them with the opportunity to increase
online transaction volume. We derive revenues from transactions and
merchandising on the ShopNow Network, and from sales of our e-commerce and
direct marketing services to merchants.
Our e-commerce services enable merchants to develop and maintain advanced
e-commerce capabilities to efficiently process transactions. These modular
solutions permit merchants to select only those technologies and services that
they need. Our e-commerce services range from a listing on ShopNow.com to the
design, creation and maintenance of an online store complete with back-end
support services, such as payment and order processing, fraud prevention and
fulfillment. Our direct marketing services enable merchants to promote their
brands, products, services and e-commerce capabilities through traditional and
online direct marketing methods. These solutions provide merchants with the
opportunity to lower customer acquisition and retention costs and increase
revenues. We intend to increase our use of the demographic and shopper
preference data that we collect to provide more focused direct marketing
services.
The market for our products and services is rapidly increasing as the
explosive growth of the Internet has given shoppers and merchants the
opportunity to conduct an increasing amount of commerce online. Online shopping
provides shoppers with increased selection, access to competitive prices and the
convenience of shopping at any time from a single location. Likewise, merchants
benefit by reaching a global audience while operating with limited
infrastructure, reduced overhead and greater economies of scale. The numerous
advantages of e-commerce are resulting in a dramatic increase in the amount of
commerce conducted over the Internet and the number of merchants selling
products and services online. According to International Data Corporation,
transactions on the Internet are expected to increase from approximately $32
billion in 1998 to approximately $426 billion in 2002, with the number of
worldwide users that have bought products and services online rising from
approximately 28 million to approximately 128 million during the same period.
The opportunity presented by the rapid growth in e-commerce is creating
numerous challenges for shoppers and merchants as they attempt to buy and sell
goods and services in an online environment where shoppers are being inundated
with buying opportunities and merchants are struggling to develop and maintain
effective e-commerce capabilities and establish brand identity. ShopNow's
solution to these challenges is to connect shoppers and merchants through our
online marketplace and direct marketing services, while providing merchants with
the e-commerce services necessary to allow them to efficiently execute online
transactions.
4
<PAGE>
Our objective is to create the leading online marketplace while providing a
broad array of effective e-commerce and direct marketing solutions to shoppers
and merchants. Key strategies to achieve this objective include:
- increasing market awareness of the ShopNow brand;
- expanding the ShopNow Network by increasing the products and services
offered, establishing an international presence and developing local
networks;
- increasing transactions on the ShopNow Network by enhancing its
personalization features and leveraging our direct marketing services;
- expanding services to our merchant customers; and
- pursuing acquisitions and leveraging strategic relationships.
Merchants using our online marketplace, as well as those using our
e-commerce and direct marketing solutions, represent businesses of all sizes
from a wide variety of industries, including retailers, catalog companies,
manufacturers and individuals. Some of our merchant customers are
barnesandnoble.com, Corel, Hallmark, L.L. Bean, Sony, Starbucks and Qwest
Communications.
ShopNow was incorporated in Washington in January 1994. Our executive
offices are located at 411 First Avenue South, Suite 200 North, Seattle,
Washington 98101; our telephone number is (206) 223-1996; and our main Web site
is located at http://www.shopnow.com. Information contained on our Web sites is
not part of this prospectus.
RECENT DEVELOPMENTS
On June 17, 1999, we entered into an agreement to sell 2,100,000 shares of
our Series I convertible preferred stock to a major financial institution in
exchange for an investment of $18.9 million. The sale of the shares is subject
to shareholder approval of an amendment to our articles of incorporation to
increase our authorized capital stock and receipt of all required governmental
approvals. We have also begun negotiating a joint marketing and license
agreement that will make the financial institution the exclusive provider of
certain financial services on the ShopNow Network and also provide for certain
sponsorship and revenue sharing arrangements.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.............. shares
Common stock to be outstanding
after this offering............. shares
Use of proceeds................... For working capital and general corporate purposes,
potential acquisitions and repayment of indebtedness.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... SPNW
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of March 31, 1999. This calculation includes
13,032,658 shares of common stock to be issued upon the automatic conversion of
all outstanding shares of our preferred stock and the exercise and automatic
conversion of all warrants to purchase our Series C convertible preferred stock
upon completion of this offering. This calculation excludes:
- 7,949,401 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:
- 2,504,589 shares of common stock underlying options outstanding at a
weighted average exercise price of $2.74 per share, of which 1,180,418
were exercisable as of March 31, 1999;
- 5,445,812 shares of common stock underlying options available for
future grants;
- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;
- 2,013,233 shares of common stock issuable upon exercise of stock options
outstanding outside of our stock option plan at a weighted average
exercise price of $1.51 per share, of which 771,748 were exercisable as of
March 31, 1999;
- 2,459,389 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $4.72 per share; and
- the shares of common stock that may be issued if the holder of a $1.0
million promissory note elects to convert the note into common stock upon
completion of this offering.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------
JANUARY 20, PRO FORMA
1994 PRO FORMA THREE MONTHS THREE MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, YEAR ENDED ENDED ENDED
DECEMBER 31, --------------------------------- DECEMBER 31, MARCH 31, MARCH 31,
1994 1995 1996 1997 1998 1998(1) 1999 1999(1)
-------------- ------ ------ ------- -------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Transactions and
merchandising............. $ -- $ -- $ -- $ 69 $ 4,211 $ 1,801 $ 5,728 $ 781
Merchant services........... 279 727 993 535 2,943 7,246 1,840 1,729
------ ------ ------ ------- -------- ------------ ------------ ------------
Total revenues............ 279 727 993 604 7,154 9,047 7,568 2,510
------ ------ ------ ------- -------- ------------ ------------ ------------
Cost of revenues:
Transactions and
merchandising............. -- -- -- 159 4,285 391 6,171 319
Merchant services........... 127 323 430 356 1,564 4,271 969 952
------ ------ ------ ------- -------- ------------ ------------ ------------
Total cost of revenues.... 127 323 430 515 5,849 4,662 7,140 1,271
------ ------ ------ ------- -------- ------------ ------------ ------------
Gross profit............ 152 404 563 89 1,305 4,385 428 1,239
Total operating expenses...... 332 510 1,323 4,691 26,221 28,273 8,723 9,177
------ ------ ------ ------- -------- ------------ ------------ ------------
Loss from operations.... (180) (106) (760) (4,602) (24,916) (23,888) (8,295) (7,938)
Other income (expense), net... (1) (7) (50) (164) 171 91 15 (3)
------ ------ ------ ------- -------- ------------ ------------ ------------
Net loss................ $ (181) $ (113) $ (810) $(4,766) $(24,745) $(23,797) $(8,280) $(7,941)
------ ------ ------ ------- -------- ------------ ------------ ------------
------ ------ ------ ------- -------- ------------ ------------ ------------
Basic and diluted pro forma net
loss per share(2)............. $(0.11) $(0.06) $(0.40) $ (0.90) $ (1.92) $ (1.59) $ (0.48) $ (0.43)
------ ------ ------ ------- -------- ------------ ------------ ------------
------ ------ ------ ------- -------- ------------ ------------ ------------
Weighted average shares
outstanding used in computing
basic and diluted pro forma
net loss per share............ 1,608 1,779 2,012 5,292 12,858 14,959 17,169 18,409
------ ------ ------ ------- -------- ------------ ------------ ------------
------ ------ ------ ------- -------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------
MARCH 31, 1999
------------------------
AS
ACTUAL ADJUSTED(3)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments........................................................... $ 6,373 $
Working capital........................................................................... 2,647
Total assets.............................................................................. 21,761
Total liabilities......................................................................... 13,162
Total shareholders' equity................................................................ 8,599
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999 MAY 31, 1999
------------------- --------------- -------------
<S> <C> <C> <C>
OTHER DATA:
Number of MyShopNow personal stores....................................... 149,359 1,312,898 1,500,000
Number of merchants on the ShopNow Network................................ 13,281 18,703 29,762
Monthly visits to the ShopNow Network..................................... 250,447 1,570,976 2,100,000
</TABLE>
- ------------------------------
(1) We acquired The Internet Mall in August 1998, Media Assets in September 1998
and GO Software in June 1999. In addition, in June 1999, we made a decision
to dispose of our BuySoftware.com business. The pro forma statement of
operations data reflects consolidation of the results of operations as if
the acquisitions had occurred on January 1, 1998 and we disposed of
BuySoftware.com on the same date. The pro forma information should be read
in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Unaudited Pro Forma Combined
Financial Information and related Notes appearing elsewhere in this
prospectus.
(2) See Note 1 to the Consolidated Financial Statements and Note 2(g) to the
Unaudited Pro Forma Combined Financial Information appearing elsewhere in
this prospectus for a description of the method used to compute basic and
diluted pro forma net loss per share.
(3) The pro forma as adjusted balance sheet data gives effect to the sale of the
shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
expenses payable by us.
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING WHETHER TO INVEST IN OUR COMMON STOCK. THE RISKS DESCRIBED BELOW ARE
NOT THE ONLY ONES THAT WE FACE. ADDITIONAL RISKS THAT WE HAVE NOT YET IDENTIFIED
OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, IN WHICH CASE YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. IN
ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS, THE UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION AND RELATED NOTES.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT IS DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS
ShopNow was incorporated in January 1994, and operated initially as a
computer services company. In 1996, we changed the focus of our business to
providing e-commerce and direct marketing services. In August 1998, we launched
ShopNow.com, our shopping destination Web site. During 1998 and the first
quarter of 1999, we derived a majority of our revenues from retail sales of
computer products through our BuySoftware.com online retail store. In June 1999,
we decided to dispose of our BuySoftware.com business to focus on providing
shoppers and merchants with an online marketplace. Accordingly, we have a
limited operating history for you to consider in evaluating our business and
prospects. When making your investment decision, you should consider the risks,
expenses and difficulties that we may encounter as a young company in a rapidly
evolving market. These risks include:
- our need to expand our sales and marketing activities;
- our need to quickly integrate newly hired personnel, many of whom are
members of management;
- our need to manage our rapidly developing and changing operations;
- our need to expand our product offerings;
- our need to respond to changing technologies and changing shopper and
merchant preferences; and
- our need to operate in highly competitive markets.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD
Our limited operating history and the emerging nature of the markets in
which we compete make it difficult for us to accurately forecast our revenues in
any given period. Our revenues could fall short of our expectations if we
experience declines in shopper traffic or purchases, or if the number of
merchants to whom we provide services decreases. We have limited experience in
financial planning for our business on which to base our planned operating
expenses. If our revenues in a particular period fall short of our expectations,
we will likely be unable to quickly adjust our spending in order to compensate
for that revenue shortfall. As a result, our operating results would be
adversely affected.
Our operating results are likely to fluctuate substantially from period to
period as a result of a number of factors, many of which are beyond our control.
These factors include:
- the growth rate of the Internet in general and of e-commerce and direct
marketing services in particular;
- our ability to attract shoppers and add merchants to our online
marketplace;
8
<PAGE>
- the amount and timing of operating costs and expenditures relating to
expansion of our operations;
- the rate at which merchants and shoppers adopt our technologies and
services;
- the announcement or introduction of new or enhanced products or services
by our competitors;
- our ability to attract and retain qualified personnel;
- the mix of products and services that we sell;
- the pricing policies of our competitors; and
- our ability to integrate acquired technologies and businesses.
Period-to-period comparisons of our operating results are not a good
indication of our future performance. It is likely that our operating results in
some quarters will not meet the expectations of stock market analysts and
investors.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES
We incurred net losses of $24.7 million for the year ended December 31, 1998
and $8.3 million for the quarter ended March 31, 1999. At March 31, 1999, we had
an accumulated deficit of $38.9 million. Although our revenues have grown
significantly in recent quarters, we may not be able to sustain these growth
rates or obtain sufficient revenues to achieve profitability. If we do achieve
profitability, we may not be able to sustain or increase profitability in the
future.
We have historically invested heavily in sales and marketing, technology
infrastructure and research and development and expect to do so in the future.
As a result, we must generate significant revenues to achieve and maintain
profitability. We expect that our sales and marketing expenses, research and
development expenses and general and administrative expenses will continue to
increase in absolute dollars and may increase as percentages of revenues. In
addition, we may incur substantial expenses in connection with future
acquisitions.
OUR BUSINESS MODEL IS EVOLVING AND UNPROVEN
Our business model consists of providing shoppers and merchants with an
online marketplace and a broad array of e-commerce and direct marketing
solutions. This business model is relatively new to the Internet, is unproven
and will need to continue to develop. Accordingly, our business model may not be
successful, and we may need to change it. Our ability to generate significant
revenues will depend, in large part, on our ability to successfully market our
e-commerce and direct marketing solutions to merchants that may not be convinced
of the need for an online presence or may be reluctant to rely upon third
parties to develop and manage their e-commerce capabilities and direct marketing
efforts. We intend to continue to develop our business model as the demand for
an online marketplace and the market for e-commerce and direct marketing
services evolves.
WE MAY NOT SUCCESSFULLY INTEGRATE BUSINESSES AND TECHNOLOGIES THAT WE ACQUIRE
Our success depends on our ability to continually enhance our online
marketplace and our e-commerce and direct marketing services in response to
changing technologies, customer demands and competitive pressures. Consequently,
we have acquired complementary technologies or businesses in the past, and
intend to do so in the future. Future acquisitions may involve potentially
dilutive issuances of stock, the incurrence of additional debt and contingent
liabilities or large one-time write-offs and
9
<PAGE>
amortization expenses related to goodwill and other intangible assets. Any of
these factors could adversely affect our results of operations or stock price.
Acquisitions involve numerous risks, including:
- difficulties in assessing and assimilating the operations, products,
technology, information systems and personnel of the acquired company;
- diverting management's attention from other business concerns;
- impairing relationships with our employees, affiliates, merchants and
advertisers;
- being unable to maintain uniform standards, controls, procedures and
policies;
- entering markets in which we have no direct prior experience; and
- losing key employees of the acquired company.
In addition, in order to finance any acquisitions, we might need to raise
additional funds through public or private financings. In such event, we could
be forced to obtain equity or debt financing on terms that are not favorable to
us and that may result in dilution to our shareholders.
If we are unable to accurately assess and effectively integrate any newly
acquired businesses or technologies, our business would suffer. In this regard,
in June 1998 we acquired e-Warehouse and CyberTrust. These companies had
developed certain payment processing technologies that we planned to utilize as
part of our e-commerce and direct marketing services. However, we are not
currently utilizing the acquired technology, and we have determined that the
technology has no alternative future use or value to us. Because we are not
utilizing the acquired technology, we wrote-off substantially all of the $5.4
million aggregate purchase price for e-Warehouse and CyberTrust in 1998. We may
be unable to successfully integrate other businesses, technologies or personnel
that we acquire in the future.
OUR SUCCESS DEPENDS UPON ACHIEVING A CRITICAL MASS OF MERCHANTS AND SHOPPERS
Our success is dependent upon achieving significant market acceptance of our
online marketplace and our e-commerce and direct marketing solutions by
merchants and shoppers. Our products and services have achieved only limited
market acceptance to date. E-commerce is at an early stage of development. Most
potential merchants have only limited experience selling products on the
Internet and have not devoted a significant portion of their marketing efforts
to Internet sales and marketing.
Our ability to attract merchants as customers will depend in large part upon
our success in attracting shoppers to our online marketplace. If we are unable
to attract substantial shopper traffic to our online marketplace, or if such
shoppers do not purchase products online in substantial volume, we may be unable
to attract merchants. Failure to achieve and maintain a critical mass of
merchants and shoppers would seriously harm our business.
WE NEED TO INCREASE BRAND AWARENESS
Due in part to the emerging nature of the markets for an online marketplace
and e-commerce and direct marketing solutions and the substantial resources
available to many of our competitors, our opportunity to achieve and maintain a
significant market share may be limited. Developing and maintaining awareness of
the ShopNow brand name is critical to achieving widespread acceptance of our
online marketplace and our e-commerce and direct marketing solutions. Further,
the importance of brand recognition will increase as competition in our market
increases. Successfully promoting and positioning the ShopNow brand will depend
largely on the effectiveness of our marketing efforts and our ability to develop
reliable and useful products at competitive prices. Therefore, we may need to
increase our financial commitment to creating and maintaining brand awareness
among shoppers and merchants. If we fail to successfully promote our brand name
or if we incur significant expenses
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promoting and maintaining our brand name, it could have a material adverse
effect on our results of operations.
OUR SUCCESS DEPENDS ON CONTINUED GROWTH IN E-COMMERCE
Sales of consumer goods using the Internet currently do not represent a
significant portion of overall sales of consumer goods. We depend on the growing
use and acceptance of the Internet as an effective medium of commerce by
merchants and shoppers. Rapid growth in the use of and interest in the Internet
and other online services is a recent development. No one can be certain that
acceptance and use of the Internet and other online services will continue to
develop or that a sufficiently broad base of merchants and shoppers will adopt
and continue to use the Internet and other online services as a medium of
commerce.
The Internet may fail as a commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements. For example, if technologies
such as advertisement blocking software gain wide acceptance, the attractiveness
of the Internet to advertisers would be diminished, which could harm our
business. If the number of Internet users or their use of Internet resources
continues to grow, it may overwhelm the existing Internet infrastructure. Delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet activity or increased governmental regulation could
also have a similar effect. In addition, growth in Internet usage which is not
matched by comparable growth in the infrastructure supporting Internet usage
could result in slower response times or adversely affect usage of the Internet.
WE FACE SIGNIFICANT COMPETITION
The market for Internet products and services is new, rapidly evolving and
intensely competitive. The number of companies offering e-commerce and online
direct marketing services, as well as shopping destination Web sites and
merchant and product Web site directories and search services is large and
increasing at a rapid rate. These companies compete with us for e-commerce
merchants, shoppers, e-commerce transactions, advertisers and other sources of
online revenue. We also compete with Web development firms, systems integrators,
Internet service providers and traditional media companies that may offer
alternatives to one or more components of our e-commerce and direct marketing
solutions. We expect competition to intensify in the future. Barriers to entry
in our market are not significant, and current and new competitors may be able
to launch new Web sites at a relatively low cost. Accordingly, we believe that
our success will depend heavily upon achieving significant market acceptance
before our competitors and potential competitors introduce competing services.
We compete directly for e-commerce merchants, shoppers, advertisers and
other affiliates with numerous Internet and non-Internet businesses, including:
- providers of e-commerce and online direct marketing services, such as
Go2Net, Xoom and DoubleClick;
- providers of e-commerce outsourcing services, such as Digital River, US
Web and CyberSource;
- providers of Web directories and search and information services, all of
whom offer online shopping, including America Online, Microsoft, Yahoo!,
Excite, Lycos and Infoseek;
- online shopping destination Web sites, such as iMall and Shopping.com;
- Internet service providers, Web development firms and systems integrators,
as well as companies offering products that address specific aspects of
e-commerce, such as payment and transaction processing and security; and
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- e-commerce and conventional merchants that provide goods and services
similar to those available through links on our Web sites.
We expect that other companies, including media companies and traditional
retailers, will offer directly competing services in the future.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to our company, including:
- the ability to offer a wider array of e-commerce and direct marketing
services;
- larger customer or user bases;
- greater name recognition and larger marketing budgets and resources;
- substantially greater financial, technical and other resources;
- the ability to offer additional content and other personalization
features; and
- larger production and technical staffs.
In addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of e-commerce and direct
marketing solutions, and existing providers of e-commerce and direct marketing
solutions may continue to consolidate. Providers of Internet browsers and other
Internet products and services who are affiliated with providers of Web
directories and information services that compete with our Web sites may more
tightly integrate these affiliated offerings into their browsers or other
products or services. Any of these trends would increase the competition we face
and could adversely affect our business and operating results.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in a decrease
in shopper traffic on our Web sites, fewer merchants listed in our directories,
the obsolescence of the technology underlying our e-commerce and direct
marketing services, a loss of our market share and a reduction in the prices or
margins of our products and services.
OUR STRATEGIC RELATIONSHIPS ARE IMPORTANT TO OUR BUSINESS
A key element of our strategy involves entering into strategic relationships
with other companies. For example, we have entered into relationships with the
ZERON Group, 24/7 Media, Qwest Communications and HNC Software. Although
strategic relationships are a key factor in our business strategy, our strategic
affiliates may not view their relationships with us as significant to their own
business. There is a risk that parties with whom we have strategic relationships
may not perform their obligations as agreed. Our strategic arrangements
generally do not establish minimum performance requirements but instead rely on
the voluntary efforts of our affiliates. In addition, most of our strategic
relationships may be terminated by either party with little notice. If important
strategic relationships are discontinued for any reason, or if we are
unsuccessful in entering into new strategic relationships in the future, our
business and results of operations may be adversely affected.
WE MUST EFFECTIVELY MANAGE THE RAPID GROWTH OF OUR OPERATIONS
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations domestically
and internationally, and we have recently increased our headcount substantially.
From December 31, 1997 to May 31, 1999, our total number of employees increased
from less than 50 to more than 200. This growth has placed and will continue to
place a significant strain on our management systems, infrastructure and
resources. We will need to continue to improve our
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financial and managerial controls and reporting systems and procedures, and will
need to continue to expand, train and manage our workforce worldwide.
Furthermore, we expect that we will be required to manage an increasing number
of relationships with various customers and other third parties. Any failure to
expand any of the foregoing areas efficiently and effectively could cause our
business to suffer.
WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL
Our success depends on the skills, experience and performance of our senior
management and certain other key personnel, many of whom have worked together
for only a short period of time. If we do not quickly and efficiently integrate
these new personnel into our management and culture, our business could suffer.
Our business could also suffer if we do not successfully retain our key
personnel.
WE NEED TO HIRE ADDITIONAL PERSONNEL
Our future success depends on our ability to identify, hire, train, retain
and motivate highly skilled executive, technical, managerial, sales and
marketing and business development personnel. We intend to hire a significant
number of personnel during the next year. Competition for qualified personnel is
intense, particularly in the technology and Internet markets. If we fail to
successfully attract, assimilate and retain a sufficient number of qualified
executive, technical, managerial, sales and marketing, business development and
administrative personnel, our business could suffer.
RAPID TECHNOLOGICAL CHANGE AFFECTS OUR BUSINESS
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize our
market. Our market's early stage of development exacerbates the effect of such
change. Our future success will depend in significant part on our ability to
improve the performance, content and reliability of our services in response to
both the evolving demands of the market and competitive product offerings. Our
efforts in these areas may not be successful. If a large number of our
affiliates adopt new Internet technologies or standards, we may need to incur
substantial expenditures modifying or adapting our e-commerce and direct
marketing services.
OUR ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE AND DIRECT MARKETING
TECHNOLOGIES IS SUBJECT TO UNCERTAINTIES
We have limited experience delivering complex Internet-based products and
services. Our e-commerce technology and merchant services are based on the
integration of numerous complex components, the successful integration of which
will determine the performance and scalability of our network. We need to
maintain an adequate testing and technical support infrastructure to ensure the
successful adoption and rollout of products and services to customers. Our
business also depends on our ability to manage our online systems, which entails
maintaining redundant communications lines, coordinating fulfillment and call
center operations, and managing order processing and warehousing systems. We
have limited experience in each of these areas. Our failure in any of these
areas could lead to significant system downtime and adversely affect our
business.
THE SECURITY PROVIDED BY OUR E-COMMERCE SERVICES COULD BE BREACHED
A fundamental requirement for e-commerce is the secure transmission of
confidential information over the Internet. Third parties may attempt to breach
the security provided by our e-commerce services, or the security of our
merchant customers' internal systems. If they are successful, they could obtain
confidential information about shoppers using the ShopNow Network, including
their passwords, financial account information, credit card numbers or other
personal information. We may be liable to our merchant customers or shoppers for
any such breach in security. Even if we are not held liable, a
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security breach could harm our reputation, and the mere perception of security
risks, whether or not valid, could inhibit market acceptance of our products.
Despite our implementation of security measures, our software is vulnerable to
computer viruses, electronic break-ins and similar disruptions, which could lead
to interruptions, delays or loss of data. We may be required to expend
significant capital and other resources to license encryption or other
technologies to protect against security breaches or to alleviate problems
caused by such breaches. In addition, our merchant customers might decide to
stop using our e-commerce services if their shoppers experience security
breaches. Our failure to prevent security breaches could have a material adverse
effect on our business and operating results.
OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES
Our success depends, in part, on the performance, reliability and
availability of our online marketplace and the technology supporting our
e-commerce and online direct marketing services. Our revenues depend, in large
part, on the number of shoppers and merchants that access our our online
marketplace and use our e-commerce and direct marketing services. Substantially
all of our computer and communications hardware is located at leased facilities
in Seattle, Washington and Weehawken, New Jersey. Our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-in, earthquake and similar events. Because we
presently do not have fully redundant systems or a formal disaster recovery
plan, a systems failure could adversely affect our business. Our computer
systems are vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions, which may lead to interruptions, delays, loss of data or
inability to process online transactions for our merchant customers. The
occurrence of any of the foregoing events could have a material adverse effect
on our business.
OUR BUSINESS MAY BE HARMED BY FAILURES OF OUR SOFTWARE AND SYSTEMS
We have developed custom software for our network servers and have licensed
additional software from third parties. This software may contain undetected
errors, defects or bugs. Although we have not suffered significant harm from any
errors or defects to date, we may discover significant errors or defects in the
future that we may or may not be able to fix. We must expand and upgrade our
technology, transaction-processing systems and network infrastructure if the
volume of traffic on our Web sites or our merchant customers' Web sites
increases substantially. We could experience periodic temporary capacity
constraints, which may cause unanticipated system disruptions, slower response
times and lower levels of customer service. We may be unable to accurately
project the rate or timing of increases, if any, in the use of our Web sites or
expand and upgrade our systems and infrastructure to accommodate these increases
in a timely manner. Any inability to do so could harm our business.
OUR INTERNATIONAL OPERATIONS INVOLVE RISKS
Our e-commerce and direct marketing solutions are available to merchants and
shoppers worldwide. We also plan to make our online marketplace available to
shoppers and merchants on a global basis. We are subject to the normal risks of
doing business internationally, as well as risks specific to Internet-based
companies in foreign markets. These risks include:
- delays in the development of the Internet as a commerce medium in
international markets;
- difficulties in managing operations due to distance, language and cultural
differences, including issues associated with establishing management
system infrastructures in individual markets;
- unexpected changes in regulatory requirements;
- export and import restrictions, including those restricting the use of
encryption technology;
- tariffs and trade barriers and limitations on fund transfers;
- difficulties in staffing and managing foreign operations;
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- longer payment cycles and problems in collecting accounts receivable;
- potential adverse tax consequences;
- exchange rate fluctuations;
- increased risk of piracy and limits on our ability to enforce our
intellectual property rights; and
- other legal and political risks.
Any of these factors could harm our business. We do not currently hedge our
foreign currency exposures.
OUR SUCCESS WILL RELY ON CONTINUED CONSUMER AND MERCHANT SPENDING
The success of our operations depends upon a number of factors relating to
consumer and merchant spending, including future economic conditions affecting
disposable consumer and business income such as employment, business conditions,
interest rates and tax rates. There can be no assurance that consumer and
merchant spending will not decline in response to economic conditions, thereby
adversely affecting our growth, revenues and profitability.
WE RELY ON THE INTERNET INFRASTRUCTURE
Our success depends, in large part, on other companies maintaining the
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network backbone that provides adequate speed, data capacity and
security and to develop products that enable reliable Internet access and
services. If the Internet continues to experience significant growth in the
number of users, frequency of use and amount of data transmitted, the Internet
infrastructure may be unable to support the demands placed on it, and the
Internet's performance or reliability may suffer as a result of this continued
growth. In addition, the Internet could lose its commercial viability as a
marketplace due to delays in the development or adoption of new standards and
protocols to process increased levels of Internet activity. Any such degradation
of Internet performance or reliability could decrease shopper traffic and cause
advertisers to reduce their Internet expenditures. If other companies do not
develop the infrastructure or complementary products and services necessary to
establish and maintain the Internet as a viable commercial medium, or if the
Internet does not become a viable commercial medium or platform for advertising,
promotions and e-commerce, our business could suffer.
FUTURE GOVERNMENTAL REGULATION AND PRIVACY CONCERNS COULD ADVERSELY AFFECT OUR
BUSINESS
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to such issues as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any such laws or regulations may decrease
the growth in the use of the Internet, which could in turn decrease the demand
for our e-commerce and direct marketing solutions, increase our cost of doing
business, or otherwise have a material adverse effect on our business. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, copyright, trademark, trade secret, obscenity, libel and
personal privacy is uncertain and developing. Any new legislation or regulation,
or application or interpretation of existing laws, could have a material adverse
effect on our business.
The Federal Communications Commission is currently reviewing its regulatory
positions on the privacy protection given to data transmissions over
telecommunications networks and could seek to
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impose some form of telecommunications carrier regulation on telecommunications
functions of information services. State public utility commissions generally
have declined to regulate information services, although the public service
commissions of some states continue to review potential regulation of such
services. Future regulation or regulatory changes regarding data privacy could
have an adverse effect on our business and results of operations.
A number of proposals have been made at the federal, state and local level
that would impose additional taxes on the sale of goods and services over the
Internet and certain states have taken measures to tax Internet-related
activities. Foreign countries also may tax Internet transactions. Any such taxes
could have a material adverse effect on our business.
WE COULD FACE LIABILITY FOR MATERIAL TRANSMITTED OVER THE INTERNET BY OTHERS
Because material may be downloaded from Web sites hosted by us and
subsequently distributed to others, there is a potential that claims will be
made against us for negligence, copyright or trademark infringement or other
theories based on the nature and content of such material. Negligence and
product liability claims also potentially may be made against us due to our role
in facilitating the purchase of certain products, such as firearms. Although we
carry general liability insurance, our insurance may not cover claims of these
types, or may not be adequate to indemnify us against such liability. Any
imposition of liability, and in particular liability that is not covered by our
insurance or is in excess of our insurance coverage, could have a material
adverse effect on our reputation and our operating results, or could result in
the imposition of criminal penalties on us.
WE DO NOT CURRENTLY COLLECT SALES TAX FROM ALL TRANSACTIONS
We do not currently collect sales or other similar taxes in respect to
shipments of goods into states other than Washington and California. However,
one or more states or foreign countries may seek to impose sales tax collection
obligations on out-of-state or foreign companies engaging in e-commerce. In
addition, any new operation in states outside Washington and California could
subject shipments into such states to state or foreign sales taxes. A successful
assertion by one or more states or any foreign country that we should collect
sales or other similar taxes on the sale of merchandise could have a material
adverse effect on our business.
WE MAY REQUIRE ADDITIONAL FUNDING
Although we believe that, following this offering, our cash reserves,
including the proceeds of this offering, and cash flows from operations will be
adequate to fund our operations for at least the next twelve months, such
resources may be inadequate. Consequently, we may require additional funds
during or after such period. Additional financing may not be available on
favorable terms or at all. If we raise additional funds by selling stock, the
percentage ownership of our then current shareholders will be reduced. If we
cannot raise adequate funds to satisfy our capital requirements, we may have to
limit our operations significantly. Our future capital requirements depend upon
many factors, including, but not limited to:
- the rate at which we expand our sales and marketing operations;
- the extent to which we enhance our online marketplace and expand our
e-commerce and direct marketing solutions;
- the extent to which we develop and upgrade our technology and data network
infrastructure;
- the occurrence, timing, size and success of acquisitions;
- the rate at which we expand internationally; and
- the response of competitors to our product and service offerings.
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WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and we rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers and others to protect our
proprietary rights. Despite our precautions, unauthorized third parties might
copy certain portions of our software or reverse engineer and use information
that we regard as proprietary. We currently have four patents pending in the
United States Patent and Trademark Office covering different aspects of our
product architecture and technology. There is no assurance that any pending or
future patent applications will be granted, that any existing or future patents
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide us with a competitive advantage. The laws of some
foreign countries do not protect proprietary rights to the same extent as do the
laws of the United States, and our means of protecting our proprietary rights
abroad may not be adequate. Any misappropriation of our proprietary information
by third parties could adversely affect our business.
OUR TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Although we have not received notice of any alleged infringement by us, we
cannot be certain that our technology does not infringe issued patents or other
intellectual property rights of others. In addition, because patent applications
in the United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software. We may be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming, and could divert our management's attention
away from running our business.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We rely on proprietary as well as third-party software in the operation of
our business. Our proprietary software, as well as the third-party software on
which we rely, is used in complex network environments, including the Internet,
and directly and indirectly interacts with our customers' hardware and software
systems. Despite preliminary investigation and testing by us and our customers,
our proprietary software, the third-party software on which we rely, and the
underlying systems and protocols may contain errors or defects associated with
Year 2000 date functions. We are unable to predict to what extent our business
may be affected if such software or the systems that operate in conjunction with
the software, including the Internet, experience a material Year 2000 failure.
Known or unknown errors or defects that affect the operation of software that we
use could result in delays or losses of revenue, interruptions of Internet
communications, cancellations of contracts by our customers, diversions of our
development resources, damage to our reputation, increased service and warranty
costs and litigation costs. The occurrence of any of these events could
adversely affect our business and operating results.
Year 2000 failures of our merchant customers' internal systems may affect
their ability to purchase our products and services. If a significant number of
our current or potential future customers experience Year 2000 failures, our
business could suffer.
Because of the publicity surrounding the Year 2000 issue, consumers may
delay purchasing goods and services online in the last few months of 1999. If
this occurs, our business could suffer.
If the performance of our proprietary software is adversely affected by Year
2000 defects in hardware or software with which it interacts, our merchant
customers or their end users may mistakenly believe that such defects occurred
in our proprietary software. These customers and end users could react by
demanding extensive technical support from us or by filing suit against us,
either of which would cause a significant diversion of our management and
financial resources.
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OUR CURRENT SHAREHOLDERS WILL BE ABLE TO EXERCISE CONTROL FOLLOWING THE OFFERING
Following this offering, our current shareholders will beneficially own
approximately % of our common stock, or % if the underwriters exercise their
over-allotment option in full. As a group, these shareholders will have the
ability to:
- elect or defeat the election of our directors;
- amend or prevent amendment of our articles of incorporation or bylaws;
- effect or prevent a merger, sale of assets or other corporate transaction;
and
- control the outcome of any other matter submitted to the shareholders for
vote.
Our current shareholders' stock ownership following this offering may
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of ShopNow, which in turn could reduce our stock
price or prevent our shareholders from realizing a premium over our stock price.
PROVISIONS OF OUR CHARTER DOCUMENTS AND WASHINGTON LAW COULD DISCOURAGE OUR
ACQUISITION BY A THIRD PARTY
Certain provisions of our articles of incorporation and bylaws and
Washington law could make it more difficult for a third party to acquire
ShopNow, even if doing so would be beneficial to our shareholders.
Our articles of incorporation and bylaws provide for the establishment of a
classified board of directors, limitations on the ability of shareholders to
call special meetings, the lack of cumulative voting for directors and
procedures for advance notification of shareholder proposals.
Upon completion of this offering, our board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by our shareholders.
The issuance 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 of control of
ShopNow and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock. We have no present plans
to issue shares of preferred stock.
Washington law imposes restrictions on some transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a "target corporation," with some
exceptions, from engaging in certain significant business transactions with an
"acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the acquisition. Such
prohibited transactions include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.
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After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change in control of ShopNow.
The foregoing provisions of our charter documents and Washington law could
have the effect of making it more difficult or more expensive for a third party
to acquire, or could discourage a third party from attempting to acquire,
control of ShopNow. These provisions may therefore have the effect of limiting
the price that investors might be willing to pay in the future for our common
stock. For a more complete discussion of these provisions, see "Description of
Capital Stock."
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW WE USE THE PROCEEDS OF THIS
OFFERING
Our management has broad discretion over the use of a substantial portion of
the proceeds of this offering. Accordingly, it is possible that our management
may allocate the proceeds differently than investors in this offering would have
desired, or that we will fail to maximize our return on such proceeds.
OUR STOCK PRICE MAY BE VOLATILE
The stock market in general, and the stock prices of Internet-related
companies in particular, have recently experienced extreme volatility, which has
often been unrelated to the operating performance of any particular company or
companies. Our stock price could be subject to wide fluctuations in response to
factors such as the following:
- actual or anticipated variations in quarterly results of operations;
- the addition or loss of merchants and consumer traffic;
- announcements of technological innovations, new products or services by us
or our competitors;
- changes in financial estimates or recommendations by securities analysts;
- conditions or trends in the Internet and e-commerce and direct marketing
industries;
- changes in the market valuations of other Internet, online service or
software companies;
- our announcements of significant acquisitions, strategic relationships,
joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock;
- general market conditions; and
- other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market and
the market for Internet and technology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect price to
earnings ratios substantially above historical levels. These trading prices and
price-to earnings ratios may not be sustained.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in their stock prices. We may
in the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert our management's time and resources,
which could cause our business to suffer.
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FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, a total of shares of our common stock will be
outstanding. All the shares sold in this offering will be freely tradable. The
remaining shares of our common stock outstanding after this offering will become
available for public sale as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING AFTER
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES OFFERING
- -------------------------------------------------------------------------- ----------------- ---------------------------
<S> <C> <C>
Immediately upon completion of this offering..............................
At various times after 180 days from the date of this prospectus (subject,
in some cases, to volume limitations)................................... 17,764,091
</TABLE>
If our shareholders sell a substantial number of these shares in the public
market during a short period of time, our stock price could decline
significantly.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based on our current
expectations and projections about future events. These forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions, including those set forth under "Risk Factors."
Words such as "may," "could," "would," "expect," "anticipate," "intend,"
"plan," "believe," "estimate" and variations of such words and similar
expressions are intended to identify such forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the
shares of common stock offered by us will be approximately $ million, at an
assumed initial public offering price of $ per share, and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that our net proceeds from this offering will be $
million.
We intend to use the net proceeds from this offering primarily for working
capital and general corporate purposes. We may use an unspecified portion of the
net proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of business, we expect
to evaluate potential acquisitions of such businesses, products or technologies.
As a result, we will have broad discretion in the way we use the net proceeds.
We are required to use a portion of the net proceeds from this offering to repay
outstanding indebtedness to a commercial lender. The indebtedness to be repaid
consists of $4.0 million in principal remaining on a bridge note bearing
interest at the rate of 12% per annum. The bridge note is due upon the earlier
of November 15, 1999, or the date on which we receive more than $10.0 million in
aggregate proceeds from the issuance of debt or equity securities or the date on
which the loan and security agreement evidencing our existing line of credit and
revolving credit facility with the lender terminates. We used the proceeds from
the bridge note for working capital. In the event the holder of a $1.0 million
promissory note issued in connection with our acquisition of GO Software in June
1999 does not elect to convert the outstanding principal amount of the note into
common stock upon the closing of this offering, we are required to redeem the
note in cash.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in interest-bearing, investment-grade securities.
20
<PAGE>
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, our existing line of credit and revolving
credit facility with a commercial lender prohibits the payment of dividends.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on an
actual basis and on an as adjusted basis to give effect to the automatic
conversion of all outstanding shares of our preferred stock and the exercise and
automatic conversion of all warrants to purchase our Series C convertible
preferred stock into 13,032,657 shares of common stock upon completion of this
offering, and the sale of shares of common stock at an assumed
initial offering price of $ per share and the application of the estimated
net proceeds from the sale of those shares.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term obligations, less current portion....... $ 4,559 $
Shareholders' equity:
Convertible preferred stock; $0.01 par value;
authorized 20,000,000; 12,865,611 issued and
outstanding; none as adjusted................... 38,449 --
Common stock; $0.01 par value; 40,000,000
authorized; 4,653,206 issued and outstanding;
, as adjusted............................. 7,870
Common stock warrants............................. 1,972
Deferred compensation............................. (797)
Accumulated deficit............................... (38,895)
--------
Total shareholders' equity........................ 8,599
-------- -----------
Total capitalization.............................. $ 13,158 $
-------- -----------
-------- -----------
</TABLE>
This table excludes the following shares:
- 7,949,401 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:
- 2,504,589 shares of common stock underlying options outstanding at a
weighted average exercise price of $2.74 per share, of which 1,180,418
were exercisable as of March 31, 1999;
- 5,445,812 shares of common stock underlying options available for future
grants;
- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;
- 2,013,233 shares of common stock issuable upon exercise of stock options
outstanding outside of our stock option plan at a weighted average
exercise price of $1.51 per share, of which 771,748 were exercisable as of
March 31, 1999;
- 2,459,389 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $4.72 per share; and
- the shares of common stock that may be issued if the holder of a $1.0
million promissory note elects to convert the note into common stock upon
completion of this offering.
In June 1999, our board of directors approved an amendment to our articles
of incorporation, subject to shareholder approval, to increase the number of
authorized shares of common stock to 200,000,000 and to decrease the number of
authorized shares of convertible preferred stock to 5,000,000.
21
<PAGE>
DILUTION
If you invest in our common stock, your interest will be immediately diluted
to the extent of the difference between the public offering price per share of
our common stock and the pro forma net tangible book value per share of common
stock after this offering. Our pro forma net tangible book value as of March 31,
1999 was $6.8 million or $1.47 per share of common stock. Pro forma net tangible
book value per share is determined by dividing the difference between our total
tangible assets and total liabilities by the pro forma number of outstanding
shares of common stock. After giving effect to the receipt of the estimated net
proceeds from the sale by ShopNow of the shares of common stock that
we are offering hereby, at an assumed initial public offering price of $
per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of March 31, 1999, would have been $ or
approximately $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing shareholders and
an immediate dilution in pro forma net tangible book value of $ per share
to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $
Pro forma net tangible book value per share as of March 31, 1999......... $ 1.47
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 March 31, 1999, the differences between
the number of shares of common stock purchased from ShopNow, the total
consideration paid, and the average price per share paid by existing
shareholders and by investors purchasing shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, at an assumed initial public
offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................. % $ % $
New investors......................................
--------- ----- ---------- -----------
Total............................................ 100.0% $ 100.0%
--------- ----- ---------- -----------
--------- ----- ---------- -----------
</TABLE>
The foregoing discussion and table are based upon the number of shares of
common stock outstanding as of March 31, 1999, and gives effect to the automatic
conversion of all outstanding shares of our preferred stock and the exercise and
automatic conversion of all warrants to purchase our Series C convertible
preferred stock into shares of common stock. This calculation excludes all
shares of common stock issuable upon the exercise of our outstanding stock
options and warrants to purchase common stock, all shares of common stock
available for future grants under our stock option plan, all shares of common
stock issuable under our employee stock purchase plan and the shares of common
stock that may be issued if the holder of a $1.0 million promissory note elects
to convert the note into common stock upon completion of this offering. To the
extent any of these options or warrants are exercised, there will be further
dilution to new public investors. See "Capitalization," "Management-- Employee
Benefit Plans," "Description of Capital Stock" and Note 10 to the Consolidated
Financial Statements.
22
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following pro forma combined financial data reflects the consolidation
of our results of operations with the results of operations of Media Assets, The
Internet Mall and GO Software and the disposal of BuySoftware.com. The pro forma
combined statements of operations data have been prepared as if each of these
acquisitions had been made on January 1, 1998 and BuySoftware.com had been sold
on January 1, 1998. The pro forma consolidated balance sheet data have been
prepared as if each of the acquisitions had been made on March 31, 1999 and
BuySoftware.com had been disposed of on March 31, 1999. The pro forma financial
data is presented for informational purposes only and may not be indicative of
the results of operations had the acquisitions occurred on March 31, 1999 for
balance sheet purposes or January 1, 1998 for statements of operations purposes.
You should not rely on the pro forma financial data as being indicative of our
future results of operations. You should read the following pro forma financial
data in conjunction with the Unaudited Pro Forma Combined Financial Information
and the Consolidated Financial Statements and related Notes appearing elsewhere
in this prospectus. We believe that all adjustments necessary to present fairly
such pro forma financial data have been made.
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------------
PRO FORMA PRO FORMA
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising.............................................. $ 1,801 $ 781
Merchant services........................................................... 7,246 1,729
------------ -------
Total revenues............................................................ 9,047 2,510
Cost of revenues:
Transactions and merchandising.............................................. 391 319
Merchant services........................................................... 4,271 952
------------ -------
Total cost of revenues.................................................... 4,662 1,271
------------ -------
Gross profit............................................................ 4,385 1,239
------------ -------
Operating expenses:
Sales and marketing......................................................... 10,017 4,612
General and administrative.................................................. 4,542 1,650
Research and development.................................................... 2,939 1,135
Amortization of intangible assets........................................... 5,568 1,780
Unusual item--write-off of acquired technology.............................. 5,207 --
------------ -------
Total operating expenses.................................................. 28,273 9,177
------------ -------
Loss from operations.................................................... (23,888) (7,938)
Other income (expense), net................................................... 91 (3)
------------ -------
Net loss................................................................ $ (23,797) $ (7,941)
------------ -------
------------ -------
Basic and diluted pro forma net loss per share(1)............................. $ (1.59) $ (0.43)
------------ -------
------------ -------
Weighted average shares outstanding used in computing basic and diluted pro
forma net loss per share.................................................... 14,959 18,409
------------ -------
------------ -------
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
--------------------------------
MARCH 31, 1999
--------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------------- ---------------
<S> <C> <C>
(IN THOUSANDS)
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments................................................ $ 2,386 $
Working capital................................................................ (814)
Total assets................................................................... 32,818
Total liabilities.............................................................. 14,299
Total shareholders' equity..................................................... 18,519
</TABLE>
- ------------------------------
(1) See Note 2(g) to the Unaudited Pro Forma Combined Financial Information for
a description of the method used to compute basic and diluted pro forma net
loss per share.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statements of operations data for the years ended December 31, 1996,
1997, and 1998 are derived from our audited consolidated financial statements
appearing elsewhere in this prospectus. The statements of operations data for
the period from January 20, 1994 (inception) to December 31, 1994 and for the
year ended December 31, 1995 are derived from audited consolidated financial
statements not included in this prospectus. The selected consolidated financial
data as of March 31, 1999 is derived from unaudited consolidated financial
statements appearing elsewhere in this prospectus. We believe that such
unaudited data reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial data for such
period. The as adjusted balance sheet data give effect to the sale of the
shares of common stock that we are offering under this prospectus at an assumed
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated expenses payable by us. We
believe that due to the acquisitions in 1998 and the first quarter of 1999,
period-to-period comparisons are not meaningful, and you should not rely on them
as indicative of our future performance. You should read the following selected
consolidated financial data in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related Notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 20,
1994
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------
1994 1995 1996 1997
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising................................... $ -- $ -- $ -- $ 69
Merchant services................................................ 279 727 993 535
-------------- ----------- ----------- -----------
Total revenues................................................. 279 727 993 604
-------------- ----------- ----------- -----------
Cost of revenues:
Transactions and merchandising................................... -- -- -- 159
Merchant services................................................ 127 323 430 356
-------------- ----------- ----------- -----------
Total cost of revenues......................................... 127 323 430 515
-------------- ----------- ----------- -----------
Gross profit................................................. 152 404 563 89
-------------- ----------- ----------- -----------
Operating expenses:
Sales and marketing.............................................. 116 163 610 1,201
General and administrative....................................... 216 347 656 918
Research and development......................................... -- -- 25 2,436
Amortization of intangible assets................................ -- -- 32 136
Unusual item--write-off of acquired technology................... -- -- -- --
-------------- ----------- ----------- -----------
Total operating expenses....................................... 332 510 1,323 4,691
-------------- ----------- ----------- -----------
Loss from operations......................................... (180) (106) (760) (4,602)
Other income (expense), net........................................ (1) (7) (50) (164)
-------------- ----------- ----------- -----------
Net loss..................................................... $ (181) $ (113) $ (810) $ (4,766)
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
Basic and diluted pro forma net loss per share(1).................. $ (0.11) $ (0.06) $ (0.40) $ (0.90)
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
Weighted average shares outstanding used in computing basic and
diluted pro forma net loss per share............................. 1,608 1,779 2,012 5,292
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
--------------
THREE MONTHS
ENDED
MARCH 31,
1998 1999
------------ --------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising................................... $ 4,211 $ 5,728
Merchant services................................................ 2,943 1,840
------------ --------------
Total revenues................................................. 7,154 7,568
------------ --------------
Cost of revenues:
Transactions and merchandising................................... 4,285 6,171
Merchant services................................................ 1,564 969
------------ --------------
Total cost of revenues......................................... 5,849 7,140
------------ --------------
Gross profit................................................. 1,305 428
------------ --------------
Operating expenses:
Sales and marketing.............................................. 12,182 5,263
General and administrative....................................... 3,732 1,450
Research and development......................................... 4,370 1,452
Amortization of intangible assets................................ 730 558
Unusual item--write-off of acquired technology................... 5,207 --
------------ --------------
Total operating expenses....................................... 26,221 8,723
------------ --------------
Loss from operations......................................... (24,916) (8,295)
Other income (expense), net........................................ 171 15
------------ --------------
Net loss..................................................... $ (24,745) $ (8,280)
------------ --------------
------------ --------------
Basic and diluted pro forma net loss per share(1).................. $ (1.92) $ (0.48)
------------ --------------
------------ --------------
Weighted average shares outstanding used in computing basic and
diluted pro forma net loss per share............................. 12,858 17,169
------------ --------------
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
--------------------------------------
MARCH 31, 1999
--------------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments................................................ $ 6,373 $
Working capital................................................................ 2,647
Total assets................................................................... 21,761
Total liabilities.............................................................. 13,162
Total shareholders' equity..................................................... 8,599
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999 MAY 31, 1999
------------------- -------------- ------------
<S> <C> <C> <C>
OTHER DATA:
Number of MyShopNow personal stores........................... 149,359 1,312,898 1,500,000
Number of merchants on the ShopNow Network.................... 13,281 18,703 29,762
Monthly visits to the ShopNow Network......................... 250,447 1,570,976 2,100,000
</TABLE>
- ------------------------------
(1) See Note 1 to the Consolidated Financial Statements for a description of the
method used to compute basic and diluted pro forma net loss per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR SELECTED CONSOLIDATED FINANCIAL DATA, OUR SELECTED PRO FORMA COMBINED
FINANCIAL DATA, OUR UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE SECTION ENTITLED "RISK
FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. SEE "FORWARD-LOOKING
STATEMENTS."
OVERVIEW
ShopNow provides shoppers and merchants with a dynamic online marketplace
and a broad array of effective e-commerce and direct marketing solutions. The
ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the individual Web sites of our merchant customers.
ShopNow.com aggregates more than 1 million products and services at one Web site
that can be rapidly and efficiently searched by category, merchant or product.
The number of merchants listed on ShopNow.com has grown from approximately
13,000 in December 1998 to more than 29,000 in May 1999. MyShopNow.com enables
shoppers to create personalized online stores by selecting the types of products
and services offered to them. Since August 1998, more than 1.3 million MyShopNow
personal stores have been created. In May 1999, the ShopNow Network attracted
more than 2 million visits. We believe that our online marketplace focused
principally on shopping will continue to attract an increasing number of
Internet users who are interested in purchasing products and services on the
Web. As the number of shoppers on the ShopNow Network increases, we believe that
we will attract additional merchant customers by providing them with the
opportunity to increase online transaction volume. We derive revenues from
transactions and merchandising on the ShopNow Network, and from sales of our
e-commerce and direct marketing services to merchants.
ShopNow was incorporated in January 1994 and initially operated as a
computer services company. In 1996, we changed the focus of our business to
providing e-commerce and direct marketing solutions. In August 1998, we launched
ShopNow.com, our shopping destination Web site. In April 1999, we changed our
name from TechWave Inc. to ShopNow.com Inc.
As part of the evolution of our business we have conducted a series of
acquisitions. In January 1997, we acquired Web Solutions and Intelligent
Software Solutions. These companies had core transaction processing technologies
that we incorporated into our e-commerce products and service offerings. In
order to accelerate expansion of our online marketplace and e-commerce and
direct marketing services, we acquired The Internet Mall in August 1998 and
Media Assets in September 1998. The Internet Mall operated a shopping
aggregation Web site and provided us with technology and merchant relationships
to assist in the development of our online marketplace. The acquisition of Media
Assets, a direct marketing company, provided us with direct marketing expertise
enabling us to offer expanded direct marketing and e-commerce services to our
merchant customers. In June 1998, we acquired e-Warehouse and CyberTrust,
providers of payment processing technology. The technology that we acquired in
these acquisitions is not currently being used by us, and we have determined
that it has no alternative future use or value to us. As a result, we have
written off substantially all of the $5.4 million aggregate purchase price for
the e-Warehouse and CyberTrust acquisitions. In June 1999, we completed the
acquisitions of GO Software and CardSecure. GO Software is a provider of
e-commerce payment processing technology and has existing relationships with
more than 10,000 online
25
<PAGE>
merchants. CardSecure, a former subsidiary of 24/7 Media, is a developer of
e-commerce-enabled Web sites and will enhance the e-commerce technologies and
services that we offer.
In May 1997, we launched BuySoftware.com, an online computer products store.
During 1998 and the first quarter of 1999, we derived the majority of our
revenues from retail sales of computer products through BuySoftware.com. In June
1999, we decided to dispose of the BuySoftware.com business because we believe
that the low-margin, highly competitive online retail market for computer
products, as well as the operation of an online retail store, would hinder the
expansion of the ShopNow Network and the execution of our overall strategy.
Because our business has changed significantly due to the acquisitions and
disposition discussed previously, we have included certain pro forma information
in this prospectus as if we had consummated the acquisitions of Media Assets,
The Internet Mall and GO Software and the disposal of the BuySoftware.com
business at the beginning of 1998. We believe that the pro forma information
provides a better reflection of our existing business than the historical data
provided elsewhere in this prospectus.
We enter into strategic relationships to expand our product and service
offerings, attract additional visitors to the ShopNow Network, increase the
number of MyShopNow personal stores, enhance our technology, and establish
additional sources of revenue. To date, we have entered into strategic
relationships with a number of companies, including the ZERON Group, 24/7 Media,
Qwest Communications and HNC Software, among others.
In March 1999, the ZERON Group made a $3.0 million equity investment in
ShopNow, and in April 1999, made an additional $2.0 million equity investment.
The ZERON Group is assisting us in establishing alliances with major companies
in Japan as we develop an international presence in that region. We believe that
Japan offers tremendous growth opportunities for us and allows us the
opportunity to aggressively move into other markets in Asia and throughout the
world.
In April 1999, 24/7 Media made a $30.1 million equity investment in ShopNow
and entered into a cross promotion agreement with us. Under the agreement, 24/7
Media promotes our e-commerce and direct marketing services to its networks of
over 2,500 affiliated Web sites in exchange for our agreement to promote 24/7
Media's advertising, representation and e-mail management services to our
merchant customers. This agreement positions ShopNow as 24/7 Media's exclusive
e-commerce service provider and entitles each party to share in the revenues of
the other party based on the amount of business generated through this
relationship. We also co-brand 24/7 Media's Click2Buy transactional banner
service with the ShopNow name and receive fees for processing all Click2Buy
transactions.
In April 1999, we entered into a distribution and marketing agreement with
Qwest Communications, a leading telecommunications provider. Our agreement with
Qwest permits us to offer Qwest's communications services to shoppers on the
ShopNow Network. Qwest will provide us with marketing development funds over the
next two years.
In May 1999, HNC Software made a $3.0 million equity investment in ShopNow.
In addition, HNC will provide us with a number of e-commerce products at
preferential prices that we can offer to our merchant customers. These services
include targeted marketing, fraud detection and customer support software.
Integration of these products with our technology platform will allow us to
provide our merchant customers with better tools to manage their customer
relationships.
We generate revenues primarily from transactions, merchandising and merchant
services. Revenues from transactions are generated from purchases of products
and services. Merchandising revenues are generated from advertising and
merchandising conducted by merchants on ShopNow.com and MyShopNow.com. Revenues
are recognized when the product has been shipped or the service has been
delivered to the customer. We bear the full credit risk with respect to these
sales. Transactional fees paid by merchants are generally recognized at the time
of sale of a product or service using our
26
<PAGE>
transaction processing system. In these transactions, the merchant bears the
full credit risk, and we recognize a transaction fee upon consummation of the
sale. Merchandising revenues are recognized ratably over the term of the
applicable agreement. Merchandising agreements typically run for a period of one
to four months, except for listing agreements which may run for up to twelve
months. Revenues from merchant services are generally recognized on a percentage
of completion basis.
Cost of transactions and merchandising revenues includes the cost to us of
all products and services we sell through MyShopNow.com; the cost of processing
MyShopNow.com transactions, including bank credit card fees and shipping costs;
the portion of the cost of our Internet telecommunications connections that is
directly attributable to our Web traffic; the direct labor costs incurred in
maintaining and enhancing our network infrastructure; and purchases of Internet
traffic from third parties to fulfill merchandising agreements with merchants.
Cost of merchant services revenues includes all direct labor costs incurred in
connection with these services, as well as fees charged by third-party vendors
that have directly contributed to the design, development and implementation of
our merchant services. Sales and marketing expenses consist primarily of
salaries and commissions, and costs associated with marketing programs such as
advertising and public relations. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resources, information services and other administrative
personnel, as well as legal, accounting and insurance costs. Research and
development expenses consist primarily of salaries and related costs associated
with the development of new products and services, the enhancement of existing
products and services, and the performance of quality assurance and
documentation activities. Amortization of intangible assets resulting from
acquisitions is primarily related to the amortization of customer lists, domain
names, acquired technology and goodwill. Our write-off of acquired technology
relates to our determination that the technology acquired in the e-Warehouse and
CyberTrust acquisitions has no future use or value to us.
The growth in revenues from our current operations is attributable to
increasing amounts of transactions and merchandising revenues, as well as
increased revenues from merchant services. We anticipate that transactions and
merchandising revenues will increase at a faster rate than revenues from
merchant services. Although we have experienced growth in revenues from our
current operations, the number of MyShopNow personal stores, visitors to
ShopNow.com and the number of merchants on the ShopNow Network, these historical
growth rates are not sustainable and are not indicative of future growth rates
that we may achieve. We believe that period-to-period comparisons of our
operating results are not meaningful and that you should not rely on the
performance of any period as an indication of future performance.
We incurred net losses of $810,000 for the year ended December 31, 1996,
$4.8 million for the year ended December 31, 1997 and $24.7 million for the year
ended December 31, 1998. We also incurred net losses of $8.3 million for the
three months ended March 31, 1999, and had an accumulated deficit of $38.9
million as of March 31, 1999. We expect operating losses and negative cash flow
to continue for the foreseeable future. We anticipate our losses will increase
significantly from current levels as we expect to incur additional costs and
expenses related to brand development, marketing and other promotional
activities; deferred compensation expense; amortization of intangibles resulting
from acquisitions; the expansion of our operations; the continued development of
the ShopNow Network; increasing investment in the systems that we use to process
customers' orders and payments; the expansion of our product and service
offerings; and development of strategic relationships.
27
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
REVENUES. Revenues for the three-month period ended March 31, 1999 were
$7.6 million compared to $399,000 for the three-month period ended March 31,
1998, an increase of $7.2 million. The increase in our transactions and
merchandising revenues was due primarily to increased product sales from the
BuySoftware.com business. The disposal of this business will initially result in
a significant decrease in our transactions and merchandising revenues. The
increase in our merchant services revenues was due primarily to revenues
generated from Media Assets, which was acquired in September 1998.
COST OF REVENUES. The cost of revenues for the three-month period ended
March 31, 1999 was $7.1 million compared to $431,000 for the three-month period
ended March 31, 1998, an increase of $6.7 million. The increase in our
transactions and merchandising cost of revenues was due primarily to increased
product sales from the BuySoftware.com business. The disposal of this business
will initially result in a significant decrease in our cost of transactions and
merchandising revenues. The increase in our merchant services cost of revenues
was due primarily to cost of revenues incurred by Media Assets subsequent to the
acquisition.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the
three-month period ended March 31, 1999 were $5.3 million, or 69.5% of revenues,
compared to $1.3 million, or 337.1% of revenues, for the three-month period
ended March 31, 1998, an increase of $4.0 million. The increase was due
primarily to increased spending as a result of our launch and expansion of the
ShopNow Network in 1998. We expect to increase our sales and marketing expenses
in 1999 through both online and traditional advertising to promote the ShopNow
Network.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three-month period ended March 31, 1999 were $1.4 million, or 19.2% of
revenues, compared to $509,000, or 127.6% of revenues, for the three-month
period ended March 31, 1998 an increase of $941,000. The increase was due
primarily to an increase in personnel from internal growth and acquisitions. We
anticipate continued growth in our general and administrative expenses in 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the three-month period ended March 31, 1999 were $1.4 million, or 19.2% of
revenues, compared to $459,000, or 115.0% of revenues, for the three-month
period ended March 31, 1998, an increase of $993,000. The increase was due
primarily to the development and enhancement of our technology platform by our
technology personnel. These employees focus on developing our technology
platform as well as building the overall infrastructure that supports the
ShopNow Network. We anticipate continued growth in our research and development
expenses in 1999.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense for the three-month
period ended March 31, 1999 was $558,000, or 7.4% of revenues, compared to
$57,000, or 14.3% of revenues, for the same period ended March 31, 1998, an
increase of $501,000. The increase was due primarily to the increase in our
intangible assets and related amortization expenses from business acquisitions
completed during the second half of 1998, including Media Assets and The
Internet Mall.
OTHER INCOME (EXPENSE), NET. Other income, net for the three-month period
ended March 31, 1999 was $15,000, compared to $12,000 for the three-month period
ended March 31, 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenues for the year ended December 31, 1998 were $7.2 million
compared to $604,000 for the year ended December 31, 1997, an increase of $6.6
million. The increase in our
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transactions and merchandising revenues was due primarily to increased product
sales from the BuySoftware.com business. The increase in our merchant services
revenues was due primarily to revenues generated from Media Assets, which was
acquired in September 1998. Revenues in 1997 were generated from our previous
business of providing computer services to clients, which was completely phased
out in early 1998.
COST OF REVENUES. The cost of revenues for the year ended December 31, 1998
were $5.8 million compared to $515,000 for the year ended December 31, 1997, an
increase of $5.3 million. The increase in our transactions and merchandising
cost of revenues was due primarily to increased product sales from the
BuySoftware.com business. The increase in our merchant services cost of revenues
was due primarily to cost of revenues incurred by Media Assets subsequent to
acquisition. Cost of revenues for 1997 were comprised solely of direct labor and
related costs to provide computer services to clients.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the year
ended December 31, 1998 were $12.2 million, or 170.3% of revenues, compared to
$1.2 million, or 198.8% of revenues, for the year ended December 31, 1997, an
increase of $11.0 million. The increase was due primarily to increased spending
as a result of the development and expansion of the ShopNow Network.
Substantially all of the selling expenses incurred in 1997 were in support of
our previous computer services business, which was completely phased out in
early 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1998 were $3.7 million, or 52.2% of revenues,
compared to $918,000, or 152.0% of revenues, for the year ended December 31,
1997, an increase of $2.8 million. The increase was due primarily to an increase
in personnel from internal growth and acquisitions.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the year ended December 31, 1998 were $4.4 million, or 61.1% of revenues,
compared to $2.4 million, or 403.3% of revenues, for the year ended December 31,
1997, an increase of $2.0 million. The increase was due primarily to the
development of our technology platform as well as building the overall
infrastructure that supports the ShopNow Network.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense for the year ended
December 31, 1998 was $730,000, or 10.2% of revenues, compared to $136,000, or
22.5% of revenues, for the year ended December 31, 1997, an increase of
$594,000. The increase was due primarily to the acquisitions we entered into
during the second half of 1998, including Media Assets and The Internet Mall,
resulting in an increase in amortization expense from the intangible assets
recorded from these transactions.
UNUSUAL ITEM--WRITE-OFF OF ACQUIRED TECHNOLOGY. In June 1998, we acquired
e-Warehouse and CyberTrust with the intent of integrating the acquired
technologies with our own e-commerce product offerings. The amount we paid for
these acquisitions was $5.4 million. We are presently not utilizing the acquired
technologies and have determined that they have no alternative future use or
value to us as our technology platform provides superior functionality. As a
result, we wrote-off substantially all of the purchase price during the fourth
quarter of 1998.
OTHER INCOME (EXPENSE), NET. Other income, net for the year ended December
31, 1998 was $171,000, compared to $164,000 for the year ended December 31,
1997, an increase of $335,000. The increase was due primarily to increased
interest income earned by our increased cash reserves as a result of our
financing activities during 1998 as compared to 1997.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenues for the year ended December 31, 1997 were $604,000
compared to $993,000 for the year ended December 31, 1996, a decrease of
$389,000. The decrease was due primarily to the
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phase out of our computer services business that began in late 1997. During most
of 1997 and all of 1996, our revenues were derived almost entirely from
providing computer services to businesses.
COST OF REVENUES. The cost of revenues for the year ended December 31, 1997
were $515,000 compared to $430,000 for the year ended December 31, 1996, an
increase of $85,000. The increase was due primarily to the increase in costs
related to expansion of our e-commerce and direct marketing businesses. The
increase was partially offset by the phase out of our computer services business
that began in late 1997, which initially incurred higher cost of revenues as the
business was being developed. Cost of revenues for most of 1997 and all of 1996
resulted from direct labor and other costs incurred in delivering our previous
business of providing computer services to clients.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the year
ended December 31, 1997 were $1.2 million, or 198.8% of revenues, compared to
$610,000, or 61.4% of revenues, for the year ended December 31, 1996, an
increase of $591,000. The increase was due primarily to increased spending as a
result of development and expansion of our e-commerce and direct marketing
business. Substantially all of the selling expenses incurred earlier in 1997 and
in 1996 were in support of our previous computer services business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1997 were $918,000, or 152.0% of revenues,
compared to $656,000, or 66.1% of revenues, for the year ended December 31,
1996, an increase of $262,000. The increase was due primarily to an increase in
employees to support our growth and transition to an e-commerce and direct
marketing business.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the year ended December 31, 1997 were $2.4 million, or 403.3% of revenues,
compared to $25,000, or 2.5% of revenues, for the year ended December 31, 1996,
an increase of $2.4 million. The increase was due primarily to the development
of our technology platform, which began in 1997 to support our growth and
transition to an e-commerce and direct marketing business.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense for the year ended
December 31, 1997 was $136,000, or 22.5% of revenues, compared to $32,000, or
3.2% of revenues, for the year ended December 31, 1996, an increase of $104,000.
The increase was due primarily to various acquisitions of Web domain names
during 1997, resulting in an increase in amortization expense from the
intangible assets recorded from these transactions.
OTHER (INCOME) EXPENSE, NET. Other expense, net for the year ended December
31, 1997 was $164,000 compared to $50,000 for the year ended December 31, 1996,
an increase of $114,000. The increase was due primarily to increased interest
expense from our various financing activities by means of notes payable and
lines of credit with commercial banks.
NET OPERATING LOSS CARRYFORWARDS
As of March 31, 1999, we had net operating loss carryforwards of
approximately $22.1 million. If not used, the net operating loss carryforwards
will expire at various dates beginning in 2012. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net operating losses and
tax credits in the event of an "ownership change" of a corporation. Our ability
to utilize net operating loss carryforwards on an annual basis will be limited
as a result of "ownership changes" in connection with the sale of equity
securities. We have provided a full valuation allowance on our deferred tax
assets because of the uncertainty regarding their realization. Our accounting
for deferred taxes involves the evaluation of a number of factors concerning the
realizability of our deferred tax assets. In concluding that a full valuation
allowance was required, management considered such factors as our history of
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operating losses, potential future losses and the nature of our deferred tax
assets. See Note 8 to the Consolidated Financial Statements appearing elsewhere
in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have experienced net losses and negative cash flows from
operations, and as of March 31, 1999 had accumulated deficits of $38.9 million.
We have financed these activities largely through issuances of common stock and
preferred stock, from the issuance of short- and long-term obligations and from
capital leasing transactions for certain of our fixed asset purchases. The net
proceeds from issuing equity and debt securities totaled approximately $38.6
million and $12.1 million, respectively, through March 31, 1999. Since March 31,
1999, we have raised an additional $10.0 million in cash from the sale of
preferred stock and $5.8 million from the issuance of debt obligations. As of
March 31, 1999, we had $6.3 million in cash and short-term investments.
Net cash used in operating activities was $8.2 million for the three-month
period ended March 31, 1999, compared to net cash used in operating activities
of $3.3 million for the same three-month period ended 1998. The increase was due
primarily to the increase in our net loss for the three-month period ended March
31, 1999, of $8.3 million compared to $2.4 million for the same three-month
period ended 1998.
Net cash used in investing activities was $3.8 million for the three-month
period ended March 31, 1999, compared to net cash used in investing activities
of $961,000 for the same three-month period ended 1998. The increase was due
primarily to the increase in purchases of property and equipment and short-term
investments of $1.6 million and $2.0 million, respectively, for the three-month
period ended March 31, 1999, compared to $366,000 and $500,000, respectively,
for the same three-month period ended 1998.
Net cash provided by financing activities was $6.4 million for the
three-month period ended March 31, 1999, compared to net cash used in investing
activities of $17.6 million for the three-month period ended March 31, 1998. The
decrease was due primarily to the decrease in the amount of net proceeds from
issuances of preferred stock, which were $3.4 million during the three-month
period ended March 31, 1999, compared to $17.6 million during the same
three-month period ended 1998, offset by $3.5 million of long-term debt proceeds
raised during the three-month period ended March 31, 1999, compared to no debt
proceeds raised during the same three-month period ended 1998.
Our capital requirements depend on numerous factors, including the rate of
expansion of the ShopNow Network, the investment we make in our technology
platform, the number of acquisitions, if any, that are completed and the
composition of the consideration between cash and stock for those acquisitions
and the resources we devote to expansion of our sales, marketing and branding
programs. We currently believe that the net proceeds from this offering,
together with our current cash, cash equivalents and marketable securities will
be sufficient to meet our anticipated cash needs for working capital, capital
expenditures and business expansion for at least the next 12 months. Thereafter,
we may seek to sell additional equity or debt securities or obtain additional
debt financing if we determine additional cash should be obtained. The sale of
additional equity or convertible debt securities could result in additional
dilution to our shareholders. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, or even available at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." Statement of Position 98-1 is effective
for financial statements for years beginning after December 15, 1998. Statement
of Position 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of
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such costs. We do not expect the adoption of this standard to have a material
effect on our financial condition or operating results.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES."
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As we have expensed these costs
historically, the adoption of this standard is not expected to have a material
effect on our financial condition or operating results.
SEASONALITY
We believe that retail transactions and advertising sales in traditional
media, such as television and radio, generally are lower in the first and third
calendar quarters of each year. In addition, Internet usage typically declines
during the summer and certain holiday periods. If our market makes the
transition from an emerging to a more developed market, seasonal and cyclical
patterns may develop in our industry and in the usage of, and transactions on,
our Web sites and those of our merchant customers. Seasonal and cyclical
patterns in online transactions and advertising would affect our revenues. Those
patterns may also develop on our Web sites. Given the early stage of the
development of the Internet and our company, however, we cannot predict to what
extent, if at all, our operations will prove to be seasonal.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
OVERVIEW. Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may not be
able to distinguish whether "00" means 1900 or 2000. This may result in system
failures, delays or miscalculations.
STATE OF READINESS. We rely on proprietary, as well as third party,
software in the operation of our business. Year 2000 testing of our proprietary
software is part of our on-going, internal quality assurance testing. Based on
our preliminary testing, we have not detected any Year 2000 issues regarding our
proprietary software. For our third-party software, we have obtained Year 2000
compliance certificates from our primary external software licensors.
COSTS. We have not incurred significant costs to date complying with Year
2000 requirements, and we do not believe that we will incur significant costs
for such purposes in the foreseeable future. If we discover any Year 2000 errors
or defects in our internal systems, we could incur substantial costs in making
repairs. The resulting disruption of our operations could seriously damage our
business.
WORST-CASE SCENARIO. We believe that our worst-case scenario would involve
an unanticipated defect in one or more of our critical hardware or software
systems or those of a critical outsourcing or business partner, resulting in an
inability to maintain and operate our Web sites or process transactions
generated by our Web sites. Such a defect would interrupt our business and
expose us to contract and other claims against us by our customers, merchants
and business affiliates.
RISKS. We are not currently aware of any internal Year 2000 compliance
problem that could reasonably be expected to have a material adverse effect on
our business, results of operations or financial condition, without taking into
account our Year 2000 remediation efforts. However, we may discover
unanticipated Year 2000 compliance problems in our computer infrastructure that
will require substantial revisions or replacements. In addition, third-party
software, hardware, or services incorporated into our material systems or other
systems upon which we rely may need to be revised or replaced, which could be
time consuming and expensive.
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The computer systems of governmental agencies, utility companies, Internet
access companies, third-party service providers, and others outside of our
control may not be Year 2000 compliant. The failure by such entities to be Year
2000 compliant could result in a systemic failure beyond our control, such as
prolonged Internet, telecommunications, or electrical failures. This could
prevent shoppers and merchants from accessing our systems, which could harm our
business, results of operations, and financial condition. In addition, the
computer systems of the merchants who are part of the ShopNow Network may not be
Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could prevent shoppers from consummating transactions through the ShopNow
Network, which could harm our business, results of operations and financial
condition.
CONTINGENCY PLAN. Because we regularly deploy new software, we believe that
we must regularly test our software and other systems for Year 2000 problems. To
conduct this testing, we have assembled a Year 2000 compliance team, headed by
personnel from our quality assurance department. The compliance team has begun a
phased approach to attempt to mitigate the possible effects of Year 2000 issues.
As part of this initiative, the compliance team periodically implements code
reviews to attempt to identify and isolate Year 2000 issues. Beginning in
September 1999, we will conduct monthly Year 2000 testing by physically setting
the date forward on our computer systems to the year 2000. On December 31, 1999,
we plan to have personnel monitor our systems and software for Year 2000 issues,
which our compliance team will then address.
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BUSINESS
OVERVIEW
ShopNow provides shoppers and merchants with a dynamic online marketplace
and a broad array of effective e-commerce and direct marketing solutions. The
ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the individual Web sites of our merchant customers.
ShopNow.com aggregates more than 1 million products and services from more than
29,000 merchants at one Web site that can be rapidly and efficiently searched by
category, merchant or product. MyShopNow.com enables shoppers to create
personalized online stores by selecting the types of products and services
offered to them. Since August 1998, more than 1.3 million MyShopNow personal
stores have been created. In May 1999, the ShopNow Network attracted more than 2
million visits. We believe that our online marketplace focused principally on
shopping will continue to attract an increasing number of Internet users who are
interested in purchasing products and services on the Web. As the number of
shoppers on the ShopNow Network increases, we believe that we will attract
additional merchant customers by providing them with the opportunity to increase
online transaction volume. We derive revenues from transactions and
merchandising on the ShopNow Network, and from sales of our e-commerce and
direct marketing services to merchants.
Our e-commerce services enable merchants to develop and maintain advanced
e-commerce capabilities to efficiently process transactions. These modular
solutions permit merchants to select only those technologies and services that
they need. Our e-commerce services range from a listing on ShopNow.com to the
design, creation and maintenance of an online store complete with back-end
support services, such as payment and order processing, fraud prevention and
fulfillment. Our direct marketing services enable merchants to promote their
brands, products, services and e-commerce capabilities through traditional and
online direct marketing methods. These solutions provide merchants with the
opportunity to lower customer acquisition and retention costs and increase
revenues. We intend to increase our use of the demographic and shopper interest
data that we collect to provide more focused direct marketing services.
INDUSTRY BACKGROUND
RAPID GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has grown in less than a decade from a limited research tool
into a global network consisting of millions of computers and users. The
Internet is an increasingly significant medium for communication, information
and commerce. International Data Corporation, or IDC, estimates that at the end
of 1998 there were over 51 million Web users in the United States and over 97
million Web users worldwide and that by the end of 2002 the number of Web users
will increase to over 135 million in the United States and to over 319 million
worldwide.
The rapid growth of the Internet has given both shoppers and merchants the
opportunity to conduct an increasing amount of commerce online. We believe that
online shopping offers numerous advantages to both shoppers and merchants.
Shoppers receive increased selection, access to competitive prices, and the
convenience of being able to shop on the Web at any time from a single location.
The Internet enables merchants to reach a global audience and operate with
limited infrastructure, reduced overhead and greater economies of scale. By
facilitating access to information, the Internet enables merchants to give
shoppers more detailed product information while affording merchants the
opportunity to obtain detailed information about the shoppers purchasing their
products. These advantages are resulting in a dramatic increase in the amount of
commerce conducted over the Internet and the number of merchants advertising and
selling goods and services online. According to IDC, worldwide transactions on
the Internet are expected to increase from approximately $32 billion in 1998 to
approximately $426 billion in 2002, with the number of users that have bought
products and
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services online rising from approximately 28 million to approximately 128
million worldwide during the same period.
CHALLENGES FACING ONLINE SHOPPERS
The advantages of online shopping over traditional shopping and the popular
acceptance of early online merchants are making an online presence essential for
many traditional merchants. As a result, there has been rapid growth in the
number of e-commerce opportunities. This rapid growth is creating a number of
challenges for shoppers as they seek to realize the potential benefits of
shopping online.
PROLIFERATION OF BUYING OPPORTUNITIES. The rapid growth of e-commerce is
inundating shoppers with new buying opportunities. The relatively modest cost of
setting up a Web site enables merchants of all types, including traditional and
online retailers, manufacturers, catalog companies and individual sellers, to
offer their products directly to online shoppers. As these merchants attempt to
create online visibility, shoppers are being exposed to an increasing number of
Web site addresses and buying opportunities through both online and traditional
marketing methods. The confusion caused by these marketing efforts, the number
of new merchants and the limited e-commerce experience of many shoppers often
makes it difficult for shoppers to screen the available information and locate
the online merchants best suited to their needs.
ABSENCE OF AN ONLINE MARKETPLACE. Shoppers have few solutions to help them
efficiently evaluate the large number of merchants and products marketed on the
Internet. The traditional Internet search engines provided by portal Web sites
such as Yahoo! and Lycos do not cater principally to online shoppers and often
generate hundreds of irrelevant search results because they search based on
content, regardless of whether the content is e-commerce related. As a result,
unless a shopper knows a merchant's specific Web site address, the shopper may
have difficulty locating a specific product or service on the Internet. In
addition, these portal sites limit the space available for shopping-related
advertising and direct marketing promotions that bring appealing e-commerce
opportunities to shoppers' attention. As a result, shoppers need an online
marketplace that focuses on e-commerce and helps shoppers efficiently evaluate
merchants and products marketed on the Internet.
IMPEDIMENTS TO ONLINE TRANSACTIONS. Despite the recent growth in
e-commerce, many shoppers have limited experience buying goods and services over
the Internet. Many Web sites lack user-friendly e-commerce interfaces, which can
frustrate or deter shoppers from making online purchases. The lack of uniformity
in Web site design also hinders the efficiency of online shopping. Many shoppers
lack the technical expertise necessary to determine whether the online security
measures that a merchant employs are satisfactory. Consequently, shoppers may be
reluctant to transact business online due to concerns that they will not receive
their merchandise or that their confidential information will be obtained by an
unauthorized person.
CHALLENGES FACING ONLINE MERCHANTS
Merchants increasingly are determining that they need an online presence to
take advantage of the rapid growth and benefits of e-commerce. The emergence of
e-commerce as a viable means for transacting business represents a paradigm
shift for merchants who can now offer their products twenty-four hours a day to
shoppers anywhere in the world with limited infrastructure. Despite the rapid
growth in e-commerce, many merchants are facing a number of challenges in
attempting to capitalize on the opportunities presented by conducting business
on the Internet.
RESOURCES REQUIRED TO IMPLEMENT AN EFFECTIVE E-COMMERCE
CAPABILITY. Merchants of all sizes must invest a significant amount of capital
and technical resources to develop and maintain an effective e-commerce
capability, which typically includes multiple components such as transaction
processing, online security measures and fulfillment. To maximize effectiveness,
these components must be
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seamlessly integrated through the use of appropriate technology and implemented
in a timely manner. In addition, the rapidly evolving nature of e-commerce
technology necessitates timely upgrades and significant continuing investment in
highly-skilled technical personnel in order to maintain an advanced e-commerce
solution. Merchants who choose to develop and maintain an e-commerce capability
internally typically must divert valuable technical personnel away from other
important tasks. Even those merchants who decide to outsource the development
and maintenance of their e-commerce capability through multiple vendors
typically must devote significant technical expertise to integrate the various
components and interact with the vendors.
VISIBILITY TO SHOPPERS. Due to the growing importance of e-commerce,
merchants need an effective means to communicate with a targeted online audience
for their products and services in a manner that maximizes their brand
recognition. Even traditional merchants with established brands need to create
visibility online to distinguish themselves from the significant number of
sellers marketing products and services over the Internet. Achieving widespread
brand identity in a market where shoppers are being inundated with
Internet-related advertising requires a comprehensive direct marketing strategy
that focuses on attracting the appropriate online shoppers. These direct
marketing efforts often include both online methods, such as banner and other
hyperlink advertisements and e-mail communications, as well as traditional
methods, such as direct mail. To maximize the effectiveness of these direct
marketing efforts, creative services that can effectively position a merchant's
business and its products and services must be employed.
ACQUISITION AND RETENTION OF CUSTOMERS. Even those merchants who have
substantial brand identity among online shoppers often have difficulty
converting their visibility into online purchases, as many merchants lack the
knowledge and expertise needed to sell products and services remotely. Online
advertising is currently concentrated on portal Web sites, which limits its
effectiveness because many portal site visitors are interested in obtaining
information, not shopping. As a result, the traffic that these advertisements
generate on a merchant's Web site may not result in a high rate of purchases.
Similarly, traditional advertising methods may not offer a cost-effective means
for acquiring potential online shoppers. Merchants need cost-effective
strategies to reach concentrated groups of Internet users and to convert these
users into purchasers. In order to retain these customers, merchants must also
continually improve the process for purchasing products and services through
their Web sites while providing secure, easy-to-use e-commerce interfaces.
NEED OF SHOPPERS AND MERCHANTS FOR AN EFFECTIVE E-COMMERCE SOLUTION
To take advantage of the opportunities presented by e-commerce, both
shoppers and merchants need an effective solution that addresses the challenges
of buying and selling products and services online. A solution that enables
merchants to easily develop and maintain an effective online presence will allow
more merchants to transact business online, thereby increasing the variety of
products and services offered over the Internet. An increase in the variety of
products and services marketed online will attract more shoppers online,
increasing the pool of potential customers for e-commerce enabled merchants.
THE SHOPNOW SOLUTION
We provide shoppers and merchants with a dynamic online marketplace and a
broad array of effective e-commerce and direct marketing solutions. The ShopNow
Network, our online marketplace, is comprised of ShopNow.com, MyShopNow.com and
the Web sites of our merchant customers. ShopNow.com, our shopping destination
Web site, aggregates more than 1 million products from more than 29,000
merchants of all types. MyShopNow.com enables shoppers to create a personalized
shopping experience by allowing them to select the types of products and
services offered to them. The Web sites of our merchant customers are connected
by hyperlink to ShopNow.com to complete our online marketplace. To assist our
merchant customers in leveraging their online presence, we provide a
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broad range of e-commerce, direct marketing and creative services. Our direct
marketing and creative services use both traditional and online methods to drive
shoppers to merchants' Web sites and increase purchases, while our e-commerce
solutions enable our merchant customers to develop and maintain advanced,
cost-effective e-commerce capabilities.
BENEFITS FOR SHOPPERS
We provide shoppers with a dynamic online marketplace that enables them to
evaluate buying opportunities in an organized fashion, alleviating the need to
sift through often irrelevant search results. The ShopNow Network provides
shoppers with multiple ways to search our merchant database in a user-friendly
and efficient format. This enables shoppers to rapidly locate merchants that fit
their needs and evaluate product and service offerings from numerous merchants
based on the criteria that are important to them. Because ShopNow.com is focused
principally on shopping, we can highlight new products and services and
high-value offers for our shoppers. The personalization capabilities of
MyShopNow.com enable shoppers to create a value-added online shopping experience
that is tailored to their specific interests. In addition, the broad array of
effective e-commerce solutions that we offer merchants provide shoppers with an
easy-to-use and secure transaction interface.
BENEFITS FOR MERCHANTS
We offer merchants a dynamic online marketplace and a broad array of
e-commerce and direct marketing solutions that enable them to quickly develop
and maintain an effective e-commerce presence. We enable merchants to avoid the
significant resource drain caused by developing and maintaining an end-to-end
e-commerce solution internally or outsourcing to multiple vendors. Because we
regularly re-evaluate and update our e-commerce solutions, our merchant
customers can easily keep pace with rapidly evolving e-commerce technology. The
ShopNow Network allows merchants to market their products in an online
marketplace where shoppers congregate for the specific purpose of making
purchases. Our direct marketing solutions enhance the value of our online
marketplace for our merchant customers by providing them with a wide range of
online and traditional marketing methods to increase their brand awareness and
drive shoppers to their Web sites to make online purchases. Our ability to
collect detailed demographic and shopper preference data enables us to offer
targeted direct marketing services to our merchants and provide them with the
opportunity to lower customer acquisition and retention costs and increase
revenues. Our solution allows merchants to capitalize on the benefits of
e-commerce in an efficient manner that is tailored to their specific needs.
STRATEGY
Our objective is to create the leading online marketplace while providing a
broad array of effective e-commerce and direct marketing solutions to shoppers
and merchants. Key strategies to achieve this objective include:
INCREASE MARKET AWARENESS AND BRAND RECOGNITION
We will continue to promote the ShopNow brand as synonymous with online
shopping. To accelerate the acceptance and penetration of our brand among
shoppers and merchants, we will continue to advertise the ShopNow brand through
both online and traditional channels. Online efforts include placing banner and
other hyperlink advertisements on portal and other destination Web sites. To
reach a mass audience, we will continue to conduct national advertising
campaigns in traditional media such as radio and newspapers. We will also expand
our efforts to promote the ShopNow brand to merchants through trade publication
advertisements, direct mail and promotional activities, trade shows, media
events and our Web sites.
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EXPAND THE SHOPNOW NETWORK
We intend to aggressively expand the ShopNow Network through the following
strategies:
- INCREASE PRODUCTS AND SERVICES. We will aggressively recruit new merchants
to our online marketplace to expand the range of shopping choices on the
ShopNow Network. To increase the services available to shoppers on the
ShopNow Network, we intend to offer additional third-party content
features, which currently include stock quotes, weather reports,
horoscopes and greeting cards. We will continue to enhance the products
and services available to our merchant customers by integrating new
technologies into our e-commerce solution and by developing new, and
expanding existing, strategic relationships. We will add features to
maintain the modularity of our solution so that merchants of all sizes can
implement an effective e-commerce solution tailored to their specific
needs.
- EXPAND INTERNATIONALLY. We will seek to leverage the anticipated
international growth in e-commerce to expand the ShopNow Network and
generate additional revenue. We plan to commence our international
expansion with the development of a Japanese online marketplace in the
second half of 1999. We intend to accelerate our international expansion
by entering into strategic alliances with foreign businesses. We also
intend to register our Web sites on international search engines, seek
relationships with foreign portal Web sites and develop foreign language
user interfaces. We believe that enabling foreign shoppers to access our
Web sites will expand the market for our merchant customers' products and
services and significantly increase the number of shoppers on the ShopNow
Network.
- DEVELOP LOCAL NETWORKS. We intend to develop localized versions of the
ShopNow Network in order to enhance the attractiveness of our network to
both shoppers and merchants in selected markets. By aggregating merchants
located within a specific geographic area, we will allow shoppers to do
business with their local merchants at a single site. Localization will
provide merchants with the opportunity to increase transactions through
advertising and merchandising programs focused on local markets.
INCREASE TRANSACTIONS ON THE SHOPNOW NETWORK
We intend to increase transactions on the ShopNow Network by further
personalizing our services for shoppers and leveraging our direct marketing
capabilities as follows:
- ENHANCE PERSONALIZATION. We intend to aggressively promote the
personalization features of the ShopNow Network, which permit us to target
product and service offerings based on the indicated preferences of
individual shoppers. By increasing the personalization features of our
network, we will be able to improve the shopping experience for our
shoppers while enhancing our data collection capabilities. To increase
shoppers' acceptance of our MyShopNow personal store concept, we offer
shoppers incentives, such as cash-back bonuses, on purchases made through
their MyShopNow personal stores. We plan to continue to enhance the
personalization features of MyShopNow.com by providing access to
additional content and other services.
- LEVERAGE DIRECT MARKETING SERVICES. We will continue to offer our merchant
customers a broad array of online and traditional direct marketing
services to increase transactions on the ShopNow Network. Our direct
marketing capabilities enable our merchant customers to acquire and retain
shoppers in a more targeted manner. In order to maximize the number of
transactions on the ShopNow Network, we will refine our direct marketing
capabilities by continuing to use the data that we collect from shoppers
on our network while striving to increase the quality and amount of this
data. We will use our creative services to develop focused brand awareness
for our merchant customers in a manner that results in increased shopper
traffic and online purchases.
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EXPAND SERVICES TO MERCHANT CUSTOMERS
We intend to increase sales to our merchant customers by aggressively
marketing additional features of our suite of e-commerce and direct marketing
products and services to them. We believe that we will generate incremental
revenue from our merchant customers by regularly updating our technology and
services in order to provide our merchants with advanced e-commerce
capabilities. In addition, we believe that the effectiveness of the ShopNow
Network and our ability to collect detailed information on our shoppers will
cause our merchant customers to take increasing advantage of our extensive
direct marketing capabilities and creative services.
PURSUE ACQUISITIONS AND LEVERAGE STRATEGIC RELATIONSHIPS
To date, we have entered into a number of acquisitions and strategic
relationships in order to expand our range of products and services for shoppers
and merchants, generate additional visitors to the ShopNow Network, increase the
number of MyShopNow personal stores, enhance our technology and establish
additional sources of revenue. For example, we currently have strategic
relationships with Qwest Communications and 24/7 Media. As part of our
relationship with Qwest, we designed and built an online telecommunications
center for Qwest and market its telecommunications services to business and
residential customers through a number of co-branded promotions. Our cross
promotion agreement with 24/7 Media gives us access to its extensive advertising
networks of more than 2,500 affiliated Web sites. We believe that leveraging our
strategic relationships will enable us to maintain advanced technology and
expand into new markets while reducing the cost of acquiring traffic for the
ShopNow Network. We intend to continue making acquisitions and entering into
strategic relationships to enhance the quality of our online marketplace and the
effectiveness of our e-commerce and direct marketing solutions.
OUR PRODUCTS AND SERVICES
THE SHOPNOW NETWORK
The ShopNow Network is an online marketplace designed to attract shoppers to
a common online location by providing them with attractive shopping
destinations. The ShopNow Network consists of ShopNow.com, our Internet shopping
portal site, MyShopNow.com, our personalized Internet shopping service, and the
Web sites of our merchant customers. We believe that increasing shopper traffic
on the ShopNow Network will cause additional merchants to participate in the
network. As the number of participating merchants grows, ShopNow will have a
larger pool of potential merchant customers to whom we can offer our e-commerce
and direct marketing services.
SHOPNOW.COM. ShopNow.com is an Internet shopping portal site that offers
shoppers a comprehensive shopping destination by aggregating at one Web site
more than 1 million products and services from more than 29,000 merchants,
including retailers, catalog companies, manufacturers and individuals.
ShopNow.com's directory of merchants lists merchants under 27 different product
categories. To reach a specific merchant's Web site, a shopper clicks on the
directory's hyperlink to that site. Shoppers complete transactions at the
merchant's Web site, which we may host and maintain if the merchant chooses to
purchase these services. By driving shoppers to merchants' Web sites,
ShopNow.com enables merchants to conduct e-commerce under their own brand names.
To enable shoppers to conduct a more focused search, ShopNow.com provides an
easy-to-use interface that enables shoppers to search the directory in a number
of ways, including by category, merchant or product.
MYSHOPNOW.COM. MyShopNow.com enables each shopper to easily create a
personalized shopping Web site, based on various shopping themes. Shoppers
indicate their interests to select the types of products and services that they
want offered to them. In addition to the search methods offered by ShopNow.com,
MyShopNow.com offers shoppers an advanced search capability that enables
shoppers
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to search by price, brand, category and recommendations from our gift center.
Shoppers place orders for products and services using a uniform online shopping
cart regardless of which merchant offers the product. As an added benefit,
shoppers receive cash back or other incentives on purchases that they make
through their MyShopNow personal stores. The MyShopNow personal stores also
provide shoppers with special promotional offers. To encourage shoppers to visit
their MyShopNow personal stores, MyShopNow provides shoppers with complimentary
access to third-party content, including, sports scores, weather reports,
horoscopes, greeting cards and stock quotes. Since we launched the MyShopNow
personal store concept in September 1998, more than 1.3 million MyShopNow
personal stores have been created.
MERCHANT CUSTOMERS' WEB SITES. The ShopNow Network also includes our
merchant customers' Web sites. These Web sites are connected by hyperlink to
ShopNow.com, and provide shoppers with additional information about our merchant
customers and the ability to purchase products and services.
MERCHANT SERVICES
E-COMMERCE SERVICES. ShopNow offers merchants a broad array of e-commerce
services, including:
- CUSTOM STORE DEVELOPMENT. We offer our merchant customers custom creative
design and technical development services for their online stores. We
create e-commerce enabled Web sites that can range from the basic to the
highly customized.
- E-COMMERCE HOSTING AND MAINTENANCE. We provide e-commerce hosting and
maintenance services for merchants' online stores. To provide customers
with the performance they require for continuous e-commerce operations, we
use data centers with redundant servers, 24-hour monitoring and support
and high speed Internet connections.
- SECURE PAYMENT AND ORDER PROCESSING. We provide online payment and order
processing services, including customer authentication and authorization,
automated tax and shipping calculations, order tracking and customer
service. Our technology platform supports a variety of payment methods,
including credit cards, purchase orders and electronic data interchange.
For security, we use advanced encryption methods. We rely on Secure
Sockets Layer, the Internet's leading security protocol, to exchange
information with shoppers and merchants on our Web sites. Our payment
processing services also encrypt sensitive information, such as credit
card data.
- FRAUD PREVENTION. Our fraud management services use artificial
intelligence programs, a database of historical transactions, and various
other fraud screen metrics to confirm shoppers' identities and to assess
their credit status. We can adjust the stringency of the fraud screening
process based upon a merchant's requirements and the nature of the
transaction to assist the merchant in maximizing sales opportunities.
- FULFILLMENT AND CALL CENTER MANAGEMENT. We have preferred supplier
arrangements with multiple companies specializing in providing order
fulfillment and call center services. These companies provide warehousing,
packaging, distribution, call center and e-mail-based customer support
services for merchants who lack such capabilities. We also have
relationships with several vendors whose warehouses we use to provide
drop-ship fulfillment capabilities for our merchant customers. We have
integrated our payment processing and fraud prevention systems with those
of our preferred suppliers to provide our merchants with an integrated
e-commerce platform. We act as an interface between the merchant and the
third-party fulfillment or call center.
The modular nature of our e-commerce solution allows merchants to select the
particular services they want to use. Fee arrangements are based on the specific
service purchased and may be computed on a per transaction basis, an hourly fee
basis or a combination thereof.
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DIRECT MARKETING SERVICES. ShopNow's direct marketing services are designed
to enable merchants to enhance their visibility on the ShopNow Network,
facilitate customer acquisition and retention and increase sales for merchants.
Our direct marketing services include:
- JOINING THE SHOPNOW NETWORK. We offer merchants four listing levels to
position their businesses in our merchant database that shoppers access
through ShopNow.com and MyShopNow.com personal stores. The listing
programs differ based on length of store description, the number of search
engine keywords that refer to the merchants' products, the order in which
a merchant is listed within a product category and availability of certain
promotional listings. For example, the entry level listing program allows
a merchant to provide a brief description of its products and services, to
select the product category under which it wants to be listed in our
merchant database and to select a few search engine keywords that will
cause the merchant's name to be listed when a shopper uses those keywords
when conducting a search. Our most prominent listing program allows a
merchant to provide a longer business description, display a logo, obtain
a preferential ranking under a product category and enter more keywords in
our merchant database.
- ADVERTISING ON THE SHOPNOW NETWORK. Advertisements can be prominently
displayed on ShopNow.com, MyShopNow.com or on the Web site networks of our
marketing affiliate, 24/7 Media. From these advertisements, shoppers can
hyperlink directly to an advertiser's Web site, thus enabling the
advertiser to directly interact with an interested shopper. Merchants can
reach a general audience by placing an advertisement on the ShopNow.com or
MyShopNow.com home pages. Alternatively, merchants can narrow their target
audience by placing advertisements only on the main page of a specific
product category. We rotate advertisements until a merchant reaches a
desired level of exposure. We also provide a wide variety of targeted
programs, including guaranteed shopper delivery, a traffic-building
program that provides merchants with a specified number of shoppers over a
given period of time.
- MERCHANDISING ON THE SHOPNOW NETWORK. We sell a variety of additional
merchandising positions that enable merchants to prominently feature their
online store, products and services throughout ShopNow.com or
MyShopNow.com. The most common of these merchandising positions are known
as "spotlight merchandising buttons" and "merchandising textlinks."
Spotlight merchandising button advertisements are smaller than banner
advertisements and can be placed anywhere on a Web page throughout
ShopNow.com or MyShopNow.com. Merchandising textlinks appear on a Web page
as highlighted text, usually containing the advertiser's name. Merchants
also can place their logos on the ShopNow.com and MyShopNow.com home pages
and the main page of our product and service categories to enable shoppers
to hyperlink directly to their Web sites. Merchants can also advertise in
special "Store of the Week," "Featured Stores" and "Product Showcase"
zones on the ShopNow.com home page and the main page of ShopNow's product
and service categories. We offer merchants a range of additional
merchandising services to help them drive shoppers to their online stores.
- ONLINE DIRECT MAIL PROMOTIONS. We sell online direct mail promotions,
which are integrated packages that allow merchants to target specific
customer groups through e-mail communications. ShopNow's promotions are
specifically designed to allow advertisers to integrate various forms of
online advertising and direct marketing to fully exploit the reach of
ShopNow's e-commerce services. Although promotion arrangements vary in
terms and duration, ShopNow offers standard 30-day, 60-day and 90-day
promotional programs.
- CREATIVE SERVICES. We offer merchants a full range of creative services,
including design and advertisement copy services, image management and
production and account management and maintenance. We also provide online
creative services, including Web store design, as well as direct marketing
services using traditional print and broadcast media.
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- TRANSACTION REPORTS. For merchants whose online stores we host, we provide
detailed electronic and hard copy reports summarizing the visits to and
the transactions made on their online stores.
The prices for the ShopNow Network's merchant listing services range from
$19.95 per year for an entry level listing to $1,499 per quarter for our most
prominent listing program. The fee arrangements for our other direct marketing
services, which typically include minimum monthly payments, are individually
negotiated with our merchant customers and based on the range and extent of
customization. For our e-mail promotions, depending on the nature of the
promotion, we may derive transaction revenues based on the level of transactions
made through the promotion.
CUSTOMERS
Some of our customers include:
Ashford.com
barnesandnoble.com
Bid.com
Big Entertainment
BrainPlay.com
Corel
Cyber Retail
Damark International
DogToys.com
eBay
E-LOAN
eToys.com
1st in Flowers
Furniture.com
GreatFood.com
GoFish.com
Hallmark
Hungate Marketing
iTurf.com
L.L. Bean
Lens Express
Mother and Me
OfficeMax
Qwest Communications
Reel.com
sixdegrees.com
Sony
Starbucks
The Wedding Channel
TRIP.com
24/7 Media
Virtual Vineyards
WorldWideSports.com
STRATEGIC RELATIONSHIPS AND ACQUISITIONS
We have entered into a number of strategic relationships and acquisitions in
order to expand the range of our products and services for shoppers and
merchants, attract additional shoppers to the ShopNow Network, increase the
number of our merchant customers, increase the number of MyShopNow personal
stores, enhance our technology, establish additional sources of revenue and
facilitate our international expansion. We intend to evaluate acquisition
opportunities and to seek additional strategic relationships with third-party
providers of complementary products and services. We believe that alliances will
prove attractive to potential affiliates because they are designed to provide
them with increased shopper traffic, branding flexibility, incremental revenue,
and integration of service offerings.
STRATEGIC RELATIONSHIPS
Key strategic relationships include:
ZERON GROUP. In March 1999, we entered into an agreement with the ZERON
Group, a merchant banking, investment management and venture capital firm, in
order to help us establish a presence in Japan. The ZERON Group agreed to use
its best efforts to help us secure alliances with major companies in Japan. We
currently are in discussions to establish a joint venture to develop a Japanese
version of our ShopNow Network.
24/7 MEDIA. In April 1999, 24/7 Media agreed to make a $30.1 million equity
investment in ShopNow and entered into a cross promotion agreement with us.
Under the agreement, 24/7 Media promotes our e-commerce and direct marketing
services to its networks of over 2,500 affiliated Web sites in exchange for our
agreement to promote 24/7 Media's advertising, representation and e-mail
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management services to our merchant customers. This agreement positions ShopNow
as 24/7 Media's exclusive e-commerce service provider and entitles each party to
share in the revenues of the other party based on the amount of business
generated through this relationship. We also co-brand 24/7 Media's Click2Buy
transactional banner service with the ShopNow name and receive fees for
processing all Click2Buy transactions.
QWEST COMMUNICATIONS. In April 1999, we entered into a distribution and
marketing agreement with Qwest Communications, a leading telecommunications
provider. We will market Qwest's business and residential communications
services to shoppers and merchants on the ShopNow Network through a co-branded
Web site developed and hosted by us. The agreement terminates in April 2002,
subject to renewal for two additional one-year terms. Qwest will provide us with
marketing development funds over the next two years. The parties have agreed to
establish a cooperative advertising fund to be used for joint marketing
campaigns. We have also agreed to purchase all of our telecommunications
services and Internet access and Web hosting services requirements from Qwest.
In addition to helping us create brand awareness, this arrangement is expected
to enhance the value-added nature of the MyShopNow personal stores because
MyShopNow personal store owners who sign up for these services will be able to
view their long distance billing online at their MyShopNow personal stores.
HNC SOFTWARE. In May 1999, we entered into a strategic alliance agreement
with HNC Software, a leading provider of predictive software solutions. HNC has
agreed to provide us with access to certain real-time e-commerce services that
we can offer to our merchant customers. These services include targeted
marketing, real-time fraud detection and customer support services. Shoppers
will benefit from enhanced security and protection when making online purchases,
as well as responsive, personalized service that delivers individually tailored
products and promotions and real-time customer service. The parties have also
agreed to consider further agreements regarding development, marketing and
exploitation of each other's respective products or services.
Although we view our strategic relationships as a key factor in our overall
business strategy, our strategic partners may reassess the significance of their
relationships with us at any time. Our arrangements with our strategic partners
generally do not establish minimum performance requirements but instead rely on
their voluntary efforts. In addition, several of our agreements with our
strategic partners may be terminated with little notice.
ACQUISITIONS
Key acquisitions include:
WEB SOLUTIONS AND INTELLIGENT SOFTWARE SOLUTIONS. In January 1997, we
acquired Web Solutions and Intelligent Software Solutions. Both Web Solutions
and Intelligent Software were software development companies that had core
transaction processing technologies that we have incorporated into our
e-commerce products.
E-WAREHOUSE AND CYBERTRUST. In June 1998, we acquired e-Warehouse and
CyberTrust, which had developed certain payment processing technologies that we
had planned to use in our e-commerce offerings. We currently do not use the
acquired technology and have determined that such technology has no alternative
future use or value to us. Consequently, we have written off substantially all
of the $5.4 million purchase price.
THE INTERNET MALL. In August 1998, we acquired The Internet Mall, an
Internet retailer of consumer products that was doing business as ShopNow, Inc.
The Internet Mall's technology and Web development work served as the basis for
our online shopping destination site, ShopNow.com. We also gained access to The
Internet Mall's base of merchant customers.
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MEDIA ASSETS. In September 1998, we acquired Media Assets, a creative
design and direct marketing firm. The acquisition has enabled us to offer our
merchant affiliates direct marketing and creative services. We also gained
access to Media Assets' existing direct marketing clients as potential customers
for our e-commerce services.
GO SOFTWARE. In June 1999, we acquired GO Software, a company primarily
engaged in the business of developing and implementing transaction processing
software for use in e-commerce. GO Software has existing relationships with more
than 14,000 online merchants.
CARDSECURE. In June 1999, we acquired CardSecure, which had been a
subsidiary of 24/7 Media. CardSecure is a developer of e-commerce-enabled Web
sites and will enhance the e-commerce technologies and services that we offer.
SALES AND MARKETING
SALES
Our sales and marketing strategy is designed to increase market awareness of
the ShopNow brand, expand the ShopNow Network, increase transactions on the
ShopNow Network and develop additional revenue opportunities by cross-selling
and up-selling additional e-commerce and direct marketing services to our
existing merchant customers.
We sell our merchant services primarily through our direct sales force. Our
sales and marketing organization mainly targets merchants seeking online direct
marketing services and custom e-commerce solutions. As of March 31, 1999, our
sales and marketing organization consisted of 18 employees. These employees
currently are located at our headquarters in Seattle, Washington. Consistent
with our strategy to expand internationally and develop local ShopNow Networks,
we intend to increase our sales presence by opening field sales offices, which
will depend on our ability to attract additional qualified sales personnel. In
the second half of 1999, we plan to open a sales office in Japan.
MARKETING
We currently employ a variety of traditional and online marketing programs
and business development and promotional activities as part of our marketing
strategy. We place advertisements on high-profile third-party Web sites and our
own Web sites. We also rely on relationship marketing, including word-of-mouth
advertising by shoppers, indirect promotions by our merchant customers with
links to our Web sites and indirect advertising arising through shoppers' use of
our services. Although we have reduced our reliance on traffic promotion
agreements as awareness of the ShopNow brands has increased, we believe that
relationship marketing will continue to generate a substantial amount of
additional shopper traffic and new merchant affiliates. We intend to introduce a
number of other brand awareness and shopper loyalty programs through our Web
sites.
To augment our online marketing efforts, we have initiated an aggressive
brand promotion campaign using traditional media, including print, radio,
billboard and television advertising. As part of this campaign, we recently
conducted a nationwide advertising campaign by placing advertisements in USA
TODAY and other newspapers. We also rely on public relations activities,
attendance at industry trade shows and direct mail programs to increase merchant
awareness of our products and services and to generate additional sales. We
intend to continue to participate in co-branded promotions using online and
traditional advertising media.
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TECHNOLOGY AND INFRASTRUCTURE
Our e-commerce and direct marketing services require the development and
deployment of advanced e-commerce technologies and methodologies. Consequently,
we have invested heavily in licensing advanced technologies and in developing a
core set of proprietary technologies. We market these technologies collectively
under our CommerceTrust brand. Our third-party vendors provide relational
databases, such as Oracle and Microsoft SQL server, search technologies, ad
servers, catalog engines and various back-end automation technologies. Our
proprietary technologies include interfaces to fulfillment systems, payment
systems and fraud solutions.
Our software runs on system hardware that is hosted in third-party data
centers located in Seattle, Washington and Weehawken, New Jersey. These data
centers are connected to our headquarters in Seattle, Washington, through high
speed virtual private networks. These data centers, as well as the system
hardware located at our headquarters, are connected to back-up generators to
maintain uninterrupted electrical service and to the Internet through multiple
Internet service providers to avoid connectivity problems. Our systems are
redundant, and we maintain multiple clustered high speed routers, multiple
clustered load balancing hardware, multiple Web servers and multiple application
and database servers. Data for our networks is stored on dedicated, high speed
and redundant disk appliances that provide continuous access to the data even if
individual disk drives, computers and power supplies fail. Data is backed up
regularly and is stored off site to provide for data recovery in the event of a
disaster. We employ extensive automated and manual monitoring to maintain a high
level of network uptime.
We employ several relational databases for product SKUs, transaction data
and tracking multiple resellers or affiliates. Our databases have been designed
for high levels of performance and scalability. Shopper data is maintained in a
profile database that is used for targeted shopper relationship management. The
software architecture has been designed to accommodate our expected growth over
the next 24 months.
We believe that our future success will depend in part on our ability to
license, develop and maintain advanced e-commerce technologies. Consequently, we
expect to invest heavily in developing new technologies and to continue to make
strategic acquisitions to increase our direct control and ownership of
proprietary technology.
RESEARCH AND DEVELOPMENT
Our research and development efforts are directed towards improving the
design and functionality of our Web sites, improving our network systems and
enhancing the technology underlying and the features of our e-commerce and
online direct marketing services. Research and development expenses were $25,000
in 1996, $2.4 million in 1997, $4.4 million in 1998 and $1.5 million in the
first three months of 1999. As of May 31, 1999, ShopNow employed 49 persons in
research and development.
COMPETITION
A large number of Internet companies compete with us for e-commerce
merchants, shoppers, e-commerce transactions, advertisers, and other sources of
online revenue. We also compete with Web development firms, systems integrators,
Internet service providers and traditional media companies that may offer
alternatives to one or more components of our e-commerce and direct marketing
solutions. We expect competition to intensify in the future. Barriers to entry
in the markets in which we compete are not significant, and current and new
competitors may be able to launch competing products and services at a
relatively low cost.
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We compete directly for e-commerce merchants, shoppers, advertisers and
other affiliates with numerous Internet and non-Internet businesses, including:
- providers of e-commerce and online direct marketing services, such as
Go2Net, Xoom and DoubleClick;
- providers of e-commerce outsourcing services, such as Digital River, US
Web and CyberSource;
- providers of Web directories and search and information services, all of
whom offer online shopping, including America Online, Microsoft Network,
Yahoo!, Excite, Lycos and Infoseek;
- online shopping destination Web sites, such as iMall and Shopping.com;
- Internet service providers, Web development firms and systems integrators,
as well as companies who offer products that address specific aspects of
e-commerce, such as payment and transaction processing and security; and
- e-commerce and conventional merchants that provide goods and services
competitive to those available through links on our Web sites.
We expect that other companies, including media companies and traditional
retailers, will offer directly competing services in the future.
We believe that competition in our industry is based primarily on:
- the quality, effectiveness and market acceptance of e-commerce and direct
marketing services;
- brand recognition;
- price;
- the number and breadth of merchants and products and services marketed
online;
- the quality and market acceptance of personalized shopping features and
enhanced content; and
- customer service and satisfaction.
Although our competitive position in our markets is difficult to
characterize due principally to the variety of current and potential competitors
and the emerging nature of the market, we believe that we presently compete
favorably with respect to these factors. However, we believe that our markets
are still evolving, and we cannot assure you that we will compete successfully
in the future. Additionally, many of our competitors are likely to enjoy
substantial competitive advantages compared to our company, including:
- the ability to offer a wider array of e-commerce and direct marketing
services;
- larger customer or user bases;
- greater name recognition and larger marketing budgets and resources;
- substantially greater financial, technical and other resources;
- the ability to offer additional content and other personalization
features; and
- larger production and technical staffs.
In addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of e-commerce and direct
marketing solutions, and existing providers of e-commerce and direct marketing
solutions may continue to consolidate. Providers of Internet browsers and other
Internet products and services who are affiliated with providers of Web
directories and information services that compete with
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our Web sites may more tightly integrate these affiliated offerings into their
browsers or other products or services. Any of these trends would increase the
competition we face.
PROPRIETARY TECHNOLOGY
Intellectual property is critical to ShopNow's success, and we rely upon
patent, trademark, copyright and trade secret laws in the United States and
other jurisdictions to protect our proprietary rights and intellectual property.
However, patent, trademark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available. Our proprietary software, documentation and other written materials
are provided limited protection by international and United States copyright
laws. In addition, we protect our proprietary rights through the use of
confidentiality and/or license agreements with employees, consultants, and
affiliates.
ShopNow currently has four pending United States patent applications. We do
not have any issued patents.
ShopNow has registered the trademark "ShopNow." We have applied for United
States trademark registrations for the marks "ShopNow.com," "MyShopNow.com" and
"CommerceTrust." Certain of these marks are also protected in other
jurisdictions.
The transaction processing and advertisement serving technology we employ
collects and uses data derived from user activity on our Web sites and those of
our merchants customers that we host. This data is intended to be used for
targeted direct marketing and for predicting advertisement performance. Although
we believe that we have the right to use such data, trade secret, copyright or
other protection may not be available for such information or others may claim
rights to such information.
EMPLOYEES
At March 31, 1999, we had 203 employees, including 91 in merchant services,
18 in sales and marketing, 49 in research and development, 21 in operations and
24 in general and administrative functions. We are not subject to any collective
bargaining agreements and believe that our employee relations are good.
FACILITIES AND SYSTEMS
Our principal executive offices are located in Seattle, Washington, where we
lease approximately 57,000 square feet under a lease that expires in August
2001. We also lease space in various geographic locations for sales and direct
marketing personnel and for our servers. We believe that our current facilities
are adequate to meet our needs through the end of 2000, at which time we may
need to lease additional space.
LEGAL PROCEEDINGS
We presently are not subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of ShopNow as of June 1, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --------- --------------------------------------------------------------------
<S> <C> <C>
Dwayne M. Walker.................... 37 Chairman, President, Chief Executive Officer and Director
Jeffrey B. Haggin................... 39 Executive Vice President
Alan D. Koslow...................... 41 Executive Vice President, Chief Financial Officer, General Counsel
and Secretary
Ganapathy Krishnan, Ph.D............ 38 Executive Vice President and Chief Technology Officer
Othniel D. Palomino................. 36 Executive Vice President, Corporate Development
Anne-Marie K. Savage................ 35 Executive Vice President, E-Commerce Services
Joe E. Arciniega, Jr................ 40 Chief Operating Officer
Garrett P. Cecchini................. 45 Director
David M. Lonsdale................... 45 Director
Bret R. Maxwell..................... 40 Director
Mark C. McClure..................... 48 Director
John R. Snedegar.................... 50 Director
Mark H. Terbeek..................... 28 Director
</TABLE>
DWAYNE M. WALKER has been our Chairman since March 1996, our President and
Chief Executive Officer since August 1996, and a director since August 1995.
From April 1995 to April 1996, he was President and Chief Executive Officer of
Integra Technologies, a wireless communications company. From September 1989 to
March 1995, he was a Director for Microsoft Windows NT and Networking Products
and a General Manager of Microsoft Corporation, a software company.
JEFFREY B. HAGGIN has been our Executive Vice President since October 1998.
From October 1993 to September 1998, he was the President of Media Assets, a
direct marketing company. Mr. Haggin received a B.A. in Mass Communications from
the University of California at Berkeley.
ALAN D. KOSLOW has been our Executive Vice President, Chief Financial
Officer, General Counsel and Secretary since June 1998. From May 1997 to June
1998, he was of counsel to Graham & James LLP/Riddell Williams P.S., a law firm.
From February 1990 to April 1997, he was an attorney at Foster Pepper &
Shefelman PLLC, a law firm. Mr. Koslow received a B.A. in Economics and
Accounting from Rutgers University and a J.D. from Rutgers Law School. Mr.
Koslow is a certified public accountant.
GANAPATHY KRISHNAN, PH.D. has been our Executive Vice President and Chief
Technology Officer since January 1997. From March 1996 to December 1996, he was
Chief Executive Officer of Web Solutions, an e-commerce software company. From
September 1991 to December 1996, he was Chief Executive Officer of Intelligent
Software Solutions, an e-commerce software company. Dr. Krishnan received a B.S.
in Technology, Chemical Engineering from IIT Madras in India, an M.S. in
Chemical Engineering from the University of Louisville and an M.S. and Ph.D. in
Computer Science from the State University of New York/Buffalo.
OTHNIEL D. PALOMINO has been our Executive Vice President, Corporate
Development since April 1997. From September 1991 to March 1997, he was a Group
Manager for Microsoft. He received a B.S. in Engineering from Princeton
University and an M.B.A. from Stanford University.
ANNE-MARIE K. SAVAGE has been our Executive Vice President, E-Commerce
Services since June 1999. From February 1998 to June 1999, she was our Senior
Vice President, Marketing and Business Development, from March 1997 to February
1998, she was our Vice President of Online Stores, and
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from April 1996 to March 1997, she was our Director of Marketing. From April
1995 to April 1996, she was the Director of Marketing with Integra Technologies.
From April 1994 to April 1995, she was an independent marketing consultant. Ms.
Savage received a B.A. in Hotel and Restaurant Administration from Washington
State University.
JOE E. ARCINIEGA, JR. has been our Chief Operating Officer since November
1998. From July 1996 to November 1998, he was Vice President of Operations for
GT Interactive Software, an entertainment software company. From November 1994
to June 1996, he was Vice President of Operations of Humongous Entertainment, a
children's software company. From September 1994 to October 1994, he was the
Operations Consultant for Humongous Entertainment. From October 1991 to July
1994, he served as Director at the Pritikin Longevity Center, a cardio-health
facility.
GARRETT P. CECCHINI has served as a director since May 1999. Since January
1999, he has been Senior Vice President, E-Commerce for 24/7 Media, an Internet
advertising and direct marketing firm. From February 1998 to December 1998, he
was Senior Vice President of National Sales at 24/7 Media. From February 1997 to
February 1998, he was Vice President, General Manager of Katz Millenium
Marketing. From December 1994 to February 1997, he was co-founder of Goodman
Cecchini Media Design, a Web site development company, and US Cybersites, an
Internet service provider. From 1992 to 1994, he was Vice President, Director of
Sales for Sony Pictures Entertainment's Columbia TriStar Television Division, a
syndicator of television programming. Mr. Cecchini received a B.S. in Accounting
and Marketing from Manhattan College. Mr. Cecchini was elected as one of our
directors pursuant to a provision of our cross promotion agreement with 24/7
Media.
DAVID M. LONSDALE has served as a director since October 1998. Since
December 1998, he has been President and Chief Executive Officer of Uppercase, a
Xerox subsidiary and software development company. From October 1996 to November
1998, he was the Chief Executive Officer and President of Major Connections, a
software distribution company. From March 1995 to September 1996, he was Vice
President of Worldwide Sales at Integrated Micro Products, a computer
manufacturer. From March 1990 to February 1995, he was President of A.C. Nielsen
Software and Systems, a direct marketing software company delivering software
and solutions for direct marketing. He also serves on the board of directors of
Vizicom. Mr. Lonsdale received a B.S. in Physics and a B.S. in Mathematics from
the University of Leeds in England and an M.B.A. from Cornell University.
BRET R. MAXWELL has served as a director since February 1997. Since June
1982, he has been Vice Chairman of First Analysis, a venture capital firm. Mr.
Maxwell received a B.S. in Engineering and an M.B.A. from Northwestern
University. He serves on the board of directors and is a member of the
compensation committee of Dynamic Healthcare Technologies.
MARK C. MCCLURE has served as a director since August 1998. From January
1979 to December 1996, he was President and Chief Executive Officer of Cobra
Golf, a golf club manufacturer.
JOHN R. SNEDEGAR has served as a director since September 1998. Since April
1999, he has been President and Chief Executive Officer of Micro General, a
telecommunications and commerce service provider. From September 1991 to March
1999, he was the President of United Digital Network, a long distance telephone
company. He serves on the boards of directors of StarBase Corporation, Star
Telecommunications and Micro General.
MARK H. TERBEEK has served as a director since February 1997. Since August
1997, he has been an independent management consultant. From May 1995 to August
1997, he was an Associate for First Analysis Corporation, a venture capital
firm. From September 1993 to May 1995, he was a business analyst at McKinsey &
Co., a management consulting company. He received a B.A. from DePauw University
and an M.B.A. from Stanford University.
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<PAGE>
BOARD OF DIRECTORS
Our board of directors currently consists of seven authorized members. Upon
the completion of this offering, the terms of office of the board of directors
will be divided into three classes that will be as nearly equal in number as
possible: Class I consists of Messrs. Cecchini, McClure and Terbeek, whose terms
will expire at the annual meeting of shareholders to be held in 2000; Class II
consists of Messrs. Maxwell and Snedegar, whose terms will expire at the annual
meeting of shareholders to be held in 2001; and Class III consists of Messrs.
Lonsdale and Walker, whose terms will expire at the annual meeting of
shareholders to be held in 2002. At each annual meeting of shareholders after
the initial classification, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been duly elected and qualified. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of an equal
number of directors. This classification of the board of directors may have the
effect of delaying or preventing a change of control or management of ShopNow.
See "Risk Factors--Provisions of Our Charter Documents and Washington Law Could
Discourage Our Acquisition By a Third Party." Pursuant to our cross promotion
agreement with 24/7 Media, 24/7 Media has the right to designate one nominee to
serve as a director. Each officer serves at the discretion of the board of
directors. There are no family relationships among any of our directors or
executive officers.
BOARD COMMITTEES
We currently have an audit committee and a compensation committee.
The audit committee reviews our financial controls and our accounting, audit
and reporting activities. The audit committee also makes recommendations to our
board of directors regarding the selection of independent auditors, reviews the
results and scope of audit and other services provided by our independent
auditors and reviews the accounting principles and auditing practices and
procedures to be used for the financial statements of ShopNow. Messrs. Lonsdale,
Maxwell and McClure constitute the audit committee.
The compensation committee reviews and recommends to the board of directors
the compensation and benefits for our officers, directors and employees. The
compensation committee also administers our stock option plan and will
administer our employee stock purchase plan upon completion of this offering.
Messrs. Lonsdale, McClure and Snedegar constitute the compensation committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Mr. Walker served both as our President and Chief
Executive Officer and as a member of the compensation committee. Currently, no
member of the compensation committee is an officer or employee of ShopNow. No
member of the compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from us for their
services as directors or members of committees of our board of directors, but
are reimbursed for their reasonable expenses incurred in attending board of
directors meetings. We are, however, authorized to pay members for attendance at
meetings or a salary in addition to reimbursement for expenses in connection
with attendance at meetings. In the past, we have granted options to purchase
common stock to non-employee members of the board of directors. See "Related
Transactions with Executive Officers, Directors and 5% Shareholders."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid for services rendered to ShopNow in all capacities for fiscal 1998 by
ShopNow's Chief Executive Officer and the other executive officers of ShopNow
who earned more than $100,000 during fiscal 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- -------------------------------------------------------------------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Dwayne M. Walker ................................................... 1998 $ 182,292 $ 50,000 335,475
Chairman, President and Chief Executive Officer
Ganapathy Krishnan, Ph.D. .......................................... 1998 112,083 13,000 110,475
Executive Vice President and Chief Technology Officer
</TABLE>
OPTION GRANTS. During fiscal 1998, we granted options to purchase a total
of 3,985,029 shares of common stock both outside of and under our stock option
plan to our employees, directors and consultants, including the individuals
listed in the Summary Compensation Table. No stock appreciation rights were
granted during fiscal 1998.
The following table sets forth certain information with respect to stock
options granted to each of the individuals listed in the Summary Compensation
Table in fiscal 1998. In accordance with SEC rules, potential realizable values
for the following table are:
- net of exercise price before taxes;
- based on the assumption that our common stock appreciates at the annual
rate shown, compounded annually, from the date of grant until the
expiration of the term; and
- based on the assumption that the option is exercised at the exercise price
and sold on the last day of its term at the appreciated price.
These numbers are calculated based on SEC requirements and do not reflect
our projection or estimate of future stock price growth. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION ------------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- -------------------------- ----------- --------------- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker.......... 25,000 *% $ 2.00 1/1/07 $ -- $ -- $ 8,949
310,000 7.8 4.00 8/1/08 -- 426,359 1,413,399
375 * 2.50 11/30/08 563 1,506 2,953
100 * 4.00 12/11/08 -- 252 637
Ganapathy Krishnan,
Ph.D.................... 10,000 * 2.00 3/18/00 -- -- --
100,000 2.5 2.00 6/1/08 -- 125,779 318,748
375 * 2.50 11/30/08 563 1,506 2,953
100 * 4.00 12/11/08 -- 252 637
</TABLE>
- ------------------------
* Less than 1.0% of total options granted to employees in last fiscal year.
FISCAL YEAR-END OPTION VALUES. The individuals named in the Summary
Compensation Table did not exercise any options during fiscal 1998. The
following table presents information about options held by the individuals named
in the Summary Compensation Table and the value of those options as of December
31, 1998. The value of in-the-money options is based on an assumed offering
price of $ per share, net of the option exercise price.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
Dwayne M. Walker.......................................... 286,934 509,999 $ $
Ganapathy Krishnan, Ph.D.................................. 14,475 100,000
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
ShopNow has entered into a written employment agreement with Mr. Walker
effective as of August 1, 1998 and terminating on August 1, 2000. The agreement
provides for an initial annual salary of $250,000. Mr. Walker's salary is to be
reviewed at the end of each calendar year by the board of directors and adjusted
at the board's sole discretion, provided, however, that Mr. Walker's salary may
not be adjusted downward without his consent. Pursuant to the agreement, Mr.
Walker received an option to purchase 310,000 shares of common stock at an
exercise price of $4.00. Mr. Walker receives a $400 monthly car allowance and
life insurance of $1,000,000. If Mr. Walker is terminated by ShopNow at any
time, whether such termination be with or without cause, ShopNow shall pay his
salary for a period of 24 months following termination. Mr. Walker may terminate
the agreement for "good reason." For purposes of the agreement, "good reason"
means and includes the occurrence without Mr. Walker's consent of a reduction in
his salary, our failure to provide compensation or benefits owed to him, our
requiring him to be based anywhere other than the greater Seattle area except
for reasonable business travel, a change in his position from Chairman,
President and Chief Executive
52
<PAGE>
Officer, his removal as Chairman other than by voluntary resignation, a change
in his duties or a material breach of the agreement that results in material
harm to him. If Mr. Walker gives 30 days' notice to us of his desire to
terminate his employment for good reason and we fail to cure, he may terminate
his employment and we must pay his salary for a period of 24 months. ShopNow and
Mr. Walker are currently negotiating an amendment to the agreement.
EMPLOYEE BENEFIT PLANS
401(k) PLAN
In November 1996, we established a discretionary 401(k) tax-qualified
employee savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age. Pursuant to our 401(k) plan,
eligible employees may elect to reduce their current compensation by up to the
lesser of 15% of their base compensation or the statutorily prescribed annual
limit, currently $10,000, and have the amount of such reduction contributed to
the 401(k) plan. Our 401(k) plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, so that contributions, and income earned on the
contributions, are not taxable until withdrawn. The 401(k) plan permits us to
make discretionary contributions based on compensation. To date, we have not
made any contributions to the 401(k) plan.
STOCK OPTION PLAN
In October 1996, we adopted our stock option plan. Our board of directors
amended and restated our stock option plan in June 1999. The amended stock
option plan is expected to be approved by our shareholders in July 1999, and
will be effective upon completion of this offering. The amended stock option
plan provides for the granting to employees of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986 and for the
granting to employees, directors and consultants of nonstatutory stock options
and stock purchase rights. Unless terminated sooner, the amended stock option
plan will terminate automatically in 2009. A total of 8,000,000 shares of common
stock is currently reserved for issuance pursuant to the amended stock option
plan. In addition, the amended stock option plan provides for automatic annual
increases equal to the lesser of 750,000 shares, 3% of the outstanding shares on
such date, or an amount determined by the board of directors. As of March 31,
1999, options to purchase 50,599 shares of common stock had been exercised and
options to purchase 2,504,589 shares of common stock were outstanding under the
stock option plan with a weighted-average exercise price of $2.74.
The amended stock option plan may be administered by the board of directors
or a committee of the board of directors, which administrator shall, in the case
of options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, consist of two
or more "outside directors" within the meaning of Section 162(m). The
administrator has the power to determine the terms of the options or stock
purchase rights granted, including the exercise price, the number of shares
subject to each option or stock purchase rights, the exercisability thereof, and
the form of consideration payable upon such exercise. The board of directors has
the authority to amend, suspend or terminate the amended stock option plan,
provided that no such action may affect any share of common stock previously
issued and sold or any option previously granted under the amended stock option
plan.
Options and stock purchase rights granted under the amended stock option
plan are not generally transferable by the optionee, and each option and stock
purchase right is exercisable during the lifetime of the optionee only by such
optionee. Options granted under the amended stock option plan must generally be
exercised within three months of the optionee's separation from service to us,
or within 12 months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's 10 year term. In the
case of stock purchase rights, unless the administrator
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<PAGE>
determines otherwise, the restricted stock purchase agreement shall grant us a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service for any reason, including death or disability. The
purchase price for shares repurchased pursuant to the restricted stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
shall lapse at a rate determined by the administrator. The exercise price of all
incentive stock options granted under the amended stock option plan must be at
least equal to the fair market value of the common stock on the date of grant.
The exercise price of nonstatutory stock options and stock purchase rights
granted under the amended stock option plan is determined by the administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m), the
exercise price must at least be equal to the fair market value of the common
stock on the date of grant. The term of all other options granted under the
amended stock option plan may not exceed 10 years.
The amended stock option plan provides that in the event of our merger with
or into another corporation or a sale of substantially all of our assets, each
option or right shall be assumed or an equivalent option or right substituted by
the successor corporation. If the outstanding options or rights are not assumed
or substituted as described in the preceding sentence, the administrator shall
notify the optionee that he or she will have the right to exercise the option or
stock purchase right as to all of the optioned stock, including shares as to
which he or she would not otherwise be exercisable, for a period of 15 days from
the date of such notice, and the option or stock purchase right will terminate
upon the expiration of such period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted in June 1999, is expected to be
approved by our shareholders in July 1999, and will be effective upon the
completion of this offering. Initially, 2,000,000 shares of common stock will be
reserved for issuance under the employee stock purchase plan. Additionally, the
employee stock purchase plan provides for an automatic annual increase on the
first day of our fiscal year beginning in 2002 equal to the lesser of:
- 600,000 shares;
- 2% of the outstanding shares on that date; or
- a lesser amount determined by the board of directors.
The employee stock purchase plan is intended to qualify under Section 423 of
the Internal Revenue Code of 1986. The board of directors or a board committee
will administer the employee stock purchase plan. Our employees, including
officers and directors of ShopNow who are also employees are eligible to
participate in the employee stock purchase plan if they are customarily employed
for more than 20 hours per week and more than 5 months per year. The employee
stock purchase plan will be implemented by consecutive offering periods
generally six months in duration. However, the first offering period under the
employee stock purchase plan will commence on the effective date of this
offering and terminate on or before April 30, 2000. The board of directors may
change the timing or duration of the offering periods.
The employee stock purchase plan permits our eligible employees to purchase
shares of common stock through payroll deductions at 85% of the lower of the
fair market value of the common stock on the first day of the offering period or
a specified exercise date. Participants generally may not purchase shares if,
immediately after the grant, the participant would own stock or options to
purchase stock totaling 5% or more of the total combined voting power of all
stock of ShopNow, or more than $25,000 of our stock in any calendar year. In
addition, a participant may not purchase more than 3,000 shares during any
offering period. In the event of a sale or merger of ShopNow, the board of
directors
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<PAGE>
may accelerate the exercise date of the current purchase period to a date prior
to the change of control.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
Upon the closing of this offering, our articles of incorporation will limit
the liability of directors to the fullest extent permitted by the Washington
Business Corporation Act as it currently exists or as it may be amended in the
future. Consequently, subject to the Washington Business Corporation Act, no
director shall be personally liable to us or our shareholders for monetary
damages resulting from his or her conduct as a director of ShopNow, except
liability for
- acts or omissions involving intentional misconduct or knowing violations
of law,
- unlawful distributions, or
- transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally entitled.
Any repeal of or modification to our articles of incorporation may not adversely
affect any right or protection of a director of ShopNow who is or was a director
at the time of such repeal or modification.
In addition, upon the closing of this offering, our bylaws will provide that
we will indemnify any individual who was, is or is threatened to be made a party
to or is otherwise involved in any threatened, pending or completed action,
suit, claim or proceeding by reason of the fact that he or she is or was a
director or officer of ShopNow. This right to indemnification will continue as
to an individual who has ceased to be a director or officer. Our bylaws will
provide that we may indemnify our other officers and employees and other agents.
We intend to obtain and maintain directors' and officers' liability insurance,
under which our directors and officers may be indemnified against liability they
incur for serving in their capabilities as directors and officers.
We understand that the current position of the SEC is that any
indemnification of our directors and officers for liabilities arising under the
Securities Act of 1933 is against public policy and is, therefore,
unenforceable.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws and our liability
insurance will facilitate our ability to continue to attract and retain
qualified individuals to serve as directors and officers.
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<PAGE>
RELATED TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
5% SHAREHOLDERS
In connection with our acquisition of Media Assets in September 1998, Jeff
Haggin joined ShopNow as an executive officer and he received 600,000 shares of
our common stock, $300,000 in cash, a negotiable promissory note in the
aggregate principal amount of $1,041,500 and options to purchase an aggregate of
1,120,000 shares of our common stock. These options included performance-based
options to purchase 900,000 shares of common stock. In May 1999, Mr. Haggin
exchanged his performance-based options for options to purchase 300,000 shares
of common stock.
In April 1999, we issued to 24/7 Media 4,300,000 shares of Series G
convertible preferred stock at $7.00 per share in exchange for $30.1 million in
consideration, consisting of cash, shares of 24/7 common stock and 24/7's
majority interest in CardSecure. A portion of the shares of Series G convertible
preferred stock and of the warrants were placed in escrow pending consummation
of our acquisition of CardSecure, which occurred on June 15, 1999. 24/7 Media
also received warrants to purchase 860,000 shares of common stock at $7.00 per
share. 24/7 Media beneficially owns five percent or more of our securities.
On various occasions during 1999 and fiscal 1998, we granted the following
options to purchase shares of our common stock to the following executive
officers and directors:
- On January 8, 1998, August 1, 1998, November 30, 1998 and December 11,
1998, we granted Mr. Walker options to purchase 25,000, 310,000, 375 and
100 shares of common stock, respectively, with exercise prices of $2.00,
$4.00, $2.50 and $4.00, respectively;
- On September 15, 1998, September 30, 1998 and December 11, 1998, we
granted Mr. Haggin options to purchase 300,000, 220,000 and 100 shares of
common stock, respectively, with exercise prices of $2.00, $1.00 and
$4.00, respectively;
- On June 8, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Koslow options to purchase 150,000, 375, 100 and
40,000 shares of common stock, respectively, with exercise prices of
$1.75, $2.50, $4.00 and $2.00, respectively;
- On March 18, 1998, June 1, 1998, November 30, 1998 and December 11, 1998,
we granted Dr. Krishnan options to purchase 10,000, 100,000, 375 and 100
shares of common stock, respectively, with exercise prices of $2.00,
$2.00, $2.50 and $4.00, respectively;
- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Palomino options to purchase 10,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;
- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Ms. Savage options to purchase 13,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;
- On November 16, 1998 and December 11, 1998, we granted Mr. Arciniega
options to purchase 250,000 and 100 shares of common stock, respectively,
with exercise prices of $4.00;
- On both September 30, 1998 and May 3, 1999, we granted Mr. Lonsdale
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;
- On May 3, 1999, we granted Mr. Maxwell options to purchase 50,000 shares
of common stock with exercise prices of $7.00;
- On both September 30, 1998 and May 3, 1999, we granted Mr. McClure options
to purchase 50,000 shares of common stock with exercise prices of $4.00
and $7.00, respectively;
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<PAGE>
- On both September 30, 1998 and May 3, 1999, we granted Mr. Snedegar
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;
- On May 3, 1999, we granted Mr. Terbeek options to purchase 50,000 shares
of common stock with exercise prices of $7.00;
- On May 3, 1999, we granted Mr. Cecchini options to purchase 50,000 shares
of common stock with exercise prices of $7.00; and
- In June 1999, we granted Mr. Walker, Mr. Koslow, Dr. Krishnan, Mr.
Palomino, Ms. Savage and Mr. Arciniega options to purchase 450,000,
110,000, 35,525, 50,000, 122,675 and 50,000 shares of common stock,
respectively, at an exercise price equal to the lower of the low point of
the filing range as indicated in our preliminary prospectus for this
offering, and the initial public offering price. These options vest upon
the effectiveness of the registration statement relating to this offering.
We believe that all of these transactions were made on terms as favorable to
us as we would have received from unaffiliated third parties. Any future
transactions between us and our officers, directors and greater than 5%
shareholders and their affiliates will be approved by a majority of the board of
directors, including a majority of our disinterested, non-employee directors.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to ShopNow with respect to
the beneficial ownership of our common stock as of June 1, 1999 by (i) each
shareholder known by ShopNow to own beneficially more than 5% of its common
stock, (ii) each of the individuals listed on the Summary Compensation Table,
(iii) each director of ShopNow, and (iv) all directors and executive officers as
a group.
The percentage ownership in the table below is based on 22,818,037 shares
outstanding as of June 1, 1999. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of the
proposed effective date of the offering are deemed outstanding for the purpose
of computing the percentage ownership of the person holding the options but are
not deemed outstanding for computing the percentage ownership of any other
person. Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned subject to community property laws where applicable.
The number of shares includes 18,094,565 shares of common stock issuable
upon the automatic conversion of our convertible preferred stock upon
consummation of this offering and the exercise and conversion of all 167,047
warrants to purchase Series C convertible preferred stock. The convertible
preferred stock converts at a ratio of 1 for 1. The percentage of shares
outstanding after the offering assumes the underwriters' over-allotment is not
exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES ------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OR GROUP OF BENEFICIAL OWNERS(1) OWNED OFFERING OFFERING
- ---------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
24/7 Media, Inc........................................... 5,160,000 22.6%
Bret R. Maxwell(2)........................................ 2,924,628 12.8
Mark H. Terbeek(3)........................................ 2,924,628 12.8
Dwayne M. Walker.......................................... 2,447,056 10.7
Environmental Private Equity Fund II, L.P................. 1,462,314 6.4
The Productivity Fund III, L.P............................ 1,462,314 6.4
Ganapathy Krishnan, Ph.D.................................. 935,583 4.1
Mark C. McClure........................................... 104,175 * *
Garrett P. Cecchini....................................... -- -- --
David M. Lonsdale......................................... -- -- --
John R. Snedegar.......................................... -- -- --
All directors and executive officers as a group (13
persons) (4)............................................ 7,763,370 34.0%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) The address of Mr. Walker is c/o ShopNow.com, 411 First Avenue South, Suite
200 North, Seattle, Washington 98101. The address of Environmental Private
Equity Fund II, L.P., The Productivity Fund III, L.P. and Messrs. Maxwell
and Terbeek is c/o First Analysis Corporation, The Sears Tower, Suite 950,
233 South Wacker Drive, Chicago, IL 60606. The address of 24/7 Media, Inc.
is 1250 Broadway, 28th Floor, New York, NY 10001.
(2) Includes 1,462,314 shares held by each of the Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. Mr. Maxwell is Vice
Chairman of First Analysis Corporation, which is the manager of the funds.
Mr. Maxwell disclaims beneficial ownership of all shares held by the
Environmental Private Equity Fund II, L.P. and The Productivity Fund III,
L.P. except to the extent of his pro rata pecuniary interest therein.
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<PAGE>
(3) Includes 1,462,314 shares held by each of the Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. Mr. Terbeek was formally
an Associate with First Analysis Corporation, which is the manager of the
funds. Mr. Terbeek disclaims beneficial ownership of all shares held by the
Environmental Private Equity Fund II, L.P. and The Productivity Fund III,
L.P. except to the extent of his pro rata pecuniary interest therein.
(4) Includes an aggregate of 17,500 shares subject to option exercisable within
60 days of the proposed effective date of the offering, held by the
directors and officers (13 persons).
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, ShopNow's authorized capital stock will
consist of 200,000,000 shares of common stock, $0.01 par value, and 5,000,000
shares of preferred stock, $0.01 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our articles of incorporation and bylaws, which are included as
exhibits to the registration Statement of which this prospectus forms a part,
and by the provisions of applicable Washington law.
COMMON STOCK
As of March 31, 1999, and including the automatic conversion of all
outstanding shares of our preferred stock into common stock and the exercise and
automatic conversion into common stock of all warrants to purchase our Series C
convertible preferred stock upon the completion of this offering, there were
outstanding 17,685,863 shares of common stock held of record by approximately
400 shareholders and options to purchase 4,517,822 shares of common stock.
The holders of common stock are entitled to one vote on each matter
submitted to a vote of the shareholders. Subject to preferences that may apply
to shares of preferred stock outstanding at the time, the holders of outstanding
shares of common stock shall be entitled to receive ratably dividends at such
times and in such amounts as may be determined by the board of directors. In the
event of any dissolution, liquidation or winding up, the holders of common stock
are entitled to share ratably in all of the assets remaining after payment or
provision for payment of the debts and other liabilities and the liquidation
preference of any outstanding shares of preferred stock. The holders of common
stock have no preemptive or subscription rights. There are no conversion rights,
redemption rights, sinking fund provisions or fixed dividend rights with respect
to the common stock. The holders of common stock are not entitled to cumulative
voting at any election of directors. All outstanding shares of common stock are
fully paid and non-assessable, and the shares of common stock to be issued in
the offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering, the outstanding shares of Series A,
Series B, Series C, Series D, Series E, Series F, Series G and Series H
preferred stock will automatically convert into common stock. Upon completion of
this offering, the board of directors will have authority, pursuant to our
articles of incorporation and without further action by the shareholders, to
issue up to 5,000,000 shares of preferred stock in one or more series. The board
of directors may also determine or alter for each series such voting powers,
designations, preferences, and special rights, qualifications, limitations or
restrictions as permitted by law. The board of directors may authorize the
issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of the common
stock. The issuance 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 ShopNow and may adversely affect the market price of the common stock
and the voting and other rights of the holders of common stock. There will
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<PAGE>
be no shares of preferred stock outstanding upon the consummation of this
offering, and we have no current plans to issue any shares of preferred stock.
COMMON STOCK WARRANTS
Upon the closing of this offering, we will have warrants outstanding to
purchase an aggregate of 4,200,818 shares of common stock at exercise prices
ranging from $1.00 to $10.00 per share. These warrants contain anti-dilution
provisions providing for adjustments to the exercise price and the number of
shares of common stock underlying these warrants upon the occurrence of
specified events, including any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction.
Additionally, immediately prior to the closing of this initial public
offering, there were warrants outstanding to purchase 167,047 shares of Series C
preferred stock at an exercise price of $1.50 per share. The right to purchase
shares of Series C preferred stock pursuant to such warrants expires with the
closing of an underwritten public offering pursuant to an effective registration
statement.
OTHER EQUITY-BASED AGREEMENTS
From time to time in connection with the negotiation of material agreements,
we may use equity-based arrangements, including warrants to purchase shares of
common stock, as an incentive for a strategic partner to enter into an agreement
with ShopNow.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of
approximately 21,768,044 shares of common stock to be issued upon conversion of
the preferred stock will be entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933. Under the terms of
our registration rights agreement, the holders of more than 50% of the
registrable securities issued and issuable may request, by written notice nine
months after the effective date of the first registration statement filed by
ShopNow covering a public offering of its securities, that ShopNow register any
registrable securities specified in the notice in a public offering with a
public offering price of at least $5.00 per share of common stock and the
anticipated aggregate proceeds of which would exceed $4.0 million. Also under
the terms of our registration rights agreement, the holders of more than 50% of
the registrable securities issued and issuable may require that ShopNow register
its shares for public resale on Form S-2, Form S-3 or similar short-form
registration, provided that ShopNow is a registrant entitled to use such a form
and that the value of the securities to be registered is at least $750,000.
ShopNow is not obligated to effect any such short-form registration at any time
more than three years after the initial public offering or if it has effected
one such registration during the immediately preceding twelve-month period.
These registration rights are subject to the right of the managing underwriter
to reduce the number of shares proposed to be registered in view of market
conditions. All expenses in connection with any registration will be borne by
ShopNow. A holders' registration rights will terminate on the closing of the
first company-initiated registered public offering of common stock, or on such
date after such event, if the holder is entitled to immediately sell all of its
shares under Rule 144 of the Securities Act during any 90-day period and the
holders of the registrable stock own less than 1% of the outstanding common
stock.
WASHINGTON ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Washington law and our articles of incorporation and
bylaws could make more difficult the acquisition of ShopNow by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of ShopNow to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or
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<PAGE>
unsolicited proposal to acquire or restructure ShopNow outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS. Effective upon the closing of this
offering, our articles of incorporation will provide for the division of our
board of directors into three classes, as nearly as equal in number as possible,
with the directors in each class serving for a three-year term, and one class
being elected each year by our shareholders. The initial term of the Class I
directors expires at our annual meeting of shareholders to be held in 2000; the
initial term of the Class II directors expires at our annual meeting of
shareholders to be held in 2001; and the initial term of the Class III directors
expires at our annual meeting of shareholders to be held in 2002. Thereafter,
the term of each class of directors shall be three years. This system of
electing and removing directors generally makes it more difficult for
shareholders to replace a majority of the members of our board of directors and
may tend to discourage a third party from making a tender offer or otherwise
attempting to gain control of ShopNow and may have the effect of maintaining the
incumbency of our board of directors.
SHAREHOLDER MEETING. Effective upon the completion of this offering, our
bylaws will provide that, except as otherwise required by law or by our articles
of incorporation, special meetings of the shareholders may only be called
pursuant to a resolution adopted by our board of directors, the Chairman of our
board of directors or our President. These provisions of our articles of
incorporation and bylaws could discourage potential acquisition proposals and
could delay or prevent a change of control. Our intent in using these provisions
is to enhance the likelihood of continuity and stability in the composition of
our board of directors and in the policies formulated by them and to discourage
certain types of transactions that may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, these provisions could have the effect of
discouraging others from making tender offers for our shares and, as a
consequence, they could inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. Such provisions
could have the effect of preventing changes in our management.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Effective upon the completion of this offering, our bylaws will
contain advance notice procedures with respect to shareholder proposals and the
nomination of candidates for election as directors, other than nominations made
by or at the direction of the board of directors or a committee thereof.
WASHINGTON ANTI-TAKEOVER LAW. Washington law imposes restrictions on some
transactions between a corporation and certain significant shareholders. Chapter
23B.19 of the Washington Business Corporation Act prohibits a "target
corporation," with some exceptions, from engaging in certain significant
business transactions with an "acquiring person," which is defined as a person
or group of persons that beneficially owns 10% or more of the voting securities
of the target corporation, for a period of five years after such acquisition,
unless the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors prior to the time of such
acquisition. Such prohibited transactions include, among others things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change of control of ShopNow.
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<PAGE>
SHAREHOLDER ACTION BY WRITTEN CONSENT. Effective upon the closing of this
Offering, our Amended and Restated Articles of Incorporation permit shareholders
to act by written consent without a meeting only with the written consent of all
shareholders entitled to vote on the subject matter.
ELIMINATION OF CUMULATIVE VOTING. Effective upon the closing of this
Offering, our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws do not provide for cumulative voting in the election of
directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of ShopNow. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of ShopNow.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
NASDAQ NATIONAL MARKET LISTING
We will apply for approval for quotation on the Nasdaq National Market under
the symbol "SPNW" for the shares of common stock we are offering.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair our future ability to raise capital
through the sale of equity securities. See "Risk Factors--Future Sales of Our
Common Stock May Depress Our Stock Price."
Upon the closing of this offering, we will have an aggregate of
shares of common stock outstanding, based upon shares outstanding as
of March 31, 1999 and assuming the automatic conversion of all of our
outstanding preferred stock and the exercise and automatic conversion of all
warrants to purchase our Series C convertible preferred stock into an aggregate
of 13,032,657 shares of common stock upon the completion of this offering, no
exercise of the underwriters' over-allotment option, and no exercise of
outstanding options or warrants. Of the outstanding shares, the
shares sold in this offering will be freely tradable without restriction under
the Securities Act of 1933 except for any shares purchased by "affiliates" of
ShopNow as that term is defined in Rule 144 under the Securities Act of 1933.
The remaining 17,685,863 shares of common stock held by existing shareholders
will be deemed "restricted securities" as that term is defined in Rule 144. All
of these restricted securities will be subject to lock-up agreements providing
that, with certain limited exceptions, the shareholder will not offer, sell,
contract to sell or otherwise dispose of any securities of ShopNow that are
substantially similar to the common stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of the lock-up agreement) for a period of 180 days after the date
of this prospectus without the prior written consent of Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, none of these shares may be sold until 180 days after
the date of this prospectus. Upon the expiration of the lock-up agreements,
approximately 11,929,407 restricted
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<PAGE>
securities will be eligible for sale in the public market, subject, in some
cases, to volume limitations. At various times thereafter, approximately
5,756,456 restricted securities will become eligible for sale, subject, in some
cases, to volume limitations. In addition, as of March 31, 1999, there were
outstanding options to purchase 4,517,822 shares of common stock and warrants to
purchase 2,479,389 shares of common stock. All such options and warrants will be
subject to lock-up agreements. Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock (approximately shares immediately after this
offering) or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions. In addition, a person who is not deemed to have been an
affiliate 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 would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to ShopNow who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this Prospectus before selling
such shares. However, all Rule 701 shares will be subject to lock-up agreements
and will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or upon the prior written consent of Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated.
We intend to file one or more registration statements on Form S-8 under the
Securities Act of 1933 to register all shares of common stock issued or issuable
under our stock plans. We expect to file the registration statement covering
shares offered pursuant to our stock option plan and employee stock purchase
plan within 180 days after the date of this prospectus, thus permitting the
resale of such shares by nonaffiliates in the public market without restriction
under the Securities Act.
Also beginning six months after the date of this offering, holders of
11,929,407 Restricted Shares and holders of warrants to purchase shares of
common stock will be entitled to certain rights with respect to registration of
such shares for sale in the public market. See "Description of Capital
Stock--Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradable without restriction
under the Securities Act (except for shares purchased by affiliates) immediately
upon the effectiveness of such registration.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, the underwriters named below, for whom Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, U.S. Bancorp Piper Jaffray Inc.,
SoundView Technology Group, Inc. and Wit Capital Corporation are acting as
representatives, have severally but not jointly agreed to purchase from us the
following numbers of shares of common stock listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Dain Rauscher Wessels................................................................................
U.S. Bancorp Piper Jaffray Inc.......................................................................
SoundView Technology Group, Inc......................................................................
Wit Capital Corporation..............................................................................
----------
Total..............................................................................................
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all the shares of common stock offered hereby if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement provides that, in the event of a
default by an underwriter, in certain circumstances the purchase commitments of
nondefaulting underwriters may be increased or the underwriting agreement may be
terminated.
We have granted to the underwriters a 30-day option to purchase up to
shares of common stock at the initial public offering price less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments in the sale of shares of common stock.
The underwriters have advised us that they propose to offer the shares to
the public initially at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters and such dealers may reallow a
concession of $ per share on sales to certain other dealers. After the initial
public offering, the representatives may change the public offering price and
concession and discount to dealers.
The following table summarizes the per share and total underwriting
discounts and commissions to be paid to the underwriters by ShopNow, without
exercise of the over-allotment option and with exercise of the over-allotment
option:
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
-------------- --------------
<S> <C> <C>
Per share......................................................................... $ $
Total............................................................................. $ $
</TABLE>
We will also pay the total expenses of this offering.
We, our officers and directors, and certain of our shareholders have agreed
that they will not offer, sell, contract to sell, announce an intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933 relating to any additional shares of common stock or securities
convertible into or exchangeable or exercisable for any shares of common stock
or securities convertible into or exchangeable or exercisable for any of our
shares without the prior written consent of Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, for a period of days after the date of this
prospectus, except in the case of issuances pursuant to the exercise of employee
stock options outstanding on the date hereof.
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The underwriters intend to reserve for sale, at the initial public offering
price, up to shares of common stock for our directors, officers,
employees and business associates. In addition, the underwriters may reserve, at
the initial public offering price, up to an additional shares for
. As a result, the number of shares of common stock available for
sale to the general public will be reduced to the extent such persons purchase
the reserved shares. The underwriters will offer to the general public any
reserved shares that are not so purchased, on the same basis as the other shares
to be sold in this offering.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act and liabilities arising
from breaches of representations and warranties contained in the underwriting
agreement, or to contribute to payments which the underwriters may be required
to make in respect thereof.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between the representatives and us. The principal factors to be considered in
determining the public offering price include: the information set forth in this
prospectus and otherwise available to the representatives, the history and the
prospects for the industry in which we compete, the ability of our management,
our prospects for future earnings, the present state of our development and our
current financial condition, the general condition of the securities markets at
the time of this offering, and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format is being made available on a Web site
maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement, all
dealers purchasing shares from Wit Capital in the offering similarly have agreed
to make a prospectus in electronic format available on Web sites maintained by
each of the e-Dealers. Other than the prospectus in electronic format, the
information on these Web sites is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in such capacity and should not be
relied on by prospective investors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Kirkland,
Washington and Palo Alto, California. Certain legal matters will be passed upon
for the underwriters by Faegre & Benson LLP, Minneapolis, Minnesota.
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EXPERTS
The audited financial statements for ShopNow.com Inc., Media Assets, Inc.,
and The Internet Mall, Inc. and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The audited financial statements for GO Software, Inc. included in this
prospectus have been audited by Ernst & Young LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said financial experts in giving said
reports.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
Our board of directors has selected Arthur Andersen LLP to serve as
independent public accountants. Arthur Andersen LLP has served as our
independent public accountants since August 1998. In August 1998, we dismissed
Ernst & Young LLP as our independent accountants. Ernst & Young's report on the
Company's consolidated financial statements for the two years ended December 31,
1997 does not cover the consolidated financial statements of the Company
included in this prospectus. Ernst & Young's reports on the financial statements
for the years ended December 31, 1996 and 1997 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. The decision to change
independent accountants was approved by the board of directors. During the years
ended December 31, 1996 and 1997 and through August, 1998 there were no
reportable events, as defined in regulations of the Securities and Exchange
Commission, or disagreements with Ernst & Young LLP on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Prior to retaining Arthur Andersen LLP, we had not consulted with
Arthur Andersen LLP regarding accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933, that registers the
shares of common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules filed with the registration statement. For more information about us
and the common stock offered hereby, you should review the registration
statement and the exhibits and schedules filed with the registration statement.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, you should review the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules filed with the
registration statement may be inspected and copied at the following location of
the Securities and Exchange Commission:
PUBLIC REFERENCE ROOM
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549.
You may also obtain copies of all or any part of the registration statement
from that office at prescribed rates. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference room. The Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheets.............................................................. F-3
Unaudited Pro Forma Combined Statements of Operations.................................................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements............................................... F-6
ShopNow.com Inc.
Report of Independent Public Accountants................................................................. F-8
Consolidated Balance Sheets.............................................................................. F-9
Consolidated Statements of Operations.................................................................... F-10
Consolidated Statements of Shareholders' Equity (Deficit)................................................ F-11
Consolidated Statements of Cash Flows.................................................................... F-12
Notes to Consolidated Financial Statements............................................................... F-14
Media Assets, Inc.
Report of Independent Public Accountants................................................................. F-30
Balance Sheets........................................................................................... F-31
Statements of Operations................................................................................. F-32
Statements of Shareholder's Equity....................................................................... F-33
Statements of Cash Flows................................................................................. F-34
Notes to Financial Statements............................................................................ F-35
The Internet Mall, Inc.
Report of Independent Public Accountants................................................................. F-39
Balance Sheets........................................................................................... F-40
Statements of Operations................................................................................. F-41
Statements of Shareholders' Equity....................................................................... F-42
Statements of Cash Flows................................................................................. F-43
Notes to Financial Statements............................................................................ F-44
GO Software, Inc...........................................................................................
Report of Independent Auditors........................................................................... F-49
Balance Sheets........................................................................................... F-50
Statements of Operations................................................................................. F-51
Statements of Shareholders' Equity....................................................................... F-52
Statements of Cash Flows................................................................................. F-53
Notes to Financial Statements............................................................................ F-54
</TABLE>
F-1
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet of ShopNow.com Inc. at March
31, 1999 gives effect to the acquisition of GO Software, Inc. and the
disposition of BuySoftware.com as if these transactions were consummated on
March 31, 1999. The unaudited pro forma combined statement of operations of
ShopNow.com Inc. for the year ended December 31, 1998 and for the three months
ended March 31, 1999 gives effect to the acquisitions of Media Assets, Inc., The
Internet Mall Inc. and GO Software, Inc. and the disposition of BuySoftware.com
as if they occurred on January 1, 1998.
Pro forma financial information for the acquisition of e-Warehouse and
CyberTrust, Inc. is not provided as the amounts are not considered meaningful.
The Company has written off the majority of the purchase price due to the fact
that the acquired technology is not currently being used.
The unaudited pro forma combined balance sheet and statement of operations
are presented for informational purposes only and do not purport to represent
what the Company's financial position and results of operations for the year
ended December 31, 1998 or for the three months ended March 31, 1999 would
actually have been had the acquisitions, in fact, occurred on January 1, 1998,
or the Company's results of operations for any future period. The unaudited pro
forma combined balance sheet and statement of operations should be read in
conjunction with the financial statements and related notes thereto included
elsewhere in this prospectus and the information set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
F-2
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHOPNOW.COM GO SOFTWARE, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED TOTAL
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments........................... $ 6,373 $ 713 $(4,700)(a) $ 2,386
Accounts receivable, net.................................. 1,545 180 -- 1,725
Prepaid expenses and other................................ 3,331 47 -- 3,378
Property and equipment, net............................... 5,241 84 -- 5,325
Intangible assets, net.................................... 4,355 -- 14,666(a) 19,021
Other assets, net......................................... 916 67 -- 983
----------- ------------ ----------- --------------
Total assets............................................ $ 21,761 $ 1,091 $ 9,966 $ 32,818
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
Liabilities and shareholders' equity:
Accounts payable and accrued liabilities.................. $ 3,824 $ 104 $ -- $ 3,928
Customer deposits......................................... 2,683 -- -- 2,683
Other current liabilities................................. 659 33 1,000(a) 1,692
Notes and leases payable.................................. 5,996 -- -- 5,996
----------- ------------ ----------- --------------
Total liabilities....................................... 13,162 137 1,000 14,299
----------- ------------ ----------- --------------
Preferred stock............................................. 38,449 1,194 (1,194)(b) 38,449
Common stock................................................ 9,842 17 (17)(b) 19,762
9,920(a)
Deferred compensation....................................... (797) -- -- (797)
Accumulated deficit......................................... (38,895) (257) 257(b) (38,895)
----------- ------------ ----------- --------------
Total shareholders' equity.............................. 8,599 954 8,966 18,519
----------- ------------ ----------- --------------
Total liabilities and shareholders' equity............ $ 21,761 $ 1,091 $ 9,966 $ 32,818
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(JANUARY 1, 1998 (JANUARY 1, 1998
TO TO
AUGUST 8, 1998) SEPTEMBER 17, PRO FORMA
SHOPNOW.COM THE INTERNET MALL, 1998) GO SOFTWARE, PRO FORMA COMBINED
INC. INC. MEDIA ASSETS, INC. INC. ADJUSTMENTS TOTAL
----------- ------------------ ------------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transactions and
merchandising............. $ 4,211 $ 175 $ -- $1,346 $(3,931)(e) $ 1,801
Merchant services........... 2,943 4,833 (530)(e) 7,246
----------- ----- ------ ------ ----------- ---------
Total revenues............ 7,154 175 4,833 1,346 (4,461) 9,047
----------- ----- ------ ------ ----------- ---------
Cost of revenues:
Transactions and
merchandising............. 4,285 24 -- 55 (3,973)(e) 391
Merchant services........... 1,564 -- 2,808 -- (101)(e) 4,271
----------- ----- ------ ------ ----------- ---------
Total cost of revenues.... 5,849 24 2,808 55 (4,074) 4,662
----------- ----- ------ ------ ----------- ---------
Gross profit............ 1,305 151 2,025 1,291 (387) 4,385
----------- ----- ------ ------ ----------- ---------
Operating expenses:
Sales and marketing......... 12,182 56 603 143 (2,967)(e) 10,017
General and
administrative............ 3,732 275 1,080 1,006 (1,551)(e) 4,542
Research and development.... 4,370 114 -- 253 (1,798)(e) 2,939
Amortization of intangible
assets.................... 730 -- 1 -- 4,837(c) 5,568
Unusual item--write-off of
acquired technology....... 5,207 -- -- -- -- 5,207
----------- ----- ------ ------ ----------- ---------
Total operating
expenses................ 26,221 445 1,684 1,402 (1,479) 28,273
----------- ----- ------ ------ ----------- ---------
Income (loss) from
operations.................. (24,916) (294) 341 (111) 1,092 (23,888)
Other income (expense), net... 171 (13) 17 41 (125)(d) 91
----------- ----- ------ ------ ----------- ---------
Loss before provision for
income taxes................ (24,745) (307) 358 (70) 967 (23,797)
Provision for income taxes.... -- -- -- 17 (17)(f)
----------- ----- ------ ------ ----------- ---------
Net (loss) income....... $(24,745) $(307) $ 358 $ (53) $ 950 $(23,797)
----------- ----- ------ ------ ----------- ---------
----------- ----- ------ ------ ----------- ---------
Basic and diluted net loss per
share....................... $ (7.01) $ (4.23)(g)
----------- ---------
----------- ---------
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share................... 3,532 5,622
----------- ---------
----------- ---------
Basic and diluted pro forma
net loss per share.......... $ (1.92) $ (1.59)(g)
----------- ---------
----------- ---------
Weighted average shares used
to compute basic and diluted
pro forma net loss per
share....................... 12,858 14,959
----------- ---------
----------- ---------
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SHOPNOW.COM INC. GO SOFTWARE, INC. ADJUSTMENTS COMBINED TOTAL
----------------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Transactions and merchandising.............. $ 5,728 $ 430 $ (5,377)(e) $ 781
Merchant services........................... 1,840 -- (111)(e) 1,729
------- ----- ----------- -------
Total revenues............................ 7,568 430 (5,488) 2,510
------- ----- ----------- -------
Cost of revenues:
Transactions and merchandising.............. 6,171 22 (5,874)(e) 319
Merchant services........................... 969 -- (17)(e) 952
------- ----- ----------- -------
Total cost of revenues.................... 7,140 22 (5,891)(e) 1,271
------- ----- ----------- -------
Gross profit............................ 428 408 403 1,239
------- ----- ----------- -------
Operating expenses:
Sales and marketing......................... 5,263 55 (706)(e) 4,612
General and administrative.................. 1,450 409 (209)(e) 1,650
Research and development.................... 1,452 -- (317)(e) 1,135
Amortization of intangible assets........... 558 -- 1,222(c) 1,780
Unusual item--write-off of acquired
technology................................ -- -- -- --
------- ----- ----------- -------
Total operating expenses.................. 8,723 464 (10) 9,177
------- ----- ----------- -------
Loss from operations (8,295) (56) 413 (7,938)
Other income (expense), net................. 15 7 (25)(d) (3)
------- ----- ----------- -------
Loss before provision for income taxes...... (8,280) (49) 388 (7,941)
Provision for income taxes.................. -- 12 (12)(f) --
------- ----- ----------- -------
Net loss................................ $ (8,280) $ (37) $ 376 $ (7,941)
------- ----- ----------- -------
------- ----- ----------- -------
Basic and diluted net loss per share.......... $ (1.78) $ (1.35)
------- -------
------- -------
Weighted average shares outstanding used to
compute net loss per share.................. 4,645 5,885
------- -------
------- -------
Basic and diluted pro forma net loss per
share....................................... $ (0.48) $ (0.43)
------- -------
------- -------
Weighted average shares used to compute basic
and diluted pro forma net loss per share.... 17,169 18,409
------- -------
------- -------
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION:
The unaudited pro forma combined balance sheet gives effect to the
acquisition of GO Software, Inc. and the disposition of BuySoftware.com as if
these transactions were consummated on March 31, 1999. The pro forma adjustments
are based on consideration exchanged or surrendered, including the estimated
fair value of assets acquired, liabilities assumed and common stock issued. The
actual adjustments, which will be based on valuations of fair value as of the
date of acquisition or disposition, may differ from that made herein.
The pro forma combined statement of operations for the year ended December
31, 1998 and for the three months ended March 31, 1999 gives effect to the
acquisitions of Media Assets, Inc., The Internet Mall, Inc., and GO Software,
Inc. and the disposition of BuySoftware.com as if these transactions had
occurred January 1, 1998. As GO Software was acquired and BuySoftware.com was
disposed of subsequent to March 31, 1999 the historical results of operations of
ShopNow for the year ended December 31, 1998 and for the three months ended
March 31, 1999 do not include any amounts related to these transactions.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow for the fair value of the assets acquired and liabilities assumed.
2. PRO FORMA ADJUSTMENTS:
(a) To record the acquisition of GO Software, Inc. as follows:
<TABLE>
<S> <C>
Purchase price................................................... $ 15,620
Net assets acquired.............................................. 954
-----------
Purchase price allocated to intangible assets.................... $ 14,666
-----------
-----------
</TABLE>
The purchase price of GO Software, Inc. is $4,700 cash, a $1,000
convertible promissory note bearing an interest rate of 10% per annum
plus 1,240,000 shares of common stock valued at $8.00 per share.
(b) To eliminate the equity of the acquired businesses.
(c) To record amortization of intangible assets based on the excess purchase
price. As Media Assets, Inc. and The Internet Mall, Inc. were acquired
during 1998, amortization is based on
F-6
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
2. PRO FORMA ADJUSTMENTS: (CONTINUED)
the actual purchase price allocation and computed for the period from
January 1, 1998 to the respective date of acquisition:
<TABLE>
<S> <C>
Seven months of The Internet Mall, Inc.............................. $ 422
Eight months of Media Assets, Inc................................... 347
Twelve months of GO Software, Inc................................... 4,889
---------
Total 1998 pro forma amortization............................... $ 5,658
---------
---------
Three months of 1999--GO Software, Inc.............................. $ 1,222
---------
---------
</TABLE>
All intangible assets are amortized over three years.
(d) To record eight months of interest expense associated with the note
issued as consideration for Media Assets, Inc., totaling $25, and to
record twelve and three months of interest expense associated with the GO
Software, Inc. convertible promissory note totaling $100 and $25,
respectively.
(e) To eliminate the results of operations of BuySoftware.com. Given the
Company's continued involvement in certain retailing activities, the
results of BuySoftware.com will be reflected in continuing operations
until the date of disposal in the Company's financial statements.
However, the Company believes that it is meaningful to present the
disposal as if it had occurred as of January 1, 1998. As BuySoftware.com
was run as a separate business segment, the revenues, cost of revenues
and operating expenses directly attributable to the business segment were
removed. In addition, allocations related to certain shared costs were
allocated to BuySoftware.com in a manner which reflects management's
judgement as to the nature of the activity causing those items to be
incurred. These allocations totaled $1,459 during 1998 and $123 during
the three months ended March 31, 1999.
(f) To eliminate tax benefits recorded by GO Software, Inc., which may not
be realized by the Company.
(g) Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of shares outstanding during the period
assuming that shares issued for acquisitions were outstanding for the
entire period. Pro forma basic and diluted net loss per share is computed
based on the weighted average number of shares outstanding giving effect
to shares issued in acquisitions as if they were outstanding for the
entire period and to the conversion of convertible preferred stock on an
as-if converted basis from the original issuance date.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ShopNow.com Inc.:
We have audited the accompanying consolidated balance sheets of ShopNow.com
Inc. (a Washington corporation) and subsidiaries as of December 31, 1997 and
1998, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the years in the three year period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ShopNow.com Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purpose of complying with the
Securities and Exchange Commission rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Seattle, Washington,
June 16, 1999
F-8
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
PRO FORMA
AS OF DECEMBER 31, (UNAUDITED) STOCKHOLDERS'
--------------------------- AS OF MARCH 31, EQUITY AT MARCH 31,
1997 1998 1999 1999
------------ ------------- --------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 376,131 $ 9,820,227 $ 6,164,603
Short-term investments........................ -- 179,163 208,846
Accounts receivable, net...................... 145,783 2,265,549 1,544,600
Unbilled services............................. -- 1,448,026 2,419,591
Prepaid expenses and other.................... 191,652 708,833 911,700
------------ ------------- ---------------
Total current assets........................ 713,566 14,421,798 11,249,340
Property and equipment, net..................... 472,028 4,184,744 5,240,501
Intangible assets, net.......................... 582,101 4,458,553 4,355,151
Other assets, net............................... 562,059 717,226 916,603
------------ ------------- ---------------
Total assets................................ $ 2,329,754 $ 23,782,321 $ 21,761,595
------------ ------------- ---------------
------------ ------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 1,083,790 $ 3,550,392 $ 2,935,824
Accrued liabilities........................... 501,803 1,131,946 887,622
Line of credit................................ 200,000 237,500 --
Current portion of notes and leases payable... 1,683,883 1,133,336 1,482,263
Customer deposits............................. -- 2,154,610 2,683,266
Deferred revenue.............................. -- 534,752 613,561
------------ ------------- ---------------
Total current liabilities................... 3,469,476 8,742,536 8,602,536
Notes and leases payable, less current portion.. 884,467 1,837,494 4,559,371
------------ ------------- ---------------
Total liabilities........................... 4,353,943 10,580,030 13,161,907
------------ ------------- ---------------
Commitments (Note 7)
Shareholders' equity (deficit):
Convertible preferred stock, $0.01 par
value--Authorized shares--20,000,000, issued
shares--3,868,896 in 1997, 12,299,896 in
1998 and 12,865,611 in 1999, preference in
liquidation of $41,752,606 in 1998.......... 3,402,606 35,070,045 38,449,089
Common stock, $0.01 par value-- Authorized
shares--40,000,000, issued shares--2,763,055
in 1997, 4,602,573 in 1998 and 4,653,206 in
1999........................................ 443,671 9,676,938 9,982,101 $ 48,431,190
Deferred compensation......................... -- (929,702) (936,941) (936,941)
Accumulated deficit........................... (5,870,466) (30,614,990) (38,894,561) (38,894,561)
------------ ------------- --------------- -------------------
Total shareholders' equity (deficit)........ (2,024,189) 13,202,291 8,599,688 $ 8,599,688
------------ ------------- --------------- -------------------
Total liabilities and shareholders' equity
(deficit)................................. $ 2,329,754 $ 23,782,321 $ 21,761,595
------------ ------------- ---------------
------------ ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-9
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------
FOR THE QUARTER
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Transactions and merchandising... $ -- $ 69,026 $ 4,211,590 $ 222,987 $ 5,727,398
Merchant services................ 993,397 535,463 2,943,587 175,940 1,840,433
---------- ----------- ------------ ----------- -----------
Total revenues................. 993,397 604,489 7,155,177 398,927 7,567,831
Cost of revenues:
Transactions and merchandising... -- 158,515 4,284,988 354,826 6,171,179
Merchant services................ 430,443 355,935 1,565,331 76,258 968,749
---------- ----------- ------------ ----------- -----------
Total cost of revenues......... 430,443 514,450 5,850,319 431,084 7,139,928
---------- ----------- ------------ ----------- -----------
Gross margin................. 562,954 90,039 1,304,858 (32,157) 427,903
Operating expenses:
Sales and marketing.............. -- 1,201,682 12,180,176 1,344,974 5,263,406
General and administrative....... 1,298,530 917,952 3,731,637 508,506 1,449,921
Research and development......... 24,806 2,435,852 4,370,064 459,279 1,451,549
Amortization of intangible
assets......................... -- 135,603 730,185 57,333 557,584
Unusual item--write-off of
acquired technology............ -- -- 5,207,494 -- --
---------- ----------- ------------ ----------- -----------
Total operating expenses....... 1,323,336 4,691,089 26,219,556 2,370,092 8,722,460
---------- ----------- ------------ ----------- -----------
Loss from operations......... (760,382) (4,601,050) (24,914,698) (2,402,249) (8,294,557)
Interest expense................... (49,929) (164,763) (211,570) (46,762) (49,900)
Interest and other income.......... -- 92 381,744 58,718 64,886
---------- ----------- ------------ ----------- -----------
Net loss..................... $ (810,311) $(4,765,721) $(24,744,524) $(2,390,293) $(8,279,571)
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
Basic and diluted net loss per
share............................ $ (0.40) $ (1.83) $ (7.01) $ (0.86) (1.78)
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
Weighted average shares outstanding
used to compute basic and diluted
net loss per share............... 2,012,285 2,608,398 3,532,054 2,975,487 4,645,206
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
Basic and diluted pro forma net
loss per share................... $ (0.40) $ (0.90) $ (1.92) $ (0.28) $ (0.48)
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
Weighted average shares outstanding
used to compute basic and diluted
pro forma net loss per share..... 2,012,285 5,292,423 12,857,745 8,639,544 17,169,592
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED TOTAL
STOCK COMMON STOCK SHAREHOLDERS'
----------------------- --------------------- DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT (DEFICIT)
---------- ----------- --------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995............. -- $ -- 1,946,684 $ 246,243 $ -- $ (294,434) $ (48,191)
Issuance of common stock.............. -- -- 391,429 80,000 -- -- 80,000
Repurchase of common stock............ -- -- (342,391) (51,239) -- -- (51,239)
Net loss.............................. -- -- -- -- -- (810,311) (810,311)
---------- ----------- --------- ---------- ------------- ------------ -------------
Balances, December 31, 1996............. -- -- 1,995,722 275,004 -- (1,104,745) (829,741)
Conversion of shareholder notes into
Series A preferred stock............ 699,612 349,806 -- -- -- -- 349,806
Issuance of Series B preferred
stock............................... 2,334,079 1,800,000 -- -- -- -- 1,800,000
Issuance of common stock.............. -- -- 600,000 90,000 -- -- 90,000
Repurchase of common stock............ -- -- (10,000) (10,000) -- -- (10,000)
Conversion of shareholder notes into
Series C preferred stock............ 835,205 1,252,800 -- -- -- -- 1,252,800
Conversion of shareholder notes into
common stock........................ -- -- 177,333 88,667 -- -- 88,667
Net loss.............................. -- -- -- -- -- (4,765,721) (4,765,721)
---------- ----------- --------- ---------- ------------- ------------ -------------
Balances, December 31, 1997............. 3,868,896 3,402,606 2,763,055 443,671 -- (5,870,466) (2,024,189)
Issuance of Series D preferred stock
and warrants to acquire common
stock............................... 4,250,000 13,461,089 -- 673,216 -- -- 14,134,305
Common stock, options and warrants
issued for businesses acquired...... -- -- 1,744,692 6,105,073 -- -- 6,105,073
Issuance of Series E preferred stock
and warrants to acquire common
stock............................... 2,125,000 7,672,072 -- 327,928 -- -- 8,000,000
Issuance of Series F preferred stock
and warrants to acquire common
stock............................... 2,056,000 10,534,278 -- 865,062 -- -- 11,399,340
Exercise of common stock options...... -- -- 32,499 24,940 -- -- 24,940
Issuance of common stock in
consideration for professional
services............................ -- -- 62,327 124,654 -- -- 124,654
Deferred compensation and amortization
expense associated with stock option
grants.............................. -- -- -- 1,112,394 (929,702) -- 182,692
Net loss.............................. -- -- -- -- -- (24,744,524) (24,744,524)
---------- ----------- --------- ---------- ------------- ------------ -------------
Balances, December 31, 1998............. 12,299,896 35,070,045 4,602,573 9,676,938 (929,702) (30,614,990) 13,202,291
Issuance of Series F preferred stock
and warrants to acquire common
stock............................... 280,000 1,399,706 -- -- -- -- 1,399,706
Issuance of Series G preferred stock
and warrants to acquire common
stock............................... 285,715 1,979,338 -- 20,662 -- -- 2,000,000
Issuance of warrants for loan
origination fees.................... -- -- -- 85,318 -- -- 85,318
Exercise of common stock options...... -- -- 49,633 55,183 -- -- 55,183
Issuance of common stock in
consideration for professional
services............................ -- -- 1,000 4,000 -- -- 4,000
Deferred compensation and amortization
expense associated with stock option
grants.............................. -- -- -- 140,000 (7,239) -- 132,761
Net loss.............................. -- -- -- -- -- (8,279,571) (8,279,571)
---------- ----------- --------- ---------- ------------- ------------ -------------
Balances, March 31, 1999 (Unaudited).... 12,865,611 $38,449,089 4,653,206 $9,982,101 $ (936,941) ($38,894,561) $ 8,599,688
---------- ----------- --------- ---------- ------------- ------------ -------------
---------- ----------- --------- ---------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------
FOR THE QUARTER
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ----------------------------
1996 1997 1998 1998 1999
----------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................. $ (810,311) $ (4,765,721) $ (24,744,524) $ (2,390,293) $ (8,279,571)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Unusual item--write-off of acquired
technology....................... -- -- 5,207,494 -- --
Depreciation and amortization...... 35,004 276,536 1,601,972 87,400 1,054,707
Write down of long-term
investments...................... -- 34,263 -- -- --
Amortization of deferred
compensation..................... -- -- 182,692 -- 136,761
Changes in operating assets and
liabilities, net of effect of
businesses acquired:
Accounts receivable.............. (15,019) (50,826) 2,106,508 (192,174) 496,880
Prepaid expenses and other
current assets............... (22,311) (188,941) 48,427 (366,864) (432,867)
Unbilled services and customer
deposits, net................ -- -- (3,713,039) 11,585 (442,909)
Accounts payable................. 217,737 831,414 2,302,947 (498,090) (614,568)
Accrued liabilities.............. 28,578 416,698 521,497 (35,382) (244,324)
Deferred revenue................. -- -- 534,742 85,985 78,809
----------- ------------- -------------- ------------- -------------
Net cash used in operating
activities................... (566,322) (3,446,577) (15,951,284) (3,297,833) (8,247,082)
----------- ------------- -------------- ------------- -------------
Investing activities:
Purchases of property and
equipment.......................... (82,995) (481,144) (2,189,386) (366,236) (1,552,993)
Purchase of short-term investments... -- -- (179,163) (500,000) (29,683)
Other assets......................... -- (942,888) (147,479) (94,944) (199,377)
Acquisition of business, net of cash
acquired........................... -- (250,447) (2,850,901) -- --
----------- ------------- -------------- ------------- -------------
Net cash used in investing
activities................... (82,995) (1,674,479) (5,366,929) (961,180) (1,782,053)
----------- ------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------
FOR THE QUARTER
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ---------------------------
1996 1997 1998 1998 1999
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Financing activities:
Borrowings under bank line of credit..... $ -- $ 200,000 $ 37,500 $ 37,500 $ --
Principal payments under bank line of
credit................................. (1,213) (77,787) -- -- (237,500)
Proceeds from sale of common stock....... 80,000 -- 24,940 8,390 55,183
Common stock repurchased................. (51,239) (10,000) -- -- --
Proceeds from sale of preferred stock and
warrants, net of issuance costs........ -- 1,800,000 33,033,645 19,333,637 3,399,706
Proceeds from convertible subordinated
notes.................................. -- 1,252,800 -- -- --
Proceeds from long-term debt............. -- 2,275,000 -- -- --
Payments on long-term debt............... -- -- -- -- --
Proceeds from notes payable.............. 602,953 287,109 3,700,000 -- 3,500,000
Payments on notes payable................ (25,000) (184,207) (5,760,584) (1,775,000) (343,878)
Payments on capital lease obligations.... 18,072 (57,914) (273,192) (36,310) --
---------- ----------- ------------- ------------- ------------
Net cash provided by financing
activities....................... 623,573 5,485,001 30,762,309 17,568,217 6,373,511
---------- ----------- ------------- ------------- ------------
Net increase (decrease) in cash and
cash equivalents................. (25,744) 363,945 9,444,096 13,309,204 (3,655,624)
Cash and cash equivalents at beginning of
period................................. 37,930 12,186 376,131 376,131 9,820,227
---------- ----------- ------------- ------------- ------------
Cash and cash equivalents at end of
period................................. $ 12,186 $ 376,131 $ 9,820,227 $ 13,685,335 $ 6,164,603
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
Supplementary disclosure of cash flow
information:
Cash paid during the period for
interest............................. $ 49,929 $ 10,997 $ 231,830 $ 97,000 $ 47,000
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
Non-cash investing and financing
activities:
Common stock, options and warrants
issued as part of acquisition of
businesses........................... $ -- $ 90,000 $ 6,105,073 $ -- $ --
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
Conversion of note payable and
convertible subordinated debt to
preferred stock...................... $ -- $ 1,602,606 $ 500,000 $ 500,000 $ --
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
Conversion of note payable to common
stock................................ $ -- $ 88,667 $ -- $ -- $ --
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
Assets acquired under capital leases... $ -- $ -- $ 2,091,672 $ -- $ --
---------- ----------- ------------- ------------- ------------
---------- ----------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
ShopNow.com Inc. (the Company), formerly TechWave, Inc., is an electronic
commerce portal that provides a comprehensive shopping solution to both
consumers and merchants. The Company's offerings include customized transaction
and merchandising services through ShopNow.com, retail computer and accessory
sales and electronic software distribution through Buysoftware.com, and a
variety of merchant services, including technology consulting services and
direct marketing and creative design services through Media Assets, Inc., which
was acquired in September 1998.
In June, 1999 the Company's board of directors approved a plan to dispose of
the Company's BuySoftware.com retailing business. Given the Company's continued
involvement in certain retailing activities, the results of BuySoftware.com will
be reflected in continuing operations until the date of disposal, as the
disposal did not meet the criteria for discontinued operations under Accounting
Principles Board (APB) No. 30 "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions".
The Company is subject to the risks and challenges associated with other
companies at a similar stage of development including dependence on key
individuals, successful development and marketing of its products and services,
the continued acceptance of the Internet as a medium for electronic commerce,
competition from substitute products and services and larger companies with
greater financial, technical management and marketing resources. Further, during
the period required to develop commercially viable products, services and
sources of revenues, the Company may require additional funds that may not be
readily available.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1998 and 1999 have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial information set forth therein, in
accordance with generally accepted accounting principles. The Company believes
that the results of operations for the three month period ended March 31, 1999
are not necessarily indicative of the results to be expected for any future
period.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
F-14
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
and liabilities, the 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.
NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing net loss by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares of common stock issuable upon the conversion of the
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is antidilutive. The Company has not had any issuances or grants for
nominal consideration as defined under Staff Accounting Bulletin 98. Diluted net
loss per share for all periods shown does not include the effects of the
convertible preferred stock and shares issuable upon the exercise of stock
options and warrants as the effect of their inclusion is antidilutive during
each period.
Pro forma basic and diluted net loss per share is computed based on the
weighted average number of shares of common stock outstanding giving effect to
the conversion of convertible preferred stock outstanding that will
automatically convert upon completion of the Company's initial public offering
(using the if-converted method from the original issuance date). Pro forma
diluted net loss per share excludes the impact of stock options and warrants as
the effect of their inclusion would be antidilutive.
REVENUE RECOGNITION
The Company generates revenues primarily from transactions, merchandising
and merchant services. Revenues from transactions are generated from purchases
of products and services. Merchandising revenues are generated from advertising
and merchandising conducted by merchants on the Company's Web sites. Revenues
are recognized when the product has been shipped or the service has been
delivered to the customer. The Company bears the full credit risk with respect
to these sales. Transactional fees paid by merchants are generally recognized at
the time of sale of a product or service using the Company's transaction
processing system. In these transactions, the merchant bears the full credit
risk, and the Company recognizes a transaction fee upon consummation of the
sale. Merchandising revenues are recognized ratably over the term of the
applicable agreement. Merchandising agreements typically run for a period of one
to four months, except for listing agreements which may run for up to twelve
months.
Merchant services revenue from fixed and unit price contracts is recognized
on the percentage of completion method of accounting, based primarily on the
ratio of contract costs incurred to date to total estimated contract costs.
Anticipated losses on these contracts are recorded when identified. To date,
losses have not been material. Contract costs include all direct labor,
material, subcontract and
F-15
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
other direct project costs and certain indirect costs, related to contract
performance. Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements that may result in revision to costs and income, are
recognized in the period in which the revisions are determined.
Fee revenue from ancillary services provided by the merchant services
division is recognized upon completion of the related job by the applicable
third party vendor.
Unbilled services typically represents amounts earned under the Company's
contracts, but not billed due to timing or contract terms, which usually
consider passage of time, achievement of certain milestones or completion of the
project. Where billings exceed revenues earned on contracts, the amounts are
included in the accompanying consolidated balance sheets as customer deposits,
as the amounts typically relate to ancillary services, whereby the Company is
acting in an agency capacity.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INTANGIBLE ASSETS
Intangible assets consist primarily of customer lists, domain names,
acquired technology and goodwill related to acquisitions accounted for under the
purchase method of accounting. Amortization of these purchased intangibles is
provided on the straight-line basis over the respective useful lives of the
assets, primarily three years. The Company identifies and records impairment
losses on intangible assets when events and circumstances indicate that such
assets might be impaired. (See Note 8) Intangible assets consist of the
following at December 31:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Customer lists..................................................... $ -- $ 1,978,000
Domain names....................................................... -- 1,532,496
Acquired technology................................................ 379,324 840,446
Goodwill and other................................................. 340,446 1,031,401
----------- ------------
719,770 5,382,343
Less--Accumulated amortization..................................... (137,669) (923,790)
----------- ------------
$ 582,101 $ 4,458,553
----------- ------------
----------- ------------
</TABLE>
INCOME TAXES
The shareholders of the Company elected to be treated as an S Corporation
under the Internal Revenue Code until February 26, 1997. As a result, taxable
income until that date was included in the taxable income of the individual
shareholders, and no income tax provision was recorded.
F-16
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
The Company terminated its S Corporation status on February 26, 1997
(Termination) and implemented SFAS No. 109, "Accounting for Income Taxes," upon
becoming a taxable entity. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the tax rates
that will be in effect when the differences are expected to reverse. Deferred
taxes were not recorded at Termination as the temporary differences between
recognition of income and expense for financial reporting and tax purposes were
not significant.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Assets purchased under capital
leases are recorded at cost (based on the present value of future minimum lease
payments discounted at the contractual interest rates). Depreciation is computed
using the straight-line method over the assets' estimated useful lives of three
to seven years.
STOCK COMPENSATION
The Company has adopted the disclosure only provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation", whereby it applies APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock at the date of grant over
the stock option exercise price.
Options and Warrants issued to non-employees are accounted for using the
fair value method of accounting as prescribed by SFAS No. 123, utilizing the
Black-Scholes model and volatility factors for comparable public companies.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.
The Company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which the
Company has defined as a completion of a working model. For the years ended
December 31, 1996, 1997 and 1998, the amount of eligible costs to be capitalized
has not been significant and accordingly, the Company has charged all software
development costs to research and development in the accompanying consolidated
statements of operations.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the years ended
December 31, 1996, 1997 and 1998, the Company incurred advertising expenses of
approximately $0, $470,000 and $5.7 million, respectively.
F-17
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding as of the closing date will automatically be
converted into shares of common stock. Unaudited pro forma shareholders' equity
at March 31, 1999, as adjusted for the conversion of preferred stock, is
presented in the accompanying consolidated balance sheet.
RECLASSIFICATIONS
Certain information reported in previous years has been reclassified to
conform to the 1998 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 is not expected to
have a material impact on the company's financial position or results of
operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurrred. The implementation of SOP 98-5
is not expected to have a material impact on the company's financial position or
results of operations.
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Computer equipment................................... $ 600,538 $3,312,778
Furniture and fixtures............................... 14,354 568,495
Software............................................. 42,334 758,972
Leasehold improvements............................... 2,280 547,828
--------- ----------
659,506 5,188,073
Less--Accumulated depreciation and amortization...... (187,478) (1,003,329)
--------- ----------
Property and equipment, net.......................... $ 472,028 $4,184,744
--------- ----------
--------- ----------
</TABLE>
F-18
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
2. PROPERTY AND EQUIPMENT: (CONTINUED)
Property and equipment shown above include assets under capital leases of
approximately $125,000 and $2.2 million at December 31, 1997 and 1998, with
corresponding accumulated amortization of $60,000 and $270,000 at December 31,
1997 and 1998, respectively.
3. ACCOUNTS RECEIVABLE:
Accounts receivable at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Merchant services contracts......................................... $ -- $ 2,102,456
Transaction and merchandising services.............................. 168,730 393,093
---------- ------------
168,730 2,495,549
Less--Allowance for doubtful accounts............................... (22,947) (230,000)
---------- ------------
$ 145,783 $ 2,265,549
---------- ------------
---------- ------------
</TABLE>
To date, accounts receivable have been derived from revenues earned from
customers located in the United States. The Company performs ongoing credit
evaluations of its customers and generally requires no collateral. The Company
maintains reserves for potential credit losses. At December 31, 1998, one
customer accounted for 28% of the accounts receivable balance. This receivable
was collected subsequent to year end.
4. ACCRUED LIABILITIES:
Accrued liabilities at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Accrued compensation and benefits................................... $ 324,339 $ 575,532
Other accrued liabilities........................................... 177,464 556,414
---------- ------------
$ 501,803 $ 1,131,946
---------- ------------
---------- ------------
</TABLE>
5. BANK LINE OF CREDIT:
The Company had a line of credit with a financial institution with a maximum
balance of $300,000. The line of credit bore interest at prime plus 2% (9.75% at
December 31, 1998), with interest payable monthly. The line of credit expired
and principal balance was paid subsequent to year-end. The line of credit was
secured by substantially all assets of the Company.
In March 1999, the Company entered into a loan and security agreement
(agreement) with a financial institution for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing the Company to borrow
up to $8.5 million at any one time, consisting of a $3.5 million term loan (term
loan), $4 million bridge loan (bridge loan) and a line of credit of up to $2.5
million ($1 million until the bridge loan is repaid). The line of credit bears
interest at the financial institution's base rate plus 2%, is secured by
substantially all assets of the Company and expires on
F-19
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
5. BANK LINE OF CREDIT: (CONTINUED)
March 31, 2000. The term loan bears interest at 12%, is secured by substantially
all assets of the Company and matures in March 2002. The bridge loan bears
interest at 12% and is due upon the earlier of November 15, 1999 or a debt or
equity financing by the Company surpassing $10 million. In conjunction with the
agreement, the Company issued warrants to acquire 72,000 shares of common stock
at an exercise price of $6.25 per share. In May 1999 in connection with the
modification, the Company issued additional warrants to acquire 70,000 shares of
common stock at an exercise price of $7.00 per share.
6. NOTES AND LEASES PAYABLE:
<TABLE>
<CAPTION>
1997 1998
------------- ------------
<S> <C> <C>
Subordinated demand notes bearing interest at 9%; in January 1998, principal
converted to preferred stock and interest was paid in cash......................... $ 500,000 $ --
Notes payable bearing interest at 12%, increasing by 1% per year each 30 days, to a
maximum of 18% per year; principal and interest was paid in January 1998........... 1,775,000 --
Convertible note payable to shareholder, interest at applicable short-term federal
rate, quarterly principal and interest payments totaling $112,500; final payment
due in October 2000. The note is convertible to common stock at $8 per share....... -- 859,000
Capital lease obligations and other notes payable, interest, and principal payable
monthly, interest at rates from 6% to 18% with maturity dates between 1999 and
2003............................................................................... 293,350 2,111,830
------------- ------------
2,568,350 2,970,830
Less--current portion................................................................ (1,683,883) (1,133,336)
------------- ------------
$ 884,467 $ 1,837,494
------------- ------------
------------- ------------
</TABLE>
In September 1997, the Company issued 9% Subordinated Demand Notes totaling
$500,000 to each of two shareholders. In January 1998, the principal amount of
these Demand Notes was converted to 125,000 shares of Series D preferred stock
and interest of approximately $13,000 was paid in cash.
In November 1997, the Company completed a bridge financing and executed
Promissory Notes with principal totaling $1,775,000. The interest on this
principal was 12% per annum, increasing by 1% per year each 30 days to a maximum
of 18% per year. In connection with the closing of the Company's Series D equity
placement in January 1998, the $1,775,000 plus interest of $60,974 was paid in
full. The holders of the Promissory Notes also received warrants to purchase
239,624 shares of the Company's common stock at $1.50 per share.
In October 1998, the Company completed a bridge financing and executed
Promissory notes with principal totaling $3.7 million. The interest on this
principal was 13% per annum. In connection with the Company's Series F equity
placement in December 1998, the $3,700,000 plus interest of $11,562 was paid in
full. The placement agent and the holders of the promissory notes also received
warrants to purchase a total of 262,583 shares of the Company's common stock at
$4 per share.
F-20
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
6. NOTES AND LEASES PAYABLE: (CONTINUED)
Notes and leases payable mature as follows:
<TABLE>
<S> <C>
1999............................................................................ $1,133,336
2000............................................................................ 1,130,038
2001............................................................................ 483,812
2002............................................................................ 162,369
2003............................................................................ 61,275
----------
$2,970,830
----------
----------
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair market value of long-term
debt approximates the carrying amount at December 31, 1998.
7. COMMITMENTS:
The Company is obligated under capital and operating leases for its
headquarters and various equipment leases. The leases expire through 2003.
Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1999.............................................................. $ 746,115 $ 707,745
2000.............................................................. 711,538 709,836
2001.............................................................. 507,005 473,224
2002.............................................................. 183,813 --
2003.............................................................. 72,275 --
------------ ------------
2,220,746 $ 1,890,805
------------
------------
Less--Amounts representing interest............................... (168,998)
------------
Net present value of minimum lease payments....................... $ 2,051,748
------------
------------
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $95,000, $127,000 and $225,000, respectively.
8. ACQUISITIONS:
In January 1997, the Company formed a wholly owned subsidiary, TechWave
Acquisition, Inc. (TechWave Acquisition). In January 1997, Web Solutions, Inc.
(Web Solutions) and Intelligent Software Solutions, Inc. (Intelligent Software)
merged with and into TechWave Acquisition in exchange for 600,000 shares of the
Company's common stock valued at $90,000, a convertible note payable for
$250,000 ($225,738 in principal and $24,262 in interest), and $25,000 in cash,
aggregating a total purchase price of $340,738. The acquisition was accounted
for in accordance with the purchase method of accounting. The excess purchase
price was principally allocated to acquired technology, which is
F-21
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
8. ACQUISITIONS: (CONTINUED)
amortized over a five year life. In November 1997, the unpaid principal balance
of $88,667 was converted into 177,333 shares of common stock.
Both Web Solutions and Intelligent Software were software development
companies that had core technologies that were incorporated into the Company's
electronic software distribution products. Additionally, the sole shareholder of
Web Solutions and Intelligent Software became an officer of the Company.
In June 1998, the Company acquired e-Warehouse, Inc. and CyberTrust, Inc.,
wholly owned subsidiaries of a publicly traded Canadian Company. The sellers had
developed certain payment processing technologies that the Company had planned
to utilize in their e-commerce offerings. Consideration for these acquisitions
consisted of $4 million in cash and 422,710 shares of the Company's common stock
(valued at $3.30 per share), with a total value of approximately $5.4 million.
The acquisition was recorded using the purchase method of accounting. The
Company is not utilizing the acquired technology and has determined that it has
no alternative future use or value in the Company's transaction processing
systems, as the Company's technology platform provides the enhanced
functionality needed in the Company's business operations. Due to the fact that
the Company is not utilizing the acquired technology, the Company has written
off all of the excess purchase price, except for value assigned to domain names,
in the accompanying 1998 consolidated statement of operations.
In August 1998, the Company completed its acquisition of The Internet Mall
which was doing business as ShopNow, Inc. (ShopNow). The Internet Mall, Inc.
operated a shopping aggregation Web site and provided the Company with
technology and merchant relationships to assist in the development of an online
shopping destination. In connection with the Merger, the Company issued 719,915
shares of common stock (the Merger Shares), valued at $3.30 per share, and
warrants to purchase common stock for a total purchase price of approximately
$2.6 million. The acquisition was accounted for using the purchase method of
accounting. Of the total excess purchase price of $2.6 million, approximately
$1.5 million was allocated to customer lists and domain names which are
amortized over a three-year life, with the remainder being allocated to acquired
technology, workforce and goodwill, which are amortized over three-year lives.
In September 1998, the Company entered into a purchase and merger agreement
with Media Assets, Inc. (doing business as The Haggin Group). The Haggin Group
is a creative design and direct marketing firm with an office in Mill Valley,
California. The Company paid The Haggin Group consideration including $300,000
in cash, a promissory note for $1 million, 600,000 shares of the Company's
common stock, valued at $3.30 per share, and options to acquire common stock for
a total purchase price of approximately $3.3 million. The terms of the
promissory note require payments, by the Company, of eight equal quarterly
installments of $112,500 on the first day of each quarter commencing January 1,
1999 (with the exception of April 1, 1999, which shall be $254,000) until fully
paid on October 1, 2000. The acquisition was accounted for using the purchase
method of accounting. The excess purchase price of approximately $1.7 million
was allocated to customer lists and domain names and is being amortized over a
three-year life.
F-22
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
8. ACQUISITIONS: (CONTINUED)
In June 1999, the Company acquired GO Software, Inc. (GO). GO develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company paid GO $4.7 million in cash, issued a $1 million promissory note
bearing interest at 10%, and issued 1,240,000 shares of common stock. The
acquisition will be accounted for using the purchase method of accounting.
In addition, as discussed in Note 10, the Company acquired CardSecure, Inc.
for a purchase price of approximately $3.9 million. CardSecure is a developer of
e-commerce enabled Web sites. The acquisition will be accounted for using the
purchase method of accounting.
UNAUDITED PRO FORMA COMBINED RESULTS
The following summarizes the unaudited pro forma results of the Company's
operations for the years ended December 31, 1997 and 1998, assuming the Media
Assets, Inc. and The Internet Mall, Inc. transactions occurred as of the
beginning of the respective periods. Pro forma information for the e-Warehouse,
Inc. and CyberTrust, Inc. transactions is not presented as it is not considered
meaningful. The pro forma results are presented for the purposes of additional
analysis only and do not purport to present the results of operations that would
have occurred for the periods presented or that may occur in the future.
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Revenues....................................................... $ 5,633,726 $ 12,162,150
Net loss before taxes.......................................... $ (5,094,529) $ (24,694,448)
Net loss per share............................................. $ (1.30) $ (5.64)
</TABLE>
9. INCOME TAXES:
The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit for any of the periods
presented because it has experienced operating losses since inception. The
Company has provided a full valuation allowance on deferred tax assets because
of uncertainty regarding their realizability. Deferred taxes consist primarily
of net operating loss carryforwards, offset by deferred tax liabilities
resulting from stock acquisitions.
The difference between the statutory federal tax rate of 34% and the tax
benefit of zero recorded by the Company is primarily due to the Company's full
valuation allowance against its deferred tax assets.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $22.1 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards may be subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. These carryforwards will begin to expire at various times commencing in
2012.
F-23
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
9. INCOME TAXES: (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards................... $1,300,000 $7,500,000
Other.............................................. -- 200,000
---------- ----------
Total deferred assets.............................. 1,300,000 7,700,000
Intangible assets.................................. -- (1,300,000)
Valuation allowance for deferred tax assets........ (1,300,000) (6,400,000)
---------- ----------
Net deferred taxes................................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>
10. SHAREHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
The Company has authorized 20,000,000 shares of convertible preferred stock.
Shares of convertible preferred stock may be issued from time to time in one or
more series, with designations, preferences and limitations established by the
Company's Board of directors.
As of December 31, 1998, the Company had designated six series of
convertible preferred stock (Series A through F). Amounts as of December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Series A preferred stock: Issued 699,612 shares in 1997, aggregate liquidation
preference $349,806........................................................... $ 349,806 $ 349,806
Series B preferred stock: Issued 2,334,079 shares in 1997, aggregate liquidation
preference $1,800,000......................................................... 1,800,000 1,800,000
Series C preferred stock: Issued 835,205 shares in 1997, aggregate liquidation
preference $1,252,800......................................................... 1,252,800 1,252,800
Series D preferred stock: Issued 4,250,000 shares in 1998, aggregate liquidation
preference $17,000,000........................................................ -- 13,461,089
Series E preferred stock: Issued 2,125,000 shares in 1998, aggregate liquidation
preference $8,500,000......................................................... -- 7,672,072
Series F preferred stock: Issued 2,056,000 shares in 1998, aggregate liquidation
preference $12,850,000........................................................ -- 10,534,278
---------- -----------
$3,402,606 $35,070,045
---------- -----------
---------- -----------
</TABLE>
Series A through F preferred stock is convertible into common stock on a
one-for-one basis, at the option of the holder, subject to antidilution
provisions. In the event of an effective registration statement where the total
proceeds exceed $15 million and the minimum price per share is achieved, the
Series A through F preferred stock is automatically converted into common stock.
F-24
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The Series A through F shareholders have the right to one vote for each
share of common stock into which the stock could be converted. In the event of
liquidation, Series A through F shareholders are entitled to a per-share
distribution in preference to common shareholders equal to the original issue
price. In the event the funds are insufficient to make a complete distribution
to the Series A through F shareholders, then all of the funds available shall be
distributed ratably based on their respective liquidation preferences among the
holders of Series A through F preferred stock.
On February 26, 1997, the Company issued 699,612 shares of convertible
Series A preferred stock (Series A stock) for the cancellation of approximately
$350,000 of shareholder notes. In February and May of 1997, the Company issued
2,334,079 shares of convertible Series B preferred stock (Series B stock) for
approximately $1.8 million.
In May through July 1997, the Company issued $1.2 million of convertible
subordinated notes. These notes bore interest at an annual rate of 8%. On
October 31, 1997, the outstanding principal under these notes was converted into
835,205 shares of a new series of the Company's preferred stock (Series C
stock). Upon conversion, the holders of the notes also received warrants to
purchase 167,047 shares of Series C stock exercisable at $1.50 per share.
During the period from January 23 through April 15, 1998, the Company
completed a $25.5 million private equity placement. The Company issued 4.25
million shares of Series D and 2.125 million shares of Series E preferred stock
each at $4.00 per share, for a total of 6.375 million shares. In conjunction
with this sale, the Company issued 637,500 warrants to purchase common stock at
$5.00 per share. In addition, the Company issued to the placement agent 625,000
warrants to purchase common stock at $4.40 per share.
During the fourth quarter of 1998 and the first quarter of 1999, the Company
completed a $14.6 million private equity placement. The Company issued 2.336
million shares of Series F preferred stock at $6.25 per share. In conjunction
with this sale, the Company issued 233,600 warrants to purchase common stock at
$7.50 per share. In addition, the Company issued to the placement agent 233,600
warrants to purchase common stock at $6.25 per share.
As a condition to the commencement of the Series D private equity placement
described above, the holders of the Series A, Series B, and Series C stock
agreed to an amended and restated Articles of Incorporation that amended and
deleted certain rights of the Series A, Series B, and Series C stock, including
redemption and preferential dividend rights.
PREFERRED STOCK SALES SUBSEQUENT TO YEAR-END
In March and April 1999, the Company completed a $5 million private equity
placement. The Company issued 714,288 shares of Series G preferred stock at
$7.00 per share and 35,715 warrants to purchase common stock at $7.50 per share.
The Series G preferred stock contains substantially the same rights and
preferences as the previous series of preferred stock.
In April 1999, the Company entered into a cross promotion agreement and
equity exchange agreement with 24/7 Media. As a part of the equity exchange
agreement, 24/7 Media acquired 4.3 million shares of the Company's Series G
preferred stock and 860,000 warrants to acquire common
F-25
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
stock at $7.00 per share in exchange for consideration valued at $30.1 million.
The purchase price consists of three parts: $5.0 million in cash, 466,688 shares
of 24/7 Media's common stock, and the right to acquire 24/7 Media's interest in
CardSecure, Inc., a developer of e-commerce enabled Web sites. On June 15, 1999,
the Company acquired 24/7 Media's interest in CardSecure, Inc. and also acquired
the remaining minority interest from CardSecure's founders by issuing 243,036
shares of the Company's common stock. The total purchase price for CardSecure,
Inc. was estimated at $3.9 million.
In May 1999, the Company completed a $3 million private equity placement.
The Company issued 333,345 shares of Series H preferred stock at $9.00 per share
and 50,000 warrants to purchase common stock at $9.00 per share. The Series H
preferred stock contains substantially the same rights and preferences as the
previous series of preferred stock.
STOCK OPTION PLANS
In October 1996, the Company adopted a combined incentive and nonqualified
stock option plan (the Plan) to provide incentive to employees, directors,
consultants and advisors. The Company reserved 5,000,000 shares of common stock
for issuance under the Plan. Subsequent to year end, the Company amended the
plan and increased the shares reserved for issuance under the Plan to 8,000,000.
The Company has granted rights to purchase 1,703,233 shares to Company
executives outside the Plan.
Options under the Plan, as well as outside the Plan, generally expire 10
years from the date of grant. The Board of Directors determines the terms and
conditions of options granted under the Plan, and outside the Plan, including
the exercise price. Options are generally granted at fair market value on the
date of grant and vest immediately or ratably over three years from the date of
grant.
Under APB No. 25, the Company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted. In conjunction
with grants made in 1998, the Company recorded approximately $183,000 as
compensation expense in the accompanying 1998 consolidated statement of
operations.
The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation expense been recognized on stock options issued based on the fair
value of the options at the date of grant and recognized over the vesting
period, the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997 1998
--------- ----------- ------------
<S> <C> <C> <C>
Net loss:
As reported........................... $(810,311) $(4,765,721) $(24,744,524)
Pro forma............................. (810,311) (4,765,721) (25,067,140)
Basic and diluted net loss per share:
As reported........................... $ (0.40) $ (1.83) $ (7.01)
Pro forma............................. (0.40) (1.83) (7.10)
</TABLE>
F-26
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The fair value of each option is estimated using the Black-Scholes option
pricing model that takes into account: (1) the stock price at the grant date,
(2) the exercise price, (3) an estimated life of five years, (4) no dividends,
(5) risk-free interest rates ranging from 5.9% to 6.4% and (6) no volatility.
The initial impact on pro forma net loss may not be representative of
compensation expense in future years when the effect of the amortization of
multiple awards would be reflected in results from operations.
A summary of activity related to the option grants inside and outside the
Plan follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
MARCH 31,
1996 1997 1998 1999
---------------------- ---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................ -- $ -- 145,500 $ 0.47 1,793,515 $ 0.54 4,333,566 $ 1.57
Granted....................... 155,500 0.47 1,813,482 0.55 3,087,379 2.60 566,315 4.01
Exercised..................... -- -- -- -- (27,499) 0.77 (49,633) 1.12
Canceled...................... (10,000) 0.50 (165,467) 0.60 (519,829) 2.28 (130,221) 3.19
--------- --------- --------- ---------
Outstanding at end of period.... 145,500 0.47 1,793,515 0.54 4,333,566 1.91 4,720,027 2.13
--------- --------- --------- ---------
--------- --------- --------- ---------
Exercisable at the end of the
period........................ 20,000 0.25 436,653 0.68 1,681,026 1.06 1,952,166 $ 1.00
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following information is provided for options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
-----------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
REMAINING -----------------------------
EXERCISE NUMBER WEIGHTED AVERAGE CONTRACTUAL LIFE NUMBER WEIGHTED AVERAGE
PRICE RANGE OF OPTIONS EXERCISE PRICE (YEARS) OF OPTIONS EXERCISE PRICE
- ----------- ---------- ----------------- ---------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
$0.25-0.50.. 1,243,999 $ 0.42 6.37 755,435 $ 0.42
0.77-1.00.. 717,948 0.88 5.49 464,374 0.82
1.50-2.50.. 1,031,019 1.95 9.04 359,361 2.02
3.00-4.00.. 1,340,600 3.81 9.46 101,856 3.61
---------- ----------
4,333,566 $ 1.91 6.96 1,681,026 $ 1.06
---------- ----------
---------- ----------
</TABLE>
In addition to the shares noted above, the Company has granted 310,000
options outside of the plan at an exercise price of $4.00 that are contingent on
certain performance criteria being met. Achievement of the performance measures
was not ascertainable at December 31, 1998. Accordingly, no amounts have been
recorded in the accompanying consolidated statement of operations relating to
this option grant.
F-27
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The following shares of common stock were reserved at December 31, 1998:
<TABLE>
<S> <C>
Convertible preferred stock (Series
A-F).................................. 12,299,896
Stock options........................... 6,700,734
Common stock warrants................... 2,322,103
Preferred stock warrants................ 167,407
----------
21,490,140
----------
----------
</TABLE>
11. SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the first quarter of fiscal 1998.
SFAS No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision makers, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is comprised of the chief executive
officer and various executive vice presidents of the Company. The Company has
identified three distinct reportable segments: Merchant services, transactions
and merchandising and retail product sales through the BuySoftware.com Web site.
While the decision making group evaluates results in a number of different ways,
the line of business management structure is the primary basis for which it
assesses financial performance and allocates resources. The accounting policies
of the line of business operating segments are the same as those described in
the summary of significant accounting policies.
F-28
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
IS UNAUDITED)
11. SEGMENT INFORMATION: (CONTINUED)
The following table represents the Company's segment information for the
years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Transactions and merchandising (excluding BuySoftware.com).......... $ -- $ 35,000 $ 280,540
Merchant services (excluding BuySoftware.com)....................... 993,397 500,463 2,413,587
BuySoftware.com..................................................... -- 69,026 4,461,050
------------- ------------- --------------
993,397 604,489 7,155,177
------------- ------------- --------------
Cost of revenues:
Transactions and merchandising (excluding BuySoftware.com).......... -- 35,515 210,788
Merchant services (excluding BuySoftware.com)....................... 430,443 355,935 1,565,331
BuySoftware.com..................................................... -- 123,000 4,074,200
------------- ------------- --------------
430,443 514,450 5,850,319
------------- ------------- --------------
Gross profit:
Transactions and merchandising (excluding BuySoftware.com).......... -- (515) 69,752
Merchant services (excluding BuySoftware.com)....................... 562,954 144,528 848,256
BuySoftware.com..................................................... -- (53,974) 386,850
------------- ------------- --------------
$ 562,954 $ 90,039 $ 1,304,858
------------- ------------- --------------
------------- ------------- --------------
PROFIT RECONCILIATION:
Gross margin for reportable segments................................ $ 562,954 $ 90,039 $ 1,304,858
Operating expenses.................................................. (1,323,336) (4,691,089) (26,219,556)
Other income and expenses........................................... (49,929) (164,671) 170,174
------------- ------------- --------------
Loss before provision for income taxes.............................. $ (810,311) $ (4,765,721) $ (24,744,524)
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The Company does not track assets by operating segments. Consequently is it
not practicable to show assets by operating segments.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ShopNow.com Inc.:
We have audited the accompanying balance sheets of Media Assets, Inc. as of
June 30, 1997 and 1998, and the related statements of operations, shareholder's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Media Assets, Inc. as of
June 30, 1997 and 1998, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
March 31, 1999
F-30
<PAGE>
MEDIA ASSETS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 2,195 $ 957,310
Accounts receivable................................................................. 864,540 2,739,282
Receivable from shareholder......................................................... 37,911 122,481
Unbilled services................................................................... 399,707 456,053
Prepaid expenses and other current assets........................................... 11,275 8,155
------------ ------------
Total current assets.............................................................. 1,315,628 4,283,281
Property and equipment, net........................................................... 203,883 286,975
Other assets.......................................................................... 20,752 23,851
------------ ------------
Total assets...................................................................... $ 1,540,263 $ 4,594,107
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable, current portion...................................................... $ 16,086 $ 29,284
Accounts payable.................................................................... 385,706 377,393
Accrued wages and related expenses.................................................. 132,260 134,074
Other accrued expenses.............................................................. 42,941 115,191
Customer deposits................................................................... 788,461 3,219,361
Income taxes........................................................................ 37,677 165,552
------------ ------------
Total current liabilities......................................................... 1,403,131 4,040,855
------------ ------------
Long-term debt, net of current portion................................................ 33,868 94,070
------------ ------------
Commitments (Note 5)
Shareholder's equity:
Common stock, $.01 par value--authorized; 10,000 shares, issued and outstanding;
2,000 shares in 1997 and 1998..................................................... 1,000 1,000
Retained earnings................................................................... 102,264 458,182
------------ ------------
Total shareholder's equity........................................................ 103,264 459,182
------------ ------------
Total liabilities and shareholder's equity........................................ $ 1,540,263 $ 4,594,107
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-31
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 4,085,881 $ 5,596,650
Costs and expenses:
Costs of revenues................................................................... 2,415,164 3,111,645
Selling, general and administrative................................................. 1,496,625 1,925,037
------------ ------------
Total operating expenses.......................................................... 3,911,789 5,036,682
------------ ------------
Operating income................................................................ 174,092 559,968
Other income, net..................................................................... 1,167 37,753
------------ ------------
Income before provision for income taxes.............................................. 175,259 597,721
Provision for income taxes............................................................ (72,545) (241,803)
------------ ------------
Net income...................................................................... $ 102,714 $ 355,918
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
----------------------- EARNINGS SHAREHOLDER'S
SHARES AMOUNT (DEFICIT) EQUITY
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balances, June 30, 1996........................................... 2,000 $ 1,000 $ (450) $ 550
Net income...................................................... -- -- 102,714 102,714
----- ---------- ---------- -------------
Balances, June 30, 1997........................................... 2,000 1,000 102,264 103,264
Net income...................................................... -- -- 355,918 355,918
----- ---------- ---------- -------------
Balances, June 30, 1998........................................... 2,000 $ 1,000 $ 458,182 $ 459,182
----- ---------- ---------- -------------
----- ---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1997 1998
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 102,714 $ 355,918
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation...................................................................... 72,387 100,831
Changes in assets and liabilities:
Accounts receivable............................................................. (323,911) (1,959,312)
Unbilled services............................................................... (325,908) (56,346)
Prepaid expenses and other assets............................................... (11,565) 21
Income taxes.................................................................... 37,677 127,885
Accounts payable and accrued expenses........................................... 302,858 65,741
Deposits........................................................................ 289,675 2,430,900
----------- -------------
Net cash (used in) provided by operating activities............................. 143,927 1,065,638
----------- -------------
Cash flows from investing activities:
Additions to property and equipment................................................. (101,815) (183,923)
----------- -------------
Cash flows from financing activities:
Proceeds on long-term debt.......................................................... -- 81,654
Principal repayments of long-term debt.............................................. (44,065) (8,254)
----------- -------------
Net cash provided by financing activities....................................... (44,065) 73,400
----------- -------------
Net increase (decrease) in cash and cash equivalents............................ (1,953) 955,115
Cash and cash equivalents, beginning of year.......................................... 4,148 2,195
----------- -------------
Cash and cash equivalents, end of year................................................ $ 2,195 $ 957,310
----------- -------------
----------- -------------
Cash paid during the year for:
Interest.............................................................................. $ 5,098 $ 13,697
----------- -------------
----------- -------------
Income taxes.......................................................................... $ 37,536 $ 211,698
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION OF THE COMPANY AND NATURE OF OPERATIONS:
Media Assets, Inc., a California corporation doing business as The Haggin
Group (the Company) provides creative design and direct marketing services to
corporate customers throughout the United States. Additionally, the Company
provides certain ancillary services including color film separations and
printing which are outsourced to vendors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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.
REVENUE RECOGNITION
The Company recognizes revenue from its fixed and unit price contracts in
process on the percentage of completion method of accounting, based primarily on
the ratio of contract costs incurred to date to total estimated contract costs.
Anticipated losses on these contracts are recorded when identified. Contract
costs include all direct labor, material, subcontract, other direct project
costs and indirect costs, including depreciation, vehicles, and labor related to
contract performance. Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements that may result in revision to costs and income, are
recognized in the period in which the revisions are determined.
Unbilled services typically represent amounts earned under the Company's
contracts, but not billed due to timing or contract terms, which usually
consider passage of time, achievement of certain milestones or completion of the
project. Where billings exceed revenues earned on contracts, the amounts are
included in the accompanying balance sheets as customer deposits, as the amounts
typically relate to ancillary services, whereby the Company is acting in an
agency capacity.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers any
highly liquid short term investments purchased with an original maturity date of
three months or less to be cash equivalents.
The Company maintains its cash in high credit quality financial institutions
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable.
To date, accounts receivable have been derived from revenues earned from
customers located in the United States. The Company performs ongoing credit
evaluations of its customers and generally requires no collateral. Historically,
credit losses have been minor and within management's
F-35
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
expectations. At June 30, 1998, one customer accounted for 60% of the accounts
receivable balance. This amount was collected subsequent to June 30.
During the year ended June 30, 1998, 1 customer accounted for 12% of the
Company's net revenues.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of five to seven years. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life.
Maintenance, repairs and minor renewals are expensed as incurred. Major
renewals and betterments which substantially extend the life of the property are
capitalized. When an asset is sold or retired, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is included in the results of operations.
INCOME TAXES
The Company recognized deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryforwards. Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for the amount of any future benefits which, more likely
than not based on current circumstances, are not expected to be realized.
2. RECEIVABLE FROM SHAREHOLDER:
During 1997 and 1998, the Company made non-interest bearing loans to the
sole shareholder. Subsequent to June 30, 1998, all outstanding amounts were paid
in full.
3. PROPERTY AND EQUIPMENT:
The accompanying balance sheets include the following property and equipment
as of June 30:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computers and office equipment........................................ $ 270,750 $ 458,334
Vehicles.............................................................. 65,050 65,050
Leasehold improvements................................................ 67,075 63,414
---------- ----------
402,875 586,798
Less: Accumulated depreciation and amortization....................... (198,992) (299,823)
---------- ----------
Property and equipment--net........................................... $ 203,883 $ 286,975
---------- ----------
---------- ----------
</TABLE>
F-36
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
4. DEBT:
Long-term debt is summarized as follows as of June 30:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Equipment loan, interest at index rate + 1.5% due October 2002........ $ 8,344 $ 89,998
Notes payable, equipment financing, due in equal monthly installments
of principal and interest, interest at 9% to 10%, to maturity in
July 2002........................................................... 41,610 33,356
---------- ----------
49,954 123,354
Less--current portion................................................. (16,086) (29,284)
---------- ----------
Long-term debt--net................................................... $ 33,868 $ 94,070
---------- ----------
---------- ----------
</TABLE>
The aggregate maturities of long-term debt for the years subsequent to June
30, 1998, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 29,284
2000.............................................................................. 29,284
2001.............................................................................. 29,284
2002.............................................................................. 25,476
2003.............................................................................. 10,026
----------
$ 123,354
----------
----------
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities,
5. COMMITMENTS:
The Company leases its facilities under various operating leases expiring in
October 1999.
At June 30, 1998, future minimum lease payments under operating leases were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 180,684
2000.............................................................................. 60,228
----------
$ 240,912
----------
----------
</TABLE>
F-37
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
6. INCOME TAXES:
The provision for income taxes consisted of the following components:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Current:
Federal............................................................. $ 63,992 $ 133,258
State............................................................... 19,476 38,443
---------- ----------
83,468 171,701
---------- ----------
Deferred:
Federal............................................................. (9,230) 58,886
State............................................................... (1,693) 11,216
---------- ----------
(10,923) 70,102
---------- ----------
Total tax provision................................................... $ 72,545 $ 241,803
---------- ----------
---------- ----------
</TABLE>
The provision for income taxes differs from the amount estimated by applying
the statutory federal income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Provision computed at federal statutory rate: 34.0% 34.0%
State taxes, net of federal tax benefit............................... 6.1 6.1
Other items--net...................................................... 1.3 0.4
--------- ---------
Effective tax rate...................................................... 41.4% 40.5%
--------- ---------
--------- ---------
</TABLE>
Deferred tax liabilities at December 31, 1997 and 1998 consist primarily of
cash to accural adjustments as the Company filed its tax returns on a cash
basis.
7. ACQUISITION:
On September 17, 1998, the Company was acquired by ShopNow.com Inc.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ShopNow.com Inc.:
We have audited the accompanying balance sheets of The Internet Mall, Inc.
(a Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
period from inception (November 13, 1996) to December 31, 1996 and for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Internet Mall, Inc., as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from inception (November 13, 1996) to December 31, 1996 and
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
May 27, 1999
F-39
<PAGE>
THE INTERNET MALL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 155,488 $ 239,603
Accounts receivable..................................................................... -- 56,601
---------- ----------
Total current assets................................................................ 155,488 296,204
Property and equipment, net of accumulated depreciation of $305 and $8,064................ 9,981 34,372
Intangible assets, net.................................................................... 188,889 122,222
---------- ----------
Total assets........................................................................ $ 354,358 $ 452,798
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ -- $ 89,561
Deferred revenue........................................................................ -- 48,161
Convertible subordinated promissory note................................................ -- 300,000
---------- ----------
Total current liabilities........................................................... -- 437,722
Commitments
Shareholders' equity:
Convertible preferred stock, 6,000,000 shares authorized--
Series B convertible preferred stock, $0.0001 par value, 2,000,000 shares designated;
none and 1,724,867 issued and outstanding at 1996 and 1997, preference in
liquidation of $500,211............................................................. -- 490,301
Series A convertible preferred stock, $0.0001 par value, 4,000,000 shares designated;
4,000,000 issued and outstanding at 1996 and 1997, preference in liquidation of
$400,000............................................................................ 383,016 383,016
Common stock, $0.0001 par value; 17,000,000 shares authorized; 7,000,000 issued and
outstanding at 1996 and 1997, net of subscriptions receivable of $56,925.............. 12,421 12,421
Accumulated deficit..................................................................... (41,079) (870,662)
---------- ----------
Total shareholders' equity.......................................................... 354,358 15,076
---------- ----------
Total liabilities and shareholders' equity.......................................... $ 354,358 $ 452,798
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-40
<PAGE>
THE INTERNET MALL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(NOVEMBER 13, 1996) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, 1996 1997
--------------------- ------------
<S> <C> <C>
Revenues.................................................................... $ -- $ 188,007
-------- ------------
Operating expenses:
Cost of revenue........................................................... -- 30,137
Product development....................................................... -- 71,273
Sales and marketing....................................................... -- 272,961
General and administrative................................................ 41,079 638,731
-------- ------------
Total operating expenses.............................................. 41,079 1,013,102
-------- ------------
Operating loss...................................................... (41,079) (825,095)
-------- ------------
Interest expense............................................................ -- 4,488
-------- ------------
Net loss............................................................ $ (41,079) $ (829,583)
-------- ------------
-------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
THE INTERNET MALL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1996) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES B SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK TOTAL
------------------- ------------------- ------------------ ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
--------- -------- --------- -------- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, November 13, 1996............. -- $ -- -- $ -- -- $ -- $ -- $ --
Sale of common stock to founders at
$0.01 per share in November 1996,
net of subscriptions receivable of
$56,925............................. -- -- -- -- 5,750,000 575 -- 575
Sale of common and preferred stock at
$0.01 and $0.10 per share,
respectively, in exchange for assets
and cash in November 1996, net of
issuance costs of $5,138............ -- -- 4,000,000 383,016 1,250,000 11,846 -- 394,862
Net loss.............................. -- -- -- -- -- -- (41,079) (41,079)
--------- -------- --------- -------- --------- ------- ----------- -------------
Balances, December 31, 1996............. -- -- 4,000,000 383,016 7,000,000 12,421 (41,079) 354,358
Sale of preferred stock at $0.27 and
$0.35 per share in May and August
1997, respectively, net of issuance
costs of $9,699..................... 1,724,867 490,301 -- -- -- -- -- 490,301
Net loss.............................. -- -- -- -- -- -- (829,583) (829,583)
--------- -------- --------- -------- --------- ------- ----------- -------------
Balances, December 31, 1997............. 1,724,867 $490,301 4,000,000 $383,016 7,000,000 $12,421 $(870,662) $ 15,076
--------- -------- --------- -------- --------- ------- ----------- -------------
--------- -------- --------- -------- --------- ------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
THE INTERNET MALL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(NOVEMBER 13, 1996) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, 1996 1997
--------------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (41,079) $ (829,583)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation............................................................ 11,416 74,426
Changes in operating assets and liabilities:
Accounts receivable................................................... -- (56,601)
Accounts payable and accrued expenses................................. -- 89,561
Deferred revenue...................................................... -- 48,161
-------- ------------
Net cash used in operating activities............................... (29,663) (674,036)
-------- ------------
Cash flows used in investing activities:
Purchase of property and equipment........................................ (10,286) (32,150)
-------- ------------
Cash flows from financing activities:
Net proceeds from preferred and common stock issuances.................... 195,437 490,301
Proceeds from convertible subordinated promissory note.................... -- 300,000
-------- ------------
Net cash provided by financing activities........................... 195,437 790,301
-------- ------------
Increase in cash and cash equivalents....................................... 155,488 84,115
Cash and cash equivalents, beginning of period.............................. -- 155,488
-------- ------------
Cash and cash equivalents, end of period.................................... $ 155,488 $ 239,603
-------- ------------
-------- ------------
Supplemental disclosures of cash flow information:
Common stock issued to founders in exchange for promissory notes........ $ 56,925 $ --
-------- ------------
-------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
The Internet Mall, Inc. (the Company), a Delaware corporation, was
incorporated on November 13, 1996. The Company operates an internet shopping
aggregation Website and provided links to on-line retailers that offer products
and services.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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.
REVENUE RECOGNITION
The Company's revenue to date has been primarily derived from banner
advertising. Advertising revenue is recognized in the period the advertising
impressions are delivered.
The Company sells one-year mall listings on its site and recognizes revenue
over the term of the listing. Deferred revenue represents residual amounts from
these listings. In addition, the Company earns transaction fees for sales made
through the site which are recorded in the period of the sale.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a purchased
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment consists primarily of computer equipment and
furniture and is stated at cost. Depreciation is computed using an accelerated
method over estimated useful lives, which range from five to seven years.
PRODUCT DEVELOPMENT
Product development costs are expensed as incurred and consist primarily of
salaries, travel, materials, supplies and contract services.
INCOME TAXES
The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryforwards. Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for the amount of any future benefits which, more likely
than not based on current circumstances, are not expected to be realized.
F-44
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of technology acquired through the
issuance of Series A preferred stock. Intangible assets are being amortized over
a three year life. Amortization expense totaled $11,111 and $66,667 in 1996 and
1997.
STOCK COMPENSATION
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
benefit plans.
3. INCOME TAXES:
At December 31, 1996 and 1997, a valuation allowance was recognized to
offset the related deferred tax assets due to the uncertainty of realizing the
benefit of the Company's net operating loss carryforward. The need for this
valuation allowance is subject to periodic review. If it is determined in a
future period that it is more likely than not that the tax benefits of the
carryforwards will be realized, the reduction of the valuation allowance will be
recorded as a reduction of the Company's income tax expense.
At 1997, the Company had net operating loss carryforwards of approximately
$780,000, which expire commencing in 2011. Under current tax law, net operating
loss carryforwards available in any given year may be limited upon the
occurrence of certain events, including significant changes in ownership
interests.
The deferred tax assets of approximately $10,000 and $260,000 at December
31, 1996 and 1997, respectively, are composed primarily of net operating loss
carryforwards. Because the Company's utilization of these deferred tax assets is
dependent upon future profits that are not assured, a valuation allowance equal
to deferred tax assets has been provided.
4. CONVERTIBLE SUBORDINATED PROMISSORY NOTE:
In October 1997 the Company issued a convertible subordinated promissory
note in the amount of $300,000. The note bears interest at 7% and was originally
due in April 1998. Subsequent to December 31, 1997, the note due date was
extended to August 1998 and satisfied in connection with the acquisition
discussed in Note 6.
5. SHAREHOLDERS' EQUITY:
COMMON STOCK
In November 1996, common stock was issued to founders for cash of $575 and
promissory notes of $56,925. The notes accrued interest at 5.87% per year.
F-45
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. SHAREHOLDERS' EQUITY: (CONTINUED)
CONVERTIBLE PREFERRED STOCK
The Company has authorized 6,000,000 shares of convertible preferred stock
(preferred stock). The board of directors has the authority to establish and
define, in one or more series, the price, rights, preferences and dividends of
authorized but unissued shares of preferred stock.
The shares outstanding at December 31, 1997 are summarized as follows:
SERIES B--The Company designated 2,000,000 shares as Series B Convertible
Stock (Series B), and issued 1,724,867 shares in May and August 1997, at
prices of $0.27 and $0.35 per share.
SERIES A--The Company designated 4,000,000 shares as Series A Convertible
Preferred Stock (Series A). In November 1996, 4,000,000 shares were issued
in conjunction with 1,250,000 shares of common stock in exchange for cash
and technology rights, at a price of $0.10 per share.
The rights and preferences of the preferred stock are as follows:
DIVIDENDS--Holders of preferred stock are entitled to receive annual
dividends of $0.02 per share for Series B and $0.005 per share for Series A,
when and if declared by the board of directors. Such dividends are not
cumulative. As of December 31, 1997, none has been declared.
CONVERSION--Each share of preferred stock is convertible at the option of
the holder into common stock at the conversion price in effect in such date.
Shares also convert upon a vote of the majority of the shareholders of the
respective series. Each share of the preferred stock automatically converts
into common stock upon the closing of an initial public offering that meets
certain conditions.
LIQUIDATION PREFERENCE--The Series B and Series A shares have liquidation
preferences of $0.29 and $0.10 per share, respectively, plus all declared
but unpaid dividends.
If the value of the Company on liquidation is insufficient to pay the entire
preferential amount, distribution should be made as follows: the first
$100,000 of assets shall be distributed to the holders of Series B and any
remaining amount shall be distributed PRO RATA to preferred shareholders in
proportion to remaining preferential amount the preferred shareholder is
entitled to receive.
Any assets remaining after the preferential distribution will be paid to
holders of common stock in proportion to shares held by each.
VOTING RIGHTS--Each holder of preferred stock shall be entitled to the
number of votes equal to the number of shares of common stock into which
such shares could be converted, and have voting rights equal to holders of
common stock.
REPURCHASE RIGHT
Certain shares of common stock outstanding at December 31, 1997 were subject
to a repurchase right by the Company at the original sale price of $0.01 per
share. The number of shares the Company may repurchase was established on the
date of sale and is reduced ratably over the 36-month period ending in November
1999. At December 31, 1997, 2,731,249 shares were subject to repurchase rights.
F-46
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. SHAREHOLDERS' EQUITY: (CONTINUED)
The Company repurchased 1,545,312 and 503,125 shares of common stock at
$0.01 per share in January 1998 and April 1998, pursuant to the repurchase right
discussed above.
STOCK OPTIONS
On November 13, 1996, the Company adopted the 1996 Stock Option Plan (the
Plan). Under the terms of the Plan, stock options may be granted to employees,
directors, officers and consultants at a price determined by the Board. Options
have a term of up to 10 years and vest over a schedule determined by the Board
of Directors, generally four years.
The Plan is accounted for under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for this program
been determined consistent with SFAS No. 123, the Company's net loss would have
changed to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Net loss--as reported................................................ $ (29,968) $ (762,916)
Net loss--pro-forma.................................................. $ (29,968) $ (763,376)
</TABLE>
To determine compensation expense under SFAS No. 123 in 1997 and 1996, the
fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
- Risk-free interest rates of 6.0%
- Expected lives of 4 years
- Expected dividend yields of 0%
- Expected volatility of 0%
Option activity under the Plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVAILABLE AVERAGE AVERAGE
FOR FUTURE OUTSTANDING EXERCISE GRANT DATE
GRANT SHARES PRICE FAIR VALUE
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, November 13, 1996..................................... -- -- $ -- $ --
Authorized.................................................... 1,650,000 -- -- --
Granted....................................................... -- -- -- --
Exercised..................................................... -- -- -- --
Cancelled..................................................... -- -- -- --
---------- ----------- ----- ---
Balances, December 31, 1996..................................... 1,650,000 --
Granted....................................................... (332,557) 332,557 0.05 0.01
Exercised..................................................... -- -- -- --
Cancelled..................................................... 37,500 (37,500) 0.05 --
---------- ----------- ----- ---
Balances, December 31, 1997..................................... 1,354,943 295,057 $ 0.05
---------- ----------- -----
---------- ----------- -----
</TABLE>
F-47
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. SHAREHOLDERS' EQUITY: (CONTINUED)
The options outstanding at December 31, 1997 have an exercise price of
$0.05, and a weighted average remaining contractual life of nine years. 117,929
options were vested at December 31, 1997 with a weighted average exercise price
of $0.05.
SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1997, the Company had reserved shares of its common stock
for the following purposes:
<TABLE>
<S> <C>
Conversion of outstanding preferred stock:
Series A....................................................... 4,000,000
Series B....................................................... 1,724,867
1996 Stock Option Plan........................................... 1,650,000
---------
7,374,867
---------
---------
</TABLE>
6. COMMITMENTS:
OPERATING LEASES
The Company leases office and computer equipment under operating leases with
expiration dates through May 1999.
Minimum lease commitments under noncancellable leases are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 19,132
1999............................................................... 5,425
---------
$ 24,557
---------
---------
</TABLE>
Rent expense under operating leases totaled $5,792 and $51,991 for the
period from inception (November 13, 1996) to December 31, 1996 and the year
ended December 31, 1997, respectively.
7. ACQUISITION:
On August 6, 1998, the Company was acquired by ShopNow.com Inc.
F-48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GO Software, Inc.
We have audited the accompanying balance sheets of GO Software, Inc. (the
Company) as of December 31, 1998 and 1997, the related statements of operations,
shareholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GO Software, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Jacksonville, Florida
June 11, 1999
F-49
<PAGE>
GO SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 765,673 $ 1,046,545
Accounts receivable, net of allowance of $49,069 in 1998 and $26,099 in 1997........ 136,669 56,215
Refundable income taxes............................................................. 32,761 --
Inventory........................................................................... 10,522 5,470
Prepaid expenses and other current assets........................................... 36,220 13,146
------------ ------------
Total current assets.................................................................. 981,845 1,121,376
Property and equipment, at cost:
Computer equipment.................................................................. 106,247 46,793
Office equipment.................................................................... 32,116 21,887
------------ ------------
138,363 68,680
Accumulated depreciation............................................................ (49,648) (20,321)
------------ ------------
Net property and equipment............................................................ 88,715 48,359
Capitalized software development costs................................................ 27,683 --
Deferred income tax asset............................................................. 7,313 2,330
------------ ------------
Total assets.......................................................................... $ 1,105,556 $ 1,172,065
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses......................................... $ 65,914 $ 25,510
Income taxes payable................................................................ -- 20,056
Other taxes payable................................................................. 2,208 5,324
Deferred revenues................................................................... 21,675 9,887
------------ ------------
Total current liabilities............................................................. 89,797 60,777
Deferred income tax liability......................................................... 24,450 16,909
Series A redeemable preferred stock, $1.39167 par value per share, 664,671 and
700,597 shares authorized and outstanding (liquidation value)..................... 1,193,567 1,043,123
Shareholders' equity:
Common stock, no par value, 10,000,000 shares authorized and 1,000,000 shares
outstanding....................................................................... 9,824 9,824
Paid-in capital..................................................................... 7,500 7,500
Retained earnings................................................................... (219,582) 33,932
------------ ------------
Total shareholders' equity............................................................ (202,258) 51,256
------------ ------------
Total liabilities and shareholders' equity............................................ $ 1,105,556 $ 1,172,065
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-50
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1998 1997
------------ ----------
<S> <C> <C>
Net revenues............................................................................ $ 1,345,655 $ 793,070
Cost of goods sold...................................................................... 55,326 20,659
------------ ----------
Gross profit............................................................................ 1,290,329 772,411
Selling, general and administrative expenses............................................ 1,148,438 410,456
Research and development................................................................ 253,148 129,912
------------ ----------
Operating (loss) income................................................................. (111,257) 232,043
Interest income......................................................................... 41,089 17,010
------------ ----------
(Loss) income before income taxes....................................................... (70,168) 249,053
Benefit (provision) for income taxes.................................................... 17,098 (34,235)
------------ ----------
Net (loss) income....................................................................... $ (53,070) $ 214,818
------------ ----------
------------ ----------
</TABLE>
See accompanying notes.
F-51
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....................................... $ 9,824 $ -- $ 62,237 $ 72,061
Accretion of Series A redeemable preferred stock dividends......... -- -- (68,123) (68,123)
Distributions to shareholders...................................... -- -- (175,000) (175,000)
Issuance of options................................................ -- 7,500 -- 7,500
Net income......................................................... -- -- 214,818 214,818
----------- --------- ----------- -----------
Balance at December 31, 1997....................................... 9,824 7,500 33,932 51,256
Net loss........................................................... -- -- (53,070) (53,070)
Accretion of Series A redeemable preferred stock dividends......... -- -- (200,444) (200,444)
----------- --------- ----------- -----------
Balance at December 31, 1998....................................... $ 9,824 $ 7,500 $ (219,582) $ (202,258)
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-52
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income..................................................................... $ (53,070) $ 214,818
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Depreciation and amortization....................................................... 29,327 13,866
Issuance of options................................................................. -- 7,500
Changes in operating assets and liabilities:
Increase in accounts receivable, net.............................................. (80,454) (37,896)
Increase in refundable income taxes............................................... (32,761) --
Increase in inventory............................................................. (5,052) (5,470)
Increase in other current assets.................................................. (23,074) (13,146)
Increase in deferred income taxes, net............................................ 2,558 14,579
Increase in deferred revenue...................................................... 11,788 6,168
Increase in accounts payable and accrued expenses................................. 17,232 23,036
Increase in income taxes payable.................................................. -- 25,380
------------ ------------
Net cash (used in) provided by operating activities................................... (133,506) 248,835
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment................................................... (69,683) (39,987)
Capitalized software development costs................................................ (27,683) --
------------ ------------
Net cash used in investing activities................................................. (97,366) (39,987)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders......................................................... -- (175,000)
Proceeds from issuance of Series A redeemable preferred stock......................... -- 1,000,000
Repurchase of preferred stock......................................................... (50,000) (25,000)
------------ ------------
Net cash (used in) provided by financing activities................................... (50,000) 800,000
------------ ------------
Net (decrease) increase in cash and cash equivalents.................................. (280,872) 1,008,848
Cash and cash equivalents, beginning of year.......................................... 1,046,545 37,697
------------ ------------
Cash and cash equivalents, end of year................................................ $ 765,673 $ 1,046,545
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for taxes................................................... $ 33,161 $ --
------------ ------------
------------ ------------
NONCASH FINANCING ACTIVITIES:
Accretion of Series A redeemable preferred stock.................................... $ 200,444 $ 68,123
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-53
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND NATURE OF BUSINESS
GO Software, Inc. (the Company) was incorporated in Georgia in 1994.
Initially, the sole shareholder, in exchange for his knowledge in the fields of
software development and credit card processing, along with the rights to
certain software products, received 1,000,000 shares of common stock of the
Company after adjustment for the stock dividend (Note 3). The Company develops
and markets transaction processing software for personal computers that can
function on a stand-alone basis or can interface with core corporate accounting
systems. The Company currently sells its products to businesses in the United
States and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
REVENUE RECOGNITION
The Company licenses software under license agreements that include multiple
elements including software and maintenance and support services. In accordance
with SOP 97-2, license agreement revenues are allocated to the various elements
based on "vendor-specific objective evidence of fair value." Revenues for the
software element are recognized when a license agreement has been signed,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. Revenues from maintenance agreements are recognized ratably over the
maintenance period.
The Company may bill resellers under which no shipment is made until sales
are made by the reseller to a third-party end user. Revenues from these
arrangements are deferred and recognized upon shipment to the third-party end
user.
INVENTORY
Inventory, consisting of software media, manuals, and related packaging
materials, is stated at the lower of cost, determined on the first-in, first-out
basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three years.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with
maturities of three months or less when purchased to be cash equivalents.
F-54
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86. Costs incurred prior
to establishment of technological feasibility are expensed as incurred. Software
development costs of $27,683 and $0 were capitalized as of December 31, 1998 and
1997, respectively.
Amortization of capitalized software costs commences when the software is
available for general release to customers. Amortization is based on the
straight-line method over the estimated economic life of the product, which may
range from three to five years. No amortization was recorded in 1998 as none of
the products for which costs were capitalized were available for general release
by the end of the year.
DEFERRED REVENUE
Deferred revenue represents license fees and maintenance and support which
have been sold and payment received but not earned at year end.
During August 1997, the Company changed its income tax status from a
Subchapter S Corporation, which generally does not provide for income taxes at
the corporate level, to a C Corporation, which does provide for income taxes at
the corporate level. Accordingly, as of 1997, the accompanying financial
statements include a provision for income taxes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No.
109 requires income taxes to be recognized using the liability method.
Specifically, deferred tax assets and liabilities are determined based on
estimated future tax effects attributable to temporary differences between the
amount of assets and liabilities recognized for financial reporting and income
tax purposes.
CREDIT RISK
The Company extends credit to certain customers, generally resellers.
Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed
when incurred. Advertising expense was $142,862 in 1998 and $68,993 in 1997.
3. SHAREHOLDER'S EQUITY
Effective January 2, 1997, the Company amended its Articles of Incorporation
to increase the number of authorized shares of no par common stock from 10,000
to 10,000,000. In connection with the recapitalization, the Company issued a
stock dividend of 999 shares of common stock for every 1 share of common stock
outstanding.
F-55
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. SERIES A REDEEMABLE PREFERRED STOCK
On August 22, 1997 (the Closing Date), the Company executed an agreement
with certain private investors (the Investors) to issue 718,563 shares of
convertible preferred stock (the Preferred Stock) to the Investors for cash
consideration of $1,000,000. During 1998 and 1997, the Company acquired and
retired $50,000 and $25,000, respectively, of the outstanding preferred stock at
the initial purchase price (par value) plus a 4% return. The Preferred Stock is
convertible initially on a one-to-one basis into shares of common stock. The
Preferred Stock is automatically convertible into common stock upon an initial
public offering of the Company's common stock meeting certain conditions. The
Preferred Stock has certain anti-dilution features, has voting rights for the
number of common shares into which it is convertible, and has certain demand
registration rights. The Investors may put the Preferred Stock back to the
Company at the initial purchase price plus a 20% rate of return, compounded
annually and cumulatively from the Closing Date, beginning one-third on June 30,
2001, one-third on June 30, 2002, and one-third on June 30, 2003. The Preferred
Stock has a liquidation preference equal to the face value of the Preferred
Stock plus a return compounded annually and cumulatively at 20% per year for the
first two years and 40% per year thereafter to the earlier of June 30, 2003 or
the date the Company liquidates, dissolves, or winds up its affairs. As of
December 31, 1998 and 1997, returns related to the defined redemption price,
which are included in preferred stock on the accompanying balance sheets were
$268,567 and $68,123, respectively.
5. EMPLOYEE STOCK OPTION PLAN
Effective January 2, 1997, the Company adopted the 1997 Stock Incentive Plan
(the Plan). Under the terms of the Plan, the Company may grant incentive stock
options, nonqualified stock options, and restricted stock grants to employees
and other key persons, as defined. The total number of shares of common stock
reserved under the Plan is 277,445. Options are exercisable for a maximum of 10
years from the date of grant and must be granted at an exercise price at least
equal to fair value. Options generally vest on a pro rata basis over four years
from the date of grant.
In accordance with APB 25, the Company records no compensation expense for
its stock options when the exercise price equals or exceeds the fair value of
common sock on the date of grant. Pro forma information regarding net income is
required by FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for the options
were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions for 1998 and 1997: risk-free interest
rate of 5.60%; dividend yield of 0%; and a weighted-average expected life of the
options of 10 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The per share
weighted average fair value of options granted
F-56
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
during the year ended December 31, 1998 and 1997 was $.61 and $.00,
respectively. The Company's 1998 and 1997 pro forma information follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(Loss) income before pro forma effect of stock options................ $ (53,070) $ 214,818
Pro forma compensation expense from stock options:
1997 grant.......................................................... -- --
1998 grants......................................................... 19,223 --
---------- ----------
Pro forma net (loss) income........................................... $ (72,293) $ 214,818
---------- ----------
---------- ----------
</TABLE>
Because options vest over several years and additional option grants are
expected, the effects of these pro forma calculations are not likely to be
representative of similar future calculations.
The following table summarizes option activity for the Company's stock
option plan for the years ended December 31, 1998 and 1997. During 1997, an
employee holding 199,601 options under the Plan resigned from the Company and
forfeited all options held, including vested and unvested options.
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- ----------------- ---------------
<S> <C> <C> <C>
Granted.......................................... 208,801 $ .26 to $3.00 $ .38
Exercised........................................ -- -- --
Canceled......................................... 199,601 $ .26 $ .26
---------
Balance, December 31, 1997....................... 9,200 $ 3.00 $ 3.00
Granted.......................................... 215,581 $ 1.39 to $2.00 $ 1.41
Exercised........................................ -- -- --
Canceled......................................... -- -- --
---------
Balance, December 31, 1998....................... 224,781 $ 1.39 to $3.00 $ 1.49
---------
---------
</TABLE>
No options are exercisable at December 31, 1998. Subsequent to December 31,
1998, 39,920 options granted in 1988 were canceled. The pro forma compensation
expense from these options is not included in the pro forma information above.
6. COMMITMENT
LEASE
The Company leases office space under a lease which expired in March 1999
and is continuing on a month-to-month basis. The lease requires 60 days notice
prior to vacating the space. Future lease payments under this lease at December
31, 1998 are approximately $7,305. Lease expense for 1998 and 1997 was $21,570
and $12,153, respectively.
F-57
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. INCOME TAXES
The provision for income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Current:
Federal.............................................................. $ 14,626 $ (14,626)
State................................................................ 5,030 (5,030)
--------- ----------
19,656 (19,656)
Deferred:
Federal.............................................................. (2,111) (12,727)
State................................................................ (447) (1,852)
--------- ----------
(2,558) (14,579)
--------- ----------
$ 17,098 $ (34,235)
--------- ----------
--------- ----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses...................................................... $ 3,105 $ 2,330
NOL carryforward...................................................... 4,208 --
--------- ---------
Total deferred tax assets............................................... 7,313 2,330
Deferred tax liabilities:
Capitalized software development costs................................ 7,450 --
Accelerated depreciation.............................................. 17,000 16,909
--------- ---------
Total deferred tax liabilities.......................................... 24,450 16,909
--------- ---------
Net deferred tax liabilities............................................ $ 17,137 $ 14,579
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $16,000 which expire in 2013, if not utilized.
Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating loss before utilization.
8. SALE OF BUSINESS
During May 1999, the Company signed a letter of intent to sell all
outstanding stock to a third party for total consideration of approximately $15
million. The transaction is expected to be consummated in June 1999.
F-58
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
9. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs and other business
systems being written using two digits rather than four digits to represent the
year. An assessment of the Year 2000 exposure has been made by the Company and
the plans to resolve the related issues are being implemented. Most major
systems have already been updated or replaced with applications that are Year
2000 compliant in the normal course of business. The Company believes it will be
able to achieve Year 2000 compliance by the end of 1999 without incurring
significant additional costs.
The Company has also developed a plan of communication with significant
business partners to ensure that the Company's operations are not disrupted
through these relationships and that the Year 2000 issues are resolved timely.
F-59
<PAGE>
[INSIDE BACK COVER]
CUSTOMER FRIENDLY
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the need to sift through often irrelevant search results. MyShopNow.com enables
customers to personalize and further focus their interests and browsing, while
offering a seamless "one-cart" checkout solution in a secure, friendly and
easy-to-navigate shopping environment.
[PICTURE OF A MYSHOPNOW WEB PAGE]
[PICTURE OF A BOY HOLDING A PRODUCT SOLD ON SHOPNOW.COM]
MY FAVORITES
One of ShopNow.com's more popular convenience features, "My Favorites," allows
shoppers to create their own lists of frequently visited merchant stores, as
well as e-mail their favorite stores to friends. With easy-to-use shopping
categories, advanced search engines and helpful tools such as "My Favorites,"
ShopNow.com helps shoppers find what they're looking for fast.
[PICTURE OF AN ONLINE MERCHANT STORE WITH SHOPNOW.COM WEB SITE]
<PAGE>
SHARES
[SHOPNOW LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
U.S. BANCORP PIPER JAFFRAY
SOUNDVIEW TECHNOLOGY GROUP
WIT CAPITAL CORPORATION
- --------------------------------------------------------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, 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.
- --------------------------------------------------------------------------------
------------
, 1999
------------
<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 ShopNow.com in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 23,978
NASD filing fee................................................... 9,125
Nasdaq National Market listing fee................................ 90,000
Printing and engraving costs...................................... 150,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 175,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous expenses............................................ 21,897
---------
Total......................................................... $ 680,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 5 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's directors,
officers, employees and agents to the maximum extent permitted by Washington
law. The directors and officers of the registrant also may be indemnified
against liability they may incur for serving in that capacity pursuant to a
liability insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 10 of the registrant's Amended and Restated Articles of
Incorporation (Exhibit 3.1 hereto), contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued and sold unregistered
securities as set forth below.
1. On April 29, 1996, the Registrant issued 71,429 shares of Common Stock to
Dwayne Walker at $0.15 per share.
2. On May 2, 1996, the Registrant issued 20,000 shares of common stock to
Othniel Palomino at $0.15 per share.
3. On September 30, 1996, the Registrant issued 300,000 shares of common stock
to Othniel Palomino at $0.15 per share.
II-1
<PAGE>
4. On January 2, 1997, the Registrant issued to Ganapathy Krishnan a promissory
note in the principal amount of $250,000, which is convertible into 500,000
shares of common stock.
5. On January 2, 1997, pursuant to an Acquisition Agreement among the
Registrant, Web Solutions, Inc. and Intelligent Software Solutions, Inc.,
the Registrant issued to the shareholders of Web Solutions, Inc. and
Intelligent Software Solutions, Inc. 600,000 shares of common stock, valued
at $0.15 per share, and a convertible promissory in the principal amount of
$225,738.
6. On February 26, 1997, the Registrant issued 699,612 shares of Series A
preferred stock at $0.50 per share, which are convertible into 699,612
shares of common stock, to Dwayne Walker in exchange for the cancellation of
certain promissory notes issued by the Registrant to Mr. Walker.
7. On February 26, 1997 and April 30, 1997, the Registrant issued 2,334,079
shares of Series B preferred stock, which are convertible into 2,334,079
shares of common stock, to four accredited investors at $0.77 per share.
8. During the period from May 15, 1997 through July 15, 1997, the Registrant
issued promissory notes in the aggregate principal amount of $1,220,000,
each of which accrued interest at an annual rate of 8% (the "1997 Notes").
9. On October 31, 1997, the Registrant issued 835,205 shares of Series C
preferred stock, which are convertible into 835,205 shares of common stock,
to 14 investors at $1.50 per share in exchange for the cancellation of the
1997 Notes. In connection with this transaction, the Registrant issued to
the investors warrants to purchase an aggregate of 167,047 shares of Series
C preferred stock at an exercise price of $1.50 per share.
10. On November 11, 1997, the Registrant issued 177,333 shares of common stock
to Ganapathy and Kalyani Krishnan at $0.50 per share.
11. During the period from January 23, 1998 through April 15, 1998, in a private
placement the Registrant issued, to 163 investors, 4,250,000 shares of
Series D preferred stock, which are convertible into 4,250,000 shares of
common stock, and, to 111 investors, 2,125,000 shares of Series E preferred
stock, which are convertible into 2,125,000 shares of common stock, both at
$4.00 per share. In connection with this transaction, the Registrant issued
to the placement agent, Madison Securities, Inc., warrants to purchase
625,000 shares of common stock at an exercise price of $4.40 per share.
12. On March 23, 1998, pursuant to a development and license agreement between
the Registrant and InstallShield Software Corporation, the Registrant issued
62,327 shares of common stock to InstalledShield Software.
13. On June 8, 1998, pursuant to an Acquisition Agreement among the Registrant
and Saturn Solutions, Inc., the Registrant issued to Saturn Solutions, Inc.
422,710 shares of common stock, valued at $3.30 per share.
14. On August 8, 1998, pursuant to a Merger Agreement among the Registrant and
The Internet Mall, the Registrant issued to the shareholders of the Internet
Mall 666,667 shares of common stock, valued at $6.00 per share. In
connection with this agreement, the Registrant assumed an outstanding
promissory note in the principal amount of $300,000 issued to the NVCC Fund,
and following such transaction the NVCC Fund converted the note plus accrued
interest into 59,915 shares of common stock, valued at $6.00 per share and
warrants to purchase 5,324 shares of common stock at an exercise price of
$3.30 per share.
15. On September 17, 1998, pursuant to an Agreement and Plan of Merger between
the Registrant and Media Assets, Inc., the Registrant issued to the sole
shareholder of Media Assets, Inc., Jeff Haggin, 600,000 shares of common
stock, valued at $6.00 per share, a convertible promissory note
II-2
<PAGE>
in the principal amount of $1,050,000 and options to purchase an aggregate
of 300,000 shares of common stock at an exercise price of $2.00 per share.
16. In October 1998, the Registrant completed a Bridge Financing whereby it
issued promissory notes in the aggregate principal amount of $3,700,000 and
warrants to purchase 129,500 shares of common stock at $4.00 per share. In
connection therewith, the Registrant issued to Madison Securities, Inc.
warrants to purchase 129,500 shares of common stock at $4.00 per share.
17. During the period from November 24, 1998 through January 19, 1999, the
Registrant issued 2,336,000 shares of Series F preferred stock, which are
convertible into 2,336,000 shares of common stock, to 130 investors at $6.25
per share. In connection with this transaction, the Registrant issued to the
investors warrants to purchase 233,600 shares of common stock at an exercise
price of $7.50 per share.
18. On March 4, 1999, pursuant to a Loan and Security Agreement between the
Registrant and Transamerica Business Credit Corporation, the Registrant
issued to Transamerica Business Credit Corporation warrants to purchase
72,000 shares of common stock at $6.25 per share.
19. On March 10, 1999, the Registrant issued 1,000 shares of common stock to
Howard Barokas and Andrew Cullen in exchange for consulting services
rendered to the Registrant.
20. On March 15, 1999, the Registrant issued 714,288 shares of Series G
preferred stock, which are convertible into 714,288 shares of common stock,
to the ZERON Group at $7.00 per share. In connection with this transaction,
the Registrant issued to the investors warrants to purchase 35,715 shares of
common stock at an exercise price of $7.50 per share.
21. In April 1999, we issued to 24/7 Media 4,300,000 shares of Series G
convertible preferred stock at $7.00 per share in exchange for $30.1 million
in consideration, consisting of cash, shares of 24/7 common stock and 24/7's
majority interest in CardSecure. A portion of the shares of Series G
convertible preferred stock and of the warrants were placed in escrow
pending consummation of our acquisition of CardSecure, which occurred on
June 15, 1999. 24/7 Media also received warrants to purchase 860,000 shares
of common stock at $7.00 per share. 24/7 Media beneficially owns five
percent or more of our securities.
22. On April 16, 1999, pursuant to a Master Lease Agreement between the
Registrant and Silicon Valley Bank, the Registrant issued to Silicon Valley
Bank warrants to purchase 40,000 shares of common stock at $6.25 per share.
23. On April 29, 1999, pursuant to a Distribution/Marketing Agreement between
the Registrant and Qwest Communications Corporation, the Registrant issued
to Qwest Communications Corporation warrants to purchase 100,000 shares of
common stock at $10.00 per share.
24. On May 18, 1999, the Registrant issued 333,334 shares of Series H preferred
stock, which are convertible into 333,334 shares of common stock, to HNC
Software Inc. at $9.00 per share. In connection with this transaction, the
Registrant issued to HNC warrants to purchase 50,000 shares of common stock
at an exercise price of $9.00 per share.
25. On May 19, 1999, pursuant to a Distribution Agreement between the Registrant
and Corel Corporation, the Registrant issued to Corel Corporation warrants
to purchase 100,000 shares of common stock at an exercise price of $9.00 and
options to purchase 300,000 and 200,000 shares of common stock at $4.80 and
$9.00, respectively.
26. On June 15, 1999, pursuant to a Acquisition Agreement between the Registrant
and GO Software, Inc., the Registrant issued to GO Software, Inc. 1,240,000
shares of common stock and a promissory note in the principal amount of
$1,000,000, convertible at GO Software, Inc.'s option for common stock at a
conversion price equal to the initial public offering price.
II-3
<PAGE>
27. On June 17, 1999, the Registrant issued 2,100,000 shares of Series I
preferred stock to a financial institution, subject to receipt of
shareholder approval of an amendment to increase the Registrants authorized
capital stock and all required governmental approvals.
28. Through June 1, 1999, the Registrant granted options to purchase an
aggregate of 6,914,226 shares at exercise prices ranging from $0.25 to
$7.00.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering, and
the Registrant believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in 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
adequate access, through their relationships with the Registrant, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Second Amended and Restated Registration Rights Agreement dated as of
November 30, 1998.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1999 Employee Stock Purchase Plan and forms of agreement thereunder.
10.2* 1996 Stock Option Plan and form of agreements thereunder.
10.3+ Electronic Distribution Agreement dated as of May 19, 1999, between Corel
Corporation and the Registrant.
10.4+ Addendum No. 1 Project Agreement to Strategic Alliance Agreement between
HNC Software and the Registrant, dated May 4, 1999.
10.5+ Distributor/Marketing Agreement dated as of April 29, 1999, between Qwest
Communications Corporation and the Registrant.
10.6 Strategic Alliance Agreement dated as of May 4, 1999, between HNC Software
Inc. and the Registrant.
10.7 Consortium Membership Agreement dated as of May 4, 1999, between HNC
Software Inc. and the Registrant.
10.8 Cross Promotion Agreement dated April 5, 1999, between 24/7 Media, Inc.
and the Registrant.
10.9 Loan and Security Agreement dated as of March 4, 1999, between
Transamerica Business Credit Corporation and the Registrant.
10.10 Letter of Intent agreement dated March 24, 1999, between The ZERON Group
and Registrant.
10.11* Employment Agreement dated as of , 1999, between Dwayne M.
Walker and the Registrant.
10.12 Corporate Master Agreement effective as of February 10, 1999, between
Vignette Corporation and the Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Accountants.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
23.2 Consent of Arthur Andersen LLP, Independent Accountants.
23.3* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission. The omitted portions have been separately filed with the
Commission.
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the 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 a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on June 18, 1999.
<TABLE>
<S> <C> <C>
SHOPNOW.COM INC.
By /s/ DWAYNE M. WALKER
-----------------------------------------
Dwayne M. Walker, Chairman, President and
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dwayne M. Walker and Alan D. Koslow and each of
them, his attorney-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 18, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman, Director,
/s/ DWAYNE M. WALKER President and Chief
- ------------------------------ Executive Officer
(Dwayne M. Walker) (Principal Executive
Officer)
Executive Vice President,
/s/ ALAN D. KOSLOW Chief Financial Officer,
- ------------------------------ and General Counsel
(Alan D. Koslow) (Principal Financial and
Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ DAVID M. LONSDALE
- ------------------------------ Director
(David M. Lonsdale)
/s/ BRET R. MAXWELL
- ------------------------------ Director
(Bret R. Maxwell)
/s/ MARK C. MCCLURE
- ------------------------------ Director
(Mark C. McClure)
/s/ JOHN R. SNEDEGAR
- ------------------------------ Director
(John R. Snedegar)
/s/ MARK H. TERBEEK
- ------------------------------ Director
(Mark H. Terbeek)
/s/ GARRETT P. CECCHINI
- ------------------------------ Director
(Garrett P. Cecchini)
</TABLE>
II-7
<PAGE>
SHOPNOW.COM INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(1) PERIOD
- ---------------------------------------------- ------------------ --------------- ------------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998.................. $ 23 $ 591 $ (384) $ 230
------- ------- ------------- ------------
------- ------- ------------- ------------
Year ended December 31, 1997.................. $ 3 $ 20 $ -- $ 23
------- ------- ------------- ------------
------- ------- ------------- ------------
Year ended December 31, 1996.................. $ 2 $ 3 $ (2) $ 3
------- ------- ------------- ------------
------- ------- ------------- ------------
</TABLE>
- ------------------------
(1) Write-offs, net of bad debt recovery.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Second Amended and Restated Registration Rights Agreement dated as of
November 30, 1998.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1999 Employee Stock Purchase Plan and forms of agreement thereunder.
10.2* 1996 Stock Option Plan and form of agreements thereunder.
10.3+ Electronic Distribution Agreement dated as of May 19, 1999, between Corel
Corporation and the Registrant.
10.4+ Addendum No. 1 Project Agreement to Strategic Alliance Agreement between
HNC Software and the Registrant, dated May 4, 1999.
10.5+ Distributor/Marketing Agreement dated as of April 29, 1999, between Qwest
Communications Corporation and the Registrant.
10.6 Strategic Alliance Agreement dated as of May 4, 1999, between HNC Software
Inc. and the Registrant.
10.7 Consortium Membership Agreement dated as of May 4, 1999, between HNC
Software Inc. and the Registrant.
10.8 Cross Promotion Agreement dated April 5, 1999, between 24/7 Media, Inc.
and the Registrant.
10.9 Loan and Security Agreement dated as of March 4, 1999, between
Transamerica Business Credit Corporation and the Registrant.
10.10 Letter of Intent agreement dated March 24, 1999, between The ZERON Group
and Registrant.
10.11* Employment Agreement dated as of , 1999, between Dwayne M.
Walker and the Registrant.
10.12 Corporate Master Agreement effective as of February 10, 1999, between
Vignette Corporation and the Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Accountants.
23.2 Consent of Arthur Andersen LLP, Independent Accountants.
23.3* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission. The omitted portions have been separately filed with the
Commission.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SHOPNOW.COM INC.
ARTICLE I. NAME
The name of this corporation shall be SHOPNOW.COM INC. (the
"CORPORATION").
ARTICLE II. PURPOSE
To engage in and carry on any lawful business or trade and exercise all
powers granted to a corporation formed under the Washington Business Corporation
Act (the "WASHINGTON ACT"), including any amendments thereto or successor
statute that may hereinafter be enacted.
ARTICLE III. REGISTERED OFFICE; REGISTERED AGENT
The registered office of the Corporation shall be at 1001 Fourth Avenue
Plaza, Suite 4500, Seattle, Washington 98154 and its registered agent at such
address is Corp Serve Inc.
ARTICLE IV. SHARES
The Corporation is authorized to issue two classes of capital stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK." The total number
of shares of capital stock that the Corporation shall have authority to issue is
205,000,000 consisting of 200,000,000 shares of Common Stock, $0.001 par value
per share, and 5,000,000 shares of Preferred Stock, $0.001 par value per share.
The Preferred Stock may be issued from time to time in one or more
series in any manner permitted by law and the provisions of these Amended and
Restated Articles of Incorporation (the "ARTICLES OF INCORPORATION"), as
determined from time to time by the Board of Directors of the Corporation
(the "BOARD") and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. In addition,
such resolution or resolutions shall set forth the voting powers, full or
limited or none, of each such series of Preferred Stock and shall fix the
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions of each such
series of Preferred Stock. The Board is authorized to alter the designation,
rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board originally
fixing the number of shares constituting any series of Preferred
<PAGE>
Stock, to increase or decrease (but not below the number of shares of any
such series then outstanding) the number of shares of any such series subsequent
to the issue of shares of that series.
In case the number of shares of any series shall be decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The Corporation shall from time to time, in accordance with the laws of the
State of Washington, increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
ARTICLE V. PREEMPTIVE RIGHTS
No preemptive rights to acquire additional securities issued by the
Corporation shall exist with respect to shares of the Corporation's Capital
Stock, or securities convertible into shares of the Corporation's Capital Stock.
ARTICLE VI. DIRECTORS
The number of directors of this Corporation shall be determined in the
manner provided by the Corporation's Amended and Restated Bylaws (the "BYLAWS")
and may be increased or decreased from time to time in the manner provided
therein.
The directors shall be divided into three classes designated as Class I,
Class II and Class III, respectively. Directors need not be shareholders of
the Corporation or residents of the State of Washington unless so required by
the Articles of Incorporation or Bylaws, wherein other qualifications for
directors may be prescribed. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board. Each class
shall consist, as nearly as may be possible, of one-third (1/3) of the total
number of directors constituting the entire Board. The initial term of office
of the Class I directors shall expire at the annual meeting of shareholders
in 2000 and Class I directors shall subsequently be elected for a full term
of three (3) years. The initial term of office of the Class II directors
shall expire at the annual meeting of shareholders in 2001 and Class II
directors shall subsequently be elected for a full term of three (3) years.
The initial term of office of the Class III directors shall expire at the
annual meeting of shareholders in 2002 and Class III directors shall
subsequently be elected for a full term of three (3) years. Thereafter, the
term of office of each class of directors shall be three years and directors
shall hold office until the annual meeting for the year in which their terms
expire and until their successors shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification
or removal from office. If the number of directors is changed, any increase
or decrease in directorships shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible,
and any additional directors of any class elected to fill a vacancy resulting
from an increase in such class shall hold
2
<PAGE>
office only until next election of directors by the shareholders, but in no
case will a decrease in the number of directors shorten the term of any
incumbent director.
ARTICLE VII. BYLAWS
The Board shall have the power to adopt, amend or repeal the Bylaws,
subject to the power of the shareholders to amend or repeal the Bylaws. The
shareholders shall also have the power to amend or repeal the Bylaws.
ARTICLE VIII. SHAREHOLDER ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a meeting of shareholders
of the Corporation may be taken without a meeting or a vote if the action is
taken by written consent of all shareholders entitled to vote on the action.
ARTICLE IX. SPECIAL MEETINGS OF SHAREHOLDERS
A special meeting of the shareholders (a "SPECIAL MEETING") may be called,
at any time for any purpose or purposes for which such a meeting may lawfully be
called, only by (i) the Chairman of the Board, (ii) a majority of the Board or
(iii) the President of Corporation. Shareholders of the Corporation may not call
a Special Meeting.
ARTICLE X. LIMITATION ON LIABILITY OF DIRECTORS
To the full extent that the Washington Act, as it exists on the date hereof
or may hereafter be amended, permits the limitation or elimination of the
liability of directors, a director shall not be liable to this Corporation or
its shareholders for monetary damages for conduct as a director, except for acts
or omissions that involve intentional misconduct by the director, or a knowing
violation of law by the director, or for conduct violating Section 23B.08.310 of
the Washington Act, or for any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled. If the Washington Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the full extent permitted by the Washington Act, as so amended. Any
repeal or modification of this Article shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification for or with respect to an act or omission of such director
occurring prior to such repeal or modification.
3
<PAGE>
ARTICLE XI. SHAREHOLDER APPROVAL
Unless the Articles of Incorporation otherwise provide for a greater voting
requirement for any voting group of shareholders, the affirmative vote or
written consent of a majority of all of the votes entitled to be cast by a
voting group shall be sufficient, valid and effective to adopt, authorize,
and/or approve any acts of the Corporation that, under the Washington Act, would
otherwise require the approval of two-thirds (2/3) of all of the votes entitled
to be cast, including, without limitation: (i) an amendment to the Articles of
Incorporation, (ii) a plan of merger or share exchange, (iii) the sale, lease,
exchange or other disposition by the Corporation of all or substantially all of
its property other than in the usual and regular course of business; or (iv) a
proposal to dissolve the Corporation.
ARTICLE XII. AMENDMENTS TO ARTICLES
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Articles of Incorporation, in the manner now or
hereafter permitted by the Washington Act, and all rights and powers conferred
herein on shareholders and directors are subject to this reserved power.
DATED: July ___, 1999.
SHOPNOW.COM INC.
a Washington corporation
--------------------------------------------------
Alan D. Koslow
Executive Vice President, Chief Financial Officer,
General Counsel and Secretary
4
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SHOPNOW.COM INC.
EFFECTIVE AS OF JULY __,1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I CORPORATE OFFICES............................................................................................1
1.1 REGISTERED OFFICE....................................................................................1
1.2 OTHER OFFICES........................................................................................1
ARTICLE II MEETINGS OF SHAREHOLDERS....................................................................................1
2.1 DATE, TIME AND PLACE OF MEETINGS.....................................................................1
2.2 ANNUAL MEETING.......................................................................................1
2.3 SPECIAL MEETING......................................................................................2
2.4 NOTICE OF SHAREHOLDERS'MEETINGS......................................................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.........................................................2
2.6 QUORUM...............................................................................................2
2.7 ADJOURNED MEETING; NOTICE............................................................................3
2.8 VOTING; NO CUMULATIVE VOTING.........................................................................3
2.9 WAIVER OF NOTICE.....................................................................................3
2.10 ACTION BY SHAREHOLDERS WITHOUT A MEETING.............................................................3
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS..........................................4
2.12 PROXIES..............................................................................................5
2.13 LIST OF SHAREHOLDERS ENTITLED TO VOTE................................................................5
2.14 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS............................................................5
2.15 ADVANCE NOTICE OF SHAREHOLDER BUSINESS...............................................................6
ARTICLE III DIRECTORS..................................................................................................6
3.1 POWERS...............................................................................................7
3.2 NUMBER OF DIRECTORS..................................................................................7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS..............................................7
3.4 RESIGNATION; REMOVAL; VACANCIES......................................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................................................8
3.6 ANNUAL AND REGULAR MEETINGS..........................................................................8
3.7 SPECIAL MEETINGS; NOTICE.............................................................................8
3.8 ADJOURNED MEETING; NOTICE............................................................................9
3.9 WAIVER OF NOTICE.....................................................................................9
3.10 QUORUM...............................................................................................9
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING......................................................9
3.12 EXECUTIVE AND OTHER COMMITTEES; AUTHORITY; MINUTES..................................................10
3.13 APPROVAL OF LOANS TO OFFICERS.......................................................................10
3.14 FEES AND COMPENSATION OF DIRECTORS..................................................................11
ARTICLE IV OFFICERS...................................................................................................11
4.1 OFFICERS............................................................................................11
4.2 ELECTION OF OFFICERS................................................................................11
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.3 SUBORDINATE OFFICERS................................................................................11
4.4 CONTRACT RIGHT OF OFFICERS..........................................................................11
4.5 REMOVAL AND RESIGNATION OF OFFICERS.................................................................11
4.6 VACANCIES IN OFFICES................................................................................12
4.7 CHAIRMAN OF THE BOARD...............................................................................12
4.8 PRESIDENT...........................................................................................12
4.9 VICE PRESIDENT......................................................................................12
4.10 SECRETARY...........................................................................................12
4.11 TREASURER...........................................................................................13
4.12 ASSISTANT SECRETARY.................................................................................13
4.13 ASSISTANT TREASURER.................................................................................13
4.14 AUTHORITY AND DUTIES OF OFFICERS....................................................................14
ARTICLE V INDEMNITY...................................................................................................14
5.1 RIGHT TO INDEMNIFICATION............................................................................14
5.2 RESTRICTIONS ON INDEMNIFICATION.....................................................................14
5.3 ADVANCEMENT OF EXPENSES.............................................................................15
5.4 RIGHT OF INDEMNITEE TO BRING SUIT...................................................................15
5.5 PROCEDURES EXCLUSIVE................................................................................15
5.6 NONEXCLUSIVITY OF RIGHTS............................................................................15
5.7 INSURANCE...........................................................................................15
5.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION..........................................16
5.9 PERSONS SERVING OTHER ENTITIES......................................................................16
ARTICLE VI RECORDS AND REPORTS........................................................................................16
6.1 MAINTENANCE AND INSPECTION OF RECORDS...............................................................16
6.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................................................17
ARTICLE VII GENERAL MATTERS...........................................................................................18
7.1 CHECKS..............................................................................................18
7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS....................................................18
7.3 STOCK CERTIFICATES; PARTLY PAID SHARES..............................................................18
7.4 SPECIAL DESIGNATION ON CERTIFICATES.................................................................19
7.5 LOST, STOLEN OR DESTROYED CERTIFICATES..............................................................19
7.6 CONSTRUCTION; DEFINITIONS...........................................................................19
7.7 DIVIDENDS...........................................................................................19
7.8 FISCAL YEAR.........................................................................................19
7.9 SEAL................................................................................................20
7.10 TRANSFER OF STOCK; RESTRICTIONS ON TRANSFER.........................................................20
7.11 STOCK TRANSFER AGREEMENTS...........................................................................20
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7.12 REGISTERED SHAREHOLDERS.............................................................................20
ARTICLE VIII AMENDMENTS...............................................................................................21
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BYLAWS
OF
SHOPNOW.COM INC.
ARTICLE I
CORPORATE OFFICES
1.1 .REGISTERED OFFICE
The registered office of SHOPNOW.COM INC. (the "CORPORATION") shall at all
times be located in the State of Washington. The name of the registered agent of
the Corporation at such location is the agent named in the Articles of
Incorporation until changed by the Board of Directors of the Corporation (the
"BOARD").
1.2 OTHER OFFICES
The Board may at any time establish other offices at any place or places
where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 DATE, TIME AND PLACE OF MEETINGS
Meetings, annual or special, of the shareholders shall be held at such
place as shall be designated by the Board, or in the absence of such a
designation, at the principal office of the Corporation. Shareholders may
participate in any meeting of shareholders by any means of communication by
which all persons participating in the meeting can hear each other during such
meeting. Participation by such means shall constitute presence in person at such
meeting.
2.2 ANNUAL MEETING
The annual meeting of the shareholders (the "ANNUAL MEETING") of the
Corporation shall be held each year on a date and time designated by the Board.
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At the Annual Meeting, directors shall be elected and any other proper
business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the shareholders (a "SPECIAL MEETING") may be called,
at any time for any purpose or purposes for which such a meeting may lawfully be
called, only by (i) the Chairman of the Board, (ii) a majority of the Board or
(iii) the President of the Corporation.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be given by or at the
direction of the Board, the Chairman of the Board, the President or the
Secretary and shall be in writing and sent or otherwise given in accordance with
Section 2.5 of these Bylaws not less than 10 nor more than 60 days before the
date of the meeting to each shareholder entitled to vote at such meeting;
PROVIDED, HOWEVER, that notice of a meeting to act on an amendment to the
Articles of Incorporation, a plan of merger or share exchange, the sale, lease,
exchange or other disposition of all or substantially all of the Corporation's
assets other than in the regular course of business or the dissolution of the
Corporation shall be given not less than 20 nor more than 60 days before such
meeting. All notices of meetings shall specify the place, date, and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders may be transmitted by mail,
private carrier, personal delivery, telegraph, teletype or communications
equipment that transmits a facsimile of the notice. Notice, if mailed, is
effective when deposited in the United States mail, postage prepaid, directed to
the shareholder at his address as it appears on the current records of the
Corporation. Notice given in any manner other than by mail, is effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the current records of the Corporation. An affidavit of the
Secretary or an assistant secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the issued and outstanding shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders for the transaction of business except as otherwise provided by
the Washington Business Corporation Act (the "ACT") or by the Articles of
Incorporation. If, however, a quorum is not present or represented at any
meeting of shareholders , the chairman of the meeting or the holders of a
majority of the shares present, either in person or by proxy, shall have the
power to adjourn the meeting to such time and place as may be
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decided upon by the chairman of the meeting or the holders of the majority
of the shares present, without notice other than announcement at the meeting,
until a quorum is present or represented. Any business that might have been
transacted at the meeting as originally noticed may be transacted at a
reconvened meeting, provided that a quorum is present or represented at such
meeting. Once a share is represented for any purpose at a meeting, other than
solely to object to holding the meeting or transacting business, it is deemed
present for quorum purposes for the remainder of such meeting and any
adjournment (unless a new record date is or must be set for the adjourned
meeting), notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
2.7 ADJOURNED MEETING; NOTICE
If a meeting of shareholders is adjourned to a different date, time or
place, unless these Bylaws otherwise require, no notice of the new date, time or
place shall be required if they are announced at the meeting before adjournment.
At the adjourned meeting, the Corporation may transact any business that might
have been transacted at the original meeting. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
shareholder of record entitled to notice of or to vote as of the new record
date.
2.8 VOTING; NO CUMULATIVE VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws.
Except as may be otherwise provided in the Articles of Incorporation, each
shareholder shall be entitled to one vote for each share of capital stock held
by such shareholder. Shareholders of the Corporation are not entitled to
cumulate their votes for directors.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Act, a waiver
in writing, signed by the person or persons entitled to such notice and
delivered to the Corporation, whether before or after the date and time of the
meeting or before or after the action to be taken by consent is effective, shall
be deemed equivalent to the giving of such notice. Further, notice of the time,
place and purpose of any meeting will be deemed to be waived by any shareholder
by attendance in person or by proxy at the meeting, unless such shareholder, at
the beginning of the meeting, objects to holding the meeting or transacting
business at the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the shareholders need be specified
in any written waiver of notice unless so required by the Articles of
Incorporation or these Bylaws.
2.10 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Unless otherwise provided in the Articles of Incorporation, any action
required or permitted by these Bylaws, the Articles of Incorporation, or the
Act, to be taken at any meeting, annual or special, of shareholders may be taken
without a meeting by unanimous consent if one or more written consents
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setting forth the action so taken shall be signed by all the shareholders
entitled to vote with respect to the matter. Action may be taken by less than
unanimous consent. Action by less than unanimous consent may be taken if one or
more written consents describing the action taken shall be signed by
shareholders holding of record or otherwise entitled to vote in the aggregate
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote on the
action were present and voted. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date of the first shareholder consent is signed. A shareholder may withdraw
a consent only by delivering a written notice of withdrawal to the Secretary
prior to the time that consents sufficient to authorize taking the action have
been delivered to the Corporation. Every written consent shall bear the date of
signature of each shareholder who signs the consent. A written consent is not
effective to take the action referred to in the consent unless, within 60 days
of the earliest dated consent delivered to the Corporation, written consents
signed by a sufficient number of shareholders to take action are delivered to
the Corporation. Unless the consent specifies a later effective date, actions
taken by written consent of the shareholders are effective when (a) consents
sufficient to authorize taking the action are in possession of the Corporation
and (b) the period of advance notice required by the Articles of Incorporation
to be given to any nonconsenting or nonvoting shareholders has been satisfied.
If the action requires the filing of a certificate under any section of the Act,
the certificate so filed shall state, in lieu of any statement required by such
section concerning any vote of shareholders, that written notice and consent has
been obtained in accordance with Section 23B.070.040(5). Any such consent shall
be inserted in the minute book as if it were the minutes of a meeting of the
shareholders.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix a future date as the record date, which shall not be
more than 70, and, in case of a meeting of shareholders, not less than 10 days,
prior to the date on which the particular action requiring such determination is
to be taken. If the Board does not so fix a record date, the record date shall
be the day immediately preceding the date on which notice of the meeting is
first given to shareholders, or, if notice is waived, at the close of business
on the day immediately preceding the day on which the meeting is held. Such
determination shall apply to any adjournment of the meeting unless the Board
fixes a new record date, which the Board shall do if the meeting is adjourned to
a date more than 120 days after the date fixed for the original meeting. The
record date for determining shareholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
is necessary, shall be the day on which the first written consent is signed. The
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto.
2.12 PROXIES
Each shareholder entitled to vote at a meeting of shareholders, or to
express consent or dissent to corporate action in writing without a meeting, may
authorize another person or persons to act for him by a written proxy, signed by
the shareholder and filed with the Secretary or other officer or agent of the
Corporation authorized to tabulate votes. A proxy shall become invalid 11 months
after the date of its execution, unless a longer period is expressly provided in
the proxy. A proxy shall be deemed signed if the shareholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the shareholder or his attorney-in-fact. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 23B.07.220 of the Act.
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2.13 LIST OF SHAREHOLDERS ENTITLED TO VOTE
At least 10 days before every meeting of shareholders, a complete list of
the shareholders entitled to notice of such meeting shall be made. The list
shall be arranged in alphabetical order and show the address of each shareholder
and the number of shares registered in the name of each shareholder (arranged by
voting group and by each class or series of shares). The list shall be available
for inspection by any shareholder, beginning 10 days prior to the meeting and
continuing through the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held. A shareholder is entitled to inspect the list, during regular business
hours and at the shareholders' expense, during the period it is available for
inspection.
2.14 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS AND PROPOSALS
Nominations of persons for election to the Board and the proposal of
business to be considered by the shareholders may be made at any meeting of
shareholders only (a) pursuant to the Corporation's notice of meeting, (b) by
or at the direction of the Board, or (c) by any shareholder of the Corporation
who was a shareholder of record at the time of giving of notice provided for
in these Bylaws, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 2.14
In addition to any other applicable legal or regulatory requirements, for
nominations or other business to be properly brought before a shareholders
meeting by a shareholder pursuant to clause (c) of the preceding sentence, the
shareholder must have given timely notice thereof in writing to the Secretary
of the Corporation, and such other business must otherwise be a proper matter
for shareholder action. To be timely, a shareholder's notice must be given
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Corporation and received by the Secretary not later than 60
days prior to the first anniversary of the date on which notice of the prior
year's annual meeting was first mailed to shareholders. In no event shall the
public announcement of an adjournment of a shareholders meeting commence a new
time period for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (a) as to each person, if any, whom the
shareholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (or any successor thereto) and
Rule 14a-11 thereunder (or any successor thereto) (including such persons'
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected), (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, and any material interest in such business of
such shareholder and the beneficial owner, if any, on whose behalf the
proposal is made, and (c) as to the shareholder giving notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owners, and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner. Notwithstanding any provision
herein to the contrary, no business shall be conducted at a shareholders
meeting except in accordance with the procedures set forth in this Section
2.14.
The person presiding over the shareholders meeting shall, if the facts
warrant, determine and declare at the meeting that the nomination was not
properly made or that the business was not properly brought before the
meeting, as the case may be, in accordance with the provisions of this Section
2.14, and, if he should so determine, he shall so declare at the meeting that
any such person not properly nominated shall not be eligible to receive votes
in the election of directors at the meeting or that any such business not
properly brought before the meeting shall not be transacted, as the case may
be.
ARTICLE III
DIRECTORS
3.1 POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Act.
3.2 NUMBER OF DIRECTORS
The number of Directors of the Corporation shall be fixed from time to time
by resolution of the Board. The number of Directors may be changed from time to
time by amendment to these Bylaws, but no decrease in the number of Directors
shall have the effect of removing any Director before his term of office
expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors need not be shareholders of the Corporation or residents
of the State of Washington unless so required by the these Bylaws or the
Articles of Incorporation, wherein other qualifications for directors may be
prescribed. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board. The current term of office of the Class I
directors shall expire at the annual meeting of shareholders in 2000 and Class I
directors shall subsequently be elected for a full term of three years. The
current term of office of the Class II directors shall expire at the annual
meeting of shareholders in 2001 and Class II directors shall
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subsequently be elected for a full term of three years. The initial term of
office of the Class III directors shall expire at the annual meeting of
shareholders in 2002 and Class III directors shall subsequently be elected for a
full term of three years. Thereafter, the term of office of each class of
directors shall be three years and directors shall hold office until the annual
meeting for the year in which their terms expire and until their successors
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. If the number
of directors is changed, any increase or decrease in directorships shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office only until next election of directors by the shareholders, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
3.4 RESIGNATION; REMOVAL; VACANCIES
Any Director may resign from the Board or any committee of the Board at any
time by delivering either oral tender of resignation at any meeting of the Board
or any committee thereof, or written notice to the Chairman of the Board, the
President, the Secretary or the Board. Any such resignation is effective upon
delivery thereof unless the notice of resignation specifies a later effective
date and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
At a meeting of shareholders called expressly for that purpose, one or more
members of the Board, including the entire Board, may be removed with or without
cause by the holders of the shares entitled to elect the Director or Directors
whose removal is sought if the number of votes cast to remove the Director
exceeds the number of votes cast not to remove the Director.
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, by the Board or, if
the Directors in office constitute fewer than a quorum, by the affirmative vote
of a majority of the remaining Directors. Any vacant office to be held by a
Director elected by holders of one or more authorized classes or series of
shares entitled to vote and be counted collectively thereon shall be filled only
by the vote of the holders of such classes or series of shares. A vacancy that
will occur at a specific later date, by reason of a resignation effective at a
later date or otherwise, may be filled before the vacancy occurs but the new
Director may not take office until the vacancy occurs. A Director elected to
fill a vacancy shall serve only until the next election of Directors by the
shareholders.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board may hold meetings, both regular and special, either within or
outside the State of Washington.
Members of the Board, or of any committee thereof, may participate in a
meeting of the Board, or committee, by, or conduct the meeting through the use
of, any means of communication by which all Directors who are participating in
the meeting can hear each other during the meeting. Participation by such means
shall constitute presence in person at the meeting.
3.6 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after and
at the same place as the Annual Meeting. By resolution, the Board, or any
committee thereof, may specify the date, time and place for holding regular
meetings without notice other than such resolution.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board, or of any committee thereof, may be
called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any two (2) Directors and,
in the case of any special meeting of any committee of the Board, by its
Chairman. The person or persons authorized to call special meetings may fix any
place for holding any special Board or committee meeting called by them.
Notice of a special Board or committee meeting stating the date, time and
place of the meeting shall be delivered personally or by telephone to each
Director or sent by first class mail or telegram, charges prepaid, addressed to
each Director at his address as it is shown on the records of the Corporation.
If the notice is mailed, it shall be deposited in the United States mail at
least five (5) days before the time of the holding of the meeting. If the notice
is delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least two (2) days
before the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the Board, or of any committee
thereof, then the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given to any Director under any
provisions of these Bylaws, the Articles of Incorporation or the Act, a written
waiver thereof, signed by the person entitled to notice and delivered to the
Corporation, whether before or after the date and time of the meeting, shall be
deemed equivalent to the giving of such notice. A Director's attendance at or
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participation in a meeting of the Board, or of any committee thereof, shall
constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his arrival, objects to holding the
meeting or transacting business at such meeting and does not thereafter vote for
or assent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board, or of any
committee thereof, need be specified in any written waiver of notice unless so
required by these Bylaws or the Articles of Incorporation.
3.10 QUORUM
At all meetings of the Board, or of any committee thereof, a majority of
the authorized number of Directors shall constitute a quorum for the transaction
of business and the act of majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, or of the committee
thereof, except as the Articles of Incorporation or the Act may otherwise
specifically provide. If a quorum is not present at any meeting of the Board, or
of the committee thereof, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action required or permitted to be taken at any meeting of the Board,
or of any committee thereof, may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member, either before or after the action is
taken, and delivered to the Corporation. Action taken by written consent of
Directors without a meeting is effective when the last Director signs the
consent, unless the consent specifies a later effective date. Any such consent
shall be filed with the minutes of proceedings of the Board or committee
meeting.
3.12 EXECUTIVE AND OTHER COMMITTEES; AUTHORITY; MINUTES
The Board, by resolution adopted by the greater of (a) a majority of
the Directors then in office and (b) the number of Directors required to take
action in accordance with these Bylaws, may create standing or temporary
committees, including an Executive Committee, and appoint members from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws, the Articles of
Incorporation and applicable law. Each committee must have two (2) or more
members, who shall serve at the pleasure of the Board. The Board may remove any
member of any committee elected or appointed by the Board but only by the
affirmative vote of the greater of (x) a majority of the Directors then in
office and (y) the number of Directors required to take action in accordance
with these Bylaws.
Each committee shall have and may exercise all the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions adopted in like manner, except that no
such committee shall have the authority to (i) authorize or approve a
distribution except according to a general formula or method prescribed by the
Board, (ii) approve or propose to shareholders actions or proposals required by
the Act to be approved by
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shareholders. (iii) fill vacancies on the Board or any committee thereof,
(iv) amend the Articles of Incorporation pursuant to Section 23B.10.020 of the
Act, (v) adopt, amend or repeal Bylaws, (vi) approve a plan of merger not
requiring shareholder approval, or (vii) authorize or approve the issuance or
sale of contract for sale of shares, or determine the designation and relative
rights, preferences and limitations of a class or series of shares except that
the Board may authorize a committee or a senior executive officer of the
Corporation to do so within limits specifically prescribed by the Board.
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.13 APPROVAL OF LOANS TO OFFICERS
Unless these Bylaws, the Articles of Incorporation or the Act otherwise
specifically provide, the Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
Director of the Corporation, or its subsidiary, whenever, in the judgment of the
Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board
shall approve, including, without limitation, a pledge of shares of stock of the
Corporation. Nothing contained in this Section 3.13 shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
3.14 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by these Bylaws or the Articles of
Incorporation, the Board shall have the authority to fix the compensation of
Directors and committee members. By resolution, Directors and committee members
may be paid their expenses, if any, of attendance at each Board or committee
meeting, or a fixed sum for attendance at each Board or committee meeting, or a
stated salary as Director or a committee member, or a combination of any of the
foregoing. No such payment shall preclude any Director or committee member from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
4.1 OFFICERS
The officers of the Corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The Corporation may also have, at the
discretion of the Board, a chairman of the Board, one or more assistant vice
presidents, assistant secretaries, assistant treasurers, and any such
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other officers as may be appointed in accordance with the provisions of
Section 4.3 of these Bylaws. Any number of offices may be held by the same
person.
4.2 ELECTION OF OFFICERS
The officers of the Corporation, except such officers as may be appointed
in accordance with the provisions of Sections 4.3 or 4.6 of these Bylaws, shall
be chosen by the Board, subject to the rights, if any, of an officer under any
contract of employment.
4.3 SUBORDINATE OFFICERS
The Board may appoint, or empower the President to appoint, such other
officers and agents as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority, and perform such duties
as are provided in these Bylaws or as the Board may from time to time determine.
4.4 CONTRACT RIGHT OF OFFICERS
The appointment of an officer does not, by itself, create contract rights.
4.5 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board at any regular or special meeting
of the Board or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
4.6 VACANCIES IN OFFICES
Any vacancy occurring in any office of the Corporation shall be filled by
the Board.
4.7 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board and exercise and perform such other
powers and duties as may from time to time be assigned to him by the Board or as
may be prescribed by these Bylaws. If there is no president, then the Chairman
of the Board shall also be the Chief Executive Officer of the Corporation and
shall have the powers and duties prescribed in Section 4.8 of these bylaws.
4.8 PRESIDENT
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Subject to such supervisory powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
shall be the Chief Executive Officer of the Corporation and shall, subject to
the control of the Board, have general supervision, direction, and control of
the business and the officers of the Corporation. He shall preside at all
meetings of the shareholders and, in the absence or nonexistence of a chairman
of the board, at all meetings of the Board. He shall have the general powers and
duties of management usually vested in the office of president of a corporation
and shall have such other powers and duties as may be prescribed by the Board or
these Bylaws.
4.9 VICE PRESIDENT
In the absence or disability of the President, the Vice Presidents, if any,
in order of their rank as fixed by the Board or, if not ranked, a vice president
designated by the Board, shall perform all the duties of the President and when
so acting shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board, these Bylaws, the President or the Chairman of the
Board.
4.10 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the Board may direct, a book of
minutes of all meetings and actions of the Board, committees of the Board, and
shareholders. The minutes shall show the time and place of each meeting, whether
regular or special (and, if special, how authorized and the notice given), the
names of those persons present at Board meetings or committee meetings, the
number of shares present or represented at meetings of shareholders, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal offices of
the Corporation or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates evidencing such shares, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board required to be given by law or by these
Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe
custody and shall have such other powers and perform such other duties as may be
prescribed by the Board or by these Bylaws.
4.11 TREASURER
The Treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained
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earnings, and shares. The books of account shall at all reasonable times be
open to inspection by any Director.
The Treasurer shall deposit all money and other valuables in the name and
to the credit of the Corporation with such depositaries as may be designated by
the Board. He shall disburse the funds of the Corporation as may be ordered by
the Board, shall render to the President and Directors, whenever they request
it, an account of all of his transactions as Treasurer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board or these Bylaws.
4.12 ASSISTANT SECRETARY
The Assistant Secretary, or, if there is more than one, the Assistant
Secretaries in the order determined by the shareholders or Board (or if there be
no such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board or the shareholders
may from time to time prescribe.
4.13 ASSISTANT TREASURER
The Assistant Treasurer, or, if there is more than one, the Assistant
Treasurers, in the order determined by the shareholders or Board (or if there be
no such determination, then in the order of their election), shall, in the
absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board or the shareholders
may from time to time prescribe.
4.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board or the shareholders.
ARTICLE V
INDEMNITY
5.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, claim or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(a "PROCEEDING"), by reason of the fact that he is or was a Director or officer
of the Corporation or, that being or having been such a Director or officer or
an employee of the
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Corporation, he is or was serving at the request of the Corporation as a
Director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"INDEMNITEE"), whether the basis of a Proceeding is alleged action in an
official capacity or in any other capacity while serving as a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless by
the Corporation against all loses, claims, damages (compensatory, exemplary,
punitive or otherwise), liabilities and expenses (including attorneys' fees,
costs, judgments, fines, ERISA excise taxes or penalties, amounts to be paid in
settlement and any other expenses) actually and reasonably incurred or suffered
by such Indemnitee in connection therewith and such indemnification shall
continue as an Indemnitee who has ceased to be a Director or officer of the
Corporation or a Director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise shall inure to the benefit of the Indemnitee's heirs, executors
and administrators. Except as provided in Section 5.4 with respect to
proceedings seeking to enforce rights to indemnification, the Corporation shall
indemnify any such Indemnitee in connection with a Proceeding (or part thereof)
initiated by such Indemnitee only if a Proceeding (or part thereof) was
authorized or ratified by the Board. The right to indemnification conferred in
this Article 5 shall be a contract right.
5.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such Indemnitee for acts or
omissions of the Indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the Indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Act, for any transaction with respect
to which it was finally adjudged that such Indemnitee personally received a
benefit in money, property or services to which the Indemnitee was not legally
entitled or if the Corporation is otherwise prohibited by applicable law from
paying such indemnification. Notwithstanding the foregoing, if Section
23B.08.560 or any successor provision of the Act is hereafter amended, the
restrictions on indemnification set forth in this Section 5.2 shall be set forth
in such amended statutory provision.
5.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Article 5. shall include the
right to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition (an "ADVANCEMENT OF EXPENSES").
An Advancement of Expenses shall be made upon delivery to the Corporation of an
undertaking (an "UNDERTAKING"), by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified.
5.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under Section 5.1 or 5.3 is not paid in full by the Corporation
with 60 days after a written claim has been received by the Corporation, except
in the case of a claim for an Advancement of Expenses, in which case the
applicable period shall be 20 days, the Indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
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If successful in whole or in part, in any such suit of in a suit brought by
the Corporation to recover an Advancement of Expenses pursuant to the terms of
an undertaking, the Indemnitee shall be entitled to be paid also the expense of
litigating such suit. The Indemnitee shall be presumed to be entitled to
indemnification under this Article 5 upon submission of a written claim (and, in
an action brought to enforce a claim for an Advancement of Expenses, when the
required undertaking has been tendered to the Corporation) and thereafter the
Corporation shall have the burden of proof to overcome the presumption that the
Indemnitee is so entitled.
5.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the Act,
the procedures for indemnification and the Advancement of Expenses set forth in
this Article 5 are in lieu of the procedures required by Section 23B.08.550 or
any successor provision of the Act.
5.6 NONEXCLUSIVITY OF RIGHTS
Except as set forth in Section 5.5, the right to indemnification and the
Advancement of Expenses conferred in this Article 5 shall not be exclusive of
any other right that any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation or these Bylaws, general or specific
action of the Board or shareholders, contract or otherwise.
5.7 INSURANCE
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, or agent of the Corporation, or
who, while a director, officer, employee, or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the Act. The Corporation may enter into
contracts with any Director, officer, partner, trustee, employee or agent of the
Corporation in furtherance of the provisions of this Article 5 and may create a
trust fund, grant a security interest, or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article 5.
5.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
In addition to the rights of indemnification set forth in Section 5.1, the
Corporation may, by action of the Board, grant rights to indemnification and the
Advancement of Expenses to employees and agents or any class or group of
employees and agents of the Corporation (a) with the same scope and effect as
the provisions of this Article 5 with respect to indemnification and the
Advancement of Expenses of Directors and officers of the Corporation; (b)
pursuant to rights granted or provided by the Act; or (c) as are otherwise
consistent with law.
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5.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the Corporation,
is or was serving (a) as a director, officer, employee or agent of another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Corporation or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust, employee benefit plan or other enterprise of which the
Corporation or a [wholly OR majority] owned subsidiary of the Corporation is a
general partner or has a majority ownership shall conclusively be deemed to be
so serving at the request of the Corporation and entitled to indemnification and
the Advancement of Expenses under Sections 5.1 and 5.3.
ARTICLE VI
RECORDS AND REPORTS
6.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal office or at such place or
places as designated by the Board:
(a) Keep as permanent records minutes of all meetings of the Board and
shareholders, a record of all actions taken by the Board or shareholders without
a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the Corporation;
(b) Maintain appropriate accounting records; and
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the name and addresses of all shareholder, in
alphabetical order by class of shares showing the number and class of shares
held by each shareholder.
(d) Keep a copy of the following records at its principal office:
(i) the Article of Incorporation and all amendments thereto as
currently in effect;
(ii) these Bylaws and all amendments thereto as currently in effect;
(iii) the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three (3) years;
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(iv) the financial statements described in Section 23B.16.200(1) of
the Act, for the past three (3) years;
(v) all written communications to shareholders generally within the
past three (3) years;
(vi) a list of the names and business addresses of the current
Directors and officers; and
(vii) the most recent annual report delivered to the Secretary of
State of the State of Washington.
6.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any vice president, the
Treasurer, the Secretary or assistant secretary of this Corporation, or any
other person authorized by the Board or the President or a vice president, is
authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or
corporations standing in the name of this Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
ARTICLE VII
GENERAL MATTERS
7.1 CHECKS
From time to time, the Board shall determine by resolution which person
or persons may sign or endorse all checks, drafts, other orders for payment
of money, notes or other evidences of indebtedness that are issued in the
name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board, except as otherwise provided in these Bylaws, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the Corporation; such
authority may be general or confined to specific instances. Unless so
authorized or ratified by the Board or within the agency power of an officer,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
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7.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a Corporation shall be represented by certificates,
provided that the Board may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and upon request every
holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the Chairman or Vice Chairman
of the Board, or the President or Vice President, and by the Treasurer or an
assistant treasurer, or the Secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
7.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate that the
Corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 23B.06.270 of the Act,
in lieu of the foregoing requirements there may be set forth on the face or
back of the certificate that the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
7.5 LOST, STOLEN OR DESTROYED CERTIFICATES
Except as provided in this Section 7.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the Corporation and cancelled at the same time. The
Corporation may issue a new certificate of stock or uncertificated shares in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or
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his legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or uncertificated shares.
7.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Act shall govern the construction of
these Bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both an individual and an entity, as those terms are
defined in the Act.
7.7 DIVIDENDS
The Board, subject to any restrictions contained in the Articles of
Incorporation, may declare and pay dividends upon the shares of its capital
stock pursuant to the Act. Dividends may be paid in cash, in property, or in
shares of the Corporation's capital stock.
The Board may set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purposes shall include but not be limited to
equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
7.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board and may be changed by the Board.
7.9 SEAL
The Board may provide for a corporate seal that shall consist of the
name of the Corporation, the state of its incorporation, and the year of its
incorporation.
7.10 TRANSFER OF STOCK; RESTRICTIONS ON TRANSFER
Upon surrender to the Corporation or its transfer agent of a certificate
for shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the Corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction in its books.
Except to the extent that the Corporation has obtained an opinion of
counsel acceptable to the Corporation that transfer restrictions are not
required under applicable federal and state securities laws, all certificates
representing shares of the Corporation shall bear a legend on the face of the
certificate, or on the reverse of the certificate if a reference to the
legend is contained on the face thereof, which reads substantially as follows:
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"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND
ANY STATE SECURITIES LAWS."
7.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not
prohibited by the Act.
7.12 REGISTERED SHAREHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Washington.
ARTICLE VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not amend or repeal any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made and
adopted by the Board may be amended, repealed, altered or modified by the
shareholders.
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CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
SHOPNOW.COM, INC.
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of ShopNow.com Inc. (the "CORPORATION") and that the
foregoing Bylaws, comprising 20 pages, were adopted as the Bylaws of the
Corporation on June 15, 1999, by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Adoption on __________ 19__.
------------------------------------------
Alan D. Koslow
Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
<PAGE>
TECHWAVE INC.
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement (this
"AGREEMENT"), is effective as of November 30, 1998, among TECHWAVE INC., a
Washington corporation (the "COMPANY"), and the Persons executing a counterpart
of this Agreement listed as Holders on the signature pages of this Agreement,
and such other Persons that become parties hereto after the date of this
Agreement in accordance with the terms and provisions hereof. This Agreement
amends the Amended and Restated Registration Rights Agreement, under which the
Registration Rights Agreement dated February 29, 1997, as amended thereafter on
May 13, 1997 and on October 31, 1997, among the Company and certain Holders, was
amended and restated in its entirety, as of December, 1997, and subsequently
amended on March 20, 1998.
AGREEMENT
SECTION 1. DEFINITIONS.
1.1 As used in this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" means any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified as of the date of this Agreement for
that word in Rule 405 promulgated by the Commission under the Securities Act.
"AGENT WARRANTS" means those warrants exercisable for shares of
Common issued to Madison Securities, Inc. as placement agent for the offerings
of Series D Preferred, Series E Preferred, Series F Preferred and the placement
of the Bridge Notes.
"BOARD" means the Board of Directors of the Company.
"BRIDGE NOTES" means the 13% promissory notes sold by the Company on
or about October 1998 in the aggregate principal amount of $3,700,000.
"COMMISSION" means the Securities and Exchange Commission, and any
successor thereto.
"COMMON" means the Company's Common Stock, $.01 par value per share.
<PAGE>
"CONVERSION STOCK" means shares of Common issued upon conversion of
the Preferred or exercise of the Agent Warrants, the Series C Warrants and the
Warrants.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"HOLDERS" means (a) holders as of the date of this Agreement of
Outstanding Registrable Securities, each of whom is a party to this Agreement,
and (b) any subsequent legal or beneficial owner of Outstanding Registrable
Securities who has become a party to this Agreement, either (i) in accordance
with Section 13 of this Agreement or (ii) in accordance with Section 16.1 of
this Agreement.
"INVESTOR" means (a) each party listed as an Investor in this
Agreement with respect to shares of Preferred or shares of Common issuable upon
exercise of Agent Warrants, Series C Warrants or Warrants and (b) each Merger
Investor.
"MERGER INVESTOR" means a former shareholder of The Internet Mall,
Inc., a Delaware corporation, who received shares of Common in connection with
the merger of TechWave Acquisition Corporation III, a Delaware corporation, with
and into The Internet Mall, Inc. and who (a) may be added as a party to this
Agreement pursuant to Section 16.1 hereof and (b) executes a counterpart
signature page to this Agreement.
"MINIMUM PROCEEDS" means an amount with respect to an Investor or
the Holder of Series A Preferred that is equal to two times their respective
aggregate cost basis of the sum of (i) the Preferred and (ii) the Common
issuable upon exercise of the Agent Warrants, Series C Warrants and the
Warrants.
"MANAGER" means any of Dwayne Walker (with respect to shares of
Common), Othniel Palomino and Ganapathy Krishnan.
"PERSON" means an individual, partnership, corporation, business
trust, limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"PREFERRED" means, collectively, the Series A Preferred, the Series
B Preferred, the Series C Preferred, Series D Preferred, Series E Preferred and
the Series F Preferred.
"REGISTRABLE COMMON" means, (a) any shares of Common then
outstanding which were issued upon conversion of Preferred; and (b) any shares
of Common then issuable upon conversion of then-outstanding Preferred; and (c)
any shares of Common then outstanding which were issued as, or were issued
directly or indirectly upon the conversion of other Securities issued as, a
dividend or other distribution with respect to, or in replacement of, Preferred
or other Registrable Common; and (d) any shares of Common then issuable directly
or indirectly upon the conversion or exercise of other Securities issued as a
dividend of other distribution with respect to, or in replacement of, Preferred
or other Registrable Common; (e) any shares of Common then issuable upon
exercise of the Agent Warrants, the Series C Warrants
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and the Warrants; (f) any shares of Common then outstanding which are issued in
the name of a Manager or an Investor or a permitted assignee of a Manager or
Investor (provided such assignee has become party to this Agreement in
accordance with Section 13 below); provided, however, that outstanding shares of
Common shall no longer be Registrable Common when they shall have been (y)
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration, or (z) sold to the public pursuant to Rule
144; and (g) any shares of Common then outstanding that were issued to Merger
Investors.
"OUTSTANDING REGISTRABLE SECURITIES" means (a) any shares of
Preferred then outstanding, and (b) any shares of Common then outstanding which
were issued upon conversion of Preferred; and (c) any shares of Common then
outstanding which were issued or were issued directly or indirectly upon the
conversion of other Securities issued as, a dividend or other distribution with
respect to, or in replacement of, Preferred or other Registrable Common; (d) any
shares of Common then outstanding which were issued upon exercise of the Agent
Warrants, the Series C Warrants or the Warrants; (e) any shares of Common
outstanding as of the date of this Agreement in the name of a Manager or an
Investor and which are then outstanding in the name of a Manager, an Investor or
permitted assignee of a Manager or Investor (provided such assignee has become
party to this Agreement in accordance with Section 13 below); and (f) any shares
of Common then outstanding that were issued to the Merger Investors.
"RULE 144" means Rule 144 promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any successor
Rule thereto.
"SECURITIES" means any debt or equity securities of the Company,
whether now or hereafter authorized, and any instrument convertible into, or
exercisable or exchangeable for, Securities or a Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A PREFERRED" means (a) the outstanding shares of the
Company's Series A Preferred Stock, $.01 par value; (b) any shares of Series A
Preferred Stock issued in payment of a dividend upon any share of Series A
Preferred Stock and (c) any other Securities issued as a dividend or other
distribution with respect to, or in replacement of, any Series A Preferred
except shares of Registrable Common.
"SERIES B PREFERRED" means (a) the outstanding shares of the
Company's Series B Preferred Stock, $.01 par value; (b) any shares of Series B
Preferred Stock issued in payment of a dividend upon any share of Series B
Preferred Stock and (c) any other Securities issued as a dividend or other
distribution with respect to, or in replacement of, any Series B Preferred
except shares of Registrable Common.
"SERIES C PREFERRED" means (a) the outstanding shares of the
Company's Series C Preferred Stock, $.01 par value; (b) any shares of Series C
Preferred Stock
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issued upon exercise of the Series C Warrants; (c) any shares of Series C
Preferred Stock issued in payment of a dividend upon any shares of Series C
Preferred Stock and (d) any other Securities issued as a dividend or other
distribution, with respect to, or in replacement of, any Series C Preferred
except shares of Registrable Common.
"SERIES C WARRANTS" means those warrants exercisable for shares of
Series C Preferred.
"SERIES D PREFERRED" means (a) the outstanding shares of the
Company's Series D Preferred Stock, $0.01 par value; (b) any shares of Common
issued upon exercise of the Warrants issued in connection with the sale of the
Series D Preferred Stock; (c) any shares of Series D Preferred Stock issued in
payment of a dividend upon any share of Series D Preferred Stock; and (d) any
other Securities issued as a dividend or other distribution with respect to, or
in replacement of, any Series D Preferred Stock, except shares of Registrable
Common.
"SERIES E PREFERRED" means (a) the outstanding shares of the
Company's Series E Preferred Stock, $0.01 par value; (b) any shares of Common
issued upon exercise of the Warrants issued in connection with the sale of the
Series E Preferred Stock; (c) any shares of Series E Preferred Stock issued in
payment of a dividend upon any share of Series E Preferred Stock; and (d) any
other Securities issued as a dividend or other distribution with respect to, or
in replacement of, any Series E Preferred Stock, except shares of Registrable
Common.
"SERIES F PREFERRED" means (a) the outstanding shares of the
Company's Series F Preferred Stock, $.01 par value; (b) any shares of Common
issued upon exercise of the Warrants issued in connection with the sale of the
Series F Preferred Stock; (c) any shares of Series F Preferred Stock issued in
payment of a dividend upon any share of Series F Preferred Stock, and (d) any
other Securities issued as a dividend or other distribution with respect to, or
in replacement of, any Series F Preferred except shares of Registrable Common.
"SHORT FORM" means Form S-2 or Form S-3 under the Securities Act,
and any other form promulgated after the date of this Agreement applicable in
circumstances substantially comparable to either of those forms, regardless of
its designation.
"WARRANTS" means those warrants exercisable for shares of Common
issued in connection with the sale of the Series D Preferred, those warrants
exercisable for shares of Common issued in connection with the sale of the
Series E Preferred and those warrants exercisable for shares of Common issued in
connection with the sale of the Series F Preferred.
1.2 For purposes of references in this Agreement to Securities
"equivalent to" an amount of Registrable Common issued and issuable, (a) a
Holder of Preferred will be deemed to be the Holder of Registrable Common
issuable upon conversion of such Preferred but not then issued (disregarding any
legal restriction then
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applicable to the conversion of such Preferred), and (b) the Registrable Common
issuable but not then issued with respect to outstanding Preferred will be
included in the total number of Registrable Common.
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SECTION 2. REGISTRATIONS ON LONG FORMS.
2.1 By a written notice to the Company received at any time after
the earlier of (a) February 26, 2002 or (b) nine (9) months after the effective
date of the first registration statement filed by the Company covering a public
offering of its securities, the Investor or Investors owning Outstanding
Registrable Securities equivalent to more than 50% of the Registrable Common
issued and issuable to Investors may request that the Company register any
Registrable Common specified in the notice in a public offering that has a
public offering price of at least $5.00 per share of Common (as adjusted for any
stock dividends, stock splits or similar events) and the anticipated aggregate
proceeds of which would exceed $4,000,000, under the Securities Act and under
other relevant securities laws, for disposition in accordance with methods
stated in the notice.
2.2 When it receives a registration notice under Section 2.1, the
Company shall promptly deliver a copy of the registration notice to each
Investor who is not a party to the registration notice, each of whom may then
specify, by prompt notice to the Company, a number of shares of Registrable
Common held by or issuable to it which it wishes to include in any registration
pursuant to the registration notice under Section 2.1.
2.3 When it receives a registration notice under Section 2.1, the
Company shall use its best efforts (a) to file a registration statement under
the Securities Act as soon as practicable, and in any event within sixty (60)
days of the receipt of such request, and (b) to effect the registration under
the Securities Act of Registrable Common specified in the registration notice
under Section 2.1 and subsequent notices under Section 2.2 that are received
within twenty (20) days after the mailing of the notices under Section 2.2, all
to the extent requisite to permit disposition by such Investors in accordance
with the intended methods of disposition described in the registration notice.
SECTION 3. REGISTRATIONS ON SHORT FORMS.
3.1 If at any time the Company is a registrant entitled to use a
Short Form to register Registrable Common, Investors of Outstanding Registrable
Securities equivalent to more than 50% of the Registrable Common issued and
issuable to Investors may, by a written notice to the Company, request that the
Company register such Investor's Registrable Common specified in the notice on a
Short Form.
3.2 When it receives a notice under this Section 3, the Company
shall use its best efforts to effect the expeditious registration under the
Securities Act, on the Short Form specified in such notice, of Registrable
Common specified in the notice; provided, however, that the Company shall not be
obligated to effect any such registration pursuant to this Section 3 if: (a) the
Short Form is not available for such offering by the Investors; (b) the
Investors, together with the other holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Common and such other securities (if any) at an aggregate price to the
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public of less than $750,000; (c) the Company shall furnish the certificate in
Section 5(b)(i) subject to the limitations set forth therein; (d) the Company
has effected one (1) such registration during the immediately-preceding
twelve-month period; or (e) it is to be effected more than three (3) years after
the Company's initial public offering.
SECTION 4. INCIDENTAL REGISTRATION. The Company shall give at least sixty
(60) days' advance written notice to each Holder of the Company's intention to
register any of its Securities under the Securities Act. Each Holder may then
specify, by prompt notice to the Company, a number of shares of Registrable
Common held by it which it wishes to include in the Company's proposed
registration. Subject to the market cutback limitations of Section 9, the
Company will use its best efforts to effect the registration under the
Securities Act of Registrable Common specified by Holders under this Section 4.
SECTION 5. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding any
contrary provision of this Agreement:
(a) the Company shall not be required to effect more than one (1)
registration pursuant to Section 2 (provided, however, that a demand
for registration shall not count as a registration permitted
pursuant to Section 2 under this clause (a) if either (y) the
registration statement filed with respect to such registration is
not declared effective by the Commission, or (z) the Investors
requesting registration of Registrable Common under Sections 2.1 and
2.2 do not register and sell at least 90% of the Registrable Common
they have requested be registered in such registration for reasons
other than their voluntary decision not to do so, and provided
further that the Company shall not be required to effect a second
registration pursuant to Section 2 within the same twelve-month
period of a registration that failed to qualify as the Investor's
demand right under Section 2, nor shall the Company be required to
undertake to effect a registration under Section 2 more than three
times); and
(b) the Company shall not be required to effect any registration
pursuant to Section 2 hereof, if (i) the Company shall furnish to
the Initiating Investors a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be
filed and that it is essential to defer the filing of such
registration statement, in which case the Company shall then have
the right to defer such filing for a period of not more than 180
days after receipt of the request from the Initiating Investors and
provided further that the Company may not utilize this right more
than once; (ii) during the period starting with the date 60 days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date 180 days after the effective date of, a
registration statement initiated by the Company, provided that the
Company is actively employing in good faith all reasonable efforts
to cause such registration to
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become effective; or (iii) the initiating Investors propose to
dispose shares of Registrable Common that may be immediately
registered on a Short Form pursuant to a request made under Section
3.1; and
(c) Section 4 shall not apply to (i) a registration relating to a
corporate reorganization or other transaction under Rule 145 of the
Securities Act, or (ii) a registration effected solely to implement
an employee benefit plan, or (iii) to any other form or type of
registration which does not permit inclusion of Registrable Common
pursuant to Commission rule or practice.
SECTION 6. REGISTRATION PROCEDURES.
6.1 Whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any Registrable
Common under the Securities Act, the Company will, as expeditiously as possible:
(a) in the case of a registration required under Section 2, and
subject to Section 14 below, engage one or more underwriters;
(b) before filing each registration statement or prospectus or
amendment or supplement thereto with the Commission, furnish counsel
for the sellers with copies of all such documents proposed to be
filed, which shall be subject to the reasonable approval of such
counsel;
(c) prepare and file with the Commission a registration statement
with respect to such Registrable Common and use its best efforts to
cause such registration statement to become and remain effective for
the period provided in Section 6.2;
(d) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition
of all Registrable Common covered by such registration statement in
accordance with the intended methods of disposition set forth in
such registration statement;
(e) prepare and promptly file with the Commission, and notify each
seller of such Registrable Common immediately after the filing of,
such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, during such periods as a prospectus relating to such
Securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, and notify
each seller immediately after its discovery of such event;
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(f) furnish to the underwriters and each seller of such Registrable
Common such numbers 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 underwriters or seller may reasonably
request in order to facilitate the disposition of the Registrable
Common subject to such registration statement in accordance with
such registration statement;
(g) use its best efforts to register or qualify any Registrable
Common covered by such registration statement under the securities
or blue sky laws of such jurisdictions within the United States of
America as the seller or the underwriters reasonably request, and to
take any other acts which a seller or the underwriters may
reasonably request under such securities or blue sky laws to enable
the consummation of the disposition in such jurisdictions of such
Registrable Common (provided, however, that the Company may not be
required under this Agreement (i) to qualify generally to do
business as a foreign corporation in any jurisdiction in which it
would not otherwise be required to qualify, or (ii) to subject
itself to taxation in any such jurisdiction, or (iii) to consent to
general service of process in any such jurisdiction);
(h) provide a transfer agent and registrar for all Registrable
Common sold under the registration not later than the effective date
of the registration statement;
(i) use its best efforts to cause all Registrable Common sold under
the registration to be listed on each securities exchange or to be
qualified and eligible for trading in any automated quotation
system, if any, on which similar Securities issued by the Company
are then listed or traded or, if no such listing or qualification
has then occurred, to cause such Securities to be so listed or
qualified on an exchange or in a trading system that is reasonably
acceptable to the Holders of Registrable Common;
(j) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
underwriters, if any, or the Holders of more than 50% of the
Registrable Common being sold reasonably request in order to
expedite or facilitate the disposition of such Registrable Common
(including, without limitation, effecting a stock split or a
combination of shares); and
(k) make available for inspection by the sellers of Registrable
Common, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and
independent
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accountants to supply all information reasonably requested by any
such seller or underwriter in connection with such registration
statement, all subject to such limitations as the Company reasonably
deems appropriate in order to protect the Company's confidential or
proprietary information.
6.2 Notwithstanding any contrary provision of this Section 6, the
Company shall not be required to use its best efforts to maintain the
effectiveness of any registration statement for a period in excess of 180 days
or until the sellers have sold or otherwise disposed of their Registrable Common
registered under such registration statement, whichever is earlier.
6.3 It shall be a condition precedent to the inclusion of the
Registrable Common of any Holder in a registration effected pursuant to this
Agreement that such Holder shall (a) furnish to the Company such information
regarding such Holder, the Registrable Common of such Holder to be registered
and the intended method of disposition of such Registrable Common, and (b)
execute such indemnities, underwriting agreements, lockups (as required by
Section 11) and other documents, as the Company or the managing underwriter
shall reasonably request in order to satisfy the requirements applicable to such
registration.
SECTION 7. EXPENSES. The Company shall pay all expenses incurred in
effecting all registrations of Registrable Common provided for in Sections 2 and
3 of this Agreement, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company,
reasonable fees and disbursements of one counsel for the sellers selected by the
Investors, underwriting expenses other than discounts and commissions, and
expenses of any audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Section 6.1(g) of this Agreement. The Company shall pay, for each
Holder, all expenses incurred in effecting all registrations provided for in
Section 4 hereof, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company,
reasonable fees and disbursements for one counsel for the selling Holders,
underwriting expenses other than discounts and commissions, and expenses of any
audits incident to or required by such registration and all expenses of
complying with the blue sky or securities laws of any jurisdiction.
SECTION 8. INDEMNIFICATION.
8.1 In the event of any registration of any of its Registrable
Common under the Securities Act pursuant to this Agreement, the Company agrees,
to the extent permitted by law, to indemnify and hold harmless each seller of
Registrable Common, and each Affiliate of such seller, against any losses,
claims, damages or liabilities, joint or several, arising out of or based upon:
(a) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under
which such Securities were registered under the Securities Act, any
preliminary
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prospectus or final prospectus contained therein, or any summary
prospectus contained therein, or any Securities being registered, or
any amendment or supplement thereto, or
(b) any alleged omission to state in any such document a material
fact required to be stated therein or necessary to make the
statements therein not misleading,
except insofar as any such loss, claim, damage or liability is:
(x) caused by or contained in any information furnished in writing
to the Company by such seller expressly for use in connection with
such registration, or
(y) caused by such seller's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplement
thereto as required by the Securities Act or the rules or
regulations thereunder, or
(z) caused by the use of a prospectus or preliminary prospectus or
any amendment or supplement thereto after receipt of notice from the
Company that it should no longer be used.
In connection with an underwritten offering, the Company will 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 sellers of Registrable Common. The Company
shall reimburse each Person indemnified pursuant to this Section 8.1 in
connection with investigating or defending any loss, claim, damage, liability or
action indemnified against. The reimbursements required by this Section 8.1
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. The indemnities
provided pursuant to this Section 8.1 shall remain in force and effect
regardless of any investigation made by or on behalf of the indemnified party
and shall survive transfer of Registrable Common by a seller.
8.2 In the event of any registration of any Registrable Common under
the Securities Act pursuant to this Agreement, each Holder agrees to furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any registration statement or prospectus in
connection with the registration or any amendment or supplement thereto.
8.3 To the extent permitted by law, and subject to the limitation
set forth in the last sentence of this Section 8.3, each Holder which is a
seller of Registrable Common in a registration pursuant to this Agreement agrees
severally and not jointly to indemnify and hold harmless the Company, its
directors and officers, each other seller of Securities in such registration,
each Affiliate of each such other seller, and each Affiliate of the Company,
against:
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(a) any losses, claims, damages or liabilities, joint or several,
arising out of or based upon:
(i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration
statement under which such Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any summary prospectus contained therein, or
any Securities that were being registered, or any amendment or
supplement thereto, or
(ii) any alleged omission to state in any such document a
material fact required to be stated therein or necessary to make the
statements therein not misleading,
but only insofar as any such loss, claim, damage or liability is caused by
or contained in any information furnished in writing to the Company by the
indemnifying seller expressly for use in connection with such
registration, and excluding any such loss, claim, damage or liability
which is caused by or contained in such statements, or caused by such
omissions, based upon the authority of an expert as defined in the
Securities Act (but only if the indemnifying seller had no grounds to
believe, and did not believe, that the statements made on the authority of
an expert were untrue or that there was an omission to state a material
fact); and
(b) any losses, claims, damages or liabilities, joint or several,
arising out of or based upon any failure by such seller to deliver a
copy of the registration statement or prospectus or any amendment or
supplement thereto as required by the Securities Act or the rules or
regulations thereunder. In connection with an underwritten offering,
each seller will 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 Company and other sellers. Each seller
shall reimburse each Person indemnified pursuant to this Section 8.3
in connection with investigating or defending any loss, claim,
damage, liability or action indemnified against. The reimbursements
required by this Section 8.3 shall be made by periodic payments
during the course of the investigation or defense, as and when bills
are received or expenses incurred. The indemnities provided pursuant
to this Section 8.3 shall remain in force and effect regardless of
any investigation made by or on behalf of the indemnified party and
shall survive transfer of Registrable Common by an indemnifying
seller, and transfer of other Securities by any other indemnified
seller. Notwithstanding any contrary provision of this Agreement,
however, the liability under this Section 8 of each Holder which is
a seller of Registrable Common shall be limited in the aggregate,
with respect to the claims of all indemnified Persons taken as a
whole, not to exceed the amount of
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proceeds to the indemnifying seller from the sale of the Registrable
Common sold by the indemnifying seller.
8.4 Indemnification similar to that specified in Sections 8.1 and
8.3 (with such modifications as shall be appropriate) shall be given by the
Company and each Holder of any Registrable Common covered by any registration or
other qualification of Securities under any federal or state securities law or
regulation other than the Securities Act with respect to any such registration
or other qualification effected pursuant to this Agreement.
8.5 In the event the Company or any Holder receives a complaint,
claim or other notice of any loss, claim or damage, liability or action, giving
rise to claim for indemnification under this Section 8, the Person claiming
indemnification shall promptly notify the Person against whom indemnification is
sought of such complaint, notice, claim or action, and such indemnifying Person
shall have the right to investigate and defend any such loss, claim, damage,
liability or action. The Person claiming indemnification shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Person against whom indemnification is sought (unless the Person claiming
indemnification reasonably believes that the ability of the counsel defending
such action to defend such Person's interests therein is affected adversely and
materially by a conflict of interest) and the indemnifying Person shall not be
obligated to indemnify any Person for any settlement of any claim or action
effected without the indemnifying Person's consent, which consent will not be
unreasonably withheld.
8.6 Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
SECTION 9. MARKETING RESTRICTIONS.
9.1 If:
(a) a registration is to be made pursuant to a registration
notice under Section 2 or Section 3 of this Agreement, and
(b) the offering proposed to be made by the Investor or
Investors for whom such registration is to be made is to be an
underwritten public offering, and
(c) in the opinion of the managing underwriters of such
public offering, the total amount of Securities to be included in
such offering would exceed the maximum number of shares of Common
which can be marketed without otherwise materially and adversely
affecting such offering,
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then the rights of the Investors, of the holders of other Securities
having the right to include Common in such registration and of the Company
to participate in such offering shall be in the following order of
priority:
First: each Investor and the Holder of Series A Preferred
shall be entitled to participate in such offering to the extent of
such Investor's or Holder's receipt of its respective Minimum
Proceeds, or of the aggregate number of shares of Registrable Common
that all such Investors and the Holder of Series A Preferred shall
have requested to be registered, whichever is less, PRO RATA among
themselves in accordance with their respective Applicable Percentage
(as defined below) of the maximum number of shares of Common
requested to be registered by the Investors and Holder of Series A
Preferred; and
Second: once each Investor and the Holder of Series A
Preferred have each received its respective Minimum Proceeds all
Holders shall be entitled to participate PRO RATA in accordance with
their respective Applicable Percentage of the maximum number of
shares of Common requested to be registered by them or otherwise
allocated as they may agree;
and no Securities (issued or unissued) other than those registered and
included in the underwritten offering shall be offered for sale or other
disposition in a transaction which would require registration under the
Securities Act until the expiration of 180 days after the effective date
of the registration statement filed in connection with such registration
or such earlier time consented to by the managing underwriter.
9.2 If:
(a) any Holder of Registrable Common requests registration
of Registrable Common under Section 4 of this Agreement, and
(b) the offering proposed to be made is to be an
underwritten public offering, and
(c) in the opinion of the managing underwriters of such
public offering, the total amount of securities to be included in
such offering would exceed the maximum amount of Securities which
can be marketed without materially and adversely affecting such
offering,
then the rights of the Holders, of the holders of other Securities having
the right to include such Securities in such registration and of the
Company to participate in such offering shall be in the following order of
priority:
First: the Company shall be entitled to include such
shares of Common as it wishes to include in the offering; and
then
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Second: each Investor and the Holder of Series A
Preferred shall be entitled to participate in such offering to
the extent of such Investor's or Holder's receipt of its
respective Minimum Proceeds, PRO RATA among themselves in
accordance with their respective Applicable Percentage (as
defined below) of the maximum number of shares of Common
requested to be registered by the Investors and Holder of
Series A Preferred; and
Third: once each Investor and the Holder of Series A
Preferred have each received its respective Minimum Proceeds,
all Holders shall be entitled to participate PRO RATA in
accordance with the number of shares of Registrable Common
which each such Holder shall have requested be registered, or
in such other proportion as shall mutually be agreed by such
Holders. (For purposes of this Agreement, "Applicable
Percentage" shall be the percentage derived by dividing the
number of fully-diluted shares of Common held by the Holder by
the aggregate number of fully-diluted shares of Common held by
all Holders in the aggregate); and then
Fourth: all other holders (including the Company, if
such registration shall have been requested by a Person other
than the Company) of Securities having the right to include
such Securities in such registration shall be entitled to
participate PRO RATA in accordance with the number of shares
proposed to be registered by them or otherwise allocated as
they may agree;
and no Securities (issued or unissued) other than those
registered and included in the underwritten offering shall be
offered for sale or other disposition in a transaction which would
require registration under the Securities Act until the expiration
of 180 days after the effective date of the registration statement
filed in connection with such registration or such earlier time
consented to by the managing underwriter.
9.3 In connection with any offering involving an underwriting of
Registrable Common pursuant to Section 4 of this Agreement, the Company shall
not be required to include any of the Registrable Common of a Holder in such
offering unless such Holder agrees to the terms of the underwriting agreed to
between the Company and the underwriter or underwriters selected by the Company.
SECTION 10. SALE OF PREFERRED TO UNDERWRITER. Notwithstanding anything in
this Agreement to the contrary, in lieu of converting any Preferred to
Conversion Stock prior to or simultaneously with the filing or the effectiveness
of any registration statement filed pursuant to this Agreement, the Holder of
such Preferred may sell such Preferred to the underwriter of the offering being
registered upon the undertaking of such underwriter to convert such Preferred
into Conversion Stock before making any distribution pursuant to such
registration statement and agreeing to include such Conversion Stock among
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the Securities being offered pursuant to such registration statement. The
Company agrees to cause such Conversion Stock to be issued within such time as
will permit the underwriter to make and complete the distribution contemplated
by the underwriting and to register the Conversion Stock in any registration
statement so that the Holder may make the sale described in the first sentence
of this Section 10.
SECTION 11. LOCKUP AGREEMENT. Each Holder agrees in connection with any
registration of any of the Company's Securities that, upon the request of the
Company or the underwriters managing any underwritten offering of the Company's
Securities, he or it will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Securities of the
Company (other than the Securities included in the registration) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify.
SECTION 12. COMPLIANCE WITH RULE 144. In the event that the Company (a)
registers a class of Securities under Section 12 of the Exchange Act, or (b)
commences to file reports under Section 13 or 15(d) of the Exchange Act, then at
the request of any Holder who proposes to sell Securities in compliance with
Rule 144, the Company shall, to the extent necessary to enable such Holder to
comply with such Rule, (y) forthwith furnish to such Holder a written statement
of compliance with the filing requirements of the Commission as set forth in
Rule 144 and (z) make available to the public and such Holders such information
as will enable the Holders to make sales pursuant to Rule 144.
SECTION 13. ASSIGNABILITY OF REGISTRATION RIGHTS. The rights set forth in
this Agreement shall accrue to each subsequent Holder of Registrable Common who
shall have executed a written consent agreeing to be bound by the terms and
conditions of this Agreement as a party to this Agreement; provided that such
subsequent Holder of Registrable Common holds at least 100,000 shares of
Registrable Common.
SECTION 14. DESIGNATION OF UNDERWRITER. In the case of any registration
effected pursuant to Section 2 or 3, the managing underwriters and any other
investment banking advisers to the Company shall be selected in accordance with
the terms of the Amended and Restated Shareholders Agreement among the Company
and its shareholders and the Placement Agent Agreement between the Company and
Madison Securities, Inc.
SECTION 15. TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration or inclusion in any registration statement pursuant to
Sections 2, 3 or 4 shall terminate on the closing of the first Company-initiated
registered public offering of Common if all shares of Registrable Common held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period, or on such date after the closing of the
first Company-initiated registered public offering of Common as all shares of
Registrable Common held or entitled to be held by such Holder may be immediately
sold under Rule 144 during any 90-day period; provided, however, that the
foregoing provisions shall not apply to any Holder who owns
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more than 1% of the outstanding Common until such time as such Holder owns less
than 1% of the outstanding Common. In addition, no Holder may exercise any right
provided for under Section 3 or 4 after five (5) years following the
consummation of the first registered public offering of Common.
SECTION 16. MISCELLANEOUS.
16.1 AMENDMENT. This Agreement may be amended to add Holders to this
Agreement, to grant rights to Holders under this Agreement or consent to rights
of other holders of Securities of the Company, superior to, on parity with, or
junior to the rights of the Holders of Outstanding Registrable Securities, or to
effect any other amendment to or waiver under this Agreement, by a written
agreement signed by all of the following:
(a) the Company, and
(b) the Investors owning at least 67% of the Outstanding
Registrable Securities owned by all Investors; and
(c) the Holders of Outstanding Registrable Securities
equivalent to more than 50% of the Registrable Common issued and
issuable.
Notwithstanding the foregoing requirements, the purchasers of Series D
Preferred, Series E Preferred and Series F Preferred will automatically become
an "Investor" under this Agreement at the time of purchase.
16.2 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying such registration as the
result of any controversy that might arise with respect to interpretation or
implementation of Section 2, 3 or 4 of this Agreement.
16.3 SEVERABILITY. In the event that any court or any governmental
authority or agency declares all or any part of any Section of this Agreement to
be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any other Section of this Agreement, and in the event that only a
portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
16.4 SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements of the parties contained in this Agreement or made in
writing in connection herewith, shall, except as otherwise provided herein, be
binding upon and inure to the benefit of their respective successors and
assigns. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for the benefit of the Holders or
other Holders of Securities are also for the benefit of, and enforceable by, any
subsequent Holders of Securities, except any subsequent Holder who acquires any
such security after such Security has been sold to the public pursuant to an
effective registration statement under the Securities Act or in a sale under
Rule 144.
17
<PAGE>
16.5 NOTICES. All communications in connection with this Agreement
shall be in writing and shall be deemed properly given if hand delivered or sent
by telecopier (provided that such communication is confirmed by same-day deposit
in the United States mail) or overnight courier with adequate evidence of
delivery or sent by registered or certified mail, return receipt requested, and,
if to a Holder, addressed to such Holder's address as shown on the books of the
Company or its transfer agent, and if to the Company, at its offices at:
Techwave Inc.
411 First Avenue South, Suite 200
Seattle, Washington 98104
Attention: President
or such other addresses or Persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
16.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington applicable to
agreements between Washington residents entered into and to be performed
entirely within Washington.
16.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same Agreement. A written consent executed
pursuant to Section 13 of this Agreement shall be deemed to be part of, and
constitute a counterpart of, this Agreement.
16.8 HEADINGS. The headings used herein are solely for the
convenience of the parties and shall not control or affect the meaning or
construction of any provisions hereof.
16.9 ENTIRE AGREEMENT. This Agreement and the other documents and
agreements executed by the parties hereto on this date or referred to herein
together constitute the entire agreement and understanding of the parties hereto
in respect of the subject matter referred to herein and therein, and there are
no restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement supersedes
all prior agreements and understandings between the parties hereto with respect
to the subject matter hereof.
16.10 ARBITRATION. In the event of a claimed breach of this
Agreement by any of the parties hereto, except for a dispute where the remedy
sought is specific performance or another form of extraordinary equitable
relief, such dispute shall be submitted to alternative resolution in accordance
with the terms of this Section 16.10. The party who is alleging that a dispute
exists shall send a notice of such dispute to all other parties to this
Agreement, setting forth in detail the dispute, the parties involved
18
<PAGE>
and the position of such party with respect to the dispute. The parties to such
dispute shall endeavor in good faith to select an alternative dispute resolution
service to resolve the dispute and the rules that shall govern the resolution.
If agreement as to the matters detailed in the preceding sentence is not reached
within twenty (20) business days after receipt of the notice, then, within ten
(10) business days thereafter, counsel for the parties shall mutually select as
an arbitrator an attorney practicing in Chicago, Illinois (or such other
location as is agreed to by the parties), who is experienced in commercial
arbitration. If counsel for the parties are unable to agree upon the selection
of the arbitrator, the arbitrator shall be selected by the American Arbitration
Association (the "AAA"). Any disputes as to the rules for conducting the
arbitration shall be resolved by reference to the AAA rules for commercial
arbitration by the arbitrator. The arbitrator shall schedule a hearing on the
disputed issues within forty (40) business days after his appointment, and the
arbitrator shall render his decision after the hearing, in writing, as
expeditiously as possible, and shall deliver copies of such decision to the
parties. A default judgment may be entered against any party who fails to appear
at the arbitration hearing. Such decision and determination shall be final and
unappealable and may be filed as a judgment of record in any jurisdiction
designated by the successful party. The parties to this Agreement agree that
this paragraph has been included to rapidly and inexpensively resolve any
disputes among them with respect to the matters described above, and that this
paragraph shall be grounds for dismissal of any court action commenced by any
party with respect to a dispute arising out of such matters.
16.11 CONSTRUCTION AND REPRESENTATION. The parties understand and
acknowledge that they have each been represented by (or have had the opportunity
to be represented by) counsel in connection with the preparation, execution and
delivery of this Agreement. This Agreement shall not be construed against any
party for having drafted it.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and
Restated Registration Rights Agreement to be executed as of the day first above
written.
THE COMPANY: TECHWAVE INC., a Washington corporation
By:____________________________________
Dwayne Walker, Its President
HOLDERS:
EXISTING INVESTORS:
THE PRODUCTIVITY FUND III, L.P., a
Delaware limited partnership
By:____________________________________
First Analysis Management Company III,
L.L.C., Its General Partner
By:____________________________________
First Analysis Corporation, a Member
By:____________________________________
Bret R. Maxwell, Vice Chairman
20
<PAGE>
ENVIRONMENTAL PRIVATE EQUITY FUND II, L.P.,
a Delaware limited partnership
By:____________________________________
Environmental Private Equity
Management II, L.P., Its General
Partner
By:____________________________________
First Analysis EPEF Management
Company II, a General Partner
By:____________________________________
First Analysis Corporation, a General
Partner
By:____________________________________
Bret R. Maxwell, Vice Chairman
_______________________________________
DWAYNE WALKER
_______________________________________
OTHNIEL PALOMINO
_______________________________________
TIMOTHY MAR
_______________________________________
21
<PAGE>
MICHAEL C. AND CAROLYN J. KEEL
_______________________________________
CHRISTOPHER B. HARNED
_______________________________________
MARK E. AND TERRI P. ZIMDARS
_______________________________________
MARK C. AND DOREN MCCLURE
_______________________________________
JAMES M. AND GRACE M. CRICK
_______________________________________
ARTHUR M. MOLLOY
_______________________________________
MAHAN AND JAYABEN M. SHAH
TMZ INVESTMENT FUND
By:____________________________________
TOLMEY LLC
By:____________________________________
22
<PAGE>
MANAGERS:
_______________________________________
DWAYNE WALKER
_______________________________________
OTHNIEL PALOMINO
_______________________________________
GANAPATHY KRISHNAN/
KALYANI KRISHNAN
NEW INVESTORS:
MADISON SECURITIES, INC.
By:____________________________________
Name:
Title:
[Merger Investors]
DATE: ____________________, __________
23
<PAGE>
ELECTRONIC DISTRIBUTOR AGREEMENT
This Agreement made as of this 19th day of May, 1999 (the "Effective
Date"), by and between Corel Corporation having its principal place of
business at 1600 Carling Avenue, Ottawa, Ontario, K1Z 8R7 and its
wholly-owned subsidiary Corel Corporation Limited having its principal place
of business at Europa House, Harcourt Street, Dublin 2, Ireland (together
"COREL") and ShopNow.com Inc. ("Distributor"), having its principal place of
business at 411 First Avenue South, Suite 200N, Seattle, WA 98104.
BACKGROUND:
1. COREL desires to secure electronic distribution of certain of its
software through an on-line store;
2. Distributor desires to obtain certain software from COREL for electronic
distribution through an online store which it develops and operates and
in connection with which it provides services.
NOW THEREFORE, in consideration of the mutual promises, covenants and
obligations contained herein the parties agree as follows:
1. INTERPRETATION
1.01 DEFINITIONS. As used herein:
(a) "Affiliate" means a third party affiliate as defined in Section
2.01(v) of this Agreement.
(b) "Agreement" means this agreement and any Schedule attached hereto.
(c) "Authorized COREL Distributor" means a distributor who has entered
into a distributor agreement with COREL to distribute
shrink-wrapped software and who remains in good standing under
such agreement.
(d) "COREL Database" means the database defined in Section 5.10 of
this Agreement.
(e) "COREL Marks" means the trade names and trade-marks related to
COREL and the Software.
(f) "COREL Materials" means any graphics, text or materials provided
by COREL to Distributor in connection with the Store, including,
but not limited to the Software and Products.
(g) "Customer" means any person or entity who purchases Software,
Products, Merchandise, Technical Support Products and/or
Distributor Products through Distributor System from Distributor
and/or Reseller for its own personal or business use and not for
resale.
(h) "Customer Information" means any information relating to Customers
and/or end users obtained by Distributor during the term of this
Agreement, including without limitation, names, telephone numbers,
addresses, e-mail addresses or information that may otherwise be
used to identify Customer in any manner whatsoever.
(i) "Customer Information Processing" means any method of gathering,
storage, retrieval, dissemination and transfer of Customer
Information whatsoever used by Distributor in the course of
carrying out its obligations under this Agreement.
(j) "Decryption Key" means the key provided to Customers by
Distributor which will permit Customers to unlock and access the
Software.
(k) "Development" means those development services, including, but not
limited to functionality development, look and feel development
and web page development, provided by Distributor to COREL as set
forth in this Agreement and in the Market Requirements Document
("MRD") attached hereto as Schedule "H"
(l) "Distributor Database" means the database as defined in Section
5.11 of this Agreement.
(m) "Distributor Products" means those third party products approved
by COREL and offered for distribution by Distributor from the
Store and listed in Schedule "P", which shall not include products
that compete with any of the Software and Merchandise.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
<PAGE>
2
(n) "Distributor System" means the system used by Distributor for
the receipt and delivery of on-line orders for the Software and
processing of credit card information for all Software,
Merchandise and/or Technical Support Product orders by Customers.
(o) "Distributor Web Site" means the web site used by Distributor to
permit customers to access the Store.
(p) "Electronic Distributor Materials" means Distributor provided
computer readable materials which have received prior written
approval from COREL to be included in a Product.
(q) "Electronic Software Distribution" (or "ESD") means the
electronic delivery of Products, using on line services, the
Internet, phone lines, cable systems, servers, satellite, or
other public or private access network or electronic
communication media.
(r) "End User License Agreement (or "EULA")" means COREL's end user
license as modified by COREL from time to time.
(s) "Marketing Services" means those marketing services provided by
Distributor to COREL as set forth in this Agreement and Schedule
"J" attached hereto.
(t) "Merchandise" means those COREL products listed in Schedule "E".
(u) "Merchandise Prices" means the amount payable by Distributor
pursuant to Section 7 of this Agreement and according to the
pricing schedule set out in Schedule "E" for each unit of the
Merchandise which is distributed by Distributor.
(v) "Product" means a copy of the Software and End User License
Agreement packaged in computer readable form for Electronic
Software Distribution in accordance with the terms of this
Agreement.
(w) "Professional Services" means those services provided by
Distributor to COREL as set forth in this Agreement and in
Schedule "K" hereto.
(x) "Reseller" means any electronic reseller who has entered into an
agreement with Distributor, who remains in good standing under
such agreement and who offers Schedule "A" Software for resale to
Customers.
(y) "Software" means collectively, the object code version of the
COREL electronic software products listed in Schedule
"A"("Schedule "A" Software"), the object code version in any form
or format of any of the Hard Good software products listed in
Schedule "B" ("Schedule "B" Software") and the object code version
in any form or format of any of the COREL Premium software
products listed in Schedule "C" ("Schedule "C" Software"). In
those instances where the term "Software" is used, such reference
shall include Schedule "A" , Schedule "B" and Schedule "C"
software. In those instances where only Schedule "A", Schedule "B"
or Schedule "C" Software is indicated, such reference shall refer
only to that software so specified.
(z) "Software Prices" means the amount payable by Distributor pursuant
to Section 7 of this Agreement and according to the pricing
schedule set out in Schedule "A" , Schedule "B" and/or Schedule
"C" for each copy of the Software which is distributed by
Distributor.
(aa) "Store" means an online store prepared as part of the Development
and branded with the COREL name that resides on the Distributor's
System, that appears to the Customer as COREL's web site and from
which Distributor shall distribute Software, Merchandise and
Technical Support Products to Customers.
(bb) "Technical Support Products" means those COREL technical support
products listed in Schedule "I".
(cc) "Technical Support Products Prices" means the amount payable by
Distributor pursuant to Section 7 of this Agreement and according
to the pricing schedule set out in Schedule "I" for each Technical
Support Product distributed by Distributor.
(dd) "Territory" means worldwide, subject to Section 5.07 herein.
(ee) "Web Pages" means those web pages provided by COREL to Distributor
during the term of this Agreement, including any modifications
thereto, and all web pages developed by Distributor for the Store
during the term of this Agreement including the user interface
layer which includes the HTML, ASP, Java code, CGI scripts and all
other code and images contained therein.
<PAGE>
3
1.02 SCHEDULES. The following Schedules are appended to and form part of this
Agreement.
Schedule "A" - Electronic Software and Software Prices
Schedule "B" - Hard Goods Software and Software Prices
Schedule "C" - Premium Software and Software Prices
Schedule "D" - Shrink-wrap Software and Suggested List Prices
Schedule "E" - Merchandise and Merchandise Prices
Schedule "F" - Distributor Reports, Services and Sample Letter of
Destruction
Schedule "G" - Guidelines for Using COREL Trade Marks and COREL Logos
Schedule "H" - MRD
Schedule "I" - Technical Support Products and Technical Support Product
Prices
Schedule "J" - Marketing Services
Schedule "K" - Professional Services
Schedule "L" - Designated Project Team
Schedule "M" - Privacy Policy
Schedule "N" - Technical Architecture
Schedule "O" - Waiver of Moral Rights
Schedule "P" - Distributor Products
Schedule "Q" - Guidelines for Using Distributor Trademarks and
Distributor Logos
Schedule "R" - Customer Service
Schedule "S" - Stock Balancing
2. APPOINTMENT
2.01 LICENSE AND APPOINTMENT. Subject to the terms and conditions hereof,
COREL hereby grants to Distributor and Distributor accepts from COREL:
(i) a non-exclusive license to reproduce and digitally encrypt the
EULA, Schedule "A" Software and Schedule "C" Software only in
computer readable form for the purposes of distribution only
through Electronic Software Distribution as part of a Product as
permitted under this Agreement;
(ii) a non-exclusive right to distribute the EULA, Schedule "A"
Software and Schedule "C" Software as part of a Product only
through Electronic Software Distribution and only from the Store
to Customers within the Territory. Distributor agrees not to
distribute the EULA or Schedule "A" Software or Schedule "C"
Software other than in computer readable form as part of a
Product;
(iii) a non-exclusive license to distribute the Schedule "B" Software,
the Merchandise and the Technical Support Products only through
the Distributor System to Customers within the Territory;
(iv) a non-exclusive right to distribute the Schedule "A" Software as
part of a Product only though Electronic Software Distribution to
Customers who have purchased such products from Resellers within
the Territory. Distributor agrees not to distribute the Schedule
"A" Software other than in computer readable form as part of a
Product.
(v) a non-exclusive right to authorize those third party affiliates
("Affiliates") which have entered into an agreement with
Distributor to create a link provided by Distributor from
Affiliate's web site to the Store.
2.02 COREL INTELLECTUAL PROPERTY. Distributor acknowledges that COREL is the
owner of all intellectual property, including, without limitation,
patents and copyright, relating to the Software and the trade-marks used
in association with the Software. Distributor shall have no rights in
respect of such intellectual property, patents or copyright other than to
act as a distributor of the Software and to deliver the Software subject
to the EULA.
To the extent that Distributor may have any right or interest in the Web
Pages, Distributor hereby sells, transfers and irrevocably assigns all
such right and interest to COREL worldwide and in perpetuity. Distributor
agrees that all agents, employees, sub-contractors or any individuals
involved with such Web Pages and all modifications, adaptations,
derivations and changes thereto, shall execute the Waiver of Moral Rights
as set out in Schedule "0" attached hereto. Copies of such Waiver of
Moral Rights shall be made available to COREL, upon COREL's request.
2.03 DISTRIBUTOR INTELLECTUAL PROPERTY. Subject to Section 2.02, COREL agrees
that Distributor is the owner of all intellectual property, including,
without limitation, patent, copyright and trade marks relating to
Distributor's System and any component thereof included but not limited
to any code (including any code of Distributor's licensors which may be
included therein) and all other software and proprietary processes and
content of Distributor and its licensors used in or in connection with
the hosting or distribution of Software, Products, Merchandise or
Technical Support Products on or from the Store (collectively,
"Distributor Technology"). COREL shall have no rights in respect of
such intellectual property. All right, title and interest including
<PAGE>
4
copyright and any other intellectual property interest, in and to all
Development, except Web Pages remain the property of the Distributor.
Notwithstanding the foregoing, to the extent that this section 2.03 and
the Agreement does not vest all right, title and interest in the Web
Pages in Corel, Distributor hereby assigns all right, title and interest
in the Web Pages to Corel.
2.04 END USER LICENSE AGREEMENT. Distributor shall ensure that each copy of
the Software distributed to Customers shall be accompanied by a copy of
the EULA in accordance with Section 5.04.
2.05 DEVELOPMENT AND ON-LINE STORE. Distributor agrees that for the term of
this Agreement it shall not provide any technology developed for COREL as
part of the Development but to which it retains ownership pursuant to
Section 2.03 to any direct competitor of COREL. For purposes of this
Agreement, a direct competitor shall mean; (i) [*] and its affiliates;
(ii) [*] and its affiliates; (iii) [*] and its
affiliates: (iv) [*] and its affiliates including [*] ; (v)
[*] ; and (vi) [*] . For purposes of this Section 2.05, affiliate
shall mean a party that controls, is controlled by or is under common
control with another party.
2.06 DISTRIBUTOR AGREEMENTS. All Resellers of Distributor must be subject to
binding written agreements with Distributor that include provisions
consistent with the material substance of Sections 2, 3, 4, 5.04, 5.07,
8, 9, 10, 11, 12 and 13 of this Agreement, and such agreements must be
materially no less protective of COREL's rights in the Software than are
the terms and conditions of this Agreement.
3. TRADEMARKS
3.01 COREL MARKS. During the term of this Agreement, COREL grants Distributor
a non-exclusive license to display the COREL Marks only for the
distribution and marketing of the Software as part of a Product through
ESD.
3.02 NON-ALTERATION. Distributor agrees not to alter the COREL Marks,
copyright notices or designs of any Software. Distributor acknowledges
and agrees that COREL retains all of its right, title and interest in the
COREL Marks, and all use of the COREL Marks by Distributor shall inure to
the benefit of COREL.
3.03 MARK POLICIES AND STANDARDS. Distributor shall display the COREL Marks in
accordance with the Guidelines for Using COREL Trade-marks and COREL Logos
set forth in Schedule "G" or otherwise in effect from time to time. COREL
retains the right to specify and approve the quality and standards of all
materials on which the COREL Marks are displayed and to inspect samples
of such materials from time to time. Failure of Distributor to adhere to
such standards of quality shall be grounds for COREL to terminate
Distributor's rights to use such COREL Marks and to terminate this
Agreement. In order to enable COREL to protect its rights in the COREL
Marks, Distributor will advise COREL in writing of every country in which
it markets or distributes the Software or uses the COREL Marks.
3.04 VALIDITY AND ENFORCEABILITY OF MARKS. Distributor shall not at any time
during or after the term of this Agreement assert any claim or interest
in or to any of the COREL Marks or institute any proceeding reasonably
calculated to adversely affect the validity or enforceability of any of
the COREL Marks. Distributor shall not register, seek to register, or
cause to be registered any of COREL's trade-marks, logos, copyrights,
including the COREL Marks without COREL's prior written consent.
Distributor shall not adopt or use such trade-marks, trade names, logos
or insignia or any confusingly similar work or symbol, as part of
Distributor's company or partnership name.
3.05 INFRINGEMENT AND FURTHER ASSURANCES. Distributor agrees to report all
infringement or improper or unauthorized use of COREL's trade-marks,
trade names, logos or insignia, including the COREL Marks which come to
the attention of Distributor. Distributor further agrees to execute all
documents and further assurances required by COREL to register or protect
COREL's rights.
3.06 DISTRIBUTOR MARKS. During the term of this Agreement, Distributor grants
COREL a non-exclusive license to display the trade names, trademarks,
logos, service marks and product designations of Distributor and its
licensors (collectively, the "Distributor Marks").
3.07 NON-ALTERATION. COREL agrees not to alter the Distributor Marks. COREL
acknowledges and agrees that Distributor retains all of its right, title
and interest in the Distributor Marks, and all use of the Distributor
Marks by COREL shall inure to the benefit of Distributor.
3.08 MARK POLICIES AND STANDARDS. COREL shall display the Distributor Marks in
accordance with the Guidelines for Using Distributor Trade-marks and
Distributor Logos set forth in Schedule "Q" or otherwise in effect from
time to time. Distributor retains the right to specify and approve the
quality and standards of all materials on which the Distributor Marks are
displayed and to inspect samples of such materials from time to time.
Failure of COREL to adhere to such standards of quality shall be grounds
for Distributor to terminate COREL'S rights to use such Distributor Marks
and to terminate this Agreement.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5
3.09 VALIDITY AND ENFORCEABILITY OF MARKS. COREL shall not at any time during
or after the term of this Agreement assert any claim or interest in or to
any of the Distributor Marks or institute any proceeding reasonably
calculated to adversely affect the validity or enforceability of any of
the Distributor Marks. COREL shall not register, seek to register, or
cause to be registered any of Distributor's trade-marks, logos,
copyrights, including the Distributor Marks without Distributor's prior
written consent. COREL shall not adopt or use such trademarks, trade
names, logos or insignia or any confusingly similar work or symbol, as
part of COREL's company or partnership name.
3.10 INFRINGEMENT AND FURTHER ASSURANCES. COREL agrees to report all
infringement or improper or unauthorized use of Distributor's
trade-marks, trade names, logos or insignia, including the Distributor
Marks which come to the attention of COREL. COREL further agrees to
execute all documents and further assurances required by Distributor to
register or protect Distributor's rights.
3.11 DISTRIBUTOR MARKS. COREL agrees that Distributor shall be permitted to
display the Distributor Marks in the form of a static graphic on the
Store which is not hyperlinked, upon prior written approval by COREL, to
indicate that the Store is developed and maintained by Distributor, to
indicate Distributor Products, and to otherwise identify Distributor in
connection with the Store. Such static graphic shall be no more than 80 x
60 pixels on the main page of the Store and no more than 80 x 30 pixels
on any other page of the Store. Distributor acknowledges and agrees that
such rights of display of the Distributor Marks on the Store shall in no
way confer to Distributor any right, title or interest in or to the Web
Pages or any modification thereof.
4. TERM OF AGREEMENT
4.01 EFFECTIVE DATE. This Agreement shall be effective as of the Effective
Date.
4.02 INITIAL TERM. The initial term of this Agreement shall commence upon the
Effective Date and shall continue, subject to Section 14, for a period of
[*] from such date.
4.03 RENEWAL. Subject to Section 14, this Agreement shall be renewed for
subsequent periods of [*] at the end of the prior [*]
term unless either party notifies the other prior to the
expiry of the term that it does not wish to renew the Agreement for a
further [*] term.
5. RESPONSIBILITIES OF DISTRIBUTOR
5.01 DEVELOPMENT. Distributor agrees to provide COREL the Development as
further described in Schedule "H" attached hereto. In addition,
Distributor agrees to provide COREL with forty (40) hours of user
interface redesign Development which includes a complete or significant
overhaul of the look and feel Development in each three (3) month period
of this Agreement at no additional cost to COREL. Distributor agrees that
COREL is the sole and exclusive owner of all right, title and interest in
the Web Pages and any web pages provided by COREL to Distributor under
this Agreement including but not limited to any modification thereof.
Distributor agrees that COREL may request, at any time, additional
functionality Development for the Store which has not been included
herein. Implementation of any such additional functionality Development
and deadlines relating thereto will be agreed in writing by both parties
prior to Distributor commencing any such functionality Development. COREL
shall pay Distributor for any additional Development in accordance with
Section 7.02 and Schedule "K".
5.02 PROFESSIONAL SERVICES. Distributor agrees to provide COREL the
Professional Services as further described in Schedule "K" attached
hereto.
5.03 MARKETING SERVICES. Distributor agrees to provide COREL the Marketing
Services as further described in Schedule "J" attached hereto.
5.04 ACCEPTANCE OF EULA. Distributor shall display to Customer the applicable
EULA as provided by COREL for the Software prior to download and/or
purchase of the Software by Customer. Distributor shall require all
Customers to either accept or reject the terms and conditions of the EULA
via a point and click mechanism or other mechanism acceptable to COREL
prior to download and/or purchase and, in the event Customer rejects the
EULA, Customer shall not be permitted to download or purchase the
Software. Distributor agrees that the mechanism used by Distributor to
require Customers to accept or reject the EULA shall be in a form which
will record and store all Customers acceptance of the EULA for future
reference.
5.05 RESTRICTIONS. Distributor shall distribute the Software only as permitted
under this Agreement and shall not alter the Software, Software packaging
or EULA or any part thereof. Distributor shall not rent the Software or
Products or knowingly distribute or resell to anyone who rents same or
infringes COREL's rights. Distributor shall immediately discontinue all
access to Distributor System and distribution of Software or Products to
Customers who rent same or infringe COREL's rights. Distributor shall
impose this same restriction on all Customers, other than end users, who
purchase Products or Software from Distributor.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
6
5.06 ENCRYPTION. Distributor shall be entitled to encrypt the EULA and
Software for ESD as part of Product provided that the additions in no way
alter the features or functionality of the Software or EULA or create any
obligations, warranties or representations on behalf of COREL.
5.07 COMPLIANCE WITH LAWS. Distributor shall comply with all laws, rules,
regulations and industry standards existing with respect to the Software,
the Merchandise, the Technical Support Products and the performance by
Distributor of its obligations hereunder, including without limitation,
data protection and Customer Information Processing, existing in the
jurisdictions where Distributor carries on activities under this
Agreement and where Software, the Merchandise and/or the Technical
Support Products is resold or distributed from time to time. In
particular, Distributor shall not export or re-export the Software, the
Merchandise and/or the Technical Support Products, either directly or
indirectly, to countries to which the United States has prohibited
export, including, but not limited to, Cuba, Iran, Iraq, Libya, Syria and
North Korea.
5.08 UPGRADES. In the distribution by Distributor of any Software upgrade
products, Distributor shall comply with all requirements on the resale of
such upgrades which COREL generally imposes on other distributors of
Software upgrades. Distributor shall impose this same restriction on all
Customers, who purchase Software from Distributor.
5.09 PAYMENT AND CREDIT CARD PROCESSING. Distributor shall be responsible for
processing all Customer orders and payment transactions using payment
methods mutually agreed to by the parties as provided in Schedule "H".
5.10 COREL DATABASE. Distributor shall develop and maintain a database which
shall contain all Customer Information relating to the Software and
Products collected by Distributor ("COREL Database"). Distributor agrees
that: (i) all information collected by Distributor identifying Products,
Serial Numbers, Customers or particulars about Customers is the
Proprietary Information of COREL and shall be governed by Section 8
herein; (ii) upon termination or expiration of this Agreement,
Distributor shall immediately provide all Customer Information contained
on the COREL Database, and any other Customer Information under the
possession or control of Distributor, to COREL provided that Distributor
may retain a copy of the COREL Database for verification purposes
regarding this Agreement; (iii) Distributor may maintain compilations of
data regarding Customers or Products with other data for business
purposes only provided that such compilations do not specifically
identify Customers or Products; (iv) Distributor shall not distribute,
sell or otherwise deal with the Customer Information other than to use
the database information to provide reports to COREL; and (v) COREL is in
no way restricted in the use of the COREL Database. Distributor agrees to
provide COREL with a copy of the COREL Database upon fourteen (14) days
written notice to Distributor in a form specified by COREL.
Notwithstanding any other limitations in this Agreement, the restrictions
on Distributor's ability to disclose or use any information in the COREL
Database shall not apply to information that Distributor obtained
independently from this Agreement.
5.11 DISTRIBUTOR DATABASE. Distributor shall develop and maintain a database
which shall contain all Customer Information relating to the Distributor
Products distributed pursuant to this Agreement and any Software,
Products, Merchandise and Technical Support Products distributed by
Distributor from any of its properties and collected by Distributor
("Distributor Database"). Distributor agrees that: (i) all information
collected by Distributor identifying Distributor Products, Customers or
particulars about Customers is the Proprietary Information of Distributor
and shall be governed by Section 8 herein; (ii) COREL shall have a
non-exclusive, worldwide, perpetual right to use, copy, publish and
distribute the Distributor Database and that COREL shall in no way be
restricted in its use of the Distributor Database; and (iii) upon
termination or expiration of this Agreement, Distributor shall
immediately provide all Customer Information contained on the Distributor
Database, and any other Customer Information under the possession or
control of Distributor, to COREL. Distributor agrees to provide COREL
with a copy of the Distributor Database upon fourteen (14) days written
notice to Distributor in a form specified by COREL.
5.12 REPORTS. Distributor shall provide COREL with reports as further
described in Schedule "F" hereto.
5.13 PROMOTION. Unless discontinued by COREL pursuant to Section 7.03 herein
or as otherwise agreed to by the parties, Distributor shall make all
Software available for purchase by Customers from Distributor at all
times.
5.14 ACCOUNT MANAGER. The parties agree to assign a dedicated account manager
as the point of contact for the other party regarding this Agreement.
Such account managers shall have the authority to approve any look and
feel Development modifications proposed by the other party in accordance
with Section 17.02.
5.15 DISTRIBUTOR SYSTEM AND WEB SITE. Distributor represents that it has a
fully functional Distributor System and Distributor Web Site as of the
Effective Date and that Distributor shall use best efforts to maintain
Distributor System and Distributor Web Site sufficient to enable
Customers to access, purchase and download Products. Distributor shall
provide all Customer, Reseller and/or Affiliates support for use of
Distributor System and Distributor Web Site including, but not limited
to, credit card processing and downloading of Products on Customer's hard
disk.
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7
5.16 DISTRIBUTOR SYSTEM OR WEB SITE FAILURE. In the event Distributor System
or Distributor's Web Site ceases to be available to Customers by reason
of some failure of equipment or services (whether or not caused by
Distributor or constituting force majeure as described in Section 17.05),
Distributor will use its best efforts to restore the Distributor System
and/or Distributor Web Site to normal operating condition as soon as is
reasonably practical. Distributor shall immediately advise COREL of any
such failure and provide failure reports as more fully described in
Schedule "F" hereto. In the event of any such failure for reasons
other than reasons constituting force majeure and for reasons other than
those within Distributor's control, including but not limited to the
performance or non-performance of Distributor's contractors including
Internet service providers ("ISPs") and/or subcontractors, Distributor
shall incur and pay to COREL those downtime charges as set forth in
Schedule "F" hereto. In addition, Distributor agrees that in the event
Distributor's Web Site or the Store is down and unavailable for Customers
to access and purchase for a total of eight (8) hours or more in any
month of this Agreement for reasons other than reasons constituting force
majeure and for reasons other than those within Distributor's control,
including but not limited to the performance or non-performance of
Distributor's contractors including ISPs) and/or subcontractors, COREL
shall be entitled to terminate this Agreement in accordance with Section
14.01.2.
5.17 DISTRIBUTOR SYSTEM MAINTENANCE. Distributor shall provide twenty four
(24) hours notice to COREL of any planned interruption of Distributor
System, Distributor Web Site or Store for maintenance or any other
purpose. However, during any maintenance period, Distributor shall ensure
that the Store continues to operate in the normal course of business.
5.18 SECURITY. Distributor represents it shall provide a secure system for all
Customer transactions, including, but not limited to, customer and credit
card information entry, using industry standard security technology and
shall update such technology on a regular basis. In the event Customer
Information is unable to be entered in a secure environment, Distributor
shall provide Customer with Distributor's Customer Service number. In
addition, Distributor agrees to display on the Store a security guarantee
disclaimer approved by COREL in writing. Such security guarantee shall
certify to Customers that any Customer transactions on the Store are done
in a secure manner in accordance with industry standard security
practices. Schedule "N" describes more fully the Distributor's security
technology.
5.19 VIRUS SCAN. Distributor shall scan all Products prior to distribution to
Customers for the presence of viruses.
5.20 PRESS RELEASES. Each party agrees that all information released to the
media or the general public regarding this Agreement or the other party,
including press releases, shall require prior written approval by the
other party.
5.21 SERIAL NUMBERS. COREL shall provide Distributor with an initial block of
serial numbers for the Software ("Serial Numbers"). Thereafter,
Distributor shall request subsequent blocks of Serial Numbers from COREL
as required. Distributor shall ensure that each copy of the Software
distributed to Customer is assigned a Serial Number specific to each copy
of the Software, as provided to Distributor by COREL and that each Serial
Number is assigned to only one copy of the Software.
5.22 NO DISTRIBUTION OF COUNTERFEITS. Distributor agrees that (i) it shall not
engage in the manufacture or knowingly engage in the use of
counterfeited, pirated or illegal Software; (ii) it shall not knowingly
engage in the distribution, supply or transfer of counterfeit, pirated or
illegal Software; and (iii) it shall not knowingly supply any Software to
Customers who engage in the use, manufacture, distribution or other
supply or transfer of counterfeit, pirated or illegal software.
5.23 ANTI-PIRACY EFFORTS. Distributor agrees report all occurrences of
counterfeited, pirated or illegal Software of which it becomes aware and
to provide reasonable assistance to COREL in the investigation of
counterfeit, pirated or illegal Software.
5.24 CONNECTION SUPPORT. Distributor shall provide connection support and
agrees that the minimum system requirements for browsing by Customer
shall be as provided in Schedule "H".
5.25 AFFILIATES. Distributor agrees that all Affiliates that have been
authorized by Distributor in accordance with Section 2.01 (v) shall be
required to either accept or reject the terms and conditions of the
Affiliate Agreement via a point and click mechanism or other mechanism
acceptable to COREL prior to Distributor providing such Affiliate with
permission to create a link to the Store and, in the event Affiliates
rejects the Affiliate Agreement, Affiliate shall not be permitted to
access to page which allows Affiliates to create a link to the Store.
Distributor agrees that the mechanism used by Distributor to require
Affiliates to accept or reject the Affiliate Agreement shall be in a form
which will record and store all Affiliates acceptance of the Affiliate
Agreement for future reference. Distributor shall ensure that the
Affiliates shall not modify the COREL graphics in any manner whatsoever.
In the event that Distributor receives notice and/or becomes aware that
an Affiliate has modified the COREL graphics in any manner whatsoever or
that an Affiliate has misrepresented COREL or COREL software products,
Distributor agrees to instruct the Affiliate to immediately remove the
COREL graphics and/or any such misrepresentation from such Affiliate's
web site
<PAGE>
8
and, if Affiliates fail to do so, terminate its agreement with such
Affiliate. In the event that COREL, acting reasonably, requests that
Distributor terminates its agreement with any Affiliate, Distributor,
acting reasonably, shall comply with such request and shall terminate the
Affiliate.
5.26 DISTRIBUTOR PRODUCTS. Distributor agrees that it shall be responsible for
obtaining all third party authorizations required to distribute any
Distributor Products on the Store. In addition, Distributor shall display
a disclaimer on the Store wherever Distributor Products are offered to
Customers specifically identifying all such Distributor Products as being
third party products which are not endorsed or promoted by COREL.
5.27 SHRINK-WRAP PRODUCTS. Distributor agrees that it shall offer all COREL
shrink-wrap products listed in Schedule "D" for sale to Customers on the
Store. Distributor shall order all such shrink-wrap products from a
COREL Authorized Distributor and ensure that it has a system in place to
allow Customers to receive shrink-wrap products in a timely manner.
5.28 SSL NOTICE. Distributor shall provide a notice to Customers prior to any
input of Customer Information that those Customers without browsers
containing Secure Socket Layer technology are advised that they also have
the option to phone in all Software orders.
5.29 PRIVACY NOTICE. Distributor shall ensure that it complies with COREL's
privacy policy as set out in Schedule "M" or as otherwise provided from
time to time. Distributor agrees that all Web Pages requesting Customer
Information from Customers shall display a privacy notice approved by
COREL.
5.30 QUARTERLY MEETINGS. Unless otherwise agreed between the parties, the
parties agree to meet once every three (3) month period of this Agreement
to discuss issues related to this Agreement, including, but not limited
to sales targets, marketing and development, for the following three (3)
month period. Such meeting shall alternate between each party's location
or another location as mutually agreed by the parties. The meeting shall
be attended by Distributor's Vice President of Strategic Development and
Vice President of Engineering, COREL's Manager of Internet Sales, the
parties' respective account managers and/or such other individuals as the
parties shall mutually agree.
6. RESPONSIBILITIES OF COREL
6.01 SUPPORT FOR CUSTOMERS. COREL shall be responsible for providing
maintenance and technical support for the Software to Customers in
accordance with COREL's standard procedures as they may be changed by
COREL from time to time. Such maintenance and technical support shall in
no way apply to: (i) Electronic Software Distribution and download
support for the Software; (ii) Customer use of the Distributor System;
and (iii) Distributor Products.
6.02 PREPARATION OF SOFTWARE FOR DISTRIBUTION. COREL agrees to provide
assistance as is commercially reasonable to Distributor to assist
Distributor to prepare Software for Electronic Software Distributor,
including the provision of EULA, or other electronic documentation as
provided by COREL, in COREL's sole discretion.
6.03 WARRANT AGREEMENT. The parties agree to enter into a warrant agreement
for the provision of Distributor warrants to COREL within thirty (30)
days of execution of this Agreement.
7. PAYMENTS
7.01 AMOUNTS PAYABLE BY DISTRIBUTOR. Distributor shall pay to COREL the
following:
7.01.1 For Schedule "A" Software:
(i) an amount equal to [*] of COREL's
suggested list price as listed in Schedule "A" for each
copy of the Schedule "A" Software distributed to
Customers through Distributor System by Distributor in
each [*] period;
(ii) an amount equal to [*] of COREL's
suggested list price as listed in Schedule "A" for each
copy of the Schedule "A" Software distributed to
Customers by Distributor though an Affiliate in each
[*] period; and
(iii) an amount equal to [*] of COREL's
suggested list price as listed in Schedule "A" for each
copy of the Schedule "A" Software distributed to
Customers by Distributor through a Reseller in each
[*] period.
7.01.2 For Schedule "B" Software, an amount equal to the [*]
multiplied by the number of copies of Schedule
"B" Software shipped to Distributor by COREL.
7.01.3 For Schedule "C" Software:
* CONFIDENTIAL TREATMENT REQUESTED
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9
(i) an amount equal to [*] of COREL's
suggested list price as listed in Schedule "C" for each
copy of the Schedule "C" Software distributed to
Customers through Distributor System by Distributor in
each [*] period; and
(ii) an amount equal to [*] of COREL's
suggested list price as listed in Schedule "C" for each
copy of the Schedule "C" Software distributed to
Customers by Distributor though an Affiliate in each
[*] period.
7.01.4 For Merchandise, an amount equal to the [*]
multiplied by the number of units of the Merchandise shipped by
COREL to Distributor;
7.01.5 For Distributor Products, an amount equal to [*]
of the price paid by Customers to Distributor for each copy of
the Distributor Products distributed to such Customers in each
[*] period; and
7.01.6 For Technical Support Products, an amount equal to the
[*] multiplied by the number of
Technical Support Products distributed by Distributor to
Customers in each [*] period.
All such amounts will be payable by Distributor to COREL within ten (10)
business days of the end of each two (2) week period. Distributor
acknowledges and agrees that COREL shall in no way be responsible for any
costs incurred by Distributor for any Schedule "B" Software, shrinkwrap
products listed in Schedule "D", Merchandise and Technical Support
Products offered by Distributor through Affiliates and/or Resellers.
7.02 AMOUNTS PAYABLE BY COREL. Within forty five (45) days after COREL's
receipt of an invoice from Distributor for Professional Services, COREL
shall pay Distributor the amounts set forth in Schedule "K" for such
Professional Services.
7.03 NOTICE OF CHANGES. During the term of this Agreement, COREL shall have
the right to change the Software Prices for any of the Software, the
Merchandise Prices for any of the Merchandise and/or the Technical
Support Product Prices for any of the Technical Support Products. COREL
shall be entitled to: (i) increase the Software Prices, Merchandise
Prices and/or Technical Support Product Prices or discontinue any
Software, Merchandise Prices and/or Technical Support Product Prices at
any time upon thirty (30) days prior written notice to Distributor; and
(ii) decrease the Software Prices, Merchandise Prices and/or Technical
Support Product Prices or add new Software, Merchandise and/or Technical
Support Products at any time upon notice to Distributor. In all such
cases COREL shall provide Distributor with a revised Schedule "A",
Schedule "B", Schedule "C", Schedule "E" and/or Schedule "I". In the
event that COREL raises: (i) the Software Prices for any Schedule "B"
Software, all orders for such Schedule "B" Software placed prior to the
effective date of the increase shall be invoiced to Distributor at the
lower amount; or (ii) the Merchandise Prices for any Merchandise, all
orders for such Merchandise placed prior to the effective date of the
increase shall be invoiced to Distributor at the lower amount. In the
event that COREL lowers: (i) the Software Prices for any Schedule "B"
Software, COREL shall, subject to the terms of this Section 7.03, grant
to Distributor a credit equal to the difference between the Software
Prices paid by Distributor for such Schedule "B" Software and the reduced
Software Prices for each unit of such Schedule "B" Software purchased by
Distributor within thirty (30) days prior to the date the reduced price
is first offered and remaining in the inventory of Distributor on the
date the reduced price is first offered; or (ii) the Merchandise Prices
for any Merchandise, COREL shall, subject to the terms of this Section
7.03, grant to Distributor a credit equal to the difference between the
Merchandise Prices paid by Distributor for such Merchandise and the
reduced Merchandise Prices for each unit of such Merchandise purchased by
Distributor within thirty (30) days prior to the date the reduced price
is first offered and remaining in the inventory of Distributor on the
date the reduced price is first offered. In the event COREL discontinues
any Software, Merchandise and/or Technical Support Products, Distributor
shall immediately remove all discontinued Software, Merchandise and/or
Technical Support Products from Distributor's Web Site and Distributor's
server and erase or destroy any Schedule "A" Software and/ or any
Schedule "C" Software contained on Distributor computers, any storage
media and/or computer diskettes in its possession or under its control.
7.04 SHIPMENT. COREL will ship the Schedule "B" Software and/or Merchandise to
Distributor pursuant to purchase orders placed by Distributor with COREL.
The Schedule "B" Software and/or Merchandise will be shipped to
Distributor, F.O.B. one of COREL's shipping locations, and transportation
will be made freight and insurance collect, which charges will be billed
to Distributor. Distributor will pay any applicable duties, import taxes
or other government charges assessed on any shipment, exclusive of any
tax upon COREL'S net income. Amounts payable by Distributor under this
section shall be paid by Distributor within thirty (30) days of the
shipment to which they relate.
7.05 TAXES. Distributor shall pay, in addition to all amounts specified in
this Agreement, all duties and foreign, federal, state, provincial,
county or local income taxes, value added taxes, use, personal, property,
sales taxes and other taxes whatsoever, or amounts in lieu thereof, and
interest thereon, paid or payable or collectible by
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
10
COREL (exclusive of taxes based on COREL's net income) and levied or
based on amounts chargeable to or payable by Distributor pursuant to this
Agreement. In the event any payments required to be made by Distributor
under this Agreement are subject to applicable withholding tax that
Distributor is required to deduct from such payments, Distributor shall
promptly deliver to COREL receipts issued by appropriate government
authorities for all such taxes withheld or paid by Distributor and
Distributor shall fully and promptly cooperate with COREL to provide such
information and records as COREL may require in connection with any
application by COREL to obtain available tax credits. Unless otherwise
agreed to by the parties, the parties agree to discuss, in approximately
six (6) months after the Effective Date of this Agreement, issues
relating to the remittance of taxes or withholding taxes under this
Agreement. Such meeting shall be held in conjunction with the quarterly
meetings set forth in Section 5.31 of this Agreement.
7.06 LATE PAYMENT. If Distributor is more than thirty (30) days in arrears
under this Agreement, COREL will give written notice to Distributor that
Distributor is responsible for payment of all outstanding amounts and
finance charges. If the outstanding amounts are not paid within ten (10)
days of such notice, COREL has the right to terminate this Agreement.
Late payments will be assessed a 1% finance charge per month (12% per
annum) or the highest finance charge permitted by applicable law,
whichever is less. Distributor shall pay all costs including reasonable
attorney's fees, incurred by COREL in collecting overdue amounts. In
addition, if Distributor is in arrears to any extent under this
Agreement, COREL may hold further shipments until all arrears have been
paid.
7.07 U.S. CURRENCY. All payments to COREL pursuant to this Agreement shall be
made in the lawful currency of the United States of America and all
amounts referred to in this Agreement are in the lawful currency of the
United States of America.
7.08 AUDITS. Distributor agrees to maintain complete and accurate records
relating to its promotion, marketing, use and distribution of the
Software, Merchandise and/or Technical Support Products. COREL shall have
the right no more often than once each twelve (12) month period, and upon
ten (10) days notice, to appoint a nationally recognized auditing firm to
examine Distributor's books and records in order to verify Distributor's
compliance with the promotion, marketing, use, distribution, payment and
reporting terms of this Agreement. Any such audit shall be at the expense
of COREL unless the audit reveals a material non-compliance by
Distributor with the promotion, marketing, use, distribution, payment and
reporting terms of this Agreement, or an underpayment by Distributor of
five percent (5%) or more of amounts paid or payable to COREL, in which
case the audit shall be at the expense of Distributor, in addition to
paying any deficit to COREL.
7.09 SET-OFF. COREL shall be entitled to set off any amounts owing to
Distributor by COREL pursuant to this Agreement against any amounts owing
to COREL by Distributor under this or any other agreement with COREL, its
subsidiaries or affiliates and Distributor.
7.10 STOCK BALANCING. Distributor may return Merchandise and/or Schedule "B"
Software to COREL from time provided that all such returns are in
accordance with COREL's Stock Balancing Guidelines attached hereto as
Schedule "S".
8. CONFIDENTIALITY
8.01 PROPRIETARY INFORMATION. "Proprietary Information" means, in the case of
information disclosed to Distributor by COREL, (i) the terms and
conditions of this Agreement; (ii) any information provided to Distributor
by COREL to enable Distributor to perform the Electronic Software
Distribution, including, but not limited to technical and financial
information; (iii) all binary code, inventions, information, know-how and
ideas, including but not limited to, the Software, provided to
Distributor; and (v) any information with respect to COREL which it has
received or may in the future receive in connection with this Agreement
which is not otherwise available to the general public without
restriction. "Proprietary Information" means, in the case of information
disclosed to COREL by Distributor, (i) the terms and conditions of this
Agreement; (ii) all COREL Database and Customer Information as more fully
described in Sections 5.10 and 5.11 herein; and (iii) any information
with respect to Distributor which COREL has received or may in the future
receive in connection with this Agreement which is not otherwise
available to the general public without restriction. In the case of
information received by either COREL or Distributor, excluding the
Customer Information, the obligations of confidentiality do not apply to
information that: (i) prior to or after the time of disclosure becomes
part of the public domain through no breach of this Agreement; (ii) is
disclosed to the receiving party by a third party under no legal
obligation to maintain the confidentiality of such information; or (iii)
is in the possession of the receiving party at the time of disclosure
without any obligation of confidentiality. Proprietary Information shall
be treated confidentially by the receiving party and its employees and
contractors and shall not be disclosed by the receiving party without the
disclosing party's prior written consent.
8.02 TREATMENT OF PROPRIETARY INFORMATION. The parties agrees to hold all
Proprietary Information of the other in trust and confidence for the
other and not to use the same other than as expressly authorized under
and to carry out the purposes of this Agreement. The receiving party
shall not duplicate all or any part of the disclosing party's Proprietary
Information, except in accordance with the terms and conditions of this
Agreement. Each
<PAGE>
11
party shall have an appropriate agreement with each of its employees and
contractors having access to the other party's Proprietary Information
sufficient to enable that party to comply with all the terms of this
Agreement. Each party agrees to protect the other party's Proprietary
Information with the same standard of care and procedures which it uses
to protect its own trade secrets and confidential or proprietary
information of like importance and, in any event, shall adopt or maintain
procedures reasonably calculated to protect such Proprietary Information.
8.03 VIOLATION OF TERMS OF SECTION 8. Each party shall promptly report to the
other any actual or suspected violation of the terms of this Section 8,
and shall take all reasonable steps to prevent, control or remedy such
violation.
8.04 EQUITABLE RELIEF. In recognition of the unique and proprietary nature of
the information disclosed by each party, it is agreed that each party's
legal remedy for breach by the other party of its obligations under this
section 8 shall be inadequate and the disclosing party shall, in the
event of such breach, be entitled to equitable relief, including without
limitation, injunctive relief and specific performance, in addition to
any other remedies provided hereunder or available at law.
9. COREL WARRANTIES AND OTHER REPRESENTATIONS
9.01 WARRANTY. The Software storage medium is warranted against defects in
workmanship and materials for a period of ninety (90) days from the date
it is delivered to Distributor. In the event that the storage medium is
defective COREL will replace it free of charge with another copy of the
Software. Replacement of the storage medium shall be COREL's sole
obligation and Distributor's sole remedy for a breach of the warranty in
this section.
9.02 LIMITATION. EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.01, THE SOFTWARE,
STORAGE MEDIA, MERCHANDISE AND TECHNICAL SUPPORT PRODUCTS ARE PROVIDED
AND LICENSED BY COREL TO DISTRIBUTOR ON AN "AS IS" BASIS AND THERE ARE NO
WARRANTIES, REPRESENTATIONS OR CONDITIONS, EXPRESSED OR IMPLIED, WRITTEN
OR ORAL, ARISING BY STATUTE, OPERATION OF LAW, USAGE OF TRADE, COURSE OF
DEALING OR OTHERWISE, REGARDING THEM OR ANY OTHER PRODUCT OR SERVICE
PROVIDED BY COREL HEREUNDER OR IN CONNECTION HEREWITH BY COREL. COREL
DISCLAIMS ANY IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABLE QUALITY,
SATISFACTORY QUALITY, MERCHANTABILITY, DURABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT,
INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING PERFORMANCE OF THE
SOFTWARE, OR STORAGE MEDIA, WHICH IS NOT CONTAINED IN THIS AGREEMENT,
SHALL BE DEEMED TO BE A WARRANTY BY COREL.
9.03 NO VARIATION. NO AGREEMENTS VARYING OR EXTENDING THE TERMS OF SECTION
9.02 WILL BE BINDING ON COREL UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED SIGNING OFFICER OF COREL.
9.04 DISTRIBUTOR NOT TO BIND. Distributor will give and make no warranties or
representations on behalf of COREL as to quality, satisfactory quality,
merchantability, merchantable quality, fitness for a particular use or
purpose or any other features of the Software, Merchandise and/or
Technical Support Products; and Distributor shall not incur any
liabilities, obligations or commitments on behalf of COREL, including
without limitation, a variation of the End User License.
10. DISTRIBUTOR WARRANTIES
10.01 YEAR 2000 COMPLIANCY. Distributor warrants that all hardware, software
and firmware products used by Distributor or in Distributor's System
shall be able to accurately process date data (including but not limited
to calculating, comparing and sequencing) from, into, and between the
twentieth and twenty-first centuries, including leap-year calculations.
10.02 ENCRYPTION WARRANTY. Distributor warrants that the Distributor System
shall receive and transmit all Customer information in encrypted format.
Distributor shall continue to update the Distributor System with
encryption technology reasonably suited and intended for this application
as it is shown to be effective and will use best efforts to provide the
most current encryption technology available. Subject to the
Distributor's encryption warranty set forth in this Section 10.02,
Distributor shall not be responsible or liable to Customer for
unauthorized activities of third parties involving Customer Information.
10.03 SERVICE WARRANTY. Distributor warrants and represents to COREL that it
shall perform the Development Services, Professional Services and
Marketing Services in a professional manner using only properly trained
and competent personnel.
<PAGE>
12
11. INFRINGEMENT
11.01 DEFENSE AND SETTLEMENT. If notified promptly in writing of any action
(and all prior related claims) brought against Distributor alleging that
Distributor's resale, distribution or other disposition of the Software
and/or Merchandise under this Agreement infringes any valid copyright,
trademark or United states or Canadian patent, COREL will defend that
action at its expense and will pay the costs and damages finally awarded
against Distributor in the action, provided: that Distributor provides
COREL with prompt written notice of such claim(s); that COREL shall have
sole control of the defense of any such action and all negotiations for
its settlement or compromise; that Distributor, and where applicable,
those for whom Distributor is in law responsible, cooperate fully with
COREL in its defense of the action; and that COREL shall have no
liability if (a) the action results from (i) the use of the Software for
purposes or in an environment for which it was not designed; (ii)
modification of the Software and/or Merchandise by anyone other than
COREL or bundling of the Software with Distributor Product(s); (iii)
distribution of any Software and/or Merchandise or display or use of any
COREL Mark after COREL's notice to Distributor that it should cease
distribution or use of such Software, Merchandise and/or COREL Mark due
to a possible infringement; or (iv) Electronic Software Distribution
provided by Distributor; or (b) the infringement claim arises as a result
of Distributor's breach of the terms and conditions of this Agreement.
11.02 OPTIONS WHERE CLAIM. If a final injunction is obtained in such action
against Distributor's distribution of the Software and/or Merchandise or
if in COREL's opinion the Software and/or Merchandise is likely to become
the subject of a claim of infringement, COREL may at its sole option and
expense either procure for Distributor the right to distribute the
Software and/or Merchandise or replace or modify the Software and/or
Merchandise so that it becomes non-infringing .
11.03 ENTIRE LIABILITY. The foregoing states the entire liability of COREL and
the sole and exclusive remedy of Distributor with respect to any
intellectual or industrial property infringement.
12. LIMITATION OF LIABILITY
12.01 LIMITATION. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES WHATSOEVER
RESULTING FROM LOSS OF USE, DATA OR PROFITS, ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR THE USE OR PERFORMANCE OF EITHER PARTY,
THE SOFTWARE, STORAGE MEDIA, MERCHANDISE, TECHNICAL SUPPORT PRODUCTS, OR
OTHER MATERIAL WHETHER SUCH ACTION IS BASED IN CONTRACT OR IN TORT,
INCLUDING BUT NOT LIMITED TO NEGLIGENCE, AND WHETHER OR NOT SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR SUCH DAMAGES ARE
FORESEEABLE. NOTWITHSTANDING THE FOREGOING: (i) DISTRIBUTOR ACKNOWLEDGES
AND AGREES THAT IN NO EVENT SHALL THIS SECTION 12.01 APPLY TO
DISTRIBUTOR'S OBLIGATIONS UNDER SECTIONS 2.02,2.04,3.03, 3.04, 5.04,
5.05, 5.07, 5.22, 5.24, 7, 8, 9.04, AND 13.01; and (ii) COREL
ACKNOWLEDGES AND AGREES THAT IN NO EVENT SHALL THIS SECTION 12.01 APPLY
TO COREL'S OBLIGATIONS UNDER SECTIONS 2.03, 3.08, 3.09 AND 8.
12.02 COREL'S AGGREGATE LIABILITY. Other than as provided in Section 11.01 and
13.02, COREL's aggregate liability to Distributor whether for negligence,
breach of contract, misrepresentation or otherwise shall in respect of a
single occurrence, or a series of occurrences, in no circumstances exceed
the Software Prices, Merchandise and/or Technical Support Product Prices
paid by Distributor to COREL over the twelve (12) month period preceding
the claim by Distributor.
12.03 DISTRIBUTOR'S AGGREGATE LIABILITY. Other than as provided in Section
13.01, Distributor's aggregate liability to COREL whether for negligence,
breach of contract, misrepresentation or otherwise shall in respect of a
single occurrence, or a series of occurrences, in no circumstances
exceed: (i) gross sales of all COREL Software, Merchandise and Technical
Support Products on the Store by Distributor over the twelve (12) month
period preceding the claim by COREL; or (ii) an amount of four million
dollars ($4,000,000.00 USD) whichever is greater.
INDEMNIFICATION
13.01 DISTRIBUTOR INDEMNIFICATION. Except as set forth in Section 11, if
notified promptly in writing of any action (and all prior related claims)
brought against COREL by Distributor's Customers or any third party
relating to: (i) Distributor's performance or non-performance of its
obligations hereunder; including, but not limited to negligence; (ii)
Distributor's distribution of the Software, Merchandise and/or Technical
Support Products through Distributor's System; (iii) Distributor's
distribution of the Schedule "A" Software through Resellers; (iv) the
maintenance, performance, non-performance or functionality of the
Distributor System and/or Distributor Web Site; (v) breach of Section 10
warranties; (vi) misuse of any Customer Information or credit card
information submitted to Distributor; (vii) Distributor Products or
Distributor's distribution thereof; (viii) claims by a third party from
whom Distributor has not received authorization to distribute such third
party's
<PAGE>
13
Distributor Product; (ix) for the acts or omissions of the Affiliates or
links created by the Affiliates; or (x) Distributor's security guarantee,
Distributor will defend that action at its expense and will pay the
costs (including reasonable attorney's fees) and damages finally awarded
against COREL in the action, provided: that COREL provides Distributor
with prompt written notice of such claim(s); that Distributor shall have
sole control of the defense of any such action and all negotiation for
its settlement or compromise; and that COREL, and where applicable, those
for whom COREL is in law responsible, cooperate fully with Distributor in
its defense of the action, at Distributor's expense. Notwithstanding
the right for Distributor to control the defense of any action, and all
negotiation for its settlement or compromise, Distributor agrees that it
shall not enter into any final settlement with respect to any claims
involving COREL's intellectual property without prior written
authorization from COREL.
13.02 COREL INDEMNIFICATION. If notified promptly in writing of any action (and
all prior related claims) brought against Distributor by Customers,
relating to the Software, Merchandise and/or Technical Support Products,
COREL will defend that action at its expense and will pay the costs
(including reasonable attorney's fees) and damages finally awarded
against Distributor in the action, provided: that Distributor provides
COREL with prompt written notice of such claim(s); that COREL shall have
sole control of the defense of any such action and all negotiations for
its settlement or compromise; that Distributor, and where applicable,
those for whom Distributor is in law responsible, cooperate fully with
COREL in its defense of the action, at COREL's expense; and that COREL
shall have no liability to the extent the action results from (i) the use
of the Software for purposes or in an environment for which it was not
designed; (ii) modification of the Software, Merchandise and/or Technical
Support Products; (iii) distribution of any Software, Merchandise and/or
Technical Support Products by Distributor after COREL's notice to
Distributor that it should cease distribution of such Software,
Merchandise and/or Technical Support Products; or (iv) breach by
Distributor of the terms and conditions of this Agreement.
14. TERMINATION
14.01 TERMINATION. This Agreement will terminate in the event of any of the
following:
14.01.1 written notice of termination from COREL, effective
immediately, under Section 7.06;
14.01.2 on the thirtieth (30th) day after one party gives the other
written notice of breach by the other of any material term or
condition of this Agreement unless the breach is cured before
that day;
14.01.3 written notice of termination by one party, effective
immediately, after a receiver has been appointed in respect of
the whole or a substantial part of the other's assets or a
petition in bankruptcy or for liquidation is filed by or
against that other or if the other has been dissolved or
liquidated or is insolvent;
14.01.4 written notice of termination, effective immediately, by the
non-defaulting party, if Distributor or COREL has breached its
obligations under Section 8; or
14.01.5 upon the expiry of: (i) [*] following receipt by
Distributor of written notice from COREL terminating this
Agreement for convenience; or (ii) [*]
following receipt by COREL of written notice from
Distributor terminating this Agreement for convenience,
provided that this right is not exercised by Distributor for
the first [*] of this Agreement.
14.02 NO COMPENSATION. Distributor acknowledges and agrees that it has no
expectation that its business relationship with COREL will continue for
any minimum period of years or that Distributor shall obtain any
anticipated amount of profits by virtue of this Agreement. The parties
agree that the termination provisions herein, in terms of both notice and
default events are reasonable and agree not to contest same by way of
wrongful termination proceedings or otherwise.
15. EFFECT OF TERMINATION
15.01 DISTRIBUTOR. In the event of expiration or termination Distributor shall:
15.01.1 perform with respect to COREL all payment and other obligations
of Distributor under this Agreement within thirty (30) days of
termination or expiration;
15.01.2 immediately cease to use the COREL Marks in any matter
whatsoever; immediately cease to act as a Distributor of the
Software, Merchandise and Technical Support Products and to
represent itself as such; and immediately within two (2)
business days from the date of termination or expiration,
return all gold masters for the Schedule "A" Software and
Schedule "C" Software to COREL at Distributor's sole cost and
expense;
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
14
15.01.3 immediately remove all Software, Merchandise and Technical
Support Products from Distributor's Web Site and Distributor's
server and erase or destroy any Schedule "A Software and
Schedule "C" Software contained on Distributor computers and/or
computer diskettes and/or other storage media in its possession
or under its control;
15.01.4 within two (2) business days from the date of termination or
expiration, transfer to COREL the COREL Database within its
possession or under its control;
15.01.5 within two (2) business days from the date of termination or
expiration, transfer to COREL a copy of the Distributor
Database within its possession or under its control;
15.01.6 within two (2) business days from the date of termination or
expiration, provide to COREL all backup copies of all Web
Pages and all copies of Wavier of Moral Rights as they relate
to the Web Pages and a minimum of ten (10) hours of assistance
to help COREL to implement the Web Pages on COREL's server or
other server as designated by COREL; and
15.01.7 for a period of thirty (30) days from the date of termination
or expiration, maintain a single static HTML page that
redirects visitors attempting to access the Store to a URL
specified by COREL.
15.02 SURVIVAL. Sections 2.02, 2.03, 3.02, 3.04, 3.07, 3.09, 5.07, 5.12, 6.01,
7.01, 7.05 to 7.09 inclusive, 8, 9, 11, 12, 13, 14.02, 15, 16 and 17
shall survive the termination of this Agreement.
15.03 NO PREJUDICE. Except as provided in Section 14.02, termination hereunder
shall be without prejudice to any other right or remedy to which either
party may be entitled hereunder in law.
15.04 DESTROY OR DELIVER UP. COREL shall have the option to require Distributor
to destroy and certify that it has destroyed or to deliver to COREL, any
property of COREL then in its possession or under its control.
16. DISPUTE RESOLUTION
16.01 DISPUTE RESOLUTION PROCESS. In the event of a dispute between COREL and
Distributor in relation to this Agreement, the parties agree that they
shall participate in good faith in the following dispute resolution
process, and the parties agree that except for the provisions of Sections
2.02, 2.03, 8.04, 9.04 and 13 legal remedies cannot be resorted to until
such time that each step of this process has been followed:
(i) A dispute shall be formalized, by the party raising the dispute,
when the issues relating to the dispute are placed in writing and
submitted to the other party with adequate backup material, in the
submitting party's reasonable judgment, to substantiate the
dispute. The submittal in writing shall delivered to the other
party as required under Section 17.09 and to each party's account
representative;
(ii) The dispute shall be handled by resolution by the two (2)
designated account representatives within thirty (30) days from
submittal. The parties must mutually agree to the resolution;
(iii) Failing resolution under (ii) above, the dispute, including all
supporting documentation and the positions of the parties from
paragraph (ii) above, shall be submitted for resolution to the
Internet Sales Manager in the case of COREL and to Distributor's
designate, within thirty (30) days from submittal. The parties
must mutually agree to the resolution; and
(iv) Failing resolution under (iii) above, the dispute, including all
supporting documentation and the positions of the parties under
paragraph (iii) above, shall be submitted for resolution to the
Executive Vice President of Sales in the case of COREL and to
Distributor's designate, within thirty (30) days from submittal.
The parties must mutually agree to the resolution.
Either party shall be entitled to change Representatives provided that such
party provides written notice to the other in accordance with Section 17.09.
Failure to take any action on the part of either or both parties under any step
of this dispute resolution process for the specified thirty (30) day period
shall automatically move the dispute process to the next step in the process.
After having given notice in accordance with (i) above for the first step of
this process, the completion of the thirty (30) day time period in each step
shall be deemed to constitute notice to initiate the next step of the process.
17. MISCELLANEOUS
17.01 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties concerning the subject matter and supersedes all prior
statements, representations, discussions, negotiations and agreements,
both oral
<PAGE>
15
and written, including all pre-printed terms and conditions appearing on
Distributor's order forms, COREL's acknowledgment of order forms and
COREL's invoice forms.
17.02 AMENDMENT OR WAIVER. COREL expressly reserves the right to modify
Schedules "A" to "E", inclusive, Schedule "G" and Schedule "M" from time
to time upon notice to Distributor and distributor expressly reserves the
right to modify Schedule "Q" from time to time upon notice to COREL.
Except as specifically provided for herein, this Agreement may not be
amended or modified except in a writing signed by authorized officers of
both parties. No order, invoice or similar document will affect this
Agreement even if accepted by the receiving party. Notwithstanding the
foregoing, the parties agree that any modification to the look and feel
Development shall not require an amendment to this Agreement signed by
authorized officers of both parties. However, any such modification
shall require the written approval of each parties' respective account
representative.
17.03 ILLEGAL OR UNENFORCEABLE PROVISIONS. If any one or more of the provisions
of this Agreement shall be found to be illegal or unenforceable, this
Agreement shall nevertheless remain in full force and effect, and such
term or provision shall be deemed severed.
17.04 INDEPENDENT CONTRACTORS. The parties to this Agreement are independent
contractors. No relationship of principal to agent, master to servant,
employer to employee or franchisor to franchisee is established hereby
between the parties. Neither party has the authority to bind the other or
incur any obligation on its behalf.
17.05 FORCE MAJEURE. Unless continuing for a period of ninety (90) consecutive
days, or unless involving the payment of amounts due under this
Agreement, no default, delay or failure to perform on the part of either
party shall be considered a breach of the Agreement if such default,
delay or failure to perform is shown to be due entirely to an event of
force majeure, or to causes beyond the reasonable control of the
defaulting party including without limitation, strikes, riots, civil
disturbances, actions or inaction concerning governmental authorities,
epidemics, war, embargoes, severe weather, fire, earthquakes, acts of God
or the public enemy or default of a common carrier, always provided that
the party so relieved of its obligations shall take reasonable steps to
prevent, correct or amend such act or event which renders such
obligations impossible.
17.06 NO WAIVER. Neither of the party's rights to enforce provisions of this
Agreement shall be affected by any prior course of dealing, waiver,
delay, omission or forbearance.
17.07 ASSIGNMENT. This Agreement and the rights granted hereunder shall not be
assigned, encumbered by security interest or otherwise transferred by
Distributor without the prior written consent of COREL, which shall not
be unreasonably withheld. An amalgamation or merger of Distributor or
COREL with any person who is not a party to this Agreement shall be
deemed to result in an assignment of this Agreement. COREL may assign
this Agreement at any time upon notice to this effect to Distributor.
17.08 INUREMENT. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective successors and permitted assigns.
17.09 NOTICES. Any notice or other communication to the parties shall be sent
to the addresses set out above, or such other places as they may from
time to time specify by notice in writing to the other party. All such
notices from Distributor to COREL shall be directed to the COREL Legal
Department and all such notices from COREL to Distributor shall be
directed to the attention of Distributor's General Counsel. Any such
notice or other communication shall be in writing, and, unless delivered
to a responsible officer of the addressee, shall be given by registered
mail, facsimile or telex and shall be deemed to have been given when such
notice should have reached the addressee in the ordinary course, provided
there is no strike by postal employees in effect or other circumstances
delaying mail delivery, in which case notice shall be delivered or given
by facsimile or telex.
17.10 FURTHER ASSURANCES. The parties agree to do all such things and to
execute such further documents as may reasonably be required to give full
effect to this Agreement.
17.11 TIME. Time shall be of the essence.
17.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, excluding that body
of law applicable to choice of law and excluding the United Nations
Convention on Contracts for the International Sale of Goods and any
legislation implementing such Convention, if otherwise applicable. The
parties hereby consents and attorns to the jurisdiction of the courts of
such state. If either party employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall
be entitled to recover reasonable attorney's fees. Each party waives any
right, and agrees not to apply to have any disputes under this Agreement
tried or otherwise determined by a jury, except where required by law.
<PAGE>
16
17.13 NON-CONFLICT. No Director or Officer of Corel Corporation (and/or its
subsidiaries and affiliates) shall be admitted to any share or part of
this Agreement or to any benefit arising therefrom.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first above written.
SHOPNOW.COM INC.
PER: /s/ Othniel D. Palomino
------------------------------
Name: Othniel Palomino
Title: EVP
COREL CORPORATION
PER: /s/ Michael O'Reilly
------------------------------
Name: Michael O'Reilly
Title: Chief Financial Officer
COREL CORPORATION LIMITED
PER: /s/ Anthony O. Dowd
------------------------------
Name: Anthony O. Dowd
Title: General Manager
<PAGE>
17
SCHEDULE "A"
ELECTRONIC SOFTWARE AND SOFTWARE PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE
<S> <C> <C>
Xara 2.0 CORELXARA2 109.95
Xara 2.0 Upgrade CORELXARA2UPGRADE 84.95
Netperfect English Full Product - Esd 11126-00001 199.95
Netperfect English Upgrade Product - Esd 11126-00002 99.95
Stock Photo Image (384 X 256) 8.95
Stock Photo image (768 X 512) 19.95
Stock Photo Image (1536 X 1024) 29.95
Stock Photo Image (3072 X 2048) 39.95
Vector Clipart Pack: Aircraft - Pc 11112(-)00001 9.95
Vector Clipart Pack: Aircraft - Mac 11112(-)00002 9.95
Vector Clipart Pack: Alphabet Fancies - Pc 11112(-)00003 9.95
Vector Clipart Pack: Alphabet Fancies - Mac 11112(-)00004 9.95
Vector Clipart Pack: Astrology - Pc 11112(-)00005 9.95
Vector Clipart Pack: Astrology - Mac 11112(-)00006 9.95
Vector Clipart Pack: Awards - Pc 11112(-)00007 9.95
Vector Clipart Pack: Awards - Mac 11112(-)00008 9.95
Vector Clipart Pack: Color Me - Pc 11112(-)00009 9.95
Vector Clipart Pack: Color Me - Mac 11112(-)00010 9.95
Vector Clipart Pack:Computer - Pc 11112(-)00011 9.95
Vector Clipart Pack: Computer - Mac 11112(-)00012 9.95
Vector Clipart Pack: Environment - Pc 11112(-)00013 9.95
Vector Clipart Pack: Environment - Mac 11112(-)00014 9.95
Vector Clipart Pack: Flags - Pc 11112(-)00015 9.95
Vector Clipart Pack: Flags - Mac 11112(-)00016 9.95
Vector Clipart Pack: Flowers - Pc 11112(-)00017 9.95
Vector Clipart Pack: Flowers - Mac 11112(-)00018 9.95
Vector Clipart Pack: Games - Pc 11112(-)00019 9.95
Vector Clipart Pack: Games - Mac 11112(-)00020 9.95
Vector Clipart Pack: Gardening - Pc 11112(-)00021 9.95
Vector Clipart Pack: Gardening - Mac 11112(-)00022 9.95
Vector Clipart Pack: Leisure - Pc 11112(-)00023 9.95
Vector Clipart Pack: Leisure - Mac 11112(-)00024 9.95
Vector Clipart Pack: Medical - Pc 11112(-)00025 9.95
Vector Clipart Pack: Medical - Mac 11112(-)00026 9.95
Vector Clipart Pack: People - Pc 11112(-)00027 9.95
Vector Clipart Pack: People - Mac 11112(-)00028 9.95
Vector Clipart Pack: Arrows - Pc 11112(-)00029 9.95
Vector Clipart Pack: Arrows - Mac 11112(-)00030 9.95
Vector Clipart Pack: Victorian - Pc 11112(-)00031 9.95
Vector Clipart Pack: Victorian - Mac 11112(-)00032 9.95
Vector Clipart Pack: Wedding Accessories - Pc 11112(-)00033 9.95
Vector Clipart Pack: Wedding Accessories - Mac 11112(-)00034 9.95
Vector Clipart Pack: Wedding Decorations - Pc 11112(-)00035 9.95
Vector Clipart Pack: Wedding Decorations - Mac 11112(-)00036 9.95
Vector Clipart Pack: Wedding People - Pc 11112(-)00037 9.95
Vector Clipart Pack: Wedding People - Mac 11112(-)00038 9.95
Vector Clipart Pack: Wedding Reception - Pc 11112(-)00039 9.95
Vector Clipart Pack: Wedding Reception - Mac 11112(-)00040 9.95
Vector Clipart Pack (B&W): Animal Symbols - Pc 11116(-)00001 9.95
Vector Clipart Pack (B&W): Animal Symbols - Mac 11116(-)00002 9.95
Vector Clipart Pack (B&W): Building Symbols - Pc 11116(-)00003 9.95
Vector Clipart Pack (B&W): Building Symbols -Mac 11116(-)00004 9.95
Vector Clipart Pack (B&W): Chinese Bullets - Pc 11116(-)00005 9.95
Vector Clipart Pack (B&W): Chinese Bullets - Mac 11116(-)00006 9.95
Vector Clipart Pack (B&W): Electronic Symbols - Pc 11116(-)00007 9.95
Vector Clipart Pack (B&W): Electronic Symbols - Mac 11116(-)00008 9.95
Vector Clipart Pack (B&W): Festive Symbols - Pc 11116(-)00009 9.95
Vector Clipart Pack (B&W): Festive Symbols - Mac 11116(-)00010 9.95
Vector Clipart Pack (B&W): Food Symbols - Pc 11116(-)00011 9.95
Vector Clipart Pack (B&W): Food Symbols - Mac 11116(-)00012 9.95
Vector Clipart Pack (B&W): Furniture Symbols - Pc 11116(-)00013 9.95
Vector Clipart Pack (B&W): Furniture Symbols - Mac 11116(-)00014 9.95
Vector Clipart Pack (B&W): Home Planning Symbols - Pc 11116(-)00015 9.95
Vector Clipart Pack (B&W): Home Planning Symbols - Mac 11116(-)00016 9.95
Vector Clipart Pack (B&W): Household Symbols -Pc 11116(-)00017 9.96
Vector Clipart Pack (B&W): Household Symbols - Mac 11116(-)00018 9.95
Vector Clipart Pack (B&W): Hygiene Symbols - Pc 11116(-)00019 9.95
Vector Clipart Pack (B&W): Hygiene Symbols - Mac 11116(-)00020 9.95
Vector Clipart Pack (B&W): Japanese Bullets - Pc 11116(-)00021 9.95
Vector Clipart Pack (B&W): Japanese Bullets - Mac 11116(-)00022 9.95
Vector Clipart Pack (B&W): Korean Bullets - Pc 11116(-)00023 9.95
Vector Clipart Pack (B&W): Korean Bullets - Mac 11116(-)00024 9.95
Vector Clipart Pack (B&W): Military Symbols - Pc 11116(-)00025 9.95
Vector Clipart Pack (B&W): Military Symbols - Mac 11116(-)00026 9.95
Vector Clipart Pack (B&W): Music Symbols - Pc 11116(-)00027 9.95
Vector Clipart Pack (B&W): Music Symbols - Mac 11116(-)00028 9.95
<PAGE>
18
Vector Clipart Pack (B&W): Plant Symbols - Pc 11116(-)00029 9.95
Vector Clipart Pack (B&W): Plant Symbols - Mac 11116(-)00030 9.95
Vector Clipart Pack (B&W): Science Symbols - Pc 11116(-)00031 9.95
Vector Clipart Pack (B&W): Science Symbols - Mac 11116(-)00032 9.95
Vector Clipart Pack (B&W): Sign Symbols - Pc 11116(-)00033 9.95
Vector Clipart Pack (B&W): Sign Symbols - Mac 11116(-)00034 9.95
Vector Clipart Pack (B&W): Space Symbols - Pc 11116(-)00035 9.95
Vector Clipart Pack (B&W): Space Symbols -Mac 11116(-)00036 9.95
Vector Clipart Pack (B&W): Sports Equipment Symbols - Pc 11116(-)00037 9.95
Vector Clipart Pack (B&W): Equipment Clipart Pack - Mac 11116(-)00038 9.95
Vector Clipart Pack (B&W): Sports Symbols Clipart Pack - Pc 11116(-)00039 9.95
Vector Clipart Pack (B&W): Sports Symbols Clipart Pack - Mac 11116(-)00040 9.95
Webart Clipart Pack: Ancient - Pc 11117(-)00001 9.95
Webart Clipart Pack: Ancient - Mac 11117(-)00002 9.95
Webart Clipart Pack: Arts & Crafts - Pe 11117(-)00003 9.95
Webart Clipart Pack: Arts & Crafts - Mac 11117(-)00004 9.95
Webart Clipart Pack: Business - Pc 11117(-)00005 9.95
Webart Clipart Pack: Business - Mac 11117(-)00006 9.95
Webart Clipart Pack: Culinary - Pc 11117(-)00007 9.95
Webart Clipart Pack: Culinary - Mac 11117(-)00008 9.95
Webart Clipart Pack: Fantasy - Pc 11117(-)00009 9.95
Webart Clipart Pack: Fantasy - Mac 11117(-)00010 9.95
Webart Clipart Pack: Finance - Pc 11117(-)00011 9.95
Webart Clipart Pack: Finance - Mac 11117(-)00012 9.95
Webart Clipart Pack: Funky - Pc 11117(-)00013 9.95
Webart Clipart Pack: Funky- Mac 11117(-)00014 9.95
Webart Clipart Pack: Funky - Pc 11117(-)00015 9.95
Webart Clipart Pack: Garden - Mac 11117(-)00016 9.95
Webart Clipart Pack: High Tech - Pc 11117(-)00017 9.95
Webart Clipart Pack: High Tech - Mac 11117(-)00018 9.95
Webart Clipart Pack: Industry - Pc 11117(-)00019 9.95
Webart Clipart Pack: Industry - Mac 11117(-)00020 9.95
Webart Clipart Pack: Legal - Pc 11117(-)00021 9.95
Webart Clipart Pack: Legal - Mac 11117(-)00022 9.95
Webart Clipart Pack: Medical - Pc 11117(-)00023 9.95
Webart Clipart Pack: Medical - Mac 11117(-)00024 9.95
Webart Clipart Pack: Music - Pc 11117(-)00025 9.95
Webart Clipart Pack: Music - Mac 11117(-)00026 9.95
Webart Clipart Pack: Nature - Pc 11117(-)00027 9.95
Webart Clipart Pack: Nature - Mac 11117(-)00028 9.95
Webart Clipart Pack: Retro - Pc 11117(-)00029 9.95
Webart Clipart Pack: Retro - Mac 11117(-)00030 9.95
Webart Clipart Pack: Seasons - Pc 11117(-)00031 9.95
Webart Clipart Pack: Seasons - Mac 11117(-)00032 9.95
Webart Clipart Pack: Space - Pc 11117(-)00033 9.95
Webart Clipart Pack: Space - Mac 11117(-)00034 9.95
Webart Clipart Pack: Sports - Pc 11117(-)00035 9.95
Webart Clipart Pack: Sports - Mac 11117(-)00036 9.95
Webart Clipart Pack: Transportation - Pc 11117(-)00037 9.95
Webart Clipart Pack: Transportation - Mac 11117(-)00038 9.95
Webart Clipart Pack: Victorian - Pc 11117(-)00039 9.95
Webart Clipart Pack: Victorian - Mac 11117(-)00040 9.95
</TABLE>
<PAGE>
19
SCHEDULE "B"
HARD GOODS SOFTWARE AND SOFTWARE PRICES
This page was intentionally left blank
<PAGE>
20
SCHEDULE "C"
PREMIUM SOFTWARE AND SOFTWARE PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE
<S> <C> <C>
Premium Photos (393 X 259) 39.95
Premium Photos (2310 X 1524) 69.95
Premium Photos (3903 X 2553) 99.95
Illustrations 79.95
Design Bits (Low) 3.95
Design Bits (Medium) 5.95
Design Bits (High) 7.95
</TABLE>
<PAGE>
21
SCHEDULE "D"
SHRINK WRAP SOFTWARE AND SUGGESTED LIST PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE
<S> <C> <C>
WordPerfect Office 2000 Professional WP2KPENGO 389.95
WordPerfect Office 2000 Professional Upgrade WP2KPUGENG0 209.95
WordPerfect Office 2000 Voice Powered WP2KVENGO 339.95
WordPerfect Office 2000 Voice Powered Upgrade WP2KVUGENGO 159.95
WordPerfect Office 2000 WP2KENGO 299.95
WordPerfect Office 2000 Upgrade WP2KUGENGO 109.95
WordPerfect Suite 8 Standard WPS280ENGO 309.95
WordPerfect Suite 8 Standard Upgrade WPS28OUGENGO 84.95
WordPerfect Suite 8 Alpha/Nt WPS80DAENGO 309.95
WordPerfect Suite 8 Alpha/Nt Upgrade WPS80DAUGENGO 84.95
WordPerfect Suite 8 W/ Dragon WPSD80ENGO 319.95
WordPerfect Suite 8 W/ Dragon Upgrade WPSD80UGENGO 109.95
WordPerfect Suite 8 Legal Ed. W/ Dragon WPS80LENGO 309.95
WordPerfect Suite 8 Legal Ed. W/ Dragon Upgrade WPS80LUGENGO 219.95
WordPerfect Language Module #2 LM2MULTI0B 49.95
WordPerfect Suite 8 Professional WPSP80ENG0 369.95
WordPerfect Suite 8 Professional Upgrade WPSP80UGENG0 159.95
WordPerfect 8 Unix WP80UNIXENGO 339.95
WordPerfect 8 Unix Upgrade WP80UNIXUGENGO 234.95
Microphone Kit For Voice Powered WordPerfect PARROTT 27.95
Paradox 8 PDX80ENGO 109.95
Paradox V8.0 Runtime PDX80RTENGOJC 299.95
Print Office PO10ENGO 69.95
Graphics Pack V2.0 GP20ENGO 109.95
CorelDRAW 9 90ENGO 469.95
CorelDRAW 9 Upgrade 9OUGENGO 209.95
CorelDRAW 8 Professional Publisher 80PROENGO 609.95
CorelDRAW 8 Professional Publisher Upgrade 80PROUGENG0 299.95
CorelDRAW 8 80ENGO 469.95
CorelDRAW 8 Upgrade 8OUGENGO 249.95
CorelDRAW 8 Alpha/Nt Upgrade 80DAUGENG0 249.95
CorelDRAW 8 Alpha/Nt 80DAENG0 469.95
CorelDRAW Select Edition 70SEENGO 109.95
Photo Paint 9 PP90ENGO 339.95
Photo Paint 9 Upgrade PP90UGENGO 109.95
Photo Paint 8 PP80-ENGO 339.95
Photo Paint 8 Upgrade PP80UGENGO 109.95
Printhouse Magic 4 PH40ENGO 32.95
Printhouse Magic 4 Premium PHP40ENGO 42.95
Printhouse Magic PH30ENGO 32.95
Printhouse Magic Deluxe PHD30ENGO 52.95
Printhouse Magic Wizard Of Oz Edition PHOZ40ENGO 39.95
Printhouse Magic Wedding Addition PH30WEDENGOJC 19.95
Xara 2.0 Full CX20ENGOJC 129.95
Xara 2.0 Upgrade CX20UGENGOJC 104.95
Ventura 8 CV80ENGO 479.95
Ventura 8 Upgrade CV80UGENGO 209.95
Gallery 2 For The Mac SWCG20-MAC-ENGO 52.95
WordPerfect 3.5 For Mac CWWP351-MAC-ENGO 174.95
WordPerfect 3.5 Mac Ug CWWP351MACUGENGO 89.95
Printhouse For The Mac SWPH-MAC-ENGO 29.95
Mega Gallery For Mac SWMGM-10-ENGO 52.95
CorelDRAW 8 For The Mac 80MENGO 469.95
CorelDRAW 8 Upgrade For The Mac 80MUGENGO 154.95
Photopaint 8 For The Mac (Full Version) PP80MENG0 349.95
Photopaint 8 For The Mac (Upgrade Version) PP80MUGENG0 109.95
WordPerfect 8 For Linux Personal Edition WP80LINUXPENGO 54.95
Stock Music Library RFMUSICLIB10PACK 209.95
Gallery Magic 65,000 Edition CG65ENGO 22.95
Gallery Magic 200,000 Edition CG200ENGO 52.95
Gallery 1 Million CG30ENGO 109.95
Photo CD - Sunsets & Sunrises SWPCD-1000 39.95
Photo CD - Mountains Of America SWPCD-2000JC 39.95
Photo CD - Wild Animals SWPCD-6000JC 39.95
Photo CD - Patterns SWPCD-11000JC 39.95
Photo CD - Lakes & Rivers SWPCD-26000JC 39.95
Photo CD - Candy Backgrounds SWPCD-96000 39.95
Photo CD - Bald Eagles SWPCD-135000JC 39.95
Photo CD - Textures SWPCD-137000JC 39.95
Photo CD - Autumn SWPCD-150000 39.95
Photo CO - Wildlife Babies SWPCD-159000JC 39.95
Photo CD - Landscapes SWPCD-176000 39.95
Photo CD - Nature Scenes SWPCD-178000JC 39.95
Photo CO - Beverages SWPCD-275000JC 39.95
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
Photo CO - Dolphins & Whales SWPCD-314000JC 39.95
Photo CD - Fabulous Fruit SWPCD-332000 39.95
Photo CD - Cuisine SWPCD-333000JC 39.95
Photo CD - Cats & Kittens SWPCD-336000JC 39.95
Photo CD - Marble Textures SWPCD-349000 39.95
Photo CD - The Masters Ii SWPCD-358000JC 39.95
Photo CD - Fruits & Vegetables SWPCD-91000JC 39.95
Photo CD - Everyday Objects SWPCD-373000JC 39.95
Photo CD - Women In Vogue SWPCD-388000JC 39.95
Photo CD - The Masters Iv SWPCD-402000JC 39.95
Photo CD - Colors & Textures SWPCD-403000JC 39.95
Photo CD - Textures Ii SWPCO-404000JC 39.95
Photo CD - Light Textures SWPCD-406000JC 39.95
Photo CD - African Wildlife SWPCD-408000JC 39.95
Photo CD - Exotic Tropical Flowers SWPCD-410000JC 39.95
Photo CD - Pedigree Dogs SWPCD-415000JC 39.95
Photo CD - Abstracts & Pattems SWPCD-423000JC 39.95
Photo CD - Food Objects SWPCD-437000JC 39.95
Photo CO - Food Textures SWPCD-449000JC 39.95
Photo CD - Office Interiors SWPCD-457000JC 39.95
Photo CD - Pedigree Cats SWPCD-458000JC 39.95
Photo CD - Dawn & Dusk SWPCD-460000JC 39.95
Photo CD - Animals Close-Up SWPCD-471000JC 39.95
Photo CD - Beautiful Roses SWPCD-476000JC 39.95
Photo CD - Color Backgrounds SWPCD-483000JC 39.95
Photo CD - Alien Landscapes SWPCD-510000JC 39.95
Photo CD - Fabulous Flowers SWPCD-514000JC 39.95
Photo CD - Photographic Borders SWPCD-537000JC 39.95
Photo CD - Doors Of Paris SWPCD-549000JC 39.95
Photo CD - Nostalgia Pastimes: National Archives Of SWPCD-556000JC 39.95
Canada
Photo CD - Still Life SWPCD-577000JC 39.95
Photo CD - Fine Dining SWPCD-5870OWJC 39.95
Photo CO - Decorative Hand-Painted Scenes SWPCD-620000JC 39.95
Photo CD - Household Objects SWPCD-643000JC 39.95
Photo CD - Dinosaur Illustrations SWPCD-644000JC 39.95
Photo CD - Show Dogs SWPCD-659000JC 39.95
Photo CD - Prehistoric World SWPCD-684000JC 59.95
Photo CD 1OPack - Great Works Of Art RFART-10PACK
Photo CD 1OPack - Animals RFANIMALS-10PACK 59.95
Photo CD 1OPack - Textures RFTEXTURES10PACK 59.95
Photo CD IOPack - Textures Ii RFTEXTURES210PAK 59.95
CorelDRAW Art & Artistry 32974 49.95
Artshow 7 Book & Cd 503-7 39.95
WordPerfect 8 Timebomb DEMOCDWP8ENG NO CHG
CorelDRAW 8 - Timebomb TB80ENGRV NO CHG
Ventura 8 Timebomb TBCV80ENGORV NO CHG
CorelDRAW 8 Mac Timebomb TB80MENGORV NO CHG
Print Office Timebomb TBPO10ENG0RV NO CHG
CorelDRAW 7 Clipart Manual SWQ046-UNI-70 29.95
CorelDRAW 7 User Manual Volume.#1 SW137-1-ENG70 29.95
CorelDRAW 7 User Manual Volume.#2 SW137-2-ENG70 29.95
CoreIDRAW Select Ed V7.0 User Manual 137DRAWSEENG70 29.95
CorelDRAW 8 User Manual 137DRAWENG80 29.95
CorelDRAW 8.0 Pwrmac User Manual 137DRAWMENG80 29.95
Photopaint 8 User Manual 137PPENG80 29.95
Photo Paint V8.0 Pwrmac User Manual 137PPMENG8O 29.95
Printhouse Premium 4 User/Clipart Manual 137PHPENG40 29.95
Print Office V1.0 User Manual 137POENG10 29.95
WordPerfect Office 2000 User Manual 137WPENG2K 29.95
WordPerfect Office 2000 Clipart User Manual 46WPUN12K 29.95
WordPerfect Suite 8.0 User Manual 137WPSENG8O 29.95
WordPerfect Suite Legal Ed V8.0 User Manual 137WPSLENG80 29.95
WordPerfect Suite Legal Ed V7.0 User Manual 504WPSLENG70 29.95
WordPerfect Suits 8.0 Pro User Manual 137WPSPENGQO 29.95
WordPerfect For Unix V8.0 User Manual 137WPSSUNIXENG80 29.95
WordPerfect 8 Clipart And Font Manual 46WPSUN18O 29.95
WordPerfect 8 For Unix Installation Manual 504WPSUNIXRNGO 29.96
WordPerfect Mac 3.51 User Manual W/Clipart CW137-WPM-ENG351 29.95
WordPerfect Unix 6.0/5.2 User Manual CW137UNIXENG6052 29.95
Ventura 8 User Manual 137CVENG80 29.95
Paradox 8: Guide To Object Pal 137PDX1ENG8O 29.95
Paradox 8: Object Pal Reference Guide 137PDX2ENG80 29.95
Wp8 Macros Manuals (Set Of 2) 137MENG80 65.95
CorelDRAW 8 80CANFO 469.95
CorelDRAW 8 Upgrade 80UGCANFO 249.95
WordPerfect Suite 8 WPS80CANFREO 309.95
WordPerfect Suite 8 Upgrade WPS80UGCANFREO 84.99
Photopaint 8 PP80CANF0 339.95
Photopaint 8 Upgrade PP80UGCANF0 109.95
</TABLE>
<PAGE>
23
SCHEDULE "E"
MERCHANDISE AND MERCHANDISE PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE DISTI PRICE
<S> <C> <C> <C>
Promotional Corel Linux-Tshirt (For Techwave) 38OWPLXPENG80TSP 0.00 0.00
Corel Linux-Tshirt (For Techwave) 8OWPLXPENG80TS 12.95 8.00
</TABLE>
<PAGE>
24
SCHEDULE "F"
REPORTS, SERVICES AND SAMPLE LETTER OF DESTRUCTION
A. DISTRIBUTOR REPORTS*:
1. Distributor shall provide monthly reports to COREL in electronic format
within ten (10) days of the end of each month which shall capture the
following information, all information with respect to reporting as set
forth in Schedule "H" and Schedule "R" or information as reasonably
requested by COREL from time to time. In addition, Distributor agrees to
make all such reports available to COREL online in real time in
accordance with Schedule "H" and Schedule "R".
(i) summary of all Products sold or distributed by Distributor, including,
but not limited to orders, subscriptions, downloads, revenues, break
down of Products, top selling products, regional distribution of sales,
cancellations and returns;
(ii) summary of all returns processed by Distributor in accordance with
COREL's return policy;
(iii) any and all data compiled by Distributor regarding Customer use of the
Distributor System or Web Site, including, but not limited to, Customer
name, address, telephone number, e-mail address, fax number (if
provided) all Software purchased by Customer, and date of purchase;
(iv) system failures including, cause of interruption or failure of
Distributor System or Distributor's Website; duration of the
interruption or failure; and methods used to resolve the interruption or
failure; and
(v) any breach of the encryption protocol; the cause of said breach; the
duration of the breach and the methods used to resolve the breach;
(vi) summary of all traffic reports (ie. the number of hits on the Store,
number of page views, visits, unique visitors).
(vii) summary of performance reports, including, but not limited to call
centre statistics, order processing, common Customer issues, Customer
satisfaction survey;
(viii) Merchandising, Customer and financial reports;
(ix) Customer Service reports as outlined in Schedule "R"
2. Distributor shall provide a report to COREL immediately upon equipment
or service failure or upon any breach of the encryption protocol which
shall capture the following information, in addition to any information
which Distributor should otherwise provide to COREL to enable COREL to
evaluate the quality of the Distributor System:
(i) cause of interruption or failure of Distributor System or Distributor's
Web;
(ii) duration of the interruption or failure;
(iii) methods used to resolve the interruption or failure.
All Failure Reports and Encryption Protocol Reports are to be: (i) faxed
to COREL immediately; and (ii) provided in electronic format to COREL
within five (5) business days after the occurrence of each failure or
interruption. COREL can request reasonable changes in the format of the
report upon thirty (30) days notice.
*COREL can request reasonable changes in the format of the report upon thirty
(30) days notice.
B. SERVICES:
1. Security Requirements
Upon transfer of the Software by COREL to Distributor, Distributor shall be
responsible for the security of the EULA, Software and Products to authenticate
the EULA and Software and ensure integrity and confidentiality of the Products
during any transmission. The Distributor System shall contain the following
security controls:
<PAGE>
25
1. Physical security controls which isolate the Distributor System from
physical access by anyone not directly authorized to manage the
Distributor System;
2. Logical access controls that enforce positive control over access to the
Products, the applications, and operating systems functions that
interact with the Products;
3. Code integrity controls that verify the integrity of the Product
immediately prior to any packaging;
4. Connectivity controls that ensure that all network connections to the
Distributor System are under the positive control of those personnel
with direct responsibility for the security of the Products;
5. All security controls over Products generate effective audit trails that
are secure from modification; and
6. All cryptographic keys that support security functionality for Products
are stored and used operationally completely within secure dedicated
software.
2. Encryption Processes and Bundling Restrictions
All Software encryption shall take place in a secure, restricted systems
environment. No cleartext Software, including, but not limited to the EULA and
Letter of Destruction, shall be transmitted by Distributor outside the secure
system other than in encrypted format.
Bundling of the Software with non-COREL software within a single file is
prohibited. Distributor shall not present, nor authorize others to present,
non-COREL software as COREL Software.
3. Provision of Key to Customers
Distributor shall provide the executable code decryption key to Customers in a
secure manner such that the executable code decryption key cannot be determined
by a third party. Executable code decryption mechanisms must be single use,
allowing only one decryption of the executable code from a data archive. The
decryption process must alter the data archive with the customer information in
such a way that any subsequent decryption process would force display of the
prior customer's information.
All executable code delivered to Customer's shall be digitally signed by
Distributor. Distributor shall provide the Customer with instructions on how to
verify this authenticity.
4. Payment
Distributor shall provide a secure, electronic method for Customer payment.
5. Software Lists
Distributor shall maintain a list of all Software SKUs that are valid for
on-line distribution that are secured from unauthorized access and modification.
6. Post-Sale Reinstalling or Replacing Software
Distributor shall provide a reinstall and electronic master replacement service
to Customers with valid requests for such Services. All reinstall services must
be noted in the Distributor EULA database.
7. Returns
Distributor shall accept all approved money back guarantee returns from
Customers as follows:
(i) Proof of Purchase Validation
Only one return per EULA record shall be allowed. All returns transactions
require validation of the EULA and Distributor digital signature as proof of
purchase. Distributor shall validate each individual return request by reviewing
<PAGE>
26
the End User License Agreement database, Customer proof of purchase, and the
Customer letter of destruction. Distributor shall archive these documents.
(ii) Proof of Destruction
Customers requesting the return must provide a completed and signed letter of
destruction in the format as provided in this Schedule "F" hereto.
Alternatively, destruction can be verified by a Distributor-certified
de-installation routing monitored or administered by a revenue-neutral service
provider run on the Distributor system. The application should provide
electronic notice of de-installation.
(iii) Return Validation
Upon validation and completion of a legitimate return, Distributor will update
the EULA database.
(iv) Customer Confirmation
Upon revocation of rights from the EULA database, an e-mail or written
communication shall be sent automatically by the Distributor to the Customer.
Such communication shall confirm the return.
8. Customer Support
Distributor shall be responsible for providing customer service and support to
customers up through, but not limited to, the successful delivery of an
installable Product on the customer's hard disk.
9. Current and Prior Product Versions
Distributor shall always provide the most current Software version as provided
by Corel in Products distributed by Distributor, unless otherwise requested by
Corel.
10. Account Manager
Distributor agrees to assign a dedicated Corel account manager as the point of
contact for Corel.
C. FAILURE CHARGES
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
27
[*]
5. Corel and Distributor agree to meet in person or by conference
telephone, up to and in no event later than seven (7) days prior to an
agreed upon release date for a new version of Schedule "H", to discuss
and modify, if necessary, by mutual agreement of both parties the
deliverables described in the new version of Schedule "H".
D. SAMPLE LETTER OF DESTRUCTION
THIS AGREEMENT (the "Agreement") is made and entered into by and between [insert
corporate name] (hereinafter "Distributor") and [Customer's Name] (hereinafter
"Customer").
The Customer agrees to take the necessary measures to delete and destroy the
intellectual property described as [insert Product description], 111111 (order
#), and licensed to the Customer for use under the terms of COREL's End User
license agreement.
(Distributor] shall refund the purchase price of the Product to the Customer and
report the Product as "destroyed" to the software vendor once this letter has
been executed by the Customer and received at [Distributor].
By Customer
Signature:
Name:
Address:
City/State/Province/Postal Code:
Email Address:
Reason for Return:
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
28
SCHEDULE "G"
GUIDELINES FOR USING COREL LOGOS & TRADEMARKS
Corel permits you to use its logos and trademarks in both plain word and
stylized form (the "Marks") for the purpose of promoting and advertising
Corel products or services, provided you comply with the following guidelines:
i) The Marks may only be used in relation to Corel products or
services. This means that you may not display the Marks on any
non-Corel product or service including any associated
packaging, documentation, advertising or other materials in a
manner that suggests that such product or service is a Corel
product or service, that Corel or any of the Marks are
associated with such product or service or that Corel is
affiliated with, endorses or sponsors you or any of such
products or services. Use of Corel partner program logos and
trademarks, such as the Corel Solutions Partner and Corel
Training Partner logos, are subject to the terms and
conditions of the respective partner program and no permission
to use such logos is granted herein. Please contact a Corel
representative or visit corel.com for further details.
ii) Corel will provide you with the artwork for the Marks. This
artwork may not be altered in any way.
iii) When displayed, the Marks must be substantially less prominent
than your trademark, trade name, logo or product name. The Marks
may not be used as, or as part of, a company name.
iv) When displayed, the Marks must stand alone. A minimum amount of
empty space must be left between the Marks and any other object
such as type, photography, borders, edges, etc. The required
border of empty space around the Marks must be 1/2x wide where x
is the height of the Mark.
v) You may not combine the Marks with any other feature
including, but not limited to, other logos, words, graphics,
photos, slogans, numbers, design features, or symbols.
Further, you may not display your own logos or marks or other
text or graphics in the same or similar get-up, graphics,
look, or trade-dress as the Marks.
vi) The Marks must not be used in a manner that, in Corel's judgment,
may diminish or otherwise damage Corel's goodwill in the Marks,
including but not limited to uses which could be deemed to be
obscene, pornographic, or otherwise in poor taste or unlawful, or
which purpose or objective is to encourage unlawful activities.
vii) You must place an asterisk (*) or similar notation mark beside
the first use of a Mark and include the following attribution
statement on the materials in which the Marks are featured.
" * Trademark(s) of Corel Corporation or Corel Corporation
Limited"
<PAGE>
29
SCHEDULE "H"
MRD
[THIS PAGE INTENTIONALLY LEFT BLANK. THE MRD IS APPENDED HERETO]
<PAGE>
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
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4
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5
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6
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* CONFIDENTIAL TREATMENT REQUESTED
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* CONFIDENTIAL TREATMENT REQUESTED
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* CONFIDENTIAL TREATMENT REQUESTED
12
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* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
16
<PAGE>
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17
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
18
<PAGE>
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19
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
20
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
21
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
22
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
23
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
24
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
25
<PAGE>
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* CONFIDENTIAL TREATMENT REQUESTED
26
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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32
<PAGE>
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33
<PAGE>
SCHEDULE "I"
TECHNICAL SUPPORT PRODUCTS AND TECHNICAL SUPPORT PRODUCT PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE
<S> <C> <C>
Classic Lifetime Support Upgrade From Classic 30 Day Installation Only CLSUG 60.00
Classic Support Single Incident CS1I 15.00
US Priority 1 Incident WP (11X5) PRI1IWPUS 25.00
US Priority 5 Incident WP (11X5) PRI5IWPUS 99.00
US Priority 10 Incident Pack WP (11X5) PRI10IWPUS 189.00
One-Single Priority Credit for Wordperfect 7X24 Support US PRI17X24WPUS 40.00
Priority 5 Pack WP 24X7 US PRI5PACKWPUS24X7 145.00
Priority 10 Pack WP 24X7 US PRI10PACKWPUS24X7 280.00
US Priority 1 Incident Graphics PRI1IGUS 25.00
US Priority 5 Incident Pack Graphics PRI5IGUS 99.00
US Priority 10 Incident Pack Graphics PRI10IGUS 199.00
Priority 1 Incident Unix/Linux Server Edition USA PRI1IUXLNXSEUS 50.00
Priority 5 Incident Unix/Linux Server Edition USA PRI5IUXLNXEUS 225.00
Priority 10 Incident Unix/Linux Server Edition USA PRI10IUXLNXSEUS 399.00
Priority 1 Incident Linux Workstation Edition USA PRI1IUXLNWEUS 50.00
Priority 5 Incident Linux Workstation Edition USA PRI5IUXLNWEUS 225.00
Priority 10 Incident Linux Workstation Edition USA PRI10IUXLNWEUS 399.00
Priority 1 Incident Linux Workstation Edition USA (7X24) PRI1IUXLNWEUS724 40.00
Priority 5 Incident Linux Workstation Edition USA (7X24) PRI5IUXLNWEUS724 149.00
Priority 10 Incident Linux Workstation Edition USA (7X24) PRI10IUXLNWUS724 249.00
Paradox Priority Personal 1 Incident US PDXPER1IUS 50.00
Paradox Priority Standard 1 Incident US PDXSTD1IUS 75.00
Paradox Priority Plus 1 Incident US PDXPLUS1IUS 150.00
Paradox Personal 5 Incident Pack US PDXPER5IUS 225.00 [*]
Paradox Personal 10 Incident Pack US PDXPER10IUS 400.00
Paradox Personal 25 Incident Pack US PDXPER25IUS 1,250.00
Paradox Standard 5 Incident Pack US PDXSTD5IUS 355.00
Paradox Standard 10 Incident Pack US PDXSTD10IUS 675.00
Paradox Standard 25 Incident Pack US PDXSTD25IUS 1,600.00
Paradox Plus 5 Incident Pack US PDXPLUS5IUS 700.00
Paradox Plus 10 Incident Pack US PDXPLUS10IUS 1,350.00
Paradox Plus 25 Incident Pack US PDXPLUS25IUS 3,200.00
Priority E-Mail Support For Graphic Applications PRIANSPEFGRAPH 9.95
Priority E-Mail Support For Wordperfect Business Applications PRIANSPEFWP 9.95
Priority E-Mail Support For Linux/Unix PRIANSPEFLNXUNX 9.95
Priority E-Mail Support For Consumer Applications PRIANSPERFCONSUM 9.95
Support Option - Premium Light US PREMLITEUS 3,750.00
Support - Premium Services Ultra Lite (25 Incident) US PREMULITEUS 1,825.00
Premium Graphics Ultra Lite 24X7 US PREMGULITEUS 2,375.00
Support Option - Premium Standard US PREMSTANUS 18,999.00
Support Option - Premium Plus US PREMPLUSUS 22,399.00
Support Option - Premium Elite US PREMELITEUS 25,499.00
Additional Premium Support Contact US PREMCUS 3,000.00
Sam US PREMSAMUS 1,300.00
Primary Premium Support Technician US PREMPTUS 25,000.00
Dedicated On-Site Premium Support Technician US PREMDTUS 100,000.00
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
31
SCHEDULE "J"
MARKETING SERVICES
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
32
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
33
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
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[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
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[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
36
SCHEDULE "K"
PROFESSIONAL SERVICES
The following is a list of various services available from the Distributor to
COREL. The services are provided to COREL at no charge as indicated. Other
services are available to COREL on either an hourly basis (at an hourly rate of
$150/hr.) or on a project basis. At COREL's request, Distributor shall draft a
proposal for such additional service.
COREL shall pay all amounts due to Distributor for Professional Services in
accordance with Section 7.02 of this Agreement.
The services provided to Corel at no charge include the following:
Web Site Development - Development of the COREL Store is provided by the
Distributor at no charge. The specification for the Development is outlined in
the MRD attached to the Agreement as Schedule H.
Catalog and Inventory Management - Distributor shall provide COREL at no charge,
catalogue and remote SKU management services for Corel products on the Store and
Distributor's properties that will enable COREL to manage catalog and inventory.
As soon as they are available, Distributor will provide to COREL, at no charge,
software tools to manage catalog, inventory and applicable reports. The
specifications for these services are outlined in Schedule H.
ORDER PROCESSING AND FULFILLMENT - Distributor will provide COREL the Order
Processing and Fulfillment Services outlined in Schedule H at no charge.
PAYMENT PROCESSING - Distributor will provide COREL the Payment Processing
services outlined in Schedule H at no charge.
PERFORMANCE MEASUREMENT - Distributor will provide the Performance Measurement
services outlined in Schedule H at no charge.
CUSTOMER SERVICE - Distributor shall provide Customer with the customer service
outlined in Schedule R at no charge to COREL.
MAINTENANCE TOOLS - Distributor will provide COREL access to use the software
tools to maintain the Store at no charge as outlined in Section 7 of Schedule H.
HOSTING - Distributor will provide COREL hosting services outlined in Schedule H
at no charge.
USABILITY SERVICES - Distributor will provide COREL the Usability Services
described in Schedule H at no charge to COREL at times to be mutually agreed
upon by the parties, but in no event more frequently than once in any three (3)
month period. Distributor's staff of usability, documentation, and design
professionals can provide development teams to work with COREL to select the
right methodology for COREL's particular needs, based on COREL's usability
requirements and where COREL is in the product development cycle. Distributor's
customers would participate in the actual generation of the study. Services
range from simpler usability reviews to complete competitive analysis.
Deliverables can be in report form or even video tape format.
ACCOUNT MANAGEMENT - Distributor will provide COREL, at no charge, a dedicated
Account Manager. The Account Manager shall be responsible for managing external
communications regarding the entire project and shall act as the liaison between
Distributor's team and COREL. Any and all contacts should go through the Account
Manager with the exception of technical requests that will go directly to the
Program Manager (discussed below). The Account Manager should always be kept
apprized of any issues. The Account Manager will assist COREL with any concerns
regarding the Distributor's performance.
<PAGE>
37
PROGRAM MANAGEMENT - Distributor will provide COREL a dedicated Program Manager
at no charge. The Program Manager shall be responsible for internal
communication with the project team. The Program Manager shall provide periodic
time lines and updates to COREL and the Account Manager as to the status of the
project.
ESD - ELECTRONIC SOFTWARE DELIVERY - Distributor will provide the ESD services
described in Schedule "H", Schedule "F", and Schedule "N" to COREL at no charge.
FREE DOWNLOADS - Distributor will provide, at no charge to COREL, free download
service to Customer for any promotional items such as software, content or
screen savers as approved by COREL.
COPY - Copy editing services relating to the Store and the sending of e-mail to
Customers shall be provided at no charge to COREL.
REPORTING - Distributor shall provide the reports as set out in Schedule "H",
Schedule "F", and Schedule "N" at no charge to COREL. Distributor can assist
COREL in monitoring store performance and to create actionable information.
Distributor can provide site statistics reporting including: the number of
visitors to your site, impressions per visitor, page views per visitor, exit
points, entry points and shopping behavior. Detailed analysis helps to evolve
your site creative, expand areas of interest, and merchandise according to what
types of products are selling, and test new products prior to large inventory
commitments. Such reporting assistance provided by Distributor shall also be
provided at no charge to COREL.
The following services are available to COREL at an amount agreed upon between
the parties:
HAGGIN GROUP SERVICES
Haggin Group operates on a project basis. For specific pricing information,
Corel will need to obtain a custom quotation for the following Haggin Group
services. Haggin Group will meet with COREL to provide design review services at
times to be mutually agreed upon by the parties, but in no event more frequently
than once in any three month period. Such services offered by Haggin.com include
the following:
DESIGN AND CONTENT DEVELOPMENT. INCLUDES:
PHOTOGRAPHY
IMAGE COMPRESSION
COPY
ANIMATION
VIDEO/AUDIO
MARKETING AND ADVERTISING. INCLUDES:
MEDIA PLANNING
BANNER CREATIVE
ADVERTISING ANALYSIS
E-MAIL PROMOTIONS
SEARCH ENGINE REGISTRATION
SEASONAL CENTERS
PROMOTIONAL PACKAGES AND FEATURE PROGRAMS
SPONSORSHIP PROGRAM
<PAGE>
38
SCHEDULE "L"
DESIGNATED PROJECT TEAM
<TABLE>
<CAPTION>
DEVELOPMENT TEAM ASSIGNMENT
<S> <C>
1) Phil Hadviger DBE Full-time until June 15 (Full-time replacement after May 15)
2) Vince Tanakas Verity Full-time until June 15
3) Richard Brunson UI Full-time until May 15 (Full-time replacement after May 15)
4) Brian Carnes UI Full-time until June 15
5) Bob F. Data Full-time until May 30
6) Scott Oyler C++ Full-time until May 15
7) John Hubbard API Full-time until May 30
8) Dominick Dev. Lead Full-time until May 30
9) Paul UI Full-time until May 30
10) Sanjeev Process Full-time until May 30 (Full-time replacement after May 15)
11) Amar Process Full-time until May 30
12) Boris Process / Check-out Full-time until May 30
13) Raphael Component Integration Full-time until May 30
DEDICATED TEAM AFTER LAUNCH (VERSION 1.1) - SPECIFIC INDIVIDUALS TBD.
Glenn Godden* VP of Strategic Business Unit Full-time on-going basis
Program Manager
Account Manager
Development engineer
Development engineer
MANAGEMENT TEAM
1) Glenn Godden* VP of Strategic Business Unit Full-time on-going basis
2) Brian Rose Sr. Director Business Development Part-time on-going basis
3) Ranjit Mulgaonkar VP Professional Services Part-time on-going basis
4) Chris Noble VP Products Part-time on-going basis
IT
Tuan Luynh 7X24 the IT team (includes others)
QA / USABILITY
Greg O As needed on-going
QA1
QA2
QA3
Eileen Rendon Usability study as needed
Raina Brody Usability study as needed
* Project Team Leader
OPERATIONS
Gary Bunker As needed (7X24)
LEGAL
- -------------------------
<PAGE>
39
Pete Wenzel As needed
FINANCE
Bryan Sherman Replacement part-time on-going basis
</TABLE>
The parties will mutually agree as to the number of dedicated individuals
involved on the project. Distributor will promptly inform Corel of any personnel
changes above and will consult with Corel prior to making any changes in the
Project Team Leader. Distributor agrees that COREL shall have a web monitor
available 24 hours a day, seven days a week, at (206) 223-2160 or such other
designated telephone number agreed to by the parties. Distributor further agrees
that COREL shall have the right to request changes to the COREL designated team
members and that it shall make all reasonable changes requested by COREL.
<PAGE>
40
SCHEDULE "M"
COREL CORPORATION
PRIVACY POLICY
At Corel we recognize that our customers are concerned about the privacy of the
information that we collect from our customers and our plans for using this
information. Our goal is to ensure that we only gather information about you
that you want us to have and that we only use this information after we have
told you how it will be used and have given you the opportunity to consent to
its use.
The following is an overview of why Corel collects customer information; what we
do with Customer information; and how you can control access to and distribution
of the information that you provide to Corel.
Why We Collect Customer Information
One of the ways Corel ensures that it is developing products that meet the needs
of our customers is to gather information directly from them. We like to know
who are customers are; what types of products they use, and what their product
expectations are. Through market research projects, customer feedback and
registration we are able to explore what is or is not attractive about our
products.
Sometimes we are required by law to request certain information, for example,
when you enter a contest; purchase products from Corel e Store-TM- or download
files, patches or fixes from our web or FTP sites.
As well, we require user information to keep our records up to date and to be
able to properly identify you, such as when you register a product on-line or
request technical support.
It is always our objective to collect only that information necessary for us to
achieve the purposes for which we are collecting information. For example, we
will not ask you for credit card information unless you are purchasing a product
or service from us. Whenever we ask for information we will also inform you as
to what use we will make of it before or at the time we collect the information
and you will be offered the choice as to whether or not you wish to provide
information to us. For example, if we are using the information solely for
marketing and research purposes we will advise you of that.
Please note that in some instances such as product registration and purchases,
there is some information that we are required to collect to enable us to
accurately register or support your product and we may not be able to allow you
to register or purchase products without that information. Corel may also be
required by law to disclose certain information. For example, the geographical
location of customers who download products containing high-level encryption.
Corel Customer Lists and Third Party Co-Marketing Activities
From time to time we undertake co-marketing arrangements with third parties who
offer similar products or services. As a registered Corel customer, you may
receive news and special offers from these third parties. In those instances
where your name and contact information will be placed on a list that may be
made available to a third party, we will advise you of that and offer you the
opportunity to have your name marked "private" in our database. If your name is
marked "private", we will not use your name for marketing or e-mail campaigns
and will not provide your name to any third parties.
Marking Your Name 'Private' After You Register With Us
If you choose to register with us, and then later decide that you no longer want
to receive email or information from Corel, or you no longer wish to have your
name provided to third parties, you may contact us at:
Customer Service
Corel Corporation,
<PAGE>
41
1600 Carling Avenue
Ottawa, Ontario Canada K1Z 8R7
Telephone: (001) 613 728-8200
Fax: (001) 613 761-9176
Attention: Privacy
Additions, corrections or other changes to customer information will usually
take 4 to 6 weeks.
Deleting Your Name From Our Customer List Entirely
If you decide that you no longer wish to have your name on our Customer list at
all, please contact us at the address above. Deletion of your information will
usually take 4 to 6 weeks.
Please note that if you are a registered Corel product user and you delete
your name from our customer list, you will no longer receive e-mail or other
notices regarding technical support of your product, such as notices of
patches and fixes available.
Updating or Correcting Your Information
If your information changes or you become aware that there is an error in your
information, please contact us at the address above. Correction or updates of
your information will usually take 4 to 6 weeks.
Sometimes It Happens
From time to time there may be instances where a customer's designation as
"private" is inadvertently removed and the customer may receive e-mail or other
marketing materials from Corel. If you think this may have happened to you
please let us know by contacting Customer Service and we will correct the
problem. Please keep in mind that if you have submitted a request to have your
name marked private or removed from our Customer List or you have requested that
your information be updated or corrected, there is a 4 to 6 week period during
which you may receive information from us while we are updating or deleting your
information.
Security of Your Information When Purchasing Products from Corel e Store-TM-
Corel offers both electronic and shrinkwrap products on line from Corel e
Store-TM-.
Corel e Store uses Secure Socket Layer (SSL) Protocol for browsers that
support 128-bit encryption (such as Netscape-Registered Trademark- Navigator
version 2.0 or greater, or Microsoft Internet Explorer version 2.1 or
greater). SSL encrypts information as it travels between the customer and
Corel so that your purchase information cannot be read as it travels over the
Internet.
If you are not using a browser which adheres to SSL Protocol and does not
support 128 bit encryption, the information you provide may not be secure and we
recommend that you contact Corel directly by phone to order products.
A change in the URL from http:// to https:// notifies you that you are using
SSL. If the URL on a page asking you to provide personal information remains as
http://, beware: this may result in an insecure transmission.
When processing credit card purchases over the Internet, our third party service
provider will verify your credit card information with the appropriate financial
institution prior to processing your purchase. Our third party service provider
will not supply this information to Corel or to any other third party.
Links to Other Sites
Corel.com offers links to many other web sites. Please note that we are not
affiliated with these sites and are not responsible for their privacy practices
or policies.
<PAGE>
42
SCHEDULE "N"
TECHNICAL ARCHITECTURE OF THE STORE
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
43
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
44
SCHEDULE "O"
WAIVER OF MORAL RIGHTS
I, ____________________, an individual residing at ____________________________,
and the author of the rights in the Web Pages, hereby irrevocably waive all my
moral rights in the Web Pages, in favour of Corel Corporation, the owner of the
copyright in the Web Pages. This waiver includes, without limitation, a waiver
of my right to be associated by name with the Web Pages, the right to restrain
the distortion, mutilation or modification of the Web Pages, the right to
restrain the use of the Web Pages in association with a product, service, cause
or institution and the right to exercise any remedies for breach of such moral
rights, whether by way of injunction, damages, accounts, delivery up or any
further or other remedies that are or may be conferred by law for the
infringement of a right. This waiver shall operate as a waiver of all my moral
rights or similar rights vested in me pursuant to any legislation worldwide.
Dated this _______ day of _____________, 1999.
---------------------------------
author
---------------------------------
witness
<PAGE>
45
SCHEDULE "P"
DISTRIBUTOR PRODUCTS
<PAGE>
<TABLE>
<CAPTION>
STOREID SEDATE ORDNO QTY ITEM
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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100004 04/23/1999 198153 99 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20
100004 04/27/1999 198153 99 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20
100004 04/28/1999 198153 99 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20*
100004 04/29/1999 198153 99 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20
100004 04/06/1999 448405 36 VIKING - 8MB MEM MODULE (70NS)-OEM EQUIV # 141685-001
100004 04/06/1999 032272 32 WEB / SNMP MNGT CARD 10BASET ETH AP9606
262 04/15/1999 ?51626A 20 DESKJET DESKWRITER 400 500 BLK CART.
100004 04/01/1999 24166 15 1PK DL 4MM 120M DAT TAPE CART
100004 04/05/1999 78345 15 MICROSAVER CABLE & LOCK MASTER-KEYED * DIRECT SHIP ONLY
100004 04/06/1999 166307 15 CD JEWEL CASES - 10-PK
695 04/01/1999 ?CE100BTXSX0 12 100BTX TO 100BSX CONVRT MOD 1RJ45 AUTO LTD RANGE
4 03/08/1999 54381 10 3PIN CHASSIS FAN FOR TX MBD H/W MONITORING
416 04/08/1999 115916 10 500SHT DRWR OPTRA S 1250 1255 1625 1855 2455
677 04/06/1999 182769 10 DIMAGE QUEST (NIMH) CHARGER W/4 RECHARGEABLE BATTERIES
100004 03/01/1999 64569 10 TELECHECK MINI-TESTER
100004 03/24/1999 202552 10 BARBIE TALK WITH ME CD WIN/W95
100004 04/01/1999 89530 10 MO DISK CART LIMDOW 5.25 512 2.6GB
100004 04/13/1999 183107 10 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20
100004 04/20/1999 252952 10 PALM V 2MB PDA W/HOTSYNC CRADLE
100004 04/22/1999 620701 10 USB CONNECTOR FOR TYAN SYSTEM BOARDS
100004 04/30/1999 198153 10 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE - DESKJET 20
100004 04/30/1999 262049 8 EPSON STYLUS COLOR 440, 640, 740 - TRI-COLOR
207 04/14/1999 215237 7 BARBIE TALK WITH ME CD WIN/W95
100004 03/24/1999 219265 7 CD R RECORDABLE MEDIA 10 PACK
100004 04/01/1999 452223 7 BARBIE TALK WITH ME CD WIN/W95
100004 05/05/1999 256976 7 PRO 7RCPTL SURPRO 85V LT LIFEWTY $10K INS
160 04/01/1999 804552 6 SLINGO CE CD W9X/WCE
209 04/22/1999 252951 6 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
100004 03/15/1999 ?C-370 6 GAMING STEREO HEADSET/BOOM MIC
100004 03/18/1999 150814 6 NETGEAR FA310TX FETH PCI ADPT
100004 03/26/1999 198153 6 HEWLETT-PACKARD 51626A PRINTER INKJET CARTRIDGE
100004 04/06/1999 046622 6 IRON ON TRANSFER FOR MICRO DRY
100004 04/27/1999 262049 6 25PK CDR MEDIA 74MIN 650MB
<PAGE>
4 04/12/1999 406917 5 ULTRASTAR 9LP 9.1GB ULTRA SCSI HD 7200RPM
323 04/06/1999 20380 5 NU-FORM 105-KEY ERGO KEYBOARD AT W/ PS/2 ADAPTER
708 04/13/1999 VIKII7317 5 VIKING - 32MB SO DIMM
100004 03/03/1999 104342 5 RETAIL KIT 1.44MB INT FD PS/2 WHITE BEZEL
100004 03/15/1999 135978 5 VIKING - 2MB 5 VOLT FLASH ATA CARD - OEM EQUIV #
100004 03/22/1999 166124 5 IBM PREFERRED KEYBOARD PEARL WHITE
100004 03/26/1999 205205 5 CALENDAR CREATOR DLX V6.0 CD W9X/NT
100004 04/06/1999 106337 5 7 CDR RECORDER MEDIA AND 3 CD-RW REWRITABLE MEDIA COMBO PA
100004 04/06/1999 166309 5 CD JEWEL CASES - 10-PK
100004 04/06/1999 211446 5 ETH FETH 1BTX MOD FOR ES2027 AND EM2527
4 03/08/1999 ?NPF-550 4 BATTERY FOR MVC-FD5, MVC-FD7, AND DKC-ID1PRO CAMERA
4 04/01/1999 183059 4 DVD 5.2GB DOUBLE-SIDED REWRITABLE CARTRIDGE (TYPE1) ME
188 04/22/1999 183059 4 DVD 5.2GB DOUBLE-SIDED REWRITABLE CARTRIDGE (TYPE1) ME
207 03/23/1999 82125 4 BARBIE TALK WITH ME CD WIN/W95
209 04/22/1999 252951 4 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
222 03/10/1999 143163 4 TWIN COOLING FANS 3.5 HD IN 5.25 DRIVEBAY
289 03/18/1999 222197 4 VIKING - 16MB MEM MODULE
416 04/06/1999 115940 4 OPTRA S 2455N 24PPM LASERPR 16MB 1200DPI ETH
591 03/02/1999 197520 4 FLAT PNL 15IN VIS 1024X7 DIGITAL STEALTH GRAY
591 03/03/1999 46527 4 8MB 2X36 60NS 72PIN PARITY GOLD
100004 03/01/1999 132231 4 CYBER PARALLEL DUAL PCI, 2-DB25 IEEE1284 ECP/EPP, IRQ SHARIN
100004 03/01/1999 25446 4 NETGEAR EN108TP ETH 10BT 8PT HUB W/O AUI/BNC
100004 03/15/1999 98090 4 RANGELAN2 ISA WIRELESS ADPTR MODEL 7100
100004 03/16/1999 7944 4 BATT PACK HIGH CAPACITY - LIBRETTO
100004 03/19/1999 124842 4 PRECISE MOUSING SURFACE MOUSE PAD BLUE
100004 03/22/1999 104320 4 12X/4X RECORDER SCSI TRAY INT W/CD-STOMPER RETAIL PK W/O CTL
100004 03/22/1999 104320 4 17IN/15.7V 25MM 1600X1280 60HZ 78D MPRII DDC OSD DIAMONDTRON
100004 03/24/1999 124846 4 PRECISE MOUSING SURFACE MOUSE PAD PURPLE
100004 03/25/1999 10855 4 HL 1040 1050 1060 1070 TONER CART
100004 04/01/1999 11072 4 32MB ECC PROSIGNIA 200 5/166
100004 04/01/1999 11072 4 4.55GB SCSI ULTRA WIDE 9.5MS 3.5LP 7200RPM MEDALIST PRO
100004 04/01/1999 11072 4 64MB ECC PROSIGNIA 200 5/166
100004 04/01/1999 11072 4 SCORPION DAT 8GB INT TAPE DRIVE 5.25HH 1MB
100004 04/01/1999 200632 4 BAY-COOL HARD DRIVE COOLER
100004 04/01/1999 279538 4 3PIN FAN FOR CELERON
<PAGE>
100004 04/05/1999 781180 4 VIKING-256MB ECC REGISTERED DIMM-OEM EQUIV # 313616-B21
100004 04/05/1999 VIKIH4137 4 VIKING-16MB EDO MEM MODULE-OEM EQUIV #C4137A
100004 04/06/1999 211675 4 3PK TR3 TRAVAN 3.2GB MINICART TAPE CART
100004 04/14/1999 256336 4 RARE VERMONT MAPLE SYRUP
100004 04/15/1999 31454 4 VP STANDARD PRINT PACK 50 SHEETS + RIBBON
100004 04/16/1999 138712 4 4.55GB SCSI ULTRA 3.5LP 9.5MS 7200RPM MEDALIST PRO
100004 04/28/1999 164329 4 MACINTOSH 64MB DIMM 60NS 5V
100004 04/30/1999 150557 4 MULTIMODEM II EXT 9.6 2LL D/F ASYNC SYNC MODEM
100004 04/30/1999 262049 4 EPSON STYLUS COLOR 740-BLACK
100004 05/03/1999 264102 4 VIKING-128MB ECC DIMM COMPAQ EQUIV-271909-001
03/03/1999 130256 3 DC260 COL DIGTLCAM PC 1536X1024 8MB 2IN LCD
4 03/08/1999 192961 3 PRINTER INK CARTIDGE FOR MD-SERIES BLACK
4 04/14/1999 183059 3 DVD 5.2GB DOUBLE-SIDED REWRITABLE CARTIDGE (TYPE1) ME
4 04/22/1999 3203 3 BX-3 INK CART FAXPHONE B640 B540 B550 C2500
207 04/05/1999 VIKISSFDC3/8 3 VIKING-8MB SMART MEDIA-3.3 VOLT-
239 04/05/1999 155648 3 CD STOMPER LABEL REFILLS
239 04/05/1999 155648 3 CD STOMPER PRO CD JEWEL CASE INSERTS REFILL
312 04/02/1999 187243 3 SYMPHONY CORDLESS ISA CARD PNP
312 04/05/1999 187243 3 SYMPHONY CORDLESS ISA CARD PNP
574 04/01/1999 149941 3 GRAPHICS STUDIO PICTURE IT V3.0 CD W9X/NT
591 03/12/1999 13358 3 COLOR JETPRINTER 3000 600X300DPI NT, OS/2 UNIX
645 04/13/1999 262891 3 HS01 HEADSET SINGLE EAR W/MICROPHONE
654 04/22/1999 261844 3 IMATION SUPERDISK FOR IMAC
100004 03/01/1999 132231 3 QUICKEN HOME & BUSINESS 99 SINGLE 1-DOC
100004 03/01/1999 23684 3 SINGLE DITTO MAX 10GB TAPE CART IN POS
100004 03/01/1999 69986 3 PHOTO PAPER LETTER SIZE 20 SHEETS
100004 03/02/1999 193464 3 ZIP DISK 100MB IBM PFM
100004 03/03/1999 198726 3 PHOTOSMART GLOSS 4X6 PHOTO PAP
100004 03/10/1999 187243 3 SYMPHONY CORDLESS ISA CARD PNP
100004 03/12/1999 163892 3 MVC-FD71 DIGTL MAVICA FD CAM
100004 03/12/1999 21456 3 64MB SDRAM DIMM
100004 03/12/1999 21456 3 PCMCIA 2-SLOT ISA ADAPTER FOR ADDING PCMCIA TO PC TYPE1-3 SW
100004 03/15/1999 ?7MXLA300200 3 Maxpowr G3-L2 300Mhz 750 With 1Mb Backside Cache At 200Mhz
100004 03/15/1999 66130 3 SNAZZI LAV-8000 VIDEO/AUDIO EDIT INT PCI MPEG1
100004 03/16/1999 136000 3 VIKING - 8MB SMART MEDIA-3.3 VOLT-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
100004 03/16/1999 183059 3 5.2GB DBL SIDED REWRTABL CART
100004 03/17/1999 49 3 PHOTOSMART POSTCARD 4 x 6 1-SIDE
100004 03/18/1999 101718 3 BATT MAVICA
100004 03/18/1999 141498 3 PATCH CABLE 25FT 4PR RJ45 BLU LEVEL 5
100004 03/18/1999 146649 3 ULTRASTAR 9ES 4.5GB ULTRA 2 SCSI 7200RPM 68 PIN LP
100004 03/19/1999 10855 3 HL 1040 1050 1060 1070 TONER CART
100004 03/19/1999 124842 3 PRECISE MOUSING SURFACE MOUSE PAD GREY
100004 03/19/1999 124842 3 PRECISE MOUSING SURFACE MOUSE PAD PURPLE
100004 03/19/1999 258144 3 ALTON BBNS MTW MATX S7 CD FDD HDMR 3DAGP VID SND
100004 03/22/1999 138713 3 MEDALIST PRO 4.55 ULTRA WIDE SCSI 7200RPM 3YR WTY
100004 03/22/1999 59695 3 6FT SCSI CABLE DB68 VHDCI M MICRO DB68M
100004 03/24/1999 131546 3 7FT PATCH CABLE ORANGE FAST CAT 5
100004 03/24/1999 131546 3 7FT PATCH CABLE WHT FAST CAT 5
100004 03/25/1999 224484 3 HP CDRW REWRITABLE MEDIA 1PK 4X
100004 04/01/1999 182769 3 8Mb Smartmedia Card, 3.3 Volt
100004 04/01/1999 203910 3 TRANSPARENCIES FOR MICRO DRY PRINTER 30 FILMS
100004 04/01/1999 203910 3 VPHOTO PRINT FILM 8.5X11 (20 SHEETS)
100004 04/01/1999 23119 3 99 KEY KYBD W/4-BUTTON TRACKBALL
100004 04/06/1999 106337 3 7 CDR RECORDER MEDIA AND 3 CD-RW REWRITABLE MEDIA COMBO PA
100004 04/06/1999 211267 3 GAMEPAD PRO USB MARCH 1999
100004 04/06/1999 256161 3 1PK TR4 TRAVAN CART
100004 04/08/1999 113345 3 640MB REWRITABLE OPTICAL MEDIA 5PK UNFORMATTED
100004 04/08/1999 182769 3 DIMAGE QUEST (NIMH) CHARGER W/4 RECHARGEABLE BATTERIES
100004 04/08/1999 664093 3 CABLE USB DUAL PORT MBD TYPE A 10PIN SER EXT
100004 04/13/1999 54383 3 IRDA CONNECTOR
100004 04/14/1999 18049 3 MULTIMODEM 56K/ITU GERMAN EXT D/F V.34 MODEM V.90
100004 04/14/1999 200142 3 DEXXA MOUSE 2-BTN PS/2 WIN 3.1/95
100004 04/20/1999 104552 3 AAVID PENTIUM II CPU SMART FAN
100004 04/20/1999 192960 3 RAGE FURY AGP2X 32MB SDRM 19X12 3D GRAPHACCEL
100004 04/20/1999 252952 3 PALM V 2MB PDA W/HOTSYNC CRADLE
100004 04/22/1999 192681 3 USB HUB TO SERIAL PORT CONVERTER
100004 04/22/1999 938018 3 USR 56K V.90 ISA D/F MODEM W/JUMPERS
100004 04/26/1999 97856 3 FASTTRAK RAID CONTROLLER FOR EIDE DRVS RETAIL BOX
100004 05/04/1999 259099 3 ADR 3PK 30GB ADR CART FOR DIGITAL DRV S
03/03/1999 209868 2 16MB SMARTMEDIA CARD(3.3)VOLT
<PAGE>
<S> <C> <C> <C> <C>
03/03/1999 211446 2 RIO PMP 300 PRTBL MUSIC PLAYER 32MB
03/09/1999 149967 2 VISUAL STUDIO ENT V6.0 CD W9X/NT
04/08/1999 219265 2 CD R RECORDABLE MEDIA 10 PACK
1 04/23/1999 193989 2 TRISTAR HEADSET W/NOISE CANCELING MICROPHONE & VISTA AM
4 03/04/1999 105595 2 Q71 OPTIQUEST 17IN 16VIS .27MM 12X10 FST COLMON
4 03/09/1999 198587 2 SPECTRA 2500 16MB AGP NVIDA RIVA TNT PROCESSOR 2D/3D PERF
4 03/16/1999 185393 2 ATX MBD PII 440BX 4PCI 2ISA 1AGP 4DM LM78
4 03/16/1999 185393 2 CASE ATX MT MID 235W 3 5.25 4 3.5 BGE CE FCC
4 03/24/1999 792803 2 CIVILIZATION II MULTIPLAYER GOLD
4 04/01/1999 187243 2 SYMPHONY CORDLESS ISA CARD
4 04/21/1999 164337 2 64MB MUSHKIN PC100 SDRAM 8X64
4 04/21/1999 164337 2 BAT MBD PENT MVP3 4PCI 4ISA 1AGP 2SM 3DM
4 04/22/1999 3203 2 STD COL INK CART4076 150C 1020 2030 2050 2055 1000
207 04/26/1999 266427 2 VIKING - 4MB MEMORY MODULE ZENITH EQUIV - ME-100
209 04/07/1999 164319 2 16MB MUSHKIN 72PIN SIMM 4X32 FAST PAGE MODE (NON PARITY)
209 04/12/1999 142588 2 46MM PAP CART FOR DIGTLCAM PRINTER
209 04/22/1999 252951 2 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
209 04/29/1999 238767 2 64MB MUSHKIN CAS2 PC100 SDRAM
209 05/03/1999 252951 2 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
213 04/02/1999 202135 2 SOUTH PARK
213 04/06/1999 182769 2 DIMAGE QUEST (NIMH) CHARGER W/4 RECHARGEABLE BATTERIES
222 03/02/1999 195284 2 128MB MODULE FOR HP OMNIBOOK 7100 SERIES
305 03/01/1999 97313 2 CD STOMPER LABEL REFILLS
311 03/01/1999 108679 2 4 COLOR INK CARTRIDGE PACK FOR MD-1300, MD-2300, MD-5000
337 04/26/1999 179859 2 ETHERPOWER PCI COMBO
416 04/06/1999 115940 2 OPTRA S 2455N 24PPM LASERPR 16MB 1200DPI ETH
416 04/13/1999 115940 2 OPTRA S 2455N 24PPM LASERPR 16MB 1200DPI ETH
418 03/18/1999 130256 2 DC260 COL DIGTLCAM PC 1536X1024 8MB 2IN LCD
418 04/13/1999 16252 2 64MB COMPAQ PROF. WORKSTA 6000 6300 5100 8001 ARMA
519 03/01/1999 108544 2 40X INT ATAPI CD-ROM 128KB 75MS 8900RPM
519 03/01/1999 108544 2 56K PCI CONTROLLER INTERNAL FAX MODEM WITH VOICE/SPEAKER PHO
519 03/01/1999 108544 2 CASE BGE ATX MID 250W 4 5.25 3 3.5 W/FDD FCC
519 03/01/1999 108544 2 DYNAMIC TNT NVIDIA RIVA TNT 16MB SDRAM AGP WHT BO
519 03/01/1999 108544 2 INTERNET WIN95 KEYBOARD W/ 17 INTERNET BUTTONS AND WRIST RES
519 03/01/1999 108544 2 NETMOUSE PRO 3BTN PS/2 400DPI
<PAGE>
<S> <C> <C> <C> <C>
575 03/01/1999 ?100-416067 2 RAGE MAGNUM 32MB AGP *WHITE BOX*128BIT BUILT-IN HARDWAREDVD
581 04/08/1999 331005 2 WEBRACER PS2/SER MOUSE W/SCROLL PAD 8FT CORD
591 04/01/1999 129434 2 64MB MUSHKIN CAS2 PC100 SDRAM
591 04/01/1999 129434 2 BLASTER CD 48X INT CD-ROM IDE
591 04/01/1999 129434 2 CASE ATX MT MID 235W 3 5.25 4 3.5 BGE CE FCC
591 04/01/1999 129434 2 DESKSTAR 10GP 10.1GB UMDA HD 5400RPM 3.5LP
591 04/01/1999 258318 2 EXPERT 9.1GB UDMA ATA /66 7200RPM HD 3.5IN 8.5MS
591 04/06/1999 406975 2 CD R RECORDABLE MEDIA 10 PACK
591 04/29/1999 125417 2 BOXED CELERON 400MHZ CPU W/ 128K IN PPGA PACKAGE
596 03/15/1999 ?60011 2 Black Ink Cartridge For Epson
599 03/22/1999 195320 2 ULTRASTAR 9ES 9.1GB ULTRA SCSI HD 7200RPM
619 03/22/1999 55081 2 GLOSSY PHOTO QUALITY BUSINESS CARDS FOR INK JET PRINTERS
634 03/24/1999 141131 2 CAVIAR 6.4GB ULTRA EIDE HD TWO-PLATTER
637 04/06/1999 181398 2 PARASHARE 95 STARTER KIT PC & PRNTR ADPTR,CBLS,PWR SUP,S
638 04/16/1999 083642 2 RAGE FURY AGP2X 32MB SDRM 19X12 3D GRAPHACCEL
645 04/13/1999 262891 2 HIGH OUTPUT ELECTRIC MICROPHONE
654 03/01/1999 22697 2 UNIV POWER SUPPLY FOR JAZ DRIVE
654 03/25/1999 135970 2 VIKING - COMPACT FLASH ADAPTER
654 04/01/1999 452223 2 USB FOR EFA MBD
654 04/06/1999 203789 2 TDK COMPACT FLASH MEMORY CARD 32MB
654 04/08/1999 135964 2 VIKING - 32MB COMPACT FLASH-OEM EQUIV #
672 03/26/1999 ?000550A 2 Artec Am 12S PCI SCSI Flatbed Scanner
685 03/18/1999 164767 2 32BIT PCI IO HIGH SPEED 1PORT IEE 1284EPP SPP PS2
695 04/01/1999 ?CE100BTXSX0 2 16Slot Convrt Chassis Opt Red Pwr SNMP
695 04/01/1999 ?CE100BTXSX0 2 Opt Redun Pwr Supply For Convrt Chassis
695 04/01/1999 ?CE100BTXSX0 2 Opt SNMP Mgmt Mode 1Db-9 1RJ45
100004 03/01/1999 ?6710051201 2 E-CAM VIDEO E-MAIL CAMERA SNGLE FULL MOTION,COLOR VIDEO,E-MA
100004 03/01/1999 141319 2 15IN/13.8V 28MM 1024X768 60HZ 5E EPA DIGITAL
100004 03/01/1999 149684 2 VISUAL C++ PRO V6.0 CD W9X/NT
100004 03/01/1999 160196 2 ACK-501-50E CBL KT(98) EXT CABL CONVERTOR ULTRA SCSI AND 2 I
100004 03/01/1999 160196 2 IEEE 1284 A-B PAR CABLE GOLD 6FT DC25M TO CENT36M DBLSH TP P
100004 03/01/1999 180266 2 EPSON 400/600/800/1520 STYLUS PRINTER INKJET CARTRIDGE - COL
100004 03/01/1999 180266 2 EPSON 800/1520 STYLUS PRINTER INKJET CARTRIDGE - BLACK
100004 03/01/1999 198002 2 MULTIVOIP 2 VOICE CHANNEL VOICE OVER IP G.723
100004 03/01/1999 211268 2 AVA-2906 SCSI ADAPTER KIT 32BIT PCI FSCS12
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
100004 03/01/1999 25028 2 LWP LAN WORKPLACE PRO UPG 10U TO 10U
- -----------------------------------------------------------------------------------------------------------------
100004 03/02/1999 129452 2 10.10GB EIDE ULTRA ATA/33 3.5LP 7200RPM 9.5MS DESKSTAR GXP
- -----------------------------------------------------------------------------------------------------------------
100004 03/02/1999 79831 2 PHOTO PRINT CART 3200 5700 7000 JETPRINTER
- -----------------------------------------------------------------------------------------------------------------
100004 03/03/1999 104342 2 EXPRESS 3D 8MB AGP GRAPHICS CARD
- -----------------------------------------------------------------------------------------------------------------
100004 03/03/1999 136000 2 INTW SAA 3.0 UPG 250U FRM V2.2 250U ENG
- -----------------------------------------------------------------------------------------------------------------
100004 03/03/1999 160303 2 LASERJET 3100XI MLTFUNC PRINT/FAX/COPY/SCAN
- -----------------------------------------------------------------------------------------------------------------
100004 03/03/1999 198726 2 PHOTOSMART GLOSS A SIZE PHOTO PAP
- -----------------------------------------------------------------------------------------------------------------
100004 03/04/1999 217500 2 16MB SMARTMEDIA CARD FITS D220L,D320,D400L,D500L,D620L,D1
- -----------------------------------------------------------------------------------------------------------------
100004 03/10/1999 147598 2 HIGH YIELD BLK INK CART OPTRA COLOR 45
- -----------------------------------------------------------------------------------------------------------------
100004 03/10/1999 147598 2 HIGH YIELD COL INK CART OPTRA COLOR 45
- -----------------------------------------------------------------------------------------------------------------
100004 03/10/1999 173428 2 AC ADPTR PDR-ACM1A
- -----------------------------------------------------------------------------------------------------------------
100004 03/10/1999 226140 2 STYLUS COLOR 900 BLK INK CART
- -----------------------------------------------------------------------------------------------------------------
100004 03/11/1999 135198 2 PDRN-SM8
- -----------------------------------------------------------------------------------------------------------------
100004 03/11/1999 238767 2 64MB MUSHKIN CAS2 PC100 SDRAM
- -----------------------------------------------------------------------------------------------------------------
100004 03/12/1999 193831 2 ACCELERAID 200 NO SCSI IF SCSI TO PCI RAID CONTR
- -----------------------------------------------------------------------------------------------------------------
100004 03/12/1999 224431 2 32MB EDO DIMM MOD GATEWAY P5 EDO 5/133;5/166;5/200
- -----------------------------------------------------------------------------------------------------------------
100004 03/15/1999 141131 2 TR3 BOLT CART 5-10 GB
- -----------------------------------------------------------------------------------------------------------------
100004 03/15/1999 185077 2 RAGE FURY AGP2X 32MB SDRM 19X12 3D GRAPHACCEL
- -----------------------------------------------------------------------------------------------------------------
100004 03/16/1999 129452 2 DESKSTAR 10GXP 10.1GB UDMA 7200RPM HD 3.5LP
- -----------------------------------------------------------------------------------------------------------------
100004 03/16/1999 209733 2 LANDWARE GOTYPE! KB FOR 3COM PALM
- -----------------------------------------------------------------------------------------------------------------
100004 03/16/1999 217500 2 M-16PU SMARTMEDIA
- -----------------------------------------------------------------------------------------------------------------
100004 03/16/1999 222866 2 INFOVIEW VIDEO CONFENC'G
- -----------------------------------------------------------------------------------------------------------------
100004 03/16/1999 7944 2 BATT CHARGER LIBRETTO
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 125218 2 168 Pin - 128Mb Ecc-100Mhz- Unbuffered- CI3
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 135996 2 VIKING - 2MB SMART MEDIA-3.3 VOLT-
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 182468 2 MARBLE MOUSE TRACKB 2BTN PS2/SER
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 188993 2 GAMEPAD PRO USB MARCH 1999
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 189163 2 DESKSTAR 10GP 10.1GB UDMA HD 5400RPM 3.5LP
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 252951 2 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 49 2 HP MATTE PHOTO PAP A-SIZE
- -----------------------------------------------------------------------------------------------------------------
100004 03/17/1999 49 2 PHOTOSMART GLOSS A SIZE PHOTO PAP
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 101718 2 8MB HP LASERJET 4P 4MP 6MP
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 117716 2 BLANK CHECKS TAN 3-UP CCC PERSONAL
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 139730 2 PDR SM16
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 147468 2 NIMH NICAD BATT CHRG W/ 4AA NIMH BATT
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 186172 2 FETH 5RJ45 SA HUB
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 203823 2 110CT 5/233 MMX 32MB 4.3GB 7.1FT W98
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 204977 2 WEBRACER PS2/SER MOUSE W/SCROLL PAD 8FT CORD
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 258343 2 PC-DVD ENCORE 5X/DXR3 VARPAK BROWN BOX
- -----------------------------------------------------------------------------------------------------------------
100004 03/18/1999 5408 2 UNI 24 24DBI DIR ANT FOR BREEZECOM D MODEL
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 146641 2 V.90 MODEM INTERNET KIT
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 180980 2 PC GAMEPAD PRO AND EA SPORTS MADDEN FOOTBALL '97 BUNDLE
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 203789 2 TDK COMPACT FLASH MEMORY CARD 32MB
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 218514 2 CASE ATX MT MID 235W 3 5.25 4 3.5 BGE CE FCC
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 238767 2 64MB MUSHKIN CAS2 PC100 SDRAM
- -----------------------------------------------------------------------------------------------------------------
100004 03/19/1999 31133 2 ZIP DISK 100MB IBM PFM
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 146357 2 WAVE LINK RF REMOTE TRANSMITTER/RECEIVER
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 146649 2 10/20GB TR5 INTERNAL IDE TAPE DRIVE
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 163388 2 NINO PREMIER TRAVELING CASE LEATHER CASE
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 187243 2 SYMPHONY CORDLESS ISA CARD PNP
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 191574 2 VIKING - 16MB EDO MEM MODULE-OEM EQUIV # C4137A
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 193466 2 48MB COMPACTFLASH FLCARD MEM
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 194467 2 IPC34080B 5BAY 4U HEIGHT 7 LONG RACKMOUNT ATX CHASSIS BLACK
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 209733 2 LANDWARE GOTYPE! KB FOR 3COM PALM
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 217642 2 17IN/16V 27MM 1280X1024 85HZ ULTRA 75B TCO92 OSD BLACK HOUSI
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 2977 2 DYNAMITE 128/VIDEO ET6000 2MB MDRAM PCI
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 54383 2 IRDA CONNECTOR
- -----------------------------------------------------------------------------------------------------------------
100004 03/22/1999 63037 2 DT8000 TR4 4/8GB QIC3095 FOR T4000 1PK
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 129452 2 DESKSTAR 10GXP 10.1GB UDMA 7200RPM HD 3.5LP
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 129452 2 VELOCITY 4400 AGP 16MB SDRAM RETAIL
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 131546 2 7FT PATCH CABLE GRN FAST CAT 5
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 131546 2 NETGEAR 10/100 2PAR PSVR
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 138324 2 LR600 600VA LINE CONDITIONER
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 163883 2 1PK TRAVAN TR4 4/8 GB CART
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 181435 2 IEEE 1284 PAR PR A/A 6FT DB25M DB25F
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 252933 2 BARBIE TALK WITH ME CD WIN/W95
- -----------------------------------------------------------------------------------------------------------------
100004 03/24/1999 252933 2 PALMV HARD CASE FOR PALM V ONLY
- -----------------------------------------------------------------------------------------------------------------
100004 03/25/1999 195139 2 MONSTER 3D II PCI 12MB VIDACCEL ADD-IN X100
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 135996 2 VIKING - 2MB SMART MEDIA-3.3 VOLT-
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 136000 2 VIKING - 8MB SMART MEDIA-3.3 VOLT-
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 150489 2 MULTIMODEM ZDX EXT 19.2 D/F ASYNC MODEM
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 197959 2 20PK 13.6GB UDMA HD 3.5LP 5400RPM DIAMONDMAX 3400
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 211446 2 RIO PMP 300 PRTBL MUSIC PLAYER 32MB
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 223391 2 MOBILEPRO 770 H/PC PDA
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 238767 2 64MB MUSHKIN CAS2 PC100 SDRAM
- -----------------------------------------------------------------------------------------------------------------
100004 03/26/1999 52014 2 XTERMINATOR
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 025024 2 CASE BGE ATX MID 250W 4 5.25 3 3.5 W/ FDD FCC
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 046613 2 MICRO DRY CYAN CART
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 046613 2 MICRO DRY MAGENTA CART
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 046613 2 MICRO DRY YELLOW CART
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 080651 2 3PIN CHASSIS FAN FOR TX MBD H/W MONITORING
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 108964 2 CASE BGE ATX MT 230W W/ 3.5 FD
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 139903 2 4MBX32-70NS 16MB SODIMM 72 PIN INDUSTRY STANDARD
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 150668 2 SS870 TONER MOD FOR USE W/SS870 LASER
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 182769 2 DIMAGE QUEST NIMH BATTERY - SET OF 4
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 192602 2 1PK 10GB TAPE CART FOR SUPERSTATION DRV ONLY
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 194453 2 ECONOBLACK INK CARTRIDGE FOR MD-5000 (REVERSIBLE 20 TIME
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 198149 2 EPSON 400/500/600/700 PHOTO STYLUS PRINTER INKJET CARTRIDGE
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 200142 2 MICRO TERMINATOR 2-BTN JOYSTICK BLACK W/ TURBO-FIRE & TRIM C
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 226378 2 128MB DELL INSPIRON
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 239029 2 48MB COMPACTFLASH FLCARD MEM
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 279529 2 CREATIVE PC DVD ENCORE6X W/ DXR3 DECODER
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 279529 2 NVIDIA TNT AGP VID CARD 16MB W/TV OUTPUT
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 436451 2 25FT CATEGORY 5 UTP CABLE
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 452223 2 BARBIE TALK WITH ME CD WIN/W95
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 4848 2 VIKING - 72 PIN - 32MB NON-PARITY MEMORY MODULE 70NS GOLD LE
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 664197 2 3FT CABLE PR DB25M C36M PAR IEEE 1284
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 664351 2 6FT VGA SVGA COAX CABLE HDDB15M HDDB15M
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 966328 2 MOBILEPRO 770 H/PC PDA
- -----------------------------------------------------------------------------------------------------------------
100004 04/01/1999 VAN 10177 2 EPSON 400/600/800/1520 STYLUS PRINTER INKJET CARTRIDGE - COL
- -----------------------------------------------------------------------------------------------------------------
100004 04/02/1999 97313 2 CD STOMPER LABEL REFILLS
- -----------------------------------------------------------------------------------------------------------------
100004 04/05/1999 182769 2 DIMAGE QUEST (NIMH) CHARGER W/4 RECHARGEABLE BATTERIES
- -----------------------------------------------------------------------------------------------------------------
100004 04/05/1999 202337 2 48X READER EIDE BLASTER CD
- -----------------------------------------------------------------------------------------------------------------
100004 04/05/1999 31900 2 640MB REWRITABLE OPTICAL MEDIA 5PK UNFORMATTED
- -----------------------------------------------------------------------------------------------------------------
100004 04/05/1999 463118 2 PRECISE MOUSING SURFACE MOUSE PAD PURPLE
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
100004 04/05/1999 664351 2 6FT VGA SVGA COAX CABLE HDDB15M HDDB15M
- ---------------------------------------------------------------------------------------
100004 04/05/1999 VIKIH3578NP 2 VIKING - 32MB MEM MODULE-OEM EQUIV # D3578A
- ---------------------------------------------------------------------------------------
100004 04/05/1999 VIKISSFDC3/8 2 VIKING - 8MB SMART MEDIA-3.3 VOLT-
- ---------------------------------------------------------------------------------------
100004 04/06/1999 069881 2 64MB MUSHKIN CAS2 PC100 SDRAM
- ---------------------------------------------------------------------------------------
100004 04/06/1999 105197 2 TWIN COOLING FANS 3.5 HD IN 5.25 DRIVEBAY
- ---------------------------------------------------------------------------------------
100004 04/06/1999 110785 2 MONSTER 3D II PCI 12MB VIDACCEL ADD-IN X100
- ---------------------------------------------------------------------------------------
100004 04/06/1999 110787 2 RIO PMP 300 PRTBL MUSIC PLAYER 32MB
- ---------------------------------------------------------------------------------------
100004 04/06/1999 152653 2 AC ADAPTER EH-30 FOR THE COOLPIX 900
- ---------------------------------------------------------------------------------------
100004 04/06/1999 166307 2 CDR DOUBLE JEWEL CASE - 10-PK
- ---------------------------------------------------------------------------------------
100004 04/06/1999 186199 2 QUICKCAM VC - USB
- ---------------------------------------------------------------------------------------
100004 04/06/1999 200804 2 2MB NEC MODEL 95
- ---------------------------------------------------------------------------------------
100004 04/06/1999 202551 2 5005 DREAM HOME PLANS
- ---------------------------------------------------------------------------------------
100004 04/06/1999 211446 2 ETH FETH 10BTX 100BTX MOD SWCH MOD TO ES3508A 4RJ4
- ---------------------------------------------------------------------------------------
100004 04/06/1999 211446 2 ETH SWCH 25PT 10B5 AUI 2PT FETH
- ---------------------------------------------------------------------------------------
100004 04/06/1999 211675 2 PRO/100 SMART FETH PCI RJ45 SVR NIC 10/100
- ---------------------------------------------------------------------------------------
100004 04/06/1999 224468 2 50X READER IDE DRIVE KIT W/MANUAL,AUDIO&DATA CABLE
- ---------------------------------------------------------------------------------------
100004 04/06/1999 226140 2 STYLUS COLOR 900 COLOR INK CART
- ---------------------------------------------------------------------------------------
100004 04/06/1999 243680 2 DREAMWEAVER V2.0 FIREWORKS V2.0 CD W9X/NT
- ---------------------------------------------------------------------------------------
100004 04/06/1999 36 2 1FT IBM THINKPAD Y CABLE 6PIN MINI DIN M 2 6PIN MI
- ---------------------------------------------------------------------------------------
100004 04/06/1999 448405 2 KNE20BT ETH ISA RJ45 BNC NIC 6-PK PNP
- ---------------------------------------------------------------------------------------
100004 04/06/1999 52014 2 XTERMINATOR
- ---------------------------------------------------------------------------------------
100004 04/06/1999 640132 2 FASTTRAK RAID CONTROLLER FOR EIDE DRVS RETAIL BOX
- ---------------------------------------------------------------------------------------
100004 04/06/1999 VIKIMVPCI/1 2 VIKING - 1MB VIDEO MODULE-OEM EQUIV # M3787LL/A
- ---------------------------------------------------------------------------------------
100004 04/07/1999 101765 2 1PK 8MM 160M DAT TAPE CART EXABYTE 8505
- ---------------------------------------------------------------------------------------
100004 04/07/1999 161044 2 USB CABLE 2 METER (6FT) A - B 24 GUAGE
- ---------------------------------------------------------------------------------------
100004 04/07/1999 252969 2 ARTEC ACD-40X IDE INTERNAL CD-ROM DRIVE
- ---------------------------------------------------------------------------------------
100004 04/07/1999 252969 2 SOUNDMAKER 3DX FULL DUP PNP SC W/CRYSTAL CHIPST
- ---------------------------------------------------------------------------------------
100004 04/08/1999 196629 2 48MB COMPACTFLASH CARD COMPACTFLASH STORAGE
- ---------------------------------------------------------------------------------------
100004 04/08/1999 212384 2 ACTIUS LONG LIFE BATTERY FOR USE WITH ALL ACTIUS
- ---------------------------------------------------------------------------------------
100004 04/09/1999 135725 2 64MB MUSHKIN PC100 SDRAM 8X64
- ---------------------------------------------------------------------------------------
100004 04/09/1999 135725 2 CASE ATX MT MID 235W 3 5.25 4 3.5 BGE CE FCC
- ---------------------------------------------------------------------------------------
100004 04/09/1999 135725 2 DESKSTAR 10GP 10.1GB UMDA HD 5400RPM 3.5LP
- ---------------------------------------------------------------------------------------
100004 04/09/1999 145918 2 MAC3045SP 4.5GB WSCSI HD 3.5 LP 7.5MS 10000 RPM
- ---------------------------------------------------------------------------------------
100004 04/09/1999 145918 2 ULTRASTAR 9ES 4.5GB ULTRA 2 SCSI 7200RPM 68 PIN LP
- ---------------------------------------------------------------------------------------
100004 04/09/1999 252951 2 PALM IIIX 4MB PDA W/ HOTSYNC CRADLE
- ---------------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------------------
100004 04/13/1999 16804 2 OMNIVIEW CABLE KIT 3 CABLES
- ---------------------------------------------------------------------------------------
100004 04/13/1999 193791 2 EASIDOCK PORT REPL W/ETH TPAD 770 SERIES
- ---------------------------------------------------------------------------------------
100004 04/13/1999 MUSH12023 2 32MB COMPACT FLASH MEMORY CARD
- ---------------------------------------------------------------------------------------
100004 04/14/1999 ?6710051201 2 E-CAM VIDEO E-MAIL CAMERA SNGLE FULL MOTION,COLOR VIDEO,E-MA
- ---------------------------------------------------------------------------------------
100004 04/14/1999 18702 2 1MB MEMORY MODULE HP EQUIV - C2024A
- ---------------------------------------------------------------------------------------
100004 04/14/1999 193473 2 DAYTIMERS ORGANIZER 2000 WINDOWS - 5 USER
- ---------------------------------------------------------------------------------------
100004 04/14/1999 194502 2 ATX MBD PENT ALI1541 5PCI 2ISA AGP 3DM PCISND
- ---------------------------------------------------------------------------------------
100004 04/14/1999 200142 2 MICRO TERMINATOR 2-BTN JOYSTICK BLACK W/ TURBO-FIRE & TRIM C
- ---------------------------------------------------------------------------------------
100004 04/14/1999 200898 2 VIKING - 256MB REGISTERED ECC CL2 DIMM
- ---------------------------------------------------------------------------------------
100004 04/14/1999 78348 2 MOUSE IN A BOX - SCROLL
- ---------------------------------------------------------------------------------------
100004 04/16/1999 142374 2 3L-1 LIGHTNING ARRESTOR FOR BREEZENET ANT
- ---------------------------------------------------------------------------------------
100004 04/16/1999 142374 2 UNI 13P 13DBI DIR ANT FOR BREEZECOM D MODEL
- ---------------------------------------------------------------------------------------
100004 04/16/1999 198148 2 EPSON 400/600/800/1520 STYLUS PRINTER INKJET CARTRIDGE - COL
- ---------------------------------------------------------------------------------------
100004 04/16/1999 198148 2 EPSON 800, 800N, 850,/1520 STYLUS PRINTER INKJET CARTRIDGE -
- ---------------------------------------------------------------------------------------
100004 04/16/1999 258319 2 EXPERT 18.0GB UDMA ATA/66 7200RPM HD 3.5IN 8.5MS
- ---------------------------------------------------------------------------------------
100004 04/20/1999 104552 2 KYBD 107KEY WIN98 BIEGE PS/2 SOFT TOUCH WNT4.0
- ---------------------------------------------------------------------------------------
100004 04/20/1999 146188 2 ATX MBD PII 440BX DCPU 4PCI 3ISA AGP 4DM LDCM
- ---------------------------------------------------------------------------------------
100004 04/20/1999 162488 2 1PK SUPERDISK MAC LS-120 DISK MAC FORMAT
- ---------------------------------------------------------------------------------------
100004 04/20/1999 164322 2 32MB MUSHKIN 72PIN EDO SIMM 8X32
- ---------------------------------------------------------------------------------------
100004 04/20/1999 195139 2 64MB MUSHKIN CAS2 PC100 SDRAM
- ---------------------------------------------------------------------------------------
100004 04/20/1999 198149 2 EPSON 400/500/600/700, PHOTO STYLUS, PRINTER INKJET CARTRIDG
- ---------------------------------------------------------------------------------------
100004 04/20/1999 198149 2 EPSON 400/600/800/1520 STYLUS PRINTER INKJET CARTRIDGE - COL
- ---------------------------------------------------------------------------------------
100004 04/20/1999 198653 2 LUCENT PCI V.90 56K DFV ASYNC PC MODEM WIN
- ---------------------------------------------------------------------------------------
100004 04/20/1999 205142 2 DREAMWEAVER V2.0 CD W9X/NT
- ---------------------------------------------------------------------------------------
100004 04/20/1999 226893 2 EASYPARALLEL 16BIT ISA PARALLEL ADPT IEEE 1284
- ---------------------------------------------------------------------------------------
100004 04/20/1999 226893 2 PALM CABLE PCHOTSYNC ACCESSORY(FOR PALM&XXX)
- ---------------------------------------------------------------------------------------
100004 04/20/1999 226893 2 STYLUS COLOR 900 COLOR INK CART
- ---------------------------------------------------------------------------------------
100004 04/20/1999 226893 2 STYLUS COLOR 900 DOUBLE BLK INK CART
- ---------------------------------------------------------------------------------------
100004 04/20/1999 252952 2 PALM V 2MB PDA W/HOTSYNC CRADLE
- ---------------------------------------------------------------------------------------
100004 04/20/1999 VIKIH3133 2 VIKING - 8MB MEM MODULE-OEM EQUIV # C3133A
- ---------------------------------------------------------------------------------------
100004 04/21/1999 191709 2 PRINT CART FOR MFC970MC 750MC 770MC 870MC
- ---------------------------------------------------------------------------------------
100004 04/21/1999 217536 2 BRIDGE CONNECT TO PPGA FOR SLOT 1 MOTHERBOARDS
- ---------------------------------------------------------------------------------------
100004 04/21/1999 225548 2 CDRW 4X/4X/16X EXT SCSI
- ---------------------------------------------------------------------------------------
100004 04/21/1999 238767 2 64MB MUSHKIN CAS2 PC100 SDRAM
- ---------------------------------------------------------------------------------------
100004 04/21/1999 242659 2 3DFX VOODOO 3 3000 AGP 16MB SDRAM W/TV OUT
- ---------------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------------------
100004 04/21/1999 252952 2 PALM V 2MB PDA W/HOTSYNC CRADLE
- ---------------------------------------------------------------------------------------
100004 04/21/1999 77407 2 INFOTALK IT3000 INET TELEPHONY DEVICE
- ---------------------------------------------------------------------------------------
100004 04/22/1999 126177 2 NIC ETH PCCARD RJ45 BNC PCMCIA NIC
- ---------------------------------------------------------------------------------------
100004 04/22/1999 134601 2 THE OPERATIONAL ART OF WAR
- ---------------------------------------------------------------------------------------
100004 04/22/1999 136000 2 VIKING - 8MB SMART MEDIA-3.3 VOLT-
- ---------------------------------------------------------------------------------------
100004 04/22/1999 181439 2 10FT CISCO CAB-V35MT DB60M TO V.35M
- ---------------------------------------------------------------------------------------
100004 04/22/1999 224681 2 MOUSEMAN WHEEL USB/PS2 4BTN
- ---------------------------------------------------------------------------------------
100004 04/22/1999 259099 2 SC30 30GB INT SCSI DIGITL 5.25HH DRV
- ---------------------------------------------------------------------------------------
100004 04/22/1999 442669 2 MOUSEMAN WHEEL USB/PS2 4BTN
- ---------------------------------------------------------------------------------------
100004 04/22/1999 74884 2 IBM WTY SERVICEPAC PC 3YR 9X5 NEXT BUS DAY M-F
- ---------------------------------------------------------------------------------------
100004 04/23/1999 172083 2 INTERNAL SCSI-2 DVD RAM KIT
- ---------------------------------------------------------------------------------------
100004 04/23/1999 209196 2 19IN/18.0V 26MM 1600X1200 75HZ 9GLRS VESA DDC1/2B
- ---------------------------------------------------------------------------------------
100004 04/23/1999 217956 2 CDR 650MB 74MIN RED,GREEN,ORANG YELLOW, 100-PK SPINDLE, 1X,2
- ---------------------------------------------------------------------------------------
100004 04/29/1999 18728 2 VIKING - 16MB MEMORY MODULE (3.3 VOLT) AST EQUIV - 501392-0
- ---------------------------------------------------------------------------------------
100004 04/30/1999 150557 2 USB CAMERAMATE COMPACT FLASH AND SMARTMEDIA READER
- ---------------------------------------------------------------------------------------
100004 04/30/1999 17416 2 64MB MEM COMPAQ LTE5000/5100/5200
- ---------------------------------------------------------------------------------------
100004 04/30/1999 279636 2 VIKING - 8MB SSFDC - 3.3VOLT -
- ---------------------------------------------------------------------------------------
100004 05/03/1999 ?452223V 2 Talk With Me Barbie
- ---------------------------------------------------------------------------------------
100004 05/03/1999 136000 2 STYLUS COLOR 900 900N COLOR INK CART
- ---------------------------------------------------------------------------------------
100004 05/03/1999 136000 2 VIKING - 8MB SSFDC - 3.3 VOLT
- ---------------------------------------------------------------------------------------
100004 05/03/1999 188993 2 GAMEPAD PRO USB MARCH 1999
- ---------------------------------------------------------------------------------------
100004 05/04/1999 172144 2 APIC MOD FOR DUAL PII FOR M720 MBD
- ---------------------------------------------------------------------------------------
100004 05/04/1999 17416 2 VIKING - FAX/MODEM 56K PC CARD MODEM -
- ---------------------------------------------------------------------------------------
100004 05/04/1999 939523 2 PALMV 2MB PDA W/ HOTSYNC CRADLE PALM
- ---------------------------------------------------------------------------------------
100004 05/05/1999 102607 2 256KB CACHE APTIVA 510 2168-62P 530 2144-66P
- ---------------------------------------------------------------------------------------
100004 05/05/1999 142374 2 AP-10D PRO.11 D MODEL ACCESS POINT ETH BRG
- ---------------------------------------------------------------------------------------
100004 05/05/1999 142374 2 SA-10 PRO.11 1-PORT WLS ETH STA ADPT 2DB W/ANT
- ---------------------------------------------------------------------------------------
100004 05/05/1999 142374 2 SA-10D PRO.11D MODEL 1 STATION BRG
- ---------------------------------------------------------------------------------------
100004 05/05/1999 191718 2 CISCO 1005 SPECIAL
- ---------------------------------------------------------------------------------------
100004 05/05/1999 209674 2 4PK ZIP MAC 250 DISK FOR MAC
- ---------------------------------------------------------------------------------------
100004 05/05/1999 22691 2 ZIP PLUS 100MB PPT FOR PC OR MAC W/ AUTODETECT
- ---------------------------------------------------------------------------------------
1004426 03/09/1999 125872 2 USB 3-BTN MOUSE FOR USB PCS, COMPAT W/WIN 98
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
46
SCHEDULE "Q"
GUIDELINES FOR USING DISTRIBUTOR TRADEMARKS AND DISTRIBUTOR LOGOS
Distributor permits COREL to use its logos and trademarks in both plain word and
stylized form (the "Distributor Marks") for the purpose of promoting and
advertising Distributor's products or services, provided COREL complies with the
following guidelines:
(i) The Distributor Marks may only be used in relation to Distributor's
products or services. This means that COREL may not display the
Distributor Marks on any non-Distributor product or service including
any associated packaging, documentation, advertising or other materials
in a manner that suggests that such product or service is a Distributor
product or service, that Distributor or any of the Distributor Marks are
associated with such product or service or that Distributor is
affiliated with, endorses or sponsors COREL or any of such products or
services.
(ii) Distributor will provide COREL with any artwork or graphics for the
Distributor Marks. The artwork or graphics may not be altered in any
way.
(iii) When displayed, the Distributor Marks must stand alone. A minimum amount
of empty space must be left between the Distributor Marks and any other
object such as type, photography, borders, edges, etc. The required
border of empty space around the Distributor Marks must be 1/2x wide
where x is the height of the Mark.
(iv) You may not combine the Distributor Marks with any other feature
including, but not limited to, other logos, words, graphics, photos,
slogans, numbers, design features, or symbols. Further, you may not
display your own logos or marks or other text or graphics in the same or
similar get-up, graphics, look, or trade-dress as the Distributor Marks.
(v) The Marks must not be used in a manner that, in Distributors's judgment,
may diminish or otherwise damage Distributor's goodwill in the
Distributor Marks, including but not limited to uses which could be
deemed to be obscene, pornographic, or otherwise in poor taste or
unlawful, or which purpose or objective is to encourage unlawful
activities.
(vi) You must place an asterisk (*) or similar notation mark beside the first
use of a Distributor Mark and include the following attribution
statement on the materials in which the Distributor Marks are featured.
"* Trademark(s) of ShopNow.com Inc."
<PAGE>
47
SCHEDULE "R"
CUSTOMER SERVICE
A. SERVICES
1. Distributor shall provide all Customer, Reseller and/or Affiliates support
for use of Distributor System and Distributor Web Site including, but not
limited to, credit card processing and downloading of Products on
Customer's hard disk. All Customer inquiries relating to the Software, the
system and/or the store that existed prior to the Distributor System and
the Store ("COREL Support") shall be directed to the number mutually agreed
upon by the parties and such inquiries shall also be documented in an
e-mail message and sent to COREL Customer service. Distributor's
representatives shall direct all requests that fall within Corel Support to
Corel according to methods agreed to by the parties. In addition, in the
event a Customer becomes irate or requests to be transferred to a COREL
customer service center, Distributor shall immediately transfer such
Customer to the COREL customer service center designated by COREL. Upon
delivery of Version 1.2 of the Store (as defined in Schedule H), or such
other time as the parties shall mutually agree, such transfer shall occur
without such Customer having to make an additional call.
2. Distributor shall establish an 800 telephone line and fax line available to
Customers worldwide which are dedicated to customer service for the
Distributor System and the Store. Upon delivery of Version 1.2 of the Store
(as defined in Schedule H), or such other time as the parties shall
mutually agree, such lines shall be transferable and/or assignable to COREL
upon termination or expiration of this Agreement. Distributor shall ensure
that the IVR is customized to indicate to Customers that they have called
for customer service relating to the Distributor System and/or the Store.
In addition, Distributor shall establish an e-mail address for Customers to
contact Distributor representatives for customer service. Distributor shall
also provide an automated e-mail response system within four (4) months of
the Effective Date unless otherwise agreed to by the parties. All e-mails
relating to Corel Support shall be forwarded to the Corel Account Manager.
3. Distributor shall perform customer service twenty four (24) hours per day,
seven (7) days a week in English, French and Spanish. Additional foreign
language services may be provided by Distributor upon mutual written
agreement between the parties.
4. Distributor shall receive and respond to Customer telephone, fax and e-mail
inquiries within twenty-four (24) hours of Customer's initial inquiry to
Distributor.
5. Distributor shall develop an internal escalation process whereby a Customer
can contact a designated representative within Distributor should it be
necessary for problem escalation. In the event Distributor cannot
satisfactorily resolve a Customer inquiry, Distributor shall escalate such
Customer inquiry to COREL's Account Manager and shall provide COREL's
Account Manager with all details regarding the escalated Customer inquiry.
Distributor shall use its best efforts, which in no event shall be less
than the Customer's reasonable expectations, to resolve Customer issues.
Upon escalation to COREL by Distributor, COREL shall assume responsibility
for the resolution of the escalated call; document the problem and its
resolution. Upon delivery of Version 1.2 of the Store (as defined in
Schedule H), or such other time as the parties shall mutually agree,
Distributor shall ensure that it has the ability to transfer Customers both
internally and externally to COREL customer service representatives without
requiring Customers to place an additional call or without having to call
back the Customers (i.e. a Hot Transfer). In addition, Distributor shall
use best efforts to ensure that Customers are not required to repeat their
request upon transfer.
6. COREL shall assume responsibility for the resolution of the escalated
calls only for those escalated calls under paragraph 5 that have not
previously been escalated to COREL and resolved by COREL. In other
words, once COREL has resolved a Customer issue and documented such
resolution in COREL's knowledge base or other resource provided by COREL
to Distributor, it is expected that Distributor shall thereafter be able
to resolve this Customer issue without escalation to COREL.
<PAGE>
48
7. Distributor shall ensure that when Customers are in the hold queue a
promotional message is played. Such promotional message shall be provided
to Distributor by COREL from time to time.
8. Distributor shall have the ability to upsell and cross-sell COREL products
and may do so upon COREL'S consent. Scripts for upselling and cross-selling
shall be provided to Distributor by COREL.
9. At all times, Distributor shall have a minimum of fourteen (14) customer
service personnel, of which a minimum of six (6) shall be dedicated only to
COREL and the Store. In the event that the call volume increases and it is
agreed to by the parties that additional customer service personnel are
required, Distributor shall ensure that such additional customer service
personnel are appointed according to terms mutually agreed upon. For the
first three (3) month period of this Agreement, Distributor shall have one
(1) additional COREL dedicated customer service personnel available at all
times to assist the transition team for all issues arising as a result of
the re-opening of the Store.
10. Distributor shall ensure that all customer service personnel have adequate
telephone skills, are given proper telephone training before they provide
customer service to Customers and have received the appropriate training to
upsell and cross-sell COREL products. In addition, Distributor shall ensure
that a minimum of one (1) senior customer service representative is
technically knowledgeable about the visual content industry and the use and
application of the products available in the Corel studio and that such
person is available at all times.
11. Distributor shall on a weekly basis, send a post-shipment email survey,
approved in writing by COREL, to a minimum of ten percent (10%) of
Customers who have purchased Software and/or Merchandise from the Store in
the previous seven (7) day period (up to a maximum of one hundred (100)
Customers) regarding their purchase experience on the Store. Upon COREL's
consent, for those Customers who purchased by telephone, Distributor shall
administer the post-shipment survey to Customers by telephone.
12. Distributor shall ensure that it has the ability to process Customer
product returns. In the event that a Customer returns a product that was
not purchased from Distributor, Distributor shall direct such Customers to
COREL's customer service center. Distributor shall accept Software returns
in accordance with COREL's return policy in effect from time to time.
13. Distributor shall send an e-mail message to the list of Customers provided
by COREL, informing them of the re-opening of the Store. Such message shall
require the prior written approval of COREL.
B. GUIDELINES
1. Distributor is to provide Customers with answers to customer service
questions relating to the Software using information provided by COREL and
information learned by Distributor.
2. Each Distributor employee performing customer service shall identify their
name and state "COREL On-Line Store, < name > speaking, how may I help
you", or some other language that is mutually agreeable to the parties, at
the start of each call with a Customer.
3. Distributor shall adhere to the following minimum performance guidelines:
- Abandoned customer service calls shall not exceed 5% of total calls
on a monthly basis.
- Eighty-six percent (86%) of calls shall be answered within 15
seconds and the average speed of answer per call shall not exceed
thirty (30) seconds.
<PAGE>
49
- E-mails received before 4:00 p.m. EST will be answered the same
day. E-mails received after 4:00 p.m. EST will be answered within
24 hours.
- The average hold time (time Customer is put on hold) per call shall
not exceed forty (40) seconds.
4. Distributor shall adhere to the following call queuing process:
(i) Queue call to Corel skill group - Check for available agents
(ii) Caller hears one ring cycle (approx. 6 seconds)
(iii) Wait time approx. 12 seconds hearing music
(iv) 1st announcement
(v) Wait approx. 30 seconds hearing music
(vi) 2nd announcement
(vii) Wait approx. 30 seconds hearing music
(viii) Re-play 2nd announcement.
(ix) Wait approx. 15 seconds hearing music
(X) Go to voice mail box for caller to leave message
ANNOUNCEMENTS:
1ST ANNOUNCEMENT: "Thank you for calling "COREL ONLINE STORES" all of our
agents are currently busy assisting other callers. Please hold, and your call
will be answered by the next available agent."
2ND ANNOUNCEMENT: "Please continue to hold, your call is important to us, and
will be answered in the order it was received."
VOICE MAIL ANNOUNCEMENT: "Thank you for calling Corel Online Stores. Due to
unusually high call volume, we were unable to answer your call at this time.
Please leave your name, telephone number, and a brief message and we will return
your call shortly."
NETWORK ANNOUNCEMENTS:
High call volume: "Thank you for calling Corel Online Stores. We apologize that
we are unable to answer your call at this time due to extreme call volume.
Please try your call again later."
These customer service guidelines shall be subject to reasonable changes by
COREL, at COREL's sole discretion, from time to time.
C. CUSTOMER SERVICE MATERIALS
COREL shall provide Distributor with COREL's standard customer service policies
and historical purchase data for the Store no later than the Effective Date.
In addition, COREL shall provide Distributor with response scripts and
escalation guidelines when available.
D. REPORT
Distributor shall provide to COREL a monthly report no later than the tenth
(10th) day after the end of the month for which the report is being provided
which shall capture the following information or other information as reasonably
requested by COREL:
Inbound Customer calls
(i) Number of calls received;
<PAGE>
50
(ii) Number of calls answered;
(iii) Number of calls abandoned;
(iv) Average waiting time per call;
(v) Type of call received;
(vi) Average talk time per call;
(vii) Number of calls which result in the sale of COREL product at the time of
the call;
(viii) Number of e mails received;
(ix) Number of e mails answered; and
(x) Response provided to e mails answered.
Outbound Customer calls (calls made to Customer, which calls shall be made only
as a result of a Customer request or if COREL has given its prior consent)
(i) Number of calls made;
(ii) Type of calls;
(iii) Length of Call; and
(iv) Number of calls which result in the sale of COREL product at the time of
the call.
Additional Information:
Distributor shall provide the following additional information:
(i) company name, Customer's name, address, city, state or province, zip
code or area code, telephone number, fax number and electronic email
address;
(ii) summaries of questions asked and answers provided by Distributor;
(iii) the duration of the call;
(iv) the call reference number;
(v) the customer service person's name;
(vi) the date of the call;
(vii) Customer identification number;
(viii) calls escalated to COREL;
(ix) number of requests for additional foreign language customer service
and which languages;
(x) Customer feedback from the follow-up purchase surveys;
(xi) any site, shopping, process or process related Customer complaints;
(xii) questions relating to the Store or ESD services received by Customer
prior to the date of execution of this Agreement; and
(xiii) feedback on previous Customer experiences
Note: Any support incident escalated to COREL must be reported whether
or not the issue has been resolved at the time of reporting.
E. SHIPPING
Distributor shall ship to the locations listed below. This list is subject to
export shipment restrictions:
Australia Germany Japan
Austria Great Britain Korea
Belgium Greece Liechtenstein
Canada Hong Kong Luxembourg
Denmark Iceland Monaco
Finland Ireland Netherlands
France Italy New Zealand
<PAGE>
51
Norway Spain United Kingdom
Portugal Sweden United States
Singapore Switzerland
South Africa Taiwan
Shipping prices are dependent on the shipper's pricing policies and are subject
to change.
Shipping - Domestic (Continental) U.S.
<TABLE>
<CAPTION>
Shipping Carriers Initial Cost Per Pound Delivery time
<S> <C> <C> <C>
Standard Ground shipping ---- ---- 4-7 business days + processing
2nd day or blue label $12.50+ $1.45 2 business days + processing
Next day, express, red $19.00+ $1.85 1 business day + processing
SHIPPING - CANADIAN *
Shipping Carriers Initial Cost Per Pound Delivery time
Standard Ground shipping $9.95+ $0.50 4-7 business days + processing
Next day, express, red $19.00+ $1.85 1 business day + processing
<CAPTION>
INTERNATIONAL SHIPPING * (EXCLUDING CANADA)
<S> <C> <C> <C>
Shipping Carriers Initial Cost Per Pound Delivery time
Express $21.95+ $4.50 48-72 hrs. + processing
APO/FPO SHIPPING
Shipping Carriers Initial Cost Per Pound Delivery time**
USPS Express $16.95+ $1.85 24-48 hours+processing
</TABLE>
* ALL INTERNATIONAL ORDERS may be subject to import taxes in addition to cost
of the order
** Delivery time to U.S. military collection point
<PAGE>
52
SCHEDULE "S"
STOCK BALANCING GUIDELINES AND STOCK BALANCING FEES
The following Stock Balancing Guidelines (the "Guidelines") shall apply to all
Merchandise and Schedule "B" Software returned to COREL by Distributor. COREL
will grant a credit equal to the Merchandise Price and/or Schedule "B" Software
Prices paid by Distributor for Merchandise and Schedule "B" Software returned in
accordance with these Guidelines less any credits issued against the Merchandise
and Schedule "B" Software under Section 7.03 of this Agreement ( the "Return
Price").
Failure to follow these Guidelines will result in either rejection of an RMA
request and/or return of any Merchandise and Schedule "B" Software received by
COREL from Distributor at Distributor's sole cost and expense.
1. STOCK BALANCING GUIDELINES
1.1 Merchandise and Schedule "B" Software may be returned to COREL once
per each COREL quarter (Q1 December 1st to February 28th (or
February 29th) inclusive Q2 - March 1st to May 31st inclusive; Q3 -
June 1st to August 31st inclusive; Q4 - September 1st to
November 30th inclusive).
1.2 All returns shall be at Distributor's sole cost and expense.
1.3 Prior to any Merchandise and Schedule "B" Software return,
Distributor must provide written notice to COREL specifying the
Merchandise and Schedule "B" Software Distributor wishes to return
and requesting a Return Material Authorization ("RMA"). This notice
must be received by COREL no later than the fourteenth (14th) day
after the end of the quarter for which the RMA is requested.
1.4 The aggregate Return Price for Merchandise and Schedule "B"
Software returns in any COREL quarter can not exceed an amount
equal to three and three quarters percent (3.75%) of the total
aggregate Merchandise Prices for Merchandise and Schedule "B"
Software Prices for Schedule "B" Software delivered to Distributor
by COREL during the immediately preceding four (4) COREL quarters
less any credits issued against the Merchandise and Schedule "B"
Software under Section 7.03 of this Agreement ("Return Price
Limit").
1.5 All Merchandise and Schedule "B" Software for which an RMA has been
issued must be shipped to COREL by Distributor within thirty (30)
days of the date of the RMA.
1.6 No Merchandise or Schedule "B" Software may be returned by
Distributor without a valid RMA from COREL.
1.7 The acceptance of any Merchandise and Schedule "B" Software
returned to COREL by Distributor pursuant to a valid RMA, and
issuance of a credit for such returned Merchandise and Schedule "B"
Software, shall be subject to review and inspection of the returned
Merchandise and Schedule "B" Software by COREL upon receipt of such
returned Merchandise and Schedule "B" Software at COREL's
warehouse. Notwithstanding the issuance of an RMA by COREL, RMA
credits shall only be provided for Merchandise and Schedule "B"
Software actually received and approved by COREL For example, and
without limiting the generality of this paragraph 1.7, COREL shall
not provide the full RMA credit which may have been issued for
partial returns or for Merchandise and Schedule "B" Software which
is specified by Distributor under paragraph 1.3 as 'full retail'
product but is determined upon inspection to be upgrade product.
<PAGE>
ADDENDUM NO. 1
PROJECT AGREEMENT
TO
STRATEGIC ALLIANCE AGREEMENT
BETWEEN
HNC SOFTWARE INC. AND SHOPNOW.COM INC.
This agreement addendum (the "Project Agreement") dated as of May 4, 1999
(the "Project Agreement Effective Date") modifies the Strategic Alliance
Agreement (the "Agreement") dated May 4, 1999 between the parties, HNC
Software Inc. ("HNC") and ShopNow.com Inc. ("Alliance Partner") with respect
to additional services or products that HNC shall provide to Alliance Partner
as stated below.
RECITALS
A. HNC operates a Service Bureau that utilizes the following products and
services:
1. eFalcon Services; eFalcon Rule Editor, eHNC Order Workstation, eFalcon
Consortium Model, and
2. SelectResponse Services; SelectResponse Email Router, SelectResponse
Email Profiler, SelectResponse Product Search, and
3. SelectCast Target Marketing Services.
B. Alliance Partner wishes to access the Service Bureau for its own uses,
which includes reselling access to the Service Bureau to its customers as
provided for within this Product Agreement.
Now, therefore, pursuant to Section 5.2 of the Agreement and in consideration
of the premises and the mutual covenants contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Definitions
a) For purpose of this Project Agreement, the following additional
definitions are provided:
i) "NETWORK OPERATIONS CENTER" shall mean the Alliance Partner's
computer service center that hosts merchant transactions.
ii) "ALLIANCE PARTNER LOCATION" shall mean the physical location of a
Network Operations Center.
iii) "eFalcon SERVICES" shall mean the products and services described
as; eFalcon Rule Editor, eHNC Order Workstation, eFalcon
Consortium Model. "eHNC ORDER WORKSTATION" the software used for
case management of transactions processed through the eFalcon
Services.
1
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
<PAGE>
iv) "MERCHANT" shall mean a merchant of Alliance Partner that
processes credit card transactions using Alliance Partner's
products or services.
v) "HNC SOFTWARE" shall mean the software delivered by HNC to the
Alliance Partner's location which is the communication software
to transmit Transactions to the Service Bureau, eHNC Order
Workstation and SelectResponse Email Router Software.
vi) "SELECTRESPONSE SERVICES" shall mean the products and services
described as; SelectResponse Email Router, SelectResponse Email
Profiler and SelectResponse Product Search.
vii) "SERVICE BUREAU" shall mean the Service Bureau Operations managed
by HNC that offers access to Alliance Partner to eFalcon
Services, SelectResponse Services and SelectCast Target Marketing
Services,
viii) "TRANSACTION" shall mean data submitted from Alliance Partner's
merchant server to the Service Bureau to utilize all Service
Bureau Products and Services
ix) "BILLABLE TRANSACTION" shall mean a Transaction that is
processed through eFalcon Consortium Model resulting in a fee.
2. Service Bureau Operations
a) HNC shall operate a central service bureau operation that shall be
accessible by Alliance Partner that utilizes the following products
and/or services (hereafter referred to as "Service Bureau Products
and Services"):
i) eFalcon Services,
ii) SelectResponse Services, and
iii) SelectCast Target Marketing Services.
b) HNC agrees to provide non-exclusive access to its Service Bureau to
Alliance Partner during the term of this Project Agreement subject to
the fees and conditions contained in this Project Agreement.
c) During the term of this Project Agreement, Alliance Partner shall
submit all merchant Transactions to HNC, in real-time, in a
pre-defined format from its Network Operations Center to the HNC
Service Bureau. Data formats shall be defined and provided by HNC.
d) Included for use with the Service Bureau Operations is a license to
SelectResponse Email Router that resides at Alliance Partner's
location and is to be used with SelectResponse Email Profiler.
3. License Grant
a) LICENSE TO USE THE HNC SOFTWARE. Subject to the terms and conditions
of this Project Agreement HNC hereby grants to Alliance Partner a
non-transferable, non-exclusive license (the "LICENSE") effective
during the term of this Project Agreement, to use object code copy of
the HNC Software and the documentation for use at a Network
Operations Center and unlimited copies of the eHNC Order Workstation in
object code for use with personal workstations, for access to the
United States Service Bureau, and only for Alliance Partner's
operations. Additional Licenses for Network Operations Server sites or
eHNC Order Workstation software may be purchase separately. Alliance
2
<PAGE>
Partner agrees not to market, sublicense or otherwise make the HNC
Software available outside the Alliance Partner's organization
b) RESTRICTION FOR HNC SOFTWARE. Except as provided for in Section 3.
d), no one other than the Alliance Partner or its employees, agents,
contractors or other parties under contract to perform services by
and on behalf of Alliance Partner may use the HNC Software without
the prior written consent of HNC. It is agreed and understood by
Alliance Partner that the pricing and fees contained in this Project
Agreement are based upon the use of the HNC Software solely by the
Alliance Partner.
c) LICENSE TO ACCESS THE HNC SERVICE BUREAU OPERATIONS. Subject to the
terms and conditions of this Project Agreement, HNC hereby grants to
Alliance Partner a non-transferable, non-exclusive access license
(the "ACCESS LICENSE") effective during the term of this Project
Agreement, to access and use the Service Bureau Operations as defined
above within the United States and only from a Network Operations
Center. Except as provided for in Section 3. d), Alliance Partner
agrees not to market, sublicense or otherwise make the Service Bureau
Operations available outside the Alliance Partner's organization.
d) PERMITTED MERCHANT USE. Alliance Partner shall be permitted to allow
access to, and use of, its Access License to its Merchants to process
Merchant Transactions through the Service Bureau. Alliance Partner
shall require that all Merchant Transactions be processed through the
Alliance Partner's Network Operations Center. Merchants shall be
permitted to obtain a License to the eHNC Order Workstation for use
with Alliance Partner's Access License for a fee and in accordance with
the terms of this Project Agreement.
e) OWNERSHIP AND PROPRIETARY RIGHTS. The HNC Software, Service Bureau
Products and Services and documentation are protected by U.S. and
international copyright and/or patent laws. Alliance Partner will
reproduce on each copy of the HNC Software and the documentation the
HNC copyright notice and any other proprietary legends that were in
the original copy supplied by HNC. Except for and subject to Alliance
Partner's limited license rights to use the HNC Software, Service
Bureau Products and Services and documentation as permitted in this
Project Agreement, no right, title, or interest in or to the HNC
Software, its documentation, or any intellectual property rights
associated therewith is conveyed or assigned by HNC (either
expressly or by implication) by virtue of this Project Agreement. HNC
and its third party licensors (where applicable) retain and reserve
the sole and exclusive worldwide right, title and interest in and to
all HNC Software, Service Bureau Products and Services, its
documentation, and all worldwide intellectual property rights therein
and all copies thereof, in whole or in part, subject only to Alliance
Partner's limited license rights to use the HNC Software, Service
Bureau Products and Services and documentation as permitted by this
Project Agreement.
3
<PAGE>
f) RESTRICTIONS ON USE. HNC asserts that HNC Software and Service Bureau
Products and Services contain trade secrets of HNC and to protect
them, Alliance Partner agrees that NEITHER it nor its employees,
representatives, and/or agents will decompile, reverse engineer,
disassemble or otherwise reduce the HNC Software or Service Bureau
Products and Services to a human perceivable form or permit any other
party to do so. Except as provided for in Section 3. d), above),
Alliance Partner may not copy (other than for backup purposes),
modify, adapt, translate, rent, lease, sublicense, loan, resell for
profit, distribute, time-share, or create any derivative works of the
HNC Software or the Service Bureau Products or Services.
4. MAINTENANCE AND SUPPORT FOR HNC SOFTWARE. Except as provided for below or
unless specifically provided in a separately negotiated written
maintenance agreement between the parties, no maintenance and support
services will be provided with respect to the HNC Software beyond the
warranty period specified in this Project Agreement.
HNC will periodically release updates to the HNC Software. Costs for
upgrades will vary depending on upgrade type and corresponding functional
enhancements.
With a current License in effect with HNC, Alliance Partner will be
entitled to "Maintenance Releases" and "Enhancement Releases" free of
charge as defined below. In addition, HNC shall provide Alliance Partner
with "Major releases" for the HNC Software exclusive of the
SelectResponse Email Router Software which shall be charged for
separately when and if available.
MAINTENANCE RELEASE: A maintenance release generally signifies a
program bug fix only. It is indicated by a change in the release
number of the product two positions to the right of the first
decimal. For example, 2.01 to 2.02 is classified as an update.
ENHANCEMENT RELEASE. An enhancement release generally signifies minor
feature additions/enhancements, and includes feature and bug fixes
from the preceding level. It is indicated by a change in the release
number of the product one position to the right of the decimal. For
example, release 2.02 to 2.10 is classified as an update.
MAJOR RELEASE. A major release signifies the addition of major
functional improvements and/or architectural changes, and includes
previous release features and bug fixes. It is indicated by a change
in the release number to the left of the decimal point, such as 2.10
to 3.00.
5. LIMITED WARRANTIES. HNC hereby warrants that during the term of this
Project Agreement, the HNC Software, Service Bureau Products and
Services will, in all material respects, conform to its published
specifications. In the event that Alliance Partner discovers a material
malfunction in a HNC Software or Service Bureau Product and Service, HNC
agrees to use its reasonable commercial efforts to correct, cure, replace
or otherwise remedy such material malfunction without additional
4
<PAGE>
charge to Alliance Partner. Alliance Partner agrees to cooperate and work
closely with HNC in a prompt and reasonable manner in connection with
HNC's correction efforts and not transfer or install any HNC Software
without HNC assistance.
HNC warrants that it shall deliver the functionality of the
SelectResponse Product Search and SelectCast Target Marketing Services
within the Service Bureau Operations as provided for in the preceding
paragraph. If Alliance Partner should require additional functionality,
HNC shall use its commercially reasonable efforts to work with Alliance
Partner in good faith to design a solution that meets these needs.
Creation of any new features or functionality shall be dictated by
Section 7. of this Project Agreement. In addition to the remedies set
forth above, if HNC is unable correct, cure or otherwise remedy the
breach in this paragraph, Alliance Partner agrees to accept the software
versions the SelectResponse Product Search and SelectCast Target
Marketing Services as an acceptable cure. Installation services shall be
provided for in accordance with Section 6. d). Maintenance and support of
the softwares shall provided by HNC at HNC's then prevailing rates for
such services.
EXCEPT FOR THE FOREGOING EXPRESS WARRANTIES SET FORTH IN THIS SECTION, HNC
MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, UNDER THIS
AGREEMENT AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ANY
WARRANTIES REGARDING MERCHANTABILITY, FITNESS FOR PURPOSE, ACCURACY OF
DATA OR CORRESPONDENCE WITH DESCRIPTION.
6. FEES ANY PAYMENTS
a) INSTALLATION COMPLETE. HNC shall provide written notice to Alliance
Partner indicating when the HNC Software has been installed (the
"Installation Complete" notice) at the Network Operations Server.
b) SET-UP FEES. Alliance Partner shall pay HNC a fee for set-up services
in the amount of [*] per Network Operations Center location for the
HNC Software (the "Set-up Fee"). The Set-up Fee is for installing the
eFalcon API Library and HNC Software so that data Merchant
Transactions, in the pre-defined format, can be transmitted to and from
the Service Bureau Operations. The Set-Up Fee includes five (5) days of
training on the use of the HNC Software, including how to establish and
set case management rules within the eHNC Order Workstation. The Set-up
Fee is due upon execution of this Project AGreement. Upon completion of
the set up services, HNC shall deliver the notice of Installation
Complete.
Additional Network Operation Centers may be utilized by Alliance
Partner to access the Service Bureau and shall require a Set-up Fee
of [*] per Network Operation Cent for installation of the HNC
Software. Alliance Partner is not permitted to install the HNC
Software in other Network Operation Centers without HNC installation
assistance. Alliance Partner may obtain training on the HNC Software
for each new Network
5
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
Operation Center locations for a flat fee of [*]. All fees are due upon
delivery of the notice of Installation Complete for the respective Network
Operation Center. Additional installations of the HNC Software on
additional servers within the same Network Operation Center shall be
provided to Alliance Partner in accordance with Section 6. d). below.
Alliance Partner may not transfer the HNC Software from one location to
another without first notifying HNC. Any additional costs incurred by
HNC to support Alliance Partner's transfer of the HNC Software shall be
charged based upon the fee schedules and reimbursement clauses contained
in this Section 6.
c) SERVICE FEE. The "Service Fee" paid to HNC shall be the greater of the
minimum monthly fee of [*] the "Minimum Monthly Fee") or the Transactional
Fee calculated below for the applicable month. Alliance Partner agrees to
pay the Service Fees for the use of the HNC Service Bureau and HNC
Software (excluding SelectResponse Email Router Software and additional
eHNC Order Workstations, see below) beginning with the first calendar month
after the Installation Completion date.
i) TRANSACTIONAL FEES. The transactional fee shall be calculated
based upon the number of transactions processed by eFalcon
multiplied by the corresponding rate below (the "Transaction
Fee").
<TABLE>
<CAPTION>
Transaction Number of
Fee Transactions
<S> <C>
[*]
</TABLE>
ii) NUMBER OF TRANSACTIONS. All transactions must be provided to the
HNC Service Bureau via at least monthly. The "Number of
Transactions" in the table above represents the cumulative number
of Billable Transactions processed through eFalcon during each
twelve month period beginning with the Installation Complete date
and, thereafter, reset to zero on each annual anniversary of the
Installation Complete date. The following table exemplifies the
calculation of the Transactional Fee with certain assumed
transactional volume over a three month period:
<TABLE>
<CAPTION>
Number of Cumulative Rate Transactional
Month Transactions No. of Trans. Used Fee Computed
----- ------------ ------------- ---- -------------
<S> <C> <C> <C> <C>
[*]
* CONFIDENTIAL TREATMENT REQUESTED.
6
<PAGE>
[*]
</TABLE>
iii) SELECTRESPONSE EMAIL ROUTER SOFTWARE. Alliance Partner shall
pay HNC [*] per month for the use of SelectResponse Email Router
Software included in the HNC Software along with the Service Fee.
Also, the following additional services have been agreed to with
respect to the SelectResponse Email Router Software:
a) Consulting Services. HNC agrees to assist Alliance Partner
with integrating Mustang's IMC Architect software with its
system and the HNC Software. HNC estimates that this will
take approximately [*] at a billing rate of [*] per hour
for such services. In addition, Alliance Partner will
need to license Mustang's IMC Architect, estimated to be
[*].
b) Implementation and Training. HNC agrees to provide on-site
training and assistance with installation of SelectResponse
Email Router Software. HNC estimates that this will take
approximately 10 days, or 100 hours, at a rate of $150 per
hour for such services.
iv) eHNC ORDER WORKSTATION SOFTWARE. Alliance Partner is provided
unlimited copies of the eHNC Order Workstation with its License
for the Service Fee above. Alliance Partner's Merchants may also
obtain a user seat license for eHNC Order Workstation for $1,000
each with a minimum initial order of [*] seats per Merchant.
Installation and training is provided for at the fees and costs in
this section 6.
d) INSTALLATION SERVICE FEES. Installation Services will be provided on a
time and materials ("T&M") basis for any work provided in excess of the
basic set up services in b) above; that is, Client shall pay HNC for all
of the time spent performing such services, plus materials, taxes and
expenses. The Installation Services Fee to be paid by Client with
respect to the HNC Software will be calculated from HNC's standard time
and materials ("T&M") rates in effect at the time the services are
performed. The following are HNC's Standard Hourly Rates current as of
the date of this Project Agreement (and are subject to change without
notice):
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED.
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
(e) IMPLEMENTATION ASSISTANCE AND TRAINING FEES. Implementation Assistance
and Training services will be provided on a time and materials ("T&M")
based upon the scope of such services. The fees to be paid by Client
with respect to these services will be calculated from HNC's standard
time and materials ("T&M") rates in effect at the time the services are
performed (see the rate schedule in subsection d) above).
f) TIMING AND LATE FEES. Unless otherwise indicated, all fees shall be
billed by HNC at the end of each month and shall be due within 30 days
of receipt. Any fees unpaid thereafter shall be subject to a 1.5% per
month late fee until paid.
g) TRANSMIT PAYMENTS TO:
IF PAYMENT IS MADE BY CHECK: IF PAYMENT IS MADE BY ELECTRONIC
TRANSFER:
HNC Software Inc. Wells Fargo Bank
Corporate Accounts Receivable Commercial Banking Office
5935 Cornerstone Court West 401 B Street, Suite 2201
San Diego, CA 92121-3728 San Diego, CA 92101
Telephone: 619-699-3016
HNC Software Inc.
ABA Number: 121000248
Account Number: 4488-83442
h) PRICE ADJUSTMENTS. HNC may adjust the amount of any fees (including, but
not limited to, labor rates, reimbursement rates, license fees,
installation fees, and other charges) on an annual basis beginning on
the anniversary date of this Project Agreement. Adjustments will be made
to all such fees (including, but not limited to, labor rates,
reimbursement rates, license fees, installation fees, and other charges)
within three (3) months of the anniversary date with reference to the
percentage increase (if any) of the Consumer Price Index (CPI), for the
San Diego, California area, but such increases will not be made at an
annual rate in excess of CPI increase plus four percent (4%). No
decrease in any fee (including, but not limited to, labor rates,
reimbursement rates, license fees, installation fees, and other charges)
will be made under this section.
i) TAXES. All payments by Alliance Partner to HNC under this Project
Agreement for any fees and reimbursement of any expenses will be
exclusive of any sales, use, service, or value added taxes, or any other
levy, tariff, duty or tax of
8
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
any kind whatsoever imposed by any governmental authority with
respect to the services rendered or expenses incurred by HNC
hereunder (other than a tax imposed upon HNC's income or
withholding tax imposed by the country where Alliance Partner's
principal place of business is located). With the exception of the
taxes described in the foregoing parenthetical, Alliance Partner
agrees to pay, within thirty (30) days of receipt of the
applicable HNC invoices, any such tax whenever such tax is imposed
by a governmental authority.
j) REIMBURSEMENT OF TRAVEL EXPENSES. Alliance Partner shall reimburse
HNC for all reasonable travel-related expenses incurred by HNC
with respect its provision of services hereunder this Project
Agreement. HNC will invoice Alliance Partner for all such expenses
on a monthly basis and said invoice(s) will be due and payable
thirty (30) days from of receipt of such invoice.
7. CUSTOM SOFTWARE DEVELOPMENT. Any custom software development shall be
priced at HNC's prevailing rates for the level of staff and project
specifications. All work shall be approved, in advance, prior to HNC
commencing the project. Refer to the section 6.d) for a listing of the
HNC standard rates. Unless otherwise agreed to in writing by both
parties, all custom software development is considered proprietary and
confidential information of HNC and shall remain the sole and exclusive
property of HNC. No rights, title, or interest in or to any custom
software development, its documentation, or any intellectual property
rights associated therewith is conveyed or assigned by HNC (either
expressly or by implication) by virtue of this Project Agreement.
8. DISTRIBUTION AND MARKETING. It is understood by HNC that Alliance
Partner will be transmitting its customer's Transactions to the HNC
Service Bureau. Any customer agreements used by Alliance Partner shall
not contain any greater rights than those conveyed to Alliance Partner
by this Agreement and must contain similar language with respect to
disclosure of confidential information, warranties and limitations of
liabilities. HNC accepts no liability for the information provided to
the customer by Alliance Partner. Alliance Partner agrees to indemnify,
defend and hold harmless HNC and its directors, officers, employees, and
agents from and against any and all liabilities, actions, claims,
demands, liens, losses, damages, judgments, and expenses, including
reasonable attorney's fees, that may arise as a result of Alliance
Partners actions or inactions under this section 8. This section shall
survive the termination of this Project Agreement.
9. TERM AND TERMINATION. This Project Agreement shall become effective as
of the Project Agreement Effective Date and continue for a period of
[*] from the Installation Complete, unless sooner terminated as provided
for below:
a) This Project Agreement shall be terminated by either party for an
uncured breach with at least 30 days advance written notice to the
breaching party.
9
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
b) This Project Agreement may be terminated by HNC upon notice to
Alliance Partner if amounts due remain unpaid for more than 30 days
past their due date.
All fees earned or unpaid as of the effective date of termination shall
become immediately payable to HNC and all materials provided to either
party as a result of this Project Agreement shall be promptly returned.
10. CONSORTIUM MEMBERSHIP. Alliance Partner recognizes that consideration has
been given in this Project Agreement to its membership in HNC's Fraud
Control Consortium and agrees to negotiate in good faith and execute a
Consortium Membership Agreement.
IN WITNESS WHEREOF, HNC and Alliance Partner have caused this Project
Agreement to be signed in duplicate and delivered by their duly authorized
representatives as of the Project Agreement Effective Date indicated above.
HNC Software Inc., ShopNow.com Inc.,
a Delaware Corporation a Washington corporation
By: /s/ R.V. Thomas By: /s/ Alan Koslow
------------------------------- --------------------------------
Name: R.V. Thomas Name: Alan Koslow
------------------------------- --------------------------------
Title: CEO Title: E.V.P. Finance/General Counsel
------------------------------- --------------------------------
10
<PAGE>
DISTRIBUTOR/MARKETING AGREEMENT
This agreement (this "Agreement") is entered into as of April 29, 1999
(the "Effective Date") by and between Qwest Communications Corporation
("Qwest"), with offices at 555 17th Street, Denver, Colorado 80202, and
TechWave Inc. ("TechWave"), with principal offices at 411 First Avenue South,
Suite 200, Seattle, WA 98104.
WITNESSETH:
WHEREAS, Qwest and TechWave desire to enter into an agreement pursuant to
which: (a) TechWave will act as a distributor of certain business and
consumer services of Qwest; (b) TechWave will market certain services over
the Internet; through inbound calls and during TechWave sales calls (c)
TechWave will purchase its telecommunications services from Qwest; and (d)
TechWave will issue a warrant to Qwest for the purchase of certain shares of
common stock of TechWave.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
agreements and representations herein contained and subject to the terms and
conditions herein set forth, and intending to be legally bound hereby, Qwest
and TechWave hereby agree as follows:
1) TERM.
The terms and conditions of this Agreement shall be effective between the
Effective Date and the Expiration Date (as hereinafter defined), inclusive
(such period sometimes hereinafter the "Initial Term"), unless sooner
terminated as provided herein. The term "Expiration Date" shall mean that
date which is [*] after the Effective Date. Unless either party
shall give written notice to the other party at least [*] prior
to the Expiration Date, this Agreement shall automatically renew for a
[*] period ("First Renewal Term"). Unless either party shall give
written notice to the other party at least [*] prior to the
expiration of the First Renewal Term, this Agreement shall automatically
renew for an additional [*] period ("Second Renewal Term").
2) THIRD PARTY SALES ARRANGEMENTS.
a) Qwest and TechWave each agree to all of the terms and conditions
set forth in Exhibits 2(a), 2(b) and 2(c) and all of the terms,
conditions, agreements, representations, warranties and covenants
set forth therein are hereby incorporated herein as fully as if
rewritten in the body of this Agreement. Residential Services,
Business Distributor Services and Business Affinity Services shall
be collectively referred to as "Services".
b) Qwest shall provide initial training and support to certain
TechWave employees and agents, who shall thereafter be responsible
for training TechWave's employees and agents. All such training and
support, other than the salaries of Qwest employees so involved,
shall be at TechWave's expense, subject to TechWave having given
its prior approval.
c) If TechWave, at any time during the term of this Agreement, desires
to use any marketing materials, whether in print or any other media
or form, including, without limitation, electronic, internet,
"world wide web" sites, visual, audio or any combination thereof,
and whether or not there is any reference to Qwest, relating to the
Services then TechWave may submit proposed marketing materials to
Qwest for Qwest's written approval. If Qwest does not provide its
written approval within fifteen (15) business days of receipt, then
such marketing materials shall be deemed to have been rejected and
TechWave agrees not to use any such marketing materials. If Qwest
does not provide its written
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
1
<PAGE>
approval within such fifteen (15) days, Qwest shall use reasonable
efforts to advise TechWave as to the reasons for not approving the
marketing materials.
d) TechWave shall not engage in solicitation of Services by outbound
telemarketing, sweepstakes, contests, or drawings without the prior
written consent of an officer of Qwest. In the event TechWave makes
a request for any such consent by Qwest, then Qwest agrees to
review and respond to TechWave within ten (10) business days of
receipt of such request and if such request is denied to provide
Qwest's reason or reasons for such denial. Notwithstanding the
immediately preceding sentence, any failure of Qwest to respond, or
to provide a reason for denial, shall not be deemed to constitute
consent.
e) TechWave shall not make any representation of rates, terms or
conditions of the Services that conflict with the applicable
tariffs or information provided by Qwest. TechWave shall not engage
in any activity that would cause Qwest to incur any obligation or
liability to employees, contractors or other parties utilized by
TechWave in selling the Residential Services. TechWave is
responsible for all expenses and obligations incurred by it as a
result of its efforts to solicit persons to become a new Customer
(as hereinafter defined) of Qwest. The term "Customer" shall mean
any person to which Qwest provides services.
f) If a person that is not a Customer is solicited by TechWave and
also by either another independent authorized sales representative
or by an employee of Qwest, Qwest may reasonably determine to which
representative or employees to credit such order, and TechWave
agrees to abide by and be bound by Qwest's decisions in this
regard. Qwest agrees to use commercially reasonable best efforts to
make such determination on the basis of which representative or
employee first submitted to Qwest a complete order, executed by the
person solicited, for Service. Qwest shall have no liability to
TechWave for commissions that might have been earned hereunder but
for the inability or failure of Qwest to provide Qwest Services to
any person solicited by TechWave or in the event of interruption,
discontinuation or modification of the Qwest Services.
g) TechWave shall not provide customer service to Customers that
TechWave obtains for Qwest, including billing, collections or
repair service, without Qwest's prior written consent. Every
Customer attracted by TechWave shall be a customer of Qwest and the
termination or expiration of this Agreement shall have no effect on
Qwest's relationship with any such Customer.
h) Qwest shall have the sole right to verify, accept or reject all
orders, to set the prices for the Services, and the terms and
conditions of the Services or other adjustments thereto without
liability to TechWave.
i) The availability of the Services to any person solicited by
TechWave will be at the discretion of Qwest based on business
reasons including, but not limited to, creditworthiness and
geographic location.
j) TechWave shall provide prominent placement of Qwest's name on each
of the following home pages: "www.shopnow.com", "www.myshopnow.com"
and "www.buysoftware.com" (collectively sometimes hereinafter the
"Main Pages") TechWave shall also provide prominent placement of
Qwest's name and logo on those other pages, screens or links over
which TechWave, or any Affiliate (as hereinafter defined) of
TechWave, exercises Content Control (as hereinafter defined) (such
other pages and the Main Pages collectively sometimes hereinafter
the "Relevant Homepages"). [*] through any phrase, graphic or
image, or through any combination thereof, provided however that
such restriction shall not preclude TechWave from making any such
display on a Relevant Homepage that is not a Main Page with respect
to [*] . TechWave shall not permit
any Main Page to display any reference to [*]
(collectively the "Named Entities") or to any
successor in interest to any such entity, other than Permitted
References (as hereinafter defined). TechWave represents and
warrants that it has the right, and covenants that during the term
of this Agreement it
* CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE>
will maintain the right, with respect to the Relevant Homepages, to
provide for the placement of Qwest's name and logo, and to restrict
such other usage, as contemplated by this Agreement. The term
"Permitted References" shall mean a reference to a Named Entity
that includes a reference to, and is made only in the clear context
of, offering a service or product, including without limitation
cellular service, that is not in any manner similar to the type of
services covered by this Agreement and that does not, directly or
indirectly, make reference to, suggest or have any reasonable
connotation relating to any of the types of services provided
hereunder. TechWave shall cause all of its indexing systems to
point all references to, or including, long distance
telecommunications to point to Qwest. The term "Affiliate", when
used with respect to either party, shall mean any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such
party. The term "Content Control" means that a page resides in a
data center owned or controlled by TechWave or a TechWave Affiliate
and that TechWave owns or controls the root URL associated with
such page.
k) Qwest shall provide Co-Branding Service (as hereinafter defined) to
TechWave, provided however that if during any Measuring Period (as
hereinafter defined) TechWave fails to obtain at least [*]
Residential Service Customers and at least [*] Business Affinity
Customers,then Qwest may thereafter elect to discontinue providing
such Co-Branding Service. The term "Measuring Period" shall mean
any [*] period during the term of this Agreement that
begins after that date which is [*] after the Program
Launch Date. The term "Co-Branding Service" shall mean: i) the
display of TechWave's name and logo on residential calling cards;
ii) the display of TechWave's name and logo on the invoices of Qwest
Residential Service Customers that are sold by TechWave and that
are direct billed by Qwest; iii) the display of TechWave's name and
logo on fulfillment/welcome kits for Residential Service Customers
that are sold by TechWave; iv) the display of TechWave's name and
logo on Business Affinity Calling Cards for Customers sold by
TechWave; and v) the display of TechWave's name and logo on
Business Affinity fulfillment/welcome kits for Business Affinity
Customers sold by TechWave.
l) Both parties acknowledge that the agreement between said parties
was introduced to both parties through the Woodstock Group, LLC and
from time to time may, but shall not be required to, utilize WGI to
facilitate future activities;
3) OTHER COMPENSATION.
a) Qwest shall provide Marketing Development Funds based upon a
Program Launch Date (as hereinafter defined) of July 1, 1999. The
Marketing Development Funds shall be payable in [*] calendar
quarter installments of [*]
each, with the first installment due (45) days after the
Program Launch Date, provided however that if the Program Launch
Date is June 1, 1999, then Qwest shall make an initial installment
payment of [*] within 45 days of the Program
Launch Date, [*] quarterly installment payments of
[*] and a final quarterly installment
payment of [*] , and further provided
that if the Program Launch Date is May 1, 1999, then Qwest shall
make an initial installment payment of [*]
within 45 days of the Program Launch Date, [*]
quarterly installment payments of [*]
and a final quarterly installment payment of
[*] . If this Agreement is terminated, as
provided for herein, then Qwest shall have no obligation to make
any such payment of Marketing Development Funds that would
otherwise be due after the date of such termination. The term
"Program Launch Date" shall mean the first day of the calendar
month in which TechWave is first able to accept, on such date,
orders for Qwest Service and shall be July 1, 1999, unless TechWave
and Qwest are able to perform the requisite services on either May
1, 1999 or June 1, 1999.
* CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE>
b) In the event Business Affinity Monthly Revenue during the first
[*] of this Agreement meets or exceeds [*]
[*] additional commission shall be paid on Business
Monthly Affinity Revenue for the remainder of said [*]
period. In the event Business Affinity monthly Revenue during the
second [*] of the Agreement meets or exceeds [*]
[*] additional commission shall be paid on Business
Affinity Monthly Revenue for the remainder of that [*]
period. In the event Business Affinity Monthly Revenue during the
third [*] period of this Agreement meets or exceeds
[*] additional commission shall be paid
on Business Affinity Monthly Revenue for that the remainder of that
[*] period.
c) Qwest agrees to contribute to a Cooperative Advertising Fund (as
hereinafter defined) and that the contribution for each calendar
quarter, as provided for herein, shall be equal [*] of
CAF Revenue (as hereinafter defined) for such calendar quarter. The
first such calendar quarter shall end on September 30, 1999 and the
contribution shall take place within forty-five (45) days
thereafter and subsequent contributions shall be made forty-five
(45) following the end of each applicable calendar quarter. Amounts
contributed to the Cooperative Advertising Fund by Qwest shall be
matched dollar for dollar by TechWave and shall be used only for
joint marketing campaigns that have been agreed upon by both
parties. With respect to any applicable calendar quarter (sometimes
hereinafter a "Measuring Calendar Quarter"), the term "CAF Revenue
shall mean, with respect to any calendar quarter ending after the
Program Launch Date and before the termination of this Agreement,
the aggregate amount of Commissionable Residential Revenue and
Business Affinity monthly Revenue for such calendar quarter and
for each other prior calendar quarter ending after the Program
Launch Date, if any.
4) MARKETING PROGRAMS.
Each party shall implement the marketing components/programs in the Marketing
Plan set forth in Exhibit 4 but the parties acknowledge that the roles,
responsibilities and program aspects may evolve and change during the term of
this Agreement. However, there will be no adverse changes to Qwest during the
term of this Agreement in exposure, number of impressions or placement as
currently set forth in the Marketing Plan.
5) WARRANT.
TechWave shall, simultaneously with the execution and delivery of this
Agreement, execute a Warrant Purchase Agreement, a Registration Rights
Agreement and related agreements set forth in Exhibit 5.
6) RETAIL SERVICES.
TechWave shall purchase all of its telecommunications services and Internet
access and web hosting services requirements from Qwest if the service is
available from Qwest, provided however that in the event any specific service
provided by Qwest does not comply in all material aspects with the minimum
performance levels and other material provisions set forth in the agreement
for such service, then TechWave shall thereafter not be required to purchase
such specific service from Qwest.
7) SERVICEMARKS, TRADEMARKS AND TRADENAMES.
Except as expressly permitted herein, neither party shall use any trademark,
service mark, brand name, trade name or any other intellectual property of
the other party or its affiliates without such party's prior written consent.
Without limiting the generality of the foregoing, TechWave shall not, except
as expressly permitted herein or with the prior written consent of Qwest,
advertise, market or provided information about Qwest services or use Qwest's
service marks, trademarks, logos or other intellectual property, whether in
print, electronically, on the "Internet" or otherwise.
8) REPRESENTATIONS, WARRANTIES AND COVENANTS.
* CONFIDENTIAL TREATMENT REQUESTED
4
<PAGE>
a) Each party represents and warrants to the other party that it has
all material licenses, permits or authorizations to perform its
obligations under this agreement and covenants that it will
maintain all such licenses, permits or authorizations.
b) Each party represents and warrants to the other party that neither
the execution and delivery of this Agreement nor the performance of
the obligations provided herein will violate: i) the provisions
of, or obligations under, any other agreement to which such party
is a party to or by which it is bound; ii) the party's articles of
incorporation, by-laws or similar governing documents; or iii) any
license, judgment, decree, order, statute, law or other restriction
on such party.
9) SURVIVAL OF OBLIGATIONS UPON EXPIRATION OR TERMINATION.
Each obligation of a party to pay the other party any monies for amounts that
accrue or become due prior to the expiration or termination of this Agreement
shall survive the expiration or termination of this Agreement. Each
obligation of a party to indemnify the other party under this Agreement shall
survive the expiration or termination of this Agreement, provided that the
action, or inaction, giving rise to the indemnity claim arose prior to the
expiration or termination of this Agreement.
10) TERMINATION.
a) Either party may give a written "Notice of Intent to Terminate" to
the other party:
i) if there occurs an Event of Default; or
ii) if the other party becomes or is declared insolvent or
bankrupt, is the subject of any proceedings relating to its
liquidation, insolvency or for the appointment of a receiver or
similar officer for it, makes an assignment for the benefit of
all or substantially all of its creditors, or enters into an
agreement for the composition, extension or readjustment of all
or substantially all of its obligations
b) If the party to whom the Notice of Intent to Terminate was given
has not cured the Event of Default within twenty (20) business days
of receipt of the notice of Intent to Terminate, the party that
gave the Notice of Intent to Terminate shall immediately thereafter
have the right to terminate this Agreement by the giving of written
notice of termination to the other party.
11) DEFAULT.
The following shall constitute an "Event of Default" under this Agreement:
A party's failure to observe, perform or satisfy any material agreement,
covenant, warranty, term or condition contained herein
12) INDEMNIFICATION AND LIABILITY.
Each party shall protect, defend, and hold harmless from any loss, damage,
claim, expense, or cost, including legal expenses and counsel fees, that the
other party becomes liable for by reason of any breach by the indemnifying
party of any warranty, representation or covenant hereunder. NEITHER PARTY
SHALL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES, OR ANY DAMAGES FOR LOST
DATA, BUSINESS INTERRUPTION, LOST PROFITS, LOST REVENUES OR LOST BUSINESS
ARISING FROM THIS AGREEMENT, WHETHER OR NOT FORESEEABLE, EVEN IF THE PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13) CONFIDENTIALITY.
5
<PAGE>
Any confidential data or technical or business information, and any
other confidential material ("Confidential Information"), furnished or
disclosed by a party to the other party hereunder, will remain the
property of the disclosing party and any such disclosure shall not in
any way be deemed to transfer any interest in the Confidential
Information to the party to whom it is disclosed. In addition, any list
or lists identifying Qwest Customers as such, and related information
or data, shall be considered to be Confidential Information of Qwest,
and shall be used by TechWave solely in the performance of its
obligations and duties hereunder and shall be returned to Qwest upon
termination of this Agreement. Any list identifying TechWave customers
as such, and related information or data shall be considered to be
Confidential Information of TechWave, and shall be used by Qwest solely
in the performance of its obligations and duties hereunder and shall be
returned to TechWave upon termination of this Agreement. Nothing in
this Agreement shall: (i) entitle Qwest to information relating to any
person that is not and has not been a Customer of Qwest; or (ii) affect
or restrict TechWave's ownership of data, lists or other information
relating to persons with whom TechWave had a preexisting relationship
or whose relationship with TechWave exists separate and apart from
Qwest's provision of Services. During the term of this Agreement and
for a period of three (3) years after termination of this Agreement,
neither party shall reveal, divulge, make known, sell, exchange, lease
or in any other way transfer any Confidential Information of the other
party to any third party or utilize such Confidential Information, in
direct or indirect competition with the other party. Each party shall
use reasonable precautions to protect the other's Confidential
Information and employ at least those precautions that such party
employs to protect its own confidential or proprietary information.
"Confidential Information" shall not include information the receiving
party can document (a) is in or (through no improper action or inaction
by the receiving party or any affiliate, agent or employee) enters the
public domain (and is readily available without substantial effort), or
(b) was rightfully in its possession or known by it prior to receipt
from the disclosing party, or (c) was rightfully disclosed to it by
another person without restriction, or (d) was independently developed
by it by persons without access to such information and without use of
any Confidential Information of the disclosing party. Each party, with
prior written notice to the disclosing Party, may disclose such
Confidential Information to the minimum extent possible that is
required to be disclosed to a governmental entity or agency in
connection with seeking any governmental or regulatory approval, or
pursuant to the lawful requirement or request of a governmental entity
or agency, provided that reasonable measures are taken to guard against
further disclosure, including without limitation, seeking appropriate
confidential treatment or a protective order, or assisting the other
party to do so. Each party agrees that monetary damages for breach of
obligations under this Section may not be adequate and that a party
will be entitled to seek injunctive relief with respect thereto.
14) MISCELLANEOUS PROVISIONS.
a) AMENDMENTS. The Agreement, together with all Exhibits, represents
the entire understanding of the parties as it pertains to the
subject matter herein. Any and all prior offers, agreements,
representations and understandings, whether oral or written, with
respect to the subject matter hereof shall be superseded by this
Agreement. Exclusive of any Tariff modifications initiated by
Qwest, once this Agreement has been fully executed, any amendment
hereto must be made in writing and signed by authorized
representatives of both parties.
b) ASSIGNMENT. This Agreement shall be binding on Qwest and TechWave
and their respective successors and permitted assigns. Neither
Party shall assign, sell or transfer this Agreement or any interest
herein or the right to receive the Services provided hereunder,
whether by operation of law or otherwise, without the prior written
consent of the other Party, provided however that neither party
shall unreasonably withhold or delay such consent if the
assignment, sale or transfer is to an affiliate of the party
desiring to make the assignment, sale or transfer.
6
<PAGE>
c) PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer
upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
d) WAIVER. Either Party's failure to insist upon or enforce strict
performance of any provision of this Agreement shall not be
construed as a waiver of any provision or right. Neither the waiver
by either of the parties hereto of a breach or a default under any
provision of this Agreement, nor the failure of either of the
parties, on one or more occasions, to enforce any provision of this
Agreement or to exercise any right or privilege hereunder shall
thereafter be construed as a waiver of any subsequent breach or
default of a similar nature, or as a waiver of any of such
provision, right, or privilege hereunder. Neither the course of
conduct between parties nor trade practice shall act to modify any
provision of this Agreement.
e) NOTICE. All notices, demands, requests, elections or other
communications which either Party may be required or desire to
serve upon the other party under the terms of this Agreement shall
be in writing and shall be served upon such other party: (a) by
personal service upon such other party at such other party's
address set forth below; or (b) by mailing a copy thereof by
certified or registered mail, postage prepaid, with return receipt
requested, addressed to such other party at the address of such
other party as set forth below; or (c) by sending a copy thereof by
Federal Express or equivalent courier service, addressed to such
other party at the address of such other party set forth below; or
(d) by sending a copy thereof by facsimile to such other party at
the facsimile number, if any, of such other party set forth below.
In case of service by Federal Express or equivalent courier service
or by facsimile or by personal service, such service shall be
deemed complete upon receipt by the Party. In the case of service
by mail, such service shall be deemed complete upon reasonable
proof of receipt by the Party. The addresses and facsimile numbers
to which, and persons to whose attention, notices and demands shall
be delivered or sent may be changed from time to time by notice
served, as herein provided, by any Party upon the other Party.
To TechWave:
TechWave Inc.
411 First Avenue South, Suite 200
Seattle, Washington 98104
ATTN: Dwayne Walker, CEO
Facsimile#: 206-223-2324
With copies to:
TechWave Inc.
411 First Avenue South, Suite 200
Seattle, Washington 98104
Attn: Othniel Palomino, Executive Vice President
Attn: General Counsel
To Qwest:
Qwest Communications Corporation
1000 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
ATTN: John Taylor, Senior Vice President
ATTN: Roger Attick, Senior Vice President
ATTN: Dave Singer, Director of Consumer Distribution
With copies to:
7
<PAGE>
Qwest Communications Corporation
1000 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
ATTN: Legal Department Facsimile # 303-992-1490
ATTN: Tamara J. Wehrle, Vice President of Business Affinity
ATTN: Gordon Stark, Vice President of Distributor Markets
f) SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been
contained herein. Further, in the event that any provision of this
Agreement shall be held to be invalid, illegal or unenforceable by
virtue of its scope or period of time, but may be made enforceable
by a limitation thereof, such provision shall be deemed to be
amended to the minimum extent necessary to render it valid, legal
and enforceable or in the alternative both parties shall negotiate
in good faith to substitute for such invalid, illegal, or
unenforceable provision a mutually acceptable provision that is
consistent with the original intent of the parties as specifically
expressed herein. The remainder of the provisions shall remain in
full force and effect.
g) RELATIONSHIP. Neither party shall have the authority to bind the
other by contract or otherwise make any representations or
guarantees on behalf of the other. Both parties acknowledge and
agree that the relationship arising from this Agreement does not
constitute an agency, joint venture, partnership, employee
relationship or franchise. TechWave acknowledges and agrees that it
is an independent contractor.
h) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York law
applicable to contracts executed and fully performed within the
State of New York.
i) ARBITRATION OF DISPUTES. i) All claims, disputes and other legal
matters in question between the parties hereto arising out of or
relating to this Agreement or the breach or interpretation thereof,
shall be submitted to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. Arbitration shall be conducted in the City and County
of Denver, State of Colorado. There shall be no discovery other
than the exchange of information which is provided to the
arbitrator by the parties. The arbitrator shall have authority only
to award compensatory damages and shall not have authority to award
punitive damages, other noncompensatory damages or any other form
of relief; the parties hereby waive all rights to and claims for
relief other than compensatory damages.
ii) At any time after a dispute arises, but not later than thirty
(30) days after the earlier of the filing or a complaint in
state or Federal court located in the City and County of
Denver, State of Colorado, or the delivery of a demand notice
seeking arbitration, each party may require the other to
attempt in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its
Commercial Mediation Rules before resorting to, or continuing
with, arbitration, litigation or some other dispute resolution
procedure.
iii) Nothing in this Section shall prohibit a party from seeking
injunctive relief.
j) HEADINGS. The headings of sections and subsections used in this
Agreement are for convenience only and are not part of its
operative language. They shall not be used to affect the
construction of any provisions hereof.
8
<PAGE>
k) THIRD-PARTIES. The representations, warranties, covenants and
agreements of the parties set forth in this Agreement are not
intended for, nor shall they be for the benefit of or enforceable
by, any person not a party hereto.
l) ATTACHMENTS AND EXHIBITS. All Attachments and Exhibits annexed to
this Agreement are expressly made a part of this Agreement as fully
as though completely set forth in it. All references to this
Agreement shall be deemed to refer to and include this Agreement
and all such Attachments and Exhibits.
m) AUTHORIZATION. Each Party represents that the person executing
this Agreement has been duly authorized by it to execute and bind
it to the terms and conditions contained herein. Each Party, with
full knowledge of all terms and conditions herein, does hereby
warrant and represent that the execution, delivery, and performance
of this Agreement are within its corporate powers, have been duly
authorized, and are not in conflict with law or the terms of any
charter or bylaw or any agreement to which it is a party or by
which it is bound or affected.
n) AUDIT. During the term of this Agreement and for a period of one
(1) year following the expiration or termination hereof, each party
shall have the right, at its own expense and following fifteen (15)
days prior written notice, to audit the books and records of the
other party which directly relate to the transactions set forth
herein. If, with respect to any audit period, the parties determine
that the party being audited owes any amount to the auditing party
in excess of the amounts previously paid or acknowledged to be due
(such excess amount sometimes hereinafter an "Audit Amount Due"),
then the party owing the Audit Amount Due shall immediately pay
such amount to the other party and, if the Audit Amount due exceeds
five percent (5%) of the amount otherwise paid and/or agreed to be
due for such audit period, the party owing the Audit Amount Due
shall pay the reasonable costs of such audit. Such audit rights may
not be exercised more than one (1) time in any twelve (12) month
period, provided however that if the Audit Amount Due for any audit
period exceeds ten percent (10%) of the amount otherwise paid
and/or agreed to be due for such audit period then such audit shall
not be considered in limiting the frequency of audits.
IN WITNESS WHEREOF, Qwest and TechWave have executed and delivered
this Agreement, all as of the date first written above.
TECHWAVE INC. QWEST COMMUNICATIONS
CORPORATION
By: Othniel D. Palomino By: John Taylor
------------------------------ -----------------------------------
Dwayne Walker, CEO & President John Taylor, Senior Vice President
Date: 29 April 1999 Date: _________________________________
By: Roger Attick
-----------------------------------
Roger Attick, Senior Vice President
Date: 4/30/99
9
<PAGE>
EXHIBIT 2(a)
BUSINESS DISTRIBUTOR SERVICES
1. SERVICES - Qwest appoints TechWave as a non-exclusive representative
within the contiguous 48 states of the United States to promote the sale of
and solicit orders for the following Qwest services ("Business Distributor
Services"): Q.Guaranteed, Q.Biz, Q.icommerce, WorldCard, WAL, Point-To-Point,
Broadcast Fax, and Audio Teleconferencing. TechWave shall represent and
describe the Services to potential customers of Qwest only as said Business
Distributor Services are described in the applicable Qwest Tariffs. Tariffs
relating to the Business Distributor Services may be changed by Qwest at its
sole discretion.
2. COMMISSION - During the term of this Agreement and provided TechWave is
not in default of any material obligations hereunder, TechWave shall receive
a commission as defined below on "Collected Revenue" for new accounts
solicited by TechWave on the Business Distributor Services sold by TechWave
in accordance with Qwest's then existing tariffs, provided however that Qwest
shall not pay a commission with respect to any account that at the time of
solicitation or sale is a Business Distributor Services Customer of Qwest or
of any Qwest Affiliate. "Collected Revenue" is defined as interexchange toll
and line charges actually collected by Qwest relating to Business Distributor
Services sold by TechWave in accordance with this Agreement (excluding taxes,
installation charges, local loops, termination charges and other fixed
monthly service fees).
A. During the first twelve (12) months after the Effective Date, the
commission rates shall be [*] for all Collected
Revenue from voice, frame relay and private lines Business
Distributor Services and [*] for all Collected
Revenue from dedicated Internet access Business Distributor
Services.
B. Except for the first twelve (12) months after the Effective Date,
during the term of this Agreement and thereafter until the earlier
of i) twelve (12) months from the date of termination of this
Agreement and ii) the date the amount of commissions otherwise
payable hereunder is [*] or less a month, provided in all events
TechWave is not in default of its obligations under Section 13 of
the Agreement or Section 3, 4 or 5 of this Exhibit, the commission
for each month shall be based upon the commission rate schedule
below.
<TABLE>
<CAPTION>
COLLECTED REVENUE COMMISSION PERCENTAGE
<S> <C>
[*]
* CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE>
EXHIBIT 2(a)
<CAPTION>
COLLECTED REVENUE COMMISSION PERCENTAGE
<S> <C>
[*]
</TABLE>
Qwest may, with the prior written consent of TechWave, elect to pay
commissions based upon billed revenue, however in such event, Qwest reserves
the right to compare Collected Revenue to billed revenue and chargeback
TechWave the difference in commissions. Qwest reserves the right to set off
from commissions any amount due to Qwest by TechWave. Commission payments
for each Customer bill will be paid by Qwest approximately forty-five days
from the end of the month in which such bill cycle ends.
3. TechWave shall not sell Qwest Business Distributor Services or the long
distance telecommunications services, frame relay or dedicated internet access
services of any other person to Qwest Major Accounts, as designated by Qwest
within sixty (60) days from the date of this Agreement and subsequently,
within thirty (30) days notice that an account has been designated a Major
Account by Qwest.
4. TechWave shall use commercially reasonable efforts to not, directly or
indirectly, induce or solicit any person employed by or under contract with
any sales representative, agent or master agent of Qwest or any Qwest
Affiliates ("Qwest Rep."), to terminate his, her or its relationship with the
Qwest Rep. and/or to provide sales or marketing services on behalf of
TechWave.
5. TechWave shall not, as long as commissions are payable pursuant to this
Agreement (including those payable after termination or expiration of this
Agreement), solicit any Business Service Customer of Qwest or of any Qwest
Affiliate to obtain long distance telecommunication service, frame relay or
dedicated internet access services of any other person or induce any Business
Service Customer of Qwest or of any Qwest Affiliate to discontinue its
relationship with Qwest or with any Qwest Affiliate.
6. Provided that TechWave obtains Qwest's prior written consent, which
consent shall not be unreasonably withheld, TechWave may permit non-employees
to promote the sale of and solicit orders for Business Distributor Services.
7. TechWave shall provide, at TechWave's cost, a copy of "QWEST'S POLICIES
AND PROCEDURES REGARDING SLAMMING PREVENTION", including an
"Acknowledgement" form as set forth in Exhibit 4(e), of this Agreement,
to all employees, agents, contractors or independent distributors
involved in soliciting orders for the Business Distributor Services.
TechWave shall have each such person review such policy and return to
TechWave a signed "Acknowledgment" form, indicating that they
understand and will comply with such policy. TechWave agrees to produce
a copy of the signed Acknowledgment form within forty eight (48) hours
of Qwest's request for any person involved in soliciting orders for
Business Distributor Services.
* CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE>
EXHIBIT 2(a)
8. TechWave shall obtain a signed authorization for the Business
Distributor Services in a format approved by Qwest in writing, for each
customer sold hereunder ("Authorization"), and TechWave shall use
commercially reasonable efforts to safeguard against the submission of
improper, inaccurate and invalid Authorizations. In the event a local
exchange company ("LEC") or any regulatory entity assesses Qwest any
charges for improper, inadequate or invalid Authorizations relating to
Business Distributor Services ordered through TechWave, TechWave shall
promptly reimburse Qwest for all LEC or regulatory charges, plus an
Qwest management fee of [*] per customer
telephone number ordered through TechWave that is deemed to lack proper
Authorization. Payment for said charges may be withheld from payable
commissions, provided however, no charge or fee shall be payable by
TechWave if the charge or fee is the result from an improper format of
the Authorization as approved by Qwest hereunder. Upon the request of
Qwest, TechWave will provide to Qwest or the LEC, at TechWave's
expense, any documentation required by the LEC regarding the
Authorizations for sales of Business Distributor Services sold
hereunder. In addition, TechWave shall promptly and in good faith
cooperate with Qwest and all LECs in attempting to resolve all carrier
selection and Authorization disputes.
* CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE>
EXHIBIT 2(b)
RESIDENTIAL SERVICES
1) GRANT OF AUTHORITY
Qwest appoints TechWave as a non-exclusive representative in the territory
set forth in this Exhibit 2(b) ("Territory") to promote the sale of and
solicit orders for the services defined in this Exhibit 2(b) ("Residential
Services"), all subject to the terms and conditions of this Agreement.
TechWave agrees to use its best efforts in selling Qwest's Residential
Services, including having each person solicited authorize the selection of
Qwest as his, her or its Primary Interexchange Carrier ("PIC") in accordance
with: i) all federal, state and local laws and regulations relating thereto
("Legal Requirements"); and ii) Qwest's procedures (such authorization shall
hereinafter be referred to as "PIC Authorization"). In performing duties
described in this Exhibit 2(b), TechWave shall observe the highest standard
of integrity and fair dealing with members of the public and shall do nothing
which would tend to discredit, dishonor, reflect adversely upon or in any
manner injure or impugn the reputation of Qwest or any of its affiliates.
2) COMMISSION.
TechWave shall receive commissions with respect to Residential Services sold
by TechWave in accordance with this Exhibit 2(b), provided however, no
commission shall be paid for Customers of Residential Service that contact
Qwest directly to subscribe to Qwest services (other than inbound sales
programs previously approved by Qwest in writing).
3) RELATIONSHIP.
a) During the term of this Agreement and thereafter for as long as
Qwest is paying commissions for Residential Services pursuant to
this Agreement, TechWave shall not, directly or indirectly, market,
solicit or sell residential long distance to any person on behalf
of a competitor of Qwest.
b) TechWave shall secure and use at its own expense the equipment
necessary for the purpose of communication and electronic download
of PIC Authorizations to Qwest. Based on Qwest's current standards,
the cost of the minimum equipment required would be less than
[*] .
4) ORDER PROCESSING
a) TechWave shall obtain a valid and accurate PIC Authorization, for
each Residential Service Customer telephone number. If TechWave
submits service order information electronically to Qwest, upon
request by Qwest, TechWave shall, within forty-eight (48) hours of
Qwest's request, produce a copy of the PIC Authorization or such
other evidence of the PIC Authorization as requested by Qwest, for
the Residential Service Customer telephone number requested. If
TechWave does not comply with such request, Qwest reserves the
right not to accept additional service orders until TechWave
complies.
* CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE>
EXHIBIT 2(b)
b) TechWave shall safeguard against the submission of invalid PIC
Authorizations and PIC Authorizations that do not meet the Legal
Requirements. Without limiting the generality of the previous
sentence, if the number of Residential Service PIC Authorizations
that are determined to be Deficient PIC Authorizations (as
hereinafter defined) exceeds one tenth of one percent (.1%) of the
total Residential Service PIC Authorizations obtained by TechWave
hereunder, Qwest may terminate TechWave's right to promote the sale
of, and solicit orders for, Residential Services under this
Agreement without further liability hereunder. A PIC Authorization
shall be deemed to be a "Deficient PIC Authorization" if it:
i) results in any form of dispute, controversy or complaint; or
ii) has the same type of deficiency, error, mistake or other
characteristic that gave rise to any PIC Authorization that resulted
in any actual dispute, controversy or complaint. A PIC Authorization
shall not be considered to be a Deficient PIC Authorization if the
only reason that it would otherwise have been considered to be a
Deficient PIC Authorization is based solely upon the form provided by
Qwest. A PIC Authorization shall also not be considered to be a
deficient PIC Authorization if TechWave has obtained a legitimate PIC
Authorization.
c) In the event a local exchange company ("LEC") or any governmental
body assesses any charge for invalid PIC Authorizations obtained
through TechWave, in addition to indemnifying Qwest for any such
charge, TechWave shall pay to Qwest a Qwest management fee of
[*] per invalid PIC Authorization,
provided however, TechWave shall have no obligation under this
sentence if the invalid PIC Authorization resulted from the format
of the PIC Authorization provided by Qwest to TechWave. In addition,
Qwest shall chargeback to TechWave all Usage Commissions and any
other payments previously made to TechWave in connection with any
such invalid PIC Authorization. Payment for said charges may be
withheld from commissions otherwise payable hereunder.
d) Upon the request of Qwest, TechWave shall provide to Qwest, the
LEC, or the applicable governmental body, at TechWave's expense,
any documentation required regarding the PIC selection or PIC
Authorization for Residential Service Customers sold hereunder. In
addition, TechWave shall promptly and in good faith cooperate with
Qwest, the LEC and the applicable governmental body in attempting
to resolve all PIC selection and PIC Authorization disputes.
e) TechWave shall provide, at TechWave's cost, a copy of "QWEST'S
POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION", including
an "Acknowledgement" form as set forth in Exhibit 4(e), of this
Agreement, to all employees, agents, contractors or independent
distributors involved in soliciting orders for the Residential
Services. TechWave shall have each such person review such policy
and return to TechWave a signed "Acknowledgment" form, indicating
that they understand and will comply with such policy. TechWave
agrees to produce a copy of the signed Acknowledgment form within
forty eight (48) hours of Qwest's request for any person involved
in soliciting orders for Residential Services.
* CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE>
EXHIBIT 2(b)
5) CERTAIN DEFINITIONS
a.) Billed Residential Revenue is defined as the amount billed to
Residential Service Customers for the Residential Services sold
in the Territory pursuant to this Agreement including Qwest
Surcharges and excluding taxes, Mandated Surcharges, installation
charges and local exchange company charges.
b.) Qwest Surcharges shall mean monthly recurring subscription fees or
enrollment fees.
c.) Mandated Surcharges shall mean government or LEC charges passed
through by Qwest to the Residential Service Customer essentially
without mark-up, including but not limited to PICC charges and
universal service fund charges. Qwest Surcharges and Mandated
Surcharges may be combined into one charge on a Residential Service
Customer's bill.
d.) Commissionable Residential Revenue shall mean Billed Residential
Revenue less an amount, either the Initial Holdback Percent or
the Adjusted Holdback Percent, as applicable, for estimated
uncollectables, chargebacks, credits and LEC holdbacks. The
Initial Holdback Percent is [*] . Commissionable
Residential Revenue shall not include actual uncollectibles,
chargebacks, credits or LEC holdbacks.
6. INSTALLATION AND USAGE COMMISSION
a.) After the aggregate amount of Commissionable Residential Revenue for
Customers obtained by TechWave exceeds [*]
(the "Residential Threshold Amount"), Qwest shall
pay TechWave [*] for each newly installed 1+ Residential
Service Customer in the Territory obtained by TechWave hereunder
upon said Customer's First Usage, provided said First Usage is
within one hundred twenty (120) days from installation of said
Customer phone number ("Installation Commission(s)"). "First
Usage" shall be defined as the first call on a PIC'd line using
Residential Services. Neither Installation Commissions nor Usage
Commissions shall be paid for any person that is an existing
Qwest Customer or for stand alone calling card or Home 800
services. Qwest shall not pay more than one Installation
Commission on the sale of any particular Customer phone number or
"ANI".
b.) After the aggregate amount of Commissionable Residential Revenue for
Customers obtained by TechWave exceeds the Residential Threshold
Amount, Qwest shall pay TechWave a [*] commission on
Commissionable Residential Revenue that is in excess of the
Residential Threshold Amount for Residential Service Customers
who remain on the Residential Service a minimum of thirty (30)
days from First Usage ("Usage Commission(s)"), provided however,
ISP Services and Paging Services shall be paid [*]
the first 12 months of this Agreement and [*]
thereafter. Usage Commissions shall be payable only during the
term of this Agreement and until the earlier of i) twelve (12)
months from the date of termination of this
* CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE>
EXHIBIT 2(b)
Agreement and ii) the date the amount of commissions otherwise
payable hereunder is [*] or less a month, provided in all
events TechWave is not in default of its obligations under the
first sentence of Section 3.a. of this Exhibit. No Usage
Commission shall be payable following termination by Qwest
pursuant to Section 11.a.i or ii of the Agreement. Qwest shall
not pay Installation Commissions for upgrades of service.
c.) So long as Qwest is paying commissions based upon Commissionable
Residential Revenue, Qwest may periodically review and adjust
once annually the Holdback Percent to reflect Qwest's
experience with uncollectibles, chargebacks, credits and LEC
holdbacks ("Adjusted Holdback Percent"). The Adjusted Holdback
Percent shall not result in an increase to the previous Adjusted
Holdback Percent or Holdback Percent, as applicable, by more than
[*] .
d.) Qwest may periodically perform a "true up" to compare the actual
amount collected from Residential Service Customers ("Collected
Residential Revenue") to Commissionable Residential Revenue and
"charge back" or pay TechWave the difference between commissions
already paid and what would have been paid on Collected
Residential Revenue. The last month's payment of commissions
hereunder may be withheld no more than three (3) months so that
the final "true up" may be performed. Qwest reserves the right to
set off from commissions any amount due to Qwest by TechWave
under this Agreement or otherwise.
e.) Qwest may, upon thirty (30) days prior written notice to
TechWave, pay commissions based on Collected Residential Revenue
instead of Commissionable Revenue.
7. CHURN RATE
If the "Churn Rate" is greater than a number determined pursuant to this
Agreement ("Maximum Churn"), Qwest may reduce Usage Commissions upon written
notice to TechWave, provided however that any such change may not be effected
any more frequently than every six (6) months and that no such individual
reduction in Usage Commission shall be greater than [*] of the
then existing Usage Commission. "Churn Rate" shall be defined as the number
of Residential Service Customers changing its PIC from Qwest within thirty
(30) days of PIC confirmation of service divided by the number of Residential
Service Customers confirmed during a Measuring Period. A Measuring Period is
any defined interval of time not less than thirty (30) days. Upon receipt of
written notice from Qwest, TechWave shall have thirty (30) days to "cure" by
maintaining, during such 30 day cure period, the Churn Rate equivalent to or
less than the Maximum Churn and achieving a Churn Rate for all new
Residential Service Customers in a Measuring Period during such 30 day cure
period equivalent to or less than the Maximum Churn. Upon 30 days prior
written notice to TechWave, Qwest may change the Maximum Churn, provided
however that Qwest may make such a change no more frequently than every six
(6) months and further provided that no such change shall reduce the Maximum
* CONFIDENTIAL TREATMENT REQUESTED
4
<PAGE>
EXHIBIT 2(b)
Churn by more than [*] . The Maximum Churn as of the date of
this Agreement shall be [*] .
8. BILLING RATE
If the "Billing Rate" is less than [*] per month, Qwest
may reduce Usage Commissions upon written notice to the TechWave, provided
however that Qwest may make such a change no more frequently than every six
(6) months and further provided that no such change shall reduce the Usage
Commissions by more than [*] of the then existing Usage
Commission rate. "Billing Rate" shall be defined as Billed Residential
Revenue as measured over a calendar month divided by the number of
Residential Service Customers measured over the same calendar month who had
PIC'd Residential Service during at the beginning of the calendar month and
First Usage. TechWave shall have thirty (30) days from receipt of such notice
to "cure" by increasing the Billing Rate to [*] or more
per month as measured over the 30-day cure period.
9. PAYMENT OF COMMISSIONS
Installation Commissions will be paid by Qwest approximately fifteen (15)
days following the availability of the First Usage occurrence report (but in
no event longer than thirty (30) days following the month of installation),
as long as First Usage occurs no later than one hundred twenty (120) days
after install by Qwest. Usage Commissions shall be paid by Qwest
approximately forty-five (45) days following the end of the month in which
the Commissionable Revenue is billed.
10. TechWave's nonexclusive territory ("Territory") shall be the contiguous
forty-eight states of the Continental U.S. (excluding exchanges of members of
the National Exchange Carrier Association, commonly known as "NECA", and the
United States Independent Telephone Company organization, commonly known as
"USINTELCO"). In the event Qwest begins permitting other similarly situated
distributors to sell Qwest Residential Services in either Alaska or Hawaii,
then Qwest agrees to include such state to the Territory, provided however
that commissions for sales in any such addition to the Territory may, in
Qwest's discretion, differ from those set forth herein.
11. The term "Residential Services" shall include:
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
* CONFIDENTIAL TREATMENT REQUESTED
5
<PAGE>
EXHIBIT 2(b)
6. [*]
12. All Residential Services and rates will be provided in accordance with
Qwest's tariffs and are subject to change. Qwest reserves the right to add to
or delete from the Residential Services as may be required from time to time.
Tariffs relating to the Residential Services may be changed by Qwest at its
sole discretion.
* CONFIDENTIAL TREATMENT REQUESTED
6
<PAGE>
EXHIBIT 2(c)
BUSINESS AFFINITY SERVICES
1. MARKETING SERVICE
TechWave and Qwest agree to jointly market Qwest's Q.Biz services
(on-line) ("Business Affinity Services"), to TechWave's business customers
in a manner consistent with Qwest's Co-Marketing program and at the times
Qwest and TechWave jointly determine to be appropriate.
2. QWEST'S RESPONSIBILITIES
2.1 Orders taken for customers shall not be binding to Qwest until an
authorized representative of Qwest accepts them in writing.
2.2 Qwest shall provide TechWave with monthly revenue reports listing
active Business Affinity Services customers.
3. TECHWAVE'S COMPENSATION
3.1 Qwest shall pay the TechWave commissions based on Business Affinity
Monthly Revenue as follows:
BUSINESS AFFINITY MONTHLY REVENUE COMMISSION*
[*]
* Commissions are payable from the first dollar of Business Affinity Monthly
Revenue; however, commission payments for a particular month will not begin
until the total commissions to be paid for such month exceed [*] .
3.2 "Business Affinity Monthly Revenue" as used in this Agreement shall mean
the revenue collected in a month by Qwest for rendering the Business
Affinity Services to business customers of TechWave ("Collected
Revenue"); provided, however, that Business Affinity Monthly Revenue
shall exclude monthly recurring charges, taxes, installation charges,
surcharges, subscription fees paid to third parties or passed through
from third parties, equipment charges, and local telephone company
charges (including loop charges) and Qwest carrier service charges
(collectively, "Excluded Charges").
3.3 Payment of commissions shall be made within forty-five (45) days
following the end of the month in which the Services are rendered to
business customers of TechWave.
3.4 Qwest may calculate the amount of "Business Affinity Monthly
Revenue" based on "Billed Revenue" (as hereinafter defined) as
opposed to Collected Revenue. (As used herein, "Billed Revenue" shall
be defined as revenue due and owing from TechWave business customers
for Qwest's rendering of the Services to such business customers,
which revenue, although charged to business customers via billing
statements, has not been collected by Qwest.) In the event Qwest pays
commissions based on Billed Revenue, Qwest may periodically perform a
"True-up" (as hereinafter defined). As used herein, a "True-up" shall
* CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE>
EXHIBIT 2(c)
be defined as a comparison of the difference between commissions paid
based upon Billed Revenue and the amount that would have been paid if
commissions were based upon Collected Revenue. In the event that the
commissions paid based upon Billed Revenue exceed the amount that
would have been paid based upon Collected Revenue ("Excess
Commissions"), TechWave will be subject to a "Chargeback" (as
hereinafter defined). As used herein, "Chargeback" shall be a
reduction, made in the month(s) following a True-up, in the amount of
commissions to be paid, which reduction shall be equivalent to the
amount of Excess Commissions. The last month's payment of commissions
hereunder may be withheld no more than [*] so that Qwest
may perform a final True-up.
3.5 If TechWave fully implements the Inbound Up Sell program, as
provided for in Exhibit 4, the Qwest-TechWave Marketing Plan, by July
30, 1999, then for a period of three (3) months from and after the
Program Launch Date, Qwest shall pay TechWave an additional
commission of [*] based on Business Affinity Monthly
Revenue.
* CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE>
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT 4(e)
"QWEST'S POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION"
ADVISORY TO ALL REPRESENTATIVES SELLING QWEST COMMUNICATION CORPORATION'S
SERVICES:
All Representatives/Distributors selling Qwest long distance service must
carefully read the contents of this document. It will explain Qwest's
policies and procedures for the sale of Qwest long distance services. The
purpose of this document is to explain what can cause unauthorized switching
of a customer, the importance of preventing such switching, and the
seriousness of the matter to Qwest, its authorized Representatives, and their
independent distributors. This document includes an "Acknowledgment" that
must be read, signed, and returned to the Representative/Distributor by each
individual selling Qwest services. Representatives/Distributors must make a
signed copy of this document available to Qwest, upon request.
A. COMMON CAUSES OF SLAMMING:
- - Incorrect telephone number submitted on the Letter of Authorization or
"LOA" - means that incorrect telephone number is switched without the
customer's written consent.
- - The submitted LOA is illegible and directly causes the person that keys
the order into the system to enter the wrong name and/or phone number.
- - The person who "authorized" switching carriers really didn't have the
authority to make the switch. Sometimes receptionists, secretaries or
assistants authorize a switch to qualify for some sort of premium or other
inducement.
- - A simple misunderstanding when one partner doesn't tell the other partner
or accounts payable personnel about selecting a new long distance service.
This is especially true when it is the other person who reviews or pays
the bills. The bill-paying partner or accounts payable representative sees
a new long distance carrier name and thinks something is wrong. Please ask
your customers to inform the appropriate persons within the company about
changing long distance carriers.
- - Signing someone up just to "get the sale" or reach a qualification or
commission level.
- - Signing someone up, without the customer's knowledge, as a result of
spending a lot of time with a company decision-maker and assuming that the
person would be satisfied with Qwest service for the company.
B. EFFECTS OF SLAMMING:
- - It is illegal and will not be tolerated by Qwest!
- - Creates a bad image and adversely affects Qwest's and the Sales
Agent/Distributor's reputation.
- - Takes time to investigate and correct.
- - If we can get information verified (correct), it will save on:
1. Order rejects
2. Returned mail
3. Time to process valid and accurate orders.
- - Frustrating experience for the company that was slammed.
- - Usually the local telephone company levies a charge to make the initial
switch to Qwest and then charges again to switch the affected customer
back to the original long distance company. Qwest and then the distributor
and its sales agents are billed for these costs. These Qwest charges will
probably be billed by distributors to their sales agent. This leads to
serious consequences for the agent, including termination of the sales
agent relationship with Qwest.
QWEST AS WELL AS FEDERAL, STATE, AND LOCAL REGULATORY AGENCIES VIEW
"SLAMMING" AS A VERY SERIOUS PROBLEM. THE FCC CAN IMPOSE SIGNIFICANT FINES ON
A PER VIOLATION BASIS.
C. HOW CAN A REPRESENTATIVE/DISTRIBUTOR PROTECT AGAINST SLAMMING:
1
<PAGE>
EXHIBIT 4(e)
- - You are strongly encouraged to verify information against each new
customer's actual telephone bill for each LOA.
- - The person signing the LOA should be a person with authority to act on
behalf of the company. It is essential that the person signing the LOA has
authority to change long distance carriers. NOTE THAT RECEPTIONISTS,
SECRETARIES AND ASSISTANTS TYPICALLY DO NOT HAVE THE AUTHORITY TO CHANGE
LONG DISTANCE CARRIERS FOR THE COMPANY. If the person signing the LOA is
different from the person with the actual authority to do so, you should
attempt to contact the other person. While this policy might jeopardize
some sales orders, it should give you a chance to retain sales by
demonstrating your concern and professionalism.
- - Take your time. Review the LOA for accuracy and legibility, especially the
telephone number. Confirm the person's telephone number.
- - NEVER sign someone else's name on an LOA or any other document!
- - Don't force a sale that is not there.
2
<PAGE>
EXHIBIT 4(e)
ACKNOWLEDGEMENT
THIS WILL VERIFY THAT I HAVE RECEIVED, READ, UNDERSTAND, AND WILL COMPLY WITH
THE DOCUMENT ENTITLED "QWEST'S POLICIES AND PROCEDURES REGARDING SLAMMING
PREVENTION". I FULLY UNDERSTAND AND APPRECIATE MY OBLIGATIONS AS AN QWEST
SALES AGENT OR INDEPENDENT CONTRACTOR NOT TO ENGAGE IN OR FACILITATE THE
PRACTICE OF "SLAMMING" CUSTOMERS. I UNDERSTAND THAT QWEST WILL NOT TOLERATE
FURTHER OCCURRENCES OF "SLAMMING", AND THAT QWEST WILL TAKE WHATEVER ACTIONS
ARE NECESSARY TO PROTECT AGAINST SLAMMING INCLUDING, WITHOUT LIMITATION,
TERMINATION OF THE SALES AGENT RELATIONSHIP AND ENFORCEMENT OF ALL APPLICABLE
LEGAL RIGHTS AND REMEDIES.
- ---------------------------------------------------------------------
SIGNATURE OF REPRESENTATIVE SELLING QWEST LONG DISTANCE
DATE
-------------------------
- -------------------------------------------------------
PRINT NAME
HOME PHONE NUMBER
--------------------------------------
- -------------------------------------------------------
PRINT NAME OF COMPANY
CHANNEL CODE
----------------------
ORGANIZATION CODE
-----------------
3
<PAGE>
EXHIBIT 4(e)
ACKNOWLEDGMENT BY SALES AGENT
THIS WILL VERIFY THAT ON BEHALF OF , I HAVE
---------------------------
RECEIVED, READ, UNDERSTAND, AND WILL DISTRIBUTE THE DOCUMENT ENTITLED
"QWEST'S POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION" TO THE
INDIVIDUALS RESPONSIBLE FOR SELLING QWEST INTERNATIONAL LONG DISTANCE
SERVICE. WE FULLY UNDERSTAND AND APPRECIATE OUR OBLIGATIONS AS AN QWEST SALES
AGENT NOT TO ENGAGE IN OR FACILITATE THE PRACTICE OF "SLAMMING" CUSTOMERS. WE
UNDERSTAND THAT QWEST WILL NOT TOLERATE FURTHER OCCURRENCES OF "SLAMMING", AND
THAT QWEST WILL TAKE WHATEVER ACTIONS ARE NECESSARY TO PROTECT AGAINST
SLAMMING INCLUDING, WITHOUT LIMIATION, TERMINATION OF THE SALES AGENT
RELATIONSHIP AND ENFORCEMENT OF ALL APPLICABLE LEGAL RIGHTS AND REMEDIES.
Date
- -------------------------------------------- --------------
SIGNATURE OF REPRESENTATIVE
- -------------------------------------------
PRINT NAME
BUSINESS PHONE NUMBER
----------------------
- -------------------------------------------
PRINT NAME OF COMPANY
CHANNEL CODE
--------------------------
ORGANIZATION CODE
---------------------
PLEASE REMIT THIS FORM WITHIN FOURTEEN DAYS OF RECEIPT TO: QWEST
COMMUNICATIONS CORPORATION, 4650 LAKEHURST COURT, DUBLIN, OHIO 43106, ATTN:
LEGAL DEPT.
SIGNATURE OF REPRESENTATIVE FOR .
------------------------------------------
4
<PAGE>
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT is made as of May, 4 1999 (the
"Effective Date"), by and between SHOPNOW.COM INC. ("Alliance Partner"), a
Washington corporation with its principal place of business at 411 First
Avenue South, Suite 200 N, Seattle, Washington 98104, and HNC SOFTWARE INC.
("HNC"), a Delaware corporation with its principal place of business at 5935
Cornerstone Court West, San Diego, California 92121-3728.
RECITALS
A. ALLIANCE PARTNER is a commerce service provider company specializing in
providing solutions to thousands of merchants who want to do business on the
Internet. HNC is a software development company specializing in the
application of neural network technology and other techniques of
computational intelligence to advanced decision software solutions.
B. The Parties desire to establish a worldwide strategic alliance for
the cooperative development, marketing and exploitation of products and
services utilizing the technological capabilities and distribution channels
of ALLIANCE PARTNER and HNC.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement will have the
following meanings:
"AFFILIATE" means, with respect to ALLIANCE PARTNER or HNC, any other Person
which, whether directly or indirectly, is controlled by or is under common
control with ALLIANCE PARTNER or HNC, as the case may be.
"AGREEMENT" means this Strategic Alliance Agreement.
"CONTROL" means the ownership, directly or indirectly, of more than fifty
percent (50%) of the voting shares of an entity, or otherwise the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity.
"DISCLOSING PARTY" means either Party, when disclosing information to the
other Party.
"JOINT PROJECT" means any development Project that is jointly conceived by
the Parties, as evidenced by a written agreement signed by both of the
parties, to develop a new technology.
"PARTIES" means ALLIANCE PARTNER and HNC.
"PARTY" means either of ALLIANCE PARTNER or HNC.
1
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
"PERSON" means an individual, partnership, joint venture, association,
corporation, limited liability company, trust or any other legal entity.
"PROJECT" means each joint development, joint marketing, joint licensing or
other undertaking of the Parties (including Joint Project) with respect to a
discrete product or service, or group of related products or services, during
the term of this Agreement, evidenced by a writing signed by both Parties and
specifically providing that it is to be covered by this Agreement.
"PROJECT AGREEMENT" means a written agreement or a project addendum to this
Agreement, executed by an authorized representative of each Party, and which
specifies the relative obligations of the Parties as to the planning,
development, marketing and implementation tasks required to commercially
exploit a Project, as well as the respective rights of each Party in and to
the underlying intellectual property and resulting proceeds.
"HNC SOFTWARE" means the HNC Software identified in any Project Agreement
addendum attached hereto, and includes all updates, documentation,
enhancements and new versions of the HNC Software released during the term of
the Project Addendum.
"ALLIANCE PARTNER SOFTWARE" means the ALLIANCE PARTNER Software identified
in any Project Agreement addendum attached hereto, and includes all updates,
documentation, enhancements and new versions of the ALLIANCE PARTNER Software
released during the term of the Project Addendum.
"RECEIVING PARTY" means either Party, when receiving information from the
other Party.
"SERVICE BUREAU" means the HNC facility in which transactional data (to be
defined) from ALLIANCE PARTNER or its customers is processed in order to
utilize HNC software or other HNC technologies.
2. SCOPE AND PURPOSE OF AGREEMENT. The purpose of this Agreement is to
establish a non-exclusive, worldwide strategic alliance in which the Parties
will cooperate in the development, marketing and exploitation of products
utilizing HNC's software and technological expertise and ALLIANCE PARTNER's
software and technological expertise. Because the Parties acknowledge that it
would be impractical to specify in advance the precise terms and conditions
applicable to any or all of the particular products or services to be
developed and marketed over the course of this alliance, the Parties have
instead established the following general terms, which will serve as the
legal and procedural foundation for discussing and reaching agreement on the
projects to be undertaken by them. Accordingly, during the term of this
Agreement, each Project will be subject to the terms and conditions of this
Agreement, except to the extent that a written agreement regarding that
Project, signed by an authorized representative of each Party, specifically
identifies and expressly supersedes any given term of this Agreement. If
there are any conflicts between the terms of this Agreement and the Project
Agreement, the Project Agreement shall prevail.
2
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
3. CONFIDENTIALITY; PROPRIETARY RIGHTS
3.1 All information disclosed by a Disclosing Party to a Receiving
Party during the term of this Agreement will be deemed to be confidential
unless specifically designated as nonconfidential at the time of disclosure.
Notwithstanding the foregoing, information will not be deemed confidential if
it (i) was known to the Receiving Party, and such information was acquired
through proper methods, prior to its receipt from the Disclosing Party, as
evidenced by written records of the Receiving Party; (ii) is now or (through
no act or failure on the part of the Receiving Party) later becomes generally
known in the information services industry through no breach of this
Agreement by the Receiving Party; (iii) is supplied to the Receiving Party
by a third party that the Receiving Party in good faith believes is free to
make that disclosure without restriction on disclosure; (iv) is disclosed by
the Disclosing Party to a third party generally, without restriction on
disclosure; or (v) is independently developed by the Receiving Party without
use of any confidential information provided by the Disclosing Party.
3.2 Except as provided in this subsection 3.2, the Receiving Party
agrees that it will (i) treat all confidential information received from the
Disclosing Party with at least the same degree of care which it applies to
its own proprietary information, (ii) not divulge any confidential
information, directly or indirectly, to any other Person, for any purpose
whatsoever, and (iii) not make use of or copy such confidential information,
except for the purposes permitted under this Agreement or an applicable
Project Agreement. Such confidential information may be disclosed only to
those employees, consultants, and permitted subcontractors of the Receiving
Party who require access to such information for the purpose for which it was
disclosed and who have nondisclosure obligations to the Receiving Party. In
each case of permitted disclosure, each employee, consultant, or permitted
subcontractor will be given only that limited portion of the confidential
information that is necessary for the fulfillment of that Person's
responsibilities consistent with this Agreement or the applicable Project
Agreement. The Receiving Party shall promptly report to the Disclosing Party
any actual or suspected violation of this subsection and shall take further
steps as may reasonably be requested by the Disclosing Party to prevent or
remedy any such violation.
3.3 Each Party agrees that the injury from any disclosure or
unauthorized use of the other's confidential information will be of such a
character that it cannot be adequately compensated by monetary damages.
Accordingly, if a Receiving Party breaches this Agreement, the Disclosing
Party may, in addition to pursuing its other remedies under the law, seek to
obtain from any court having jurisdiction over the subject matter and the
Parties an injunction restraining any violation, without (i) having to prove
the inadequacy of monetary damages or (ii) posting bond or other security.
3.4 If the Receiving Party becomes legally compelled (by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any confidential
information, the Receiving Party will provide the Disclosing Party with prompt
notice of that request(s) so that it may seek appropriate protective order or
other appropriate remedy and/or waive the Receiving Party's compliance with
the provisions of this Agreement. If the Disclosing Party waives compliance
with the applicable provisions of this Agreement or fails
3
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
to obtain a protective order or other remedy, the Receiving Party agrees to
furnish only that portion of the confidential information that it is legally
required to furnish in the reasonable opinion of its counsel.
3.5 As soon as any item of confidential information ceases to be
necessary or useful to the Receiving Party for the purpose for which it was
disclosed, the Disclosing Party may, subject to any rights that the Receiving
Party may have acquired in or to that information pursuant to a Project
Agreement, request its return or destruction, and the Receiving Party will
promptly return to the Disclosing Party or destroy all documents or other
media consisting of that confidential information, without retaining any
copies, and will confirm in writing that it has done so.
3.6 Notwithstanding any provision to the contrary contained in this
Agreement, it is understood and agreed by the parties that:
any HNC products and technology existing as of the Effective Date
or as of the date of the applicable Project Agreement Effective
Date and used in connection with HNC's provision of services and
performance hereunder and/or incorporated into any items developed
with respect to any Project undertaken hereunder (the "HNC
Technology") is, and will remain, the sole and exclusive property
of HNC, and, except as otherwise specifically provided in this
Agreement and/or any Project Agreement, no license, right, title,
interest in and/or such HNC Technology is granted to ALLIANCE
PARTNER by virtue of this Agreement and/or any Project Agreement
and/or HNC's performance hereunder. As such, HNC will continue
to have the unfettered right to utilize the HNC Technology (and
any portion or portions thereof) in any manner as determined by
HNC in its sole and absolute discretion.
any ALLIANCE PARTNER products and technology existing as of the
Effective Date or as of the date of the applicable Project
Agreement Effective Date and used in connection with ALLIANCE
PARTNER's provision of services and performance hereunder and/or
incorporated into any items developed with respect to any Project
undertaken hereunder (the "ALLIANCE PARTNER Technology") is, and
will remain, the sole and exclusive property of ALLIANCE PARTNER,
and, except as otherwise specifically provided in this Agreement
and/or any Project Agreement, no license, right, title, interest in
and/or to such ALLIANCE PARTNER Technology is granted to HNC by
virtue of this Agreement and/or any Project Agreement and/or
ALLIANCE PARTNER's performance hereunder. As such, ALLIANCE PARTNER
will continue to have the unfettered right to utilize the ALLIANCE
PARTNER Technology (and any portion or portions thereof) in any
manner as determined by ALLIANCE PARTNER in its sole and absolute
discretion.
Unless otherwise specifically provided in a Project Agreement attached to
this Agreement:
HNC will retain all right, title and interest to any modifications
made to the HNC Technology, derivative works derived from the HNC
Technology, and/or incorporating the HNC Technology pursuant to
this Agreement and/or any Project Agreement (including, without
limitation, any source code for said modifications and the right to
4
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
own all patents and copyrights relating thereto) including, but not
limited to, modifications to enable the HNC Technology to function on a
different operating system.
ALLIANCE PARTNER will retain all right, title and interest to any
modifications made to the ALLIANCE PARTNER Technology, derivative works
derived from the ALLIANCE PARTNER Technology, and/or incorporating the
ALLIANCE PARTNER Technology pursuant to this Agreement and/or any Project
Agreement (including, without limitation, any source code for said
modifications and the right to own all patents and copyrights relating
thereto) including, but not limited to, modifications to enable the
ALLIANCE PARTNER Technology to function on a different operating system.
3.7 Each party agrees to indemnify, defend and hold harmless the other
and its directors, officers, employees, and agents from and against any and
all liabilities, actions, claims, demands, liens, losses, damages, judgments,
and expenses, including reasonable attorney's fees, that may arise from the
unauthorized disclosure of confidential information by it to third parties or
its unauthorized use of the confidential information.
3.8 This section 3. hereby replaces the Mutual Confidentiality and
Non-Disclosure Agreement date March 11, 1999 between the parties.
4. NONSOLICITATION. Neither Party will, during the term of this Agreement
and for six (6) months after its termination or expiration, without the prior
written consent of the other Party, for its own account or jointly with
another, directly or indirectly, for or on behalf of any Person, as
principal, agent or otherwise, solicit or induce, or in any manner attempt to
solicit or induce, any Person employed or engaged by the other Party
(including, without limitation, as an employee or independent contractor or
agent known to be exclusively engaged by the other party), to leave that
Person's employment or engagement. Notwithstanding the foregoing, this
Section 4 shall not preclude either Party from hiring any Person employed by
the other Party where such Person independently responds to an employment
opportunity broadcast by the Party to the general public (e.g., via
newspaper, magazine, broadcast, Internet, etc.) and has not otherwise been in
direct contact with the Party as a key person during the course of
performance of this Agreement.
5. PROJECT AGREEMENTS
5.1 JOINT PROJECTS
(A) Each time the Parties conceive of a potential new product or
technology that either party would like to develop jointly, a Joint
Project, they will first work in good faith to negotiate, prepare
and execute a Project Agreement, as discussed in Section 5.2, as
soon as reasonably practicable.
(B) If the Parties are unable to agree upon the terms of a
Project Agreement governing the Joint Project, each Party may proceed
to develop and market the underlying products and services
independently, provided no proprietary and/or Confidential
Information of the other party is used with respect to such
independent undertaking.
5
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
5.2 PRODUCTS OR SERVICES
(A) During the term of this Agreement, both parties shall
introduce new products or services to the other as they become
available for consideration by the other party for internal use or
distribution to either party's customer base, as applicable. If both
parties can negotiate in good faith acceptable terms and conditions
to provide such products or services to the other party, then a
Project Agreement (in a form substantially similar to the form
attached hereto as Exhibit A) memorializing both parties agreement
shall be prepared and executed by both parties, taking into
consideration the terms and conditions of this Agreement.
5.3 PRESERVATION OF INTELLECTUAL PROPERTY RIGHTS. Nothing in
subsection 5.1B permitting the independent development and marketing of
information, goods or services that would otherwise be subject to this
Agreement is intended to permit either Party to violate the provisions of this
Agreement, or without limitation, the provisions of subsections 3.1 and 3.2.
5.4 STANDARD CLAUSES FOR PROJECT AGREEMENTS. In addition to the terms
of this Agreement, the additional standard clauses in Exhibit B attached
hereto will be included in each Project Agreement, with only those changes
that are necessary to reflect the form of the underlying transaction while
preserving the intent of such terms. Every Project Agreement that involves
the licensing of software by one Party to the other may include, as an
ancillary agreement, a source code escrow agreement, the terms and conditions
of which will be negotiated in good faith by the Parties on a case-by-case
basis.
6. SERVICE BUREAU SERVICES
(A) ACCESS TO SERVICE BUREAU. HNC may offer from time to time
certain products and technologies via its Service Bureau that
ALLIANCE PARTNER may desire to access. Although neither party has
any obligation to do so, both parties will periodically discuss
opportunities for such services.
(B) RESELL OR REDISTRIBUTION. It is understood by HNC that
ALLIANCE PARTNER may resell or redistribute access to the Service
Bureau services to its customers.
(C) The additional terms and conditions with respect to accessing
the Service Bureau services, reselling or redistribution of such
services to third parties or customers as well as pricing for such
services shall be separately negotiated and documented in a Project
Agreement as provided for under section 5.2 above.
6
CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
7. GRANT OF LICENSES FOR MARKETING PURPOSES
7.1 ALLIANCE PARTNER grants to HNC a non-exclusive, non-transferable,
worldwide, paid-up, unlimited, royalty free, right and license without the
right to sub-license, to use, reproduce and distribute (internally) copies of
the ALLIANCE PARTNER Software for use in internal and customer non-billable
external training, proof-of-concept activities, presentations, prototyping,
benchmarking, ALLIANCE PARTNER Software evaluations, demonstrations and other
marketing and services activities.
7.2 HNC grants to ALLIANCE PARTNER a non-exclusive, non-transferable,
worldwide, paid-up, unlimited, royalty free, right and license, without the
right to sub-license, to use, reproduce and distribute (internally) copies of
the HNC Software for use in internal and customer non-billable external
training, proof-of-concept activities, presentations, prototyping,
benchmarking, HNC Software evaluations, demonstrations and other marketing
and services activities.
7.3 The Receiving Party shall not alter or remove any patent,
copyright, trademark and/or other notices contained on or in copies of the
software received under this Agreement. The existence of any such copyright
notice shall be construed as an admission or deemed to create a presumption,
that publishing of such material has occurred.
8. ARBITRATION
(a) AGREEMENT TO SUBMIT. Except as provided below, the parties
agree to submit all disputes between them relating to this Agreement and its
formation, breach, performance, interpretation and application to arbitration
as follows:
(b) NOTICE. Each party will provide written notice to the other
party of any dispute within six (6) months of the date when the dispute first
arises or occurs. If a party fails to provide such notice, recovery on the
dispute will be barred.
(c) ARBITRATION RULES. Arbitration will be conducted at a neutral
location reasonably selected by the arbitrator, pursuant to the rules of the
American Arbitration Association, as modified herein. Within fifteen (15)
days after the date that written notice is provided to the other party, each
party will appoint a single arbitrator, and within an additional fifteen (15)
days thereafter, the two parties so chosen will appoint a third arbitrator.
All arbitrators will have knowledge of and experience regarding the computer
industry. The arbitration hearing will be commenced within sixty (60) days
after the appointment of all three arbitrators and the hearing will be
completed and an award rendered in writing within sixty (60) days after the
commencement of the hearing, unless the arbitrators determine that
exceptional circumstances justify delay. Each party will have the right to
take up to four (4) evidentiary depositions, and exchange one set of
document production requests and one set of not more than twenty-five
interrogatories, without subparts, prior to the hearing. The arbitration
award will be final and binding and may be enforced in any court of
competent jurisdiction.
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(d) COSTS AND ATTORNEYS' FEES. Unless the arbitrators find that
exceptional circumstances require otherwise, the arbitrators will grant the
prevailing party in arbitration its costs of arbitration and reasonable
attorneys' fees as part of the arbitration award.
(e) EXCEPTIONS. Neither party will be required to arbitrate any
dispute relating to actual or threatened (i) unauthorized disclosure of
confidential information or (ii) violation of its proprietary rights. Either
party will be entitled to receive in any court of competent jurisdiction
injunctive, preliminary or other equitable relief, in addition to damages,
including court costs and fees of attorneys and other professionals, to
remedy any actual or threatened violation of its rights with respect to which
arbitration is not required hereunder.
9. END-USER LICENSES/RESPONSIBILITY FOR PRODUCTS
9.1 Except as otherwise agreed, HNC or its agents will be responsible
for providing and executing end-user license agreements for the HNC Software
with the end users; and ALLIANCE PARTNER or its agents will be responsible
for providing and executing end-user license agreements for the ALLIANCE
PARTNER Software with the end-users.
9.2 Except as otherwise set forth in a Project Agreement, HNC is
responsible for the promotion, sale, installation and maintenance of the HNC
Software, and ALLIANCE PARTNER is responsible for the promotion, sale,
installation and maintenance of the ALLIANCE PARTNER Software.
9.3 If a third party complains or brings a complaint against HNC in
relation to the ALLIANCE PARTNER Software, or against ALLIANCE PARTNER in
relation to the HNC Software, ALLIANCE PARTNER and HNC, respectively will (i)
resolve the complaint; and (ii) defend the claim at its expense and pay any
damages awarded, provided it is given prompt notice and full control of the
defense.
10. IP INDEMNIFICATION
10.1 HNC will defend and indemnify ALLIANCE PARTNER against any
third-party claim alleging that the HNC Software infringes any patent, or
copyright, trade secret or other proprietary right, provided that HNC is
given prompt notice of the claim and full control of the defense. HNC will
not be obligated to defend or indemnify ALLIANCE PARTNER if such claim is
based on a modification of the HNC Software by ALLIANCE PARTNER, or a
combination of the HNC Software with other products not supplied by HNC nor
authorized by HNC to be combined with its software, if the HNC Software would
not have infringed absent such modification or combination.
10.2 ALLIANCE PARTNER will defend and indemnify HNC against any
third-party claim alleging that the ALLIANCE PARTNER Software infringes any
patent, or copyright, trade secret or other proprietary right, provided that
ALLIANCE PARTNER is given prompt notice of the claim and full control of the
defense. ALLIANCE PARTNER will not be obligated to defend or indemnify HNC if
such claim is based on a modification of the ALLIANCE PARTNER
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Software by HNC, or a combination of the ALLIANCE PARTNER Software with other
products not supplied by ALLIANCE PARTNER nor authorized by ALLIANCE PARTNER
to be combined with its software, if the ALLIANCE PARTNER Software would not
have infringed absent such modification or combination.
11. MEDIA RELEASES
Except for any announcement intended solely for internal distribution or any
disclosure required by legal, accounting, or regulatory requirements beyond
the reasonable control of the parties, all media releases, public
announcements, or public disclosure for general distribution (including, but
not limited to, promotional or marketing material) by either party, or by
their employees or agents, relating to this Agreement and/or any Project
Agreement or its subject matter, other than general statements that a
contractual relationship exists between the parties, will be coordinated with
and approved in writing by the other party prior to its release.
12. TERM AND TERMINATION
12.1 TERMINATION WITHOUT CAUSE. Unless earlier terminated by either
Party pursuant to Section 12.2 below, this Agreement will be in effect for an
initial term of one (1) year from the Effective Date, at which time this
Agreement will automatically renew for one or more subsequent renewal terms
of one (1) year each on each anniversary of the Effective Date unless either
Party sends thirty (30) days written notice to the other Party of its intent
not to renew this Agreement prior to the end of (i) the initial term or (ii)
any subsequent renewal term.
12.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement
upon the occurrence of any of the following events:
(A) Breach by the other Party of any of the material terms,
obligations, covenants, representations or warranties under this Agreement
(including, but not limited to, those contained in Section 3 of this
Agreement) and the failure of the breaching Party to cure that breach within
thirty (30) days from receipt of written notice from the non-breaching Party
identifying the breach; provided that if the breach is not reasonably capable
of cure within a thirty (30) day period, the breaching party may avoid
termination under this subsection 12.2 by promptly commencing efforts to cure
the breach and diligently prosecuting the cure to completion as soon as
practicable, but not later than one hundred and twenty (120) days from the
receipt of notice from the non-breaching Party; or
(B) The other Party is declared insolvent or bankrupt, or makes an
assignment of substantially all of its assets for the benefit of creditors,
or a receiver is appointed or any proceeding is demanded by, for or against
the other Party under any provision of the federal Bankruptcy Act or any
amendment to that Act (provided, however, that termination will not be
permitted if such a proceeding is brought against a Party and is terminated by
that Party within thirty (30) days); or
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(C) The other Party attempts to assign this Agreement within the
meaning of subsection 14.1 without obtaining the prior written consent of the
terminating Party.
12.3 CONTINUING VALIDITY OF PROJECT AGREEMENTS. Notwithstanding anything
in this Agreement that may be construed to the contrary, the termination or
expiration of this Agreement will not rescind or otherwise terminate any
Project Agreement then in effect, unless a Project Agreement specifically
provides that it will terminate upon termination or expiration of this
Agreement.
12.4 SURVIVAL. The obligations of sections 3, 4, 8, 10, 12, 13, and 14
will continue in effect after termination of this Agreement.
12.5 RETURN OF MATERIALS. Upon any termination of the license granted
under this Agreement, each Party shall return to the other Party (or at the
option of the other Party, destroy and certify in writing that it has
destroyed) the original and all copies of the ALLIANCE PARTNER Software or
HNC Software or other materials provided during the term of this Agreement to
each other, as the case may be, including partial copies if any.
12.6 EFFECT OF TERMINATION. Unless otherwise provided for in a Project
Agreement, all fees due or payable as of the termination date shall become
immediately due.
13. LIMITATION OF LIABILITY
NEITHER HNC NOR ALLIANCE PARTNER SHALL BE LIABLE TO THE OTHER FOR INDIRECT,
CONSEQUENTIAL, SPECIAL OR ECONOMIC DAMAGES OF ANY TYPE, INCLUDING LOST
PROFITS. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR PUNITIVE DAMAGES.
THE REMEDIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE. EXCEPT FOR THE
INDEMNIFICATION PROVISIONS OF SECTIONS 3 AND 10 OF THIS AGREEMENT, IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES UNDER A PARTICULAR PROJECT
AGREEMENT IN EXCESS OF THE FEES ACTUALLY PAID WITH RESPECT TO THE AFFECTED
PROJECT AGREEMENT.
14. PROVISIONS OF GENERAL APPLICABILITY
14.1 ASSIGNMENT. Neither Party may assign or subcontract its rights or
obligations under this Agreement without the prior written consent of the
other Party. Such consent will not be unreasonably withheld.
14.2 NON-WAIVER. Neither Party will, by the lapse of time, and without
giving written notice, be deemed to have waived any of its rights under this
Agreement. No waiver of a breach of this Agreement will constitute a waiver
of any prior or subsequent breach of this Agreement or of any similar or
related provision in any Project Agreement.
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14.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the exhibits
attached hereto constitute the entire understanding of the Parties with
respect to the overall strategic alliance and the individual cooperative
ventures to be carried out by the Parties and supersedes all prior
communications regarding its subject matter, although the Parties understand
and agree that subsequent Project Agreements will provide further terms and
conditions applicable to particular Projects. This Agreement will not be more
strongly construed against either Party, regardless of who is more
responsible for its preparation. This Agreement may not be amended except by
a written agreement that acknowledges modification of this Agreement and
which is signed by authorized representatives of ALLIANCE PARTNER and HNC. No
Project Agreement will be construed as an amendment of this Agreement unless
the Parties' intent to amend this Agreement is clearly stated in such Project
Agreement.
14.4 NOTICES. Notices given under this Agreement must be in writing
and must be (i) served personally, or (ii) delivered by first class U.S.
mail, certified or registered, postage prepaid and addressed to the
addressees set forth below, or (iii) delivered by overnight courier service,
addressed to the addressees as set forth below. Notices will be deemed
received at the earlier of actual receipt in the case of personal service,
overnight courier, or U.S. Mail delivery. The Parties may change their
addresses by giving notice of such change to the other Party as provided in
this subsection.
If to ALLIANCE PARTNER:
Mr. Alan Koslow
Executive Vice President, Finance and
General Counsel
411 First Avenue South, Suite 200 N
Seattle, WA 98104
Telephone: 206-223-1996
Facsimile: 206-223-2324
If to HNC: Mr. Raymond V. Thomas, Vice President, Finance and
Administration; Chief Financial Officer
HNC Software Inc.
5930 Cornerstone Court West
San Diego, California 92121-3728
Telephone: 619-546-8877
Facsimile: 619-452-6524
14.5 SEVERABILITY. If any part of this Agreement and or any Project
Agreement is found to be illegal or unenforceable, then that part will be
curtailed only to the extent necessary to make it, and the remainder of the
Agreement and or any Project Agreement, legal and enforceable.
14.6 APPLICABLE LAW. This Agreement and or any Project Agreement will
be governed solely by the internal laws of the State of California, without
regard to principles of conflicts of law.
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14.7 INDEPENDENT CONTRACTING PARTIES. Nothing in this Agreement creates
a joint venture, partnership, principal-agent or mutual agency relationship
between the Parties. No Party has any right or power under this Agreement to
create any obligation, expressed or implied, on behalf of the other Party. No
employee of a Party will be deemed to be an employee of the other Party by
virtue of this Agreement.
14.8 HEADINGS. The titles or captions used in this Agreement are for
convenience only and will not be used to construe or interpret any provision
hereof.
14.9 AUTHORITY. Each person signing below represents and warrants that
he or she has the necessary authority to bind the principal set forth below.
ALLIANCE PARTNER and HNC represent and warrant that they have the authority
to bind each of their Subsidiaries to this Agreement to the same extent as if
such Subsidiaries had executed this Agreement.
14.10 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if
the signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the Effective Date.
SHOPNOW.COM INC., HNC SOFTWARE INC.,
A Washington corporation A Delaware corporation
By: /s/ Alan Koslow By: /s/ Raymond V. Thomas
--------------------------------- ---------------------------------
Print: Alan Koslow Print: Raymond V. Thomas
------------------------------ ------------------------------
Title: EVP Finance/Lead Counsel Title: CFO
------------------------------ ------------------------------
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EXHIBIT B
STANDARD CLAUSES FOR PROJECT AGREEMENTS
Potential provisions of any Project Agreement include, but are not limited to:
Mutual warranties regarding ownership of intellectual property utilized in
any Project and mutual indemnification regarding infringement claims; any
other specific ownership provisions.
ALLIANCE PARTNER and HNC standard disclaimers and releases regarding accuracy
of its data.
ALLIANCE PARTNER and HNC standard language regarding bi-lateral right to
terminate agreements based on changes in applicable law; any modifications
required due to changes in applicable law will be negotiated in good faith by
the parties.
Price/Fees (installation, modeling, on-going fees, travel related, and/or
other) and payment terms.
License terms, conditions and territory per product or service.
Sales, Marketing, Training and End User Support Obligations for both parties.
ALLIANCE PARTNER and HNC product development and support requirements.
Public announcements and trademarks requirements.
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EXHIBIT A
ADDENDUM NO. _____
PROJECT AGREEMENT
TO
STRATEGIC ALLIANCE AGREEMENT
BETWEEN
HNC SOFTWARE INC. AND _________________
This agreement addendum (the "Project Agreement") dated as of ______________
(the "Project Agreement Effective Date") modifies the Strategic Alliance
Agreement (the "Agreement") dated _______________ between the parties, HNC
Software Inc. ("HNC") and _________________ ("Alliance Partner") with respect
to additional services and products that HNC shall provide to Alliance Partner
as stated below.
Now, therefore, pursuant to Section 5.2 of the Agreement and in consideration
of the premises and the mutual covenants contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
[INSERT AGREED UPON TERMS AND CONDITIONS]
IN WITNESS WHEREOF, HNC and Alliance Partner have caused this Project
Agreement to be signed in duplicate and delivered by their duly authorized
representatives as of the Project Agreement Effective Date indicated above.
HNC Software Inc. _______________________________
a Delaware Corporation a _________________ corporation
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
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CONSORTIUM MEMBERSHIP AGREEMENT
This Consortium Membership Agreement ("AGREEMENT") is made between HNC
SOFTWARE INC. with its principal place of business at 5930 Cornerstone Court
West, San Diego, California 92121-3728 ("HNC") and ShopNow.com with its
principal place of business at 411 First Avenue South, Seattle, Washington
98104 ("MEMBER"). The provisions of this Agreement shall apply to Member's
provision of data to the HNC Fraud Control Consortium and the use of such
data by HNC in its development of Models (as such term is defined in Section
2 of this Agreement) for use Member and other HNC clients who are members of
the Fraud Control Consortium.
1. FRAUD CONTROL CONSORTIUM
The HNC "FRAUD CONTROL CONSORTIUM" is a cooperative agreement between
numerous credit, debit, and retail card issuers, merchants, processors,
associations, and acquirers from around the world to have HNC act as their
agent and repository for the purpose of collecting data on credit, debit, and
private label (e.g., retail, oil) card transactions and accounts for the
purpose of: identifying fraud trends, fraud reporting, fraud consulting, and
identifying fraudulent behavior. HNC may also use Fraud Control Consortium
data for research to identify new fraud patterns or different kinds of fraud.
2. SOFTWARE LICENSE
Member agrees that joining the Fraud Control Consortium is a condition to
obtaining a license to use predictive models developed by HNC which are based
on Consortium Member Fraud Data (as such term is defined in Section 3 below)
collected by HNC from Member and other members of the Fraud Control Consortium
("MODELS"). Member acknowledges and agrees that Member's license to use the
Models and computer software programs, owned or distributed by HNC shall be
governed by a separate written software license agreement (the "SOFTWARE
LICENSE") which the parties may negotiate and execute subsequent to their
execution of this Agreement. The software license agreement shall govern all
use by Member of the Models and such computer software programs. This
Agreement does not include the grant of any license or any other rights for
such Models and/or computer software programs. The Software License, if
executed by the parties, will supersede and replace this Agreement as of such
agreement's effective date.
3. PROVISION OF CONSORTIUM MEMBER FRAUD DATA
As a member of the Fraud Control Consortium, Member agrees to promptly
provide its known fraud and non-fraud data as described in this Agreement
(the "CONSORTIUM MEMBER FRAUD DATA") every month during the term of this
Agreement. Such Consortium Member Fraud Data as described in this Agreement
will first be provided to HNC within thirty (30) days of the Effective Date.
HNC reserves the right to notify Member of any required modifications or
changes to the format or context of the Consortium Member Fraud Data to be
provided by Member hereunder. Member acknowledges that the Consortium Member
Fraud Data that Member provides to HNC will be incorporated into the Fraud
Control Consortium database on an anonymous basis and Member hereby
expressly agrees that such Consortium Member Fraud Data may be perpetually
used by HNC without charge to develop fraud, risk, and related models,
reports and consulting activities that will be used by HNC and all members of
the Fraud Control Consortium. Member shall encrypt sensitive data using Fraud
Control Consortium encryption specifications as described in the Data
Contribution Specifications (as defined in Section 4 below).
4. SPECIFICATIONS FOR DATA CONTRIBUTED TO FRAUD CONTROL CONSORTIUM
Member will provide to HNC all available and legally applicable fields
contained in the specifications provided to Member by HNC (the "DATA
CONTRIBUTION SPECIFICATIONS") as its regular contribution to the Fraud
Control Consortium. Member acknowledges and agrees that HNC may update such
Data Contribution Specifications from time to time as necessary. HNC agrees
to provide a Member with updates of such Data Contribution Specifications as
soon as they are available for general release to all members of the Fraud
Control Consortium. Member agrees to promptly acknowledge each and every
receipt of such Data Contribution Specifications upon the acknowledgement
form to be provided to Member by HNC with each new Data Contribution
Specification.
5. QUALITY OF DATA CONTRIBUTED TO THE FRAUD CONTROL CONSORTIUM
Member acknowledges that one of the aims of joining the Fraud Control
Consortium is to help members reduce their fraud losses. For that reason,
Member acknowledges and agrees that for the Fraud Control Consortium to
equally benefit all Consortium members, each member must contribute data that
is complete and meets the Data Contribution Specifications. Should HNC find,
while processing Member's Consortium Member Data for inclusion in the Fraud
Control Consortium that Member's Consortium Member Data is incomplete or
contains inaccuracies, then HNC will promptly notify Member and Member will
make every reasonable effort to correct its Consortium Member Fraud Data
contributed and will use diligent efforts to prevent any similar problems
with any future contributions of its Consortium Member Fraud Data.
5. OWNERSHIP
HNC shall own any derived data variables from any such Consortium Member
Fraud Data collected by HNC as part of the Fraud Control Consortium.
6. SPECIFICATIONS FOR DISPLAY OF FRAUD CONTROL CONSORTIUM LOGO
Member agrees to use diligent efforts to display on each customer
merchandise and/or service order form the "Consortium Logo" only in the
manner described in the "Fraud Control Consortium Logo Specifications" to be
provided to Member with the Data Contribution Specifications. Subject to the
limited rights of Member to display the Consortium Logo in accordance with
this Agreement, HNC retains all worldwide right, title, and ownership in and
to the Consortium Logo.
7. TERM AND TERMINATION
7.1 TERM
This Agreement shall commence on its Effective Date and shall remain in
effect until terminated in accordance with this Section 7.
7.2 TERMINATION OF AGREEMENT
Either party may terminate this Agreement at any time by providing the other
party with ninety (90) days' advance written notice. However, HNC may
terminate this Agreement (and Member's membership in the Fraud Control
Consortium) in its sole discretion without notice in the event Member is
unwilling or unable to provide Consortium Fraud Data to HNC in accordance
with the Data Contribution Specifications and Section 5 of this Agreement.
7.3 TERMINATION FOR BREACH
A party may terminate this Agreement if the other party is in material breach
and has not cured the breach within thirty (30) days of written notice
specifying the breach.
<PAGE>
7.4 EFFECT OF TERMINATION
Upon termination of this Agreement, Member shall no longer be required to
provide Consortium Member Fraud Data. However, termination of this Agreement
shall not limit either party from pursuing any other remedies available to
it, including injunctive relief. The parties' rights and obligations under
Sections 2, 5, 7.4, 8.1, 8.4, 8.5, and 8.6 shall survive termination of this
Agreement.
8. GENERAL
8.1 NONDISCLOSURE
The parties may provide to one another information that is confidential
("Confidential Information"). Confidential Information shall include, without
limitation, the following: Consortium Member Data, information regarding the
financial and/or business operations of each party, including, but not
limited to, marketing and product plans, ideas, concepts, business plans,
financial condition, employees, inventions, algorithms, decision technology
and/or models, processes, designs, specifications, drawings, samples,
improvements, developments, applications, engineering, manufacturing and
marketing data and plans, software code (object and source), functionality,
security procedures and approaches, know-how, customer names and information,
experimental work, distribution arrangements and trade secrets, and/or ideas.
Confidential Information shall not include (a) Consortium Member Data that
has been processed by HNC and incorporated into the Models; (b) the specific
identification of Member as a member of the Fraud Control Consortium to other
members of the Fraud Control Consortium; and/or information which: (c) is or
becomes a part of the public domain through no act or omission of the
receiving party; (d) was in the receiving party's lawful possession prior to
the disclosure and had not been obtained by the receiving party either
directly or indirectly from the disclosing party; (e) is lawfully disclosed
to the receiving party by a third party without restriction on disclosure;
(f) is independently developed by the receiving party; or (g) is disclosed by
operation of law (provided that the receiving party shall give the disclosing
party prompt written notice of any subpoenas issued to the receiving party
requesting disclosure of such Confidential Information so that the disclosing
party may, at its own expense and with the reasonable cooperation of the
receiving party, seek a protective order with respect to such disclosure).
The parties agree to hold each other's Confidential Information in confidence
during the term of this Agreement and for a period of five years after this
Agreement is terminated.
8.2 PUBLICITY
Subject to the other party's prior written consent as to form and substance
(which shall not be unreasonably withheld), either party may include the
other party's name in its marketing and promotional materials regarding the
Fraud Control Consortium.
8.3 RELATIONSHIP BETWEEN THE PARTIES
HNC is an independent contractor; nothing in this Agreement shall be
construed to create a partnership, joint venture, or agency relationship
between the parties. Each party will be solely responsible for payment of all
compensation owed to its employees, as well as employment related taxes. Each
party will maintain appropriate worker's compensation insurance for its
employees as well as general liability insurance.
8.4 LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, REVENUE,
DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN
ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.5 GOVERNING LAW
This Agreement, and all matters arising out of or relating to this Agreement,
shall be governed by the laws of the State of California, United States of
America.
8.6 LEGAL EXPENSES
If any action or proceeding is brought for the enforcement of this Agreement,
or because of an alleged or actual dispute, breach, default, or
misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in such action or
proceeding in addition to any other relief to which it may be entitled.
8.7 NOTICE
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
mailed by first class mail to the first address listed at the top of this
first page of this Agreement.
8.8 SEVERABILITY
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in full
force.
8.9 WAIVER
The waiver by either party of any default or breach of this Agreement shall
not constitute a waiver of any other or subsequent default or breach. Except
for actions for nonpayment or breach of either party's intellectual property
rights, no action, regardless of form, arising out of this Agreement may be
brought by either party more than two years after the cause of action has
accrued.
8.10 ENTIRE AGREEMENT
This Agreement constitutes the complete agreement between the parties
regarding the subject matter hereof and supersedes all previous and
contemporaneous agreements, proposals, or representations, written or oral,
concerning the subject matter of this Agreement. This Agreement may not be
modified or amended except in a writing signed by a duly authorized
representative of each party.
THE EFFECTIVE DATE OF THIS AGREEMENT SHALL BE MAY 4, 1999.
MEMBER, BY VIRTUE OF THE SIGNATURE OF ITS AUTHORIZED REPRESENTATIVE
APPEARING BELOW, AGREES TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND
FURTHER AGREES TO JOIN THE FRAUD CONTROL CONSORTIUM.
EXECUTED BY MEMBER:
Authorized Signature: /s/ Alan Koslow
---------------------------------
Name: Alan Koslow
---------------------------------
Title: E.V.P. Finance/General Counsel
---------------------------------
EXECUTED BY HNC:
Authorized Signature: /s/ R.V. Thomas
---------------------------------
Name: R.V. Thomas
---------------------------------
Title: CFO
---------------------------------
<PAGE>
CROSS PROMOTION AGREEMENT
THIS CROSS PROMOTION AGREEMENT, dated April 5, 1999 (the "Agreement"), is
made between 24/7 Media, Inc. ("24/7"), a Delaware corporation with an address
at 1250 Broadway, 27th floor, New York, NY 10001 and TechWave Inc. ("TW"), a
Washington corporation with an address at 411 First Avenue South, Suite 200 N,
Seattle, WA 98104.
WHEREAS, 24/7 operates networks of Internet Web sites (collectively, the
"24/7 Network") for which it solicits advertising, promotions and direct
marketing to generate revenues for the Web sites affiliated with the 24/7
Network (the "24/7 Affiliates"), places advertising, promotions and direct
marketing on the 24/7 Network for advertisers and agencies (the "24/7
Advertisers") and, through its Sift, Inc. subsidiary, offers customer
relationship management and other e-mail based services (collectively, the
"24/7 Services");
WHEREAS, TW currently provides e-commerce technology and enabling services;
online store development, creative design services, product fulfillment and
online sales and marketing to third parties ("TW Affiliates") for the
establishment and promotion of transactional capabilities through the Internet
(the "TW Services");
WHEREAS, 24/7 and TW wish to cross promote each other's services to their
customer bases on a most favored nation basis and to jointly promote their
services to prospective new customers; for purposes of this Agreement, "Most
Favored Nation" shall mean that services are offered to a party on terms and
conditions, including price, that are at least as favorable as those offered to
other parties that are comparable in size and scope;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, 24/7, and TW agree
as follows:
1. Promotion and Provision of TW Services
A. 24/7 agrees to promote to 24/7 Affiliates the TW Services. 24/7 shall
make an initial direct marketing solicitation of the 24/7 Affiliates and shall
provide reasonable additional support as may be requested by TW from time to
time;
B. TW agrees to provide special incentives to 24/7 Affiliates in order to
induce them to avail themselves of the TW Services; these special incentives
will be mutually agreed upon by both 24/7 and TW and are contemplated to be
discounts and similar arrangements;
C. TW shall be solely responsible for development of marketing materials
relating to TW Services.
D. 24/7 shall be responsible for the mailing costs associated with the TW
Services as it is offered to 24/7 Affiliates.
E. TW shall be solely responsible for providing all TW Services,
including customer service in respect of the TW Services;
F. TW shall be deemed the seller of TW Services pursuant hereto and shall
be solely responsible for collecting and remitting to the appropriate
jurisdiction any and all
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applicable sales or use or other taxes and shall fully indemnify and hold 24/7
harmless for any sales, use or similar transaction taxes that are assessed,
whether against 24/7 or TW, with respect to the sale of TW Services;
G. TW agrees to pay 24/7 20% of all gross revenue generated and collected
by TW during the term of this Agreement from the sale of TW Services to 24/7
Affiliates and 22\4/7 Advertisers. TW agrees to provide 24/7 within 45 days
after the end of each month with (i) a report showing all 24/7 Affiliates for
which TW provided TW services in the prior month and the revenue generated
from such TW Services and (ii) payment equal to 24/7's appropriate share of
all revenue collected in the prior month.
H. The revenue sharing payment contemplated by Section 1.G. shall apply
only in respect of existing and after acquired 24/7 Affiliates and 24/7
Advertisers who are not currently also TW Affiliates at the time they are
acquired by 24/7. A list of all current 24/7 Affiliates is attached hereto
as Exhibit 1. A list of all current TW Affiliates is attached hereto as
Exhibit 2. TW agrees not to solicit any current or future 24/7 Affiliate or
24/7 Advertiser except pursuant to a joint promotion prepared by both parties
pursuant hereto.
2. Promotion and Provision of 24/7 Services
A. TW agrees to promote to TW Affiliates the 24/7 Services. TW shall
make an initial direct marketing solicitation of the TW Affiliates and shall
provide reasonable additional support as may be requested by 24/7 from time to
time;
B. 24/7 agrees to provide special incentives to TW Affiliates in order to
induce them to avail themselves of the 24/7 Services; these special incentives
will be mutually agreed upon by both 24/7 and TW and are contemplated to be
discounts and similar arrangements.
C. 24/7 shall be solely responsible for development of marketing
materials relating to 24/7 Services.
D. TW shall be responsible for the mailing costs associated with the 24/7
Services as it is offered to TW Affiliates.
E. 24/7 shall be solely responsible for providing all 24/7 Services,
including customer service in respect of the 24/7 Services;
F. 24/7 shall be deemed the seller of 24/7 Services pursuant hereto and
shall be solely responsible for collecting and remitting to the appropriate
jurisdiction any and all applicable sales or use or other taxes and shall fully
indemnify and hold TW harmless for any sales, use or similar transaction taxes
that are assessed, whether against 24/7 or TW, with respect to the sale of 24/7
Services;
G. 24/7 agrees to pay TW a percentage of all revenue generated and
collected during the term of this Agreement from the sale of 24/7 Services to
TW Affiliates as follows: (i) E-mail services - 15% of gross revenue; (ii)
advertising and sponsorship placements - 10% of gross advertising spending
(only in instances where no advertising agency commission is earned) per
Affiliate; (iii) Sale of product by TW Affiliates in transactional banners or
equivalents run on 24/7 networks - 15% of gross spread, defined as gross
revenue minus cost of product and other third party costs; (iv) Transactions
for sale of product not by TW Affiliates in transactional
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banners or equivalents run on 24/7 networks - $.40 per transaction with
limited fraud check service; additional amounts will be paid for enhanced
fraud check services, on a per transaction basis, which will be determined on
an as needed time that TW begins providing back-end transaction processing
services; (v) Advertising Representations of Network Sites - a finder's fee
of (a) $500 per Web site that generates at least 1mm ad impressions per
month; (b) $250 per Web site that generates between 500K - 1mm ad impressions
per month; and (c) $50 per Web site that generates between 100k - 500K ad
impressions per month. This will be determined after Affiliate is represented
by 24/7 for a period of 30 days to verify impression levels. 24/7 agrees to
provide TW within 45 days after the end of each month with (i) a report
showing all TW Affiliates for which 24/7 provided 24/7 services in the prior
month and the revenue generated from such 24/7 Services and (ii) payment
equal to TW's appropriate share of all revenue collected in the prior month.
H. The revenue sharing payment contemplated by Section 2.G. shall apply
only in respect of existing and after acquired TW Affiliates who are not
currently also 24/7 Affiliates or 24/7 Advertisers at the time they are
acquired by TW. A list of all current TW Affiliates is attached hereto as
Exhibit 2. A list of all current 24/7 Affiliates and 24/7 Advertisers is
attached hereto as Exhibit 1. 24/7 agrees not to solicit any current or
future TW Affiliate except pursuant to a joint promotion prepared by both
parties pursuant hereto.
3. Branding.
A. 24/7 agrees to co-brand its Click2Buy transactional banner service
with the "ShopNow" logo in a manner to be mutually agreed upon and to direct
traffic to ShopNow.com upon completion of the Click2Buy transaction.
B. TW agrees to co-brand ShopNow.com with a Click2Buy logo (or other
branding as 24/7 so chooses) in a manner to be mutually agreed upon.
4. Additional Covenants.
A. 24/7 agrees to make available to TW and to TW Affiliates reasonable
amounts of advertising inventory on the 24/7 Network, on a cpm, cpc and
"default" basis, at "most favored nation" rates, and to make available at least
the amount of the guaranteed spend by TW pursuant to 4.B. on a non pre-emptible
basis.
B. TW agrees to purchase advertising on the 24/7 Networks at an aggregate
minimum cost of $1,000,000 during each twelve (12) month period of this
Agreement (reduced proportionately for any partial period due to early
termination of this Agreement);
5. Marketing Programs. 24/7 and TW will jointly define marketing programs and
budgets through written marketing plans updated no less frequently than every
six (6) months. In the event of a disagreement, 24/7 shall have the final
controlling rights on all marketing and promotion of the joint services
(including but not limited to presentation, copy, format, design, script
development, etc.) subject to non-contravention of existing agreements, laws or
regulations, and subject to reasonable limits on costs to be incurred by TW.
6. Participation in Profilz and other Co-op Databases.
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A. 24/7 agrees to grant TW access, on a most favored nation price basis,
to 24/7 Profilz to enable TW to use Profilz for its own internal purposes or to
offer Profilz to TW Affiliates to enhance their online advertising campaigns;
B. 24/7 also agrees to offer TW access on a most favored nation pricing
basis to any other database services or technology that 24/7 develops during the
Term;.
C. Subject to contractual and legal restrictions between TW and TW
Affiliates, TW agrees to provide to all available registration and transactional
information to the Profilz database; 24/7 shall compensate TW for such
registration data on a Most Favored Nation basis; TW will have access to
contributed names and information that has been appended to it; TW will be able
to participate in Profilz and other 24/7 Co-op Database initiatives that are
created during the Term of this Agreement.
7. Exclusivity
A. TW hereby grants 24/7 the sole third party right to sell advertising,
sponsorships and promotions on all web sites operated by TW (Buysoftware.com,
shopnow.com, etc.) during the Term. This exclusivity shall expire with respect
to any one web site operated by TW (Buysoftware.com, shopnow.com, etc.) in the
event 24/7 fails to achieve an overall CPM of $2 or more on such web site for
three consectutive months. TW may continue to sell advertising on up to 50% of
the advertising inventory on the sites using internal sales force. 24/7 and TW
will mutually agree on what part of the sites represent the 50% and may adjust
minimum CPM accordingly.
B. TW hereby grants 24/7 the sole third party right to sell advertising,
sponsorships and promotions on all TW afffiliate sites. 24/7 agrees and TW
acknowledges that TW cannot prohibit TW affiliates from directly engaging other
third parties for ad representations.
C. TW hereby grants to 24/7 the sole third party right to offer ad
placement services to TW affiliates. 24/7 agrees and TW acknowledges that TW
cannot prohibit TW affiliates from engaging other third parties for ad
placements.
D. TW hereby appoints 24/7 as the premier provider of email services on a
service bureau, CRM and list rental basis to TW and TW Affiliates. Such
exclusivity is based on TW receiving business terms substantially equivalent to
those offered by third parties and shall not preclude TW from sending emails
itself; 24/7 acknowledges that TW is party to existing agreements that shall be
phased out over 180 days;
E. 24/7 agrees not to engage any of the following direct competitors of
TW as a co-marketing partner for e-commerce technologies offered by TW:
Digital River, Cybersource, PaymentTech, Go2Net, Imall, CyberCash, First USA.
Also, TW shall have a right of first refusal on any other partnership with
24/7 for e-commerce technology or services from other third parties assuming
TW provides similar products and services in terms of functionality and
quality;
F. 24/7 agrees to extend this Agreement to include non-U.S. networks
affiliated with 24/7, provided that 24/7 has substantial control of such
non-U.S. networks and presuming that TW establishes non-U.S. operations that
are on a par in terms of quality with the TW U.S. operations.
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8. Term and Termination
A. The term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either party pursuant to
this Section 8.
B. Either party may terminate the Agreement by giving written notice
no earlier than two years and eight months after the Effective Date.
Termination will be effective four (4) months after the date on which written
notice is given, as determined under the provisions of Section 19 below, to
the other party.
C. Notwithstanding Section 8.B. above, this Agreement may be
terminated by either party on 60 days' prior written notice to the other party
upon the occurrence of a material breach by the other party of any covenant,
duty or undertaking herein, which material breach continues without cure for a
period of 30 days after written notice of such breach from the non-breaching
party to the breaching party.
D. Notwithstanding 8.B above, in the event (i) of a sale or distribution
of all or substantially all of the assets of TW or a sale to a single party of
more than 50% of the voting stock of TW or (ii) that TW or its affiliates begins
to compete directly with the 24/7 Services, 24/7 may, in its sole discretion,
terminate this Agreement immediately. In the event that 24/7 terminates this
Agreement pursuant to the preceding sentence of this Section, TW shall reimburse
24/7 for reasonable out-of-pocket expenses incurred in transferring the
Agreement, at 24/7's election, to another e-commerce vendor. With 24/7's
approval, which shall not be unreasonably withheld, TW may negotiate transfer
expenses on behalf of 24/7 with another e-commerce vendor of 24/7's choosing
to ensure the reasonableness of the expenses. With 24/7's approval, TW may
provide components of the transfer.
E. Either party may terminate this Agreement with immediate effect: (i)
upon the institution by the other party of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the other party to institution of
bankruptcy or insolvency proceedings against it or the filing by the other party
of a petition or answer or consent seeking reorganization or release under the
Federal Bankruptcy Code, or any other applicable Federal or state law, or the
consent by the other party to the filing of any such petition or the appointment
of a receiver, liquidator, assignee, trustee, or other similar official of the
other party or of any substantial part of its property, or the making by the
other party of an assignment for the benefit of creditors, or the admission in
writing by the other party of an assignment for the benefit of creditors, or the
admission in writing by the other party of its inability to pay its debts
generally as they become due or the taking of corporate action by the other
party in furtherance of any such actions; (ii) if, within 60 days after the
commencement of an action against the other party seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future law or regulation, such action shall not have been dismissed
or all orders or proceedings thereunder affecting the operations or the business
of the other party stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within 60 days after the appointment without the
consent or acquiescence of the other party of any trustee, receiver or
liquidator or similar official of the other party, or of all or any substantial
part of the property of the other party, such appointment shall not have been
vacated.
F. Notwithstanding Section 8.A above, this Agreement will terminate if
the Equity Exchange set forth in Section 9 of this Agreement is not closed
within 10 days of execution of this Agreement.
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9. Stock Purchase.
A. Pursuant to the Stock Purchase Agreement, a copy of which is attached
hereto, within 10 days after the Effective Date, TW shall issue to 24/7 shares
of preferred stock of TW with a market value of $35,185,200 (based on a
pre-investment fully diluted value of TW of $150,000,000). The number of all
shares issued shall represent 19% of TW after issuance on a fully diluted basis.
B. On the effective date of the Stock Purchase Agreement, TW shall
deliver to 24/7 shares of preferred stock of TW with a value of $25,835,200 and
shall hold the remainder in escrow (the "First Closing"). As consideration for
this issue, on the effective date of the Stock Purchase Agreement, 24/7 shall
deliver to TW, pursuant to a separate Stock Purchase Agreement, shares of 24/7
with a fair market value of $25,835,200, with such fair market value to be
determined by reference to the closing price per share of common stock of 24/7
reported by Nasdaq for the five trading days preceding the date of the First
Closing.
C. Should 24/7 complete its public offering of shares of common stock
currently in registration or prior to May 14, 1999 (which date may be extended
by mutual consent), then within five business days of the closing of such public
offering, 24/7 shall transfer to TW the sum of $5,000,000 and shall receive in
exchange $5,000,000 worth of preferred stock of TW (based on the valuation on
the date of the First Closing) held in escrow. Should 24/7 not complete such
public offering prior to May 14, 1999, then 24/7 and TW shall promptly schedule
a second closing at which 24/7 shall issue to TW shares of common stock of 24/7
with a market value of $5,000,000 (based on the closing price for the five
trading days preceding the First Closing) and TW shall issue to 24/7 shares of
preferred stock of TW with a market value of $5,000,000 (based on the valuation
on the date of the First Closing).
D. Promptly after the execution hereof, 24/7 and TW shall commence due
diligence and negotiations of an acquisition of Card Secure, Inc. (a majority
owned subsidiary of 24/7) by TW. By May 31, 1999, TW and 24/7 shall determine
whether or not the transaction shall occur and the relevant terms. Should the
parties agree not to consummate the Card Secure transaction or consummate it
with an agreed upon valuation for Card Secure of less than $4,350,000, then TW
shall issue to 24/7 shares of preferred stock of TW with a market value of
$4,350,000 (based on the valuation on the date of the First Closing) and 24/7
shall issue to TW shares of common stock of 24/7 with a market value of
$4,350,000 (based on the closing price for the five trading days preceding the
First Closing) minus the agreed upon valuation of Card Secure, Inc. in any
transaction.
E. In addition, TW shall issue to 24/7 five-year warrants to purchase
shares of common stock of TW equal to 20% of the shares of common stock issuable
upon conversion of the preferred stock that it receives pursuant to paragraphs
B, C and D hereof at an exercise price equal to the conversion price per share.
Such warrants shall contain a "net exercise" feature.
10. Intellectual Property Ownership.
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In the event any inventions, methods, techniques, works of authorship, computer
software, computer upgrades, computer programs, service providers, vendor
information, training materials, telemarketing scripts, e-mail scripts, computer
screens, reports, data, any other proprietary or confidential information is
made, created, developed or written hereunder and other intellectual property
created, developed or written in accordance with the activities contemplated
hereunder ("Developed Material") is, (i) fully paid for by 24/7, such Developed
Material shall be deemed the sole property of 24/7 and any use thereof by TW
shall require consent thereto by 24/7; (ii) is substantially paid for by 24/7
and TW has had material creative or developmental input therein (including
without limitation provision of proprietary or confidential information), then
such Developed Material shall be deemed the property of 24/7 with TW having a
perpetual non-exclusive, royalty-free right of use thereof; (iii) is
substantially paid for by TW and 24/7 has had material creative or developmental
input therein (including without limitation provision of proprietary or
confidential information), then such Developed Material shall be deemed the
property of TW with 24/7 having a perpetual non-exclusive, royalty-free right of
use thereof; and (iv) is fully paid for by TW then such Developed Material shall
be deemed the sole property of TW and any use thereof by 24/7 shall require
consent thereto by TW. Nothing herein shall be construed to restrict, impair or
deprive TW or 24/7 of any of their respective rights or proprietary interests in
technology or products that existed prior to and independent of the performance
of their respective obligations hereunder.
11. Intellectual Property Infringement.
Each party agrees to defend and/or handle at its own expense, any claim or
action against the other party or its affiliates (including without limitation,
its parent, subsidiaries, officers and directors) for any actual or alleged
infringement of any intellectual or industrial property right, including,
without limitation, trademarks, service marks, patents, copyrights,
misappropriation of trade secrets or any similar proprietary rights, based upon
the Agreement or any portion thereof furnished or utilized by such party or
based on the other party's use thereof. Each party further agrees to indemnify
and hold the other party and its affiliates harmless from and against any and
all liabilities, losses, costs, damages and expenses (including reasonable
attorneys' fees) associated with any such claim or action. Each indemnifying
party shall have the sole right to conduct the defense of any such claim or
action and all negotiations for its settlement or compromise, unless otherwise
mutually agreed to in writing.
12. Publicity. Except as may be required by law, no party hereto shall issue
advertising, promotional activity, press or publicity release relating to this
Agreement without securing the prior written consent of such other party.
13. Confidentiality. 24/7 and TW covenant to each other that neither party
shall disclose to any third party (other than its employees and directors, in
their capacity as such, and the employees and directors of any affiliate on a
need to know basis so long as they are bound by the terms of this Agreement) any
information regarding the terms and provisions of this Agreement or any
confidential information which has been identified as such by the other Party
hereto except (i) to the extent necessary to comply with any law or valid order
of a court of competent jurisdiction (or any regulatory or administrative
tribunal), in which event the party so complying shall so notify the others as
promptly as practicable (and, if possible, prior to making any disclosure) and
shall seek confidential treatment of such information, if available; (ii) as
part of its normal reporting or review procedure to its auditors or its
attorneys, as the case may be, so long as they are notified of the provisions of
this Agreement; (iii) in order to enforce its rights pursuant to this Agreement;
(iv) in connection with any filing with any governmental body or as otherwise
required by law, including the federal securities laws and any applicable rules
and
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regulations of any stock exchange or quotation system; and (v) in a confidential
disclosure made in connection with a contemplated financing, merger,
consolidation or sale of capital stock of 24/7 or TW. Information which is or
should be reasonably understood to be confidential or proprietary includes, but
is not limited to, information about the 24/7 Network, sales, cost and other
unpublished financial information, product and business plans, projections,
marketing data, and sponsors but shall not include information (a) already
lawfully known to or independently developed by a party, (b) disclosed in
published materials other than through a breach of these confidentiality
provisions, (c) generally known to the public other than through a breach of
these confidentiality provisions, (d) lawfully obtained from any third party or
(e) required to be disclosed by law.
14. Indemnification. TW shall indemnify and hold harmless 24/7, its
advertisers and other suppliers and any related third parties, against and in
respect of any and all claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, and legal and other expenses (including reasonable legal fees and
expenses of attorneys chosen by 24/7) as and when incurred, arising out of or
based upon any act or omission or alleged act or alleged omission by TW in
connection with the acceptance of, or the performance or non-performance by TW
of, any of its duties under this Agreement or arising from the breach by TW of
its warranties, representations or covenants contained in this Agreement. 24/7
shall indemnify and hold harmless the TW, against and in respect of any and all
claims, suits, actions, proceedings (formal and informal), investigations,
judgments, deficiencies, damages, settlements, liabilities, and legal and other
expenses (including reasonable legal fees and expenses of attorneys chosen by
TW) as and when incurred, arising out of or based upon any act or omission or
alleged act or alleged omission by 24/7 in connection with the acceptance of, or
the performance or non-performance by 24/7 of, any of its duties under this
Agreement or arising from the breach by 24/7 of its warranties, representations
or covenants contained in this Agreement.
15. Representations, Warranties & Covenants
A. Each party hereto represents and warrants that it has full power and
authority to execute this Agreement and to take all actions required by, and to
perform the agreements contained in, this Agreement, and that the each party's
respective obligations under this Agreement do not conflict with its obligations
under any other agreement by which the such party is bound.
B. Each party represents, warrants and covenants that the performance of
its respective obligations under this Agreement complies and will comply with
all applicable federal, state, local and foreign laws and regulations.
16. No Poaching. TW agrees that, during the Term and for a period of one year
from the end of the Term, neither it nor its affiliates will solicit or recruit
the services of any 24/7 employees, or hire any such employees. 24/7 agrees
that, during the Term and for a period of one year from the end of the Term,
neither it nor its affiliates will solicit or recruit the services of any TW
employees, or hire any such employees
17. No Waiver. This Agreement shall not be waived, modified, assigned or
transferred except by a written consent to that effect signed by TW and 24/7.
TW agrees that if it assigns or transfers this Agreement, it shall cause such
successor, assignee, or transferee to assume all of the TW's obligations
hereunder. Any assignment, transfer, or assumption shall not relieve the TW of
liability hereunder.
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18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed therein, without regard to principles of conflicts of laws.
19. Notices. All notices required or permitted to be given hereunder shall be
in writing and either hand-delivered, telecopied, mailed by certified first
class mail, postage prepaid, or sent via electronic mail to the other party or
parties hereto at the address(es) set forth below. A notice shall be deemed
given when delivered personally, when the telecopied notice is transmitted by
the sender, three business days after mailing by certified first class mail, or
on the delivery date if delivered by electronic mail.
20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document.
21. Force Majeure. Neither party shall be held liable or responsible to the
other party nor be deemed to have defaulted under or breached this Agreement for
failure or delay in fulfilling or performing any term of this Agreement when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected party, including but not limited to fire, floods,
failure of communications systems or networks, embargoes, war, acts of war
(whether war is declared or not), insurrections, riots, civil commotion,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other party; provided,
however, that the party so affected shall use reasonable commercial efforts to
avoid or remove such causes of nonperformance, and shall continue performance
hereunder with reasonable dispatch whenever such causes are removed. Either
party shall provide the other party with prompt written notice of any delay or
failure to perform that occurs by reason of force majeure. The parties shall
mutually seek a resolution of the delay or the failure to perform as noted
above.
22. Severability. Should one or more provisions of this Agreement be or become
invalid, the parties hereto shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the parties would have entered into this Agreement with
such valid provisions. In case such valid provisions cannot be agreed upon, the
invalidity of one or several provisions of this Agreement shall not affect the
validity of this Agreement as a whole, unless the invalid provisions are of such
essential importance to this Agreement that it is to be reasonably assumed that
the parties would not have entered into this Agreement without the invalid
provisions.
23. Dispute Resolution. Any controversy or claim arising out of or relating to
the Agreement, or the breach thereof, shall the subject of resolution efforts by
the Chief Executive Officers and General Counsels of each party for at least 30
days prior to any action being commenced. Any unresolved disputes shall be
settled exclusively by arbitration. Such arbitration shall be conducted before
a single arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. If arbitration is commenced by
24/7, it shall take place in Seattle, Washington. If arbitration is commenced
by TW, it shall take place in New York, New York. Judgment may be entered on
the arbitrator's award in any court having jurisdiction, and the parties
irrevocably consent to the jurisdiction of the courts of Washington and New York
for that purpose. The parties waive personal service in connection with any
such arbitration; any process or other papers under this provision may be served
outside Washington or New York by registered mail, return receipt requested, or
by personal service, provided a reasonable time for appearance or response is
allowed. All decisions
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of the arbitrator shall be final and binding on the parties. The parties shall
equally divide all costs of the American Arbitration Association and the
arbitrator. Each party shall bear its own legal fees in any dispute. The
arbitrator may grant injunctive or other relief.
24. Independent Contractors. 24/7 Media and TW shall each act as independent
contractors. Neither party shall exercise control over the activities and
operations of the other party. 24/7 Media and TW shall each conduct all of its
business in its own name and as it deems fit, provided it is not in derogation
of the other's interests. Neither party shall engage in any conduct
inconsistent with its status as an independent contractor, have authority to
bind the other with respect to any agreement or other commitment with any third
party, nor enter into any commitment on behalf of the other.
25. Headings: Headings stated in this Agreement are for convenience of
reference only and are not intended as a summary of such sections and do not
affect, limit, modify, or construe the contents thereof.
26. Audit Rights. Upon request from any party, such requesting party shall be
given reasonable access and audit and verification documentation as the
requesting party may reasonably request on not less than 30 days' notice in
order to assure the other party's compliance with the terms of this Agreement.
Such requests shall be limited to the scope of this Agreement and shall not be
made more frequently than twice in any twelve-month period.
27. Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements of the Parties with respect to the transactions
set forth herein and, except as otherwise expressly provided herein, is not
intended to confer upon any other person any rights or remedies hereunder.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement this
___ day of April 5, 1999 (the "Effective Date").
24/7 MEDIA, INC.
By: /s/ C. Andrew Johns
-------------------------------
Name: C. Andrew Johns
Title:
E-mail address: [email protected]
-------------------------------
TECHWAVE, INC.:
By: /s/ Alan Koslow
-------------------------------
Name: Alan Koslow
Title: EVP Finance/General Counsel
E-mail address: [email protected]
-------------------------------
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TBCC
LOAN AND SECURITY AGREEMENT
BORROWER: TECHWAVE INC.,
A WASHINGTON CORPORATION
ADDRESS: 411 FIRST AVENUE SOUTH,
SUITE 200 NORTH
SEATTLE, WA 98104
DATE: MARCH 4, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("TBCC"), having its
principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois
60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman Oaks,
California 91403. The Schedule to this Agreement (the "Schedule") being
signed concurrently is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 9 below.) The
parties agree as follows:
1. LOANS.
1.1 LOANS. TBCC, subject to the terms and conditions of this
Agreement, agrees to make loans (the "Loans") to Borrower, from time to time
during the period from the date of this Agreement to the Maturity Date set
forth in the Schedule, at Borrower's request, in an aggregate principal amount
at any one time outstanding not to exceed the Credit Limit shown on the
Schedule. If at any time the total outstanding Loans and other monetary
Obligations exceed said limit, Borrower shall repay the excess immediately
without demand. Borrower shall use the proceeds of all Loans solely for
lawful general business purposes.
1.2 DUE DATE. The Loans, all accrued interest and all other monetary
Obligations shall be payable in full on the Maturity Date. Borrower may
borrow, repay and reborrow Loans (other than any Term Loans), in whole or in
part, in accordance with the terms of this Agreement.
1.3 LOAN ACCOUNT. TBCC shall maintain an account on its books in the
name of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
charged to the Loan Account. All amounts received by TBCC from Borrower or
for Borrower's account will be credited to the Loan Account. TBCC will send
Borrower a monthly statement reflecting the activity in the Loan Account, and
each such monthly statement shall be an account stated between Borrower and
TBCC and shall be final conclusive and binding absent manifest error.
1.4 COLLECTION OF RECEIVABLES. Borrower shall remit to TBCC all
Collections including all checks, drafts and other documents and instruments
evidencing remittances in payment (collectively referred to as "Items of
Payment") within one Business Day after receipt, in the same form as received,
with any necessary endorsements. For purposes of calculating interest due to
TBCC, credit will be given for Collections and all other proceeds of
Collateral and other payments to TBCC three Business Days after receipt of
cleared funds. For all purposes of this Agreement any cleared funds received
by TBCC later than 10:00 a.m. (California time) on any Business Day shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue. Borrower's Loan Account will be
credited only with the net amounts actually received in payment of
Receivables, and such payments shall be credited to the Obligations in such
order as TBCC shall determine in its discretion. Pending delivery to TBCC,
Borrower will not commingle any Items of Payment with any of its other funds
or property, but will segregate them from the other assets of Borrower and
will hold them in trust and for the account and as the property of TBCC.
Borrower hereby agrees to endorse any Items of Payment upon the request of
TBCC.
1.5 RESERVES. TBCC may, from time to time, in its Good Faith business
judgment: (i) establish and modify reserves against Eligible Receivables and
Eligible Inventory, (ii) modify advance rates with respect to Eligible
Receivables and Eligible Investory,* (iii) modify the standards of eligiblity
set forth in the definitions of Eligible Receivables and Eligible Inventory.
*AND
1.6 TERM.
(a) The term of this Agreement shall be from the date of this
Agreement to the Maturity Date set forth in the
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TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Schedule, unless sooner terminated in accordance with the terms of this
Agreement, provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to
the other, not less than sixty days prior to the next Maturity Date, that
such party elects to terminate this Agreement effective on the next Maturity
Date. On the Maturity Date or on any earlier termination of this Agreement
Borrower shall pay in full all Obligations, and notwithstanding any
termination of this Agreement all of TBCC's security interests and all of
TBCC's other rights and remedies shall continue in full force and effect
until payment and performance in full of all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as
follows: (i) by Borrower, effective three business days after written notice
of termination is given to TBCC; or (ii) by TBCC at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by TBCC under this Section
1.6(b), Borrower shall pay to TBCC a termination fee (the "Termination Fee")
in the amount shown on the Schedule. The Termination Fee shall be due and
payable on the effective date of termination. Notwithstanding the foregoing,
Borrower shall have no right to terminate this Agreement at any time that any
principal of, or interest on any of the Loans or any other monetary
Obligations are outstanding, except upon prepayment of all Obligations and
the satisfaction of all other conditions set forth in the Loan Documents.
1.7 PAYMENT PROCEDURES. Borrower hereby authorizes TBCC to charge the
Loan Account with the amount of all interest, fees, expenses and other
payments to be made hereunder and under the other Loan Documents. TBCC may,
but shall not be obligated to, discharge Borrower's payment obligations
hereunder by so charging the Loan Account. Whenever any payment to be made
hereunder is due on a day that is not a Business Day, the payment may be made
on the next succeeding Business Day and such extension of time shall be
included in the computation of the amount of interest due.
1.8 CONDITIONS TO INITIAL LOAN. The obligation of TBCC to make the
initial Loan is subject to the satisfaction of the following conditions prior
to or concurrent with such initial Loan, and Borrower shall cause all such
conditions to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filing of termination statements under the
Uniform Commercial Code by the existing lender to Borrower whose loans are
being repaid with the Loan proceeds and the documents and actions relating to
the Liens of TBCC created hereunder, as provided for in Section 1.8(c) below,
no consent or authorization of, filing with or other act by or in respect of
any Governmental Authority or any other Person is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement, or the other Loan Documents or the consummation of the transactions
contemplated hereby or thereby or the continuing operations of the Borrower
following the consummation of such transactions.
(b) TBCC and its counsel shall have performed (i) a review
satisfactory to TBCC of all of the Material Contracts and other assets of the
Borrower, the financial condition of the Borrower, including all of its tax,
litigation, environmental and other potential contingent liabilities, and the
corporate and capital structure of the Borrower and (ii) a pre-closing audit
and collateral review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of
the initial Loan or as of an earlier date acceptable to TBCC, in form and
substance satisfactory to TBCC and its counsel: (i) a Blocked Account
Agreement, duly executed by the Borrower and its bank on TBCC's standard
form; (ii) acknowledgment copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly
filed in all jurisdictions that TBCC deems necessary or desirable to perfect
and protect the Liens created hereunder, and evidence that all other filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of TBCC, a perfected first priority Lien on the Collateral;
(iii) the opinion of counsel for the Borrower covering such matters incident
to the transactions contemplated by this Agreement as TBCC may specify in its
discretion; (iv) certified copies of all policies of insurance required by
this Agreement and the other Loan Documents, together with loss payee
endorsements for all such policies naming TBCC as lender loss payee and an
additional insured; (v) copies of the Borrower's articles or certificate of
incorporation, certified as true, correct and complete by the secretary of
state of Borrower's state of incorporation within 45 days of the date hereof;
(vi) copies of the bylaws of the Borrower and a copy of the resolutions of
the Board of Directors of the Borrower authorizing the execution, delivery
and performance of this Agreement, the other Loan Documents, and the
transactions contemplated hereby and thereby, attached to which is a
certificate of the Secretary or an Assistant Secretary of the Borrower
certifying (A) that such copies of the bylaws and resolutions are true,
complete and accurate copies thereof, have not been amended or modified since
the date of such certificate and are in full force and effect and (B) the
incumbency, names and true signatures of the officers of the Borrower; (vii)
a good standing certificate from the Secretary of State of Borrower's state
of incorporation and each state in which the Borrower is qualified as a
foreign corporation, each dated within ten days of the date hereof; (viii)
the additional documents and agreements, if any, listed in the Schedule; and
(ix) such other agreements and instruments as TBCC deems necessary in its
sole and absolute discretion in connection with the transactions contemplated
hereby.
1.9 CONDITIONS TO LENDING. The obligation of TBCC to make any Loan is
subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after
due inquiry, threatened litigation, proceeding, inquiry or other action
relating to this Agreement, or any other Loan Document, which could be
expected to have a Material Adverse Effect in the judgment of TBCC;
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TBCC LOAN AND SECURITY AGREEMENT
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(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a
Material Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and
shall constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date
of such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan as of the
date of such request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
2.1 INTEREST. Borrower shall pay TBCC interest on all outstanding Loans
and other monetary Obligations, at the interest rate set forth in the
Schedule. Interest shall be payable monthly in arrears on the first Business
Day of each months, and on the Maturity Date. Following the occurrence and
during the continuance of any Event of Default, the interest rate applicable
to each Loan shall be increased to the extent provided for in the Note
evidencing such Loan, and the interest rate applicable to all other
Obligations shall be increased by two percent per annum.
2.2 FEES. Borrower shall pay TBCC the fees set forth in the Schedule.
2.3 CALCULATIONS. All interest and fees under this Agreement shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4 TAXES. Any and all payments by Borrower under this Agreement or any
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance
when due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Investment Property,
Inventory, Equipment, Other Property, and other Collateral, wherever located*.
* NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 3.1, SUCH GRANT OF
A SECURITY INTEREST SHALL NOT EXTEND TO, AND THE TERM "COLLATERAL" SHALL NOT
INCLUDE, (i) ANY GENERAL INTANGIBLES OF THE BORROWER (WHETHER OWNED OR HELD AS
LICENSEE OR LESSEE, OR OTHERWISE), TO THE EXTENT THAT (A) SUCH GENERAL
INTANGIBLES ARE NOT ASSIGNABLE OR CAPABLE OF BEING ENCUMBERED AS A MATTER OF
LAW OR UNDER THE TERMS OF THE LICENSE, LEASE OR OTHER AGREEMENT APPLICABLE
THERETO (BUT SOLELY TO THE EXTENT THAT ANY SUCH RESTRICTION SHALL BE
ENFORCEABLE UNDER APPLICABLE LAW), WITHOUT THE CONSENT OF THE LICENSOR OR
LESSOR THEREOF OR OTHER APPLICABLE PARTY THERETO AND (B) SUCH CONSENT HAS NOT
BEEN OBTAINED, (ii) ANY OF BORROWER'S EQUIPMENT AND SOFTWARE INCLUDED AS
COLLATERAL FROM TIME TO TIME UNDER ANY LOAN AGREEMENT OR OTHER FINANCING
AGREEMENT UNDER WHICH THE ACQUISITION OF SUCH EQUIPMENT WAS FINANCED (THE
"EQUIPMENT LOAN DOCUMENTS"); PROVIDED, HOWEVER, THAT THE FOREGOING GRANT OF
SECURITY INTEREST SHALL EXTEND TO, AND THE TERM "COLLATERAL" SHALL INCLUDE,
(1) ANY GENERAL INTANGIBLE WHICH IS A RECEIVABLE OR A PROCEED OF, OR OTHERWISE
RELATED TO THE ENFORCEMENT OR COLLECTION OF, ANY RECEIVABLE, OR GOODS WHICH
ARE THE SUBJECT OF ANY RECEIVABLE, (2) ANY AND ALL PROCEEDS OF ANY GENERAL
INTANGIBLES AND OTHER PROPERTY WHICH ARE OTHERWISE EXCLUDED TO THE EXTENT THAT
THE ASSIGNMENT OR ENCUMBRANCE OF SUCH PROCEEDS IS NOT SO RESTRICTED, AND (3)
UPON THE TERMINATION OF ANY EQUIPMENT LOAN DOCUMENT, OR UPON OBTAINING THE
CONSENT OF ANY SUCH LICENSOR, LESSOR OR OTHER APPLICABLE PARTY'S CONSENT WITH
RESPECT TO ANY SUCH OTHERWISE EXCLUDED GENERAL INTANGIBLES OR PROPERTY, SUCH
GENERAL INTANGIBLES AS WELL AS ANY AND ALL PROCEEDS THEREOF AND OTHER SUCH
PROPERTY THAT MIGHT HAVE THERETOFORE HAVE BEEN EXCLUDED FROM SUCH GRANT OF A
SECURITY INTEREST AND THE TERM "COLLATERAL".
3.2 OTHER LIENS; LOCATION OF COLLATERAL. Borrower represents, warrants
and covenants that all of the Collateral is, and will at all times continue to
be, free and clear of all Liens, other than Permitted Liens and Liens in favor
of TBCC. All collateral* is maintained at the locations shown on the
Schedule**.
*(OTHER THAN COLLATERAL THAT IS MOBILE IN NATURE)
**, AND IN THE EVENT OF ANY RELOCATION OF ANY COLLATERAL, BORROWER AGREES TO
GIVE TBCC 30 DAYS' NOTICE OF SUCH RELOCATION
3.3 RECEIVABLES.
(a) SCHEDULES AND OTHER ACTIONS. As often as requested by TBCC,
Borrower shall execute and deliver to TBCC written schedules of Receivables
and Eligible Receivables (but the failure to execute or deliver any schedule
shall not affect or limit TBCC's security interest in all Receivables). On
TBCC's request, Borrower shall also furnish to TBCC copies of invoices to
customers and shipping and delivery receipts. Borrower shall deliver to TBCC
the originals of all letters of credit, notes, and instruments in its favor
and such endorsements or assignments as TBCC may reasonably request and, upon
the request of TBCC, Borrower shall deliver to TBCC all certificated
securities with respect to any Investment Property, with all necessary
endorsements, and obtain such account control agreements with securities
intermediaries
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TBCC LOAN AND SECURITY AGREEMENT
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and take such other action with respect to any Investment Property, as TBCC
shall request, in form and substance satisfactory to TBCC. Upon request of
TBCC Borrower additionally shall obtain consents from any letter of credit
issuers with respect to the assignment to TBCC of any letter of credit
proceeds.
(b) RECORDS, COLLECTIONS. Borrower shall report all customer
credits to TBCC, on the regular reports to TBCC in the form from time to time
specified by TBCC. Borrower shall notify TBCC of all returns and recoveries
of merchandise and of all claims asserted with respect to merchandise, on its
regular reports to TBCC. Borrower shall not settle or adjust any dispute or
claim, or grant any discount, credit or allowance or accept any return of
merchandise, except in the ordinary course of its business, without TBCC's
prior written consent.
(c) REPRESENTATIONS. Borrower represents and warrants to TBCC that
each Receivable with respect to which Loans are requested by Borrower shall,
on the date each Loan is requested and made, represent an undisputed, bona
fide, existing, unconditional obligation of the account debtor created by the
sale, delivery, and acceptance of goods, the licensing of software or the
rendition of services, in the ordinary course of Borrower's business, and meet
the Minimum Eligibility Requirements set forth in Section 9.1(n) below.
3.4 INVENTORY. Borrower shall maintain full, accurate and complete
records respecting the Inventory describing the kind, type and quantity of the
Inventory and Borrower's cost therefor, withdrawals therefrom and additions
thereto, including a perpetual inventory for work in process and finished
goods.
3.5 EQUIPMENT. Borrower shall at all times keep correct and accurate
records itemizing and describing the location, kind, type, age and condition
of the Equipment, Borrower's cost therefor and accumulated depreciation
thereof and retirements, sales, or other dispositions thereof. Borrower shall
keep all of its Equipment in a satisfactory state of repair and satisfactory
operating condition in accordance with industry standards, ordinary wear and
tear excepted. No Equipment shall be annexed or affixed to or become part of
any realty, unless the owner of the realty has executed and delivered a
Landlord Waiver in such form as TBCC shall specify. Where Borrower is
permitted to dispose of any Equipment under this Agreement or by any consent
thereto hereafter given by TBCC, Borrower shall do so at arm's length, in good
faith and by obtaining the maximum amount of recovery practicable therefor
and without impairing the operating integrity or value of the remaining
Equipment.
3.6 INVESTMENT PROPERTY. Borrower shall have the right to retain all
Investment Property payments and distributions, unless and until a Default or
an Event of Default has occurred. If a Default or an Event of Default
exists, Borrower shall hold all payments on, and proceeds of, and
distributions with respect to, Investment property in trust for TBCC, and
Borrower shall deliver all such payments, proceeds and distributions to TBCC,
immediately upon receipt, in their original form, duly endorsed, to be
applied to the Obligations in such order as TBCC shall determine. Upon the
request of TBCC, any such distributions and payments with respect to any
Investment Property held in any securities account shall be held and retained
in such securities account as part of the Collateral.
3.7 FURTHER ASSURANCES. Borrower will perform any and all steps that
TBCC may reasonably request to perfect TBCC's security interests in the
Collateral, including, without limitation, executing and filing financing and
continuation statements in form and substance satisfactory to TBCC. TBCC is
hereby authorized by Borrower to sign Borrower's name or file any financing
statements or similar documents or instruments covering the Collateral
whether or not Borrower's signature appears thereon. Borrower agrees, from
time to time, at TBCC's request, to file notices of Liens, financing
statements, similar documents or instruments, and amendments, renewals and
continuations thereof, and cooperate with TBCC, in connection with the
continued perfection and protection of the Collateral. If any Collateral is
in the possession or control of any Person other than a public warehouseman
where the warehouse receipt is in the name of or held by TBCC, Borrower shall
notify such Person of TBCC's security interest therein and, upon request,
instruct such Person or Persons to hold all such Collateral for the account
of TBCC and subject to TBCC's instructions. If so requested by TBCC,
Borrower will deliver to TBCC warehouse receipts covering any Collateral
located in warehouses showing TBCC as the beneficiary thereof and will also
cause the warehouseman to execute and deliver such agreements as TBCC may
request relating to waivers of liens by such warehouseman and the release of
the Inventory to TBCC on its demand. Borrower shall defend the Collateral
against all claims and demands of all Persons.
3.8 POWER OF ATTORNEY. Borrower hereby appoints and constitutes TBCC as
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing
thereon, (ii) upon the occurrence and during the continuance of an Event of
Default, to convey any item of Collateral to any purchaser thereof, (iii) to
give or sign Borrower's name to any notices or statements necessary or
desirable to create or continue the Lien on any Collateral granted hereunder,
(iv) to execute and deliver to any securities intermediary or other Person any
entitlement order, account control agreement or other notice, document or
instrument with respect to any Investment Property, and (v) to make any
payment or take any act necessary or desirable to protect or preserve any
Collateral. TBCC's authority hereunder shall include, without limitation, the
authority to execute and give receipt for any certificate of ownership of any
document, transfer title to any item of Collateral and take any other actions
arising from or incident to the powers granted to TBCC under this Agreement.
This power of attorney is coupled with an interest and is irrevocable.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State set forth above, (ii) has the corporate power and authority
to own its properties and assets and to transact the businesses in which it is
engaged and (iii) is duly qualified, authorized to do business and in good
standing in each jurisdiction
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where it is engaged in business, except to the extent that the failure to do
so qualify or be in good standing would not have a Material Adverse Effect.
4.2 LOCATIONS OF OFFICERS, RECORDS AND COLLATERAL. The address of the
principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records
relating to Collateral are maintained exclusively in the possession of
Borrower at, the address of Borrower specified in the heading of this
Agreement. Borrower has places of business, and Collateral is located, only
at such address and at the addresses set forth in the Schedule and at any
additional locations reported to TBCC as provided in Section 5.8(c) as to
which TBCC has taken all necessary action to perfect and protect its security
interests in the Collateral at any such locations.
4.3 AUTHORITY. Borrower has the requisite corporate power and authority
to execute, deliver and perform its obligations under each of the Loan
Documents. All corporate action necessary for the execution, delivery and
performance by Borrower of the Loan Documents has been taken.
4.4 ENFORCEABILITY. This Agreement is, and, when executed and
delivered, each other Loan Document will be, the legal, valid and binding
obligation of Borrower enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity.
4.5 NO CONFLICT. The execution, delivery and performance of each Loan
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and
will not result in the imposition of any Liens other than in favor of TBCC.
4.6 CONSENTS AND FILINGS. No consent, authorization or approval of, or
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any
other Loan Document, the consummation of the transactions contemplated hereby
or thereby or the continuing operations of Borrower following such
consummation, except (i) those that have been obtained or made, (ii) the
filing of financing statements under the Uniform Commercial Code and (iii) any
necessary filings with U.S. Copyright Office and the U.S. Patent and Trademark
Office.
4.7 SOLVENCY. Borrower is Solvent and will be Solvent upon the
completion of all transactions contemplated to occur on or before the date of
this Agreement (including, without limitation, the Loans to be made on the
date of this Agreement).
4.8 FINANCIAL DATA. Borrower has provided to TBCC complete and
accurate Financial Statements, which have been prepared in accordance with
GAAP consistently applied throughout the periods involved and fairly present
the financial position and results of operations of Borrower for each of the
periods covered, subject, in the case of any quarterly financial statements,
to normal year-end adjustments and the absence of notes. Borrower has no
Contingent Obligation or liability for taxes, unrealized losses, unusual
forward or long-term commitments or long-term leases, which is not reflected
in such Financial Statements or the footnotes thereto. Since the last date
covered by such Financial Statements, there has been no sale, transfer or
other disposition by Borrower of any material part of its business or
property and no purchase or other acquisition of any business or property
(including any capital stock of any other Person) material in relation to the
financial condition of Borrower at said date. Since said date, (i) there has
been no change, occurrence, development or event which has had or could
reasonably be expected to have a Material Adverse Effect and (ii) none of the
capital stock of borrower has been redeemed, retired, purchased or otherwise
acquired for value by Borrower.
4.9 ACCURACY AND COMPLETENESS OF INFORMATION. All data, reports and
information previously, now or hereafter furnished by or on behalf of
Borrower to TBCC or the Auditors are or will be true and accurate in all
material respects on the date as of which such data, reports and information
are dated or certified, and not incomplete by omitting to state any material
fact necessary to make such data, reports and information not materially
misleading at such time. There are no facts now known to Borrower which
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect and which have not been disclosed in writing to TBCC.
4.10 NO JOINT VENTURES, PARTNERSHIPS OR SUBSIDIARIES. *Borrower is not
engaged in any joint venture or partnership with any other Person. *Borrower
has no** Subsidiaries.
*AS OF THE DATE HEREOF,
**MATERIAL
4.11 CORPORATE AND TRADE NAME. During the past five years, Borrower has
not been known by or used any other corporate, trade or fictitious name except
for its name as set forth on the signature page of this Agreement and the
other names specified in the Schedule.
4.12 NO ACTUAL OR PENDING MATERIAL MODIFICATION OF BUSINESS. There
exists no actual or, to the best of Borrower's knowledge after due inquiry,
threatened termination, cancellation or limitation of, or any modification or
change in the business relationship of Borrower with any customer or group of
customers whose purchases individually or in the aggregate are material to the
operation of Borrower's business or with any material supplier.
4.13 NO BROKER'S OR FINDER'S FEES. No broker or finder brought about
this Agreement or the Loans. No broker's or finder's fees or commissions
will be payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14 TAXES AND TAX RETURNS. Borrower has properly completed and timely
filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with
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applicable laws and regulations, except deductions that may have been
disallowed but are being challenged in good faith and for which adequate
reserves have been made in accordance with GAAP. All taxes, assessments,
fees and other governmental charges for periods beginning prior to the date
of this Agreement have been timely paid (or, if not yet due, adequate
reserves therefor have been established in accordance with GAAP) and Borrower
has no liability for taxes in excess of the amounts so paid or reserves so
established. No deficiencies for taxes have been claimed, proposed or
assessed by any taxing or other Governmental Authority against Borrower and
no notice of any tax Lien has been filed. There are no pending or threatened
audits, investigations or claims for or relating to any liability for taxes
and there are no matters under discussion with any Governmental Authority
which could result in an additional liability for taxes. No extension of a
statute of limitations relating to taxes, assessments, fees or other
governmental charges is in effect with respect to Borrower. Borrower is not
a party to and does not have any obligations under any written tax sharing
agreement or agreement regarding payments in lieu of taxes.
4.15 NO JUDGMENTS OR LITIGATION. Except as set forth in the Schedule,
no judgments, orders, writs or decrees are outstanding against Borrower, nor
is there now pending or, to the knowledge of Borrower after due inquiry,
threatened litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Borrower that (i) could individually or
in the aggregate be likely in the reasonable business judgment of TBCC to have
a Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any other Loan Document or the consummation
of the transactions contemplated hereby or thereby.
4.16 INVESTMENTS; CONTRACTS. Borrower (i) has not committed to make any
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any "take or pay" contract as to which it
is the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17 NO DEFAULTS; LEGAL COMPLIANCE. Borrower is not in default under any
term of any Material Contract or in violation of any Requirement of Law, nor
is Borrower subject to any investigation with respect to a claimed violation
of any Requirement of Law.
4.18 RIGHTS IN COLLATERAL; PRIORITY OF LIENS. All Collateral is owned or
leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pursuant to
the Loan Documents constitute valid, enforceable and perfected first-priority
Liens on the Collateral, except for Permitted Liens.
4.19 INTELLECTUAL PROPERTY. Set forth in the written Representations and
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, servicemarks, logos, tradenames, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as
presently conducted or proposed to be conducted. To the best of its knowledge
after due inquiry, Borrower has not infringed any patent, trademark,
service-mark, tradename, copyright, license or other right owned by any other
Person by the sale or use of any product, process, method, substance, part or
other material presently contemplated to be sold or used, where such sale or
use would reasonably be expected to have a Material Adverse Effect and no
claim or litigation is pending, or to the best of Borrower's knowledge,
threatened against or affecting Borrower that contests its right to sell or
use any such product, process, method, substance, part or other material.
4.20 LABOR MATTERS. There are no existing or threatened strikes,
lockouts or other disputes relating to any collective bargaining or similar
agreement to which Borrower is a party which would, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
4.21 LICENSES AND PERMITS. Borrower has obtained and holds in full force
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business
as presently conducted and as proposed to be conducted, except where the
failure to posses any of the foregoing (individually or in the aggregate)
would not have a Material Adverse Effect.
4.22 GOVERNMENT REGULATION. Borrower is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated by this Agreement and the
other Loan Documents.
4.23 BUSINESS AND PROPERTIES. The business of Borrower is not affected
by any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or of the public enemy
or other casualty (whether or not covered by insurance) that could reasonably
be expected to have a Material Adverse Effect.
4.24 AFFILIATE TRANSACTIONS. Borrower is not a party to or bound by any
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of an pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.25 SURVIVAL OF REPRESENTATIONS. All representations made by Borrower
in this Agreement and in any other Loan Document executed and delivered by it
in connection herewith shall survive the execution and delivery hereof
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and thereof and the closing of the transactions contemplated hereby and
thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this
Agreement and payment and satisfaction of all Obligations:
5.1 CORPORATE EXISTENCE. Borrower shall (i) maintain its corporate
existence, (ii) maintain in full force and effect all material licenses,
bonds, franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary to
advisable to the profitable conduct of its business, and (iii) continue in,
and limit its operations to, the same lines of business as presently
conducted by it.
5.2 MAINTENANCE OF PROPERTY. Borrower shall keep all property useful
and necessary to its business in good working order and condition (ordinary
wear and tear expected) in accordance with its past operating practices.
5.3 AFFILIATE TRANSACTIONS. Borrower shall conduct transactions with
any if its Affiliates on an arm's-length basis or other basis no less
favorable to Borrower and which are approved by the board of directors of
Borrower.
5.4 TAXES. Borrower shall pay when due (i) all tax assessments, and
other governmental charges and levies imposed against it or any of its
property and (ii) all lawful claims that, if unpaid, might by law become a
Lien upon its property; PROVIDED, HOWEVER, that, unless such tax assessment,
charge, levy or claim has become a Lien on any of the property of Borrower,
it need not be paid if it is being contested in good faith, by appropriate
proceedings diligently conducted and an adequate reserve or other appropriate
provision shall have been made therefor as required in accordance with GAAP.
5.5 REQUIREMENTS OF LAW. Borrower shall comply with all Requirements
of Law applicable to it, including, without limitation, all applicable
Federal , State, local or foreign laws and regulations, including, without
limitation, those relating to environmental matters, employee matters, the
Employee Retirement Income Security Act of 1974, and the collection, payment
and deposit of employees' income, unemployment and social security taxes,
PROVIDED that Borrower shall not be deemed in violation hereof if Borrower's
failure to comply with any of the foregoing would not require more than
$50,000 to cure the same.
5.6 INSURANCE. Borrower shall maintain public liability insurance,
business interruption insurance, third party property damage insurance and
replacement value insurance on its assets (including the Collateral) under
such policies of insurance, with such insurance companies, in such amounts
and covering such risks as are at all times satisfactory to TBCC in its
commercially reasonable judgment, all of which policies covering the
Collateral shall name TBCC as an additional insured and lender loss payee in
case of loss, and contain other provisions as TBCC may reasonably require to
protect TBCC's interest in the Collateral and any payments to be made under
such policies.
5.7 BOOKS AND RECORDS; INSPECTIONS. Borrower shall (i) maintain books
and records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time
and from time to time, during normal business hours and upon reasonable
notice under the circumstances, and at any time on and after the occurrence
of a Default or Event of Default, for the purposes of (A) inspecting and
verifying the Collateral, (B) inspecting and copying (at Borrower's expense)
any and all records pertaining thereto, and (C) discussing the affairs,
finances and business of Borrower with any officer, employee or director of
Borrower or with the Auditors. Borrower shall reimburse TBCC for the
reasonble travel and related expenses of TBCC's employees or, at TBCC's
option, of such outside accountants or examiners as may be retained by TBCC
to verify or inspect Collateral, records or documents of Borrower on a
regular basis or for a special inspection if BCC deems the same appropriate.
If TBCC's own employees are used, Borrower shall also pay therefor $600 per
person per day (or such other amount as shall represent TBCC's then current
standard charge for the same), or, if outside examiners or accountants are
used, Borrower shall also pay TBCC such sum as TBCC may be obligated to pay
as fees therefor.
5.8 NOTIFICATION REQUIREMENTS. Borrower shall give TBCC the following
notices and other documents:
(a) NOTICE OF DEFAULTS. Borrower shall give TBCC written notice of
any Default or Event of Default within two Business Days after becoming aware
of the same.
(b) PROCEEDINGS OR ADVERSE CHANGES. Borrower shall give TBCC
written notice of any of the following, promptly, and in any event within
five Business Days after Borrower becomes aware of any of the following: (i)
any proceeding being instituted or threatened by or against it in any
federal, state, local or foreign court or before any commission or other
regulatory body involving a sum, together with the sum involved in all other
similar proceedings, in excess of $50,000* in the aggregate, (ii) any order,
judgement or decree being entered against Borrower or any of its properties
or assets involving a sum, together with the sum of all other orders,
judgments or decrees, in excess of $50,000 in the aggregate, and (iii) any
actual or prospective change, development or event which has had or
reasonably be expected to have a Material Adverse Effect.
*250,000
(c) CHANGE OF NAME OR CHIEF EXECUTIVE OFFICE; OPENING ADDITIONAL
PLACES OF BUSINESS. Borrower shall give TBCC at least 30* days prior written
notice of any change of Borrower's corporate name or its chief executive
office or of the opening of any additional place of business.
*10
(d) CASUALTY LOSS. Borrower shall (i) provide written notice to
TBCC, within ten Business Days, of any material damage to, the destruction of
or any other material loss to any asset or property owned or used by Borrower
other than any such asset or property with a net book value (individually or
in the aggregate) less than $10,000 or any condemnation, confiscation or
other taking, in whole or in part, or any event that otherwise diminishes so
as to render impracticable or unreasonable the use of such asset prop-
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TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
erty owned or used by Borrower together with the amount of the damage,
destruction, loss or diminution in value and (ii) diligently file and prosecute
its claim or claims for any award or payment in connection with any of the
foregoing.
(e) INTELLECTUAL PROPERTY. Borrower shall promptly give TBCC written
notice of any copyright registration made by it, any rights Borrower may obtain
to any copyrightable works, new trademarks or any new patentable inventions, and
of any renewal or extension of any trademark registration, or if it shall
otherwise become entitled to the benefit of any patent or patent application or
trademark or trademark application.
(f) DEPOSIT ACCOUNTS AND SECURITY ACCOUNTS. Borrower shall promptly
give TBCC written notice of the opening of any new bank account or other deposit
account, and any new securities account.
5.9 QUALIFY TO TRANSACT BUSINESS. Borrower shall qualify to transact
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10 FINANCIAL REPORTING. Borrower shall timely deliver to TBCC the
following financial information: the information set forth in the Schedule,
and, when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11 PAYMENT OF LIABILITIES. Borrower shall pay and discharge, in the
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12 PATENTS, TRADEMARKS, ETC. Borrower shall do and cause to be done all
things necessary to preserve, maintain and keep in full force and effect all of
its registrations of trademarks, service marks and other marks, trade names and
other trade rights, patents, copyrights and other intellectual property in
accordance with prudent business practices.
5.13 PROCEEDS OF COLLATERAL. Without limiting any of the other terms of
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC.
5.14 SOLVENCY. Borrower shall be Solvent at all times.
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
satisfaction of all Obligations:
6.1 CONTINGENT OBLIGATIONS. Borrower will not, directly or indirectly,
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder.
6.2 CORPORATE CHANGES. Borrower will not, directly or indirectly, merge
or consolidate with any Person, or liquidate or dissolve (or suffer any
liquidation or dissolution)*.
* WITHOUT THE PRIOR WRITTEN CONSENT OF TBCC, WHICH CONSENT WILL NOT BE
UNREASONABLY WITHHELD, PROVIDED THAT (IS SUCH CONSENT IS GRANTED) PRIOR TO OR
SIMULTANEOUSLY WITH ANY SUCH TRANSACTION TBCC HAS TAKEN ALL NECESSARY STEPS TO
PROTECT AND CONTINUE PERFECTED ITS FIRST PRIORITY SECURITY INTEREST IN THE
COLLATERAL (SUBJECT ONLY TO PERMITTED LIENS)
6.3 CHANGE IN NATURE OF BUSINESS. Borrower will not at any time make any
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business*.
*; PROVIDED THAT BORROWER MAY ENTER BUSINESSES REASONABLY RELATED OR INCIDENTAL
TO ITS CURRENT LINES OF BUSINESS
6.4 SALES OF ASSETS. Borrower will not, directly or indirectly, in any
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $______* the proceeds of which
shall be paid to TBCC and applied to the Obligations, (ii) sales of Inventory in
the ordinary course of business and (iii) licenses or sublicenses on a
non-exclusive basis of intellectual property in the ordinary course of
Borrower's business.
*50,000
6.5 CANCELLATION OF DEBT. Borrower will not cancel any claim or debt owed
to it, except in the ordinary course of business.
6.6 LOANS TO OTHER PERSONS. Borrower will not at any time make loans or
advance any credit (except to trade debtors* in the ordinary course of business)
to any Person in excess of $______* in the aggregate at any time for all such
loans.
*OR CUSTOMERS
**250,000
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TBCC LOAN AND SECURITY AGREEMENT
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6.7 LIENS. Borrower will not, directly or indirectly, at any time create,
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than: Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8 DIVIDENDS, STOCK REDEMPTIONS. Borrower will not, directly or
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding
("Stock"), or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower*.
*AND REPURCHASES OF STOCK OWNED BY EMPLOYEES, OFFICERS AND DIRECTORS OF BORROWER
PURSUANT TO THE TERMS OF EMPLOYMENT AGREEMENTS OR ANY STOCK-RELATED AGREEMENTS
OR PLANS, PROVIDED THAT NO DEFAULT OR EVENT OF DEFAULT SHALL EXIST EITHER
IMMEDIATELY PRIOR TO OR AFTER GIVING EFFECT TO SUCH REPURCHASE, AND PROVIDED
FURTHER THAT THE TOTAL AMOUNT PAID IN CONNECTION THEREWITH BY BORROWER SHALL NOT
EXCEED $100,000 IN ANY CONSECUTIVE 12-MONTH PERIOD
6.9 INVESTMENTS IN OTHER PERSONS. Borrower will not, directly or
indirectly, at any time make or hold any Investment in any Person (whether in
cash, securities or other property of any kind) other than Investments in Cash
Equivalents*.
* OTHER THAN (i) INVESTMENTS IN SHORT-TERM, INVESTMENT GRADE READILY MARKETABLE
SECURITIES MADE IN ACCORDANCE WITH BORROWER'S CASH MANAGEMENT INVESTMENT POLICY
APPROVED BY ITS BOARD OF DIRECTORS, AND (ii) PERMITTED INVESTMENTS. AS USED
HEREIN, "PERMITTED INVESTMENT" MEANS ANY INVESTMENT IN, OR OTHER ACQUISITION OF
STOCK, SECURITIES OR ASSETS OF, ANY PERSON, PROVIDED THAT (i) IMMEDIATELY AFTER
GIVING EFFECT THERETO, NO DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE
CONTINUING OR WOULD RESULT THEREFROM, (ii) THE AMOUNT OF SUCH TRANSACTION,
TOGETHER WILL SUCH OTHER TRANSACTIONS CONSUMMATED AT ANY TIME AFTER THE DATE
HEREOF, SHALL NOT EXCEED $500,000 IN THE AGGREGATE, (iii) PRIOR TO OR
SIMULTANEOUSLY WITH THE CLOSING OF SUCH TRANSACTION, TBCC SHALL HAVE TAKEN ALL
NECESSARY ACTION IN ORDER TO PROTECT AND CONTINUE PERFECTED ITS SECURITY
INTEREST HEREUNDER AFTER GIVING EFFECT TO THE TRANSACTION, AND (iv) TBCC AND
BORROWER SHALL HAVE EXECUTED ANY NECESSARY OR APPROPRIATE AMENDMENTS TO THE LOAN
DOCUMENTS, AS TBCC SHALL REASONABLY REQUEST, IN CONNECTION WITH OR ARISING FROM
SUCH TRANSACTION.
6.10 PARTNERSHIPS; SUBSIDIARIES; JOINT VENTURES; MANAGEMENT CONTRACTS.
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement or become a partner in any general
or limited partnership or enter into any management contract (other than an
employment contract for the employment of an officer or employee entered into in
the regular course of Borrower's business) permitting third party management
rights with respect to Borrower's business*.
*OTHER THAN PERMITTED INVESTMENTS
6.11 FISCAL YEAR. Borrower will not change its fiscal year.
6.12 ACCOUNTING CHANGES. Borrower will not at any time make or permit any
* change in accounting policies or reporting practices, except as required by
GAAP.
*MATERIAL
6.13 BROKER'S OR FINDER'S FEES. Borrower will not pay or incur any
broker's or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14 UNUSUAL TERMS OF SALE. Borrower will not sell goods or products on
extended terms, consignment terms, on a progress billing or bill and hold basis,
or on any other unusual terms*.
*IF SUCH TRANSACTION COULD HAVE A MATERIAL ADVERSE EFFECT
6.15 AMENDMENTS OF MATERIAL CONTRACTS. Borrower will not amend, modify,
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination could have a Material Adverse Effect.
6.16 SALE AND LEASEBACK OBLIGATIONS. Borrower will not at any time create,
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17 ACQUISITION OF STOCK OR ASSETS. Borrower will not acquire or commit
or agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business*.
*OTHER THAN PERMITTED INVESTMENTS
7. EVENTS OF DEFAULT.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default":
(a) Borrower shall fail to pay any principal, interest, fees,
expenses or other Obligations when payable, whether at stated maturity, by
acceleration, or otherwise; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 1.1,
1.2,. 1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform any nonmonetary Obligation which by
its nature cannot be cured; or
(c) Borrower shall default in the performance or observance of any
other agreement, covenant, condition,
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<PAGE>
provision or term of this Agreement (other than those referred to in Section
7.1(a) above or Section 7.1(b) above) or any other Loan Document, and such
failure continues uncured by a period of _____* Business Days after the date it
occurs; or
*TEN
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise
cease to conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an
Insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event or (ii) an Insolvency Event as set forth in clause (e) of the
definition of Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty made by or on behalf of Borrower
or any Guarantor to TBCC, under this Agreement or otherwise, shall be incorrect
or misleading in any material respect when made or deemed made; or
(g) A change in the ownership or control of more than __%* of the
voting stock of the Borrower compared to such ownership on the date of this
Agreement**:
*33
**OTHER THAN IN CONNECTION WITH AN INITIAL PUBLIC OFFERING OF BORROWER'S
EQUITY SECURITIES
(h) any judgment or order for the payment of money shall be rendered
against Borrower and shall not be stayed, vacated, bonded or discharged within
thirty days; or
(i) any defined "Event of Default" shall occur under any other Loan
Document; or Borrower or any Guarantor shall deny or disaffirm its obligations
under any of the Loan Documents or any Liens granted in connection therewith or
shall otherwise challenge any of its obligations under any of the Loan
Documents; or any Liens granted in any of the Collateral shall be determined to
be void, voidable or invalid, are subordinated or are not given the priority
contemplated by this Agreement; or
(j) any Loan Document shall for any reason cease to create a valid
and perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens); or
(k) the Auditors for Borrower shall deliver a Qualified opinion on
any Financial Statement; or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness
owing to TBCC under any other agreement with TBCC or note or instrument in favor
of TBCC, when due (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise), or (ii) shall otherwise be in breach of or
default in any of its obligations under any such agreement, note or instrument
with respect to any such Indebtedness; or
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness
in excess of $_____* owing to any Person other than TBCC or any interest or
premium thereon, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be in
breach or default in any of its obligations under any agreement with respect to
any such Indebtedness, if the effect of such breach, default or failure to pay
is to cause such Indebtedness to become due or redeemed or permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to declare such Indebtedness due or require such Indebtedness to be
redeemed prior to its stated maturity; or
*$150,000
(n) the occurrence of any event or condition that, in TBCC's
judgment, could reasonably be expected to have a Material Adverse Effect.
TBCC may cease making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2 REMEDIES. Upon the occurrence and during the continuance of an Event
of Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable (except
with respect to any Event of Default with respect to Borrower set forth in
Section 7.1(e), in which case all Obligations shall automatically become
immediately due and payable) without presentment, demand, protest or any other
action or obligation of TBCC;
(b) Cease making any Loans or other extensions of credit to Borrower
of any kind;
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables and other Collateral (in the name of
Borrower or TBCC) and otherwise administer and collect the Receivables and other
Collateral;
(e) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any securities
accounts;
(f) Sell, assign and deliver the Receivables and other Collateral,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law; and
(g) Foreclose on the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(h) TBCC may bid or become a purchaser at any sale, free from any
right of redemption, which right is expressly waived by Borrower, if permitted
under applicable law. If notice of intended disposition of any Collateral is
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TBCC LOAN AND SECURITY AGREEMENT
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required by law, it is agreed that ten days' notice shall constitute reasonable
notification. Borrower will assemble the Collateral and make it available at
such locations as TBCC may specify, whether at the premises of Borrower or
elsewhere, and will make available to TBCC the premises and facilities of
Borrower for the purpose of TBCC's taking possession of or removing the
Collateral or putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public sale
of any or all of the Investment Property, by reason of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
7.3 RECEIVABLES. Upon the occurrence and during the continuance of an
Event of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which it considers advisable, and (ii) notify
account debtors on the Receivables and other Collateral that the Receivables and
Collateral have been assigned to TBCC, and that payments in respect thereof
shall be made directly to TBCC. If an Event of Default has occurred and is
continuing or TBCC reasonably believes in good faith that fraud has occurred, or
that Borrower has failed to deliver the proceeds of Receivables or other
Collateral to TBCC as required by this Agreement or any other Loan Document,
Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may
designate, as its attorney-in-fact, at Borrower's sole cost and expense, to
exercise, all of the following powers, which are coupled with an interest and
are irrevocable, until all of the Obligations have been indefeasibly paid and
satisfied in full in cash: (A) to receive, take, endorse, sign, assign and
deliver, all in the name of TBCC or Borrower, any and all checks, notes, drafts,
and other documents or instruments relating to the Collateral; (B) to receive,
open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as TBCC
may designate; and (C) to take or bring, in the name of TBCC or Borrower, all
steps, actions, suits or proceedings deemed by TBCC necessary or desirable to
enforce or effect collection of Receivables and other Collateral or file and
sign Borrower's name on a proof of claim in bankruptcy or similar document
against any obligor of Borrower.
7.4 RIGHT OF SETOFF. In addition to all rights of offset that TBCC may
have under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit or the account of
Borrower. In the event that TBCC exercises any of its rights under this
Section, TBCC shall provide notice to Borrower of such exercise, provided that
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5 LICENSE FOR USE OF SOFTWARE AND OTHER INTELLECTUAL PROPERTY. After
the occurrence and during the continuance of an Event of Default, unless
expressly prohibited by any licensor thereof, TBCC is hereby granted a license
to use all computer software programs, data bases, processes, trademarks,
tradenames and materials used by Borrower in connection with its businesses or
in connection with the Collateral
7.6 NO MARSHALLING; DEFICIENCIES; REMEDIES CUMULATIVE. The net cash
proceeds resulting from TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
discretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any of them shall not preclude the full or
partial exercise of any other available remedy under this Agreement, under any
other Loan Document, at equity or at law.
7.7 WAIVERS. Borrower hereby waives any bonds, security or sureties
required by any statute, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement or any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts or omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in the Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8 RIGHT TO MAKE PAYMENTS. In the event that Borrower shall fail to
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
8.1 ASSIGNMENTS. Borrower shall not assign this Agreement or any right or
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a
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TBCC LOAN AND SECURITY AGREEMENT
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portion of its rights and obligations under this Agreement and the other Loan
Documents.
8.2 PARTICIPATIONS. TBCC may sell participations in or to all or a
portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Loans); provided, however, that
TBCC's obligations under this Agreement shall remain unchanged.
8.3 DISCLOSURE. TBCC may, in connection with any permitted assignment or
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower.
9. DEFINITIONS.
9.1 GENERAL DEFINITIONS. As used herein, the following terms shall have
the meanings herein specified (to be equally applicable to both the singular
and plural forms of the terms defined):
(a) "AFFILIATE" means as to any Person, any other Person who
directly or indirectly controls, is under common control with, is controlled
by or is a director or officer of such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and "under
common control with") means possession, directly or indirectly, of the power
to direct or cause the direction of management or policies (whether through
ownership of voting securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event, any Person who owns
directly or indirectly twenty percent (20%) or more of the securities having
ordinary voting power for the election of the members of the board of
directors or other governing body of a corporation or twenty percent (20%) or
more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
control such corporation, partnership or other Person.
(b) "AGREEMENT" means this Loan and Security Agreement, as amended,
supplemented or otherwise modified from time to time.
(c) "AUDITORS" means a nationally recognized firm of independent
public accountants selected by Borrower and reasonably satisfactory to TBCC.
(d) "BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy," as that title may be amended from time to time, or any
successor statute.
(e) "BORROWING" means a borrowing of Loans.
(f) "BUSINESS DAY" means any day other than a Saturday, Sunday or
any other day on which commercial banks in Chicago, Illinois are required or
permitted by law to close.
(g) "CASH EQUIVALENTS" means (i) securities issued, guaranteed or
insured by the United States or any of its agencies with maturities of not
more than one year from the date acquired; (ii) certificates of deposit with
maturities of not more than one year from the date acquired, issued by any
U.S. federal or state chartered commercial bank of recognized standing
which has capital and unimpaired surplus in excess of $100,000,000;
(iii) investments in money market funds registered under the Investment
Company Act of 1940; and (iv) other instruments, commercial paper or
investments acceptable to TBCC in its sole discretion.
(h) "COLLATERAL" means Receivables, Investment Property, Inventory,
Equipment, and Other Property, and all additions and accessions thereto and
substitutions and replacements therefor and improvements thereon, and all
proceeds (whether cash or other property) and products thereof, including,
without limitation, all proceeds of insurance covering the same and all tort
claims in connection therewith, and all records, files, computer programs and
files, data and writings relating to the foregoing, and all equipment
containing the foregoing.
(i) "COLLECTIONS" means all cash, funds, checks, notes,
instruments, any other form of remittance tendered by account debtors in
respect of payment of Receivables and any other payments received by Borrower
with respect to any other Collateral.
(j) "COMPLIANCE CERTIFICATE" means a certificate as to compliance
with the Obligations, on TBCC's standard form (in effect from time to time).
(k) "CONTINGENT OBLIGATION" means any direct, indirect, contingent
or non-contingent guaranty or obligation for the Indebtedness of another
Person, except endorsements in the ordinary course of business.
(l) "DEFAULT" means any of the events specified in Section 7.1,
whether or not any of the requirements for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(m) "ELIGIBLE INVENTORY" means Inventory of Borrower which TBCC in
its sole discretion deems eligible for borrowing, based on such
considerations as TBCC in its sole discretion may deem appropriate from time
to time and less any such reserves as TBCC, in its sole discretion, may
require. Without limiting the fact that the determination of which Inventory
is eligible for borrowing is a matter of TBCC's sole discretion, the
following are the minimum requirements for Inventory to be Eligible
Inventory; (i) the Inventory must consist of finished goods, in good, new and
salable condition which is not perishable, not obsolete or unmerchantable,
and is not comprised of raw materials, work in process, packaging materials
or supplies; (iii) the Inventory must meet all applicable governmental
standards; (iv) the Inventory must have been manufactured in compliance with
the Fair Labor Standards Act; (v) the Inventory must conform in all respects
to the warranties and representations set forth in this Agreement; (vi) the
Inventory must at all times be subject to TBCC's duly perfected, first
priority security interest; and (vii) the Inventory must be in Borrower's
exclusive possession, separately identifiable from goods of others, and
situated at Borrower's chief executive office or at one of the other Borrower
locations set forth on the Schedule. The value of Eligible Inventory shall be
computed at the lower of cost (computed on a "first in, first out" basis) or
wholesale market value.
(n) "ELIGIBLE RECEIVABLES" means and includes only those
Receivables which TBCC in its sole discretion deems eligible for borrowing,
based on such considerations
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TBCC LOAN AND SECURITY AGREEMENT
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as TBCC in its sole discretion may deem appropriate from time to time and
less any such reserves as TBCC, in its sole discretion, may require. Without
limiting the fact that the determination of which Receivables are eligible
for borrowing is a matter of TBCC's sole discretion, the following (the
"MINIMUM ELIGIBILITY REQUIREMENTS") are the minimum requirements for a
Receivable to be an Eligible Receivable: (i) the Receivable must not be
outstanding for more than 90 days from its invoice date, (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the account debtor, (iii) the Receivable must not
be subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
account debtor may be conditional), (iv) the Receivable must not be owing
from an account debtor with whom the Borrower has any dispute (whether or not
relating to the particular Receivable), (v) the Receivable must not be owing
from an Affiliate of Borrower, (vi) the Receivable must not be owing from an
account debtor which is subject to any insolvency or bankruptcy proceeding,
or whose financial condition is not acceptable to TBCC, or which, fails or
goes out of a material portion of its business, (vii) the Receivable must not
be owing from the United States or any department, agency or instrumentality
thereof (unless there has been compliance, to TBCC's satisfaction, with the
United States Assignment of Claims Act), (viii) the Receivable must not be
owing from an account debtor located outside the United States or Canada
(unless pre-approved by TBCC in its discretion in writing, or backed by a
letter of credit satisfactory to TBCC, or FCIA insured satisfactory to TBCC),
(ix) the Receivable must not be owing from an account debtor to whom Borrower
is or may be liable for goods purchased from such account debtor or
otherwise, (x) the Receivable must not violate any representation or warranty
set forth in this Agreement, and (xi) the Receivable must not be one in which
TBCC does not have a first-priority, valid, perfected Lien. Without limiting
the generality of the foregoing, Borrower must be in compliance with all
requirements of the Loan Documents regarding registration with the U.S.
Copyright Office of any copyrightable software in order for any Receivable
arising from any licensing of such software to constitute an Eligible
Receivable hereunder. Receivables owing from one account debtor will not be
deemed Eligible Receivables to the extent they exceed 50% of the total
eligible Receivables outstanding. In addition, if more than 50% of the
receivables owing from an account debtor are outstanding more than 90 days
from their invoice date (without regard to unapplied credits) or are
otherwise not eligible Receivables, then all Receivables owing from that
account debtor will be deemed ineligible for borrowing. TBCC may, from time
to time, in its sole discretion, revise the Minimum Eligibility Requirements,
upon written notice to the Borrower.
(o) "EQUIPMENT" means all machinery, equipment, furniture,
fixtures, conveyors, tools, materials, storage and handling equipment,
hydraulic presses, cutting equipment, computer equipment and hardware,
including central processing units, terminals, drives, memory units,
printers, keyboards, screens, peripherals and input or output devices, molds,
dies, stamps, vehicles, and other equipment of every kind and nature and
wherever situated now or hereafter owned by Borrower or in which Borrower may
have any interest as lessee or otherwise (to the extent of such interest),
together with all additions and accessions thereto, all replacements and all
accessories and parts therefor, all manuals, blueprints, know-how, warranties
and records in connection therewith, all rights against suppliers,
warrantors, manufacturers, sellers or others in connection therewith, and
together with all substitutes for any of the foregoing.
(p) "EVENT OF DEFAULT" means the occurrence of any of the events
specified in Section 7.1.
(q) "FINANCIAL STATEMENTS" means the balance sheets, profit and
loss statements, statements of cash flow, and statements of changes in
intercompany accounts, if any, for the period specified, prepared in
accordance with GAAP and consistent with prior practices.
(r) "GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are
applicable to the circumstances as of the date of determination. Whenever any
accounting term is used herein which is not otherwise defined, it shall be
interpreted in accordance with GAAP.
(s) "GOOD FAITH" means "good faith" as defined in the Uniform
Commercial Code, from time to time in effect in the State of Illinois.
(t) "GOVERNING DOCUMENTS" means the articles or certificate of
incorporation and by-laws of Borrower.
(u) "GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions
thereof or pertaining thereto.
(v) "GUARANTOR" means any present or future guarantor of any or all
of the Obligations.
(w) "INDEBTEDNESS" means, with respect to any Person, as of the
date of determination any indebtedness, liability or obligation of such
Person (including without limitation obligations under capital leases and
Contingent Obligations).
(x) "INSOLVENCY EVENT" means, with respect to any Person, the
occurrence of any of the following: (a) such Person shall be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing its
inability to pay its debts as they become due, (b) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its property,
assets or business or to effect a plan or other arrangement with its
creditors, (c) such Person shall make a general assignment for the benefit of
its creditors, or consent to or acquiesce in the appointment of a receiver,
trustee,custodian or liquidator for a substantial portion of its property,
assets or business, (d) such Person shall file a voluntary petition under any
bankruptcy, insolvency or similar law or take any corporate or similar act in
furtherance thereof, or (e) such Person, or a substantial portion of its
property, assets or business shall become the subject of an involuntary
proceeding or petition for its dis-
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TBCC LOAN AND SECURITY AGREEMENT
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solution, reorganization, and such proceeding is not dismissed or stayed
within sixty days, or the appointment of a receiver, trustee, custodian or
liquidator, and such receiver is not dismissed within sixty days.
(y) "INVENTORY" means all present and future goods intended for
sale, lease or other disposition by Borrower including, without limitation,
all raw materials, work in process, finished goods and other retail
inventory, goods in the possession of outside processors or other third
parties, goods consigned to Borrower to the extent of its interest therein as
consignee, materials and supplies of any kind, nature or description which
are or might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of any such goods, and all documents of
title or documents representing the same.
(z) "INVESTMENT" in any Person means, as of the date of
determination thereof, any payment or contribution, or commitment to make a
payment or contribution, by any Person including, without limitation,
property contributed or committed to be contributed by any Person, on its
account for or in connection with its acquisition of any stock, bonds, notes,
debentures, partnership or other ownership interest or any other security of
the Person in whom such Investment is made or any evidence of indebtedness by
reason of a loan, advance, extension of credit, guaranty or other similar
obligation for any debt, liability or indebtedness of such Person in whom the
Investment is made.
(aa) "INVESTMENT PROPERTY" means any and all investment property of
Borrower, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or
otherwise, wherever located, and whether now existing or hereafter acquired
or arising.
(bb) "LIEN" means any lien, claim, charge, pledge, security
interest, assignment, hypothecation, deed of trust, mortgage, lease,
conditional sale, retention of title or other preferential arrangement having
substantially the same economic effect as any of the foregoing, whether
voluntary or imposed by law.
(cc) "LOAN ACCOUNT" has the meaning specified in Section 1.3.
(dd) "LOAN DOCUMENTS" means this Agreement and all present and
future documents and instruments delivered or to be delivered by Borrower or
any of its Affiliates or any Guarantor under, in connection with or relating
to this Agreement, as each of the same may be amended, supplemented or
otherwise modified from time to time.
(ee) "LOANS" means the loans and financial accommodations made by
TBCC hereunder.
(ff) "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect
on the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower, (ii) the
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a part or of TBCC to enforce the Obligations or
realize upon the Collateral or (iii) a material adverse effect on the value
of the Collateral or the amount which TBCC would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of the Collateral.
(gg) "MATERIAL CONTRACT" means any contract or other arrangement to
which Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material
Adverse Effect.
(hh) "OBLIGATIONS" means and includes all loans (including the
Loans), advances, debts, liabilities, obligations, covenants and duties owing
by Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, which may arise under,
out of, or in connection with, this Agreement, any other Loan Document or any
other agreement executed in connection herewith or therewith or otherwise,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening, guaranteeing or confirming of a letter of
credit, loan, guaranty, indemnification or in any other manner, whether
direct or indirect (including those acquired by assignment, purchase,
discount or otherwise), whether absolute or contingent, due or to become due,
now due or hereafter arising and however acquired. The term includes, without
limitation, all interest (including interest accruing on or after an
Insolvency Event, whether or not an allowed claim), charges, expenses,
commitment, facility, closing and collateral management fees, letter of
credit fees, reasonable attorneys' fees, and any other sum properly
chargeable to Borrower under this Agreement, the other Loan Documents or any
other agreement executed in connection herewith or therewith or otherwise.
(ii) "OTHER PROPERTY" means all present and future: instruments,
documents, documents of title, securities, bonds, notes, promissory notes,
drafts, acceptances, letters of credit and rights to receive proceeds of
letters of credit, deposit accounts, chattel paper, certificates, insurance
policies, insurance proceeds, leases, computer tapes, causes of action,
judgments, claims against third parties, leasehold rights in any personal
property, books, ledgers, files and records, general intangibles (including
without limitation, all contract rights, tax refunds, rights to receive tax
refunds, patents, patent applications, copyrights (registered and
unregistered), royalties, licenses, permits, franchise rights,
authorizations, customer lists, rights of indemnification, contribution and
subrogation, computer programs, discs and software, trade secrets, computer
service contracts, trademarks, trade names, service marks and names, logos,
goodwill, deposits, choses in action, designs, blueprints, plans, know-how,
telephone numbers and rights thereto, credits, reserves, and all forms of
obligations whatsoever now or hereafter owing to Borrower), all property at
any time in the possession or under the control of TBCC, and all security
given by Borrower to TBCC pursuant to any other Loan Document or agreement.
(iii) "PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing: (i) Liens for taxes, assessments and other
governmental charges or levies or the claims or demands of landlords,
carriers, warehousemen,
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TBCC LOAN AND SECURITY AGREEMENT
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mechanics, laborers, materialmen and other like Persons arising by operation
of law in the ordinary course of business for sums which are not yet due and
payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause (ii) shall permit the
creation of Liens on Receivables, Investment Property, Inventory or Other
Property), (iii) zoning restrictions, easements, encroachments, licenses,
restrictions or covenants on the use of the Property which do not materially
impair either the use of the Property in the operation of the business of
Borrower or the value of the Property, (iv) rights of general application
reserved to or vested in any municipality or other governmental, statutory or
public authority to control or regulate property, or to use property in a
manner which does not materially impair the use of the property for the
purposes for which it is held by Borrower, (v) state and municipal Liens for
personal property taxes which are not yet due and payable, (vi) Purchase
Money Liens*.
* (vi) LIENS GRANTED TO LESSORS UNDER OPERATING LEASES OR CAPITAL LEASES
(PROVIDED THAT SUCH LIENS SHALL ATTACH ONLY TO THE ASSET PURCHASED OR
ACQUIRED (AND THE PROCEEDS THEREOF) AND SHALL ONLY SECURE THE PURCHASE PRICE
OF THE ASSET); AND (vii) LIENS ON SPECIFIC TANGIBLE ASSETS DIRECTLY OR
INDIRECTLY ACQUIRED BY BORROWER AFTER THE DATE OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT (A) SUCH LIENS EXISTED AT THE TIME OF ACQUISITION AND WERE NOT
CREATED IN ANTICIPATION THEREOF, (B) ANY SUCH LIEN DOES NOT BY ITS TERMS
COVER ANY ASSETS AFTER THE TIME OF SUCH ACQUISITION WHICH WERE NOT COVERED
IMMEDIATELY PRIOR THERETO, AND (C) ANY SUCH LIEN DOES NOT BY ITS TERMS SECURE
ANY INDEBTEDNESS OTHER THAN INDEBTEDNESS EXISTING IMMEDIATELY PRIOR TO THE
TIME OF THE ACQUISITION
(kk) "PERSON" means any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, joint stock company, association, corporation, institution,
entity, party or government (including any division, agency or department
thereof) or any other legal entity, whether acting in an individual,
fiduciary or other capacity, and, as applicable, the successors, heirs and
assigns of each.
(ll) "PLAN" means any employee benefit plan, program or arrangement
maintained or contributed to by Borrower or with respect to which it may
incur liability.
(mm) "PURCHASE MONEY LIEN" means a Lien on any item of Equipment
created substantially simultaneously with * the acquisition of such Equipment
for the purpose of financing such acquisition, provided that such Lien shall
attach only to the Equipment acquired.
* OR WITHIN 30 DAYS AFTER
(nn) "QUALIFICATION" or "QUALIFIED" means, with respect to any
report of Auditors covering Financial Statements, a material qualification to
such report (i) resulting from a limitation on the scope of examination of
such Financial Statements or the underlying data, (ii) as to the capability
of Borrower to continue operations as a going concern or (iii) which could be
eliminated by changes in Financial Statements or notes thereto covered by
such report (such as by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so eliminated by the
making of any such change and after giving effect thereto would result in a
Default or an Event of Default.
(oo) "RECEIVABLES" means all present and future accounts and
accounts receivable, together with all security therefor and guaranties
thereof and all rights and remedies relating thereto, including any right of
stoppage in transit.
(pp) "REQUIREMENT OF LAW" means (a) the Governing Documents, (b)
any law, treaty, rule, regulation, order or determination of an arbitrator,
court or other Governmental Authority or (c) any franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way,
right or approval binding on Borrower or any of its property.
(qq) "SCHEDULE" means the Schedule to this Agreement being signed
concurrently by Borrower and TBCC, as amended from time to time.
(rr) "SOLVENT" means when used with respect to any Person that as
of the date as to which such Person's solvency is to be measured: (a) the
fair salable value of its assets is in excess of the total amount of its
liabilities (including contingent liabilities as valued in accordance with
applicable law) as they become absolute and matured; (b) it has sufficient
capital to conduct its business; and (c) it is able to meet its debts as they
mature.
(ss) "SUBSIDIARY" means, as to any Person, a corporation or other
entity in which that Person directly or indirectly owns or controls shares
of stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or appoint other managers of such
corporation or other entity.
9.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be
construed in accordance with GAAP, applied on a basis consistent in all
material respects with the Financial Statements delivered to TBCC on or
before the date of this Agreement. All accounting determinations for purposes
of determining compliance with this Agreement shall be made in accordance
with GAAP as in effect on the date of this Agreement and applied on a basis
consistent in all material respects with the audited Financial Statements
delivered to TBCC on or before the date of this Agreement. The Financial
Statements required to be delivered hereunder, and all financial records,
shall be maintained in accordance with GAAP. If GAAP shall change from the
basis used in preparing the audited Financial Statements delivered to TBCC on
or before the date of this Agreement, the Compliance Certificates required to
be delivered pursuant to this Agreement shall include calculations setting
forth the adjustments necessary to demonstrate how Borrower is in compliance
with the Financial Covenants (if any) based upon GAAP as in effect on the
date of this Agreement.
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TBCC LOAN AND SECURITY AGREEMENT
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9.3 OTHER TERMS; HEADINGS; CONSTRUCTION. Unless otherwise defined
herein, terms used herein that are defined the Uniform Commercial Code, from
time to time in effect in the State of Illinois, shall have the meanings set
forth therein. Each of the words "hereof," "herein," and "hereunder" refer to
this Agreement as a whole. The term "including", whenever used in this
Agreement, shall mean "including (but not limited to)". An Event of Default
shall "continue" or be "continuing" unless and until such Event of Default
has been waived or cured within the grace period specified therefor under
Section 7.1. References to Articles, Sections, Annexes, Schedules, and
Exhibits are internal references to this Agreement, and to its attachments,
unless otherwise specified. The headings and any Table of Contents are for
convenience only and shall not affect the meaning or construction of any
provision of this Agreement. This Agreement has been fully reviewed and
negotiated between the parties and no uncertainty or ambiguity in any term or
provision of this Agreement shall be construed strictly against TBCC or
Borrower under any rule of construction or otherwise.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2 SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND
TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND
THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT
TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY
SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS
COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
10.3 SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF
SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED
BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY
SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
10.4 LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE
BORROWER (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES
SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT,
OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH. UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON
TBCC THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL
FUTURE CLAIMS AGAINST TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES.
10.5 DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or omission of TBCC
to exercise any right or remedy hereunder shall impair any such right or
operate as a waiver thereof. No single or partial exercise by TBCC of any
right or remedy shall preclude any other or further exercise thereof; or
preclude any other right or remedy.
10.6 NOTICES. Except as otherwise provided herein, all notices and
correspondence hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, by overnight delivery service,
with all charges prepaid, or by telecopier followed by a hard copy sent by
regular mail, to the parties at their addresses set forth in the heading to
this Agreement. All such notices and correspondence shall be deemed given
(i) if sent by certified or registered mail, three Business Days after being
postmarked, (ii) if sent by overnight delivery service, when received at the
above stated addresses or when delivery is refused and (iii) if sent by
telecopier transmission, when receipt of such transmission is acknowledged.
Borrower's and TBCC's telecopier numbers for the purpose of notice hereunder
are set forth in the Schedule; each party's number may be changed by written
notice to the other party.
10.7 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES OF COLLECTION. Borrower
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated,
to defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees,
advisors, shareholders, attorneys and Affiliates (each, an "INDEMNIFIED
PARTY")
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from and against any and all losses, claims, damages, liabilities,
deficiencies, obligations, fines, penalties, actions (whether threatened or
existing), judgments, suits (whether threatened or existing) or expenses
(including, without limitation, reasonable fees and disbursements of counsel,
experts, consultants and other professionals) incurred by any of them
(collectively, "CLAIMS") (except, in the case of each Indemnified Party, to
the extent that any Claim is determined in a final and non-appealable
judgment by a court of competent jurisdiction to have directly resulted from
such Indemnified Party's gross negligence or willful misconduct) arising out
of or by reason of (i) any litigation, investigation, claim or proceeding
which arises out of or is related to (A) Borrower, or this Agreement, any
other Loan Document or the transactions contemplated hereby or thereby, (B)
any actual or proposed use by Borrower of the proceeds of the Loans, or (C)
TBCC's entering into this Agreement or any other Loan Document or any other
agreements and documents relating hereto, including, without limitation,
amounts paid in settlement, court costs and the reasonable fees and
disbursements of counsel incurred in connection with any such litigation,
investigation, claim or proceeding, (ii) any remedial or other action taken
by Borrower in connection with compliance by Borrower, or any of its
properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director of Borrower or any actual
or purported violation of the Borrower's charter, by-laws or any other
agreement or instrument to which Borrower is a party or by which any of its
properties is bound. In addition and without limiting the generality of the
foregoing, Borrower shall, upon demand, pay to TBCC all reasonable costs and
expenses incurred by TBCC (including the reasonable fees and disbursements of
counsel and other professionals) in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents, and pay to TBCC all reasonable costs and expenses (including the
reasonable fees and disbursements of counsel and other professionals) paid or
incurred by TBCC in order to enforce or defend any of its rights under or in
respect of this Agreement, any other Loan Document or any other document or
instrument now or hereafter executed and delivered in connection herewith,
collect the Obligations or otherwise administer this Agreement, foreclose or
otherwise realize upon the Collateral or any part thereof, prosecute actions
against, or defend actions by, account debtors; commerce, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect
any of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce TBCC's security
interest in, the Collateral; and otherwise represent TBCC in any litigation
relating to Borrower. Without limiting the generality of the foregoing,
Borrower shall pay TBCC a fee with respect to each wire transfer in the
amount of $15 plus all bank charges and a fee of $15 for all returned checks
plus all bank charges. If either TBCC or Borrower files any lawsuit against
the other predicated on a breach of this Agreement, the prevailing party in
such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. If and to the extent that the Obligations of
Borrower hereunder are unenforceable for any reason, Borrower hereby agrees
to make the maximum contribution to the payment and satisfaction of the
Obligations which is permissible under applicable law. Borrower's
obligations under Section 2.4 and this Section shall survive any termination
of this Agreement and the other Loan Documents and the payment in full of the
Obligations, and are in addition to, and not in substitution of, any of the
other Obligations.
10.8 AMENDMENTS AND WAIVERS. Any provision of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and signed by Borrower and TBCC and then any such
amendment or waiver shall be effective only to the extent set forth therein.
The failure of TBCC at any time or times to require Borrower to strictly
comply with any of the provisions of this Agreement or any other present or
future agreement between Borrower and TBCC shall not waive or diminish any
right of TBCC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether
prior or subsequent, and whether nor not similar. None of the provisions of
this Agreement or any other agreement now or in the future executed by
Borrower and delivered to TBCC shall be deemed to have been waived by any act
or knowledge of TBCC or its agents or employees, but only by a specific
written waiver signed by an authorized officer of TBCC and delivered to
Borrower.
10.9 COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement and any waiver or
amendment hereto may be executed in counterparts and by the parties hereto
in separate counterparts, each of which when so executed and delivered shall
be an original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any
notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same
force and effect as if the same was a fully executed and delivered original
manual counterpart.
10.10 SEVERABILITY. In case any provision in or obligation under this
Agreement or any other Loan Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability
of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
10.11 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12 MAXIMUM RATE. Notwithstanding anything to the contrary contained
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the
other Loan Documents, whether now existing or hereafter arising and whether
written or oral, are expressly limited so that in no contingency or event
whatsoever shall the amount paid, or agreed to be paid, to TBCC for the use,
forbearance, or detention of the money loaned to Borrower and evidenced
hereby or thereby or for the performance or payment of any covenant or
obligation contained herein or therein, exceed the maximum non-usurious
interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations,
under the laws of the State of Illinois (or the laws of any other
jurisdiction whose laws may be mandatorily applicable notwithstanding other
provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and
which allow a higher maximum non-usurious interest rate than under the laws
of the State of Illinois (or such other jurisdiction), in any case after
taking into account, to the extent permitted by applicable law, any and all
relevant payments or charges under this Agreement and the other Loan
Documents, executed in connection herewith, and any available exemptions,
exceptions and exclusions (the "Highest Lawful Rate"). If due to any
circumstance whatsoever, fulfillment of any provisions of this Agreement or
any of the other Loan Documents at the time performance of such provision
shall be due shall exceed the Highest Lawful Rate, then, automatically, the
obligation to be fulfilled shall be modified or reduced to the extent
necessary to limit such interest to the Highest Lawful Rate, and if from any
such circumstance TBCC should ever receive anything of value deemed interest
by applicable law which would exceed the Highest Lawful Rate, such excessive
interest shall be applied to the reduction of the principal amount then
outstanding hereunder or on account of any other then outstanding Obligations
and not to the payment of interest, or if such excessive interest exceeds the
principal unpaid balance then outstanding hereunder and such other then
outstanding Obligations, such excess shall be refunded to Borrower. All sums
paid or agreed to be paid to TBCC for the use,
-17-
<PAGE>
forbearance, or detention of the Obligations and other indebtedness of
Borrower to TBCC shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of of such
indebtedness, until payment in full thereof, so that the actual rate of
interest on account of all such indebtedness does not exceed the Highest
Lawful Rate throughout the entire term of such indebtedness. The terms and
provisions of this Section shall control every other provision of this
Agreement, the other Loan Documents and all other agreements between the
parties hereto.
10.13 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement and the
other Loan Documents constitute the entire agreement between the parties,
supersede any prior written and verbal agreements between them, and shall
bind and benefit the parties and their respective successors and permitted
assigns. THERE ARE NO ORAL UNDERSTANDINGS, ORAL REPRESENTATIONS OR ORAL
AGREEMENTS BETWEEN THE PARTIES, WHICH ARE NOT SET SET FORTH IN THIS AGREEMENT
OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
10.14 MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER: OR (iii) ANY
CONDUCT, ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
TBCC OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
BORROWER:
TECHWAVE INC.
By: /s/ Alan Koslow
------------------------------------
Title: Executive Vice President
---------------------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ F. W. Berty
------------------------------------
Title: Vice President
---------------------------------
-18-
<PAGE>
- -------------------------------------------------------------------------------
TBCC
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: TECHWAVE IN.,
A WASHINGTON CORPORATION
ADDRESS: 411 FIRST AVENUE SOUTH,
SUITE 200 NORTH
SEATTLE, WA 98104
DATE: MARCH 4, 1999
This Schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower
("Borrower") of even date.
1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (1) or
(2) below:
(1) $6,000,000 at any one time outstanding; or
(2) an amount equal to
(i) the lesser of (A) 85% of the amount
of Borrower's Eligible Receivables
(as defined in Section 9.1(n) above)
and (B) $2,500,000, plus
(ii) the principal balance of the term
loan in the original principal
amount of $3,500,00 made by TBCC to
Borrower (the "Term Loan") and
evidenced by the Term Note (the
"Term Note") dated March 4, 1999, in
the original principal amount of
$3,500,000, made by Borrower to the
order of TBCC.
The Term Loan will be repayable on the terms
set forth in the Term Note.
(2) INTEREST (Section 2.1): 1. The following shall apply to the Loans
constituting the revolving credit facility
(I.E., all Loans other than the Term Loan)
(the "Revolving Loans"):
The interest rate in effect throughout each
calendar month during the term of this
Agreement shall be the highest "Base
Rate" in effect during such month, plus 2%
per annum, and provided that the interest
rate in effect in each month shall not be
less than 9% per annum, and provided that the
interest charged for each quarterly period
set forth below in respect of the Revolving
Loans shall be the minimum amount set forth
below, regardless of the amount of the
Obligations outstanding:
<TABLE>
<CAPTION>
Quarterly Period Minimum Interest
---------------- ----------------
<S> <C>
Closing -
May 31, 1999 $0
June 1, 1999 -
August 31, 1999 $15,000
Each quarterly period
thereafter $22,500
</TABLE>
-1-
<PAGE>
TBCC NOTICE OF SECURITY INTEREST
- -------------------------------------------------------------------------------
beginning September 1, 1999
Interest shall be calculated on the basis of
a 360-day year for the actual number of days
elapsed. "Base Rate" shall mean the higher
of (a) the highest prime, base or equivalent
rate of interest announced from time to time
by Citibank, N.A., First National Bank of
Chicago and Bank of America National Trust
and Savings Association (which may not be
the lowest rate of interest charged by such
bank) and (b) the published annualized rate
for 90-day dealer commercial paper which
appears in the "Money Rates" of the THE WALL
STREET JOURNAL.
2. Interest on the Term Loans shall accrue at
the interest rate set forth in the Term Note.
3. FEES (Section 2.2) Loan Fee: $77,500, payable concurrently
herewith.
Termination Fee: See Section 4 below.
Payment Fee: Upon any optional prepayment of
the Term Loan, simultaneously with the
prepayment Borrower shall pay a prepayment
fee equal to (i) 10% of the principal amount
prepaid, if such prepayment occurs at any
time on or before November 30, 1999; (ii) 7%
of the principal amount prepaid, if such
prepayment occurs at any time on or before
July 31, 2000; or (ii) 3% of the principal
amount prepaid, if such prepayment occurs at
any time on or after August 1, 2000.
4. MATURITY DATE (Section 1.6): (a) TERM OF REVOLVING LOAN FACILITY. The
period during which Revolving Loans will be
made (the "Revolving Loan Period") shall be
from the date of this Agreement to MARCH 31,
2000 (the "Revolving Loan Maturity Date"),
unless sooner terminated in accordance with
the terms of this Agreement, provided
that the Revolving Loan Maturity Date shall
automatically be extended for successive
additional terms of one year each, unless one
party gives written notice to the other, not
less than sixty days prior to the next
Revolving Loan Maturity Date, that such party
elects to terminate the Revolving Loan
Period effective on the next Revolving Loan
Maturity Date. On the Revolving Loan
Maturity Date on any earlier termination of
this Agreement, no further Revolving Loans
will be made, and Borrower shall pay in full
all outstanding Revolving Loans.
(b) EARLY TERMINATION OF REVOLVING LOAN
FACILITY AT BORROWER'S OPTION. The Revolving
Loan Period may be terminated prior to the
Revolving Loan Maturity Date by Borrower,
effective three Business Days after written
notice of termination is given by Borrower to
TBCC.
(c) TERM OF AGREEMENT. The term of this
Agreement shall be from the date of this
Agreement to the later of the following (the
"Maturity Date"): (i) the termination of the
Revolving Loan Period, or (ii) the date the
last installment of principal on the Term Loan
is due. On the Maturity Date or on any
earlier termination of this Agreement
Borrower shall pay in full all Obligations,
and notwithstanding any termination of this
Agreement all of TBCC's security interests and
all of TBCC's other rights and remedies shall
continue in full force and effect until
payment and performance in full of all
Obligations (other than the Surviving
Indemnities, as defined below).
(d) EARLY TERMINATION OF AGREEMENT. This
Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower,
effective three Business Days after written
notice of termination is give to TBCC; or
(ii) by TBCC at any time after the occurrence
of an Event of Default
-2-
<PAGE>
TBCC NOTICE OF SECURITY INTEREST
- -------------------------------------------------------------------------------
without notice, effective immediately.
(e) TERMINATION FEE. If the Revolving Loan
Period is terminated by Borrower under
Section 4(b) above, or if this Agreement is
terminated by Borrower or by TBCC under
Section 4(d) above, then Borrower shall pay
to TBCC a termination fee (the "Termination
Fee") in an amount equal to $7,500 multiplied
by each month (or portion thereof) from the
effective date of termination to the next
Revolving Loan Maturity Date, which
Termination Fee shall be payable on the date
of termination.
(f) PAYMENT OF OBLIGATIONS. Notwithstanding
anything here to the contrary, Borrower shall
have no right to terminate this Agreement at
any time that any principal of, or interest on
any of the Loans or any other monetary
Obligations are outstanding, except upon
prepayment of all Obligations and the
satisfaction of all other conditions set
forth in the Loan Documents.
(g) SURVIVING INDEMNITIES. As used in this
Agreement, the term "Surviving Indemnities"
means any Obligations in the nature of an
indemnity or hold harmless by Borrower in
favor of TBCC arising under or pursuant to
this Agreement or any of other Loan
Documents, which by its terms survives the
latest of (the "Cut-Off Date"): (i) the
termination of this Agreement, and (ii) the
payment of all principal, interest,
prepayment penalties, fees and all other
Obligations (not in the nature of an
indemnity or hold harmless) due at the time
of such payment under this Agreement and the
Loan Documents; provided that there shall be
excluded from such indemnity or hold harmless
Obligations all amounts that are due and
payable thereunder upon the Cut-Off Date.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the
following reports:
(a) MONTHLY FINANCIAL STATEMENTS. Monthly
unaudited financial statements, as soon as
available, and in any event within 30 days
after the end of each month.
(b) MONTHLY RECEIVABLE AGINGS. Monthly
Receivable agings, aged by invoice date,
within 20 days after the end of each month.
(c) MONTHLY PAYABLE AGINGS. Monthly accounts
payable agings, aged by invoice date, and
outstanding or held check registers within 20
days after the end of each month.
(d) MONTHLY INVENTORY REPORTS. Monthly
perpetual inventory reports for the Inventory
valued on a first-in, first-out basis at the
lower of cost or market (in accordance with
generally accepted accounting principles)
or such other inventory reports as are
reasonably requested by TBCC, all within
30 days after the end of each month.
(e) QUARTERLY FINANCIAL STATEMENTS.
Quarterly unaudited financial statements, as
soon as available, and in any event within
45 days after the end of each fiscal quarter
of Borrower.
(f) ANNUAL FINANCIAL STATEMENTS. As soon
as available, but not later than 90 days
after the end of the Borrower's fiscal year,
(A) Borrower's annual audited Financial
Statements; (B) a comparison in reasonable
detail to the prior year's audited Financial
Statements; (C) the Auditors' opinion without
Qualification, a "Management Letter" and a
statement indicating that the Auditors have
not obtained knowledge
-3-
<PAGE>
TBCC NOTICE OF SECURITY INTEREST
- -------------------------------------------------------------------------------
of the existence of any Default or Event of
Default during their audit; (D) a narrative
discussion of Borrower's financial condition
and results of operations and the liquidity
and capital resources for such fiscal year.
6. BORROWER INFORMATION: (a) Prior Names of Borrower (Section 4.11):
See Representations and Warranties
information supplied by Borrower dated
February 28, 1999.
(b) Prior Trade Names of Borrower (Section
4.11): See Representations and Warranties
information supplied by Borrower dated
February 28, 1999.
(c) Existing Trade Names of Borrowers
(Section 4.11): See Representations and
Warranties information supplied by Borrower
dated February 28, 1999.
(d) Other Places of Business and Locations of
Collateral (Section 4.2). See Representations
and Warranties information supplied by
Borrower dated February 28, 1999.
(e) Litigation, etc. (Section 4.15): None.
7. FACSIMILE NUMBERS: Borrower: 206-223-2324
TBCC: 818-995-3214
8. CLOSING DEADLINE
(Section 1.8): March 12, 1999
9. ADDITIONAL CLOSING
CONDITIONS (Section 1.8): The following additional agreements, in form
and substance satisfactory to TBCC and its
counsel, shall be executed and delivered by
Borrower as conditions precedent to closing:
(a) Warrant;
(b) Streamlined Facility Agreement;
(c) Term Note; and
(d) Patent and Trademark Security Agreement.
10. ADDITIONAL PROVISIONS: 1. WARRANT. Concurrently herewith, the
Borrower shall provide TBCC with seven-year
warrants to purchase 72,000 shares of common
stock of the Borrower, on the terms to be
set forth in a Stock Subscription Warrant
(the "Warrant"), in form and substance
satisfactory to TBCC, at an exercise price
equal to $6.25/share. Said warrants shall
be deemed fully earned on the date of
issuance thereof, shall be in addition to all
interest and other fees, and shall be
non-refundable.
2. ACQUISITION OF SUBSIDIARIES. If Borrower
proposes to incorporate, create or acquire
any additional subsidiary in connection
with any Permitted Investment, Borrower
shall promptly notify TBCC thereof. After
the incorporation, creation or acquisition of
any such subsidiary (subject to obtaining any
necessary TBCC consent), within five Business
Days following receipt by Borrower from TBCC
of a security agreement, in form and
substance satisfactory to TBCC, and a
guaranty of the Obligations in form and
substance satisfactory to TBCC, Borrower
shall cause such subsidiary to execute and
deliver such guaranty and security agreement
to TBCC. TBCC may elect in its sole
discretion to waive any such requirement in
the case of non-U.S. subsidiary and any
subsidiary that will remain a dormant or
shell subsidiary. (B) Within five Business
Days after receipt from TBCC, Borrower shall
deliver to TBCC
-4-
<PAGE>
TBCC NOTICE OF SECURITY INTEREST
- -------------------------------------------------------------------------------
all original share certificates evidencing
the Borrower's equity ownership interest in
such subsidiary, together with blank stock
powers, and cause such subsidiary to have
executed and filed any UCC-1 financing
statements furnished by TBCC in each
jurisdiction in which such filing is
necessary to perfect the security interest of
TBCC in the Collateral of such subsidiary and
in which TBCC requests that such filing be
made. (C) Additionally, Borrower and such
subsidiary shall have executed and delivered
to TBCC such other items as reasonably
requested by TBCC in connection with the
foregoing, including resolutions, incumbency
and officers' certificates, opinions of
counsel, search reports and other
certificates and documents.
3. LANDLORD AGREEMENTS. Not later than
April 5, 1999, Borrower shall furnish to
TBCC, in form and substance satisfactory
to TBCC and its counsel, fully executed
Landlord Agreements with respect to its
leased facilities at 411 First Avenue,
Seattle, WA, 10 Liberty Ship, Sausalito, CA,
and 489 Miller Avenue, Mill Valley, CA.
4. ACCOUNT CONTROL AGREEMENTS. Not later
than April 5, 1999, Borrower shall furnish to
TBCC, in form and substance satisfactory to
TBCC and its counsel, fully executed Account
Control Agreements with respect to its
security accounts maintained at Piper Jaffray
and Paine Webber.
5. SUBORDINATION AGREEMENTS. Not later
than April 5, 1999, Borrower shall furnish
to TBCC, in form and substance satisfactory
to TBCC and its counsel, fully executed Sub-
ordination Agreements from Jeffrey B. Haggin.
6. DELIVERY OF CERTAIN PLEDGED COLLATERAL.
Not later than March 19, 1999, Borrower shall
deliver to TBCC the original share
certificates Borrower owns with respect to
DiscoverWare, Inc., FreeShop, Inc., and
TruCost, Inc., together with blank stock
powers with respect thereto, and the original
promissory note Borrower holds from Virtual
Spin, Inc., together with a blank endorsement
(allonge) with respect thereto.
7. REGISTRATION RIGHTS. Not later than
April 5, 1999, Borrower shall furnish to
TBCC, in form and substance satisfactory to
TBCC and its counsel, evidence that TBCC has
been made a party to that certain Second
Amended and Restated Registration Rights
Agreement among the Borrower and others.
Borrower: TBCC:
TECHWAVE INC. TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Alan Koslow By: /s/ F. W. Berty
---------------------------------- ----------------------------------
Title: Executive Vice President Title: Vice President
------------------------------- -------------------------------
-5-
<PAGE>
March 24, 1999
VIA TELECOPIER: 212-223-3883 PRIVATE AND CONFIDENTIAL
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
New York, NY
Re: SERIES G PREFERRED STOCK INVESTMENT IN TECHWAVE INC. AND
SUBSEQUENT JOINT VENTURE OR OTHER BUSINESS DEVELOPMENT/
TRANSACTION
Dear Gentlemen:
During the past couple of weeks, representatives of TechWave Inc., a
privately-held Washington corporation (the "Company"), and Zeron Group, a
privately-held [New York] corporation ("Zeron"), have engaged in numerous
discussions regarding a transaction whereby Zeron or its designee (the
"Investor") (i) will purchase on or before March 31, 1999 Preferred Stock Series
G shares in the aggregate principal amount of $2.0 million with 5% warrant
coverage (the "Investment"), (ii) will have the option to purchase at the price
of $7 per share up to an additional $3 million of Series G Preferred Stock on or
before April 30, 1999 with 5% warrant coverage, and (iii) will use best efforts
to establish a TechWave entity in Japan as described in paragraph 2(a) as soon
as reasonably practicable on or before June 30, 1999 (the"JV"). Upon formation
of the JV and its receipt of the necessary capital, advisory services and
personnel, which is to be contributed as mutually agreed between the parties,
for operation of the JV then Zeron will receive (a) 5% warrant coverage (all
warrants to acquire stock in TechWave Inc.) upon closing of JV within specified
time period capitalized at a minimum of $3.0 million (the "JV Formation") (b)
50% of the shares (the "JV Shares") of JV to be received by Zeron's recommended
Japanese joint venture partner, [no par value per share] ("TechWave JV Stock"),
valued at $3.0 million or greater as of the closing of the contemplated
transaction (the "JV transaction"), and (c) the right of first refusal in
establishing the TechWave joint venture company. The Investment shall be
accomplished by Zeron wiring $2.0 million (U.S. dollars) in immediately
available funds to TechWave's account in return 285,715 TechWave Series G
preferred shares. The Investment, the JV Formation, JV transaction and the
warrant coverage, and all related transactions are collectively referred to
herein as the "Transaction".
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 2 OF 7
This letter of intent ("Letter of Intent") sets forth the principal
terms and conditions of the Transaction as follows:
1. THE INVESTMENT. Zeron, or its designee, will purchase
Preferred Stock Series G shares in the amount of $ 2.0
million, on or before March 31, 1999with 5% warrant
coverage;with the right to purchase, at price of $7 per share,
up to an additional $3 million, by April 30, 1999; with 5%
warrant coverage for all such investments.
2. THE JV TRANSACTION.
(a) the Company and Zeron shall use their best efforts in
identifying and securing a joint venture partner (or
partners) or other such partner(s) or companies in
Japan, for other such business combinations, to include
licensing, consortium, and others, as best indicated by
market conditions, upon the mutual agreement of the
parties to this agreement; such efforts to commence
upon execution of this Letter of Intent, and to
continue without limitation of terms, except by mutual
agreement
(b) For closing the transaction, Zeron will receive:
(i) 5% warrant coverage (all warrants to acquire stock in
TechWave Inc.) upon closing of mutually agreeable joint
venture company within specified time period
capitalized at a minimum of $3.0 million (the "JV
Formation")
(ii) 50% of the shares (the "JV Shares") of TechWave's joint
venture company to be received by Zeron's recommended
Japanese joint venture partner, [no par value per
share] ("TechWave JV Stock"), valued at $3.0 million or
greater as of the closing of the contemplated
transaction (the "JV transaction"), and
(iii) the right of first refusal in establishing the TechWave
joint venture company.
3. THE JV AGREEMENT. (a) Upon execution of this Letter of
Intent, TechWave and Zeron will promptly commence negotiation
of a definitive JV agreement, mutually acceptable in form and
substance. The JV Agreement shall include terms and
conditions
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 3 OF 7
customary under the circumstances, including customary
representations and warranties. Notwithstanding their
intention to enter into the JV Agreement, the parties hereto
agree that this Letter of Intent contains the basic terms
necessary for the formation of the joint venture by TechWave
and understand that both parties will use their best efforts
to consummate the JV Agreement as soon as reasonably
practicable on or before June 30, 1999.
(b) The parties hereto agree to cooperate with each other
to the fullest extent in the preparation of the JV Transaction, related
agreements and other necessary documentation, obtaining the approval of any
requisite government agencies or entities, the approval of the shareholders of
each of TechWave and Zeron, if required, and any necessary consents from third
parties. TechWave and Zeron will use their best efforts to negotiate and
execute as soon as reasonably possible the JV agreement and all related
agreements with respect to the JV Transaction.
(c) The parties' mutual objective is to complete the
transactions provided for herein as promptly as practicable as circumstances
permit. The Company and TechWave therefore agree to use their best efforts to
take all steps necessary to permit the Closing of the JV Transaction to occur as
soon as reasonably practicable on or before June 30, 1999.
4. REPRESENTATIONS AND WARRANTIES. The JV Agreement shall
contain customary representations by the parties and such representations and
warranties shall survive the Closing for a period of one year.
5. INDEMNIFICATION. This JV Agreement will provide for each
party, effective on and after the Closing, to indemnify the other party and its
affiliates from and against certain liabilities, and those matters that are
customary for the industry.
6. CONDITIONS TO CLOSING THE JV TRANSACTION. The obligations of
each of the parties to consummate the JV Transaction shall be subject to
customary conditions.
7. CONSENTS. Subject to the terms and conditions provided in
this Letter of Intent and the fiduciary duties of the Board of Directors of the
Company under applicable law as advised by counsel, each of the parties hereto
agrees to use its best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to consummate
the JV Transaction.
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 4 OF 7
8. PUBLIC ANNOUNCEMENTS. Neither party to this Letter of Intent
shall make any public announcement or issue any press release concerning the
Transaction or transactions contemplated hereby without first using its best
efforts to consult with the other party.
9. SOLICITATION. Nothing in this offer shall preclude the
Company from pursuing other financing or capital raising opportunities during
the term of this Agreement.
10. TERMINATION. The term of this Letter of Intent shall expire
on March 26, 1999.
11. BROKERS; EXPENSE. The Investor represents and warrants that
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Transaction based upon
arrangements made by or on behalf of the Zeron and its affiliates. The Company
represents and warrants that no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transaction based upon arrangements made by or on behalf of the Company.
12. AUTHORITY TO EXECUTE AND FREELY EXECUTED. In entering into
this Letter of Intent, each party represents and warrants that they do so freely
and voluntarily, after having had the opportunity to meet and confer with their
respective attorneys regarding the contents and legal effect of this Letter of
Intent. Each party represents and warrants that they have full power and
authority to enter into and execute this Letter of Intent.
13. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Letter of Intent shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
14. GOVERNING LAW. This Letter of Intent and any matter relating
to its validity, interpretation, performance and enforcement, shall be governed
by and construed in accordance with the laws of the State of Washington as
applied to Letter of Intents among Washington residents entered into and to be
performed entirely within such jurisdiction, notwithstanding any
conflict-of-laws doctrines of such state or other jurisdiction to the contrary.
15. COUNTERPARTS; FACSIMILES. This Letter of Intent may be
executed in any number of counterparts, each of which when so executed and
delivered shall be
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 5 OF 7
deemed an original, and such counterparts together shall constitute one and the
same instrument. Each party shall receive a duplicate original of the
counterpart copy or copies executed by it. For purposes hereof, a facsimile
copy of this Letter of Intent, including the signature pages hereto, shall be
deemed to be an original. Notwithstanding the foregoing, the parties shall each
deliver original execution copies of this Letter of Intent to one another as
soon as practicable following execution thereof.
16. TITLES AND SUBTITLES. The titles and subtitles used in this
Letter of Intent are used for convenience only and are not to be considered in
construing or interpreting this Letter of Intent.
17. EXPENSES/ATTORNEYS' FEES. Each party shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery,
and performance of this Letter of Intent. If any action or proceeding at law or
in equity (including, without limitation, an arbitration or mediation) is
necessary to enforce or interpret the terms of this Letter of Intent, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such party may
be entitled.
18. AMENDMENTS AND WAIVERS. Any term of this Letter of Intent may
be amended and the observance of any term of this Letter of Intent may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of each of the parties hereto.
19. SEVERABILITY. If one or more provisions of this Letter of
Intent are held to be unenforceable under applicable law, such provision shall
be excluded from this Letter of Intent and the balance of this Letter of Intent
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
20. ENTIRE AGREEMENT. This Letter of Intent contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof.
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 6 OF 7
If the foregoing accurately sets forth our understanding, kindly sign
and return one copy of this Letter of Intent.
Very truly yours,
TechWave Inc.
A Washington Corporation
By: /s/ Dwayne Walker
-----------------------------
Dwayne Walker
Chairman and CEO
By: /s/ Oliver Kwon
-----------------------------
Oliver Kwon
Executive Vice President
ACCEPTED AND AGREED TO:
ZERON GROUP
A [NEW YORK] CORPORATION.
By: /s/ Shigeru Masuda
-------------------------------
Shigeru Masuda
Chairman
DATED: March 26, 1999
<PAGE>
The Board of Directors of The Zeron Group
Shigeru Masuda, Chairman
John Maupin, Managing Director
Zeron Group
March 24, 1999
PAGE 7 OF 7
EXHIBIT A
STRATEGIC INVESTMENT TERM SHEET
PREFERRED STOCK SERIES G
Issuer: TechWave Inc.
Offering Price: $7.00 per share of Series G Preferred Stock.
Offering Amount: $ 2.0 million
Number of Shares: 285,715 shares of Series G Preferred Stock
Warrant Coverage: 5% warrant coverage with an exercise price of $7.50 per
share on the warrants (all warrants to acquire stock in
TechWave Inc.) upon closing the investment. An
additional 5% warrant coverage will also apply for (i)
any additional investment (see page 1 (ii)) and (ii)
closing of mutually agreeable JV business transaction
with a minimum capitalization of $3.0 million within
specified time period (page1 (iii)).
Description of Stock: Series G Preferred stock will have a liquidation
preference of $7.00 per share and all rights and
preferences will be PARI PASSU with the other
outstanding series of TechWave's preferred stock.
Registration Rights: Identical to holders of other series of preferred
stock.
Use of Proceeds: Expansion of its business, expansion into international
markets and additional working capital.
<PAGE>
CORPORATE MASTER AGREEMENT
between
Vignette Corporation TechWave, Inc.
"Vignette" "Client"
3410 Far West Boulevard and 411 First Avenue South, Suite 200
Suite 300 Seattle, WA 98104
Austin, TX 78731
This Corporate Master Agreement (this "Agreement"), effective February 10,
1999 (the "Effective Date"), sets forth the terms and conditions under which
the parties agree that Client may, pursuant to one or more separately
executed Schedules, obtain licenses to use (i) Vignette's proprietary,
non-custom software (the "Software") listed on the relevant Schedule(s),
(ii) Vignette-furnished proprietary, custom software (the "Custom Programs")
provided pursuant to consulting services listed on the relevant Schedule(s)
and (iii) the user documentation (the "Documentation") that Vignette makes
generally available in hard copy or electronic form to its general customer
base in conjunction with licenses of copies the Software, (iv) to purchase
the services listed on the relevant Schedules, and (v) to purchase the
services listed on one or more separately executed Assignments of Work. In
this Agreement, the term "Programs" shall mean the Software and/or the Custom
Programs, along with the Documentation, as appropriate. This Agreement shall
consist of this Agreement Form, the attached Exhibits, and all executed
Schedules, as well as all other referenced attachments and any amendments.
When signed by a duly authorized representative of Vignette, this
Agreement Form, the attached Exhibits, and any applicable Schedule(s) shall
constitute an offer to Client that, unless modified or withdrawn in writing
by Vignette, shall remain in effect until the end of the calendar month during
which Vignette signed the relevant documents. After that date, any and all
terms of this offer (including prices) are subject to change by Vignette
without notice. By signing below, each party agrees to the terms of this
Agreement. Any executed copy of this Agreement made by reliable means (e.g.,
photocopy or facsimile) is considered an original.
Agreed to by:
Vignette Corporation TechWave, Inc.
By: By: /s/ Othniel D. Palomino
------------------------------- -------------------------------
(Signature) (Signature)
Othniel Palomino
- ---------------------------------- ----------------------------------
(Name typed or printed) (Name typed or printed)
EVP
- ---------------------------------- ----------------------------------
(Title) (Title)
2/12/99
- ---------------------------------- ----------------------------------
(Date) (Date)
1
<PAGE>
EXHIBIT A
CORPORATE MASTER AGREEMENT
GENERAL TERMS AND CONDITIONS
1. LICENSE GRANT AND OWNERSHIP.
a. Provided that the Agreement form and each relevant Schedule have
been fully executed by both Vignette and Client, Vignette grants to Client a
nonexclusive and nontransferable license to install and use the number of
copies of the object code version of the Software and the Documentation
provided hereunder pursuant to the terms and conditions herein and in the
executed Schedules. Unless otherwise designated on a Schedule, all licenses
granted hereunder shall be perpetual.
b. Unless otherwise specified on the relevant Schedule, each copy of
the Software licensed hereunder may be installed on one single computer
server. Client may use the Software for functions expressly licensed by Client
solely for Client's own internal business purposes in the software operating
environment (if any) as specified on the applicable Schedule. The Software
may not be used to provide computer time sharing, third-party training,
virtual or actual hosting, or as a service bureau for any third parties.
Client shall not (and shall not permit any employee or other third party to)
copy, use, analyze, reverse engineer, decompile, disassemble, translate,
convert, or apply any procedure or process to the Software in order to
ascertain, derive, and/or appropriate for any reason or purpose, the source
code or source listings for the Software or any trade secret information or
process contained in the Software. Other special license terms and
restrictions specified on the relevant Schedules are incorporated by
reference into this Section 1.
c. Client shall retain all right, title and interest in and to Client's
content, software, data and other materials supplied by Client to Vignette
(the "Client Materials") pursuant to this Agreement. In addition, upon
payment by Client of all sums due to Vignette hereunder for such Custom
Programs, all Custom Programs (except to the extent provided below with
respect to the Vignette Materials) prepared by Vignette pursuant to this
Agreement shall be owned exclusively by Client and Vignette hereby assigns to
Client all intellectual property rights in such Custom Programs including
copyrights therein. Vignette shall retain ownership of all intellectual
property rights in any materials, including without limitation, designs,
methodologies and content which were created, owned, acquired, or licensed by
Vignette or by Vignette's agents, consultants or employees prior to
commencement of work under this Agreement, or which were or will be created,
owned, acquired, or licensed by Vignette or Vignette's agents, consultants or
employees outside the scope of the Services provided hereunder (the "Vignette
Materials").
d. To the extent that any Vignette Materials form a part of any
Custom Programs, Vignette hereby grants to Client a perpetual, worldwide,
nonexclusive and nontransferable license to use, reproduce, display, perform
and prepare derivative works of the Custom Programs provided hereunder for
Client's internal business purposes. Client further agrees that it shall not
decompile or reverse engineer any Vignette Materials.
2. FEES
a. Client shall pay Vignette the license fees for the Software and
Documentation specified on the applicable Schedule and the fees specified on
each Assignment of Work within 30 days after receipt of Vignette's applicable
invoice.
b. Client shall pay the Maintenance fees specified on the applicable
Schedule for the Initial Maintenance Period and any subsequent Annual
Maintenance Period (as those terms are defined in Section 4) within 30 days
after receipt of Vignette's invoice.
c. Client shall pay any other fees and prices specified on a Schedule
or Assignment of Work according to the terms specified. All prices and fees
are in U.S. dollars unless otherwise specified.
d. The amounts Client must pay hereunder do not include any amount for
taxes. Client shall reimburse Vignette for all sales, use, VAT, excise,
property or other taxes Vignette is required to collect or remit to applicable
tax authorities. This provision does not apply to any taxes for which Client
is exempt, provide Client has furnished Vignette with a valid tax exemption
certificate, or to Vignette's income or franchise taxes.
3. REPRODUCTION OF THE SOFTWARE
Vignette shall provide Client with a single copy (the "Master Copy") of
the Software licensed hereunder. Subject to the other terms and conditions
herein, Client may use the Master Copy to install the number of copies
specified on the relevant Schedule on Client's computer systems. In addition,
Client may (i) make one copy of the Master Copy for archival purposes, (ii)
install one copy of the Software at a backup location for its use only as and
when necessary for business resumption purposes in the event of Client's
primary computing facility becomes inoperable, (iii) install an additional copy
as necessary to accommodate a move of the installed Software from one server to
another (provided that the original installation is removed after the new
server is operational), and (iv) copy the installed copies of the Software
onto system backup media only to the extent necessary to accommodate Client's
normal system backup routines. Otherwise, Client may not copy or modify the
Software or Documentation, in whole or in part. Client shall assume all
responsibility for the quality of the copies made hereunder. Client shall
include Vignette's copyright notice(s), proprietary rights legend(s), and
other indicia of ownership on all copies, in the content and format as those
that were contained on the Master Copy. Client shall pay all duplication and
distribution costs incurred by Client in making copies of the Software and
Documentation, and shall also pay all applicable use taxes, customs duties
and similar fees.
<PAGE>
4. MAINTENANCE AND OTHER SERVICES
a. Provided Client elects to obtain maintenance service ("Maintenance")
for the Software and pays the Maintenance fees specified on the applicable
Schedule, Vignette shall provide Client with the following Maintenance
services for the period commencing on the date Vignette delivers the relevant
Software program to Client and terminating one anniversary year thereafter
(the "Initial Maintenance Period"):
i. Updates to the Software (An Update shall mean a subsequent
release of the Program(s) that Vignette generally makes available for
Program licenses at no additional license fee other than standard
Maintenance fees, provided that such licensees have subscribed to
Maintenance service for the relevant time period. An Update shall not
include any release, option or future product that Vignette licenses
separately under a separate product name, except for future releases of a
software product under a separate product name licensed hereunder for
which Client has purchased Maintenance, and which contains substantially
all of the same functionality of the Program for which Client purchased
Maintenance.); and
ii. Web-base support, consisting of information on the most
current release of the Software through Vignette's web site, including
all available solutions and corrections for reported problems that are
replicated and diagnosed by Vignette as defects in the Software; and
iii. Provided Client elects to obtain Vignette's telephone support
service ("Phone Support") and pays the Phone Support fees specified on
the applicable Schedule, Vignette shall provide Client with Phone Support
in the form of advice and counsel via the telephone regarding Client's use
of the Software for the number of persons specified on the applicable
Schedule. Unless otherwise specified on the relevant Schedule, Phone
Support shall be provided from 8:00 AM to 6:00 PM (Central Time), exclusive
of those holidays observed by Vignette.
b. Client agrees to provide Vignette with all information and materials
requested by Vignette for use in replicating, diagnosing and correcting an
error or other Software problem reported by Client. Client acknowledges that
Vignette's ability to provide satisfactory Maintenance is dependent on
Vignette's having the information necessary to replicate Software problems.
Client acknowledges that all Updates provided by Vignette will be cumulative
in nature, and therefore Client agrees to promptly install all Updates
provided by Vignette.
c. Upon expiration of the Initial Maintenance Period, Maintenance shall
automatically renew for successive annual periods (each an "Annual
Maintenance Period"), provided (i) Vignette continues to offer Maintenance
for the relevant Program(s) to its general client base; (ii) Client pays the
Maintenance fees applicable for the relevant Annual Maintenance Period, and
(iii) Client does not terminate Maintenance by providing Vignette with at
least 30 days written notice prior to the expiration of the applicable
Initial or Annual Maintenance Period. Maintenance fees for the Software shall
be calculated per the applicable Schedule. All Maintenance fees shall be due
and payable at the beginning of the Initial Maintenance Period and each
Annual Maintenance Period.
d. Maintenance shall be provided in accordance with Vignette's
then-current Maintenance policies and procedures. Vignette shall not be
obligated to provide Maintenance for any software other than the Software
(including all Software Updates) as delivered by Vignette to Client. Except to
the extent Vignette modifies the Software pursuant to the provision of
Maintenance, Vignette shall have no obligation to provide Maintenance for
any Software that has been customized or modified by any party, including
Vignette, or for any Custom Programs and other software.
e. Vignette shall provide consulting and training services agreed to by
the parties (each an "Assignment") under the terms of this Agreement agreed
to by the parties and specified on a Schedule or an Assignment of Work. All
Assignments shall be billed on a time and materials basis at Vignette's
then-current consulting rates unless otherwise agreed in writing by the
parties. Vignette shall have the right to use third parties in performance of
Assignments hereunder and, for purposes of this Agreement, all references to
Vignette or its employees shall be deemed to include such third parties,
provided, however, that for one year after Effective Date, Vignette agrees
that at least 50% of the personnel assigned pursuant to each Assignment shall
be Vignette employees. Client shall provide Vignette access to its equipment,
systems and other facilities to the extent reasonably required by Vignette for
the performance of Assignments hereunder.
f. The parties agree to enter into an escrow agreement in the form
attached hereto as Exhibit B within 30 days after the execution of this
Agreement.
<PAGE>
5. CONFIDENTIALITY
a. Any business, operational or technical information provided to Client
by Vignette hereunder that is marked or otherwise identified as confidential
or proprietary, the Software and Documentation and other deliverables
furnished by Vignette (including, but not limited to the oral and visual
information relating thereto and provided in Vignette's training classes,
seminars, and publications), and the terms of and pricing under this
Agreement (collectively Vignette's "Proprietary Information") contain
valuable and confidential information that is proprietary to Vignette and to
third parties from whom Vignette has obtained marketing rights (the "Third
Party Licensors"), and which includes and constitutes trade secrets and
unpublished copyrighted material of Vignette and the Third Party Licensors.
Nothing in this Agreement shall be construed to convey any title or ownership
rights to the Software and Documentation or Proprietary Information to
Client. Client shall not sublicense, rent, assign, transfer or disclose the
Proprietary Information to any third party and shall not reproduce, perform,
display, prepare derivative works of, or distribute the Proprietary
Information except as expressly permitted in this Agreement. Client shall not
disclose the results of any benchmark tests of the Software to any third
party without Vignette's prior written approval. Client shall make
commercially reasonable efforts to prevent the theft of any Proprietary
Information and/or the disclosure, copying, reproduction, performance,
display, distribution and preparation of derivative works of the Proprietary
Information except as expressly authorized herein.
b. Vignette agrees to maintain the confidentiality of business,
operational and other information provided by Client to Vignette hereunder,
provided such information is marked or otherwise identified by Client as
confidential or proprietary (also referred to herein as "Proprietary
Information").
c. Both parties agree to restrict access to the Proprietary Information
of the other only to employees who (i) require access in the course of their
assigned duties and responsibilities, and (ii) have agreed in writing to be
bound by provisions no less restrictive than those set forth in this Section 5.
d. The confidentiality obligations of the parties regarding the
Proprietary Information of the other shall not apply to any material or
information that (i) is or becomes a part of the public domain through no act
or omission by the receiving party, (ii) is independently developed by
employees of the receiving party without use or reference to the Proprietary
Information of the other party, (iii) is disclosed to the receiving party by
a third party that, to the receiving party's knowledge, was not bound by a
confidentiality obligation to the other party, or (iv) is demanded by a
lawful order from any court or any body empowered to issue such an order.
Each party agrees to notify the other promptly of the receipt of any such
order, and to provide the other with a copy of such order.
6. TERM AND TERMINATION
a. This Agreement shall continue in force and effect perpetually unless
terminated pursuant to its provisions.
b. This Agreement, any Assignment of Work, and/or any license granted
hereunder may be terminated in accordance with the following:
i. Vignette may terminate this Agreement, any Assignment of Work
and/or any licenses granted herein:
A. upon 30 calendar days notice if Client uses, transfers or
discloses any of the Software and Documentation or other Proprietary
Information, or any copy or modification thereof, in violation of
this Agreement, unless Client has fully cured such breach within such
30 day period;
B. upon 30 calendar days written notice if Client has breached any
other material provision of this Agreement, and such breach is not
fully cured within such 30 day period.
ii. Client may terminate this Agreement, any Assignment of Work or
any ongoing service (such as Maintenance service) on 30 calendar days
written notice if Vignette has breached any material provision of this
Agreement and such breach is not fully cured within such 30 day period.
c. Upon termination of any license(s) granted herein, Client's right to
use and/or possess the affected Software and Documentation and other related
Proprietary Information shall immediately cease. Client shall immediately
stop using all such Proprietary Information (including Software and
Documentation) and shall return all copies to Vignette, except that Client
may instead choose to delete all installed copies off of any and all magnetic
storage media possessed by Client. Client shall provide Vignette with
written certification signed by an officer of Client, that all copies of the
Software and Documentation have been returned or destroyed and that no copies
have been retained by Client for any purpose whatsoever.
d. Termination of this Agreement, any Assignment of Work or any license
granted hereunder shall not limit either party from pursuing other remedies
available to it, including injunctive relief.
7. WARRANTIES
a. Vignette warrants that for the first 60 days following delivery of
the Software to Client (the "Warranty Period"), (i) the Software as delivered
will perform substantially in conformance with the applicable Documentation,
and (ii) that the magnetic media on which the Software are distributed and
the Documentation are free from defects in materials and workmanship.
Vignette does not warrant that the Software will operate in combinations
except as specified in the Documentation. Notwithstanding any other provision
of this Agreement, Vignette and Client acknowledge that Client's use of the
Programs or other deliverables provided hereunder may not be uninterrupted or
error-free.
b. Vignette warrants that its training and consulting services provided
hereunder shall be performed consistent with generally accepted industry
standards. This
<PAGE>
warranty shall be valid for 60 days from the date of performance of the
relevant service.
c. Vignette warrants to Client that Vignette has the right to enter into
this Agreement and to grant the rights and licenses herein and, that to the
best of Vignette's knowledge, the Software and Documentation does not
infringe any patent or copyright or violate any other proprietary rights of a
third party.
d. Provided that all date data provided to the Software is in full 4
digit year format, Vignette warrants that the Software as delivered to Client
by Vignette: (i) have been designed to be Year 2000 compliant, which shall
include, as an illustration but not a limitation, date data century
recognition, and calculations that accommodate same and multi-century
formulae and date values; (ii) operates or will operate during the Warranty
Period and any Maintenance Period in accordance with the Documentation prior
to, during and after the calendar year 2000 AD; and (iii) during the Warranty
Period and any Maintenance Period shall not end abnormally or provide invalid
or incorrect results as a result of date data, specifically including date
data which represents different centuries or more than one century. Vignette
does not warrant century date compliance for third party software that is or
may be used in conjunction with the Software, including database and
operating systems vendors, and Vignette is not responsible for any
non-compliance to the extent caused by hardware, third party software or
applications and content developed with or operating with the Software as
delivered. Client is solely responsible for all system integration and
testing of the Programs in a fully Year 2000-compliant operating environment,
including all hardware, systems software, databases, network environment, and
other interoperating components.
e. Vignette warrants that it will use commercially reasonable efforts to
ensure the Programs as delivered by Vignette do not contain viruses, worms,
Trojan horses or other unintended malicious or destructive code ("Malicious
Code"). If Malicious Code is discovered in a Program as delivered by Vignette,
Vignette shall provide Client with a clean copy that does not contain such
Malicious Code within 30 days following Client's notice to Vignette of the
presence of such Malicious Code in the Software as delivered by Vignette.
However, Client is hereby notified that the Software may contain time-out
devices, counter devices, and/or other devices intended to ensure the limits
of a particular license will not be exceeded ("Limiting Devices"). If the
Software does contain Limiting Devices, Vignette shall ensure that Client
receives any codes or other materials necessary to use the Software to the
limits of Client's license.
f. EXCEPT AS EXPLICITLY STATED IN THIS AGREEMENT, VIGNETTE MAKES NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8. VIGNETTE INDEMNITIES
a. Vignette will indemnify and hold Client harmless from all actual
liabilities, damages and losses incurred by Client (including all costs and
expenses, including attorneys' fees) to the extent arising out of any legal
action based on any claim by a third party that the Programs as delivered by
Vignette to Client infringes a copyright, patent, trade secret, or other
proprietary right of a third party. Vignette's obligations hereunder are
subject to the following conditions:
i. Client must notify Vignette in writing promptly after Client
becomes aware of a claim or the possibility thereof; and
ii. Client must grant Vignette the sole control of the settlement,
compromise, negotiation, and defense of any such action; and
iii. Client must provide Vignette with all information related to the
action that is reasonably requested by Vignette; and
iv. Vignette may, at its option, (A) obtain the right for Client to
continue using the Program; or (B) replace or modify the Program so it is
no longer infringing, or (C) terminate the applicable license(s) and remove
the Program. If Vignette so terminates the applicable license(s) and
removes Program, Vignette shall refund to Client a pro-rata portion of the
license fees paid for such license(s) based on straight-line depreciation
over a 60 month period following the relevant delivery date(s).
b. The foregoing indemnity shall not apply to any infringement claim to
the extent arising from (i) Program that has been modified by anyone other
than Vignette; and/or (ii) Client's use of the Program in conjunction with
Client data where use with such data gave rise to the infringement claim;
and/or or (iii) Client's use of the Program with other software or hardware,
where use with such other software or hardware gave rise to the infringement
claim.
c. Vignette will indemnify and hold Client harmless from all actual
liabilities, damages and losses incurred by Client arising out of any legal
action based on any claim of wrongful death, bodily injury or physical
destruction of tangible property to the extent resulting from any acts or
omissions of Vignette in the performance of its duties hereunder. The
indemnity specified in this subsection is subject to the conditions specified
in subsections (a)(i)-(iii) above.
d. Vignette shall not be liable hereunder for any settlement made by
Client without Vignette's advance written approval or for any award from any
action in which Vignette was not granted control of the defense.
e. The parties agree to cooperate in good faith in the defense of any
legal action or suit that causes one party to invoke an indemnity hereunder.
9. CLIENT INDEMNITIES
a. Client will indemnify and hold Vignette harmless from all actual
liabilities, damages and losses incurred by Vignette (including all costs and
expenses, including attorneys' fees) to the extent arising out of any legal
action based on any claim by a third party that Vignette, due to Client's use
of the Software, is liable for contributory infringement of a copyright,
patent, trade secret, or other proprietary right of a third party, provided
that this indemnity will not apply to any claim for which Client is entitled
to indemnification under Section 8.a. above. In addition, Client shall
indemnify and hold Vignette harmless from all actual liabilities, damages and
losses incurred by Vignette
<PAGE>
(including all costs and expenses, including attorneys' fees) to the extent
arising out of any legal action based on any claim by a third party that
Vignette, due to Client's use of the Software is liable to a third party in
tort or under statutory liability for defamation, invasion of privacy, or
similar theories of law. Client's obligations hereunder are subject to the
following conditions:
i. Vignette must notify Client in writing promptly after Vignette
becomes aware of a claim or the possibility thereof; and
ii. Vignette must grant Client the sole control of the settlement,
compromise, negotiation, and defense of any such action; and
iii. Vignette must provide Client with all information related to the
action that is reasonably requested by Client.
b. Client will indemnify and hold Vignette harmless from all actual
liabilities, damages and losses incurred by Vignette arising out of any legal
action based on any claim of wrongful death, bodily injury or physical
destruction of tangible property to the extent resulting from any acts or
omissions of Client hereunder. The indemnity specified in this subsection is
subject to the conditions specified in subsections (a)(i)-(iii) above.
c. Client shall not be liable hereunder for any settlement made by
Vignette without Client's advance written approval or for any award from any
action in which Client was not granted control of the defense.
d. The parties agree to cooperate in good faith in the defense of any
legal action or suit that causes one party to invoke an indemnity hereunder.
10. LIMITATIONS OF LIABILITY
a. EXCEPT TO THE EXTENT LIABILITY ARISES UNDER THE INDEMNITY PROVIDED
IN SECTION 8 ABOVE, NOTWITHSTANDING THE FORM (E.G., CONTRACT, TORT (INCLUDING
NEGLIGENCE), STATUTORY LIABILITY OR OTHERWISE) IN WHICH ANY LEGAL OR EQUITABLE
ACTION MAY BE BROUGHT AGAINST VIGNETTE, VIGNETTE SHALL IN NO EVENT BE LIABLE
HEREUNDER FOR DAMAGES THAT EXCEED THE FEES PAID BY CLIENT FOR THE SPECIFIC
LICENSE(S) AND/OR SPECIFIC SERVICE(S) THAT GAVE RISE TO SUCH DAMAGES OR
$1,000,000, WHICHEVER IS LESS. IN NO EVENT SHALL VIGNETTE BE LIABLE FOR ANY
EXEMPLARY OR PUNITIVE DAMAGES, OR FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES,
INCLUDING THOSE FOR BUSINESS INTERRUPTION OR LOSS OF PROFITS, EVEN IF
VIGNETTE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
b. EXCEPT FOR CLIENT'S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS,
PAYMENT OBLIGATIONS OR SECTION 1.b HEREUNDER, OR TO THE EXTENT LIABILITY
ARISES UNDER THE INDEMNITY PROVIDED IN SECTION 9 ABOVE, OR DUE TO
INFRINGEMENT OR MISAPPROPRIATION OF VIGNETTE'S PROPRIETARY RIGHTS,
NOTWITHSTANDING THE FORM (E.G., CONTRACT, TORT (INCLUDING NEGLIGENCE),
STATUTORY LIABILITY OR OTHERWISE) IN WHICH ANY LEGAL OR EQUITABLE ACTION MAY
BE BROUGHT AGAINST CLIENT, CLIENT SHALL IN NO EVENT BE LIABLE HEREUNDER FOR
DAMAGES THAT EXCEED THE FEES PAID BY CLIENT UNDER THIS AGREEMENT OR
$1,000,000, WHICHEVER IS LESS. EXCEPT TO THE EXTENT LIABILITY ARISES FROM THE
INDEMNITIES SPECIFIED IN SECTION 9 ABOVE, AND TO THE EXTENT LIABILITY ARISES
DUE TO CLIENT'S INFRINGEMENT OF VIGNETTE'S PROPRIETARY RIGHTS, IN NO EVENT
SHALL CLIENT BE LIABLE FOR ANY EXEMPLARY OR PUNITIVE DAMAGES, OR FOR ANY
INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR BUSINESS INTERRUPTION
OR LOSS OF PROFITS, EVEN IF CLIENT HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
c. The provisions of this Agreement allocate the risks between Client
and Vignette. Vignette's pricing reflects this allocation of risk and the
limitations of liability specified herein.
11. MISCELLANEOUS
a. In the event any action, including arbitration, is brought to enforce
any provision of this Agreement or any Schedule or to declare a breach of
this Agreement, the prevailing party shall be entitled to recover, in
addition to any other amounts awarded, reasonable legal and other related
costs and expenses, including attorney's fees, incurred thereby.
b. Client shall comply with all then current export and import laws and
regulations of the United States and such other governments as are applicable
when distributing the Software and Documentation. Client hereby certifies
that it will not directly or indirectly, export, re-export, or transship the
Software and Documentation or related information, media, or products in
violation of United States laws and regulations.
c. Except for actions for preliminary injunctive relief and actions to
enforce the decisions of the arbitrators, all disputes arising out of or
related to this Agreement, including the scope, the construction or
application of this Agreement, shall be resolved by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association
then in force. The arbitration hearings and all meetings pursuant to this
section shall be held in Austin, Texas, and shall be conducted in English. If
the parties cannot agree upon a single arbitrator within 15 days after demand
by either of them, each party shall select one arbitrator knowledgeable of
the computer service industry and notify the other of its selection, and such
two arbitrators shall select a third. The arbitrator(s) shall conduct a
hearing within 30 days after their selection. A majority of the arbitrators
shall determine the decision/award, which shall be rendered within five days
after the completion of the hearing. The decision of the arbitrator(s) shall
be final and binding upon the parties both as to law and to fact, and shall
not be appealable to any court in any jurisdiction. The expenses of the
arbitrators shall be shared equally by the parties. Nothing in any
indemnification provision hereunder shall be construed as having any bearing
on the award of attorneys fees under this Section. The provisions for
integration contained in this Agreement shall also apply to the admissibility
of evidence in any dispute subject to arbitration.
<PAGE>
d. Client may not assign this Agreement or any license created
hereunder whether by operation of law, change of control, or in any other
manner, without the prior written consent of Vignette, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, Client may assign
this Agreement to any Affiliate of Client, provided that (i) the assignee
agrees in writing to be bound by the terms and conditions of this Agreement,
(ii) neither Client nor the assignee are in default hereunder, (iii) the
assignee is not a competitor of Vignette, and (iv) Client agrees to remain
liable for any breach of this Agreement by the assignee. ("Affiliate" of a
party shall mean such party's parent corporation, an entity under the control
of such party's parent corporation at any tier, or an entity controlled by
such party at any tier. "Control" shall mean the power to direct or cause the
direction of the management and policies of the entity through the ownership
of more than 50% of the outstanding voting interests in such entity.) In
addition, client may assign this Agreement to any person or entity that
acquires substantially all of the outstanding voting interests in Client or
substantially all of Client's assets, provided that such person or entity is
not a direct competitor of Vignette.
e. Vignette is an independent contractor and nothing in this Agreement
shall be deemed to make Vignette an agent, employee, partner or joint
venturer of Client. Vignette shall have no authority to bind, commit, or
otherwise obligate Client in any manner whatsoever.
f. During the term of this Agreement and for six months thereafter,
each party agrees not to solicit or to offer employment to any employees of
the other without the other party's prior written consent.
g. Any notice required under this Agreement shall be given in writing
and shall be deemed effective upon mailing by first class mail, properly
addressed and postage prepaid, or delivery by courier service to the address
specified on the face page hereof or to such other address as the parties may
designate in writing. Any notice to Client shall be sent to the attention of
Client's CEO and CFO. Any notice sent to Vignette shall be sent to the
attention of Vignette's Legal Counsel.
h. If any portion of this Agreement is determined to be or becomes
unenforceable or illegal, such portion shall be deemed eliminated and the
remainder of this Agreement shall remain in effect in accordance with its
terms as modified by such deletion. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Texas, excluding its
choice of law rules.
i. Definitions set forth in any part of this Agreement shall apply to
all parts of this Agreement. In the event of a conflict between the terms of
different parts of this Agreement, the following order of priority shall
apply: first, the relevant Schedule(s); second, the relevant Assignment(s)
of Work; third the Exhibits; and fourth, the Assignment Form.
j. For any on-site services requested by Client, Client agrees to
reimburse Vignette for its actual, reasonable travel and other out-of-pocket
expenses incurred.
k. Client shall permit Vignette by any reasonable and appropriate means
to verify that Client has complied with the provisions of Section I (License
Grant and Ownership), 5 (Confidentiality) and 6 (Termination), and Client
agrees to cooperate fully with such a verification. Verification shall be at
Vignette's expense unless Client is in material breach of this Agreement. All
such verifications shall take place upon not less than five business days
notice to Client, during Client's regular business hours and will be conducted
in a manner designed to minimize any impact on client normal business
operations. Vignette shall be entitled, in additional to its other legal
remedies, to obtain injunctive relief to enforce the terms of Sections 1, 2,
5 and 6.
l. The following terms and conditions will survive termination:
Sections 1(b)-(d), 2, 5, 6(c), 8, 9, 10 and 11.
m. If Client is the United States Government or any contractor thereof,
all licenses granted hereunder are subject to the following: (a) for
acquisition by or on behalf of civilian agencies, as necessary to obtain
protection as "commercial computer software" and related documentation in
accordance with the terms of this Commercial Software Agreement as specified
in 48 C.F.R. 12.212 of the Federal Acquisition Regulations and its
successors; (b) for acquisition by or on behalf of units of the Department of
Defense ("DOD") as necessary to obtain protection as "commercial computer
software" and related documentation in accordance with the terms of this
Commercial computer software license as specified in 48 C.F.R. 227-7202-2 of
the DOD F.A.R. Supplement and its successors.
n. This Agreement (including the attached Schedules) constitutes the
entire agreement between the parties regarding the subject matter hereof and
supersedes all proposals and prior discussions and writings between the
parties with respect thereto. The parties agree that this Agreement cannot be
altered, amended or modified, except in writing that is signed by an
authorized representative of both parties. It is expressly agreed that the
terms of any Client purchase order or other ordering document shall be
without force and effect, unless Vignette has also executed such purchase
order or other ordering document. This Agreement shall also supersede all
terms of any unsigned or "shrinkwrap" license included in any package, media
or electronic version of software licensed under a Schedule, provided that
the use limitations contained in an unsigned ordering document shall be
effective for the specified licenses.
<PAGE>
STORYSERVER-TM- SOFTWARE SCHEDULE
LICENSE SCHEDULE. This Schedule supplements and amends the Corporate Master
Agreement or the End User License Agreement, as applicable (the "Agreement"),
by and between Vignette Corporation ("Vignette") and the party identified
below ("Client") to license the Software and Documentation and purchase the
services specified herein and to incorporate the additional terms set forth
below. If the parties have not entered into a Corporate Master Agreement, the
terms of Vignette's standard End User License Agreement for the relevant
Software and Documentation product shall apply.
Client: TechWave Inc.
Shipping Address:
411 First Avenue South, Suite 200
Seattle, WA 98104
Attn: CEO and CFO
Billing Address:
411 First Avenue South, Suite 200
Seattle, WA 98104
Attn: Accounts Payable
1. LICENSES PURCHASED:
By executing this License Schedule, Client agrees to purchase and pay for the
following licenses:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Product Product Code Product Description Fee Qty Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIVE SS-DEPARTMENT Fee for use of one copy of StoryServer $50,000 6 $300,000
APPLICATION software with a Departmental
SERVER LICENSE hardware server.
DEVELOPMENT SS4-DEVELOPMENT Fee for use of one copy of StoryServer $25,000 1 $25,000
APPLICATION software for application development
SERVER LICENSE purposes - does not depend on type of
hardware used.
PAGE VIEW PAGE VIEWS-100k License allows serving of up to Included 1 Included
LICENSE 100,000 peak Page Views in a
calendar day.
PAGE VIEW PAGE VIEWS-1M License allows serving of up to $100,000 1 $100,000
LICENSE 1,000,000 peak Page Views in a
calendar day.
SITE-TO-SITE VSS License for the Site-to-Site Server. $50,000 1 N/C
SERVER (VSS)
TEMPLATE SS-DEVELOPER-5 Allows five named users to use the $25,000 1 $25,000
DEVELOPER StoryServer Template Editor functions
LICENSE
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
DOCUMENTATION SS-DOCUMENT-1 License to receive and use one copy of $100 1 N/C
LICENSE StoryServer 4 preprinted
documentation.
- ----------------------------------------------------------------------------------------------------------------
LICENSE FEE SUBTOTAL: $450,000
---------
Discount (30%): ($135,000)
---------
TOTAL LICENSE FEES DUE UNDER THIS SCHEDULE: $315,000
---------
</TABLE>
2. SERVICES PURCHASED.
By executing this License Schedule, Client agrees to purchase the services
listed below:
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
UPDATES AND SS-SM Includes web-based electronic 18% of list 1 $56,700
WEB-BASED technical support and all product price
SUPPORT Updates for one year from date of
delivery of Software and
Documentation.
PHONE SUPPORT SS-TS-1 Allows one named user telephone- $6,000 1 $6,000
based support for the licenses
purchased under this Schedule,
Monday through Friday, 10 hours per
day. Requires SS-SM to be purchased
as well.
TRAINING SS-SD-CLASS Basic Site Development - per person - $1,800 2 $3,600
3 days
CONSULTING "Quick Start" preliminary consulting $10,000 1 $10,000
SERVICES and mentoring services by one
Consultant - per 5 day week, plus +
Travel and Expenses
- ----------------------------------------------------------------------------------------------------------------
MAINTENANCE AND OTHER FEES DUE UNDER THIS SCHEDULE $ 76,300
---------
Annual Maintenance fees are equal to 18% of the then-current list price for all licenses listed above.
TOTAL FEES DUE UNDER THIS SCHEDULE $391,300
---------
</TABLE>
3. Functional Area Restrictions. The Software is comprise of three primary
functional areas: Live Server, Development Server and Template Developer.
Each functional area is separately licensed by Vignette, and Client is
restricted to suing only the functionality that Client has specifically
licensed.
a. Live Application Server License. A Liver Server is a server used to
host web sites. A Live Application Server License grants Client the right to
use the software in production only to dynamically generate web pages based on
the Software's templates and content controlled by Client to be published
through Client's Live Content Application Server for one or more Internet,
intranet or extranet sites controlled by Client (collectively, "Client Web
Sites"). The foregoing sentence shall be interpreted to permit Client to
serve web pages on a Client Web Site that third parties frame into web sites
owned and/or controlled by such third parties. A Live Application Server
License does not grant Client the right to use
2
<PAGE>
the Software for development and/or testing of applications and/or web sites
or to use the other functions of the Software.
b. Development Application Server License. A Development Application
Server is a server that is not used to host a web site, but is used for
development and/or testing purposes. A Development Application Server license
grants Client the right to use the Software only to dynamically generate web
pages based on the Software's templates and content wholly controlled by
Client. However, the Development Application Server License does not grant
Client the right to publish such content and/or templates through Client's
Live Content Application Server for any Internet, intranet or extranet sites.
In addition, in order to use the features and functions of the Development
Application Server license, Client must purchase a Template Developer License.
c. Template Developer License. A Template Developer License grants
Client the right to permit the maximum number of authorized users specified
on the applicable Schedule to create or modify templates for use with the
Software. This license does not permit Client to use any functions of the
Software other than the Template Developer functions.
4. Server Type Restrictions. The Software also is licensed by server type.
If the price schedule above specifies a particular server type (Entry Level,
Departmental or Enterprise), Client is restricted to using the Software on
the server types specified, as they are defined in Vignette's then-current
Server Type List (available on request).
5. Page View Restrictions:
a. The Software also is licensed with Page View restrictions. If Page
View limits are included in the license terms specified above, Client may use
the relevant license(s) only within the bounds of the Page Views specified
(the Allowable Page Views) for such license. The license granted allows
serving of up to the Allowable Page Views per day across all servers on which
a copy of StoryServer software licensed with a page view restriction is
installed. The highest number of page views purchased with this or any prior
or subsequent license will govern all licenses purchased with Page View
restrictions.
b. Client shall monitor its Page Views on each of its servers each
calendar day. If Client exceeds the specified Page Views for all StoryServer
software-served sites, Client shall notify Vignette of such fact in writing
within 10 calendar days. By exceeding the Allowable Page Views in any defined
time limit for any particular license, Client shall, as of the date such
Allowable Page Views were exceeded, be deemed to have purchased a Page View
License Extension for such license and shall be obligated to pay for such
Page View License Extension. (A Page View License Extension is a license to
serve the number of Allowable Page Views for the appropriate increment of
Allowable Page Views specified above.) Unless otherwise specified, such
purchase of a Page View License Extension shall be at Vignette's then-current
list price for such License Extensions.
c. A "Page View" is defined as a Request (via HTTP GET, HTTP POST or
successor methods) for an Object of mime-type text or html. A "Request" is a
message sent over TCP/IP using the HTTP (or successor) protocol to ask for
delivery of an Object from a web server. An "Object" is any element on a web
server's file system that can be Requested.
6. Unless otherwise specified, terms defined in this Schedule apply
throughout this Agreement. All applicable license terms and restrictions
specified above are cumulative and apply to all applicable licenses purchased
pursuant to this Schedule unless otherwise specified. If a fixed fee for
Maintenance is specified above, Vignette may raise such fixed fee by no more
than 10% per year for the duration of Maintenance service.
7. Other Special Terms and Conditions.
3
<PAGE>
a. The pricing and other consideration reflected in this Schedule are
contingent upon Client's execution of this Schedule by 6:00pm Central Time on
February 12, 1999.
b. Vignette may refer potential new customers to Client as a reference
for the Software and Vignette, and Client agrees to respond reasonably to all
such reference contacts.
c. Special Payment Terms: Client shall pay to Vignette the discounted
license fee of $35,000 for one Departmental Live Application Server License
and the discounted license fee of $17,500 for one Development Application
Server License upon execution of this Schedule. The remaining fees due under
this Schedule shall be due on March 31, 1999. Applicable sales tax shall be
added to each payment due hereunder.
d. Vignette acknowledges that Client is in the business of providing web
sites ("Customer Web Sites") for small businesses that sell products and
services over such web sites (the "Client Customers"). Client may use the
Software licensed under this Schedule to host such Customer Web Sites for the
Client Customers.
e. The parties acknowledge that Client may need to disclose certain
portions of the Documentation to the Client Customers to allow the Client
Customers to use the Customer Web Sites. Client and Vignette agree to work in
good faith to determine which portions of the Documentation may be released
to the Client Customers. Vignette agrees not to unreasonably withhold its
approval of such release.
Agreed to by:
VIGNETTE CORPORATION TECHWAVE INC.
By /s/ Robert Robinson By /s/ Othniel Palomino
-------------------------------- ---------------------------------
(Signature) (Signature)
Robert Robinson Othniel D. Palomino
- ---------------------------------- -----------------------------------
(Name Typed or Printed) (Name Typed or Printed)
Legal Counsel EVP
- ---------------------------------- -----------------------------------
(Title) (Title)
2/12/99 2/12/99
- ---------------------------------- -----------------------------------
(Date) (Date)
4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated June 11, 1999, with respect to the
financial statements of GO Software, Inc. included in the Registration
Statement (Form S-1) and related Prospectus of ShopNow, Inc. dated June 18,
1999.
/s/ Ernst & Young LLP
June 11, 1999
Jacksonville, Florida
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Seattle, Washington
June 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR YEAR 3-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998
DEC-31-1999
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 MAR-31-1998
MAR-31-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 MAR-31-1998
MAR-31-1999
<CASH> 0 376 9,820 0
6,164
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 0 168 2,495 0
1,841
<ALLOWANCES> 0 (22) (230) 0
(296)
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 714 14,422 0
11,245
<PP&E> 0 659 5,188 0
6,741
<DEPRECIATION> 0 (187) (1,063) 0
(1,500)
<TOTAL-ASSETS> 0 2,329 23,782 0
21,762
<CURRENT-LIABILITIES> 0 (3,469) (8,743) 0
(8,603)
<BONDS> 0 (884) (1,837) 0
(4,559)
0 0 0 0
0
0 (3,402) (35,070) 0
(38,449)
<COMMON> 0 (444) (9,677) 0
(9,982)
<OTHER-SE> 0 5,870 31,544 0
39,832
<TOTAL-LIABILITY-AND-EQUITY> 0 (2,330) (23,782) 0
(21,762)
<SALES> 993 604 7,155 399
7,567
<TOTAL-REVENUES> 993 604 7,155 399
7,567
<CGS> 430 514 5,850 431
7,139
<TOTAL-COSTS> 430 514 5,850 431
7,139
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> (49) (164) (211) (467)
(50)
<INCOME-PRETAX> (810) (4,765) (24,745) (2,390)
(8,279)
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> (810) (4,765) (24,745) (2,390)
(8,279)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (810) (4,765) (24,745) (2,390)
(8,279)
<EPS-BASIC> (.40) (1.83) (7.01) (.86)
(1.78)
<EPS-DILUTED> 0 0 0 0
0
</TABLE>
