<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1999
REGISTRATION NO. 333-80981
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
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. / /
--------------------------
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 AUGUST 25, 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
7,000,000 Shares
[LOGO]
Common Stock
----------------
This is the initial public offering of ShopNow.com Inc. common stock. We
anticipate that the initial public offering price will be between $10.00 and
$12.00 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.
-------------------------
PRICE $ PER SHARE
-------------------------
<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 1,050,000 additional
shares of common stock from us to cover over-allotments, if any.
The underwriters expect to deliver the shares against payment in Minneapolis,
Minnesota, on , 1999.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
---------------------
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]
CONNECTING BUYERS AND SELLERS WORLDWIDE
THE SHOPNOW NETWORK: CONNECTING SHOPPERS AND MERCHANTS
[Picture of the ShopNow.com Home Page]
OVER 30,000 MERCHANTS
OVER 1 MILLION PRODUCTS
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 ACCESS TO AN
E-COMMERCE MARKETPLACE
DIRECT MARKETING SERVICES
ONLINE AND TRADITIONAL SALES AND MARKETING
E-COMMERCE TECHNOLOGY PLATFORM
ORDER AND PAYMENT PROCESSING
FRAUD PREVENTION
ORDER FULFILLMENT AND CALL CENTER
[Picture of a MyShopNow.com Web Page]
MERCHANTS HAVE MORE CHOICES TO ATTRACT SHOPPERS ON THE SHOPNOW NETWORK
[Picture of the ShopNow.com Home Page]
[Pictures of three Merchant Web Sites Designed and Maintained by
ShopNow.]
[SHOPNOW LOGO]
CONNECTING BUYERS AND SELLERS WORLDWIDE
MYSHOPNOW.COM ENABLES EACH SHOPPER TO CREATE A PERSONALIZED SHOPPING SITE
[Picture of an Online Shopper Browsing the ShopNow.com Web Site]
[Picture of Products Sold on ShopNow.com]
<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................................... 9
Use of Proceeds................................ 22
Dividend Policy................................ 22
Capitalization................................. 23
Dilution....................................... 24
Selected Pro Forma Combined Financial Data..... 25
Selected Consolidated Financial Data........... 26
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations................................... 27
Business....................................... 41
Management..................................... 56
<CAPTION>
PAGE
-----
<S> <C>
Related Transactions with Executive Officers,
Directors and 5% Shareholders................ 64
Principal Shareholders......................... 66
Description of Capital Stock................... 67
Shares Eligible For Future Sale................ 70
Underwriting................................... 73
Legal Matters.................................. 75
Experts........................................ 76
Change in Independent Public Accountants....... 76
Where You Can Find More Information............ 76
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. 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 an online marketplace and
provides merchants with a variety of e-commerce and direct marketing services.
The ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the individual Web sites of merchants that are connected by
hyperlink to the ShopNow Network. The ShopNow.com Web site aggregates more than
1 million products and services from more than 30,000 merchants. This Web site
includes categories of information and lists of stores that shoppers can browse,
sort and rapidly search by category, merchant or product. MyShopNow.com enables
shoppers to create their own personalized shopping Web sites by selecting the
types of products and services offered to them. In July 1999, the ShopNow
Network attracted more than 2.0 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 merchants by providing
them with the opportunity to increase online transaction volume.
With the rapid growth in the use of the Internet, many businesses are
engaging in e-commerce, which consists of marketing and selling products and
services directly online. To assist merchants with their online efforts, we
provide e-commerce services ranging 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 customer
order fulfillment. Our direct marketing services, which include merchandising
programs, online direct mail promotions, creative services, four levels of
listing on the ShopNow Network and transaction reporting, enable merchants to
promote their brands, products, services and e-commerce presence through
traditional and online direct marketing methods. We intend to increase our use
of the demographic and shopper preference data that we collect to provide more
focused direct marketing services.
We generate our revenues primarily from merchants. We receive most of these
revenues through transaction fees, fees for merchandising on the ShopNow Network
and fees paid for our e-commerce and direct marketing merchant services.
Transaction fees are received from merchants upon shoppers' purchases of
products and services on the ShopNow Network in those cases where ShopNow
processes the transaction for the merchant. Our merchant customers are those
merchants on the ShopNow Network that have paid us a fee for services, other
than an entry-level listing fee, in the last 12 months. We generate the
remainder of our revenues from the sale of select items directly to shoppers.
While we are not primarily in the business of retailing, we anticipate having
some continuing involvement in retailing in order to attract shoppers to the
ShopNow Network, obtain shopper preference data and provide shoppers with
incentives to make purchases from merchants on our network.
Merchants using our online marketplace as one of their methods of
distribution, 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 customers are Birkenstock, Corel, Hallmark, JC Penny, Macy's, Service
Merchandise, sixdegrees.com and Sony.
We have entered into a number of key business relationships in order to
expand the range of our products and services for shoppers and merchants,
attract additional shoppers to the ShopNow
4
<PAGE>
Network, increase the number of our merchant customers, establish additional
sources of revenue and facilitate our international expansion. These
relationships are discussed below:
- CHASE MANHATTAN BANK. ShopNow and Chase have entered into an agreement to
launch an Internet shopping site on which ShopNow and Chase will be
featured and share revenues. Chase will pay us a licensing fee to use the
technology underlying the site. In addition, our agreement with Chase
establishes a 27-month licensing agreement under which Chase will be a
preferred provider of financial services for ShopNow.com and the exclusive
marketer of credit cards featuring the ShopNow brand. Both parties will
participate equally in a cooperative marketing fund, and our obligation to
the fund is to contribute at least $3.0 million annually for a period of
27 months. We anticipate that this relationship will also enable us to
generate additional revenues by expanding the range of financial products
and services that we can market to both shoppers and merchants. We believe
this relationship will also provide us with the opportunity to lower our
costs of customer acquisition through Chase's promotional efforts to its
millions of consumer and business customers.
- ABOUT.COM. We have entered into an agreement with About.com under which we
will have a shopping section on About.com that will directly link shoppers
to the ShopNow Network. We are obligated to spend at least $2.0 million
per year in marketing our relationship with About.com. We anticipate that
this relationship will increase the number of shoppers on the ShopNow
Network through the establishment of a co-branded shopping destination
that will be About.com's exclusive shopping directory and will be
accessible to the millions of monthly visitors to the About.com network.
- 24/7 MEDIA. We have entered into a cross-promotion agreement with 24/7
Media. Under this agreement, 24/7 Media promotes our e-commerce and direct
marketing services to its network of over 2,500 affiliated Web sites in
exchange for our promotion of 24/7 Media's advertising, representation and
e-mail management services to merchants. We anticipate that our
relationship with 24/7 Media will enable us to offer additional
advertising services to our merchants, attract additional shoppers to the
ShopNow Network and generate incremental revenues from processing
transactions generated through the joint ShopNow and 24/7 Media's
Click2buy transactional banner service.
- QWEST COMMUNICATIONS. We have entered into a distribution and marketing
agreement with Qwest. This agreement requires us to offer Qwest's
communications services to shoppers on the ShopNow Network. We will
receive a fixed quarterly payment for 24 months and we will also receive a
percentage of the revenues earned by Qwest from Qwest services sold
through our Web sites. We anticipate that this relationship will enable us
to generate additional sources of revenues by expanding the range of
telecommunications products and services that we can market to both
shoppers and merchants and by providing us with the opportunity to lower
our costs of customer acquisition through Qwest's promotional efforts.
- HNC SOFTWARE. We have entered into strategic alliance and consortium
membership agreements with HNC. HNC will provide us with a number of
e-commerce products at preferential prices, which we can offer to
merchants in connection with the other merchant services we provide. We
have agreed to pay a set-up fee, a monthly fee for the use of HNC's
software, a service fee equal to the greater of a minimum monthly fee or a
transaction fee based upon the number of transactions processed by HNC's
software. We anticipate that this relationship will enable us to generate
additional sources of revenues by expanding the range of e-commerce
services we can market to merchants through the integration of products
such as targeted marketing and fraud detection into our services.
- ZERON GROUP. We have entered into an agreement with the ZERON Group. Under
this agreement, the ZERON Group is assisting us on a contractual,
best-efforts basis in establishing
5
<PAGE>
alliances with major companies in Japan that are seeking expansion into
e-commerce. We anticipate that this relationship will enhance our ability
to expand internationally by assisting us with the establishment of
ShopNow Japan, a Japanese online marketplace.
In addition, Chase, 24/7 Media, HNC and ZERON Group have made equity investments
in ShopNow.
The opportunity presented by the rapid growth in commerce conducted over the
Internet is creating numerous challenges for shoppers and merchants as they
attempt to buy and sell goods and services in an online environment. Shoppers
are being inundated with buying opportunities and merchants are seeking to
develop and maintain effective e-commerce offerings and attract online shoppers.
ShopNow meets these challenges by connecting shoppers and merchants through our
online marketplace, while providing merchants with e-commerce and direct
marketing services that enhance their ability to market and sell their products
and services online.
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.
RISK FACTORS
This offering involves a high degree of risk. Since our inception in January
1994, we have incurred significant losses, and as of June 30, 1999, we had an
accumulated deficit of $55.6 million. We expect our operating losses and
negative cash flow to continue for the foreseeable future. In June 1999, we
ceased operation of our BuySoftware.com business, which had provided a majority
of our revenues for the period from January 1, 1998 through June 30, 1999, in
order to focus on the expansion of the ShopNow Network and the execution of our
overall strategy. We face intense competition from other providers of online
shopping services and e-commerce and direct marketing services. You should
carefully consider these risks and uncertainties as well as those other risks
and uncertainties described in "Risk Factors" beginning on page 9 of this
prospectus before deciding whether to invest in shares of our common stock.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.............. 7,000,000 shares
Common stock to be outstanding
after this offering............. 33,254,706 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 June 30, 1999 and 2,100,000 shares of
common stock issuable upon the conversion of the Series I convertible preferred
stock CB Capital Investors, L.P., an affiliate of Chase Manhattan Bank, received
on July 19, 1999. This calculation includes 18,094,563 shares of common stock to
be issued upon the automatic conversion of all other 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:
- 7,976,451 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:
- 5,162,108 shares of common stock underlying options outstanding at a
weighted average exercise price of $3.68 per share, of which
1,114,237 were exercisable as of June 30, 1999;
- 2,814,343 shares of common stock underlying options available for
future grants;
- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;
- 1,739,470 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 892,853 were exercisable as of
June 30, 1999;
- 4,234,618 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $5.85 per share; and
- the shares of common stock that may be issued if the Lovett Miller 1997
Fund elects to convert into common stock the $1.0 million promissory note
that we issued to the Lovett Miller 1997 Fund as partial consideration for
its shares of capital stock of GO Software upon completion of this
offering, such number of shares would be equal to the quotient of $1.0
million divided by the per share initial public offering price.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
JANUARY 20, PRO FORMA
1994 PRO FORMA SIX MONTHS SIX MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, YEAR ENDED ENDED ENDED
DECEMBER 31, --------------------------------- DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1997 1998 1998(1) 1999 1999(1)
-------------- ------ ------ ------- -------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Transactions and
merchandising............. $ -- $ -- $ -- $ 69 $ 4,211 $ 1,801 $11,630 $ 2,611
Merchant services........... 279 727 993 535 2,943 7,249 4,352 4,176
------ ------ ------ ------- -------- ------------ ------------ ------------
Total revenues............ 279 727 993 604 7,154 9,050 15,982 6,787
------ ------ ------ ------- -------- ------------ ------------ ------------
Cost of revenues:
Transactions and
merchandising............. -- -- -- 159 4,493 221 12,177 1,069
Merchant services........... 127 323 430 356 1,356 4,063 2,506 2,469
------ ------ ------ ------- -------- ------------ ------------ ------------
Total cost of revenues.... 127 323 430 515 5,849 4,284 14,683 3,538
------ ------ ------ ------- -------- ------------ ------------ ------------
Gross profit............ 152 404 563 89 1,305 4,766 1,299 3,249
Total operating expenses...... 332 510 1,323 4,691 26,221 30,219 27,288 26,823
------ ------ ------ ------- -------- ------------ ------------ ------------
Loss from operations.... (180) (106) (760) (4,602) (24,916) (25,453) (25,989) (23,574)
Other income (expense), net... (1) (7) (50) (164) 171 91 (245) (283)
------ ------ ------ ------- -------- ------------ ------------ ------------
Net loss................ $ (181) $ (113) $ (810) $(4,766) $(24,745) $(25,362) $(26,234) $(23,857)
------ ------ ------ ------- -------- ------------ ------------ ------------
------ ------ ------ ------- -------- ------------ ------------ ------------
Basic and diluted net loss per
share......................... $(0.11) $(0.06) $(0.40) $ (1.83) $ (7.01) $ (5.50)
------ ------ ------ ------- -------- ------------
------ ------ ------ ------- -------- ------------
Basic and diluted pro forma net
loss per share(2)............. $ (1.71) $ (1.14)
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
Cash and short-term investments............................................. $ 6,474 $ 25,374 $ 96,034
Working capital............................................................. (8,766) 10,134 80,794
Total assets................................................................ 64,250 83,150 153,810
Total liabilities........................................................... 27,514 27,514 27,514
Total shareholders' equity.................................................. 36,736 55,636 126,296
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1999 AUGUST 16, 1999
--------------- ------------- ---------------
<S> <C> <C> <C>
OTHER DATA:
Number of merchant customers since January 1, 1999(5)........................ 106 295 458
Average revenue generated per merchant customer since January 1, 1999........ $1,064 $2,736 $3,528
Number of visits to the ShopNow Network since January 1, 1999................ 2,954,000 9,376,000 12,747,000
</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 ceased operation
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 ceased operation 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(e) 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 consolidated balance sheet data gives effect to the receipt of
$18.9 million in proceeds from the closing of the sale of Series I
convertible preferred stock to CB Capital Investors, L.P., an affiliate of
Chase Manhattan Bank, in July 1999.
(4) The pro forma as adjusted balance sheet data gives effect to the sale of the
7,000,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
(5) Merchant customers are those merchants on the ShopNow Network that have paid
us a fee for services, other than an entry-level listing fee, in the last 12
months.
8
<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. WHILE WE HAVE ATTEMPTED TO
IDENTIFY ALL RISKS THAT ARE MATERIAL TO OUR BUSINESS, 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.
RISKS RELATED TO OUR BUSINESS
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 six
months of 1999, 62.3% and 62.1% of our revenues came from retail sales of
computer products through our BuySoftware.com online retail store. In June 1999,
we ceased operation of our BuySoftware.com business. 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.
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 $26.2 million for the six-month period ended June 30, 1999. At June 30,
1999, we had an accumulated deficit of $55.6 million. Although our revenues have
grown significantly in recent quarters, in June 1999 we ceased operation of our
BuySoftware.com business, from which we derived 62.3% of our revenues in 1998
and 62.1% of our revenues in the first six months of 1999. As a result, we may
not be able to sustain our recent revenue growth rates or obtain sufficient
revenues to achieve profitability.
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 FUTURE REVENUES ARE UNPREDICTABLE AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD
It is 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. Our business model has only been applied to the
Internet since the mid-1990's, therefore 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.
Our operating results are likely to fluctuate substantially from period to
period as a result of a number of factors, such as:
- the amount and timing of operating costs and expenditures relating to
expansion of our operations and
9
<PAGE>
- the mix of products and services that we sell.
In addition, factors beyond our control may also cause our operating results
to fluctuate, such as:
- the announcement or introduction of new or enhanced products or services
by our competitors and
- the pricing policies of our competitors.
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 and this could cause our stock price to decline.
OUR BUSINESS MODEL IS UNPROVEN AND CHANGING
Our business model consists of providing shoppers and merchants with an
online marketplace and e-commerce and direct marketing services. This business
model has only been applied to the Internet since the mid-1990's, 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 sufficient
revenues to achieve profitability will depend, in large part, on our ability to
successfully market our e-commerce and direct marketing services 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 offerings and
direct marketing efforts.
OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO MAKE ADDITIONAL ACQUISITIONS
Our success depends on our ability to continually enhance and expand 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. If we are unable to identify suitable
acquisition targets, or are unable to successfully complete acquisitions, our
ability to increase the size of operations will be reduced. This could cause us
to lose business to our competitors and our operating results could suffer
significantly.
ACQUISITIONS INVOLVE A NUMBER OF RISKS
Acquisitions that we make may involve numerous risks, including:
- diverting management's attention from other business concerns;
- being unable to maintain uniform standards, controls, procedures and
policies;
- entering markets in which we have no direct prior experience; and
- improperly evaluating new services and technologies.
In addition, in order to finance any acquisitions, we might need to raise
additional funds through public or private financings. In this 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.
Future acquisitions may involve the assumption of obligations or large
one-time write-offs and amortization expenses related to goodwill and other
intangible assets. Any of these factors would adversely affect our results of
operations.
If we are unable to accurately assess and effectively integrate any newly
acquired businesses or technologies, our business would suffer. For example, in
June 1998 we acquired e-Warehouse and CyberTrust. These companies had developed
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 other use or value to us. Because we are not using the acquired
technology, we wrote-off substantially all of the $5.4 million
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aggregate purchase price for e-Warehouse and CyberTrust in 1998. The separate
historical financial information for the acquisition of e-Warehouse and
CyberTrust required to be presented by Rule 3-05 of the Securities and Exchange
Commission's Regulation S-X or the pro forma financial information under Article
11 of Regulation S-X is not provided elsewhere in this prospectus, because we do
not have access to the books and records due to disputes surrounding these
transactions and the financial information is not considered meaningful after
the write-off. We may be unable to successfully integrate other businesses,
technologies or personnel that we acquire in the future.
OUR SUCCESS DEPENDS UPON ACHIEVING ADEQUATE MARKET SHARE TO INCREASE OUR
REVENUES AND BECOME PROFITABLE
Our success and profitability is dependent upon achieving significant market
penetration and acceptance of our online marketplace by both shoppers and
merchants. Our online marketplace has achieved only limited market acceptance to
date and we, therefore, do not currently have adequate market share to
successfully execute our business plan. Our ShopNow.com Web site aggregates
products and services from more than 30,000 merchants, but we must continue to
attract new merchants in order to increase our attractiveness to consumers. If
we are unable to attract substantial shopper traffic to our online marketplace,
or if shoppers do not purchase products online in substantial volume, we may be
unable to attract merchants.
In order to attract shopper traffic and increase online purchase volume, we
must:
- create brand awareness;
- have a Web site that is easy to use;
- have a large selection of shopping categories and merchants; and
- create customer confidence in us and our merchants.
IF WE DO NOT INCREASE BRAND AWARENESS OUR SALES MAY SUFFER
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. We
launched our ShopNow.com shopping Web site in August 1998. 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. If our planned marketing efforts are
ineffective, we may need to increase our financial commitment to creating and
maintaining brand awareness among shoppers and merchants, which could divert
financial and management resources from other aspects of our business, or cause
our operating expenses to increase disproportionately to our revenues. This
would cause our business and operating results to suffer.
WE FACE SIGNIFICANT COMPETITION
The market for Internet products and services is intensely competitive.
Barriers to entry in Internet markets 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 of both our online marketplace and our merchant
services before our competitors and potential competitors introduce competing
services.
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ONLINE MARKETPLACE. We compete with various companies for e-commerce
merchants, shoppers, e-commerce transactions, advertisers and other sources of
online revenue. These competitors include:
- online shopping destination Web sites, such as iMall and Shopping.com;
- merchant and product Web site directories and search and information
services, all of which offer online shopping, such as America Online,
Microsoft, Yahoo!, Excite, Lycos and Infoseek; and
- conventional merchants and retailers that offer goods and services
directly over the Web.
The number of companies providing these types of services is large and
increasing at a rapid rate. We expect that additional companies, including media
companies and conventional retailers that to date have not had a substantial
commercial presence on the Internet, will offer services that directly compete
with us.
SERVICES FOR MERCHANTS. We also compete with companies that may offer
alternatives to one or more components of the e-commerce and direct marketing
solutions that we offer to merchants. These competitors include:
- companies offering e-commerce and online direct marketing services, such
as Go2Net, Xoom and DoubleClick;
- companies offering products that address specific aspects of e-commerce,
such as payment and transaction processing and security, such as
CyberSource;
- Web development firms;
- systems integrators;
- Internet service providers;
- other providers of e-commerce outsourcing services, such as Digital River
and USWeb/CKS; and
- traditional media companies.
We expect competition from these sources to intensify in the future.
Many of the current and potential competitors to both our online marketplace
and our merchant services are likely to enjoy substantial competitive advantages
compared to us, including:
- larger customer or user bases;
- the ability to offer a wider array of e-commerce and direct marketing
services;
- 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.
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
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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.
IF WE FAIL TO MAINTAIN OUR KEY BUSINESS RELATIONSHIPS AND ENTER INTO NEW
RELATIONSHIPS OUR BUSINESS WILL SUFFER
An important element of our strategy involves entering into key business
relationships with other companies. Our success is dependent on maintaining our
current contractual relationships and developing new relationships. These
contractual relationships typically involve joint marketing, promotional
arrangements or distribution. For example, we have entered into a licensing and
co-marketing agreement with Chase Manhattan Bank, a joint development agreement
with About.com, a cross promotion agreement with 24/7 Media, a distribution and
marketing agreement with Qwest Communications, a consortium membership agreement
with HNC Software and a strategic advisor agreement with the ZERON Group.
Although these relationships are a key factor in our strategy, in that they are
intended to provide us important marketing and distribution arrangements, the
parties with which we contract may not view their relationships with us as
significant to their own businesses. To date, we have not derived material
revenue from these relationships, and some of these relationships impose
substantial obligations on us. It is not certain that the benefits to us will
outweigh our obligations. For example, our relationship with 24/7 Media requires
us to refer to them any merchant that would benefit from the advertising
services offered by 24/7 Media and makes 24/7 Media the only third party
authorized to sell advertising on our Web site. Several of our significant
business arrangements do not establish minimum performance requirements but
instead rely on contractual best efforts obligations of the parties with which
we contract. In addition, most of these relationships may be terminated by
either party with little notice. Accordingly, in order to maintain our key
business relationships we will need to meet our partners' specific business
objectives, including incremental revenue, brand awareness and implementation of
specific e-commerce applications. If our key business relationships are
discontinued for any reason, or if we are unsuccessful in entering into new
relationships in the future, our business and results of operations may be
adversely affected.
IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID GROWTH OF OUR OPERATIONS OUR BUSINESS
WILL SUFFER
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 June 30, 1999, our total number of employees increased
from less than 50 to 305. 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 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 FOR SUCCESSFUL OPERATION OF OUR
BUSINESS
Our success depends on the skills, experience and performance of our senior
management and other key personnel. Our key personnel include Dwayne Walker, our
President and Chief Executive Officer, Jeffrey Haggin, the head of our direct
marketing and creative services business, and Dr. Ganapathy Krishnan, our Chief
Technology Officer. Only Messrs. Walker and Haggin have an employment agreement
with ShopNow. Many of our executive officers have joined us within the past
three years. 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.
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WE MUST HIRE ADDITIONAL PERSONNEL TO EXPAND OUR OPERATIONS
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, and as of July 27, 1999 we had
openings for 42 job positions. 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 ability to manage and expand our business could
suffer.
OUR ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE TECHNOLOGIES IS SUBJECT TO
UNCERTAINTIES
We have limited experience delivering our e-commerce products and services.
In order to remain competitive, we must regularly upgrade our e-commerce
services to incorporate current technology, which requires us to integrate
complex computer hardware and software components. If we do not successfully
integrate these components, the performance of the ShopNow Network and the
ability of our network to accommodate a large number of merchants and consumers
would suffer. While these technologies are generally commercially available, we
may be required to expend considerable time and money in order to successfully
integrate them into our e-commerce services and this may cause our business to
suffer. We must also maintain an adequate testing and technical support
infrastructure to ensure the successful introduction of products and services.
OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES
Our success depends 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. This depends, in part, upon our actual
and perceived reliability and performance. Any slowdown or stoppage of our
online marketplace could cause us to lose customers and therefore lose revenue.
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.
We may be required to expend considerable time and money to correct any system
failure. If we are unable to fix a problem that arises, we may lose customers or
be unable to conduct our business at all.
OUR BUSINESS MAY BE HARMED BY DEFECTS IN 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 MAY NEED TO EXPAND AND UPGRADE OUR SYSTEMS
We must expand and upgrade our technology, transaction-processing systems
and network infrastructure if the volume of traffic on our Web sites or our
merchants' 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
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when we must expand and upgrade our systems and infrastructure to accommodate
these increases in a timely manner. Any inability to do so could harm our
business by causing our customers to be unhappy with our services.
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. In the six months ended June 30, 1999,
international sales constituted 2.6% of total revenue. We are subject to the
normal risks of doing business internationally. These risks include:
- difficulties in managing operations due to distance, language and cultural
differences;
- unexpected changes in regulatory requirements;
- export and import restrictions;
- tariffs and trade barriers and limitations on fund transfers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts receivable;
- potential adverse tax consequences;
- exchange rate fluctuations, as we do not currently hedge our foreign
currency exposures; and
- political risks such as changes in governments and risks that assets in
foreign countries may be nationalized.
In addition, we are subject to 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;
- restrictions on the export of encryption technology; and
- increased risk of piracy and limits on our ability to enforce our
intellectual property rights.
We intend to begin developing a Japanese-language online marketplace in the
second half of 1999. In recent periods, the Japanese economy has been in a
recession. If the Japanese economy does not recover, our efforts to develop a
Japanese-language online marketplace and our ability to grow in that market
could be impaired. In addition, the failure to succeed in the Japanese market
could impair our ability to enter other international markets.
WE MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW OUR BUSINESS
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, these
resources may be inadequate. Consequently, we may require additional funds
during or after this 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; and our
product and service offerings;
- the extent to which we develop and upgrade our technology and data network
infrastructure; and
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- the occurrence, timing, size and success of acquisitions.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS
We regard our intellectual property rights 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 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. However, we do not currently
own any issued patents and 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 by enabling third parties
to compete more effectively with us.
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 the 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.
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 revenues could suffer.
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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 these 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.
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 achieve
timely Year 2000 compliance 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, operating results, 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 achieve
timely Year 2000 compliance could prevent shoppers from consummating
transactions through the ShopNow Network, which could harm our business,
operating results and financial condition.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET AS A
COMMERCIAL MEDIUM
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 software that stops advertising from appearing on a Web user's computer
screen gain wide acceptance, the attractiveness of the Internet to advertisers
would be diminished, which could harm our business.
RAPID TECHNOLOGICAL CHANGE COULD NEGATIVELY AFFECT OUR BUSINESS
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize the
market for online marketplaces. 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 merchant customers adopt new Internet technologies or standards,
we may need to incur substantial expenditures modifying or adapting our
e-commerce and direct marketing services to remain compatable with their
systems.
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. Among the e-commerce services we
offer to merchants are security features such as:
- secure online payment services;
- secure order processing services; and
- fraud prevention and management services.
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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 security breach could harm our reputation, and the mere
perception of security risks, whether or not valid, could inhibit market
acceptance of our services. 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 these breaches. In
addition, our merchant customers might decide to stop using our e-commerce
services if their shoppers experience security breaches.
WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS
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 of thousands of computers communicating via telephone lines,
coaxial cable and other telecommunications systems 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. If the performance or reliability of the
Internet suffers, consumers could have difficulty obtaining access to the
Internet. In addition, data transmitted over the Internet, including information
and graphics contained on Web pages, could reach the consumer much more slowly.
This could result in frustration by consumers, which could decrease shopper
traffic and cause advertisers to reduce their Internet expenditures.
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 issues such as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any laws or regulations that have the effect
of imposing additional costs, liabilities or restrictions relating to the use of
the Internet by businesses or consumers could decrease the growth in the use of
the Internet, which could in turn decrease the demand for our e-commerce and
direct marketing services, 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 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 by requiring us to incur substantial additional expenses
in order to comply with this type of regulation.
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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. The taxation
of Internet-related activities could have the effect of imposing additional
costs on companies, such as ShopNow, that conduct business over the Internet.
This, in turn, could lead to increased prices for consumers, which could result
in decreased demand for online shopping.
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 this material. Negligence and
product liability claims also potentially may be made against us due to our role
in facilitating the purchase of 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 this type of 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 these 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 result in
liability for penalties as well as substantially higher expenses incurred by our
business.
RISKS RELATED TO THIS OFFERING
PROVISIONS OF OUR CHARTER DOCUMENTS AND WASHINGTON LAW COULD DISCOURAGE OUR
ACQUISITION BY A THIRD PARTY
Specific 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, eliminating the ability of shareholders to call
special meetings, the lack of cumulative voting for directors and procedures for
advance notification of shareholder proposals. The presence of a classified
board and the elimination of cumulative voting may make it more difficult for an
acquiror to replace our board of directors. Further, the elimination of
cumulative voting substantially reduces the ability of minority shareholders to
obtain representation on the board of directors.
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 could 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.
Washington law imposes restrictions on some transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act prohibits a "target corporation," with some exceptions,
from engaging in particular significant business transactions with an
19
<PAGE>
"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 the 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. 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.
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 these 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.
20
<PAGE>
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.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, a total of 33,254,706 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>
90 days after the date of this prospectus................................. 95,475 0.3%
At various times after 180 days from the date of this prospectus upon
expiration of lockup agreements......................................... 26,159,231 78.7%
</TABLE>
Many of the shares not currently available for sale are subject to vesting
restrictions and the holding period, volume and other restrictions of Rule 144
under the Securities Act of 1933. These restrictions have the effect of
staggering the dates on which the shares become available for sale and the
number of shares that become available for sale. 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.
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 7,000,000
shares of common stock offered by us will be approximately $70.7 million, at an
assumed initial public offering price of $11.00 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 $81.4
million.
The principal purposes of the offering are to obtain capital to repay
indebtedness and for working capital and general corporate purposes, establish a
public market for our common stock and facilitate future access to public
markets. We intend to use the net proceeds from this offering as follows:
- Approximately $4.2 million of the net proceeds will be used to repay our
outstanding indebtedness to Transamerica Business Credit Corporation. The
indebtedness to be repaid consists of $4.0 million in principal remaining
on a bridge note bearing interest at the rate of 12.0% per annum. The
bridge note is due upon the earlier of December 1, 1999, or the date on
which we receive more than $10.0 million in aggregate proceeds from the
issuance of debt or equity securities. Following repayment of the bridge
note, we will continue to be indebted to Transamerica Business Credit
Corporation for a term loan with a principal amount of $3.5 million and a
$1.0 million line of credit.
- Approximately $1.0 million of the net proceeds will be used to redeem a
$1.0 million promissory note that we issued to the Lovett Miller 1997
Fund, a shareholder of GO Software, when we acquired GO Software in June
1999, if the Lovett Miller 1997 Fund elects not to convert the outstanding
principal amount of the note into common stock upon the closing of this
offering. The promissory note bears interest at the rate of 10.0% per
annum and is due upon the effectiveness of the registration statement
relating to this offering.
- The remainder of these net proceeds, or approximately $65.5 million, will
be used for working capital and general corporate purposes. We do not
currently have a specific plan for the use of these proceeds. The amounts
that we actually expend for working capital will vary significantly
depending on a number of factors, including future revenue growth, if any,
and the amount of cash we generate from operations. As a result, we will
retain broad discretion in allocating the net proceeds of this offering.
See "Risk Factors--Our management has broad discretion over how we use the
proceeds of this offering."
In addition, we may use a 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 net proceeds.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in interest-bearing, investment-grade securities.
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.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis, on a pro forma basis to include the issuance of 2,100,000 shares
of Series I convertible preferred stock that CB Capital Investors, L.P., an
affiliate of Chase Manhattan Bank, received on July 19, 1999, and on a pro forma
as adjusted basis to give effect to the automatic conversion of all outstanding
shares of our preferred stock, the exercise and automatic conversion of all
warrants to purchase our Series C convertible preferred stock into 20,194,563
shares of common stock upon completion of this offering, the sale of 7,000,000
shares of common stock at an assumed initial offering price of $11.00 per share
and the application of the estimated net proceeds from the sale of those shares
including the repayment of $5.2 million of debt obligations.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, including current portion................................ $ 15,891 $ 15,891 $ 10,691
Shareholders' equity:
Convertible preferred stock; $0.01 par value; authorized 20,000,000 actual,
30,000,000 pro forma and 5,000,000 pro forma as adjusted; issued and
outstanding 17,927,516 actual, 20,027,516 pro forma and none pro forma as
adjusted...................................................................... 72,510 89,222 --
Common stock; $0.01 par value; authorized 40,000,000 actual, 60,000,000 pro
forma and 200,000,000 pro forma as adjusted; issued and outstanding 6,060,143
actual and pro forma and 33,254,706 pro forma as adjusted..................... 21,839 21,839 181,721
Common stock warrants........................................................... 5,705 7,893 7,893
Deferred compensation........................................................... (3,213) (3,213) (3,213)
Unrealized loss on investments.................................................. (4,508) (4,508) (4,508)
Accumulated deficit............................................................. (55,597) (55,597) (55,597)
-------- ----------- -----------
Total shareholders' equity...................................................... 36,736 55,636 126,296
-------- ----------- -----------
Total capitalization............................................................ $ 52,627 $ 71,527 $136,987
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
This table excludes the following shares:
- 7,976,451 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:
- 5,162,108 shares of common stock underlying options outstanding at a
weighted average exercise price of $3.68 per share, of which 1,114,237
were exercisable as of June 30, 1999;
- 2,814,343 shares of common stock underlying options available for future
grants;
- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;
- 1,739,470 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 892,853 were exercisable as of
June 30, 1999;
- 4,234,618 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $5.85 per share; and
- the shares of common stock that may be issued if the Lovett Miller 1997
Fund elects to convert into common stock the $1.0 million promissory note
that we issued to the Lovett Miller 1997 Fund as partial consideration for
its shares of capital stock of GO Software upon completion of this
offering, such number of shares would be equal to the quotient of
$1,000,000 divided by the per share initial public offering price.
Our board of directors and shareholders have approved an amendment to our
articles of incorporation, effective upon the closing of this offering, to
increase the number of authorized shares of common stock to 200,000,000 and to
decrease the number of authorized shares of preferred stock to 5,000,000.
23
<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 June 30,
1999 was $54.5 million or $2.08 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the difference between
our total assets excluding goodwill and total liabilities by the pro forma
number of outstanding shares of common stock. Total assets also includes the
$18.9 million in proceeds received from the issuance of Series I convertible
preferred stock to an affiliate of Chase Manhattan Bank in July 1999. After
giving effect to the receipt of the estimated net proceeds from the sale by
ShopNow of the 7,000,000 shares of common stock that we are offering hereby, at
an assumed initial public offering price of $11.00 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 June 30,
1999, would have been $125.2 million or approximately $3.76 per share. This
represents an immediate increase in pro forma net tangible book value of $1.68
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $7.24 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.............................. $ 11.00
Pro forma net tangible book value per share as of June 30, 1999............ $ 2.08
Increase per share attributable to new investors........................... 1.68
---------
Pro forma net tangible book value per share after the offering............... 3.76
---------
Dilution per share to new investors.......................................... $ 7.24
---------
---------
</TABLE>
The following table summarizes as of June 30, 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 $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 26,254,706 79.0% $ 111,060,865 59.1% $ 4.23
New investors............................... 7,000,000 21.0 77,000,000 40.9 11.00
------------ ----- -------------- -----------
Total..................................... 33,254,706 100.0% $ 188,060,865 $ 100.0%
------------ ----- -------------- -----------
------------ ----- -------------- -----------
</TABLE>
The foregoing discussion and table are based upon the number of shares of
common stock outstanding as of June 30, 1999, and gives effect to the automatic
conversion of all outstanding shares of our preferred stock, including the
2,100,000 shares of Series I preferred stock received by an affiliate of Chase
Manhattan Bank in July 1999, 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 Lovett
Miller 1997 Fund elects to convert a $1.0 million promissory note, which we
issued as partial consideration for our purchase of its shares of capital stock
of GO Software, 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 11
to the Consolidated Financial Statements.
24
<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, GO Software and the cessation of our BuySoftware.com business.
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 ceased operations on January 1, 1998. The pro forma financial data is
presented for informational purposes only and may not be indicative of the
results of operations had the transactions occurred on January 1, 1998. 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising.............................................. $ 1,801 $ 2,611
Merchant services........................................................... 7,249 4,176
------------ --------
Total revenues............................................................ 9,050 6,787
Cost of revenues:
Transactions and merchandising.............................................. 221 1,069
Merchant services........................................................... 4,063 2,469
------------ --------
Total cost of revenues.................................................... 4,284 3,538
------------ --------
Gross profit............................................................ 4,766 3,249
------------ --------
Operating expenses:
Sales and marketing......................................................... 10,791 15,565
General and administrative.................................................. 4,065 2,558
Research and development.................................................... 3,676 3,106
Amortization of intangible assets........................................... 6,298 3,638
Stock-based Compensation.................................................... 182 1,956
Unusual item--impairment of acquired technology............................. 5,207 --
------------ --------
Total operating expenses.................................................. 30,219 26,823
------------ --------
Loss from operations.................................................... (25,453) (23,574)
Other income (expense), net................................................... 91 (283)
------------ --------
Net loss................................................................ $ (25,362) $ (23,857)
------------ --------
------------ --------
Basic and diluted pro forma net loss per share(1)............................... $ (1.71) $ (1.14)
------------ --------
------------ --------
</TABLE>
- ------------------------------
(1) See Note 1 to the Consolidated Financial Statements and Note 2(e) 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.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statements of operations data for the years ended December 31, 1996,
1997, and 1998 and for the six months ended June 30, 1999 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 pro forma as adjusted balance sheet data give effect to the sale
of the 7,000,000 shares of common stock that we are offering under this
prospectus at an assumed initial public offering price of $11.00 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 in
the first six months 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 SIX MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ----------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
-------------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Transactions and
merchandising................ $ -- $ -- $ -- $ 69 $ 4,211 $ 11,630
Merchant services.............. 279 727 993 535 2,943 4,352
-------------- ---------- ---------- ---------- ----------- ------------
Total revenues............... 279 727 993 604 7,154 15,982
-------------- ---------- ---------- ---------- ----------- ------------
Cost of revenues:
Transactions and
merchandising................ -- -- -- 159 4,493 12,177
Merchant services.............. 127 323 430 356 1,356 2,506
-------------- ---------- ---------- ---------- ----------- ------------
Total cost of revenues....... 127 323 430 515 5,849 14,683
-------------- ---------- ---------- ---------- ----------- ------------
Gross profit............... 152 404 563 89 1,305 1,299
-------------- ---------- ---------- ---------- ----------- ------------
Operating expenses:
Sales and marketing............ 116 163 610 1,201 12,183 18,279
General and administrative..... 216 347 656 918 3,549 2,480
Research and development....... -- -- 25 2,436 4,370 2,934
Amortization of intangible
assets....................... -- -- 32 136 730 1,639
Stock-based compensation....... -- -- -- -- 182 1,956
Unusual item--impairment of
acquired technology.......... -- -- -- -- 5,207 --
-------------- ---------- ---------- ---------- ----------- ------------
Total operating expenses..... 332 510 1,323 4,691 26,221 27,288
-------------- ---------- ---------- ---------- ----------- ------------
Loss from operations....... (180) (106) (760) (4,602) (24,916) (25,989)
Other income (expense), net...... (1) (7) (50) (164) 171 (245)
-------------- ---------- ---------- ---------- ----------- ------------
Net loss................... $ (181) $ (113) $ (810) $ (4,766) $ (24,745) $ (26,234)
-------------- ---------- ---------- ---------- ----------- ------------
-------------- ---------- ---------- ---------- ----------- ------------
Basic and diluted net loss per
share(1)......................... $ (0.11) $ (0.06) $ (0.40) $ (1.83) $ (7.01) $ (5.50)
-------------- ---------- ---------- ---------- ----------- ------------
-------------- ---------- ---------- ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN
THOUSANDS):
Cash and short-term investments....... $ 6,474 $25,374 $ 96,034
Working capital....................... (8,766) 10,134 80,794
Total assets.......................... 64,250 83,150 153,810
Total liabilities..................... 27,514 27,514 27,514
Total shareholders' equity............ 36,736 55,636 126,296
</TABLE>
<TABLE>
<CAPTION>
AUGUST 16,
MARCH 31, 1999 JUNE 30, 1999 1999
-------------- ------------- -------------
<S> <C> <C> <C>
OTHER DATA:
Number of merchant customers since
January 1, 1999(4).................. 106 295 458
Average revenue generated per merchant
customer since January 1, 1999...... $ 1,064 $2,736 $3,528
Number of visits to the ShopNow
Network since January 1, 1999....... 2,954,000 9,376,000 12,747,000
</TABLE>
- ----------------------------------
(1) See Note 1 to the Consolidated Financial Statements for a description of the
method used to compute basic and diluted net loss per share.
(2) The pro forma consolidated balance sheet data gives effect to the receipt of
$18.9 million in proceeds from the closing of the sale of Series I
convertible preferred stock to CB Capital Investors, L.P., an affiliate of
Chase Manhattan Bank, in July 1999.
(3) The pro forma as adjusted balance sheet data gives effect to the sale of the
7,000,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
expenses payable by us.
(4) Merchant customers are those merchants on the ShopNow Network that have paid
us a fee for services other than an entry-level listing fee, in the last 12
months.
26
<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 CONSOLIDATED
FINANCIAL DATA, OUR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND
OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THE FOLLOWING DISCUSSION AND CERTAIN OTHER PARTS OF THIS
PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. 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. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH ARE BASED ON OUR CURRENT EXPECTATIONS AND PROJECTIONS ABOUT
FUTURE EVENTS, ARE NOT GUARANTEES OF FUTURE PERFORMANCE, ARE SUBJECT TO RISKS,
UNCERTAINTIES AND ASSUMPTIONS (INCLUDING THOSE DESCRIBED IN "RISK FACTORS") AND
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 an online marketplace and
provides merchants with a variety of e-commerce and direct marketing services.
We generate our revenues primarily from merchants. We receive most of these
revenues through transaction fees, fees for merchandising on the ShopNow Network
and fees paid for our e-commerce and direct marketing services. The remainder of
our revenues are generated from the sale of select items directly to shoppers.
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 services. 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 for a purchase price of $341,000. These companies had
electronic delivery systems that we incorporated into our e-commerce products
and service offerings. These delivery systems allow our merchants to sell
certain products, such as software, directly to shoppers as an electronic file
transfer to the shopper rather than shipping the physical product. In order to
accelerate expansion of our online marketplace and e-commerce and direct
marketing services, we acquired The Internet Mall in August 1998 for $2.6
million and Media Assets in September 1998 for $3.3 million. The Internet Mall
operated an online shopping aggregation Web site and provided us with technology
and merchant relationships to assist in the development of our online shopping
aggregation marketplace located at www.shopnow.com. 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
merchants. In June 1998, we acquired e-Warehouse and CyberTrust, providers of
payment processing technology, for $5.4 million. 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 our business. As a result, we
have written off substantially all of the $5.4 million aggregate purchase price
for the e-Warehouse and CyberTrust acquisitions. The separate historical
financial information for the acquisition of e-Warehouse and CyberTrust required
to be presented by Rule 3-05 of the Securities and Exchange Commission's
Regulation S-X or the pro forma financial information under Article 11 of
Regulation S-X is not provided elsewhere in this prospectus as we do not have
access to the historical books and records of these companies due to disputes
surrounding these acquisitions. However, we do not consider this historical
financial information meaningful given the write-off of the purchase price as
well as the
27
<PAGE>
immateriality of the revenue generated by the acquired companies during the
period before we ceased their operations. In June 1999, we completed the
acquisitions of GO Software for $15.4 million and CardSecure for $3.5 million.
GO Software is a provider of e-commerce payment processing technology and has
existing relationships with more than 10,000 online merchants. CardSecure, a
former subsidiary of 24/7 Media, is a developer of e-commerce-enabled Web sites.
These are Web sites where a merchant can process transactions electronically.
Processing transactions includes establishment of a merchant account and
processing credit card payments. With our acquisition of CardSecure, we acquired
the right to offer the following services, each of which we currently offer:
domain name registration for Web sites, the opportunity to apply for and
establish a merchant bank account, hosting of Web sites and credit card
transaction processing.
In May 1997, we launched BuySoftware.com, an online computer products store.
We generated $4.5 million of revenues through BuySoftware.com in 1998 and $9.9
million of revenues during the first six months of 1999. We ceased operation of
our BuySoftware.com business in June 1999 because it competed directly with some
of our merchants, making them less likely to purchase our other e-commerce and
direct marketing services. The online retail market for computer products is
intensely competitive and has lower margins than our e-commerce services.
Ceasing operation of our BuySoftware.com business will allow us to focus our
financial resources and personnel on the development and expansion of the
ShopNow Network and our e-commerce and direct marketing services rather than
diverting a portion of our limited resources to operating the BuySoftware.com
retail business. Because we continue to be involved in certain retailing
activities, ceasing operation of our BuySoftware.com business did not meet the
criteria for discontinued operations under Accounting Principles Board 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." Accordingly, the results of our BuySoftware.com
business remain in the results of continuing operations for ShopNow through June
1999.
We enter into agreements with other businesses 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 key business
relationships with Chase Manhattan Bank, About.com, 24/7 Media, Qwest
Communications, HNC Software and the ZERON Group.
In July 1999, Chase Manhattan Bank, through one of its affiliates, completed
an $18.9 million equity investment by purchasing 2.1 million shares of our
Series I convertible preferred stock, which will automatically convert into
shares of common stock upon completion of this offering, and entered into an
agreement with ShopNow to launch an Internet shopping site on which ShopNow and
Chase will be featured. Pursuant to this agreement, Chase will pay ShopNow a
licensing fee to use the technology underlying the site. As part of the
agreement, Chase will be a preferred provider of financial services for
ShopNow.com and the exclusive marketer of credit cards featuring the ShopNow
brand. The agreement provides that each party will share in the revenues of the
other party based on the amount of business generated through this relationship.
We believe that the key advantages that we will derive from our relationship
with Chase include revenues from the licensing fee and the new Internet shopping
site. As part of the agreement, we will participate equally with Chase in a
cooperative marketing fund to promote the services being offered under this
agreement. Our marketing obligations to Chase include placing an advertisement
on the ShopNow.com home page, making direct mailings regarding Chase's merchant
services to merchants on the ShopNow Network and mentioning Chase's merchants in
our own advertising. Our obligation to the fund is to contribute at least $3.0
million annually. The agreement has an initial term of 27 months, with a
three-year renewal period at Chase's option.
In July 1999, we entered into a five-year agreement with About.com, a
leading Internet network of commerce communities. Pursuant to our agreement with
About.com and in exchange for a fee, we have a shopping section on About.com
that will directly link shoppers to our ShopNow Network. In addition,
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we are obligated to spend at least $2.0 million annually in marketing our
relationship with About.com. This shopping section gives us access to all
visitors to the About.com network, which we believe will attract additional
visitors to the ShopNow Network. According to Media Metrix, a provider of
Internet audience measurement products and services, there were approximately
8.0 million visitors to About.com in July 1999.
In April 1999, 24/7 Media purchased 4.3 million shares of our Series G
convertible preferred stock, which will automatically convert into shares of
common stock upon completion of this offering, for $30.1 million and entered
into a three-year 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 promotion of 24/7 Media's
advertising, representation and e-mail management services to merchants. For
example, if 24/7 Media has a client who would benefit from our e-commerce
services, 24/7 Media will refer that client to us. If we have a merchant who
would benefit from the advertising services offered by 24/7 Media, we will refer
that merchant to 24/7 Media. 24/7 Media is primarily a point of distribution for
advertising campaigns that are distributed through banner advertisements on Web
sites or e-mail. Our direct marketing services are oriented towards strategic
planning and creative implementation of online marketing or advertising
campaigns distributed by companies such as 24/7 Media.
Our agreement positions us 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 do not
include a link from our site to 24/7 Media's Web site nor do we advertise 24/7
Media on our site. We are the only e-commerce provider that 24/7 Media can use
to provide e-commerce services to their clients, and 24/7 Media is the only
third party authorized to sell advertising on our Web site. We also jointly
brand 24/7 Media's Click2Buy transactional banner service with the ShopNow name
and receive fees for processing all Click2Buy transactions. Click2Buy is the
process whereby a shopper can click on a banner advertisement from within a
specific Web site and purchase the product or service in the banner
advertisement without having to leave the Web site where the shopper originally
saw the banner advertisement. We process the transactions through Click2Buy the
same as we do the transactions through our Web site. We believe that this
relationship with 24/7 Media will allow us to establish additional sources of
revenues. Under our cross promotion agreement, we are obligated to purchase at
least $1 million annually in shopping traffic from 24/7 Media. Prior to this
offering, 24/7 Media beneficially owned more than 19% of our voting stock, and
following this offering, 24/7 Media will beneficially own more than 15% of our
voting stock.
In April 1999, we entered into a three-year distribution and marketing
agreement with Qwest Communications, a telecommunications provider. Our
agreement with Qwest requires us to offer Qwest's communications services,
including residential and business long distance and related services, to
shoppers on the ShopNow Network. Through the agreement we receive a fixed
quarterly payment for 24 months and, in addition, we will also receive a
percentage of the revenues earned by Qwest from Qwest services sold through our
Web sites. We believe that this relationship with Qwest will help us reach a
large number of households and attract additional visitors to the ShopNow
Network. In connection with this agreement, we issued to Qwest warrants to
purchase 100,000 shares of our common stock at an exercise price of $10.00 per
share. Our agreement with Qwest contains a put right that allows Qwest to
require us to purchase the shares at a price of $25.00 per share after June 2001
unless a dollar threshold of revenue transactions has occurred under the
marketing and distribution agreement. Qwest must have exercised the warrants in
order to exercise this right.
In May 1999, HNC Software purchased 333,334 shares of our Series H
convertible preferred stock, which will automatically convert into shares of
common stock upon completion of this offering, for $3.0 million. In addition,
pursuant to our three-year strategic alliance and consortium membership
agreements with HNC, HNC will provide us with a number of e-commerce products at
preferential prices, which merchants can use in connection with the other
merchant services we offer and thus allow us to expand our product and service
offerings. The HNC products include targeted marketing, fraud
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detection and customer support software. Integration of these products with our
technology platform will allow us to provide merchants with better tools to
manage their customer relationships. The tools will be integrated with the
services we provide to merchants and will not be sold separately to merchants.
In exchange for a license to use HNC's technology, ShopNow agreed to pay a
set-up fee, a monthly fee for the use of HNC's software, a service fee equal to
the greater of a minimum monthly fee or a transaction fee based upon the number
of transactions processed by HNC's software.
In March 1999, the ZERON Group purchased 285,714 shares of our Series G
convertible preferred stock, which will automatically convert into shares of
common stock upon completion of this offering, for $3.0 million, and in April
1999 purchased an additional 428,572 shares of Series G convertible preferred
stock for $2.0 million. Under our agreement, the ZERON Group is assisting us on
a contractual, best-efforts basis in establishing alliances with major companies
in Japan that are seeking expansion into e-commerce as we seek to develop an
international presence in that market. We believe that these alliances will help
us to facilitate our international expansion and will attract additional
visitors to the ShopNow Network. ZERON is not currently referring merchants or
customers to our network. 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.
We generate revenues primarily from transactions, merchandising and merchant
services.
REVENUES FROM TRANSACTIONS. Revenues from transactions are generated from
the purchase of products and services from merchants on our online marketplace
in those cases where we process the transaction on behalf of the merchant, for a
fee paid by the merchant. For example, we generally receive transaction fees
that are a fixed fee amount, a set percentage of the sales of a merchant's
products sold through our site or a portion of the gross margin received by the
merchant on the products sold through our site. We may be paid to design, launch
and host a merchant's Web site on our network and then receive additional
transaction fees on all sales that are processed through that site. In certain
cases we sell products directly to the consumer and generate revenues equal to
the selling price of the product. This business is not related to our terminated
BuySoftware.com business. We anticipate having some continuing involvement in
retail sales in order to attract shoppers to the ShopNow Network, obtain shopper
preference data and provide shoppers with incentives to make purchases from
merchants on our network. Revenues are recognized when the product has been
shipped or the service has been delivered to the customer. In most cases, these
products are shipped directly from the manufacturors, thus eliminating the need
for us to carry significant inventory.
MERCHANDISING REVENUES. Merchandising revenues are generated from listings,
other types of merchandising programs and advertising sold to merchants on
ShopNow.com and MyShopNow.com. We offer various levels of listings at different
prices to merchants. We also sell shopper delivery programs to merchants, where
for a fixed fee we commit to deliver a certain level of shopping traffic to a
merchant's site. Although we do not guarantee a time frame within which the
shopping traffic will be delivered, we generally recognize this revenue on a
straight-line basis based on our estimate for when the traffic will be
delivered. If we do not deliver the required amount of traffic within the
estimated time frame, we extend the term of the agreement until our obligations
have been met. Merchandising revenues also include the sale of advertising on
ShopNow.com sites for banners, Web site hyperlinks and listings. Merchandising
agreements allow merchants to pay for specific positions on our Web sites,
including our home page or specific product category pages. Merchandising
revenues are recognized as services are delivered to the merchant. 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. Revenues from our merchant services
include revenues from sales of our e-commerce services, such as fees earned for
development and maintenance of e-commerce stores that give merchants the ability
to engage in online transactions, as well as fees paid for direct marketing
services. Revenues from merchant services are recognized on a percentage of
completion basis. We extend credit and bear the full credit risk with respect to
sales of merchandising and
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merchant services. Our credit terms are generally 30 days, with a 2% discount if
the full amount is paid within 10 days. Reserves for potential credit losses are
reviewed on an account by account basis.
Cost of transactions and merchandising revenues includes the cost to us of
all products and services we sell through our Web sites, the cost of processing
transactions, including bank credit card fees and shipping costs, which are only
incurred from retail sales transactions, the portion of the cost of our Internet
telecommunications connections that is directly attributable to traffic on our
Web sites, and the direct labor costs incurred in maintaining and enhancing our
network infrastructure. In order to fulfill our obligations under our shopper
delivery programs, we occasionally purchase shopping traffic from third parties
by placing on their Web sites advertisements that, when clicked on by a
consumer, send the consumer to our Web site. Any shopping traffic that we
purchase from a third party are included as a cost of transactions and
merchandising revenues. 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.
Stock-based compensation expense is related to the amortization of deferred
compensation resulting from stock option grants to employees with an option
exercise price below the estimated fair market value of our common stock as of
the date of grant. Our impairment 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.
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 $26.2 million for the
six months ended June 30, 1999, and had an accumulated deficit of $55.6 million
as of June 30, 1999. As a result of the discontinuation of the BuySoftware.com
business, we expect our transactions and merchandising revenues and cost of
transaction and merchandising revenues to initially decrease. As a result of our
Go Software and CardSecure acquisitions, we expect our transaction fees and
merchant services revenues to increase. Financial information reflecting the pro
forma impact of these transactions is included in the Selected Pro Forma
Combined Financial Data located elsewhere in this prospectus. 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 recent 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 key
business relationships.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
REVENUES
Revenues for the six-month period ended June 30, 1999 were $16.0 million
compared to $1.1 million for the six-month period ended June 30, 1998, an
increase of $14.9 million. The increase in revenues was due primarily to
increased product sales from the BuySoftware.com business and from
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revenues generated by Media Assets, which we acquired in September 1998. The
BuySoftware.com portion of revenues for the six-month period ended June 30, 1999
were $9.9 million compared to $930,000 for the six-month period ended 1998, an
increase of $9.0 million, or 60.6% of the total increase in revenues for the
period.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the six-month period ended June 30, 1999 was $11.6 million
compared to $743,000 for the six-month period ended June 30, 1998, an increase
of $10.9 million, or 73.3% of the total increase in revenues. The increase in
our transactions and merchandising revenues was due primarily to increased
product sales from the BuySoftware.com business. Ceasing the operation of this
business will initially result in a significant decrease in our transactions and
merchandising revenues.
MERCHANT SERVICES. The merchant services portion of revenues for the
six-month period ended June 30, 1999 was $4.4 million compared to $396,000 for
the six-month period ended June 30, 1998, an increase of $4.0 million, or 26.7%
of the total increase in revenues. The increase in our merchant services
revenues was due primarily to revenues generated from Media Assets, which we
acquired in September 1998.
COST OF REVENUES
The cost of revenues for the six-month period ended June 30, 1999 was $14.7
million compared to $1.2 million for the six-month period ended June 30, 1998,
an increase of $13.5 million. The increase in our cost of revenues was due
primarily to increased product sales from the BuySoftware.com business and cost
of revenues of Media Assets, which we acquired in September 1999. The
BuySoftware.com portion of cost of revenues for the six-month period ended June
30, 1999 was $11.2 million compared to $1.1 million for the six-month period
ended June 30, 1998, an increase of $10.1 million, or 74.8% of the total
increase in the cost of revenues.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the six-month period ended June 30, 1999 was $12.2
million compared to $1.1 million for the six-month period ended June 30, 1998,
an increase of $11.1 million, or 82.4% of the total increase in cost of
revenues. The increase in our transactions and merchandising cost of revenues
was due primarily to increased product sales from the BuySoftware.com business.
Ceasing the operation of this business will initially result in a significant
decrease in our cost of transactions and merchandising revenues.
MERCHANT SERVICES. The merchant services portion of cost of revenues for
the six-month period ended June 30, 1999 was $2.5 million compared to $127,000
for the six-month period ended June 30, 1998, an increase of $2.4 million, or
17.6% of the total increase in cost of revenues. The increase in our merchant
services cost of revenues was due primarily to cost of revenues incurred by
Media Assets subsequent to acquisition.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses for the six-month period
ended June 30, 1999 were $18.3 million compared to $4.5 million for the
six-month period ended June 30, 1998, an increase of $13.8 million. The increase
was due primarily to increased spending as a result of our launch and expansion
of the ShopNow Network in 1998, including additional personnel and nation-wide
print and radio ads. 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. General and administrative expenses for the
six-month period ended June 30, 1999 were $2.5 million compared to $1.4 million
for the six-month period ended June 30, 1998, an increase of $1.1 million. 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.
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RESEARCH AND DEVELOPMENT. Research and development expenses for the
six-month period ended June 30, 1999 were $2.9 million compared to $1.4 million
for the six-month period ended June 30, 1998, an increase of $1.5 million. The
increase was due primarily to the development and enhancement of our technology
platform, as well as to an increase in 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 of intangible assets
expense for the six-month period ended June 30, 1999 was $1.6 million compared
to $118,000 for the same period ended June 30, 1998, an increase of $1.5
million. The increase was due primarily to the increase in intangible assets and
related amortization expenses from business acquisitions completed during the
second half of 1998, including Media Assets and The Internet Mall. The
acquisitions of GO Software and CardSecure, as well as possible future business
acquisitions, will result in a significant increase in amortization of
intangible assets expense.
STOCK-BASED COMPENSATION. Stock-based compensation expense for the
six-month period ended June 30, 1999 was $2.0 million compared to $2,000 for the
six-month period ended June 30, 1998, an increase of $2.0 million. The expense
is related to employee stock option grants with option exercise prices below the
estimated fair market value of our common stock as of the date of grant. The
amount of deferred compensation resulting from these grants is generally
amortized over a three-year period as stock-based compensation expense. In May
1999, we granted stock options to certain employees who joined ShopNow as part
of our acquisition of Media Assets. These grants resulted in a one-time stock-
based compensation expense of $830,000 during the second quarter of 1999.
OTHER INCOME (EXPENSE), NET
Other expense, net for the six-month period ended June 30, 1999 was
$245,000, compared to other income, net of $109,000 for the six-month period
ended June 30, 1998, a decrease of $354,000. The decrease was due primarily to
an increase in our debt obligations during the six-month period ended June 30,
1999, which resulted in an increase in interest expense. Other income (expense),
net consists primarily of interest income on cash and cash equivalents and
interest expense on our debt.
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 revenues was due primarily to increased product sales from the
BuySoftware.com business and revenues generated by Media Assets, which we
acquired in September 1998. The BuySoftware.com portion of revenues for the year
ended December 31, 1998 was $4.5 million compared to $69,000 for the year ended
December 31, 1998, an increase of $4.4 million, or 67.0% of the total increase
in revenues for the period.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the year ended December 31, 1998 was $4.2 million compared to
$69,000 for the year ended December 31, 1997, an increase of $4.1 million, or
63.2% of the total increase in revenues. The increase in our transactions and
merchandising revenues was due primarily to increased product sales from the
BuySoftware.com business.
MERCHANT SERVICES. The merchant services portion of revenues for the year
ended December 31, 1998 was $2.9 million compared to $535,000 for the year ended
December 31, 1997, an increase of $2.4 million, or 36.8% of the total increase
in revenues. The increase in our merchant services revenues was due primarily to
revenues generated from Media Assets, which we 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. These
computer services consisted primarily of providing computer training, consulting
and Web site design to businesses.
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COST OF REVENUES
The cost of revenues for the year ended December 31, 1998 was $5.8 million
compared to $515,000 for the year ended December 31, 1997, an increase of $5.3
million. The increase in our cost of revenues was due primarily to increased
product sales from the BuySoftware.com business and cost of revenues incurred by
Media Assets, which we acquired in September 1998. The BuySoftware.com portion
of cost of revenues for the year ended December 31, 1998 was $4.4 million
compared to $124,000 for the year ended December 31, 1997, an increase of $4.3
million, or 81.2% of the total increase in cost of revenues.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the year ended December 31, 1998 was $4.5 million
compared to $159,000 for the year ended December 31, 1997, an increase of $4.3
million, or 81.3% of the total increase in cost of revenues. The increase in our
transactions and merchandising cost of revenues was due primarily to increased
product sales from the BuySoftware.com business.
MERCHANT SERVICES. The merchant services portion of cost of revenues for
the year ended December 31, 1998 was $1.4 million compared to $356,000 for the
year ended December 31, 1997, an increase of $1.0 million, or 18.7% of the total
increase in cost of revenues. The increase in our merchant services cost of
revenues was due primarily to cost of revenues incurred by Media Assets, which
we acquired in September 1998. Cost of revenues for 1997 were comprised solely
of direct labor and related costs to provide computer services to clients.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1998 were $12.2 million compared to $1.2 million 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. General and administrative expenses for the
year ended December 31, 1998 were $3.5 million compared to $918,000 for the year
ended December 31, 1997, an increase of $2.6 million. The increase was due
primarily to an increase in personnel from internal growth and acquisitions.
RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended December 31, 1998 were $4.4 million compared to $2.4 million 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 and an increase in our
technology personnel as well as building the overall infrastructure that
supports the ShopNow Network.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
expense for the year ended December 31, 1998 was $730,000 compared to $136,000
for the year ended December 31, 1997, an increase of $594,000. The acquisition
of Media Assets and The Internet Mall resulted in $387,000 of this increase. The
remainder of this increase resulted from other purchases of intangible assets
including domain names and customer lists.
STOCK-BASED COMPENSATION. Stock-based compensation expense for the year
ended December 31, 1998 was $182,000 compared to no expense for the same period
ended December 31, 1997, an increase of $182,000. The expenses are related to
employee stock option grants with option exercise prices below the estimated
fair market value of our common stock as of the date of grant. The amount of
deferred compensation resulting from these grants is generally amortized over a
three-year period as stock-based compensation expense.
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UNUSUAL ITEM - IMPAIRMENT 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 $5.2 million 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 of other expense, net 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
overall decrease was due primarily to the phase out of our computer services
business that began in late 1997.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the year ended December 31, 1997 was $69,000 compared to no
revenues for the year ended December 31, 1996. All of transactions and
merchandising revenues were attributable to the BuySoftware.com business.
MERCHANT SERVICES. The merchant services portion of revenues for the year
ended December 31, 1997 was $535,000 compared to $993,000 for the year ended
December 31, 1996, a decrease of $458,000 or 117.7% of the total decrease in
revenues. All of merchant services were related to providing computer services
to businesses.
COST OF REVENUES
The cost of revenues for the year ended December 31, 1997 was $515,000
compared to $430,000 for the year ended December 31, 1996, an increase of
$85,000. The overall increase in cost of revenues was due to the cost of
developing the BuySoftware.com business, partially offset by the phase out of
our computer services business.
TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the year ended December 31, 1997 was $159,000 compared
to no cost of revenues for the year ended December 31, 1996, an increase of
$159,000, or 187.1% of the total increase in cost of revenues. All of
transactions and merchandising cost of revenues were attributable to the
BuySoftware.com business, which initially incurred higher cost of revenues as
the business was being developed.
MERCHANT SERVICES. The merchant services portion of cost of revenues for
the year ended December 31, 1997 was $356,000 compared to $430,000 for the year
ended December 31, 1996, a decrease of $74,000. The decrease was due primarily
to decreased direct labor and other costs incurred in delivering our previous
business of providing computer services to clients. All of merchant services
were related to providing computer services to businesses.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1997 were $1.2 million compared to $610,000 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. In the year ended December 31, 1997, $644,000 of
the sales
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and marketing expenses were in support of our previous computer services
business compared to $610,000 of such expenses in the year ended December 31,
1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
year ended December 31, 1997 were $918,000 compared to $656,000 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. Research and development expenses for the year
ended December 31, 1997 were $2.4 million compared to $25,000 for the year ended
December 31, 1996, an increase of $2.4 million. The increase was entirely due 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 of intangible assets
expense for the year ended December 31, 1997 was $136,000 compared to $32,000
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 of intangible assets expense 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 June 30, 1999, we had net operating loss carryforwards of
approximately $47.0 million. If not used, the net operating loss carryforwards
will expire at various dates beginning in 2012. The Tax Reform Act of 1986
imposes restrictions on the use of net operating losses and tax credits in the
event that there has been an "ownership change" of a corporation since the
periods in which the net operating losses were incurred. Our ability to use net
operating losses incurred prior to April 1998 is limited to approximately $3.0
million per year due to sales of convertible preferred stock to third parties
that have resulted in an "ownership change." The ownership change related to the
sale of Series D and Series E convertible preferred stock. 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 operating losses, potential
future losses and the nature of our deferred tax assets. See Note 10 to the
Consolidated Financial Statements appearing elsewhere in this prospectus.
SELECTED CONSOLIDATED PRO FORMA QUARTERLY FINANCIAL DATA
The following table sets forth selected consolidated quarterly financial
data on a pro forma basis for 1998 and the first two quarters of 1999. The
financial data presented below excludes our BuySoftware.com business for all
periods presented and includes the operations of Media Assets, The Internet Mall
and GO Software as if we had acquired them on January 1, 1998. Because our
business has changed significantly due to these acquisitions and ceasing the
operation of the BuySoftware.com business discussed previously, we believe that
the pro forma information provides a better reflection of our existing business
than the historical data provided elsewhere in this prospectus. All data is
unaudited, has been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all adjustments,
consisting only of normal recurring adjustments, considered
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necessary for a full presentation of such information when read in conjunction
with the financial statements and accompanying notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
----------- ----------- ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising........................ $ 336 $ 411 $ 417 $ 637 $ 775
Merchant services..................................... 1,092 1,975 2,283 1,899 1,729
----------- ----------- ------------- ------------ -----------
Total revenues...................................... 1,428 2,386 2,700 2,536 2,504
----------- ----------- ------------- ------------ -----------
Cost of revenues:
Transactions and merchandising........................ 21 27 36 137 325
Merchant services..................................... 656 1,133 1,289 985 952
----------- ----------- ------------- ------------ -----------
Total cost of revenues.............................. 677 1,160 1,325 1,122 1,277
----------- ----------- ------------- ------------ -----------
Gross profit...................................... 751 1,226 1,375 1,414 1,227
----------- ----------- ------------- ------------ -----------
Operating expenses:
Sales and marketing................................... 1,272 3,129 2,653 3,737 4,453
General and administrative............................ 667 1,090 1,133 1,175 1,264
Research and development.............................. 375 847 1,282 1,172 1,679
Amortization of intangible assets..................... 1,568 1,571 1,570 1,589 1,758
Stock-based compensation.............................. -- 2 35 145 132
Unusual item--impairment of acquired technology....... -- -- -- 5,207 --
----------- ----------- ------------- ------------ -----------
Total operating expenses............................ 3,882 6,639 6,673 13,025 9,286
----------- ----------- ------------- ------------ -----------
Loss from operations.............................. (3,131) (5,413) (5,298) (11,611) (8,059)
Other income (expense), net............................. (10) 67 57 (23) (3)
----------- ----------- ------------- ------------ -----------
Net loss.......................................... $ (3,141) $ (5,346) $ (5,241) $ (11,634) $ (8,062)
----------- ----------- ------------- ------------ -----------
----------- ----------- ------------- ------------ -----------
<CAPTION>
JUNE 30,
1999
---------
<S> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising........................ $ 1,836
Merchant services..................................... 2,447
---------
Total revenues...................................... 4,283
---------
Cost of revenues:
Transactions and merchandising........................ 744
Merchant services..................................... 1,517
---------
Total cost of revenues.............................. 2,261
---------
Gross profit...................................... 2,022
---------
Operating expenses:
Sales and marketing................................... 11,112
General and administrative............................ 1,294
Research and development.............................. 1,427
Amortization of intangible assets..................... 1,880
Stock-based compensation.............................. 1,824
Unusual item--impairment of acquired technology....... --
---------
Total operating expenses............................ 17,537
---------
Loss from operations.............................. (15,515)
Other income (expense), net............................. (280)
---------
Net loss.......................................... $ (15,795)
---------
---------
</TABLE>
The growth in total revenues for the quarter ended June 30, 1999 is
attributable to increasing amounts of transactions and merchandising revenues
from the expansion of our ShopNow Network, as well as increased revenues from
merchant services, derived primarily from Media Assets. When we acquired Media
Assets in September 1998 and launched the ShopNow Web site in August 1998, we
shifted our focus from generating revenues from merchant services to generating
revenues from transactions and merchandising. As a result, revenues from
transactions and merchandising increased significantly from the quarter ended
September 30, 1998, while revenues from merchant services decreased in
subsequent quarters. We anticipate that transactions and merchandising revenues
will continue to increase at a faster rate than revenues from merchant services.
Although we have experienced recent 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have experienced net losses and negative cash flows from
operations, and as of June 30, 1999 had an accumulated deficit of $55.6 million.
We have financed our activities largely through issuances of common stock and
preferred stock, from the issuance of short-term and long-term obligations and
from capital leasing transactions for certain of our fixed asset purchases.
Through June 30, 1999, our aggregate net proceeds have been $49.7 million from
issuing equity securities and $20.0 million from issuing debt securities. Since
June 30, 1999, we have raised an additional $18.9 million in cash from the sale
of convertible preferred stock. As of June 30, 1999, we had $6.5 million in cash
and short-term investments.
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Net cash used in operating activities was $18.8 million for the six-month
period ended June 30, 1999, compared to net cash used in operating activities of
$6.3 million for the same period of 1998. The increase was due primarily to the
increase in our net loss for the six-month period ended June 30, 1999, of $26.2
million compared to $7.3 million for the same six-month period ended 1998.
Net cash used in investing activities was $10.1 million for the six-month
period ended June 30, 1999, compared to net cash used in investing activities of
$6.6 million for the same period of 1998. The increase was due primarily to the
increase in purchases of property and equipment of $5.3 million for the
six-month period ended June 30, 1999, compared to $1.8 million for the six-month
period ended June 30, 1998.
Net cash provided by financing activities was $25.3 million for the
six-month period ended June 30, 1999, compared to net cash provided by financing
activities of $20.2 million for the six-month period ended June 30, 1998. The
increase was due primarily to proceeds from the issuance of debt of $11.6
million during the six-month period ended June 30, 1999, compared to proceeds
from the issuance of debt of $38,000 during the six-month period ended June 30,
1998, partially offset by the decrease in the amount of net proceeds from
issuances of convertible preferred stock from $14.4 million during the six-month
period ended June 30, 1999 to $22.0 million during the six-month period ended
June 30, 1998.
In March 1999, we entered into a loan and security agreement with
Transamerica Business Credit Corporation for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing us to borrow up to
$8.5 million at any one time, consisting of a $3.5 million term loan, $4.0
million bridge loan and a line of credit of up to $2.5 million, initially capped
at $1.0 million until the bridge loan is repaid. The current principal amount of
outstanding borrowings with Transamerica consist of a $3.5 million term loan, a
$4.0 million bridge loan and a $1.0 million line of credit. The line of credit
bears interest at the Transamerica Business Credit Corporation's base rate plus
2%, is secured by substantially all of our assets and expires on March 31, 2000.
The interest rate for July 1999 was an annual rate of 10%. The term loan bears
interest at 12%, is secured by substantially all of our assets and matures in
March 2002. The bridge loan bears interest at 12% and is due upon the earlier of
December 1, 1999 or the closing of a debt or equity financing by us exceeding
$10.0 million. At June 30, 1999 we also had a total of $1.6 million outstanding
on two promissory notes issued in business acquisitions. One of the notes, in
the amount of $1.0 million, bearing an interest rate of 10%, is due June 15,
2000 or the effective date of an initial public offering of our common stock, at
which time the note is convertible into shares of common stock. The other note
is to be paid off in quarterly installments of $112,500 through October 1, 2000.
Our capital requirements depend on numerous factors, including the rate of
expansion of the ShopNow Network, the investments 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 have also entered into agreements with Chase, About.com and 24/7
Media that require us to make advertising and marketing expenditures of $6.0
million annually through 2001. We believe that existing cash balances and cash
generated from operations, together with the net proceeds from this offering,
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures in the short-term (for the next 12 months), and at least
through the next 18 months. After that time, we may be required to raise
additional financing. There can be no assurance that the assumed levels of
revenues and expenses underlying our anticipated cash needs will prove to be
accurate. 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.
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "ACCOUNTING FOR THE COSTS 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 such costs. The implementation of Statement
of Position 98-1 did not have a material impact on our financial position 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 implementation of Statement of Position 98-5 did not 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 merchants. 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. To date,
we have tested our core proprietary software to determine whether it is Year
2000 compliant. Because our user interface software frequently changes we do not
test each revision to determine if it is Year 2000 compliant. By September 1999,
we expect to have incorporated Year 2000 compliance testing into our user
interface development process. For our third-party software, we have obtained
Year 2000 compliance certificates from the companies from which we license
software that is critical to the day-to-day operation of our business. Through
August 15, 1999, we contacted approximately 80% of our third-party software
suppliers to obtain Year 2000 compliance statements with respect to the software
that we license from such companies. With respect to the companies from which we
obtain critical outsourcing services, or with which we have key business
relationships, we attempt to obtain warranties that such software is Year 2000
compliant. We have received such warranties from the companies from which we
obtain critical outsourcing services and with which we have key business
relationships.
COSTS. To date, we have incurred less than $200,000 in third-party expenses
as a result of our Year 2000 compliance efforts, which include an on-going
review of our systems by an outside consulting company. If the review uncovers
any Year 2000 problem related to our internal systems, we could incur
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substantial costs to remedy the problem. For example, we might have to purchase
additional hardware or software and we could incur additional administrative
costs. The exact costs would depend upon the scope of the problem. The actual
occurrence of a Year 2000 problem 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.
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 breach of 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, operating results 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.
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 achieve
timely Year 2000 compliance 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, operating results, 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 achieve
timely Year 2000 compliance could prevent shoppers from consummating
transactions through the ShopNow Network, which could harm our business,
operating results 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 an online marketplace and
provides merchants with a variety of e-commerce and direct marketing services.
The ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the individual Web sites of merchants that are connected by
hyperlink to the ShopNow Network. The ShopNow.com Web site aggregates more than
1 million products and services from more than 30,000 merchants. This Web site
includes categories of information and lists of stores that shoppers can browse,
sort and rapidly search by category, merchant or product. MyShopNow.com enables
shoppers to create their own personalized shopping Web sites by selecting the
types of products and services offered to them. In July 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 merchants by providing
them with the opportunity to increase online transaction volume.
With the rapid growth in the use of the Internet, many businesses are
engaging in e-commerce, which consists of marketing and selling products and
services directly online. To assist merchants in their online efforts, we
provide e-commerce services ranging 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 customer
order fulfillment. Our direct marketing services, which include merchandising
programs, online direct mail promotions, creative services, four levels of
listing on the ShopNow Network and transaction reporting, enable merchants to
promote their brands, products, services and e-commerce presence through
traditional and online direct marketing methods. We intend to increase our use
of the demographic and shopper preference 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 services online rising from approximately 28 million to
approximately 128 million worldwide during the same period.
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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. The resulting increase in merchants selling products
and services online has led to rapid growth in the number of e-commerce
opportunities for shoppers. This rapid growth is creating a number of challenges
for shoppers as they seek to realize the potential benefits of shopping online,
which in turn increases the market for services that assist shoppers in
evaluating online buying opportunities and making online purchases.
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.
NEED FOR ADDITIONAL ONLINE MARKETPLACES. Shoppers have few solutions to
help them rapidly evaluate the large number of merchants and products marketed
on the Internet in an organized fashion. The Internet search engines offered on
the home pages of Web directories, also known as portal sites, 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, the home pages of 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 more online marketplaces that focus on e-commerce and
help shoppers rapidly search for 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 are not user-friendly for shoppers because they are
not formatted in a way that allows shoppers to quickly obtain the information
necessary to complete e-commerce transactions. We believe that this 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. Although the costs required to establish a simple non-commercial
Web site are relatively modest, merchants of all sizes must invest a significant
amount of capital and technical resources to develop and maintain an effective
e-commerce presence, which typically includes multiple components such as
transaction processing,
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online security measures and customer order fulfillment. To maximize
effectiveness, these components must be 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 presence 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 consumers may have difficulty converting this
general visibility into online purchases, as many merchants lack the knowledge
and expertise needed to sell products and services online. Online advertising is
currently concentrated on the home pages of portal Web sites, which are not
principally focused on shopping. As a result, much of the traffic that these
advertisements generate on a merchant's Web site may not be from individuals
interested in making retail purchases. Merchants need 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 formats for online transactions.
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 an online marketplace and provide
merchants with a variety of e-commerce and direct marketing services. The
ShopNow Network, our online marketplace, is comprised of ShopNow.com,
MyShopNow.com and the Web sites of merchants that are connected by hyperlink to
the ShopNow Network. ShopNow.com, our shopping destination Web site, aggregates
more than 1 million products from more than 30,000 merchants of all types.
MyShopNow.com enables shoppers to create their own personalized Web site by
allowing them to select the types of products and services offered to them. The
Web sites of merchants are connected by hyperlink to ShopNow.com to complete our
online marketplace. To assist merchants in marketing and selling their products
and services online, we provide a 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, while
our e-commerce services, including custom store development, online store
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hosting and maintenance, secure payment and order processing, fraud prevention
and customer order fulfillment and call center management, enable merchants to
develop and maintain the ability to complete online transactions.
BENEFITS FOR SHOPPERS
We provide shoppers with an online marketplace that enables them to search
for buying opportunities in an organized fashion, alleviating the need to sift
through often irrelevant search results. Our Web sites provide shoppers with
multiple ways to search our merchant database in a user-friendly layout that
allows shoppers to easily obtain the information necessary to complete online
transactions. 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 unique online shopping experience that
is tailored to their specific interests.
BENEFITS FOR MERCHANTS
We offer merchants an online marketplace and a variety of e-commerce and
direct marketing services that enable them to quickly develop and maintain their
desired e-commerce presence. Our e-commerce services include custom development
of online stores, hosting and maintenance services for online stores, online
payment and order processing services, fraud management services and customer
order fulfillment and call center management. Our direct marketing services
include the placement of merchant and product information on the ShopNow
Network, merchandising programs such as advertisements and e-mail promotions on
the ShopNow Network, online direct mail promotions and other creative services.
We enable merchants to avoid the significant resource drain caused by developing
and maintaining end-to-end e-commerce systems internally or outsourcing to
multiple vendors. Because we regularly re-evaluate and update our e-commerce
services, 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 services enhance the value of
our online marketplace for merchants 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. Our online marketplace,
together with our e-commerce and direct marketing services, allow merchants to
capitalize on the benefits of e-commerce in a manner that is tailored to their
specific needs.
STRATEGY
Our objective is to create the leading online marketplace for shoppers and
merchants while providing a variety of e-commerce and direct marketing services
to 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 services
available to merchants by developing and acquiring new technologies and by
entering into new, and expanding existing, business relationships. We will
add features to maintain the component-based nature of our services so
that merchants of all sizes can implement an e-commerce presence 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 these features will enable foreign
shoppers to more easily access our Web sites, expanding the market for
merchants, products and services and significantly increasing 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. We intend to do this
first within selected major metropolitan areas within the United States.
If successful, we expect to create localized versions for additional
metropolitan areas in North America. 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 merchants a
wide variety of online and traditional direct marketing services to
increase transactions on the ShopNow Network. Our direct marketing
services enable merchants 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 services 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
attempt to use our creative services to develop direct marketing materials
that focus merchants, direct marketing efforts by attracting shoppers
interested in purchasing a particular merchant's products and services. We
believe that using our creative services in this way will result in
increased shopper traffic and online purchases for merchants who utilize
these services.
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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
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 services. In addition, we believe
that as we demonstrate both the effectiveness of the ShopNow Network and our
ability to collect detailed information regarding online shoppers, our merchant
customers will take increasing advantage of our extensive direct marketing and
creative services.
PURSUE ACQUISITIONS AND LEVERAGE KEY BUSINESS RELATIONSHIPS
To date, we have entered into a number of acquisitions and key business
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. We believe that our key business relationships
will help us to offer advanced e-commerce services by giving us access to
technology developed by the parties to these relationships. We also believe that
these relationships will assist us in expanding into new domestic and
international markets by providing us with access to expertise and contacts in
these new markets. We believe that our acquisitions and key business
relationships will assist us in rapidly increasing the variety of products and
services offered on the ShopNow Network by giving us access to additional
merchants. We intend to continue making acquisitions and entering into those
types of relationships to enhance the quality of our online marketplace and the
effectiveness of our e-commerce and direct marketing services.
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 merchants that are connected by hyperlink to the ShopNow Network.
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 merchants 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 30,000 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. ShopNow.com provides
shoppers with complimentary access to third-party content, including weather
reports and horoscopes.
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 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
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product. As an added benefit, shoppers typically 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 1.5 million MyShopNow personal stores have been created.
MERCHANTS' WEB SITES. The ShopNow Network also includes the Web sites of
over 30,000 merchants. These Web sites are connected by hyperlink to
ShopNow.com, and provide shoppers with additional information about these
merchants and the ability to purchase their products and services.
MERCHANT SERVICES
E-COMMERCE SERVICES. ShopNow offers merchants a wide variety of e-commerce
services, including:
- CUSTOM STORE DEVELOPMENT. We offer merchants 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 and purchase orders. For security, we use advanced
encryption methods. To exchange information with shoppers and merchants on
our Web sites, our network servers use software that complies with the
Secure Sockets Layer specification, a leading method for managing the
security of transmissions over a network.
- FRAUD PREVENTION. Our fraud management services use artificial
intelligence programs, a database of historical transactions, and
validation by an authorized financial institution 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.
- CUSTOMER ORDER FULFILLMENT AND CALL CENTER MANAGEMENT. We have preferred
supplier agreements with multiple companies that specialize in providing
customer order fullment services, including warehousing, packaging and
distribution, and call center services, including telephone and e-mail
customer support services, for companies that lack such capabilities. Our
preferred supplier agreements allow us to obtain pricing discounts and
other favorable terms from these companies by aggregating several of our
merchant clients' order fulfillment and call center activities under one
contract that we enter into and manage on behalf of our merchant
customers. Consequently, our merchant customers enter into agreements with
us, rather than the third-party customer order fulfillment or call center
service companies. We also have relationships with several vendors whose
warehouses we use to fill orders that we take on behalf of our merchant
customers through our Web sites and to deliver the purchased merchandise
directly to shoppers. 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.
Our various e-commerce services can be purchased separately, allowing
merchants to select only those particular services that they need. Fee
arrangements are based on the specific service purchased and may be computed on
a project basis, a monthly fee basis, a per transaction basis, or a combination
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thereof. For example, custom store development is billed on a project basis,
e-commerce hosting and maintenance are billed at monthly rates and the other
e-commerce described above are billed on a fee per transaction basis.
We bill for developing a custom Web site on the same basis. We evaluate the
needs of the client, estimate the amount of time, complexity and technology
needed and provide a fee which may include a transaction component. Generally, a
monthly fee is charged for hosting services and is not done on a transactional
basis. For custom Web sites, we charge a transactional fee for each order
placed.
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 their 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
to search the database. 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.
- MERCHANDISING ON THE SHOPNOW NETWORK. We offer a range of merchandising
programs, including advertising, e-mail promotions and shopper delivery
programs. 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. Alternatively, merchants can reach a more
focused audience by sponsoring a specific product category. Our e-mail
promotions allow merchants to alert shoppers to special product offers. We
also offer a shopper delivery program that provides merchants with a
specific number of visits by shoppers to the merchants' Web sites over a
given period of time. If we fail to deliver the specified number of visits
a merchant only pays for the number of shoppers that are delivered.
- ONLINE DIRECT MAIL PROMOTIONS. We offer merchants access to our shoppers,
who have voluntarily registered with ShopNow to receive product and
service offers by e-mail, by providing the merchant the opportunity to
have shoppers receive an e-mail that advertises a product or service
offered by the merchant. We create and generate the e-mail promotions. Our
promotions are specifically designed to allow advertisers to integrate
various forms of online advertising and direct marketing to fully exploit
the reach of our e-commerce services.
- 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.
- 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 vary based on
the prominence of a merchant's listing on our Websites. Merchandising services
are priced based on one of the following criteria: length of the merchandising
period, cost-per-thousand views or cost per click-through. For example, our
"Featured Store" buttons or textlinks on a specific product category page are
sold in
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weekly increments, banner ads are sold on a cost-per-thousand views, and our
shopper delivery program is priced based on the number of shoppers that we pass
along from ShopNow.com to a merchant. The fee arrangements for our other direct
marketing services, which typically include minimum monthly payments, are
individually negotiated with merchants and are based on the range and extent of
customization. For our e-mail promotions, depending on the nature of the
promotion, we may derive a fee for each transaction generated by the promotion.
We generally receive transaction fees when a MyShopNow store owner purchases
products or services through his or her MyShopNow store. When e-mail promotions
are sent to MyShopNow store owners and they subsequently purchase a product or
service through their MyShopNow store, we are generally entitled to a
transaction fee from the merchant that sponsored the promotion.
CUSTOMERS
The following is a representative list of merchants that have purchased our
services based on revenue for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
TRANSACTIONS AND MERCHANDISING MERCHANT SERVICES
- -------------------------------------------- --------------------------------------------
<S> <C>
@backup.com American Color
Accounting.Net American Luggage Dealers Association
Alloy Online Birkenstock
Corel Hallmark
Greatfood.com Murad
JC Penny Nature Company
Lens Express Self Care
Macy's Service Merchandise
sixdegrees.com Sony
Totally Wireless Southwestern Bell
</TABLE>
KEY BUSINESS RELATIONSHIPS AND ACQUISITIONS
We have entered into a number of key business 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 similar relationships with third-party
providers of complementary products and services. Potential benefits to third
parties with which we may enter into business relationships include increased
shopper traffic, branding flexibility, incremental revenue, and integration of
service offerings.
KEY BUSINESS RELATIONSHIPS
Our key business relationships include:
CHASE MANHATTAN BANK. In July 1999, Chase Manhattan Bank, through one of
its affiliates, completed an $18.9 million equity investment by purchasing 2.1
million shares of Series I convertible preferred stock, which will automatically
convert into shares of common stock upon completion of this offering, and
entered into an agreement with ShopNow to launch an Internet shopping site on
which ShopNow and Chase will be featured. Pursuant to this agreement, Chase will
pay ShopNow a licensing fee to use the technology underlying the site. As part
of the agreement, Chase will be a preferred provider of financial services for
ShopNow.com and the exclusive marketer of credit cards featuring the ShopNow
brand. The agreement provides that each party will share in the revenues of the
other party based on the amount of business generated through this relationship.
We believe that the key advantages that we will derive from our relationship
with Chase include increased revenues from the licensing fee and the new
Internet shopping site. As part of the agreement, we will participate equally
with Chase in a cooperative marketing fund to promote the services being offered
under this
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agreement. Our marketing obligations to Chase include placing an advertisement
on the ShopNow.com home page, making direct mailings regarding Chase's merchant
services to merchants on the ShopNow Network and mentioning Chase's merchants in
our own advertising. Our obligation to the fund is to contribute at least $3.0
million annually. The agreement has an initial term of 27 months, with a three-
year renewal period at Chase's option.
ABOUT.COM. In July 1999, we entered into a five-year agreement with
About.com, a leading Internet network of commerce communities. Pursuant to our
agreement with About.com, we have a shopping section on About.com that will
directly link shoppers to our ShopNow Network. In addition, we are obligated to
spend at least $2 million annually in marketing our relationship with About.com.
This shopping section gives us access to all visitors to the About.com network
which we believe will attract additional visitors to the ShopNow Network.
According to Media Metrix, a provider of Internet audience measurement products
and services, there were approximately 8.0 million visitors to About.com in July
1999.
24/7 MEDIA. In April 1999, 24/7 Media purchased 4.3 million shares of our
Series G convertible preferred stock, which will automatically convert into
shares of common stock upon completion of this offering, for $30.1 million and
entered into a three-year 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 promotion of
24/7 Media's advertising, representation and e-mail management services to
merchants. For example, if 24/7 Media has a client who would benefit from our
e-commerce services, 24/7 Media will refer that client to us. If we have a
merchant who would benefit from the advertising services offered by 24/7 Media,
we will refer that merchant to 24/7 Media. 24/7 Media is primarily a point of
distribution for advertising campaigns that are distributed through banner
advertisements on Web sites or e-mail. Our direct marketing services are
oriented towards strategic planning and creative implementation of online
marketing or advertising campaigns distributed by companies such as 24/7 Media.
Our agreement positions us 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 do not
include a link from our site to 24/7 Media's Web site nor do we advertise 24/7
Media on our site. We are the only e-commerce provider that 24/7 Media can use
to provide e-commerce services to their clients, and 24/7 Media is the only
third party authorized to sell advertising on our Web site. We believe that this
relationship with 24/7 Media will allow us to expand our product and service
offerings. We also jointly brand 24/7 Media's Click2Buy transactional banner
service with the ShopNow name and receive fees for processing all Click2Buy
transactions. Click2Buy is the process whereby a shopper can click on a banner
advertisement from within a specific Web site and purchase the product or
service in the banner advertisement without having to leave the Web site where
the shopper originally saw the banner advertisement. We process the transactions
through Click2Buy the same as we do the transactions through our Web site. We
believe that this relationship with 24/7 Media will allow us to establish
additional sources of revenues. Under our cross-promotion agreement, we are
obligated to purchase at least $1.0 million annually in shopping traffic from
24/7 Media. Prior to this offering, 24/7 Media beneficially owned more than 19%
of our voting stock, and following this offering, 24/7 Media will beneficially
own more than 15% of our voting stock.
QWEST COMMUNICATIONS. In April 1999, we entered into a three-year
distribution and marketing agreement with Qwest Communications, a
telecommunications provider. Our agreement with Qwest requires us to offer
Qwest's communications services to shoppers on the ShopNow Network. Through the
agreement we receive a fixed quarterly payment for 24 months and, in addition,
we will also receive a percentage of the revenues earned by Qwest from Qwest
services sold through our Web sites. We believe that this relationship with
Qwest will allow us to reach a large number of households and attract additional
visitors to the ShopNow Network. In connection with this agreement, we issued to
Qwest warrants to purchase 100,000 shares of our common stock at an exercise
price of $10.00 per share. Our agreement with Qwest contains a put right that
allows Qwest to require us to purchase the
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shares at a price of $25.00 per share after June 2001 unless a dollar threshold
of revenue transactions has occurred under the marketing and distribution
agreement. Qwest must have exercised the warrants in order to exercise this
right.
HNC SOFTWARE. In May 1999, HNC Software purchased 333,334 shares of our
Series H convertible preferred stock, which will automatically convert into
shares of common stock upon completion of this offering, for $3.0 million. In
addition, pursuant to our three-year strategic alliance and consortium
membership agreements with HNC, HNC will provide us with a number of e-commerce
products at preferential prices, which merchants can use in connection with the
other merchant services we offer and thus allow us to expand our product and
service offerings. The HNC products include targeted marketing, fraud detection
and customer support software. Integration of these products with our technology
platform will allow us to provide merchants with better tools to manage their
customer relationships. The tools will be integrated with the services we
provide to merchants and will not be sold separately to merchants. In exchange
for a license to use HNC's technology, we agreed to pay a set-up fee, a monthly
fee for the use of HNC's software, a service fee equal to the greater of a
minimum monthly fee or a transaction fee based upon the number of transactions
processed by HNC's software.
ZERON GROUP. In March 1999, the ZERON Group purchased 285,714 shares of our
Series G convertible preferred stock, which will automatically convert into
shares of common stock upon completion of this offering, for $3.0 million, and
in April 1999 purchased an additional 428,572 shares of Series G convertible
preferred stock for $2.0 million. Under our agreement, the ZERON Group is
assisting us on a contractual, best-efforts basis in establishing alliances with
major companies in Japan that are seeking to expand into e-commerce as we seek
to develop an international presence in that market. We believe that these
alliances will help us to facilitate our international expansion and will
attract additional visitors to the ShopNow Network. The ZERON group is not
currently referring merchants or customers to our network. 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.
Although we view our key business relationships as a important factor in our
overall business strategy, the other parties to these relationships may reassess
their significance at any time. These relationships generally do not establish
minimum performance requirements but instead rely on the contractual best
efforts of the parties. In addition, several of our key business relationships
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.
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 listed merchants.
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.
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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 10,000 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 services. As of June 30, 1999, our
sales and marketing organization consisted of 42 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 merchants 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 joint promotions using online and
traditional advertising media.
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 customer order fulfillment
systems, payment systems and fraud detection software.
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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 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 at the third-party data centers 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 $2.9 million in the
first six months of 1999. As of June 30, 1999, ShopNow employed 68 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.
We compete with various companies for e-commerce merchants, shoppers,
e-commerce transactions, advertisers and other sources of online revenue. These
competitors include:
- online shopping destination Web sites, such as iMall and Shopping.com;
- merchant and product Web site directories and search and information
services, all of which offer online shopping, such as America Online,
Microsoft, Yahoo!, Excite, Lycos and Infoseek; and
- conventional merchants and retailers that offer goods and services
directly over the Web.
The number of companies providing these types of services is large and
increasing at a rapid rate. We expect that additional companies, including media
companies and conventional retailers that to date
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have not had a substantial commercial presence on the Internet, will offer
services that directly compete with us.
We also compete with companies that may offer alternatives to one or more
components of the e-commerce and direct marketing solutions that we offer to
merchants. These competitors include:
- companies offering e-commerce and online direct marketing services, such
as Go2Net, Xoom and DoubleClick;
- companies offering products that address specific aspects of e-commerce,
such as payment and transaction processing and security, such as
CyberSource;
- Web development firms;
- systems integrators;
- Internet service providers;
- other providers of e-commerce outsourcing services, such as Digital River
and USWeb/CKS; and
- traditional media companies.
We expect competition from these sources to intensify in the future.
Many of the current and potential competitors to both our online marketplace
and our merchant services are likely to enjoy substantial competitive advantages
compared to us, including:
- larger customer or user bases;
- the ability to offer a wider array of e-commerce and direct marketing
services;
- 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.
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.
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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 June 30, 1999, we had 305 employees, including 125 in merchant services,
42 in sales and marketing, 68 in research and development, 34 in operations and
36 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 August 23, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --------- --------------------------------------------------------------------
<S> <C> <C>
Dwayne M. Walker.................... 38 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............ 39 Executive Vice President and Chief Technology Officer
Othniel D. Palomino................. 36 Executive Vice President, Corporate Development
William D. Pittman.................. 38 Executive Vice President and Chief Technical Architect
Anne-Marie K. Savage................ 35 Executive Vice President, E-Commerce Services
Joe E. Arciniega, Jr................ 40 Chief Operating Officer
Pascal Stolz........................ 37 Vice President of Marketing
Jacob I. Friesel.................... 50 Director
David M. Lonsdale................... 46 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.
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WILLIAM D. PITTMAN has been our Executive Vice President and Chief Technical
Architect since June 1999. From 1993 to June 1999, he was founder and Chief
Technical Officer of GO Software, a developer of e-commerce payment processing
technologies.
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 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.
PASCAL STOLZ has been our Vice President of Marketing since June 1999. From
January 1996 to February 1999, he was Vice President of Worldwide Marketing for
Cobra Golf, a golf club manufacturer. From October 1994 to January 1996, he was
Vice President of Sales and Marketing, Europe for Cobra Golf. From April 1987 to
October 1994, he was Senior Product Marketing Manager for Taylor Made Golf, a
golf products manufacturer.
JACOB I. FRIESEL has served as a director since August 1999. Since February
1998, he has been the Executive Vice President--Sales and Marketing and a
Director of 24/7 Media, an Internet advertising and direct marketing firm. From
1997 to 1998, he was President of Katz Millennium Marketing, the Internet media
sales division of Katz Media Group, Inc. From 1994 to 1997, he was Vice
President, Strategic Planning for the Katz Television Group. From 1993 to 1994,
he was a Vice President and General Sales Manager of Katz American Television,
an advertising representative of major market television stations. Mr. Friesel
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
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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.
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. Friesel, 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.
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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."
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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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL FAIR VALUE AT ASSUMED
NUMBER OF OPTIONS MARKET ANNUAL RATES OF
SECURITIES GRANTED TO VALUE ON STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE THE DATE FOR OPTION TERM
OPTIONS IN LAST PRICE OF GRANT EXPIRATION -------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0% 5% 10%
- ---------------------- ------------- --------------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker...... 25,000 *% $ 2.00 $ 2.00 1/1/07 $ -- $ -- $ 8,949
310,000 7.8 4.00 3.30 8/1/08 -- 426,359 1,413,399
375 * 2.50 3.30 11/30/08 300 1,506 2,953
100 * 4.00 4.00 12/11/08 -- 252 637
Ganapathy Krishnan,
Ph.D................ 10,000 * 2.00 2.00 3/18/00 -- -- --
100,000 2.5 2.00 3.30 6/1/08 -- 125,779 318,748
375 * 2.50 3.30 11/30/08 300 1,506 2,953
100 * 4.00 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 $11.00 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 $ 3,007,614 $ 4,319,989
Ganapathy Krishnan, Ph.D................................. 14,475 100,000 134,808 900,000
</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 July 1, 1999. This Agreement may be terminated by either Mr.
Walker or ShopNow at any time, upon written notice to the other. The agreement
provides for an initial annual salary of $400,000 and a yearly bonus of up to
$200,000 based upon the achievement of performance criteria specified by the
compensation committee. Mr. Walker's salary is to be reviewed at the end of each
calendar year by the compensation committee 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 will
receive, as of the date of this offering, an option to purchase 500,000 shares
of common stock at an exercise price equal to the initial per share offering
price, which option will vest in four equal semi-annual installments subject to
Mr. Walker's continued employment with ShopNow. After the first year of the
agreement, ShopNow will grant Mr. Walker during each of the next eight quarters
an option to purchase up to 125,000 shares of common stock at an exercise price
equal to the closing price of ShopNow's common stock on the Nasdaq National
Market on the date of grant, which option will vest in four equal semi-annual
installments subject to Mr. Walker's continued employment with ShopNow. 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 without cause, or if he
terminates his employment for "good reason" or leaves within six months after a
change of control of ShopNow, ShopNow shall
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pay him a lump-sum amount equal to his annual base salary, ShopNow will pay his
salary for a period of 24 months following termination and all options granted
to him under this agreement shall vest. For purposes of the agreement, "good
reason" means and includes the occurrence without Mr. Walker's consent of a
material reduction in his title, authority, status, or responsibilities or our
material breach of the agreement. 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 and, in July 1999, the
amended stock option plan was approved by our shareholders. The amended stock
option plan will be effective upon completion of this offering. The amended
stock option plan provides for the grant to employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986 and for
the grant to employees, directors and consultants of nonstatutory stock options
and stock purchase rights. Unless sooner terminated, the amended stock option
plan will automatically terminate in 2009. A total of 8,000,000 shares of common
stock will be 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
under the plan on such date, or an amount determined by the board of directors.
As of June 30, 1999, options to purchase 23,549 shares of common stock had been
exercised and options to purchase 5,162,108 shares of common stock were
outstanding under the stock option plan with a weighted-average exercise price
of $3.68.
The amended stock option plan may be administered by the board of directors
or a committee of the board of directors, which committee 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 board of
directors or the committee has the power to determine the terms of the options
granted, including the exercise price, the number of shares subject to the
option, and the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, 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 generally 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 following termination of an
optionee's status as
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an employee, director or consultant of the company or within 12 months following
termination of an optionee 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 determines otherwise, a restricted stock
purchase agreement shall grant us a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with us for
any reason, including death or disability. The purchase price for shares
repurchased pursuant to a 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 granted under the amended stock option plan
is determined by the board of directors or the committee, 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 be
at least 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 all or substantially all of our assets,
each option and stock purchase right will be assumed or substituted for by the
successor corporation. In the event the successor corporation refuses to assume
or substitute for the option or stock purchase right, the optionee shall have
the right to exercise all of the optioned stock, including shares as to which it
would not otherwise be exercisable, for a period of 15 days from the date of
notice from the administrator, after which the option or stock purchase right
will terminate.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by the board of directors in
June 1999, and approved by our shareholders in July 1999. The employee stock
purchase plan will be effective upon the completion of this offering. Initially,
a total of 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 in the number of shares reserved for
issuance beginning on the first day of our fiscal year 2002 equal to the lesser
of:
- 600,000 shares;
- 2%; or
- an amount determined by the board of directors.
The employee stock purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code of 1986 will be administered by the board of
directors or by a committee appointed by the board. Our employees, including
officers and employee directors, are eligible to participate in the employee
stock purchase plan if they are employed for at least 20 hours per week and for
more than 5 months in any calendar year. The employee stock purchase plan will
be implemented by consecutive offering periods generally six months in duration.
However, the initial offering period under the employee stock purchase plan will
begin 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 eligible employees to purchase
shares of common stock through payroll deductions at 85% of the lesser of the
fair market value per share of the common stock on the first day of the offering
period or on the purchase date. Participants generally may not purchase shares
if, immediately after the grant, the participant would own stock or options to
purchase shares of common stock totaling 5% or more of the total combined voting
power of all of ShopNow's capital stock, or more than $25,000 of our capital
stock in any calendar year. In addition, a participant
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may not purchase more than 5,000 shares during any offering period. In the event
of a sale of all or substantially all of our assets or the merger of ShopNow
with or into another corporation, the board of directors 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 have obtained 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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RELATED TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
5% SHAREHOLDERS
In connection with our acquisition of Media Assets in September 1998, Jeff
Haggin, the sole shareholder of Media Assets, joined ShopNow as an executive
officer and he received 600,000 shares of our common stock based upon an
agreed-upon value of $6.00 per share, $300,000 in cash, a convertible promissory
note in the aggregate principal amount of $1,050,000 and options to purchase an
aggregate of 1,120,000 shares of our common stock. These options included an
option to purchase 220,000 shares at an exercise price of $1.00 per share and
performance-based options to purchase 900,000 shares of common stock at an
exercise price of $2.00 per share. The total value of the package Mr. Haggin
received at the time of the acquisition equalled $4,941,500. In May 1999, Mr.
Haggin exchanged his performance-based options for options to purchase 300,000
shares of common stock at an exercise price of $2.00 per share.
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, 466,683 shares of 24/7 Media common stock and
24/7 Media'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. Upon completion of this offering and assuming 33,254,706 shares
of common stock are outstanding, 24/7 Media will beneficially own 15.2% of our
shares of common stock. In connection with the acquisition of CardSecure, we
acquired an additional 9,727 shares of 24/7 Media common stock. As of June 30,
1999, we owned 476,410 shares of 24/7 Media common stock.
In connection with our acquisition of GO Software in June 1999, William
Pittman joined ShopNow as an executive officer and he received, in exchange for
his shares of capital stock in GO Software, 814,688 shares of our common stock,
$2.0 million in cash, and options to purchase an aggregate of 100,000 shares of
our common stock at an exercise price of $7.00 per share. The total value of the
package Mr. Pittman received at the time of the acquisition equalled $8,517,504.
In June 1999, we entered into a stock purchase agreement with CB Capital
Investors pursuant to which we issued 2,100,000 shares of Series I convertible
preferred stock at $9.00 per share in exchange for $18.9 million in cash. CB
Capital Investors also received warrants to purchase 555,556 shares of common
stock. Upon completion of this offering and assuming 33,254,706 shares of common
stock are outstanding, CB Capital Investors will beneficially own 7.9% of our
shares of common stock.
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;
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- 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;
- 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; 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 low point of the filing
range as indicated in our preliminary prospectus for this offering, or
$10.00 per share. These options vest over a two-year period commencing
after the closing of 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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PRINCIPAL SHAREHOLDERS
The following table sets forth information known to ShopNow with respect to
the beneficial ownership of our common stock as of July 27, 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 26,254,706 shares
outstanding as of July 27, 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 20,027,516 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.(2)....................................... 5,168,500 19.1% 15.2%
Bret R. Maxwell(3)........................................ 2,924,630.5 11.1 8.8
Mark H. Terbeek(4)........................................ 2,924,630.5 11.1 8.8
CB Capital Investors, L.P.(5)............................. 2,655,556 9.9 7.9
Dwayne M. Walker(6)....................................... 2,411,020.5 9.0 7.2
Environmental Private Equity Fund II, L.P.(7)............. 1,462,315.25 5.6 4.4
The Productivity Fund III, L.P.(8)........................ 1,462,315.25 5.6 4.4
Ganapathy Krishnan, Ph.D.(9).............................. 879,648 3.3 2.7
Mark C. McClure........................................... 127,711 * *
Jacob I. Friesel.......................................... -- -- --
David M. Lonsdale......................................... -- -- --
John R. Snedegar.......................................... -- -- --
All directors and executive officers as a group (15
persons)(10)............................................ 8,778,429 32.0 26.4
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) The address of 24/7 Media, Inc. and Mr. Friesel is 1250 Broadway, 28th
Floor, New York, NY 10001. 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, 223 South Wacker
Drive, Chicago, IL 60606. The address of CB Capital Investors, L.P. is 380
Madison Avenue, 12th Floor, New York, NY 10017. The address of Messrs.
Walker, McClure, Lonsdale and Snedegar is c/o ShopNow.com, 411 First Avenue
South, Suite 200 North, Seattle, Washington 98101.
(2) Includes 860,000 shares issuable pursuant to warrants held by 24/7 Media,
Inc. that are currently exercisable.
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(3) Includes 1,462,315.25 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.
(4) Includes 1,462,315.25 shares held by each of the Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Terbeek was
formerly 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.
(5) Includes 555,556 shares issuable pursuant to a warrant held by CB Capital
Investors, L.P. that is currently exercisable.
(6) Includes 523,600 shares held by Mr. Walker that are currently exercisable or
exercisable within 60 days of July 27, 1999.
(7) Includes 6,250 shares issuable pursuant to a warrant held by the
Environmental Private Equity Fund II, L.P. that is currently exercisable.
(8) Includes 6,250 shares held by The Productivity Fund III, L.P. that is
currently exercisable.
(9) Includes 64,475 shares issuable pursuant to options held by Dr. Krishnan
that are currently exercisable within 60 days of July 27, 1999.
(10) Includes 1,218,143 shares issuable pursuant to options held by the
directors and officers that are currently exercisable or exercisable within
60 days of July 27, 1999. Also includes the 1,462,315.25 shares held by each
of the Environmental Private Equity Fund II, L.P. and The Productivity Fund
III, L.P. referenced in footnotes (3) and (4) above.
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 June 30, 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 24,154,706 shares of common stock held of record by approximately
400 shareholders and options to purchase 8,206,657 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
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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, Series H and Series
I convertible 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 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 4,234,618 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 party with which ShopNow has a business
relationship to enter into an agreement with ShopNow.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of 20,194,563
shares of common stock to be issued upon the automatic conversion of our
preferred stock and the exercise and automatic conversion of the warrants to
purchase our Series C convertible preferred stock, 4,234,618 shares issuable
upon exercise of our outstanding warrants and 6,060,143 shares of outstanding
common 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
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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 holder's 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 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
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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.
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 Continental Stock
Transfer & Trust Company.
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
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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 33,254,706
shares of common stock outstanding, based upon shares outstanding as of June 30,
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 20,194,563 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 7,000,000 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. Of the remaining
26,254,706 shares of common stock held by existing shareholders, 26,159,231
shares 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. At various times after expiration of the lock-up
agreements, these restricted securities will be eligible for sale in the public
market, subject, in some cases, to volume limitations. In addition, as of June
30, 1999, there were outstanding options to purchase 6,901,578 shares of common
stock and warrants to purchase 4,234,618 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 332,000 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
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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 nine months after the date of this offering, holders of
24,350,756 shares of common stock and holders of warrants to purchase 4,234,618
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 to the extent such
shares are not already freely tradeable.
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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.
The underwriters purchase the shares directly from us for resale to the public
in this offering. The representatives manage the solicitation of purchasers in
the offering in exchange for a management fee. The underwriters may sell shares
directly to the public, or may sell them to securities dealers for resale to the
public.
<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 conditions, including the absence of any material adverse change
in our business and the receipt of certificates, opinions and letters from us,
our outside counsel, our general counsel and our independent public accountants
making representations regarding our business and the information contained in
this prospectus. Other than those shares covered by the over-allotment option
described below, the underwriters will be obligated to purchase all the shares
of common stock offered by this prospectus if any are purchased. The
underwriting agreement provides that, in the event of a default by an
underwriter, 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
1,050,000 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 securities dealers at such price less a concession not in
excess of $ per share. These concessions may be reclaimed by the underwriters
in certain circumstances if a dealer's client purchases and resells shares sold
in the offering within 30 days of the date of this prospectus and the
underwriters are purchasing shares in the open market. 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 public offering
price, underwriting discount to be paid to the underwriters by us, the proceeds
before expenses to us and the expenses of the offering payable by us. This
information is presented assuming either no exercise or full exercise by the
73
<PAGE>
underwriters of their over allotment option. The underwriters' compensation was
determined through arms-length negotiation between the representatives and
ShopNow.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------
<S> <C> <C> <C>
Public offering price.................................................. $ $ $
Underwriting discount paid by ShopNow..................................
Proceeds, before expenses, to ShopNow..................................
Expenses payable by ShopNow............................................
</TABLE>
The underwriting fee will be an amount equal to the initial public offering
price per share of common stock, less the amount paid by the underwriters to us
per share of common stock. The underwriting fee is currently expected to be
approximately 7%.
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 180 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 of this prospectus.
The underwriters do not intend to confirm sales to any accounts over which
they have discretionary authority.
The underwriters intend to reserve for sale, at the initial public offering
price, up to 350,000 shares of common stock for persons selected by us who have
expressed an interest in purchasing shares of common stock in this offering. 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 connection with these liabilities.
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
74
<PAGE>
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 a 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 these 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.
75
<PAGE>
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 firm as 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.
76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma Combined Financial Information
Unaudited Pro Forma Combined Statements of Operations.................................................... F-3
Notes to Unaudited Pro Forma Combined Financial Statements............................................... F-5
ShopNow.com Inc.
Report of Independent Public Accountants................................................................. F-7
Consolidated Balance Sheets.............................................................................. F-8
Consolidated Statements of Operations.................................................................... F-9
Consolidated Statements of Comprehensive Loss............................................................ 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-33
Balance Sheets........................................................................................... F-34
Statements of Operations................................................................................. F-35
Statements of Shareholder's Equity....................................................................... F-36
Statements of Cash Flows................................................................................. F-37
Notes to Financial Statements............................................................................ F-38
The Internet Mall, Inc.
Report of Independent Public Accountants................................................................. F-42
Balance Sheets........................................................................................... F-43
Statements of Operations................................................................................. F-44
Statements of Shareholders' Equity....................................................................... F-45
Statements of Cash Flows................................................................................. F-46
Notes to Financial Statements............................................................................ F-47
GO Software, Inc.
Report of Independent Auditors........................................................................... F-53
Balance Sheets........................................................................................... F-54
Statements of Operations................................................................................. F-55
Statements of Shareholders' Equity (Deficit)............................................................. F-56
Statements of Cash Flows................................................................................. F-57
Notes to Financial Statements............................................................................ F-58
</TABLE>
F-1
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined statement of operations of ShopNow.com Inc.
for the year ended December 31, 1998 and for the six months ended June 30, 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.
Separate historical financial information required under Rule 3-05 of
Regulation S-X or pro forma financial information under Article 11 of Regulation
S-X for the acquisition of e-Warehouse and CyberTrust, Inc. is not provided
because we do not have access to the books and records due to disputes
surrounding the acquisitions and the amounts are not considered meaningful since
the Company has written off the majority of the purchase price due to the
impairment of the acquired technology.
The unaudited pro forma combined statements of operations are presented for
informational purposes only and do not purport to represent what the Company's
results of operations for the year ended December 31, 1998 or for the six months
ended June 30, 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 statements 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 STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
(JANUARY 1, 1998 (JANUARY 1, 1998
TO TO
AUGUST 8, 1998) SEPTEMBER 17,
SHOPNOW.COM THE INTERNET MALL, 1998) GO SOFTWARE, PRO FORMA
INC. INC. MEDIA ASSETS, INC. INC. ADJUSTMENTS
--------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Transactions and
merchandising............. $ 4,211 $ 175 $ -- $1,346 $(3,931)(c)
Merchant services........... 2,943 -- 4,833 -- (527)(c)
--------------- ----- ------ ------ -----------
Total revenues............ 7,154 175 4,833 1,346 (4,458)
--------------- ----- ------ ------ -----------
Cost of revenues:
Transactions and
merchandising............. 4,493 24 -- 55 (4,351)(c)
Merchant services........... 1,356 -- 2,808 -- (101)(c)
--------------- ----- ------ ------ -----------
Total cost of revenues.... 5,849 24 2,808 55 (4,452)
--------------- ----- ------ ------ -----------
Gross profit............ 1,305 151 2,025 1,291 (6)
--------------- ----- ------ ------ -----------
Operating expenses:
Sales and marketing......... 12,183 56 1,365 143 (2,956)(c)
General and
administrative............ 3,549 275 318 1,006 (1,083)(c)
Research and development.... 4,370 114 -- 253 (1,061)(c)
Amortization of intangible
assets.................... 730 -- 1 -- 5,567(a)
Stock-based compensation.... 182 -- -- -- --
Unusual item--impairment of
acquired technology....... 5,207 -- -- -- --
--------------- ----- ------ ------ -----------
Total operating
expenses................ 26,221 445 1,684 1,402 467
--------------- ----- ------ ------ -----------
Income (loss) from
operations.................. (24,916) (294) 341 (111) (473)
Other income (expense), net... 171 (13) 17 41 (125)(b)
--------------- ----- ------ ------ -----------
Loss before provision for
income taxes................ (24,745) (307) 358 (70) (598)
Provision for income taxes.... -- -- -- 17 (17)(d)
--------------- ----- ------ ------ -----------
Net (loss) income....... $ (24,745) $(307) $ 358 $ (53) $ (615)
--------------- ----- ------ ------ -----------
--------------- ----- ------ ------ -----------
Basic and diluted net loss per
share....................... $ (7.01)
---------------
---------------
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share................... 3,532,054
---------------
---------------
Basic and diluted pro forma
net loss per share.......... $ (1.92)
---------------
---------------
Weighted average shares used
to compute basic and diluted
pro forma net loss per
share....................... 12,857,745
---------------
---------------
<CAPTION>
PRO FORMA
COMBINED
TOTAL
-------------
<S> <C>
Revenues:
Transactions and
merchandising............. $ 1,801
Merchant services........... 7,249
-------------
Total revenues............ 9,050
-------------
Cost of revenues:
Transactions and
merchandising............. 221
Merchant services........... 4,063
-------------
Total cost of revenues.... 4,284
-------------
Gross profit............ 4,766
-------------
Operating expenses:
Sales and marketing......... 10,791
General and
administrative............ 4,065
Research and development.... 3,676
Amortization of intangible
assets.................... 6,298
Stock-based compensation.... 182
Unusual item--impairment of
acquired technology....... 5,207
-------------
Total operating
expenses................ 30,219
-------------
Income (loss) from
operations.................. (25,453)
Other income (expense), net... 91
-------------
Loss before provision for
income taxes................ (25,362)
Provision for income taxes.... --
-------------
Net (loss) income....... $ (25,362)
-------------
-------------
Basic and diluted net loss per
share....................... $ (4.61)
-------------
-------------
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share................... 5,505,881
-------------
-------------
Basic and diluted pro forma
net loss per share.......... $ (1.71)
-------------
-------------
Weighted average shares used
to compute basic and diluted
pro forma net loss per
share....................... 14,842,525
-------------
-------------
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
(JANUARY 1, 1999
TO JUNE 15, 1999) PRO FORMA PRO FORMA
SHOPNOW.COM INC. GO SOFTWARE, INC. ADJUSTMENTS COMBINED TOTAL
----------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues:
Transactions and merchandising.............. $ 11,630 $ 728 $ (9,747)(c) $ 2,611
Merchant services........................... 4,352 -- (176)(c) 4,176
----------------- ------ ----------- --------------
Total revenues............................ 15,982 728 (9,923) 6,787
----------------- ------ ----------- --------------
Cost of revenues:
Transactions and merchandising.............. 12,177 45 (11,153)(c) 1,069
Merchant services........................... 2,506 -- (37)(c) 2,469
----------------- ------ ----------- --------------
Total cost of revenues.................... 14,683 45 (11,190) 3,538
----------------- ------ ----------- --------------
Gross profit............................ 1,299 683 1,267 3,249
----------------- ------ ----------- --------------
Operating expenses:
Sales and marketing......................... 18,279 172 (2,886)(c) 15,565
General and administrative.................. 2,480 514 (436)(c) 2,558
Research and development.................... 2,934 182 (10)(c) 3,106
Amortization of intangible assets........... 1,639 -- 1,999(a) 3,638
Stock-based compensation.................... 1,956 -- -- 1,956
Unusual item--impairment of acquired
technology................................ -- -- -- --
----------------- ------ ----------- --------------
Total operating expenses.................. 27,288 868 (1,333) 26,823
----------------- ------ ----------- --------------
Income (loss) from operations (25,989) (185) 2,600 (23,574)
Other income (expense), net................. (245) 12 (50)(b) (283)
----------------- ------ ----------- --------------
Loss before provision for income taxes...... (26,234) (173) 2,550 (23,857)
Provision for income taxes.................. -- 12 (12)(d) --
----------------- ------ ----------- --------------
Net (loss) income....................... (26,234) (161) 2,538 (23,857)
----------------- ------ ----------- --------------
----------------- ------ ----------- --------------
Basic and diluted net loss per share.......... $ (5.50) $ (4.11)
----------------- --------------
----------------- --------------
Weighted average shares outstanding used to
compute basic and diluted net loss per
share....................................... 4,768,405 5,799,028
----------------- --------------
----------------- --------------
Basic and diluted pro forma net loss per
share....................................... $ (1.32) $ (1.14)
----------------- --------------
----------------- --------------
Weighted average shares used to compute basic
and diluted pro forma net loss per share.... 19,868,479 20,899,387
----------------- --------------
----------------- --------------
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
The unaudited pro forma combined statement of operations for the year ended
December 31, 1998 and for the six months ended June 30, 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.
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 amortization of intangible assets based on the excess purchase
price. As Media Assets, Inc. and The Internet Mall, Inc. were acquired
during 1998 and GO Software was acquired on June 15, 1999, amortization
is based on 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................................... 4,798
---------
Total 1998 pro forma amortization............................... $ 5,567
---------
---------
Five months of 1999--GO Software, Inc............................... $ 1,999
---------
---------
</TABLE>
All intangible assets are amortized over three years.
(b) 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 six months of interest expense associated with the GO
Software, Inc. convertible promissory note totaling $100 and $50,
respectively.
(c) 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
through June 30, 1999. The Company ceased operations of BuySoftware.com
in June 1999. 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.
(d) To eliminate tax benefits recorded by GO Software, Inc., which may not
be realized by the Company.
(e) 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
F-5
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. PRO FORMA ADJUSTMENTS: (CONTINUED)
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.
3.RECONCILIATION OF HISTORICAL WEIGHTED AVERAGE SHARES TO PRO FORMA
WEIGHTED AVERAGE SHARES:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Historical.................................................. 3,532,054 4,768,405
Internet Mall, January 1, 1998 - August 8, 1998............. 426,024 --
Media Assets, January 1, 1998 - September 17, 1998.......... 424,052 --
Go Software, January 1, 1998 - December 31, 1998; January 1,
1999 - June 15, 1999...................................... 1,123,751 1,030,623
----------------- -------------
Pro forma................................................... 5,505,881 5,799,028
----------------- -------------
----------------- -------------
</TABLE>
F-6
<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 June 30, 1999, and the related consolidated statements of operations,
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the years in the three year period ended December 31, 1998 and for the six
months ended June 30, 1999. 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 June 30, 1999, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1998 and for the six months ended June 30, 1999, 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,
August 24, 1999
F-7
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, PRO FORMA
-------------------- --------------- SHAREHOLDERS'
1997 1998 1999 EQUITY AT JUNE 30,
--------- --------- --------------- 1999
-------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 376 $ 9,820 $ 6,241
Short-term investments.................................. -- 179 233
Accounts receivable, net................................ 146 2,266 3,039
Unbilled services....................................... -- 1,448 241
Prepaid expenses and other.............................. 192 709 1,474
--------- --------- ---------------
Total current assets.................................. 714 14,422 11,228
Property and equipment, net............................... 472 4,185 9,627
Goodwill, net............................................. -- 515 1,098
Other intangible assets, net.............................. 582 3,944 20,407
Investment in marketable equity securities................ -- -- 18,818
Other assets, net......................................... 562 717 3,072
--------- --------- ---------------
Total assets.......................................... $ 2,330 $ 23,783 $ 64,250
--------- --------- ---------------
--------- --------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 1,083 $ 3,551 $ 5,556
Accrued liabilities..................................... 502 1,132 3,507
Line of credit.......................................... 200 238 999
Current portion of notes and leases..................... 1,684 1,133 8,371
Customer deposits....................................... -- 2,155 1,196
Deferred revenue........................................ -- 535 365
--------- --------- ---------------
Total current liabilities............................. 3,469 8,744 19,994
Notes and leases payable, less current
portion................................................. 884 1,837 6,170
Put warrant liability..................................... -- -- 1,350
--------- --------- ---------------
Total liabilities..................................... 4,353 10,581 27,514
Commitments (Note 8)
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
17,927,516 in 1999, preference in liquidation of
$79,853 in 1999....................................... 3,403 35,070 72,510 $ --
Common stock, $0.01 par value: Authorized
shares--40,000,000, issued shares--2,763,055 in
1997, 4,602,573 in 1998, and 6,060,143 in 1999........ (808) 6,559 21,839 94,349
Common stock warrants................................... -- 1,866 5,705 5,705
Deferred compensation................................... -- (930) (3,213) (3,213)
Unrealized loss on investments.......................... -- -- (4,508) (4,508)
Accumulated deficit..................................... (4,618) (29,363) (55,597) (55,597)
--------- --------- --------------- --------
Total shareholders' equity (deficit).................. (2,023) 13,202 36,736 $ 36,736
--------- --------- --------------- --------
--------
Total liabilities and shareholders' equity
(deficit)........................................... $ 2,330 $ 23,783 $ 64,250
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-8
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
Revenues:
Transactions and merchandising..... $ -- $ 69 $ 4,211 $ 743 $ 11,630
Merchant services.................. 993 535 2,943 396 4,352
--------- --------- --------- ----------- ---------
Total revenues................... 993 604 7,154 1,139 15,982
--------- --------- --------- ----------- ---------
Cost of revenues:
Transactions and merchandising..... -- 159 4,493 1,058 12,177
Merchant services.................. 430 356 1,356 127 2,506
--------- --------- --------- ----------- ---------
Total cost of revenues........... 430 515 5,849 1,185 14,683
--------- --------- --------- ----------- ---------
Gross margin................... 563 89 1,305 (46) 1,299
--------- --------- --------- ----------- ---------
Operating expenses:
Sales and marketing................ 610 1,201 12,183 4,477 18,279
General and administrative......... 656 918 3,549 1,353 2,480
Research and development........... 25 2,436 4,370 1,442 2,934
Amortization of intangible
assets........................... 32 136 730 118 1,639
Stock-based compensation........... -- -- 182 2 1,956
Unusual item--impairment of
acquired technology.............. -- -- 5,207 -- --
--------- --------- --------- ----------- ---------
Total operating expenses......... 1,323 4,691 26,221 7,392 27,288
--------- --------- --------- ----------- ---------
Loss from operations........... (760) (4,602) (24,916) (7,438) (25,989)
Other income (expense), net.......... (50) (164) 171 109 (245)
--------- --------- --------- ----------- ---------
Net loss....................... $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic and diluted net loss per
share.............................. $ (0.40) $ (1.83) $ (7.01) $ (2.54) $ (5.50)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Weighted average shares outstanding
used to compute basic and diluted
net loss per share................. 2,012,285 2,608,398 3,532,054 2,883,883 4,768,405
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic and diluted pro forma net loss
per share.......................... $ (1.92) $ (1.32)
--------- ---------
--------- ---------
Weighted average shares outstanding
used to compute basic and diluted
pro forma net loss per share....... 12,857,745 19,868,479
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------------- ----------------------------
1996 1997 1998 1999
--------- --------- ---------- 1998 -----------
---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss............................................ $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)
Unrealized loss on investments...................... -- -- -- -- (4,508)
--------- --------- ---------- ------- -----------
Comprehensive loss.................................. $ (810) $ (4,766) $ (24,745) $ (7,329) $ (30,742)
--------- --------- ---------- ------- -----------
--------- --------- ---------- ------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- --------------------- COMMON STOCK
SHARES AMOUNT SHARES AMOUNT WARRANTS
----------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995............................. -- $ -- 1,946,684 $ 246 $ --
Issuance of common stock.............................. -- -- 391,429 80 --
Repurchase of common stock............................ -- -- (342,391) (51) --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1996............................. -- -- 1,995,722 275 --
Net loss January 1, 1997 through February 25, 1997.... -- -- -- -- --
Conversion from S Corporation to C Corporation........ -- -- -- (1,252) --
Conversion of shareholder notes into Series A
preferred stock..................................... 699,612 350 -- -- --
Issuance of Series B preferred stock.................. 2,334,079 1,800 -- -- --
Issuance of common stock.............................. -- -- 600,000 90 --
Repurchase of common stock............................ -- -- (10,000) (10) --
Conversion of shareholder notes into Series C
preferred stock..................................... 835,205 1,253 -- -- --
Conversion of shareholder notes into common stock..... -- -- 177,333 89 --
Net loss, February 26, 1997 through December 31,
1997................................................ -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1997............................. 3,868,896 3,403 2,763,055 (808) --
Issuance of Series D preferred stock.................. 4,250,000 13,461 -- -- 673
Common stock, options and warrants issued for
businesses acquired................................. -- -- 1,744,692 6,105 --
Issuance of Series E preferred stock and warrants to
acquire common stock................................ 2,125,000 7,672 -- -- 328
Issuance of Series F preferred stock and warrants to
acquire common stock................................ 2,056,000 10,534 -- -- 865
Exercise of common stock options...................... -- -- 32,499 25 --
Issuance of common stock in consideration for
professional services............................... -- -- 62,327 125 --
Issuance of compensatory stock options................ -- -- -- 1,112 --
Compensation attributable to stock options............ -- -- -- -- --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1998............................. 12,299,896 35,070 4,602,573 6,559 1,866
Issuance of Series F preferred stock and warrants to
acquire common stock................................ 280,000 1,400 -- -- --
Issuance of Series G preferred stock and warrants to
acquire common stock................................ 5,014,286 33,200 -- -- 1,900
Issuance of Series H preferred stock and warrants to
acquire common stock................................ 333,334 2,840 -- -- 160
Common stock and options issued for businesses
acquired............................................ -- -- 1,366,787 11,496 --
Issuance of warrants in connection with debt
financings.......................................... -- -- -- -- 569
Issuance of warrants and options to business
partners............................................ -- -- -- -- 1,210
Exercise of common stock options...................... -- -- 209,011 123 --
Issuance of common stock in consideration for customer
lists and services.................................. -- -- 11,000 68 --
Repurchase of common stock............................ -- -- (129,228) (46) --
Issuance of compensatory stock options................ -- -- -- 3,639 --
Compensation attributable to stock options............ -- -- -- -- --
Unrealized loss on investments........................ -- -- -- -- --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, June 30, 1999................................. 17,927,516 $ 72,510 6,060,143 $ 21,839 $ 5,705
----------- --------- ---------- --------- ------
----------- --------- ---------- --------- ------
<CAPTION>
ACCUMULATED TOTAL
OTHER SHAREHOLDERS'
DEFERRED COMPREHENSIVE ACCUMULATED EQUITY
COMPENSATION LOSS DEFICIT (DEFICIT)
------------ --------------- ------------- --------------
<S> <C> <C> <C> <C>
Balances, December 31, 1995............................. $ -- $ -- $ (294) $ (48)
Issuance of common stock.............................. -- -- -- 80
Repurchase of common stock............................ -- -- -- (51)
Net loss.............................................. -- -- (810) (810)
------------ ------- ------------- --------------
Balances, December 31, 1996............................. -- -- (1,104) (829)
Net loss January 1, 1997 through February 25, 1997.... -- -- (148) (148)
Conversion from S Corporation to C Corporation........ -- -- 1,252 --
Conversion of shareholder notes into Series A
preferred stock..................................... -- -- -- 350
Issuance of Series B preferred stock.................. -- -- -- 1,800
Issuance of common stock.............................. -- -- -- 90
Repurchase of common stock............................ -- -- -- (10)
Conversion of shareholder notes into Series C
preferred stock..................................... -- -- -- 1,253
Conversion of shareholder notes into common stock..... -- -- -- 89
Net loss, February 26, 1997 through December 31,
1997................................................ -- -- (4,618) (4,618)
------------ ------- ------------- --------------
Balances, December 31, 1997............................. -- -- (4,618) (2,023)
Issuance of Series D preferred stock.................. -- -- -- 14,134
Common stock, options and warrants issued for
businesses acquired................................. -- -- -- 6,105
Issuance of Series E preferred stock and warrants to
acquire common stock................................ -- -- -- 8,000
Issuance of Series F preferred stock and warrants to
acquire common stock................................ -- -- -- 11,399
Exercise of common stock options...................... -- -- -- 25
Issuance of common stock in consideration for
professional services............................... -- -- -- 125
Issuance of compensatory stock options................ (1,112 ) -- -- --
Compensation attributable to stock options............ 182 -- -- 182
Net loss.............................................. -- -- (24,745) (24,745)
------------ ------- ------------- --------------
Balances, December 31, 1998............................. (930 ) -- (29,363) 13,202
Issuance of Series F preferred stock and warrants to
acquire common stock................................ -- -- -- 1,400
Issuance of Series G preferred stock and warrants to
acquire common stock................................ -- -- -- 35,100
Issuance of Series H preferred stock and warrants to
acquire common stock................................ -- -- -- 3,000
Common stock and options issued for businesses
acquired............................................ -- -- -- 11,496
Issuance of warrants in connection with debt
financings.......................................... -- -- -- 569
Issuance of warrants and options to business
partners............................................ -- -- -- 1,210
Exercise of common stock options...................... -- -- -- 123
Issuance of common stock in consideration for customer
lists and services.................................. -- -- -- 68
Repurchase of common stock............................ -- -- -- (46)
Issuance of compensatory stock options................ (3,639 ) -- -- --
Compensation attributable to stock options............ 1,356 -- -- 1,356
Unrealized loss on investments........................ -- (4,508) -- (4,508)
Net loss.............................................. -- -- (26,234) (26,234)
------------ ------- ------------- --------------
Balances, June 30, 1999................................. $ (3,213 ) $ (4,508) $ (55,597) $ 36,736
------------ ------- ------------- --------------
------------ ------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net loss............................................ $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)
Adjustments to reconcile net loss to net cash used
in operating activities--
Unusual item--impairment of acquired
technology...................................... -- -- 5,207 -- --
Depreciation and amortization..................... 35 277 1,602 237 2,707
Write down of long-term investments............... -- 34 -- -- --
Amortization of deferred compensation............. -- -- 182 2 1,356
Operating expenses paid in stock and warrants..... -- -- 125 125 1,214
Changes in operating assets and liabilities, net
of effect of businesses acquired:
Accounts receivable............................. (15) (51) 2,107 (578) (756)
Prepaid expenses and other current assets....... (22) (189) (77) (788) (895)
Other assets.................................... -- -- -- -- (325)
Unbilled services and customer deposits, net.... -- -- (3,713) -- 249
Accounts payable................................ 218 831 2,303 1,530 1,869
Accrued liabilities............................. 29 417 521 324 2,295
Deferred revenue................................ -- -- 535 152 (300)
--------- --------- ---------- ----------- ----------
Net cash used in operating activities......... (565) (3,447) (15,953) (6,325) (18,820)
--------- --------- ---------- ----------- ----------
Investing activities:
Purchases of property and equipment................. (31) (481) (2,189) (1,810) (5,262)
Purchase of short-term investments, net............. -- -- (179) (500) (54)
Purchase of domain names............................ -- -- -- -- (149)
Investments in common stock and other assets........ -- (943) (147) (278) (635)
Acquisition of businesses, net of cash acquired of
$2,850 in the year ended December 31, 1998 and
$640 in the six-month period ended June 30,
1999.............................................. -- (250) (2,851) (4,000) (3,950)
--------- --------- ---------- ----------- ----------
Net cash used in investing activities......... (31) (1,674) (5,366) (6,588) (10,050)
--------- --------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Financing activities:
Borrowings under bank line of credit........................ $ -- $ 200 $ 38 $ 38 $ 999
Principal payments under bank line of credit................ (1) (78) -- -- (238)
Proceeds from sale of common stock.......................... 80 -- 25 8 123
Common stock repurchased.................................... (51) (10) -- -- (46)
Proceeds from sale of preferred stock and warrants, net of
issuance costs............................................ -- 1,800 33,034 21,957 14,400
Proceeds from convertible subordinated notes................ -- 1,253 -- -- --
Proceeds from long-term debt................................ 603 2,562 3,700 -- 10,632
Payments on long-term debt.................................. (61) (242) (6,034) (1,834) (579)
--------- --------- --------- ----------- ---------
Net cash provided by financing activities............. 570 5,485 30,763 20,169 25,291
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (26) 364 9,444 7,256 (3,579)
Cash and cash equivalents at beginning of period............ 38 12 376 376 9,820
--------- --------- --------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 12 $ 376 $ 9,820 $ 7,632 $ 6,241
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Supplementary disclosure of cash flow information:
Cash paid during the period for interest.................. $ 50 $ 11 $ 232 $ 52 $ 185
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Non-cash investing and financing activities:
Common stock, options and warrants issued as part of
business and technology acquisitions.................... $ -- $ 90 $ 6,105 $ 1,485 $ 11,560
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Conversion of note payable and convertible subordinated
debt to preferred stock................................. $ -- $ 1,603 $ 500 $ 500 $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Conversion of note payable to common stock................ $ -- $ 89 $ -- $ -- $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Assets acquired under capital leases...................... $ -- $ 125 $ 2,092 $ 1,730 $ 1,378
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
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 ceased operating the BuySoftware.com retailing
business. Given the Company's continued involvement in certain retailing
activities, the results of BuySoftware.com has been reflected in continuing
operations until the date operations ceased, 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 for the six month period ended
June 30, 1998 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.
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 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.
F-14
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
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 revenues from fixed and unit price contracts are
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 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.
F-15
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
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.
GOODWILL AND OTHER 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 and other assets when events and circumstances indicate
that such assets might be impaired. The company considers factors such as
significant changes in the regulatory or business climate and projected future
cash flows from the respective asset. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset (See Note 9). Other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Customer lists................................................... $ -- $ 1,978 $ 2,698
Domain names..................................................... -- 1,533 1,691
Acquired technology.............................................. 379 840 18,128
Other............................................................ 340 386 401
--------- --------- ---------
719 4,737 22,918
Less--Accumulated amortization................................... (137) (793) (2,511)
--------- --------- ---------
$ 582 $ 3,944 $ 20,407
--------- --------- ---------
--------- --------- ---------
</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. In addition, in
accordance with Staff Accounting Bulletin Topic 4B, the Company has reclassified
accumulated losses incurred prior to the date of conversion to C Corporation
status from retained earnings to common stock.
F-16
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
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 and the period ended June 30, 1999, 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 and the six month period ended June 30, 1999,
the Company incurred advertising and direct marketing expenses of approximately
$0, $470, $5.7 million and $9.0 million, respectively.
F-17
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
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 June 30, 1999, as adjusted for the conversion of preferred stock, is
presented in the accompanying consolidated balance sheet.
STATEMENT OF COMPREHENSIVE LOSS
There were no reclassification adjustments as defined in SFAS 130,
"Reporting Comprehensive Income" or income tax provision related to the
unrealized loss on investments during the six month period ended June 30, 1999.
RECLASSIFICATIONS
Certain information reported in previous years has been reclassified to
conform to the 1999 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 Costs 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 did not 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
did not have a material impact on the company's financial position or results of
operations.
F-18
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Computer equipment................................. $ 601 $ 3,313 $ 6,030
Furniture and fixtures............................. 14 568 947
Software........................................... 42 759 4,226
Leasehold improvements............................. 2 548 585
--------- --------- ---------
659 5,188 11,788
Less--Accumulated depreciation and amortization.... (187) (1,003) (2,161)
--------- --------- ---------
Property and equipment, net........................ $ 472 $ 4,185 $ 9,627
--------- --------- ---------
--------- --------- ---------
</TABLE>
Property and equipment shown above include assets under capital leases of
approximately $125, $2.2 million and $3.6 million at December 31, 1997 and 1998
and June 30, 1999, with corresponding accumulated amortization of $60 and $270
and 675 at December 31, 1997 and 1998 and June 30, 1999, respectively.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Merchant services contracts....................................... $ -- $ 2,103 $ 1,680
Transaction and merchandising services............................ 169 393 2,136
--------- --------- -----------
169 2,496 3,816
Less--Allowance for doubtful accounts............................. (23) (230) (777)
--------- --------- -----------
$ 146 $ 2,266 $ 3,039
--------- --------- -----------
--------- --------- -----------
</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 June 30, 1999, one customer
accounted for 21% of the accounts receivable balance.
4. INVESTMENT IN MARKETABLE EQUITY SECURITIES:
As discussed in Note 11, the Company received 466,683 shares of common stock
in 24/7 Media. As of June 30, 1999 the Company holds 476,410 shares. 24/7 Media
is a public company subject to the reporting requirements of the US Securities
and Exchange Commission. The Company classifies the investment as available for
sale and are stated at fair value in accordance with SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities". The statement specifies
that available for sale securities are reported at fair value with changes in
unrealized gains and losses recorded directly to shareholders' equity. Fair
value is based on quoted market prices.
F-19
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
5. ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Accrued compensation and benefits................................. $ 324 $ 576 $ 879
Accrued marketing expenses........................................ -- -- 1,396
Other accrued liabilities......................................... 178 556 1,232
--------- --------- -----------
$ 502 $ 1,132 $ 3,507
--------- --------- -----------
--------- --------- -----------
</TABLE>
6. LINE OF CREDIT:
The Company had a line of credit with a financial institution with a maximum
balance of $300. 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 in February 1999. 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 allowing the Company to borrow up to $8.5
million at any one time, consisting of a $3.5 million term loan (term loan), a
$4.0 million bridge loan (bridge loan) and a line of credit of up to $2.5
million ($1.0 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 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 December 1, 1999 or a debt or equity financing by the
Company surpassing $10.0 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. The warrants are exercisable immediately and expire in March
2006. 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. The warrants are exercisable immediately and expire in
June 2006.
F-20
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
7. NOTES AND LEASES PAYABLE:
<TABLE>
<CAPTION>
DECEMBER
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Subordinated demand notes payable bearing interest at 9%; in January 1998,
principal converted to preferred stock and interest was paid
in cash.......................................................................... $ 500 $ -- $ --
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 -- --
Convertible note payable to shareholder, interest at applicable short-term federal
rate, quarterly principal and interest payments totaling $113; final payment due
in October 2000. The note is convertible to common stock at $8.00 per share...... -- 859 626
Convertible note payable to shareholder, interest at 10% with principal due the
earlier of June 15, 2000 or upon effectiveness of an initial public offering, at
which time the note is convertible into common stock at the option of the
holder........................................................................... -- -- 1,000
Bridge note payable with interest at 12% due upon the earlier of December 1, 1999
or the date of certain milestones................................................ -- -- 3,794
Term note payable bearing interest at 12%, maturity date March, 2002............... -- -- 3,500
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 2,111 5,621
--------- --------- -----------
2,568 2,970 14,541
Less--current portion.............................................................. (1,684) (1,133) (8,371)
--------- --------- -----------
$ 884 $ 1,837 $ 6,170
--------- --------- -----------
--------- --------- -----------
</TABLE>
In September 1997, the Company issued 9% Subordinated Demand Notes totaling
$500 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 was paid in cash.
In November 1997, the Company completed a bridge financing with individual
investors and executed Promissory Notes with principal totaling $1,775. 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 plus interest of
$61 was paid in full. The placement agent and the holders of the Promissory
Notes also received warrants to purchase 177,500 and 62,125 shares of the
Company's common stock, respectively, at $1.50 per share. The warrants are
exercisable immediately and expire in October 2000.
In October 1998, the Company completed a bridge financing with individual
investors and executed Promissory notes with principal totaling $3.7 million.
The interest on this principal was 13% per year. In connection with the
Company's Series F equity placement in December 1998, the $3,700 plus interest
of $12 was paid in full. The placement agent and the holders of the promissory
notes also received 129,500 and 129,500 warrants, respectively, to purchase a
total of 259,000 shares of the
F-21
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
7. NOTES AND LEASES PAYABLE: (CONTINUED)
Company's common stock at $4.00 per share. The warrants are exercisable
immediately and expire in October 2001.
Notes and leases payable mature as follows for the periods ending June 30:
<TABLE>
<S> <C>
2000............................................................................ $ 8,371
2001............................................................................ 4,104
2002............................................................................ 1,862
2003............................................................................ 204
----------
$ 14,541
----------
----------
</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.
8. COMMITMENTS:
The Company is obligated under capital and operating leases for its
headquarters and various equipment leases. The leases expire through 2004.
Future minimum lease payments under these leases are as follows for the periods
ending June 30:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
2000..................................................................... $ 2,105 $ 702
2001..................................................................... 3,407 583
2002..................................................................... 842 233
2003..................................................................... 232 --
2004..................................................................... 16 --
--------- -----------
6,602 $ 1,518
-----------
-----------
Less--Amounts representing interest...................................... (1,154)
---------
Net present value of minimum lease payments.............................. $ 5,448
---------
---------
</TABLE>
In 1999, the Company issued 62,400 warrants to purchase common stock at
$6.25 per share to two financial institutions in conjunction with certain leases
included above. The warrants are exercisable immediately and expire between June
2004 and April 2006.
Rental expense for the years ended December 31, 1996, 1997 and 1998 and the
six months ended June 30, 1999 was approximately $95, $127, $225 and $511,
respectively.
The Company has commitments under various business agreements to purchase
advertising totalling approximately $5.5 million in 1999, $6.0 million in 2000
and $3.5 million in 2001.
9. 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
F-22
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
9. ACQUISITIONS: (CONTINUED)
600,000 shares of the Company's common stock valued at $90, a convertible note
payable for $250 ($226 in principal and $24 in interest), and $25 in cash,
aggregating a total purchase price of $341. 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 amortized over a five
year life. In November 1997, the unpaid principal balance of $89 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 $4.0 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 impairment
of 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. As a result of the impairment, the
Company commenced legal proceedings in December 1998 against two of the
executives associated with the acquired companies. In January 1999, the two
executives filed a counterclaim against the Company. On August 10, 1999, all
legal proceedings were settled, resulting in an insignificant charge to the
Company.
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 in
cash, a promissory note for $1.0 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
$113 on the first day of each quarter
F-23
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
9. ACQUISITIONS: (CONTINUED)
commencing January 1, 1999 (with the exception of April 1, 1999, which shall be
$254) 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. In connection with this acquisition,
three employees were granted a total of 1.2 million options at exercise prices
between $2.00 and $3.00 per share to acquire the Company's common stock. The
vesting of these options was dependent upon the achievement of certain
performance measures related to business unit revenue and customer growth as
defined in the stock option agreements. The performance measures initially
established were well beyond the historical financial results achieved during
prior periods. As such, during the period these options were outstanding, the
thresholds established to trigger vesting were not considered achievable and
were not achieved. Thus, no measurement date for the options occurred since the
price of the options was fixed, the number of shares to be ultimately issued was
not known. Since these thresholds were not considered achievable, these options
were cancelled in May of 1999. The three employees were granted fixed-price
options to purchase 405,000 shares of the Company's common stock with time
vesting provisions not dependent upon performance. These options had the same
strike prices and vesting terms as the original grants. As the grant of the new
options created a new measurement date, the Company recorded $1.9 million of
deferred compensation for the difference between the strike price and the
underlying fair market value of the common stock at May 1999, which was
determined to be $7.22 per share, and recognized a compensation charge of
$831,000 for the immediately vested portion of these grants in the accompanying
consolidated June 30, 1999 financial statements.
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 1,123,751 shares of common stock, valued at
$8.54 per share, for a total purchase price of $15.4 million. The acquisition
was accounted for using the purchase method of accounting. Of the excess
purchase price of approximately $14.4 million, $13.8 million was allocated to
acquired technology and $556 was allocated to goodwill, which are both being
amortized over a three-year life. The note bears interest at 10% and is due on
the earlier of June 15, 2000 or upon the effective date of an initial public
offering, at which time the note becomes convertible to common stock at the
option of the holder at the initial public offering price per share.
In addition, as discussed in Note 11, the Company acquired CardSecure, Inc.
(CardSecure) in June 1999 for a purchase price of approximately $3.5 million.
CardSecure is a developer of e-commerce enabled Web sites. The acquisition was
accounted for using the purchase method of accounting. The excess purchase price
of approximately $3.5 million was allocated to acquired technology and is being
amortized over a three year life.
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 and six months ended
June 30, 1999, assuming the Media Assets, Inc., and The Internet Mall, Inc.
transactions occurred as of January 1, 1997 and the GO and CardSecure
transactions occurred as of January 1, 1998. Pro forma information for the
e-Warehouse, Inc. and CyberTrust, Inc. transactions is not presented as it is
not considered meaningful. The pro forma
F-24
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
9. ACQUISITIONS: (CONTINUED)
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)
YEAR ENDED
DECEMBER 31, SIX MONTHS
--------------------- ENDED
1997 1998 JUNE 30, 1999
--------- ---------- -------------
<S> <C> <C> <C>
Revenues................................................. $ 6,426 $ 13,508 16,710
Net loss before taxes.................................... $ (4,917) $ (24,764) (26,407)
Net loss per share....................................... $ (0.98) $ (4.49) $ (4.55)
</TABLE>
10. 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, and has
provided full valuation allowances 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
provision of zero recorded by the Company is primarily due to the Company's full
valuation allowance against its deferred tax assets.
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $47.0 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards are subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended due to the Series D and E financing transactions. The Company is limited
to approximately $3.0 million per year on net operating losses incurred prior to
April 1998. These carryforwards will begin to expire at various times commencing
in 2012.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net operating loss carryforwards.............................. $ 1,300 $ 7,500 16,000
Other......................................................... -- 200 200
--------- --------- ---------
Total deferred assets......................................... 1,300 7,700 16,200
Intangible assets............................................. -- (1,300) (7,311)
Valuation allowance for deferred tax assets................... (1,300) (6,400) (8,889)
--------- --------- ---------
Net deferred taxes............................................ $ -- $ -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
11. 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.
F-25
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
As of June 30, 1999, the Company had designated eight series of convertible
preferred stock (Series A through H). Amounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Series A preferred stock: Issued 699,612 shares in 1997, aggregate liquidation
preference $350............................................................... $ 350 $ 350 $ 350
Series B preferred stock: Issued 2,334,079 shares in 1997, aggregate liquidation
preference $1,800............................................................. 1,800 1,800 1,800
Series C preferred stock: Issued 835,205 shares in 1997, aggregate liquidation
preference $1,253............................................................. 1,253 1,253 1,253
Series D preferred stock: Issued 4,250,000 shares in 1998, aggregate liquidation
preference $17,000............................................................ -- 13,461 13,461
Series E preferred stock: Issued 2,125,000 shares in 1998, aggregate liquidation
preference $8,500............................................................. -- 7,672 7,672
Series F preferred stock: Issued 2,056,000 shares in 1998 and 2,336,000 in 1999,
aggregate liquidation preference $12,850...................................... -- 10,534 11,934
Series G preferred stock: Issued 5,014,286 shares in 1999, aggregate liquidation
preference $35,100............................................................ -- -- 33,200
Series H preferred stock: Issued 333,334 shares in 1999, aggregate liquidation
preference $3,000............................................................. -- -- 2,840
---------- ----------- -----------
$ 3,403 $ 35,070 $ 72,510
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Series A through H 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 H preferred stock is automatically converted into common stock.
The Series A through H 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 H 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 H shareholders, then all of the funds available shall be
distributed ratably based on their respective liquidation preferences among the
holders of Series A through H 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 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 that
expire on their
F-26
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
sixth anniversary date or the closing of an initial public offering 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. The warrants are currently exercisable and expire on their
third anniversary. In addition, the Company issued to the placement agent
625,000 warrants to purchase common stock at $4.40 per share. The warrants are
exercisable immediately and expire on their third anniversary.
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 2,336,000
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. The warrants are exercisable on the first anniversary of their issuance
and expire on their third anniversary. In addition, the Company issued to the
placement agent 233,600 warrants to purchase common stock at $6.25 per share.
The warrants are exercisable immediately and expire on their third anniversary.
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.
In March and April 1999, the Company completed a $5 million private equity
placement. The Company issued 714,286 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 warrants are exercisable immediately and expire on their third anniversary.
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 at $7.00 per share and 860,000 warrants to acquire common stock
at $7.00 per share in exchange for consideration valued at $30.1 million. The
warrants are exercisable immediately and expire on their third anniversary. The
purchase price consists of three parts: $5.0 million in cash, 466,683 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. In June, 1999,
the Company acquired 24/7 Media's interest in CardSecure, Inc. and also acquired
the remaining minority interest from CardSecure's founders and received 9,727
additional shares of 24/7 Media's common stock by issuing 243,036 shares of the
Company's common stock valued at $8.54 per share. The total purchase price for
CardSecure, Inc. was $3.5 million.
In May 1999, the Company completed a $3 million private equity placement.
The Company issued 333,334 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 warrants
are exercisable immediately and expire on their third anniversary.
F-27
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
In July 1999 the Company closed a $18.9 million private equity placement
with a financial institution pursuant to the terms of a stock purchase agreement
which had been entered into on June 17, 1999. The closing of the private equity
placement was subject only to shareholder approval of an amendment to the
Company's Articles of Incorporation and the receipt of Hart-Scott-Rodino Act
approval. The Company issued 2,100,000 shares of Series I preferred stock at
$9.00 per share and 555,556 warrants to purchase common stock at $9.00 per
share. The warrants are exercisable immediately and expire on their third
anniversary. The Series I preferred stock contains substantially the same rights
and preferences as the previous series of preferred stock.
In conjunction with the Series I preferred stock, the Company entered into
an agreement with the financial institution and received $6.1 million in cash,
which represents prepaid licensing fees. This amount will be recognized as
revenue on a straight-line basis over 27 months, which represents the term of
the agreement, beginning in August 1999.
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. During 1999, 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 1,739,470 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. The fair value
of common stock has been determined by the Company based on factors including,
but not limited to, preferred stock sales, milestones achieved in the
development of the business, comparisons to competitive public companies and
general market conditions. In conjunction with grants made in 1998 and 1999, the
Company recorded approximately $183 and $1,356 as stock compensation expense in
the accompanying 1998 and 1999 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
F-28
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
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, JUNE 30,
------------------------------------ ------------
1996 1997 1998 1999
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss:
As reported........................... $ (810) $ (4,766) $ (24,745) $ (26,234)
Pro forma............................. (810) (4,766) (25,067) (26,635)
Basic and diluted net loss per share:
As reported........................... $ (0.40) $ (1.83) $ (7.01) $ (5.50)
Pro forma............................. (0.40) (1.83) (7.10) (5.58)
</TABLE>
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) estimated lives ranging from two to three years, (4)
no dividends, (5) risk-free interest rates ranging from 5.3% to 6.4% and (6)
volatility ranging from 0% through June 18, 1999 to 72.0% subsequent to June 18,
1999. 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,
----------------------------------------------------------------------
JUNE 30,
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 $ 1.91
Granted....................... 155,500 0.47 1,813,482 0.55 3,087,379 2.60 2,945,835 4.86
Exercised..................... -- -- -- -- (27,499) 0.77 (83,383) 0.99
Canceled...................... (10,000) 0.50 (165,467) 0.60 (519,829) 2.28 (294,440) 2.82
--------- --------- --------- ---------
Outstanding at end of period.... 145,500 0.47 1,793,515 0.54 4,333,566 1.91 6,901,578 3.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Exercisable at the end of the
period........................ 20,000 0.25 436,653 0.68 1,681,026 1.06 2,007,090 1.58
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-29
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
The following information is provided for options outstanding and
exercisable at June 30, 1999:
<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 to 0.90 1,474,949 $ 0.48 5.2 1,140,322 $ 0.51
0.91 to 1.80 600,777 1.23 8.9 129,768 1.25
1.81 to 2.70 1,137,448 2.01 8.8 403,653 2.03
2.71 to 3.60 573,948 3.00 9.3 19,532 2.89
3.61 to 4.50 1,778,859 4.00 9.4 209,700 4.00
4.51 to 6.30 123,615 5.01 9.9 2,865 5.33
6.31 to 7.20 1,211,982 7.00 9.9 101,250 7.00
---------- ----------
6,901,578 3.14 8.4 2,007,090 1.58
---------- ----------
---------- ----------
</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 June 30, 1999. Accordingly, no amounts have been
recorded in the accompanying consolidated statement of operations relating to
this option grant. In June 1999, the Company granted 995,079 options to certain
executives. The price and vesting of these options is dependent upon the Company
completing an IPO of its common stock.
WARRANTS AND OPTIONS ISSUED TO MARKETING PARTNERS
On April 29, 1999 pursuant to a distribution and marketing agreement with a
telecommunications company, the Company issued warrants to purchase 100,000
shares of the Company's common stock at $10 per share. The warrants are
exercisable immediately and expire in April 2002. Simultaneously, the Company
entered into a put agreement, which allows the telecommunications company to put
the shares back to the Company for $25 per share during the period from June
2001 to August 2001. The number of shares subject to the put warrant declines
over time as the Company generates revenue under the marketing and distribution
agreement. In accordance with EITF 96-13, the Company has recorded the fair
value of the put warrant in the accompanying consolidated balance sheet as of
June 30, 1999.
On May 19, 1999, the Company entered into a distribution agreement with a
software manufacturer. As part of this agreement, the Company issued warrants to
purchase 100,000 shares of common stock at $9.00 per share, and options to
purchase 300,000 shares of common stock at $4.80 and 200,000 shares of common
stock at an exercise price of $9.00 per share, respectively.
F-30
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. SHAREHOLDERS' EQUITY: (CONTINUED)
The following shares of common stock were reserved at June 30, 1999:
<TABLE>
<S> <C>
Convertible preferred stock (Series
A-H).................................. 17,927,516
Stock options........................... 7,889,118
Common stock warrants................... 4,234,618
Preferred stock warrants................ 167,047
----------
30,218,299
----------
----------
</TABLE>
12. 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-31
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. SEGMENT INFORMATION: (CONTINUED)
The following table represents the Company's segment information for the
years ended December 31, 1996, 1997 and 1998, and the six months ended June 30,
1999:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- ----------
1996 1997 1998 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers:
Transactions and merchandising (excluding BuySoftware.com)........... $ -- $ 35 $ 280 $ 1,883
Merchant services (excluding BuySoftware.com)........................ 993 500 2,416 4,176
BuySoftware.com...................................................... -- 69 4,458 9,923
--------- --------- ---------- ----------
993 604 7,154 15,982
--------- --------- ---------- ----------
Cost of revenues:
Transactions and merchandising (excluding BuySoftware.com)........... -- 35 142 1,024
Merchant services (excluding BuySoftware.com)........................ 430 356 1,255 2,469
BuySoftware.com...................................................... -- 124 4,452 11,190
--------- --------- ---------- ----------
430 515 5,849 14,683
--------- --------- ---------- ----------
Gross profit:
Transactions and merchandising (excluding BuySoftware.com)........... -- -- 138 859
Merchant services (excluding BuySoftware.com)........................ 563 144 1,161 1,707
BuySoftware.com...................................................... -- (55) 6 (1,267)
--------- --------- ---------- ----------
$ 563 $ 89 $ 1,305 $ 1,299
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Profit Reconciliation:
Gross margin for reportable segments................................. $ 563 $ 89 $ 1,305 $ 1,299
Operating expenses................................................... (1,323) (4,691) (26,221) (27,288)
Other income and expenses............................................ (50) (164) 171 (245)
--------- --------- ---------- ----------
Loss before provision for income taxes............................... $ (810) $ (4,766) $ (24,745) $ (26,234)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
The Company does not track assets by operating segments. Consequently is it
not practicable to show assets by operating segments.
F-32
<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-33
<PAGE>
MEDIA ASSETS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 17,
-------------------- -------------
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 2 $ 957 $ 1,528
Accounts receivable.......................................................... 864 2,739 4,184
Receivable from shareholder.................................................. 38 123 142
Unbilled services............................................................ 400 456 413
Prepaid expenses and other current assets.................................... 11 8 152
--------- --------- ------
Total current assets....................................................... 1,315 4,283 6,419
Property and equipment, net.................................................... 204 287 271
Other assets................................................................... 21 24 24
--------- --------- ------
Total assets............................................................... $ 1,540 $ 4,594 $ 6,714
--------- --------- ------
--------- --------- ------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable, current portion............................................... $ 16 $ 29 $ 35
Accounts payable............................................................. 386 378 121
Accrued wages and related expenses........................................... 132 134 54
Other accrued expenses....................................................... 43 115 494
Customer deposits............................................................ 788 3,219 4,833
Income taxes................................................................. 38 166 --
--------- --------- ------
Total current liabilities.................................................. 1,403 4,041 5,537
--------- --------- ------
Long-term debt, net of current portion......................................... 34 94 78
--------- --------- ------
Commitments (Note 6)
Shareholder's equity:
Common stock, $.01 par value--authorized; 10,000 shares, issued and
outstanding; 2,000 shares at December 31, 1997 and September 17, 1998...... 1 1 1
Retained earnings............................................................ 102 458 1,098
--------- --------- ------
Total shareholder's equity................................................. 103 459 1,099
--------- --------- ------
Total liabilities and shareholder's equity................................. $ 1,540 $ 4,594 $ 6,714
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-34
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
JANUARY 1, 1998
-------------------- THROUGH
1997 1998 SEPTEMBER 17, 1998
--------- --------- -------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................................... $ 4,086 $ 5,597 $ 4,833
Costs and expenses:
Costs of revenues........................................................ 2,415 3,112 2,808
Selling, general and administrative...................................... 1,497 1,925 1,684
--------- --------- ------
Total operating expenses............................................... 3,912 5,037 4,492
--------- --------- ------
Operating income..................................................... 174 560 341
Other income, net.......................................................... -- 38 17
--------- --------- ------
Income before provision for income taxes................................... 174 598 358
Provision for income taxes................................................. (72) (242) --
--------- --------- ------
Net income........................................................... $ 102 $ 356 $ 358
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ RETAINED SHAREHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, June 30, 1996............................................... 2,000 $ 1 $ -- $ 1
Net income.......................................................... -- -- 102 102
----- --- ----------- ------
Balances, June 30, 1997............................................... 2,000 1 102 103
Net income.......................................................... -- -- 356 356
----- --- ----------- ------
Balances, June 30, 1998............................................... 2,000 1 458 459
Net income.......................................................... -- -- 640 640
----- --- ----------- ------
Balance September 17, 1998 (Unaudited)................................ 2,000 $ 1 $ 1,098 $ 1,099
----- --- ----------- ------
----- --- ----------- ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
MEDIA ASSETS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED JUNE 30, 1998 THROUGH
-------------------- SEPTEMBER 17,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income.................................................................. $ 102 $ 356 $ 358
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation.............................................................. 73 101 120
Changes in assets and liabilities:
Accounts receivable..................................................... (324) (1,960) (2,217)
Unbilled services....................................................... (326) (56) 428
Prepaid expenses and other assets....................................... (12) -- 29
Income taxes............................................................ 38 128 (10)
Accounts payable and accrued expenses................................... 303 66 161
Deposits................................................................ 290 2,431 1,369
--------- --------- -------------
Net cash provided by operating activities............................... 144 1,066 238
--------- --------- -------------
Cash flows from investing activities:
Additions to property and equipment......................................... (102) (184) (16)
--------- --------- -------------
Cash flows from financing activities:
Proceeds on long-term debt.................................................. -- 81 --
Principal repayments of long-term debt...................................... (44) (8) (48)
--------- --------- -------------
Net cash (used in) provided by financing activities..................... (44) 73 (48)
--------- --------- -------------
Net increase (decrease) in cash and cash equivalents.................... (2) 955 174
Cash and cash equivalents, beginning of year.................................. 4 2 1,354
--------- --------- -------------
Cash and cash equivalents, end of year........................................ $ 2 $ 957 $ 1,528
--------- --------- -------------
--------- --------- -------------
Cash paid during the year for:
Interest...................................................................... $ 5 $ 14 $ 11
--------- --------- -------------
--------- --------- -------------
Income taxes.................................................................. $ 38 $ 212 $ 212
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of September 17, 1998 and for
the period from January 1, 1998 through September 17, 1998 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 period from January 1,
1998 through September 17, 1998 are not necessarily indicative of the results to
be expected for any future period.
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.
F-38
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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.
3. 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.
F-39
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
4. 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................................................ $ 271 $ 458
Vehicles...................................................................... 65 65
Leasehold improvements........................................................ 67 64
--------- ---------
403 587
Less: Accumulated depreciation and amortization............................... (199) (300)
--------- ---------
Property and equipment--net................................................... $ 204 $ 287
--------- ---------
--------- ---------
</TABLE>
5. 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 $ 90
Notes payable, equipment financing, due in equal monthly installments of
principal and interest, interest at 9% to 10%, to maturity in July 2002..... 42 33
--------- ---------
50 123
Less--current portion......................................................... (16) (29)
--------- ---------
Long-term debt--net........................................................... $ 34 $ 94
--------- ---------
--------- ---------
</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
2000................................................................................. 29
2001................................................................................. 29
2002................................................................................. 26
2003................................................................................. 10
-----
$ 123
-----
-----
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities,
6. COMMITMENTS:
The Company leases its facilities under various operating leases expiring in
October 1999.
F-40
<PAGE>
MEDIA ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
6. COMMITMENTS: (CONTINUED)
At June 30, 1998, future minimum lease payments under operating leases were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
1999................................................................................. $ 181
2000................................................................................. 60
-----
$ 241
-----
-----
</TABLE>
7. INCOME TAXES:
The provision for income taxes consisted of the following components:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current:
Federal..................................................................... $ 64 $ 133
State....................................................................... 19 39
--------- ---------
83 172
--------- ---------
Deferred:
Federal..................................................................... (9) 59
State....................................................................... (2) 11
--------- ---------
(11) 70
--------- ---------
Total tax provision........................................................... $ 72 $ 242
--------- ---------
--------- ---------
</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.
8. ACQUISITION:
On September 17, 1998, the Company was acquired by ShopNow.com Inc.
F-41
<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-42
<PAGE>
THE INTERNET MALL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AUGUST 8,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 155 $ 240 $ 68
Accounts receivable................................................................ -- 57 33
--------- --------- -----------
Total current assets........................................................... 155 297 101
Property and equipment, net of accumulated depreciation of $1 and $8 and $18......... 10 34 39
Intangible assets, net of accumulated amortization of $10, $78 and $117.............. 190 122 83
--------- --------- -----------
Total assets................................................................... $ 355 $ 453 $ 223
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities........................................... $ -- $ 90 $ 112
Deferred revenue................................................................... -- 48 123
Convertible subordinated promissory note........................................... -- 300 300
--------- --------- -----------
Total current liabilities...................................................... -- 438 535
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, 1,724,867 and 1,724,867 issued and outstanding at 1996, 1997
and 1998, preference in liquidation of $500.................................... -- 490 490
Series A convertible preferred stock, $0.0001 par value, 4,000,000 shares
designated; 4,000,000 issued and outstanding at 1996 and 1997, 1,951,563 in
1998 preference in liquidation of $1,952....................................... 383 383 363
Common stock, $0.0001 par value; 17,000,000 shares authorized; 7,000,000 issued and
outstanding at 1996, 1997 and 1998, net of subscriptions receivable of $57....... 13 13 13
Accumulated deficit................................................................ (41) (871) (1,178)
--------- --------- -----------
Total shareholders' equity (deficit)........................................... 355 15 (312)
--------- --------- -----------
Total liabilities and shareholders' equity (deficit)........................... $ 355 $ 453 $ 223
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-43
<PAGE>
THE INTERNET MALL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED JANUARY 1, 1998
(NOVEMBER 13, 1996) TO DECEMBER 31, TO
DECEMBER 31, 1996 1997 AUGUST 8, 1998
----------------------- ------------- -------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................. $ -- $ 188 $ 175
----- ------ -----
Operating expenses:
Cost of revenue........................................ -- 30 24
Product development.................................... -- 71 114
Sales and marketing.................................... -- 273 56
General and administrative............................. 41 639 275
----- ------ -----
Total operating expenses........................... 41 1,013 469
----- ------ -----
Operating loss................................... (41) (825) (294)
----- ------ -----
Interest expense......................................... -- 5 13
----- ------ -----
Net loss......................................... $ (41) $ (830) $ (307)
----- ------ -----
----- ------ -----
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<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
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<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
$57................................. -- -- -- -- 5,750,000 1 -- 1
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................ -- -- 4,000,000 383 1,250,000 12 -- 395
Net loss.............................. -- -- -- -- -- -- (41) (41)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, December 31, 1996............. -- -- 4,000,000 383 7,000,000 13 (41) 355
Sale of preferred stock at $0.27 and
$0.35 per share in May and August
1997, respectively, net of issuance
costs of $10........................ 1,724,867 490 -- -- -- -- -- 490
Net loss.............................. -- -- -- -- -- -- (830) (830)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, December 31, 1997............. 1,724,867 490 4,000,000 383 7,000,000 13 (871) 15
Repurchase of preferred stock at $0.01
per share in January and April 1998... -- -- (2,048,437) (20 ) -- -- -- (20)
Net loss................................ -- -- -- -- -- -- (307) (307)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, August 8, 1998 (Unaudited).... 1,724,867 $ 490 1,951,563 $ 363 7,000,000 $ 13 $ (1,178) $ (312)
--------- -------- --------- -------- --------- ------- ----------- -----
--------- -------- --------- -------- --------- ------- ----------- -----
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
THE INTERNET MALL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1998 TO
PERIOD FROM INCEPTION YEAR ENDED AUGUST 8, 1998
(NOVEMBER 13, 1996) TO DECEMBER 31, -------------------
DECEMBER 31, 1996 1997
----------------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (41) $ (830) $ (307)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................ 11 76 49
Changes in operating assets and liabilities:
Accounts receivable................................ -- (57) 24
Accounts payable and accrued expenses.............. -- 90 22
Deferred revenue................................... -- 48 75
----- ----- -----
Net cash used in operating activities............ (30) (673) (137)
----- ----- -----
Cash flows used in investing activities:
Purchase of property and equipment..................... (11) (32) (15)
----- ----- -----
Cash flows from financing activities:
Net proceeds from preferred and common stock
issuances............................................ 196 490 --
Repurchase of preferred stock.......................... -- -- (20)
Proceeds from convertible subordinated promissory
note................................................. -- 300 --
----- ----- -----
Net cash (used in) provided by financing
activities..................................... 196 790 (20)
----- ----- -----
(Decrease) increase in cash and cash equivalents......... 155 85 (172)
Cash and cash equivalents, beginning of period........... -- 155 240
----- ----- -----
Cash and cash equivalents, end of period................. $ 155 $ 240 $ 68
----- ----- -----
----- ----- -----
Supplemental disclosures of cash flow information:
Common stock issued to founders in exchange for
promissory notes................................... $ 57 $ -- $ --
----- ----- -----
----- ----- -----
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND NATURE OF OPERATIONS:
The Internet Mall, Inc. (the Company), a Delaware corporation, was
incorporated on November 13, 1996. The Company operated an internet shopping
aggregation Website and provided links to on-line retailers that offer products
and services.
2. SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of August 8, 1998 and for the
period from January 1, 1998 through August 8, 1998 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 period from January 1,
1998 through August 8, 1998 are not necessarily indicative of the results to be
expected for any future period.
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.
F-47
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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 and $68 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, 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 and $260 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.
F-48
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
4. CONVERTIBLE SUBORDINATED PROMISSORY NOTE:
In October 1997 the Company issued a convertible subordinated promissory
note in the amount of $300. 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 $1 and
promissory notes of $57. The notes accrued interest at 5.87% per year.
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
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.
F-49
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
5. SHAREHOLDERS' EQUITY: (CONTINUED)
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.
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......................................................... $ (41) $ (830)
Net loss--pro-forma........................................................... $ (41) $ (831)
</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%
F-50
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
5. SHAREHOLDERS' EQUITY: (CONTINUED)
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>
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....................................................... 1,725,867
1996 Stock Option Plan........................................... 1,650,000
---------
7,375,867
---------
---------
</TABLE>
6. COMMITMENTS:
OPERATING LEASES
The Company leases office and computer equipment under operating leases with
expiration dates through May 1999.
F-51
<PAGE>
THE INTERNET MALL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
6. COMMITMENTS: (CONTINUED)
Minimum lease commitments under noncancellable leases are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 19
1999.................................................................. 5
---
$ 24
---
---
</TABLE>
Rent expense under operating leases totaled $6 and $52 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-52
<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 (deficit), 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-53
<PAGE>
GO SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 15,
-------------------- -----------
1998 1997 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 766 $ 1,047 $ 640
Accounts receivable, net of allowance of $62 in 1999 (unaudited), $49 in 1998
and $55 in 1997.............................................................. 137 56 236
Refundable income taxes........................................................ 33 -- 33
Inventory...................................................................... 11 5 9
Prepaid expenses and other current assets...................................... 36 13 19
--------- --------- -----------
Total current assets............................................................. 983 1,121 937
Property and equipment, at cost:
Computer equipment............................................................. 106 47 123
Office equipment............................................................... 32 22 35
--------- --------- -----------
138 69 158
Accumulated depreciation....................................................... (50) (20) (68)
--------- --------- -----------
Net property and equipment....................................................... 88 49 90
Capitalized software development costs........................................... 28 -- 28
Deferred income tax asset........................................................ 7 2 20
--------- --------- -----------
Total assets..................................................................... $ 1,106 $ 1,172 $ 1,075
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable and accrued expenses.................................... $ 66 $ 26 $ 88
Income taxes payable........................................................... -- 20 3
Other taxes payable............................................................ 2 5 --
Deferred revenue............................................................... 21 9 128
--------- --------- -----------
Total current liabilities........................................................ 89 60 219
Deferred income tax liability.................................................... 24 17 24
Series A redeemable preferred stock, $1.39167 par value per share, 664,671 and
700,597 shares authorized and outstanding (liquidation value)................ 1,194 1,043 1,293
Shareholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized and 1,000,000 shares
outstanding.................................................................. 10 10 10
Paid-in capital................................................................ 211 211 211
Retained earnings (deficit).................................................... (422) (169) (682)
--------- --------- -----------
Total shareholders' equity (deficit)............................................. (201) 52 (461)
--------- --------- -----------
Total liabilities and shareholders' equity....................................... $ 1,106 $ 1,172 $ 1,075
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes.
F-54
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, JANUARY 1, 1999
-------------------- TO
1998 1997 JUNE 15, 1999
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Net revenues.................................................................... $ 1,346 $ 793 $ 728
Cost of goods sold.............................................................. 55 21 45
--------- --------- -----
Gross profit.................................................................... 1,291 772 683
Selling, general and administrative expenses.................................... 1,149 410 686
Research and development........................................................ 253 130 182
--------- --------- -----
Operating (loss) income......................................................... (111) 232 (185)
Interest income................................................................. 41 17 12
--------- --------- -----
(Loss) income before income taxes............................................... (70) 249 (173)
Benefit (provision) for income taxes............................................ 17 (34) 12
--------- --------- -----
Net (loss) income............................................................... $ (53) $ 215 $ (161)
--------- --------- -----
--------- --------- -----
</TABLE>
See accompanying notes.
F-55
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON PAID- IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.............................................. $ 10 $ -- $ 62 $ 72
Net income prior to conversion to C Corporation........................... -- -- 141 141
Conversion from S Corporation to C Corporation............................ -- 203 (203) --
Accretion of Series A redeemable preferred stock dividends................ -- -- (68) (68)
Distributions to shareholders............................................. -- -- (175) (175)
Issuance of options....................................................... -- 8 -- 8
Net income................................................................ -- -- 74 74
----- ----- ----- ---------
Balance at December 31, 1997.............................................. 10 211 (169) 52
Net loss.................................................................. -- -- (53) (53)
Accretion of Series A redeemable preferred stock dividends................ -- -- (200) (200)
----- ----- ----- ---------
Balance at December 31, 1998.............................................. 10 211 (422) (201)
Net loss (unaudited)...................................................... -- -- (161) (161)
Accretion of Series A redeemable preferred stock dividends (unaudited).... -- -- (99) (99)
----- ----- ----- ---------
Balance at June 15, 1999 (unaudited)...................................... $ 10 $ 211 $ (682) $ (461)
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
See accompanying notes.
F-56
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31 JANUARY 1,
-------------------- 1999 TO JUNE
1998 1997 15, 1999
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income................................................................ $ (53) $ 215 $ (161)
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization.................................................. 29 14 18
Issuance of options............................................................ -- 8 --
Changes in operating assets and liabilities:
Increase in accounts receivable, net......................................... (81) (38) (99)
Increase in refundable income taxes.......................................... (33) -- --
Increase (decrease) in inventory............................................. (6) (5) 2
Increase (decrease) in prepaid expenses and other current assets............. (23) (13) 17
Increase (decrease) in deferred income tax liabilities, net.................. 2 15 (13)
Increase in deferred revenue................................................. 12 6 107
Increase in accounts payable and accrued expenses............................ 17 23 22
Increase in income and other taxes payable................................... -- 25 1
--------- --------- -----
Net cash (used in) provided by operating activities.............................. (136) 250 (106)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment.............................................. (67) (40) (20)
Capitalized software development costs........................................... (28) -- --
--------- --------- -----
Net cash used in investing activities............................................ (95) (40) (20)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders.................................................... -- (175) --
Proceeds from issuance of Series A redeemable preferred stock.................... -- 1,000 --
Repurchase of preferred stock.................................................... (50) (25) --
--------- --------- -----
Net cash (used in) provided by financing activities.............................. (50) 800 --
--------- --------- -----
Net (decrease) increase in cash and cash equivalents............................. (281) 1,010 (126)
Cash and cash equivalents, beginning of year..................................... 1,047 37 766
--------- --------- -----
Cash and cash equivalents, end of year........................................... $ 766 $ 1,047 $ 640
--------- --------- -----
--------- --------- -----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for taxes.............................................. $ 33 $ -- $ --
--------- --------- -----
--------- --------- -----
NONCASH FINANCING ACTIVITIES:
Accretion of Series A redeemable preferred stock............................... $ 200 $ 68 $ 99
--------- --------- -----
--------- --------- -----
</TABLE>
See accompanying notes.
F-57
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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-58
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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 $28 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 $143 in 1998 and $69 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
F-59
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
3. SHAREHOLDER'S EQUITY (CONTINUED)
the recapitalization, the Company issued a stock dividend of 999 shares of
common stock for every 1 share of common stock outstanding.
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. During 1998 and 1997, the Company acquired and retired
$50 and $25, 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 $269 and $68,
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-60
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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) $ 215
Pro forma compensation expense from stock options:
1997 grant................................................................... -- --
1998 grants.................................................................. 19 --
--- ---------
Pro forma net (loss) income.................................................... $ (72) $ 215
--- ---------
--- ---------
</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. Lease expense for 1998 and 1997 was $22 and $12,
respectively.
F-61
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
7. INCOME TAXES
The provision for income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Current:
Federal.............................................................. $ 15 $ (15)
State................................................................ 5 (5)
--------- ----------
20 (20)
Deferred:
Federal.............................................................. (2) (12)
State................................................................ (1) (2)
--------- ----------
(3) (14)
--------- ----------
$ 17 $ (34)
--------- ----------
--------- ----------
</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 $ 2
NOL carryforward...................................................... 4 --
--------- ---------
Total deferred tax assets............................................... 7 2
Deferred tax liabilities:
Capitalized software development costs................................ 7 --
Accelerated depreciation.............................................. 17 17
--------- ---------
Total deferred tax liabilities.......................................... 24 17
--------- ---------
Net deferred tax liabilities............................................ $ 17 $ 15
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $16, 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.
F-62
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
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-63
<PAGE>
[INSIDE BACK COVER]
CUSTOMER FRIENDLY
A BETTER WAY TO SHOP
We provide shoppers with a convenient, one-stop shopping experience.
[PICTURE OF A MYSHOPNOW.COM WEB PAGE]
[PICTURE OF A BOY HOLDING A PRODUCT SOLD ON MYSHOPNOW.COM]
MY FAVORITES
"My Favorites," allows shoppers to create their own lists of frequently visited
merchant stores, as well as e-mail their favorite stores to friends.
[PICTURE OF AN ONLINE MERCHANT STORE ON THE SHOPNOW NETWORK]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
[SHOPNOW LOGO]
COMMON STOCK
-----------------------
PRICE $ PER SHARE
-----------------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
U.S. BANCORP PIPER JAFFRAY
SOUNDVIEW TECHNOLOGY GROUP
WIT CAPITAL CORPORATION
------------------------
, 1999
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.............................................. $ 26,855
NASD filing fee................................................... 10,160
Nasdaq National Market listing fee................................ 90,000
Printing and engraving costs...................................... 165,000
Legal fees and expenses........................................... 450,000
Accounting fees and expenses...................................... 200,000
Transfer Agent and Registrar fees................................. 8,000
---------
Total......................................................... $ 950,015
---------
---------
</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 September 30, 1996, the Registrant issued 300,000 shares of common stock
to Othniel Palomino at $0.15 per share. These securities have been issued in
a transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
2. 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. These
II-1
<PAGE>
securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
3. 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 note in the principal
amount of $225,738. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.
4. On February 26, 1997, the Registrant issued 699,612 shares of Series A
convertible preferred stock at $0.50 per share, which are currently
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. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
thereunder.
5. On February 26, 1997 and April 30, 1997, the Registrant issued 2,334,079
shares of Series B convertible preferred stock, which are currently
convertible into 2,334,079 shares of common stock, to four accredited
investors at $0.77 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.
6. 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").
These securities have been issued in transactions exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the
Securities Act of 1933.
7. During the period from October 21, 1997 through November 12, 1997, the
Registrant issued promissory notes in the aggregate principal amount of
$1,775,000. In connection with this transaction, the Registrant issued to
the investors warrants to purchase an aggregate of 62,125 shares of common
stock at an exercise price of $1.50 per share. Additionally, the Registrant
issued to the placement agent, Madison Securities, Inc., warrants to
purchase 177,500 shares of common stock at an exercise price of $1.50 per
share. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2)
of the Securities Act of 1933 and Rule 506 of Regulation D thereunder.
8. On October 31, 1997, the Registrant issued 835,205 shares of Series C
convertible preferred stock, which are currently 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 convertible preferred stock at an exercise price
of $1.50 per share. These securities have been issued in transactions exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933 and Rule 506 of Regulation D thereunder.
9. On November 11, 1997, the Registrant issued 177,333 shares of common stock
to Ganapathy and Kalyani Krishnan at $0.50 per share. These securities have
been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
10. During the period from January 23, 1998 through April 15, 1998, in a private
placement the Registrant issued, to 163 investors, an aggregate of 4,250,000
shares of Series D convertible preferred stock and warrants to purchase an
aggregate of 425,000 shares of common stock at an exercise price of $5.00
per share and issued, to 111 investors, an aggregate of 2,125,000 shares of
II-2
<PAGE>
Series E convertible preferred stock and warrants to purchase an aggregate
of 212,500 shares of common stock at a exercise price of $5.00 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. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D thereunder.
11. On January 29, 1998, the Registrant entered into a Stock Purchase Agreement
with Trucost, Inc., pursuant to which the Registrant issued to Trucost, Inc.
a warrant to purchase 10,000 shares of common stock at an exercise price of
$5.00. These securities have been issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2)
of the Securities Act of 1933.
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. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.
13. On June 8, 1998, pursuant to an Acquisition Agreement among the Registrant
and Saturn Solutions, Inc., the Registrant issued 422,710 shares of common
stock to Saturn Solutions, Inc. and 649 shares of common stock to Robert
Gagnon, in each case, valued at $3.30 per share. These securities have been
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.
14. On July 8, 1998, in connection with the purchase of services, the Registrant
issued to The Culligan Group a warrant to purchase 5,000 shares of common
stock at an exercise price of $1.00 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.
15. On August 6, 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 52,915 shares of common stock and warrants to purchase 10,583
shares of common stock at an exercise price of $4.00 per share. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
16. 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, a convertible promissory note in the principal amount of $1,050,000
and options to purchase an aggregate of 1,120,000 shares of common stock at
an exercise price of $2.00 per share. In May 1999, Mr Haggin exchanged
performance-based options to purchase 900,000 shares of common stock for an
option to purchase 300,000 shares of common stock. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
17. 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 the placement agent, Madison
Securities, Inc., warrants to purchase 129,500 shares of common stock at
$4.00 per share. These securities have been issued in transactions exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933.
II-3
<PAGE>
18. On October 21, 1998, in connection with the financing of a fixed asset
acquisition, the Registrant issued to Cornerstone Equipment Finance a
warrant to purchase 6,795 shares of common stock at an exercise price of
$6.00 per share. These securities have been issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933.
19. During the period from November 24, 1998 through January 19, 1999, the
Registrant issued an aggregate of 2,336,000 shares of Series F convertible
preferred 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. In
connection with this transaction, the Registrant issued to the placement
agent, Madison Securities, Inc., warrants to purchase 233,600 shares of
common stock, at an exercise price of $6.25 per share. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
20. On November 30, 1998, the Registrant issued 10,000 shares of common stock to
Jim Tweeten at $5.00 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
21. On December 15, 1998, the Registrant issued 5,000 shares of common stock to
Steve McClure at $.50 per share pursuant an option exercise. These
securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
22. On January 10, 1999, in connection with the purchase of services, the
Registrant issued to the Culligan Group a warrant to purchase 3,400 shares
of common stock at an exercise price of $1.00 per share. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.
23. On February 3, 1999, pursuant to a licensing agreement between the
Registrant and Interworld Corporation, the Registrant issued to Interworld
Corporation a warrant to purchase 16,000 shares of common stock at an
exercise price of $6.25 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
24. On February 17, 1999, in connection with the purchase of services, the
Registrant issued to Star Telecommunications, Inc. a warrant to purchase
20,000 shares of common stock at an exercise price of $4.68 per share. These
securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
25. On March 1, 1999, in connection with the purchase of services, the
Registrant issued to Jim Tweeten a warrant to purchase 15,000 shares of
common stock at an exercise price of $6.25 per share. These securities have
been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
26. 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. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.
27. On March 10, 1999, the Registrant issued 1,000 shares of common stock to
Howard Barokas and Andrew Cullen as a bonus for consulting services
previously rendered to the Registrant. These
II-4
<PAGE>
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in because no sale occurred for purposes of the
Securities Act of 1933.
28. During March and April 1999, the Registrant issued to the Zeron Group in
exchange for $5,000,000 in cash 714,286 shares of Series G convertible
preferred stock and warrants to purchase 35,715 shares of common stock at an
exercise price of $7.50 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
29. 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 Media common stock and
24/7 Media'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. These securities have been issued
in transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
30. On April 15, 1999, pursuant to an Asset Purchase Agreement between the
Registrant and Discountjewelry.com, the Registrant issued 8,000 shares of
common stock, valued at $6.25 per share, to Mike Kmet, Discountjewelry.com's
sole proprietor. In connection with the Asset Purchase Agreement, the
Registrant also agreed to issue an aggregate of 8,000 additional shares of
common stock over the next eight months. These securities have been issued
in transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
31. 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.
These securities have been issued in transactions exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the
Securities Act of 1933.
32. On April 29, 1999, pursuant to a Distributor/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. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
33. On May 18, 1999, the Registrant issued 333,334 shares of Series H preferred
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. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.
34. 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. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.
35. In May 1999, pursuant to the First Amendment to Loan and Security Agreement
between the Registrant and Transamerica Business Credit Corporation, the
Registrant issued to each of Transamerica Business Credit Corporation and
Sand Hill Capital LLC a warrant to purchase 35,000 shares of common stock at
an exercise price of $7.00 per share. These securities have been
II-5
<PAGE>
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.
36. On June 8, 1999, in connection with the acquisition of CardSecure, Inc., the
Registrant issued, to 3 shareholders of the acquired company, an aggregate
of 243,036 shares of common stock valued at $7.00 per share. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
37. On June 15, 1999, pursuant to a Acquisition Agreement between the Registrant
and GO Software, Inc., the Registrant issued to the shareholders of GO
Software, Inc., 1,123,751 shares of common stock and to one of these
shareholders a promissory note in the principal amount of $1,000,000,
convertible at the shareholder's option for common stock at a conversion
price equal to the initial public offering price. These securities have been
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.
38. On June 17, 1999, the Registrant entered into the Stock Purchase Agreement
among the Registrant and CB Capital Investors, L.P., to sell 2,100,000
shares of Series I convertible preferred stock and a warrant to purchase
555,556 shares of common stock at an exercise price of $9.00 per share to CB
Capital Investors, L.P. The transaction closed on July 17, 1999. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.
39. On April 12, 1999, Merrimac Capital Company, LLC and Leasing Technologies
Inc., made a loan commitment to the Registrant pursuant to which the
Registrant agreed to issue to Merrimac Capital Company, LLC a warrant to
purchase 6,400 shares of common stock at an exercise price of $6.25 per
share and to Leasing Technologies Inc. a warrant to purchase 22,400 shares
of common stock at an exercise price of $6.25 per share. These securities
were issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.
40. On April 20, 1999, in exchange for the cancellation of the Registrant's
obligation to pay a lease brokerage fee to Matt Christian and Tim O'Keefe,
the Registrant agreed to issue to Matt Christian a warrant to purchase
13,182 shares of common stock at an exercise price of $9.00 per share and to
Tim O'Keefe a warrant to purchase 3,600 shares of common stock at an
exercise price of $9.00 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
41. Through June 30, 1999, the Registrant granted, pursuant to its stock option
plan and outside of its stock option plan, options to purchase an aggregate
of 9,307,275. The options granted under the stock option plan were issued to
the Registrant's officers, employees and consultants at exercise prices
ranging from $0.25 to $7.00. The options granted outside of the stock option
plan were granted to its employees and officers at prices ranging from $0.25
to $4.00. A significant portion of these options were issued pursuant to the
Registrant's stock option plan. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Rule 701 promulgated under the Securities Act of 1933. Where
Rule 701 has not been available, the securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.
II-6
<PAGE>
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.
4.2 Amendment No. 1 to Second Amended and Restated Registration Rights Agreement
dated as of June 15, 1999.
4.3 Amendment No. 2 to Second Amended and Restated Registration Rights Agreement
dated as of June 16, 1999.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1** 1999 Employee Stock Purchase Plan and forms of agreement thereunder.
10.2** Amended and Restated 1996 Combined Incentive and Nonqualified Stock Option Plan
and form of agreements thereunder.
10.3+ Electronic Distributor 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 effective as of July 1, 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.
10.13+ Agreement dated July 7, 1999, between About.com, Inc. and the Registrant.
10.14+ Agreement effective as of July 12, 1999, between Chase Manhattan Capital, L.P.
and the Registrant.
21.1 List of Subsidiaries.
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.
24.2 Power of Attorney (see page II-10).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<C> <S>
27.1** Financial Data Schedules.
</TABLE>
- ------------------------
* Incorporated by reference to Exhibit 3.1 to Registrant's Form 8-A filed with
the Securities and Exchange Commission on July 14, 1999 (file number
000-26707)
** Previously filed
*** 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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on August 25, 1999.
<TABLE>
<S> <C> <C>
SHOPNOW.COM INC.
By /s/ DWAYNE M. WALKER
-----------------------------------------
Dwayne M. Walker, Chairman, President and
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated on August 25, 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)
*
- ------------------------------ Director
(David M. Lonsdale)
*
- ------------------------------ Director
(Bret R. Maxwell)
*
- ------------------------------ Director
(Mark C. McClure)
*
- ------------------------------ Director
(John R. Snedegar)
*
- ------------------------------ Director
(Mark H. Terbeek)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ALAN D. KOSLOW
-------------------------
(Alan D. Koslow)
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
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
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated on August 25, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ JACOB I. FRIESEL
- ------------------------------ Director
(Jacob I. Friesel)
</TABLE>
II-10
<PAGE>
SHOPNOW.COM INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<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.
4.2 Amendment No. 1 to Second Amended and Restated Registration Rights Agreement
dated as of June 15, 1999.
4.3 Amendment No. 2 to Second Amended and Restated Registration Rights Agreement
dated as of June 16, 1999.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1** 1999 Employee Stock Purchase Plan and forms of agreement thereunder.
10.2** Amended and Restated 1996 Combined Incentive and Nonqualified Stock Option Plan
and form of agreements thereunder.
10.3+ Electronic Distributor 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 effective as of July 1, 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.
10.13+ Agreement dated July 7, 1999, between About.com, Inc. and the Registrant.
10.14+ Agreement effective as of July 12, 1999, between Chase Manhattan Capital, L.P.
and the Registrant.
21.1 List of Subsidiaries.
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.
24.2 Power of Attorney (see page II-10).
27.1** Financial Data Schedules.
</TABLE>
- ------------------------
* Incorporated by reference to Exhibit 3.1 to Registrant's Form 8-A filed with
the Securities and Exchange Commission on July 14, 1999 (file number
000-26707)
** Previously filed
*** To be filed by amendment.
<PAGE>
+ 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>
Shares
-----------------
SHOPNOW.COM INC.
Common Stock
$.01 Par Value Per Share
UNDERWRITING AGREEMENT
, 1999
Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
SoundView Technology Group, Inc.
Wit Capital Corporation
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
ShopNow.com Inc., a Washington corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell, to the
several Underwriters named in Schedule A hereto (the "Underwriters"), for
which you are acting as representatives (the "Representatives"),
________________ shares (the "Firm Shares") of Common Stock, $.01 par value
per share, of the Company (the "Common Stock"). The Company also proposes,
subject to the terms and conditions stated herein, to sell to the
Underwriters, at the Underwriters' election,________________ additional
shares of Common Stock to cover over-allotments (the "Option Shares"). The
Firm Shares and the Option Shares are herein collectively called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-80981) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the Registration Statement prior to the time it became effective or
filed with the Commission pursuant to
<PAGE>
Rule 424(a) under the Act is referred to herein as a "Preliminary
Prospectus." Copies of the Registration Statement, including all exhibits
and schedules thereto, any amendments thereto and all Preliminary
Prospectuses have been delivered to you.
The Company hereby confirms its agreements with respect to the
purchase of the Shares by the Underwriters as follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) The Registration Statement has been declared
effective under the Act, and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or threatened by the
Commission.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, nor, to the Company's
Knowledge have proceedings for such purpose been instituted or threatened, and
each Preliminary Prospectus, at the time of its issue date, conformed in all
material respects to the requirements of the Act and the rules and regulations
of the Commission promulgated thereunder (collectively, the "Regulations"), and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representation or warranty
as to information contained in or omitted from any Preliminary Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives expressly
for use in the preparation thereof. For purposes of this Agreement, "Knowledge"
shall mean, with respect to the Company, the knowledge of the Company's
executive officers and directors, provided that such persons have made due and
diligent inquiry of those employees of the Company whom such executive officers
and directors reasonably believe would have actual knowledge of the matters
represented.
(iii) The Registration Statement conforms, and the
Prospectus and any amendments or supplements thereto will conform, in all
material respects to the requirements of the Act and Regulations. Neither the
Registration Statement nor any amendment thereto, and neither the Prospectus nor
any supplement thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the statements
2
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representation or
warranty as to information contained in or omitted from the Registration
Statement or the Prospectus, or any amendment or supplement to either of
them, in reliance upon, and in conformity with, written information furnished
to the Company by or on behalf of any Underwriter through the Representatives
expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is validly
existing as a corporation under the laws of its state of incorporation, has the
corporate power and authority to own, lease, license and use its properties and
conduct its business as described in the Prospectus, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business or its ownership, lease, license, or use of property
requires such qualification and the failure so to qualify would have a material
adverse effect on the business, properties, key personnel, prospects, condition,
financial or otherwise, or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect").
(v) The Company has no subsidiaries other than as listed
on Exhibit 21 to the Registration Statement (herein referred to as its
"subsidiaries"). Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own,
lease, license and use its properties and conduct its business as described in
the Prospectus, and is duly qualified to transact business in all jurisdictions
in which the conduct of its business or its ownership, lease, license or use of
property requires such qualification and the failure so to qualify would have a
Material Adverse Effect. Other than the Company's subsidiaries and except as
set forth on Schedule 1(a)(v) hereto, the Company does not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. All outstanding shares of capital stock of
each of the subsidiaries of the Company have been duly authorized and validly
issued, are fully paid and non-assessable, and are owned, directly or
indirectly, by the Company free and clear of all liens, encumbrances and
security interests. No options, warrants or other rights to purchase,
agreements or other obligations to issue, or other rights to convert any
obligations into, shares of capital stock or ownership interests in any of the
subsidiaries of the Company are outstanding.
(vi) The outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding shares of
capital stock and other securities of the Company, prior to the date hereof,
were made in compliance with the Act and all applicable state securities or blue
sky laws and were not issued in violation of any preemptive right, resale right,
right of first refusal or similar right. The Shares to be issued and sold by
the
3
<PAGE>
Company to the Underwriters pursuant to this Agreement have been duly
authorized and, when issued and paid for as contemplated herein, will be validly
issued, fully paid and nonassessable. Each of the Underwriters will receive
good and marketable title to the Shares purchased by it, free and clear of any
and all liens, encumbrances, pledges, security interests, charges, claims,
equitable interests, restrictions and defects. Except as set forth in
Schedule 1(a)(vi) hereto and as otherwise stated in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of capital stock of the
Company pursuant to the Company's charter, bylaws or any agreement or other
instrument to which the Company is a party or by which the Company is bound.
Neither the filing of the Registration Statement nor the offering or the sale of
the Shares as contemplated by this Agreement gives rise to any rights for, or
relating to, the registration of any shares of capital stock or other securities
of the Company, except such rights which have been validly waived or satisfied.
Except as set forth on Schedule 1(a)(vi) hereto and as described in the
Prospectus, there are no outstanding options, warrants, agreements or contracts
to purchase or preemptive or other rights to purchase, subscribe for or acquire
from the Company any shares of its capital stock or any securities or
obligations convertible into or exercisable for shares of the Company's capital
stock. The Company had the authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus as of the date set
forth therein. The outstanding capital stock of the Company, including the
Shares, conforms, and the Shares to be issued by the Company to the Underwriters
will conform, in all material respects, to the description thereof contained in
the Prospectus.
(vii) The financial statements, together with the related
notes and schedules as set forth in the Registration Statement and Prospectus,
present fairly the consolidated financial position, results of operations and
changes in financial position of the Company and its subsidiaries on the basis
stated in the Registration Statement at the indicated dates and for the
indicated periods. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made, except as otherwise stated therein, and
are in accordance with the books and records of the Company. The summary and
selected financial and statistical data included in the Registration Statement
present fairly the information shown therein on the basis stated in the
Registration Statement and have been compiled on a basis consistent with the
financial statements presented therein. The books, records and accounts of the
Company and its subsidiaries accurately and fairly reflect in all material
respects, in reasonable detail, the transactions in and dispositions of the
assets of, and the results of operations of, the Company and its subsidiaries.
(viii) The Company has provided you with all financial
statements that are available to the officers of the Company since the date of
the most recent financial statements included in the Prospectus.
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(ix) There is no action, suit, claim, proceeding or
investigation pending or, to the Knowledge of the Company, threatened or
contemplated against the Company or any of its subsidiaries or any of their
respective officers, directors, properties, assets or rights before any court or
administrative or regulatory agency which, if determined adversely to the
Company or any of its subsidiaries, would, individually or in the aggregate,
result in a Material Adverse Effect except as set forth in the Registration
Statement.
(x) The Company has good and marketable title to all
properties and assets reflected in the most recent financial statements
hereinabove described as owned by the Company (or as described in the Prospectus
as owned by the Company), except those disposed of in the ordinary course of
business, in each case free and clear of all liens, encumbrances, pledges,
security interests, charges, claims, equitable interests, restrictions and
defects (collectively, "Liens"), except such Liens as are described in the
Prospectus or do not materially affect the value of such properties and assets
and do not materially interfere with the use made, or proposed to be made, of
such properties and assets by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries are
held by them under valid and enforceable leases with such exceptions set forth
in the Prospectus or as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
(xi) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, as they may be amended or
supplemented, (A) there has not been any material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in or affecting the condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole, or the business affairs, management,
financial position, shareholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, whether or not occurring in the ordinary
course of business, (B) there has not been any transaction not in the ordinary
course of business entered into by the Company or any of its subsidiaries which
is material to the Company and its subsidiaries, taken as a whole, other than
transactions described or contemplated in the Registration Statement, (C) the
Company and its subsidiaries have not incurred any material liabilities or
obligations, direct or indirect or contingent or non-contingent, which are not
in the ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries, (D) the Company and
its subsidiaries have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, windstorm, accident or
other calamity, whether or not covered by insurance, (E) there has not been any
change in the capital stock of the Company (other than upon the exercise of
options and warrants that are described in the Registration Statement), or any
material increase in the short-term or long-term debt
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(including capitalized lease obligations) of the Company and its
subsidiaries, taken as a whole, (F) there has not been any declaration or
payment of any dividends or any distributions of any kind with respect to the
capital stock of the Company, other than any dividends or distributions
described or contemplated in the Registration Statement, or (G) there has not
been any issuance of warrants, options, convertible securities or other
rights to purchase or acquire capital stock of the Company (other than
options granted under the Company's employee stock option plans referred to
in the Prospectus).
(xii) Neither the Company nor any of its subsidiaries is
in violation of, or in default under, its charter or bylaws, or any statute, or
any law, rule, regulation, order, judgment, injunction, decree or authorization
of any court or governmental or administrative agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties, or any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or any
of its subsidiaries is subject, which violation or default would have a Material
Adverse Effect.
(xiii) The issuance and sale of the Shares by the Company,
the execution and delivery of this Agreement by the Company and the performance
by the Company of its obligations pursuant to this Agreement will not violate
any provision of the charter or bylaws of the Company or any of its subsidiaries
or any statute or any order, judgment, decree, rule, regulation or authorization
of any court or governmental or administrative agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties, and will not conflict with, result in a breach or violation of, or
constitute, either by itself or upon notice or passage of time or both, a
default under any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or any
of its subsidiaries is subject. No approval, consent, order, authorization,
designation, declaration or filing by or with any court or governmental agency
or body is required for the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated, except
as may be required under the Act or any state securities or blue sky laws or
under the rules and regulations of the National Association of Securities
Dealers, Inc. (the "NASD"). No further approval or authorization of any
securityholder, the Company's Board of Directors or any duly appointed committee
thereof or others is required for the issuance and sale or transfer of the
Shares, except as may be required by the NASD or under state securities or blue
sky laws.
(xiv) The Company and each of its subsidiaries holds and
is operating in compliance with all licenses, approvals, certificates and
permits from governmental and
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regulatory authorities, foreign and domestic, which are necessary or material
to the conduct of its business as described in the Prospectus (except where
the failure to so hold or operate in compliance with such a license,
approval, certificate or permit would not have a Material Adverse Effect) and
there are no proceedings pending or, to the Knowledge of the Company,
threatened, which may cause any such license, approval, certificate or permit
to be withdrawn, cancelled, suspended or not renewed.
(xv) The Company has the corporate power and authority to
enter into this Agreement and to authorize, issue and sell the Shares hereunder
as contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(xvi) Arthur Andersen LLP and Ernst & Young LLP, which
have expressed their opinions on the audited financial statements included in
the Registration Statement and Prospectus, are independent public accountants as
required by the Act and Regulations.
(xvii) The Company has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xviii) The Company's Common Stock is registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been approved for listing upon notice of issuance on
The Nasdaq National Market under the symbol "SPNW."
(xix) The Company has obtained and delivered to the
Representatives written agreements (the "Lock-Up Agreements"), in form and
substance satisfactory to the Representatives, of each of its executive officers
and directors AND [OTHER SHAREHOLDERS _______________] that they shall not
(A) offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock, or (B) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
(whether any such transaction described in clause (A) or (B) above is to be
settled by delivery of the shares of Common Stock or such other securities, in
cash or otherwise), in each case, beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act) or otherwise controlled by such officer,
director or shareholder on the date hereof or hereafter acquired, for a period
beginning from the date of execution of this Agreement and
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continuing to and including the date 180 days after the date of the
Prospectus (the "Lock-Up Period"); PROVIDED, HOWEVER, that the foregoing
shall not prevent such officer, director or shareholder from exercising any
option or warrant to purchase Common Stock and that, if such officer,
director or shareholder is an individual, such officer, director or
shareholder may, without the prior written consent of Dain Rauscher Wessels
on behalf of the Underwriters, transfer shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock
either during his or her lifetime or, on death, by will or intestacy to
members of his or her immediate family to trusts exclusively for the benefit
of members of his or her immediate family or to trusts exclusively for the
benefit of members of his or her immediate family or in connection with BONA
FIDE gifts, PROVIDED that, prior to any such transfer, such transferee
executes an agreement, satisfactory to Dain Rauscher Wessels, pursuant to
which such transferee agrees to receive and hold such shares subject to the
provisions of the Lock-Up Agreement and not to further transfer such shares
prior to the end of the Lock-up Period except in accordance with the
provisions of the Lock-Up Agreement. For purposes of this paragraph,
"immediate family" shall mean the spouse, lineal descendant, father, mother,
brother or sister of such officer, director or shareholder. The restrictions
on transfers described in the Lock-Up Agreements shall not apply to
transactions in shares of Common Stock acquired in open-market transactions
after completion of the Offering.
(xx) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xxi) The Company is in compliance with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, laws of Florida). The Company
does not do any business, directly or indirectly, with the government of Cuba or
with any person or entity located in Cuba.
(xxii) The Company and its subsidiaries have timely filed
all federal, state, local and foreign tax returns or reports required to be
filed, and have paid in full all taxes indicated by said returns or reports and
all assessments received by it or any of them to the extent that such taxes have
become due and payable, except where the Company and its subsidiaries are
contesting in good faith such taxes and assessments and there is no tax
deficiency that has been or, to the Company's Knowledge, might be asserted
against the Company or any of its subsidiaries which might have a Material
Adverse Effect and all material tax liabilities, whether or not disputed, are
adequately provided for on the books of the Company and its subsidiaries.
Except as set forth in the Registration Statement and the Prospectus, neither
the Company nor any subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes or is a party to any pending action or proceeding
by any
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foreign or domestic governmental agency for assessment or collection of
taxes, and no claims for assessment or collection of taxes have been asserted
against the Company or any of its subsidiaries.
(xxiii) The Company and each of its subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets,
know-how, technology, Internet domain names (including without limitation, the
trademarks "ShopNow", "TechWave", and "Internet Mall", and the domain names
shopnow.com, myshopnow.com, commercetrust.com, haggingroup.com and other
similar rights described in the Prospectus as being owned by them or any of them
or necessary to the conduct their respective businesses. The Company has no
Knowledge of any facts which would preclude it from having rights to its patent
applications described in the Prospectus. To the knowledge of the Company
after due inquiry, the business of the Company and its subsidiaries as now
conducted and as proposed to be conducted does not infringe or conflict with in
any material respect any patents, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, know-how, technology, Internet domain names or other
similar rights of others, and neither the Company nor any of its subsidiaries
has any Knowledge of or has received any notice or claim of conflict with the
asserted rights of others with respect any of the foregoing.
(xxiv) The Company is not, and upon completion of the sale
of Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
(xxv) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; and (C) access to records
is permitted only in accordance with management's general or specific
authorization.
(xxvi) Other than as contemplated by this Agreement,
neither the Company nor any of its subsidiaries has incurred any liability for
any finder's or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement by the Company or the performance by
the Company of its obligations pursuant to this Agreement.
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(xxvii) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any Knowledge that it gives
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
(xxviii) To the Company's Knowledge, no labor disturbance
by the employees of the Company or any of its subsidiaries exists or is
imminent; and the Company has no Knowledge of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
subcontractors or international distributors that would reasonably be expected
to have a Material Adverse Effect. No collective bargaining agreement exists
with any of the Company's employees and, to the Company's Knowledge, no such
agreement is imminent.
(xxix) The Company has not distributed and will not
distribute prior to the later of (A) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (B) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(xxx) Neither the Company nor any of its subsidiaries (nor
any person representing the Company or any of its subsidiaries) has at any time
during the last five (5) years (A) made any payment in violation of the Foreign
Corrupt Practices Act, or (B) made any payment to any federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(xxxi) Except as set forth in the Registration Statement
and Prospectus, (i) the Company and each of its subsidiaries is in compliance
with all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and
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protection of health or the environment ("Environmental Laws") which are
applicable to its business, except for such instances of non-compliance as
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, (ii) neither the Company nor any of its subsidiaries
has received notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus and is not so
disclosed, (iii) to the Knowledge of the Company, neither the Company nor
any of its subsidiaries will be required to make future material capital
expenditures to comply with Environmental Laws and (iv) to the Knowledge of
the Company, no property which is owned, leased or occupied by the Company or
any of its subsidiaries has been designated as a Superfund site pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or otherwise designated
as a contaminated site under applicable state or local law.
(xxxii) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters pursuant to this
Agreement shall be deemed to be a representation and warranty of the Company to
each Underwriter as to the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a price of $_______ per share, the number of Firm Shares
as set forth opposite the name of such Underwriter in Schedule A hereto .
In addition, on the basis of the representations, warranties and
covenants contained herein and subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters an option to
purchase at the Underwriters' election up to the aggregate number of Option
Shares, at the same price per share as set forth for the Firm Shares in the
paragraph above, for the sole purpose of covering over allotments in the sale of
the Firm Shares. The option granted hereby may be exercised in whole or in
part, but only once, and at any time upon written notice given within 30 days
after the date of this Agreement, by you, as
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Representatives of the several Underwriters, to the Company setting forth the
aggregate number of Option Shares as to which the several Underwriters are
exercising the option and the time and date at which certificates are to be
delivered. Any such election to purchase Option Shares shall be made in
proportion to the maximum number of Option Shares to be sold by the Company.
If any Option Shares are purchased, each Underwriter agrees, severally and
not jointly, to purchase that portion of the aggregate number of Option
Shares as to which such election shall have been exercised (subject to
adjustment to eliminate fractional shares) determined by multiplying such
aggregate number of Option Shares by a fraction the numerator of which is the
maximum number of Option Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule A
hereto and the denominator of which is the maximum number of Option Shares
which all of the Underwriters are entitled to purchase hereunder. The time
and date at which certificates for Option Shares are to be delivered shall be
determined by the Representatives but shall not be earlier than two or later
than ten full business days after the exercise of such option, and shall not
in any event be prior to the Closing Date. If the date of exercise of the
option is three or more full days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Dain Rauscher Wessels may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter at such time and place as shall hereafter be
designated by the Representatives, against payment by such Underwriter or on its
behalf of the purchase price therefor by wire transfer, payable to the order of
the Company in next day funds. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 8:30 a.m., local time, at the offices
of Wilson Sonsini Goodrich & Rosati, 5300 Carillon Point, Kirkland, Washington,
on the third (or if the Shares are priced, as contemplated by Rule 15c6-1(c)
under the Exchange Act, after 4:30 p.m. Eastern time, the fourth) full business
day following the date hereof, or at such other time and date as you and the
Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time
and date being herein referred to as the "Closing Date," and, with respect to
the Option Shares, at the time and on the date specified by you in the written
notice delivered by you to the Company with respect to the Underwriters'
election to purchase the Option Shares, or such other time and date as you and
the Company may agree upon in writing, such time and date being referred to
herein as the "Option Closing Date." Such certificates will be made available
for checking and packaging at least twenty-four hours prior to the Closing Date
or the Option Closing Date, as the case may be, at a location as may be
designated by you.
3. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price and terms set forth
in the Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the
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extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer such Option Shares to the public on the
foregoing terms.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will prepare and timely file with the
Commission under Rule 424(b) under the Act a Prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A under the Act, and will not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
and as to which the Representatives shall have reasonably objected in writing
promptly after reasonable notice thereof or which is not in compliance with the
Act or the Regulations.
(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement or for any
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for that purpose, and the Company
will use all commercially reasonable efforts to prevent the issuance of any
such stop order preventing or suspending the use of the Prospectus or suspending
such qualification and to obtain as soon as possible the lifting thereof, if
issued.
(c) The Company will endeavor to qualify the Shares for sale
under the securities laws of such jurisdictions as the Representatives may
reasonably have designated in writing and will, or will cause counsel to, make
such applications, file such documents, and furnish such information as may be
reasonably requested by the Representatives, provided that the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many
copies of any Preliminary Prospectus as the Representatives may reasonably
request and, during the period when delivery of a prospectus is required under
the Act, the Company will furnish the Underwriters with as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may, from time to time, reasonably request. The Company will
deliver to the Representatives, at or before the Closing Date, three signed
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copies of the Registration Statement and all amendments thereto, including
all exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement, without exhibits, and of all
amendments thereto, as the Representatives may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or if
for any other reason it shall be necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will prepare and
file with the Commission an appropriate amendment to the Registration Statement
or supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein in
light of the circumstances existing when it is so delivered, not misleading, or
so that the Prospectus will comply with law. In case any Underwriter is
required to deliver a prospectus in connection with sales of any Shares at any
time nine months or more after the effective date of the Registration Statement,
upon the request of the Representatives but at the expense of such Underwriter,
the Company will prepare and deliver to such Underwriter as many copies as the
Representatives may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder.
(g) During a period of five (5) years after the date hereof, or
such shorter period that the Company remains subject to the periodic reporting
requirements of the Exchange Act, the Company, as soon as practicable after the
end of each respective financial quarter or year, as applicable, will furnish to
its shareholders annual reports (including financial statements audited by
independent certified public accountants), and will, upon request, furnish to
you and the other several Underwriters hereunder (i) concurrently with making
such reports available to its shareholders, statements of operations of the
Company for each of the first three quarters in the form made available to the
Company's shareholders; (ii) concurrently with the furnishing thereof to its
shareholders, a balance sheet of the Company as of the end
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of such fiscal year, together with statements of operations, of shareholders'
equity and of cash flow of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of nationally recognized
independent certified public accountants; and (iii) concurrently with the
furnishing of such reports to its shareholders, copies of all reports
(financial or other) mailed to shareholders; and (iv) as soon as they are
available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or The Nasdaq National
Market by the Company (except for documents for which confidential treatment
is requested).
(h) No offering, sale or other disposition of any Common Stock
or other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other capital stock
(other than (i) pursuant to employee stock option plans, employee stock purchase
plans, (ii) upon the exercise of options or warrants outstanding on the date of
this Agreement, (iii) upon the conversion of convertible securities, outstanding
on the date of this Agreement, (iv) in connection with business acquisitions or
(v) pursuant to offerings exempt from the registration requirements of the Act,
provided that the Company shall not register the resale of Common Stock or other
capital stock of the Company, or warrants, options, convertible securities or
other rights to acquire such Common Stock or other capital stock issued or
issuable pursuant to such exempt transaction during the Lock-Up Period;
PROVIDED, that any employee stock options issued pursuant to employee stock
option plans during the Lock-Up Period shall not vest and become exercisable to
any extent prior to the expiration of the Lock-Up Period; and, PROVIDED FURTHER,
that any shares of Common Stock issued to any current executive officer or
director during the Lock-Up Period pursuant to the exercise of stock options
shall bear a restrictive legend restricting the transfer of such shares during
the Lock-Up Period will be made from the date of this Agreement until the end of
the Lock-Up Period, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representatives.
(i) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus. The Company will
invest such proceeds pending their use in such a manner that, upon completion of
such investment, the Company will not be an "investment company" as defined in
the Investment Company Act of 1940, as amended.
(j) The Company will use all commercially reasonable efforts
to maintain the designation of the Common Stock on The Nasdaq National Market.
(k) From the date of this Agreement until the termination of
the Lock-Up Period, the Company will not, without the prior written consent of
Dain Rauscher Wessels on behalf of the Underwriters, alter or amend in any
manner the vesting schedule of any option, warrant or other security of the
Company or its subsidiaries.
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(l) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
5. COSTS AND EXPENSES. Whether or not the transactions contemplated
by this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company, the cost of preparing,
printing and filing of the Registration Statement, Preliminary Prospectuses and
the Prospectus and any amendments and supplements thereto and the printing,
mailing and delivery to the Underwriters and dealers of copies thereof and of
this Agreement, the Agreement Among Underwriters, any Selected Dealers
Agreement, the Underwriters' Selling Memorandum, the Invitation Letter, the
Power of Attorney, the Blue Sky Memorandum and any supplements or amendments
thereto (excluding, except as provided below, fees and expenses of counsel to
the Underwriters); the filing fees of the Commission; the filing fees and
expenses (including the reasonable fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the NASD of the terms
of the sale of the Shares; listing fees, if any, transfer taxes and the
expenses, including the reasonable fees, which shall not exceed $1,000, and
disbursements of counsel for the Underwriters incurred in connection with the
qualification of the Shares under state securities or blue sky laws; the fees
and expenses incurred in connection with the listing of the Common Stock on The
Nasdaq National Market; the costs of preparing stock certificates; the costs and
fees of any registrar or transfer agent and all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5. In addition, the Company will pay
all travel and lodging expenses incurred by management of the Company in
connection with any informational "road show" meetings held in connection with
the offering and will also pay for the preparation of all materials used in
connection with such meetings. The Company shall not, however, be required to
pay for any of the Underwriters' expenses (other than those related to
qualification of the Shares under state securities or blue sky laws and those
incident to securing any required review by the NASD of the terms of the sale of
the Shares) except that, if this Agreement shall not be consummated because the
conditions in Section 6 hereof are not satisfied or because this Agreement is
terminated by the Representatives pursuant to clause (i) of Section 10(a)
hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on their respective parts to be
performed, unless such failure to satisfy said condition or to comply with said
terms shall be due to the default or omission of any Underwriter, then the
Company shall promptly upon request by the Representatives reimburse the several
Underwriters for all
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appropriately itemized out-of-pocket accountable expenses, including the
reasonable fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares
or in contemplation of performing their obligations hereunder; but the
Company shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them
of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date or the Option Closing
Date, as the case may be, the condition that the Company shall have performed
all of its covenants and obligations hereunder (to the extent that performance
of such covenants and obligations are due at such times) and to the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the Regulations and in accordance with Section 4(a) hereof; no stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, or any part thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Representatives.
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for the Company, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters, to the effect that:
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(i) The form of certificate for the Shares is in due and
proper form and complies with the requirements of the Washington Business
Corporation Act. The Shares have been duly authorized and, when issued and paid
for as contemplated herein, will be validly issued, fully paid and
nonassessable. To the knowledge of such counsel, no rights to register
outstanding shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or other
rights to acquire shares of such capital stock, exist which have not been
validly exercised or waived with respect to the Registration Statement. The
capital stock of the Company, including the Shares, conforms in all material
respects as to legal matters to the description thereof contained in the
Prospectus.
(ii) The Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued under the Act
and, to the knowledge of such counsel, no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
(iii) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements and the
notes thereto and related schedules and other financial data derived from such
financial statements and included in the Registration Statement, the Prospectus
or each amendment or supplement thereto).
(iv) The statements (A) in the Prospectus under the
captions "Management-Director and Officer Indemnification and Liability,"
"Description of Capital Stock," and "Shares Eligible for Future Sale" and (B) in
the Registration Statement in Items 14 and 15 insofar as such statements
constitute a summary of matters of law, are, in all material respects, accurate
summaries and fairly present the information required to be stated.
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<PAGE>
(v) Such counsel knows of no legal or governmental
proceeding, pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
Prospectus and are not so described, or statutes or regulations that are
required to be described in the Registration Statement or the Prospectus that
are not so described.
(vi) The execution and delivery of this Agreement and
the performance by the Company of its obligations pursuant to this Agreement
do not and will not result in a violation of or default under the charter or
bylaws of the Company, or under any statute, permit, judgment, decree,
order, rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties (other than state securities or blue
sky laws, as to which such counsel need express no opinion).
(vii) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue, sell and deliver the Shares to
be sold by the Company pursuant to this Agreement. This Agreement has been
duly and validly authorized, executed and delivered by the Company.
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(viii) No approval, consent, order, authorization,
designation, declaration, qualification or filing by or with any judicial,
regulatory, administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement and the performance by the
Company of its obligations pursuant to this Agreement (other than as may be
required by state securities or blue sky laws, as to which such counsel need
express no opinion) except such as have been obtained or made.
(ix) The Company is not, and immediately upon completion
of the sale of Shares contemplated hereby will not be, required to register as
an "investment company" under the Investment Company Act of 1940, as amended.
(x) Such opinion shall also include a statement to
the effect that such counsel has participated in conferences with officers
and representatives of the Company, representatives of the independent public
accountants for the Company, the underwriters and the underwriters' counsel
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, such counsel has
no reason to believe that as of its effective date, the Registration
Statement (other than the financial statements and related schedules included
therein and financial data derived therefrom, as to which such counsel need
not comment) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date, the Prospectus
(other than the financial statements and related schedules included therein
and financial data derived therefrom, as to which such counsel need not
comment) contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that, as of the
Closing Date, either the Registration Statement or the Prospectus (other
than the financial statements and related schedules included therein and
financial data derived therefrom, as to which such counsel need not comment)
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the
20
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statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Alan D. Koslow,
General Counsel of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation under the laws of the State of Washington, with
corporate power and authority to own, lease, license and use its properties and
conduct its business as described in the Prospectus, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business or its ownership, lease, license or use of property
requires such qualification and the failure so to qualify would have a Material
Adverse Effect.
(ii) The Company has authorized and outstanding
capital stock as described in the Prospectus as of the date set forth
therein. The outstanding shares of the Company's capital stock have been
duly authorized and validly issued and are fully paid and nonassessable. No
preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders of the Company, or of holders of
warrants, options, convertible securities or other rights to acquire shares
of capital stock of the Company, exist with respect to any of the Shares or
the issue and sale thereof (A) pursuant to the terms of the Company's
Articles of Incorporation or Bylaws or (B) to the knowledge of such counsel,
pursuant to the terms of any agreement or instrument to which the Company is
a party or by which the Company is bound.
(iii) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required; and insofar as any
statements in the Registration Statement or the Prospectus constitute summaries
of any contract, agreement, document or instrument, such statements are, in all
material respects, accurate summaries and fairly present the information called
for with respect to such matters.
(iv) The execution and delivery of this Agreement and
the performance by the Company of its obligations pursuant to this Agreement
do not and will not result in a breach of or default (except for such
breaches or defaults as would not have a Material Adverse Effect) under any
material lease, license, contract, indenture, mortgage, loan agreement or
other agreement or other instrument or obligation known to such counsel to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any property or
assets of the Company or any of its
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subsidiaries is subject, except such agreements, instruments or
obligations with respect to which valid consents or waivers have been obtained
by the Company.
(v) To such counsel's knowledge, neither the Company nor
any of its subsidiaries is in violation of, or in default under, its charter or
bylaws, or any statute, or any law, rule, regulation, order, judgment,
injunction, decree or authorization of any court or governmental or
administrative agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, or any indenture, mortgage, deed of
trust, loan agreement, lease, franchise, license or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any property
or assets of the Company or any of its subsidiaries is subject, which violation
or default would have a Material Adverse Effect.
(vi) Such opinion shall also include a statement to the
effect that such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
accountants for the Company, the underwriters and the underwriters' counsel at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed, and although such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, such counsel has no
reason to believe that as of its effective date, the Registration Statement
(other than the financial statements and related schedules included therein and
financial data derived therefrom, as to which such counsel need not comment)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus (other than the financial
statements and related schedules included therein and financial data derived
therefrom, as to which such counsel need not comment) contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading or that, as of the Closing Date, either the Registration
Statement or the Prospectus (other than the financial statements and related
schedules included therein and financial data derived therefrom, as to which
such counsel need not comment) contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(d) The Representatives shall have received from Faegre &
Benson LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, with respect to the incorporation
of the Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the
22
<PAGE>
Representatives may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them to
pass upon such matters.
(e) The Representatives shall have received on each of the date
hereof, the Closing Date and the Option Closing Date, as the case may be, a
signed letter, dated as of the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance reasonably satisfactory
to the Representatives, from Arthur Andersen LLP and Ernst & Young LLP, to the
effect that they are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the Act and the related rules and
regulations and containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(f) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Option Closing Date, as the case may be,
there shall not have been any change or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in your judgment, is material and adverse to the Company and
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at the Closing Date or the Option Closing
Date, as the case may be, on the terms and in the manner contemplated in the
Prospectus.
(g) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the chief financial officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents on behalf of the Company as follows:
(i) The Prospectus was filed with the Commission
pursuant to Rule 424(b) within the applicable period prescribed for such filing
by the Regulations and in accordance with Section 4(a) of this Agreement; no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been initiated or are, to such
officer's knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company
set forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company has
performed all of its obligations under this Agreement to be performed at or
prior to the Closing Date or the Option Closing Date, as the case may be.
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(h) The Company shall have furnished to the Representatives
such further certificates and documents as the Representatives may reasonably
have requested.
(i) The Lock-Up Agreements shall have been delivered to the
Representatives prior to the date hereof and are, as of the Closing Date or the
Option Closing Date, as the case may be, in full force and effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representatives and to Faegre & Benson
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 7
hereof).
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each officer and director thereof, and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) to which such Underwriter or such persons may became
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus, including any amendments or supplements thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and will reimburse each
Underwriter and each such officer, director and controlling person for any legal
or other expenses reasonably incurred by such Underwriter or such officer,
director or controlling person in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission, made in the
Registration Statement, any
24
<PAGE>
Preliminary Prospectus or the Prospectus, including any amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein; provided further, that the
Company shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission, made
in a Preliminary Prospectus, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of the
Underwriters to the person asserting such loss, claim, damage or liability,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of Shares to such person, and if the Prospectus (as
amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability, unless the failure to so deliver the
Prospectus (as amended or supplemented) is the result of noncompliance by the
Company with the first sentence of paragraph 4(d) of this Agreement.
(b) Each Underwriter agrees severally and not jointly to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, against any losses, claims,
damages or liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that each Underwriter will be
liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 7, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution provided for
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in Section 7(d) shall be available with respect to a proceeding to any
indemnified party who shall fail to give notice of such proceeding as
provided in this Section 7(c) if the indemnifying party to whom notice was
not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
otherwise than on account of the provisions of Section 7(a) or (b). In case
any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay promptly as incurred the reasonable fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it or other indemnified parties
which are different from or additional to those available to the indemnifying
party. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm at any time
for all such indemnified parties. Such firm shall be designated in writing
by the Representatives and shall be reasonably satisfactory to the Company in
the case of parties indemnified pursuant to Section 7(a) and shall be
designated in writing by the Company and shall be reasonably satisfactory to
the Representatives in the case of parties indemnified pursuant to Section
7(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7(a), or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the
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<PAGE>
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 7(d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions or proceedings in
respect thereto) referred to above in this Section 7(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 7(d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 7 shall
be in addition to any liability which the Company may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition to any
liability which the Underwriters may otherwise have.
8. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Shares which such Underwriter has agreed to purchase and
pay for on such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your best
efforts to procure within 36 hours thereafter one or more of
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the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed upon, and upon the terms set forth herein, of the
Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If the aggregate number of
Shares that the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased in accordance with the preceding sentence, the Company
shall have the right, within 36 hours next succeeding the 36-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such remaining Shares on the terms herein
set forth. If during such two 36-hour periods you, as Representatives, and
the Company shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to
be purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of Shares with respect to which such default shall occur
does not exceed 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate
number of shares of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice
given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except for expenses to be borne by the Company
and the Underwriters as provided in Section 5 hereof and the indemnity and
contribution agreements in Section 7 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 8 (and assuming
that this Agreement is not terminated pursuant to the immediately preceding
sentences), the Closing Date or Option Closing Date, as the case may be, may
be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this
Section 8 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
9. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to Dain Rauscher Wessels, Dain
Rauscher Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402, Attention:
Wade Massad, with copies to Faegre & Benson LLP, 2200 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota 55402-3901, Attention: Steven C.
Kennedy, Esq.; if to the Company to ShopNow.com Inc., 411 First Avenue South,
Suite 200 North, Seattle, Washington, 98101, Attention: Dwayne M. Walker, with
copies to Wilson Sonsini Goodrich
28
<PAGE>
& Rosati, Professional Corporation, 5300 Carillon Point, Kirkland, Washington
98033-7356, Attention: Patrick J. Shultheis, Esq.
10. TERMINATION. This Agreement may be terminated by you by notice to
the Company as follows:
(a) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its subsidiaries taken as a whole or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable,
(iii) suspension of trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such Exchange, or a halt or suspension of trading in securities generally which
are quoted on The Nasdaq National Market System, or (iv) declaration of a
banking moratorium by either federal or New York State authorities; or
(b) as provided in Sections 6 and 8 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company,
as to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (a) above or as provided in Sections 6 and 8 of this
Agreement.
11. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2 and Section 7 hereof), the
Company understands and agrees with each of the Underwriters that the following
constitutes the only written information furnished to the Company by or through
the Representatives specifically for use in preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto: (i) the per share "Public offering price" and per share
"Underwriting discounts and commissions" set forth on the cover page of the
Prospectus, and (ii) the information set forth under the caption "Underwriting"
in the Preliminary Prospectus and the Prospectus.
12. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company and their
respective successors and
29
<PAGE>
assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares merely
because of such purchase.
13. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or its directors or officers and (c) delivery of and
payment for the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Minnesota.
30
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
ShopNow.com Inc.
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
SoundView Technology Group, Inc.
Wit Capital Corporation
As Representatives of the several Underwriters
By Dain Rauscher Incorporated
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
31
<PAGE>
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM MAXIMUM NUMBER
UNDERWRITER SHARES TO BE OF OPTION
PURCHASED SHARES
<S> <C> <C>
Dain Rauscher Wessels . . . . . . . .
U.S. Bancorp Piper Jaffray Inc. . . .
SoundView Technology Group, Inc. . .
Wit Capital Corporation . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Total . . . . . . . . . . . . . .
</TABLE>
<PAGE>
SCHEDULE 1(a)(v)
1. 24/7 Media Assets Inc.
2. AXC Corporation
<PAGE>
SCHEDULE 1(a)(vi)
1. First Amendment and Restated Shareholders' Agreement, dated February 26,
1997, by and among the Company, the Holders of Securities, and the other
Persons party thereto, as amended by the First Amendment to the First
Amended and Restated Shareholders' Agreement dated as of October 31,
1997, the Second Amendment to the First Amended and Restated
Shareholders' Agreement, dated as of December 29, 1997, the Third
Amendment to First Amended and Restated Shareholders' Agreement, dated as
of September 11, 1998, and the Fourth Amendment to First Amended and
Restated Shareholders' Agreement, dated as of April 30, 1999.
2. Distribution Agreement, effective as of February 6, 1998, by and between
the Company and InstallShield Software Corporation.
<PAGE>
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
This Amendment No. 1 (the "Amendment") to the Second Amended and Restated
Rights Agreement dated as of November 1, 1998 (the "Rights Agreement") is made
and entered into as of June 15, 1999, pursuant to Section 16.1 of the Rights
Agreement by and among: ShopNow.com Inc., a Washington corporation; the Holders;
and the other parties signatory hereto. Capitalized terms used in this Amendment
that are not otherwise defined herein shall have the respective meanings
assigned to them in the Rights Agreement.
RECITALS
WHEREAS, Section 16.1 of the Rights Agreement permits amendment of the
Rights Agreement upon written consent of (i) the Company, (ii) Investors owning
at least sixty-seven percent (67%) of the Outstanding Registrable Securities
owned by all Investors, and (iii) the Holders of Outstanding Registrable
Securities equivalent to more than fifty percent (50%) of the Registrable Common
issued and issuable;
WHEREAS, the Company has entered into a Loan and Security Agreement with
Transamerica Business Credit Corporation, a Delaware corporation ("TBCC"), and
in connection with such transaction the Company has issued to TBCC and Sand Hill
Capital, LLC ("Sand Hill") warrants to acquire shares of Common;
WHEREAS, the Company has entered into a Master Lease Agreement with Silicon
Valley Bank ("SVB") and in connection with such transaction the Company has
issued to SVB a warrant to acquire shares of Common;
WHEREAS, the Company has entered into a Loan and Security Agreement with
Leasing Technologies, International, a Delaware corporation ("LTI"), and in
connection with such transaction the Company has issued to LTI a warrant to
acquire shares of Common;
WHEREAS, the Company has entered into a Stock Purchase with HNC Software
Inc., a Delaware corporation ("HNC"), and in connection with such transaction
has issued to HNC Series H Convertible Preferred Stock and other Securities;
WHEREAS, the Company has entered into an Electronic Distributor Agreement
with Corel Corporation, a Canadian corporation ("Corel"), and in connection with
such transaction has issued to Corel a warrant and other Securities to acquire
shares of the Common;
WHEREAS, the Company has entered into a Distributorship/Marketing Agreement
with Qwest Communications Corporation, a Delaware corporation ("Qwest"), and in
connection with such transaction has issued to Qwest a warrant to acquire shares
of Common;
<PAGE>
WHEREAS, the Company has entered into a Cross Promotion Agreement with 24/7
Media, Inc., a Delaware corporation ("24/7 Media"), and in connection with such
transaction has issued to 24/7 Media Series G Convertible Preferred Stock and
other Securities;
WHEREAS, the Company has issued Securities to Odyssey Venture Partners L.P.
("Odyssey"), Argossy Ltd ("Argossy"), and Zeron Capital Ltd. ("Zeron") in
connection with various business transactions;
WHEREAS, the Company has issued Securities to Bill Pittman, an individual
("Pittman"), in connection with its acquisition of GO Software, Inc.; and
WHEREAS, in connection with the above-referenced Securities, the Company
has agreed to grant TBCC, Sand Hill, SVB, LTI, HNC, Corel, Qwest, 24/7 Media,
Odyssey, Argossy, Zeron, and Pittman registration rights and it is therefore
necessary to amend the Rights Agreement to permit the inclusion of these
additional parties.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 1.1 of the Rights Agreement is hereby amended to add the
following new definitions in the applicable alphabetical order:
"JOINDER AGREEMENT" means an agreement in the form of
Annex A hereto.
"INVESTOR" means (a) each party listed as an Investor in
this Agreement or on the signature pages hereto with respect to shares
of Preferred or shares of Common issuable upon exercise of Agent
Warrants, Series C Warrants or Warrants, (b) each Merger Investor, and
(c) each of HNC Software Inc., Corel Corporation, 24/7 Media, Inc.,
Qwest Communications Corporation, Odyssey, Argossy, and Zeron.
"LENDER" means Transamerica Business Credit Corporation,
Leasing Technologies, International, Sand Hill Capital, LLC, Silicon
Valley Bank and any other financial institution or equipment lessor.
"LENDER WARRANTS" means warrants exercisable for shares of
Common issued to Lenders in connection with commercial credit
arrangements, equipment financings or other similar transactions.
"MANAGER" means any of Dwayne Walker (with respect to shares
of Common), Othniel Palomino, Ganapathy Krishnan and Bill Pittman.
"SUPPLIER WARRANTS" means warrants exercisable for shares of
Common issued to suppliers in connection with product supply and other
similar relationships.
-2-
<PAGE>
"SERIES G PREFERRED" means (a) the outstanding shares of the Company's
Series G Convertible Preferred Stock, $0.01 par value; (b) any shares of
Common issued upon exercise of those Warrants issued in connection with the
sale of the Series G Convertible Preferred Stock; (c)any shares of Series G
Convertible Preferred Stock issued in payment of a dividend upon any share
of Series G Convertible Preferred Stock; and (d) any other Securities
issued as a dividend or other distribution with respect to, or in
replacement of, any Series G Convertible Preferred Stock except shares of
Registrable Common.
"SERIES H PREFERRED" means (a) the outstanding shares of the Company's
Series H Convertible Preferred Stock, $0.01 par value; (b) any shares of
Common issued upon exercise of those Warrants issued in connection with the
sale of the Series H Convertible Preferred Stock; (c) any shares of Series
H Convertible Preferred Stock issued in payment of a dividend upon any
share of Series H Convertible Preferred Stock; and (d) any other Securities
issued as a dividend or other distribution with respect to, or in
replacement of, any Series H Convertible Preferred Stock except shares of
Registrable Common.
2. The following definitions set forth in Section 1.1 of the Rights
Agreement are hereby amended and restated to read in their entirety, as follows:
"PREFERRED" means collectively, the Series A Preferred, the Series B
Preferred, the Series C Preferred, the Series D Preferred, the Series E
Preferred, the Series F Preferred, the Series G Preferred, and the Series H
Preferred.
"WARRANTS" means those warrants exercisable for shares of Common
issued in connection with the sale of the Series D Preferred, the Series E
Preferred, the Series F Preferred, the Series G Preferred, and the Series H
Preferred.
3. Section 1.1 of the Rights Agreement is hereby amended by replacing
subsection (e) of the definition of "REGISTRABLE COMMON" with the following
subsection (e):
(e) any shares of Common issued or then issuable upon exercise of the
Lender Warrants, the Supplier Warrants, the Agent Warrants, the Series
C Warrants and the Warrants;
4. Section 1.1 of the Rights Agreement is hereby amended by replacing
subsection (d) of the definition of "OUTSTANDING REGISTRABLE SECURITIES" with
the following subsection (d):
(d) any shares of Common then outstanding which were issued upon
exercise of the Agent Warrants, the Supplier Warrants, the Series C
Warrants, or the Warrants;
5. The parties hereto hereby agree that TBCC, Sand Hill, LTI and SVB
shall each be deemed, subject to their execution and delivery of this Amendment,
a Holder and accordingly shall be subject to all the rights and obligations of a
Holder for the purposes of the Rights Agreement.
-3-
<PAGE>
6. The parties hereto hereby agree that HNC, Corel, Qwest, 24/7 Media,
Odyssey, Argossy and Zeron shall each be deemed, subject to their execution and
delivery of this Amendment, an Investor and accordingly shall be subject to all
the rights and obligations of an Investor of Registrable Common for the purposes
of the Rights Agreement.
7. The parties hereto hereby agree that Pittman shall be deemed a Manager
and accordingly shall be subject to all the rights and obligations of a Manager
for the purposes of the Rights Agreement.
8. Section 16.1 of the Rights Agreement is hereby amended by inserting
the following sentence after the last sentence of Section 16.1:
Notwithstanding anything contained in Section 16.1, any Lender that
receives Securities in connection with commercial credit arrangements,
equipment financings or similar arrangements, shall be deemed, subject
to such Lender's execution and delivery of the Joinder Agreement, a
Holder for the purposes of this Agreement (subject to all the rights
and obligations hereunder).
9. Annex A attached hereto shall be deemed to be a new Annex A to the
Rights Agreement.
10. Except as expressly set forth in this Amendment, the Rights Agreement
shall continue in full force and effect in accordance with its terms.
11. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Washington, without
reference to the conflict of laws provisions thereof.
[Remainder of this Page Intentionally Left Blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO
SECOND AMENDED RIGHTS AGREEMENT to be executed as of the date first above
written.
THE COMPANY SHOPNOW.COM INC.,
a Washington corporation
By: /s/ Dwayne Walker
--------------------------------
Name:______________________________
Title:_____________________________
HOLDERS
EXISTING INVESTORS: THE PRODUCTIVITY FUND III, L.P.
a Delaware limited partnership
By: /s/ Bret R. Maxwell
--------------------------------
First Analysis Management
Company III, L.L.C.
Its General Partner
By: /s/ Bret R. Maxwell
--------------------------------
First Analysis Corporation, a Member
By: /s/ Bret R. Maxwell
--------------------------------
Bret R. Maxwell, Vice Chairman
ENVIRONMENTAL PRIVATE EQUITY FUND
II, L.P.,
a Delaware limited partnership
By: /s/ Bret R. Maxwell
--------------------------------
Environmental Private Equity
Management II., L.P., Its General
Partner
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
By: /s/ Bret R. Maxwell
--------------------------------
First Analysis EPEF Management
Company II, a General Partner
By: /s/ Bret R. Maxwell
--------------------------------
First Analysis Corporation,
a Gerneral Partner
By: /s/ Bret R. Maxwell
--------------------------------
Bret R. Maxwell, Vice Chairman
/s/ Dwayne Walker
-----------------------------------
DWAYNE WALKER
/s/ Othniel Palomino
-----------------------------------
OTHNIEL PALOMINO
___________________________________
TIMOTHY MAR
___________________________________
MICHAEL C. AND CAROLYN J. KEEL
/s/ Christopher B. Harned 7/7/99
-----------------------------------
CHRISTOPHER B. HARNED
___________________________________
MARK E. AND TERRI P. ZIMDARS
/s/ Mark C. McClure
-----------------------------------
MARK C. AND DOREN McCLURE
___________________________________
JAMES M. AND GRACE M. CRICK
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
___________________________________
ARTHUR M. MOLLOY
___________________________________
MAHAN AND JAYABEN M. SHAH
TZM INVESTMENT FUND
By: /s/ illegible
--------------------------------
TOLMI LLC
By: /s/ James Bidzos
--------------------------------
MADISON SECURITIES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
NEW INVESTORS: HNC SOFTWARE, INC.,
a Delaware corporation
By: /s/ R. V. Thomas
--------------------------------
Name: Raymond V. Thomas
------------------------------
Title: CFO
------------------------------
COREL CORPORATION,
a Canadian corporation
By: /s/ Mitch Desrodos
--------------------------------
Name: Mitch Desrodos
------------------------------
Title: VP Finance & Controller
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
QWEST COMMUNICATIONS CORPORATION,
a Delaware corporation
By:________________________________
Name:______________________________
Title:_____________________________
24/7 MEDIA, INC.,
a Delaware corporation
By:________________________________
Name:______________________________
Title:_____________________________
ODYSSEY VENTURE PARTNERS L.P.
By: /s/ Roderick M. Forrest
--------------------------------
Name: Roderick M. Forrest
------------------------------
Title: Director of Zeron Capital
LTD. as General Partner to
Odyssey Venture Partners
-----------------------------
ARGOSSY LTD.
By: /s/ Max Quin
--------------------------------
Name: Maxwell L.H. Quin
------------------------------
Title: Director
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ZERON CAPITAL LTD.
By: /s/ Ian P. Pilgrim
--------------------------------
Name: Ian P. Pilgrim
------------------------------
Title: Director
-----------------------------
MANAGERS:
/s/ Dwayne Walker
-----------------------------------
DWAYNE WALKER
/s/ Othniel D. Palomino
-----------------------------------
OTHNIEL PALOMINO
/s/ Kalyani Krishnan
-----------------------------------
GANAPATHY KRISHNAN/KALYANI KRISHNAN
-----------------------------------
BILL PITTMAN
LENDERS: TRANSAMERICA BUSINESS CREDIT
CORPORATION,
a Delaware corporation
By: /s/ Ian Schnider
--------------------------------
Name: Ian Schnider
------------------------------
Title: Senior Vice President/
General Manager
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
SAND HILL CAPITAL, LLC,
By: /s/ William J. Del Biaggio III
--------------------------------
Name: William J. Del Biaggio III
------------------------------
Title: Managing General Parnter
-----------------------------
SILICON VALLEY BANK
By:________________________________
Name:______________________________
Title:_____________________________
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian Danielson
----------------------------------
Name: Brian Danielson
----------------------------------
Trust Official Banker's
Trust Co., Trustee
/s/ Thomas L. Flynn individually 7-8-99
Entity shareholder sign here: ---------------------------------------
(Print name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Phillip Rosett M.D.
------------------------------
Name: Phillip Rosett M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael R. Demnicki
------------------------------
Name: Michael R. Demnicki
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here: 7/15/99
/s/ Fredrick B. Weichbrod
------------------------------
Name: Fredrick B. Weichbrod
------------------------------
/s/ Don Steger
------------------------------
Name: Don Steger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Irene S. Sparage
------------------------------
Name: Irene S. Sparage
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jerry W. Woods
------------------------------
Name:
------------------------------
/s/ Dar M. Woods
------------------------------
Name:
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian D. Ranelle, D.O.
------------------------------
Name: Brian D. Ranelle, D.O.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard S. Rothman
------------------------------
Name: Richard S. Rothman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene E. Cook
------------------------------
Name: Eugene E. Cook
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Harvey S. Saks TTEE
------------------------------
Name: Harvey S. Saks TTEE
------------------------------
Harvey S. Saks Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Harvey S. Saks TTEE
--------------------------------
Name: Harvey S. Saks TTEE
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ illegible
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald L. Antinone M.D.
------------------------------
Name: Ronald L. Antinone M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael E. Kleinhans
------------------------------
Name: Michael E. Kleinhans
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Kenneth G. Mick Rev Trust dtd 12/28/94
Entity shareholder sign here: --------------------------------------
(Print name of entity)
By: /s/ Kenneth G. Mick
--------------------------------
Name: Kenneth G. Mick
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph T. Majewski
------------------------------
Name: Joseph T. Majewski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Juanita Antinone
------------------------------
Name: Juanita Antinone
------------------------------
/s/ Ronald L. Antinone M.D.
------------------------------
Name: Ronald L. Antinone M.D.
------------------------------
Juanita P. Antinone
Ronald L. Antinone M.D.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Marvin T. Keeling
------------------------------
Name: Marvin T. Keeling
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Leasing Technologies International, Inc.
Entity shareholder sign here: ----------------------------------------
(Print name of entity)
By: /s/ Hugh M. Baum, Esq.
--------------------------------
Name: Hugh M. Baum, Esq.
------------------------------
Title: Secretary
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Evelyn Munden G.P.
------------------------------
Name: EVELYN MUNDEN
------------------------------
Entity shareholder sign here: MUNDEN FAMILY PARTNERSHIP, L.P.
-----------------------------------
(Print name of entity)
By: /s/ Evelyn Munden G.P.
--------------------------------
Name: EVELYN MUNDEN
------------------------------
Title: Gen. Part.
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Don Peachey
------------------------------
Entity shareholder sign here:
-----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven M. Kaplan
------------------------------
Name: Steven M. Kaplan 7/7/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: Angell Investments LLC
-----------------------------------
(Print name of entity)
By: /s/ Richard Angell
--------------------------------
Name: Richard Angell
------------------------------
Title: Managing Member
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ LASKIN REALTY CORP. PROFIT
SHARING PLAN
------------------------------
Name: Evelyn Munden G.P. TTEE
------------------------------
Entity shareholder sign here: LASKIN REALTY CORP. PROFIT
SHARING PLAN
-----------------------------------
(Print name of entity)
By: /s/ Evelyn Munden
--------------------------------
Name: Evelyn Munden
------------------------------
Title: General Partner/TTEE
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John R. Potter
------------------------------
Name: John R. Potter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John C. Lundberg
------------------------------
Name: John C. Lundberg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven Dobryman
------------------------------
Name: Steven Dobryman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Walter M. Narajowski
------------------------------
Name: Walter M. Narajowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: AUGUSTINE FUND LP
-----------------------------------
(Print name of entity)
By: /s/ Thomas F. Duszynski
--------------------------------
Name: Thomas F. Duszynski
------------------------------
Title: CFO, AUGUSTINE CAPITAL
MANAGEMENT, INC., GENERAL
PARTNER
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark Terbeek
------------------------------
Name: Mark Terberk 7/17/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: 24/7 Media, Inc.
-----------------------------------
(Print name of entity)
By: /s/ Mark E. Moran
--------------------------------
Name: Mark E. Moran
------------------------------
Title: Senior Vice President
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael C. Dussault
------------------------------
Name: Michael C. Dussault
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ illegible
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Gary C. Garrett
------------------------------
Name: Gary C. Garrett
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Kathleen E. Grabowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John G. Girardot
------------------------------
Name: John G. Girardot
------------------------------
Entity shareholder sign here: JOHN G. GIRARDOT
-----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Lubin
------------------------------
Name: David Lubin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Janet M. Clarin
------------------------------
Name: Janet M. Clarin
------------------------------
/s/ Gary R. Clarin
------------------------------
Name: Gary R. Clarin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Barbara J. Macaluso
------------------------------
Name: Barbara J. Macaluso
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert M. Hayes
------------------------------
Name: Robert M. Hayes
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Robert J. Morse Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Robert J. Morse
--------------------------------
Name: Robert Morse
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas A. Denney
------------------------------
Name: Thomas A. Denney
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Donald F. Wilson
------------------------------
Name:
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Northport Private Equity, LLC
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ David T. Shelby
--------------------------------
Name: David T. Shelby
------------------------------
Title: Manager
-----------------------------
7/10/94
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert F. Scheuer
------------------------------
Name: Robert F. Scheuer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ R.N. Evenson
------------------------------
Name: R.N. Evenson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible 7/9/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Cory Rogin
------------------------------
Name: Cory Rogin
------------------------------
/s/ Steve M. Rogin
------------------------------
Name: Steve M. Rogin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Scott K. Pittman
------------------------------
Name: Scott K. Pittman
------------------------------
/s/ Kim M. Pittman
------------------------------
Name: Kim M. Pittman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Diane Harmon
------------------------------
Name: Diane Harmon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Clint Chao
------------------------------
Name: Clint Chao
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John J. Hazinski, Jr.
------------------------------
Name: John J. Hazinski, Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William M. Kennedy
------------------------------
Name: William M. Kennedy
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Clari Wechter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Todd S. Cohen
------------------------------
Name: Todd S. Cohen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Herbert L. Holzman
------------------------------
Name: Herbert L. Holzman
------------------------------
/s/ Jody Holzman
------------------------------
Name: Jody Holzman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Douglas R. Feurring
------------------------------
Name: Douglas R. Feurring
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kevin Furey
------------------------------
Name: Kevin Furey
------------------------------
/s/ Christele Furey
------------------------------
Name: Christele Furey
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Walter E. Lisowski
------------------------------
Name: Walter E. Lisowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David H. Welch 7/15/99
------------------------------
Name: David H. Welch
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph Fetter
------------------------------
Name: Joseph Fetter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald W. Massner
------------------------------
Name: Ronald W. Massner
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Kozin/Renee Kozin
------------------------------
Name: David Kozin/Renee Kozin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Everett Roehl
------------------------------
Name: Everett Roehl
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Terri P. Zimdars
------------------------------
Name: Terri P. Zimdars
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark E. Zimdars
------------------------------
Name: Mark E. Zimdars
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jason Bank
------------------------------
Name: Jason Bank
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene & Moselle Kouri
------------------------------
Name: Eugene & Moselle Kouri
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Donald A. DeStepheno
------------------------------
Name: Donald A. DeStepheon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ M. Krieger
------------------------------
Name: M. Krieger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael C. Keel 7/12/99
------------------------------
Name: Michael C. Keel
------------------------------
/s/ Carolyn J. Keel 7/12/99
------------------------------
Name: Carolyn J. Keel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene Fasano
------------------------------
Name: Eugene Fasano
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Larry A. Johnson
------------------------------
Name: Larry A. Johnson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Noel Abkemeier
------------------------------
Name: Noel Abkemeier
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lillian Fasano
------------------------------
Name: Lilian Fasano
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eliza D. Ward
------------------------------
Name: Eliza D. Ward
------------------------------
/s/ Timothy C. Mar
------------------------------
Name: Timothy C. Mar
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark C. McClure
------------------------------
Name: Mark C. McClure
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John J. Fortunato
------------------------------
Name: John J. Fortunato
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dale A. Drake
------------------------------
Name: Dale A. Drake
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen M. Wernikoff
------------------------------
Name: Stephen M. Wernikoff
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas R. Lonergan
------------------------------
Name: Thomas R. Lonergan
------------------------------
AG Edwards C/F Tom Lonergan IRA
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Dennis Scheumann
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James A. Jalovec
------------------------------
Name: James A. Jalovec
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert S. Angel
------------------------------
Name: Robert S. Angel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Eugunides
------------------------------
Name: Michael Eugunides
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Stephen J. Nardi
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard A. Stewart
------------------------------
Name: Richard A. Stewart
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul Goodrich
------------------------------
Name: Paul Goodrich
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
JPB Corporation
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ James P. Byrne
--------------------------------
Name: James P. Byrne
------------------------------
Title: President
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ C. Glenn Lee
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Melvin Kersting
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael J. Owens
------------------------------
Name: Michael J. Owens
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul A. DiFranco
------------------------------
Name: Paul A. DiFranco
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dan W. Riordan
------------------------------
Name: Dan W. Riordan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Charles Kersting Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James Marsallo
------------------------------
Name: James Marsallo
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Lorenz
------------------------------
Name: Michael Lorenz
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stuart Biegal
------------------------------
Name: Stuart Biegal
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David J. Lynch
------------------------------
Name: David J. Lynch
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Frank Gedelman
------------------------------
Name: Frank Gedelman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ James L. Mann
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Bradford Miller
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas Wienen
------------------------------
Name: Thomas Wienen
------------------------------
/s/ Connie Wienen
------------------------------
Name: Connie Wienen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Santaro
------------------------------
Name: Michael Santaro
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
New Wave Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Marc Schreiber
--------------------------------
Name: Marc Schreiber
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Allan Forman
------------------------------
Name: Allan Forman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ David L. Lang
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael E. Nugent
------------------------------
Name: Michael E. Nugent
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul E. Mokdessi
------------------------------
Name: Paul E. Mokdessi
------------------------------
/s/ Julie S. Mokdessi
------------------------------
Name: Julie S. Mokdessi
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ZERON CAPITAL LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MANAGERS:
--------------------------------
DWAYNE WALKER
--------------------------------
OTHNIEL PALOMINO
--------------------------------
GANAPATHY KRISHNAN/KALYANI
KRISHNAN
/s/ Bill Pittman
--------------------------------
BILL PITTMAN
LENDERS: TRANSAMERICA BUSINESS CREDIT
CORPORATION,
a Delaware Corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
/s/ Ronald Stone Insurance Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Ronald Stone
--------------------------------
Name: Ronald Stone
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Manus C. Kraff M.D.
------------------------------
Manus C. Kraff M.D.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John A. Geheb
------------------------------
Name: John A. Geheb 7/11/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael M. Gelbort
------------------------------
Name: Michael M. Gelbort
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Arthur E. Molloy
------------------------------
Name: Arthur E. Molloy
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here:
-----------------------------------
(Print name of entity)
By: /s/ Dale A. Drake
--------------------------------
Name: DALE A. DRAKE
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Arthur J. Davidson
------------------------------
Name: Arthur J. Davidson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene A. Huske
------------------------------
Name: Eugene A. Huske
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James D. Webb
------------------------------
Name: James D. Webb
------------------------------
/s/ Sue R. Webb
------------------------------
Name: Sue R. Webb
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven M. Kaplan
------------------------------
Name: Steven M. Kaplan 7/7/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kalyani Krishnan
------------------------------
Name: Kalyani Krishnan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jeffrey B. Haggin
------------------------------
Name: Jeffrey B. Haggin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William Meltzer
------------------------------
Name: William Meltzer, MD
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Paul W Soderstrom
------------------------------
Entity shareholder sign here: PAUL'S LIQUIDATING INC.
-----------------------------------
(Print name of entity)
By: /s/ Paul W Soderstrom
--------------------------------
Name:
------------------------------
Title: Pres.
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Todd Humphrey
------------------------------
Name: Todd Humphrey
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: /s/ Haines Hill
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Darla Gasser
------------------------------
Name: Darla Gasser 7/6/99
------------------------------
/s/ Billy F. Gasser
------------------------------
Name: Billy F. Gasser 7/6/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ CR Kinsman
------------------------------
Name: CR KINSMAN
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John W. Egan
------------------------------
Name: John W. Egan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen H. Kaufman
------------------------------
Name: Stephen H. Kaufman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kent A. Petersen
------------------------------
Name: Kent A. Petersen
------------------------------
/s/ Garneda L. Petersen
------------------------------
Name: Garneda L. Petersen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Scott L. Rosen
------------------------------
Name: Scott L. Rosen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Peter L. Neubauer
------------------------------
Name: Peter L. Neubauer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Basil M. Kromelow
------------------------------
Name: Basil M. Kromelow
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard A. Walz
------------------------------
Name: Richard A. Walz
------------------------------
7/8/99
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John W. Gerun
------------------------------
Name: John W. Gerun
------------------------------
7/8/99
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert G. Lamphere
------------------------------
Name: Robert G. Lamphere
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Bobb
------------------------------
Name: Robert J. Bobb
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Fred Weiss
------------------------------
Name: Fred Weiss
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James B. Eversole
------------------------------
Name: James B. Eversole
------------------------------
/s/ Shirley M. Eversole
------------------------------
Name: Shirley M. Eversole
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Barbara S. Kornblatt
------------------------------
Name: Barbara S. Kornblatt
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian Johnson
------------------------------
Name: Brian Johnson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Milgrom
------------------------------
Name: David Milgrom
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert Clauss
------------------------------
Name: Robert Clauss
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Spencer
------------------------------
Name: Robert J. Spencer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard H. Dermott
------------------------------
Name: Richard H. Dermott
------------------------------
/s/ Janice T. Dermott
------------------------------
Name: Janice T. Dermott
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Linda S. Schmier
------------------------------
Name: Linda S. Schmier
------------------------------
/s/ Robert J. Schmier
------------------------------
Name: Robert J. Schmier
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William D. Smithburg
------------------------------
Name: William D. Smithburg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Patrick Moughan
------------------------------
Name: Patrick Moughan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David R. Stager
------------------------------
Name: David R. Stager
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin R. Walsh
------------------------------
Name: Martin R. Walsh
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin A. Begun
------------------------------
Name: Martin A. Begun
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Gary Novetsky
------------------------------
Name: Gary Novetsky
------------------------------
/s/ Sandra Novetsky
------------------------------
Name: Sandra Novetsky
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David DeAngeles
------------------------------
Name: David DeAngeles
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John G. Schultz
------------------------------
Name: John G. Schultz
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven Craig
------------------------------
Name: Steven Craig
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Edward H. Fiedler
------------------------------
Name: Edward H. Fiedler
------------------------------
/s/ John F. Kofler
------------------------------
Name: John F. Kofler
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas Fassbinder
------------------------------
Name: Thomas Fassbinder
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lee E. Tenzer
------------------------------
Name: Lee E. Tenzer
------------------------------
Lee E. Tenzer
LETCO
440 S. LaSalle St. - 3012
Chicago, IL 60605
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John J. Arundel
------------------------------
Name: John J. Arundel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Edward Atkins
------------------------------
Name: Edward Atkins
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Douglas M. Kenyon
------------------------------
Name: Douglas M. Keynon
------------------------------
/s/ Mary L. Keynon
------------------------------
Name: Mary L. Keynon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James M. Crick
------------------------------
Name: JAMES M. CRICK
------------------------------
/s/ Grace M. Crick
------------------------------
Name: GRACE M. CRICK
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard H Solem
------------------------------
Name: RICHARD H SOLEM
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lawrence E. Hiler
------------------------------
Name: LAWRENCE E. HILER
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen A. Spero
------------------------------
Name: STEPHEN A. SPERO
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kevin S. McGovern
------------------------------
Name: Kevin S. McGovern
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Neil R Friedman
------------------------------
Name: NEIL R FRIEDMAN
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Roger Arlen Milton Jr
------------------------------
Name: Roger Arlen Milton Jr
------------------------------
/s/ Jill Oddy Milton
------------------------------
Name: Jill Oddy Milton
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name: Roger A Milton Jr
------------------------------
Title: Co-Trustee
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: O. P. Steinwald MD LTD IRA
-----------------------------------
(Print name of entity)
By: /s/ O P Steinwald
--------------------------------
Name: O P Steinwald MD
------------------------------
Title: TTEE of O P Steinwald MD LTD IRA
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Tom A. Alberg
------------------------------
Name: Tom A. Alberg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James B. Michaelsen
------------------------------
Name: James B. Michaelsen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph M. Cocquyt
------------------------------
Name: Joseph M. Cocquyt
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard R. Straus
------------------------------
Name: Richard R. Straus
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John L. Montgomery
------------------------------
Name: John L. Montgomery
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bruce Berger
------------------------------
Name: Bruce Berger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Hoban
------------------------------
Name: Michael Hoban
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark W. Rohde
------------------------------
Name: Mark W. Rohde
------------------------------
/s/ Betty A. Rohde
------------------------------
Name: Betty A. Rohde
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bruce N. Crichton
------------------------------
Name: Bruce N. Crichton
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joel S. Schlesinger
------------------------------
Name: Joel S. Schlesinger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Woodflower Investment Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Kerry Peck
--------------------------------
Name: Kerry Peck
------------------------------
Title: Gen. Ptnr.
-----------------------------
By: /s/ Kenneth Bloom
--------------------------------
Name: Kenneth Bloom
------------------------------
Title: Gen. Ptnr.
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Marshall
------------------------------
Name: Robert J. Marshall
------------------------------
/s/ Juli Wilson Marshall
------------------------------
Name: Juli Wilson Marshall
------------------------------
7/7/99
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Don S. Jorgensen
------------------------------
Name: Don S. Jorgensen
------------------------------
/s/ Herbert W. Jorgensen
------------------------------
Name: Herbert W. Jorgensen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Douglas R. Feurring
------------------------------
Name: Douglas R. Feurring
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald Stone
------------------------------
Name: Ronald Stone
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William Choslovsky
------------------------------
Name: William Choslovsky
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael F. Brophy
------------------------------
Name: Michael F. Brophy
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lon Frociene
------------------------------
Name: Lon Frociene
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ M.B. Shah
------------------------------
Name: Mahan B. Shah
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin Stoneman
------------------------------
Name: Martin Stoneman
------------------------------
Independent Trust Corp.
FBO Martin Stoneman IRA
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Martin Stoneman
--------------------------------
Name: Martin Stoneman
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin Stoneman
------------------------------
Name: Martin Stoneman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James S. Riley
------------------------------
Name: James S. Riley
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Alexander S. Pasquale
------------------------------
Name: Alexander S. Pasquale
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
7/7/99 /s/ Julie A. Cochrane
------------------------------
Name: Julie A. Cochrane
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark C. McClure
------------------------------
Name: Mark C. McClure
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph T. Majewski
------------------------------
Name: Joseph T. Majewski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Irv Kessler
------------------------------
Name: Irv Kessler
------------------------------
Managing Member
Arbitrade LLC
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ A.L. Humphrey Jr.
------------------------------
Name: Alfred L. Humphrey Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Oliver Kwon
------------------------------
Name: Oliver Kwon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Retail Ventures Int'l, Inc.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Oliver Kwon
--------------------------------
Name: Oliver Kwon
------------------------------
Title: President
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald L. Piasecki
------------------------------
Name: Ronald L. Piasecki
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Polestar Capital Fund III, L.P.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: Polestar Capital Partners, L.P.
Its General Partner
By: /s/ John W. Doerer
--------------------------------
Name: John W. Doerer
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Polestar Capital Fund II, L.P.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: Polestar Capital Partners, L.P.
Its General Partner
By: /s/ John W. Doerer
--------------------------------
Name: John W. Doerer
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ W. David Gearhart
------------------------------
Name: W. David Gearhart
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ara Chackerian 6-6-99
------------------------------
Name: Ara Chackerian
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dave Chimp
------------------------------
Name: Dave Chimp
------------------------------
Newmark Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Dave Chimp
--------------------------------
Name:
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ W. Lawrence Long
------------------------------
Name: W. Lawrence Long
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Trish Millines Dziko
------------------------------
Name: Trish Millines Dziko
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael P. Ryan
------------------------------
Name: Michael P. Ryan TTEE
------------------------------
FBO Michael P. Ryan Rev. Trust
UAD 2-16-84
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bradley E. Ruff MD 7/16/99
------------------------------
Name: Bradley E. Ruff MD
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Othniel D. Palomino
------------------------------
Name: Othniel D. Palomino
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Bemoras
------------------------------
Name: David Bemoras
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Marvin A. Ginsburg
------------------------------
Name: Marvin A. Ginsburg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here: 7/7/99
/s/ Christ J. Pavlatos
------------------------------
Name: Christ J. Pavlatos
------------------------------
/s/ Michael J. Pavlatos
------------------------------
Name: Michael J. Pavlatos
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ken Chamberlin
------------------------------
Name: Ken Chamberlin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph S. Kaplan
------------------------------
Name: Joseph S. Kaplan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mario Tricoci
------------------------------
Name: Mario Tricoci
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Sebastian Palumbo
------------------------------
Name: Sebastian Palumbo
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 1 to Restated Rights Agreement]
<PAGE>
ANNEX A
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "AGREEMENT"), dated as of __________, ____, is
executed by [LENDER], a ___________ [corporation] [partnership] [etc.]
("LENDER"), in favor of SHOPNOW.COM INC., a Washington corporation.
("BORROWER").
RECITALS
A. Pursuant to a [Loan Agreement, Equipment Lease, etc.]
dated as of [DATE] (as amended from time to time, the "LOAN
AGREEMENT"), among Borrower and Lender, Lender has agreed to [extend
loans/finance equipment] to Borrower upon the terms and subject to the
conditions set forth therein.
B. The Lender's obligations to Borrower under the Loan
Agreement are subject to, among other conditions, receipt by Lender of
a Warrant, dated as of [Date], 1999 (the "WARRANT"), duly executed by
Borrower.
C. Pursuant to Section __ of the Warrant, the parties
hereto have agreed that Lender will be granted registration rights
under the Second Amended and Restated Rights Agreement, dated November
30, 1998 (as amended from time to time, the "Rights Agreement").
D. It is a precondition to Lender becoming a party to the
Rights Agreement, that Lender execute and deliver this Agreement to
Borrower.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower hereby agrees with Lender, as follows:
1. DEFINITIONS AND INTERPRETATION. Unless otherwise defined herein, all
capitalized terms used herein and defined in the Rights Agreement shall have the
respective meanings given to those terms in the Rights Agreement. Lender hereby
acknowledges receipt of a copy of the Rights Agreement, attached hereto as
Exhibit 1.
2. AGREEMENT TO BE BOUND. Lender agrees that, on and as of the date of
this Agreement, it shall become a party to the Rights Agreement by virtue of its
execution of this Agreement, and Lender shall be deemed a Holder under the
Rights Agreement, and the Warrant shall be deemed a Lender Warrant for purposes
of the Rights Agreement, and Lender shall be bound by all the provisions of the
Rights Agreement to the same extent as if Lender had executed the Rights
Agreement as of the effective date thereof.
<PAGE>
3. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington.
IN WITNESS WHEREOF, Lender has caused this Joinder Agreement to be executed
by its duly authorized officer as of the date first above written.
[LENDER]
By:____________________________________
Name:__________________________________
Title:_________________________________
Address:
[_________________________________]
[_________________________________]
[_________________________________]
Attn:
Telephone:
Facsimile:
-2-
<PAGE>
EXHIBIT 1
RIGHTS AGREEMENT
<PAGE>
EXECUTION COPY
AMENDMENT NO. 2 TO
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
This Amendment No. 2 (the "Amendment") to the Second Amended and
Restated Rights Agreement dated as of November 1, 1998 and as amended by
Amendment No. 1 as of _________, 1999 (the "Rights Agreement") is made and
entered into as of June 17, 1999 pursuant to Section 16.1 of the Rights
Agreement by and among: ShopNow.com Inc., a Washington corporation formerly
known as Techwave, Inc.; the Holders; the Investors and the other parties
signatory hereto. Capitalized terms used in this Amendment that are not
otherwise defined herein shall have the respective meanings assigned to them
in the Rights Agreement.
RECITALS
WHEREAS, Section 16.1 of the Rights Agreement permits amendment of
the Rights Agreement upon written consent of (a) the Company (b) Investors
owning at least sixty-seven percent (67%) of the Outstanding Registrable
Securities owned by all Investors, and (c) the Holders of Outstanding
Registrable Securities equivalent to more than fifty percent (50%) of the
Registrable Common issued and issuable.
WHEREAS, the Company proposes to sell shares of Series I Preferred
Stock and a Warrant to CB Capital Investors, L.P., a Delaware limited
partnership ("CBCI").
WHEREAS, a condition to such sale is that the parties enter into
this Amendment.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 1.1 of the Rights Agreement is hereby amended to add the
following definitions in the applicable alphabetical order:
"SERIES I PREFERRED" means (a) the outstanding shares of the
Company's Series I Preferred Stock, $.01 par value per share; (b) any shares
of Common issued upon exercise of those Warrants issued in connection with
the sale of the Series I Preferred Stock; (c) any shares of Series I
Preferred Stock issued in payment of a dividend upon any shares of Series I
Preferred Stock, and (d) any other Securities issued as a dividend or other
distribution with respect to, or in replacement of, any Series I Preferred
Stock except shares of Registrable Common.
2. The following definitions set forth in Section 1.1 of the Rights
Agreement are hereby amended and restated in their entirety, as follows:
<PAGE>
"PREFERRED" means collectively, the Series A Preferred, the Series
B Preferred, the Series C Preferred, the Series D Preferred, the Series E
Preferred the Series F Preferred, the Series G Preferred, the Series H
Preferred and the Series I Preferred.
"WARRANTS" means those warrants exercisable for shares of Common
issued in connection with the sale of the Series D Preferred, the Series E
Preferred, the Series F Preferred, the Series H Preferred and the Series I
Preferred.
3. Section 1.1 of the Rights Agreement is hereby amended by replacing
subsection (e) of the definition of "REGISTRABLE COMMON" with the following
subsection (e):
"(e) any shares of Common issued or then issuable upon exercise of
the Lender Warrants, the Supplier Warrants, the Agent Warrants, the Series C
Warrants and the Warrants;"
4. The parties hereto hereby agree that CBCI shall be deemed an
"INVESTOR" and accordingly shall be subject to all the rights and obligations
of an "INVESTOR" of "REGISTRABLE COMMON" for the purposes of the Rights
Agreement.
5. Section 11 of the Rights Agreement shall not apply to CBCI nor any
of its assignees of Registrable Common except (a) in connection with the
Company's initial public offering and (b) in connection with any subsequent
underwritten public offering in which such Investor registers any Registrable
Common. This provision may not be amended without the consent of CBCI.
6. A new paragraph is added tot he end of Section 16.1 to read as
follows:
"Notwithstanding the foregoing, the Rights Agreement may not be
amended in any manner that disproportionately affects any Investor or
discriminates against any Investor without the prior written consent of such
Investor."
7. Except as expressly set forth in this Amendment, the Rights
Agreement shall continue in full force and effect in accordance with its
terms.
8. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Amendment shall be governed by and
construed and enforced in accordance with the laws of the State of
Washington, without reference to the conflict of laws provisions thereof.
*********
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
2 to the Second Amended and Restated Rights Agreement to be executed as of the
date first above written.
"COMPANY" SHOPNOW.COM INC.
a Washington corporation
By: /s/ Dwayne Walker
-------------------------------
Name: Dwayne Walker
-----------------------------
Title:
----------------------------
"NEW INVESTOR" CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.
its General Partner
By:_______________________________
Name:_____________________________
Title:____________________________
"HOLDERS"
EXISTING INVESTORS: THE PRODUCTIVITY FUND III, L.P.
a Delaware limited partnership
By: /s/ Bret R. Maxwell
-------------------------------
First Analysis Management
Company III, L.L.C.
Its General Partner
By: /s/ Bret R. Maxwell
-------------------------------
First Analysis Corporation, a Member
By: /s/ Bret R. Maxwell
-------------------------------
Bret R. Maxwell, Vice Chairman
<PAGE>
ENVIRONMENTAL PRIVATE EQUITY FUND II,
L.P., a Delaware limited partnership
By: /s/ Bret R. Maxwell
-------------------------------
Environmental Private Equity
Management II., L.P., Its General
Partner
By: /s/ Bret R. Maxwell
-------------------------------
First Analysis EPEF Management
Company II, a General Partner
By: /s/ Bret R. Maxwell
-------------------------------
First Analysis Corporation,
a General Partner
By: /s/ Bret R. Maxwell
-------------------------------
Bret R. Maxwell, Vice Chairman
/s/ Dwayne Walker
----------------------------------
DWAYNE WALKER
/s/ Othniel Palomino
----------------------------------
OTHNIEL PALOMINO
__________________________________
TIMOTHY MAR
__________________________________
MICHAEL C. AND CAROLYN J. KEEL
/s/ Christopher B. Harned 7/7/99
----------------------------------
CHRISTOPHER B. HARNED
<PAGE>
__________________________________
MARK E. AND TERRI P. ZIMDARS
/s/ Mark C. McClure
----------------------------------
MARK C. AND DOREN MCCLURE
__________________________________
JAMES M. AND GRACE M. CRICK
__________________________________
ARTHUR M. MOLLOY
__________________________________
MAHAN AND JAYABEN M. SHAH
TZM INVESTMENT FUND
By: /s/
-------------------------------
TOLMI LLC
By: /s/ James Bidzos
-------------------------------
MADISON SECURITIES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
HNC SOFTWARE, INC.
By: /s/ R. V. Thomas
-------------------------------
Name: Raymond V. Thomas
-----------------------------
Title: CFO
----------------------------
COREL CORPORATION
a Canadian Corporation
By: /s/ Mitch Desralors
-------------------------------
Name: Mitch Desralors
-----------------------------
Title: VP Finance & Controller
----------------------------
"MANAGERS" __________________________________
DWAYNE WALKER
__________________________________
OTHNIEL PALOMINO
/s/ Ganapathy Krishnan
/s/ Kalyani Krishnan
----------------------------------
GANAPATHY KRISHNAN/
KALYANI KRISHNAN
/s/ Bill Pittman
----------------------------------
BILL PITTMAN
"LENDERS" TRANSAMERICA BUSINESS CREDIT
CORPORATION, a Delaware corporation
By: /s/ Ian Schnider
-------------------------------
Name: Ian Schnider
-----------------------------
Title: Senior Vice President/
General Manager
----------------------------
SILICON VALLEY BANK
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
LEASING TECHNOLOGIES, INTERNATIONAL,
INC. a Delaware corporation
By: /s/ Hugh M. Baum
-------------------------------
Name: Hugh M. Baum, Esq
-----------------------------
Title: Secretary
----------------------------
[Signature page to Amendment No. 2 to Restated Rights Agreement]
<PAGE>
<PAGE>
QWEST COMMUNICATIONS CORPORATION,
a Delaware corporation
By:________________________________
Name:______________________________
Title:_____________________________
24/7 MEDIA, INC.,
a Delaware corporation
By: /s/ Mark E. Moran
--------------------------------
Name: Mark E. Moran
------------------------------
Title: Senior Vice President
-----------------------------
ODYSSEY VENTURE PARTNERS L.P.
By: /s/ Roderick M. Forrest
--------------------------------
Name: Roderick M. Forrest
------------------------------
Title: Director of Zeron Capital
Ltd. as General Partner to
Odyssey Venture Partners LLC
-----------------------------
ARGOSSY LTD.
By: /s/ Max Quin
--------------------------------
Name: Maxwell L.H. Quin
------------------------------
Title: Director
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ZERON CAPITAL LTD.
By: /s/ Ian P. Pilgrim
--------------------------------
Name: Ian P. Pilgrim
------------------------------
Title: Director
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ S. Scott Curtin
------------------------------
Name: S. Scott Curtin
------------------------------
/s/ Chris M. Curtin
------------------------------
Name: Chris M. Curtin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian Danielson
------------------------------------
Name: Brian Danielson
------------------------------------
Trust Official Banker's
Trust Co., Trustee
/s/ Thomas L. Flynn, individually 7-8-99
Entity shareholder sign here: -----------------------------------------
(Print name of entity)
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Phillip Rosett M.D.
------------------------------
Name: Phillip Rosett M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael R. Demnicki
------------------------------
Name: Michael R. Demnicki
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here: 7/15/99
/s/ Fredrick B. Weichbrod
------------------------------
Name: Fredrick B. Weichbrod
------------------------------
/s/ Don Steger
------------------------------
Name: Don Steger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James M. Temple
------------------------------
Name: James M. Temple
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jerry W. Woods
------------------------------
Name: Jerry W. Woods
------------------------------
/s/ Dar M. Woods
------------------------------
Name: Dar M. Woods
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian D. Ranelle, D.O.
------------------------------
Name: Brian D. Ranelle, D.O.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard S. Rothman
------------------------------
Name: Richard S. Rothman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Sari L. Hart
------------------------------
Name: Sari L. Hart
------------------------------
/s/ Mark J. Schacht
------------------------------
Name: Mark J. Schacht
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene E. Cook
------------------------------
Name: Eugene E. Cook
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Harvey S. Saks TTEE
------------------------------
Name: Harvey S. Saks
------------------------------
Harvey S. Saks Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Harvey S. Saks TTEE
--------------------------------
Name: Harvey S. Saks
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Irving Sparage
------------------------------
Name: Irving Sparage
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald L. Antinone
------------------------------
Name: Ronald L. Antinone M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael E. Kleinhans
------------------------------
Name: Michael E. Kleinhans
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Kenneth G. Mick Rev Trust dtd 12/28/94
Entity shareholder sign here: --------------------------------------
(Print name of entity)
By: /s/ Kenneth G. Mick
--------------------------------
Name: Kenneth G. Mick
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Juanita Antinone
------------------------------
Name: Juanita Antinone
------------------------------
/s/ Ronald L. Antinone M.D.
------------------------------
Name: Ronald L. Antinone M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Marvin T. Keeling
------------------------------
Name: Marvin T. Keeling
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Leasing Technologies International, Inc.
Entity shareholder sign here: ----------------------------------------
(Print name of entity)
By: /s/ Hugh M. Baum, Esq.
--------------------------------
Name: Hugh M. Baum, Esq.
------------------------------
Title: Secretary
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Evelyn Munden G.P.
------------------------------
Name: EVELYN MUNDEN
------------------------------
Entity shareholder sign here: MUNDEN FAMILY PARTNERSHIP, L.P.
-----------------------------------
(Print name of entity)
By: /s/ Evelyn Munden; Gen. Part.
--------------------------------
Name: EVELYN MUNDEN
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Don Peachey
------------------------------
Name: Don Peachey
------------------------------
Entity shareholder sign here:
-----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven M. Kaplan
------------------------------
Name: Steven M. Kaplan 7/7/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: Angell Investments LLC
-----------------------------------
(Print name of entity)
By: /s/ Richard Angell
--------------------------------
Name: Richard Angell
------------------------------
Title: Managing Member
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Evelyn Munden
------------------------------
Name: Evelyn Munden G.P.
------------------------------
Entity shareholder sign here: LASKIN REALTY CORP. PROFIT
SHARING PLAN
-----------------------------------
(Print name of entity)
By: /s/ Evelyn Munden
--------------------------------
Name: Evelyn Munden
------------------------------
Title: General Partner/TTEE
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John R. Potter
------------------------------
Name: John R. Potter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John C. Lundberg
------------------------------
Name: John C. Lundberg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven Dobryman
------------------------------
Name: Steven Dobryman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Walter M. Narajowski
------------------------------
Name: Walter M. Narajowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: AUGUSTINE FUND LP
-----------------------------------
(Print name of entity)
By: /s/ Thomas F. Duszynski
--------------------------------
Name: Thomas F. Duszynski
------------------------------
Title: CFO, AUGUSTINE CAPITAL
MANAGEMENT, INC. GENERAL
PARTNER
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark Terbeek
------------------------------
Name: Mark Terberk 7/13/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: 24/7 Media, Inc.
-----------------------------------
(Print name of entity)
By: /s/ Mark E. Moran
--------------------------------
Name: Mark E. Moran
------------------------------
Title: Senior Vice President
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael C. Dussault
------------------------------
Name: Michael C. Dussault
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ illegible
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Gary C. Garrett
------------------------------
Name: Gary C. Garrett
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kathleen E. Grabowski
------------------------------
Name: Kathleen E. Grabowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John G. Girardot
------------------------------
Name: John G. Girardot
------------------------------
Entity shareholder sign here: JOHN G. GIRARDOT
-----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Lubin
------------------------------
Name: David Lubin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Janet M. Clarin
------------------------------
Name: Janet M. Clarin
------------------------------
/s/ Gary R. Clarin
------------------------------
Name: Gary R. Clarin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Barbara J. Macaluso
------------------------------
Name: Barbara J. Macaluso
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert M. Hayes
------------------------------
Name: Robert M. Hayes
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James Bragman
------------------------------
Name:
------------------------------
James Bragman
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ James Bragman
--------------------------------
Name:
------------------------------
Title: DOFACP
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert Morse
------------------------------
Name: Robert Morse
------------------------------
Robert J. Morse Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Robert J. Morse
--------------------------------
Name: Robert Morse
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas A. Denney
------------------------------
Name: Thomas A. Denney
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Donald F. Wilson
------------------------------
Name: Donald F. Wilson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Northport Private Equity, LLC
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ David T. Shelby
--------------------------------
Name: David T. Shelby
------------------------------
Title: Manager
-----------------------------
7/10/94
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert F. Scheuer
------------------------------
Name: Robert F. Scheuer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ R.N. Evenson
------------------------------
Name: R.N. Evenson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lief Erickson, Jr.
------------------------------
Name: Lief Erickson, Jr. 7/9/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Cory Rogin
------------------------------
Name: Cory Rogin
------------------------------
/s/ Steve M. Rogin
------------------------------
Name: Steve M. Rogin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Scott K. Pittman
------------------------------
Name: Scott K. Pittman
------------------------------
/s/ Kim M. Pittman
------------------------------
Name: Kim M. Pittman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Diane Harmon
------------------------------
Name: Diane Harmon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Clint Chao
------------------------------
Name: Clint Chao
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John J. Hazinski, Jr.
------------------------------
Name: John J. Hazinski, Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William M. Kennedy
------------------------------
Name: William M. Kennedy
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Clari Wechter
------------------------------
Name: Clari Wechter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Todd Cohen
------------------------------
Name: Todd Cohen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Herbert L. Holzman
------------------------------
Name: Herbert L. Holzman
------------------------------
/s/ Jody Holzman
------------------------------
Name: Jody Holzman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Douglas R. Feurring
------------------------------
Name: Douglas R. Feurring
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kevin Furey
------------------------------
Name: Kevin Furey
------------------------------
/s/ Christele Furey
------------------------------
Name: Christele Furey
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Walter E. Lisowski
------------------------------
Name: Walter E. Lisowski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David H. Welch 7/15/99
------------------------------
Name: David H. Welch
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph Fetter
------------------------------
Name: Joseph Fetter
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald W. Massner
------------------------------
Name: Ronald W. Massner
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Kozin /s/ Renee Kozin
--------------------------------
Name: David Kozin/Renee Kozin
--------------------------------
Entity shareholder sign here: -------------------------------------
(Print name of entity)
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Everett Roehl
------------------------------
Name: Everett Roehl
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Terri P. Zimdars
------------------------------
Name: Terri P. Zimdars
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark E. Zimdars
------------------------------
Name: Mark E. Zimdars
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene & Moselle Kouri
------------------------------
Name: Eugene & Moselle Kouri
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jason Bank
------------------------------
Name: Jason Bank
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Donald A. Destefano
------------------------------
Name: Donald A. Destefano
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ M. Krieger
------------------------------
Name: M. Krieger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael C. Keel 7/12/99
------------------------------
Name: Michael C. Keel
------------------------------
/s/ Carolyn J. Keel 7/12/99
------------------------------
Name: Carolyn J. Keel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael C. Keel 7/12/99
------------------------------
Name: Michael C. Keel
------------------------------
/s/ Carolyn J. Keel 7/12/99
------------------------------
Name: Carolyn J. Keel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene Fasano
------------------------------
Name: Eugene Fasano
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Larry A. Johnson
------------------------------
Name: Larry A. Johnson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Noel Abkemeier
------------------------------
Name: Noel Abkemeier
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lillian Fasano
------------------------------
Name: Lilian Fasano
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eliza D. Ward
------------------------------
Name: Eliza D. Ward
------------------------------
/s/ Timothy C. Mar
------------------------------
Name: Timothy C. Mar
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark C. McClure
------------------------------
Name: Mark C. McClure
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John Fortunato
------------------------------
Name: John Fortunato
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dale A. Drake
------------------------------
Name: Dale A. Drake
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen M. Wernikoff
------------------------------
Name: Stephen M. Wernikoff
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas R. Lonergan
------------------------------
Name: Thomas R. Lonergan
------------------------------
AG Edwards C/F Tom Lonergan IRA
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dennis Scheumann
------------------------------
Name: Dennis Scheumann
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James A. Jalovec
------------------------------
Name: James A. Jalovec
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert S. Angel
------------------------------
Name: Robert S. Angel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Eugunides
------------------------------
Name: Michael Eugunides
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen J. Nardi
------------------------------
Name: Stephen J. Nardi
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard A. Stewart
------------------------------
Name: Richard A. Stewart
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul Goodrich
------------------------------
Name: Paul Goodrich
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
JPB Corporation
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ James P. Byrne
--------------------------------
Name: James P. Byrne
------------------------------
Title: President
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ C. Glenn Lee
------------------------------
Name: C. Glenn Lee
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Melvin Kersting
------------------------------
Name: Melvin Kersting
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael J. Owens
------------------------------
Name: Michael J. Owens
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul A. DiFranco
------------------------------
Name: Paul A. DiFranco
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Dan W. Riordan
------------------------------
Name: Dan W. Riordan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Charles Kersting, Jr.
------------------------------
Name: Charles Kersting, Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James Marsallo
------------------------------
Name: James Marsallo
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Lorenz
------------------------------
Name: Michael Lorenz
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stuart Biegal
------------------------------
Name: Stuart Biegal
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David J. Lynch
------------------------------
Name: David J. Lynch
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Frank Gedelman
------------------------------
Name: Frank Gedelman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James L. Mann
------------------------------
Name: James L. Mann
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bradford Miller
------------------------------
Name: Bradford Miller
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas Wienen
------------------------------
Name: Thomas Wienen
------------------------------
/s/ Connie Wienen
------------------------------
Name: Connie Wienen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Santaro
------------------------------
Name: Michael Santaro
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
New Wave Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Marc Schreiber
--------------------------------
Name: Marc Schreiber
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Allan Forman
------------------------------
Name: Allan Forman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David L. Lang
------------------------------
Name: David L. Lang
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: illegible
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael E. Nugent
------------------------------
Name: Michael E. Nugent
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Paul E. Mokdessi
------------------------------
Name: Paul E. Mokdessi
------------------------------
/s/ Julie S. Mokdessi
------------------------------
Name: Julie S. Mokdessi
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Irving Sparage
------------------------------
Name: /s/ Irene Sparage
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
/s/ Ronald Stone Insurance Trust
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Ronald Stone
--------------------------------
Name: Ronald Stone
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Manus C. Kraff
------------------------------
Name: Manus C. Kraff M.D.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John A. Geheb
------------------------------
Name: John A. Geheb 7/11/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael M. Gelbort
------------------------------
Name: Michael M. Gelbort
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: Drs. Drake, LTD Pension &
Profit Sharing Plan
-----------------------------------
(Print name of entity)
By: /s/ Dale A. Drake
--------------------------------
Name: DALE A. DRAKE
------------------------------
Title: Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Arthur J. Davidson
------------------------------
Name: Arthur J. Davidson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Eugene A. Huske
------------------------------
Name: Eugene A. Huske
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James D. Webb
------------------------------
Name: James D. Webb
------------------------------
/s/ Sue R. Webb
------------------------------
Name: Sue R. Webb
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kalyani Krishnan
------------------------------
Name: Kalyani Krishnan
------------------------------
/s/ Ganapathy Krishnan
------------------------------
Name: Ganapathy Krishnan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Jeffrey B. Haggin
------------------------------
Name: Jeffrey B. Haggin
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William Meltzer
------------------------------
Name: William Meltzer, MD
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Paul W Soderstrom
------------------------------
Entity shareholder sign here: PAUL'S LIQUIDATING INC.
-----------------------------------
(Print name of entity)
By: /s/ Paul W Soderstrom
--------------------------------
Name:
------------------------------
Title: Pres.
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Todd Humphrey
------------------------------
Name: Todd Humphrey
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Haines Hill
------------------------------
Name: Haines Hill
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Darla Gasser 7/6/99
------------------------------
Name: Darla Gasser
------------------------------
/s/ Bill Gasser
------------------------------
Name: Bill Gasser
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ CR Kinsman
------------------------------
Name: CR KINSMAN
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John W. Egan
------------------------------
Name: John W. Egan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen H. Kaufman
------------------------------
Name: Stephen H. Kaufman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kent A. Petersen
------------------------------
Name: /s/ Garneda L. Petersen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Scott L. Rosen
------------------------------
Name: Scott L. Rosen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Peter L. Neubauer
------------------------------
Name: Peter L. Neubauer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Basil M. Kromelow
------------------------------
Name: Basil M. Kromelow
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard A. Walz
------------------------------
Name: Richard A. Walz
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John Gerun
------------------------------
Name: John Gerun
------------------------------
7/8/99
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert G. Lamphere
------------------------------
Name: Robert G. Lamphere
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Bobb
------------------------------
Name: Robert J. Bobb
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Fred Weiss
------------------------------
Name: Fred Weiss
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James B. Eversole
------------------------------
Name: James B. Eversole
------------------------------
/s/ Shirley M. Eversole
------------------------------
Name: Shirley M. Eversole
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Barbara S. Kornblatt
------------------------------
Name: Barbara S. Kornblatt
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Brian Johnson
------------------------------
Name: Brian Johnson
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Milgrom
------------------------------
Name: David Milgrom
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert Clauss
------------------------------
Name: Robert Clauss
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Spencer
------------------------------
Name: Robert J. Spencer
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard H. Dermott
------------------------------
Name: Richard H. Dermott
------------------------------
/s/ Janice T. Dermott
------------------------------
Name: Janice T. Dermott
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Linda S. Schmier
------------------------------
Name: Linda S. Schmier
------------------------------
/s/ Robert J. Schmier
------------------------------
Name: Robert J. Schmier
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William D. Smithburg
------------------------------
Name: William D. Smithburg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Patrick Moughan
------------------------------
Name: Patrick Moughan
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David R. Stager
------------------------------
Name: David R. Stager
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ W. Pontikes
------------------------------
Name: W. Pontikes
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin R. Walsh
------------------------------
Name: Martin R. Walsh
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin A. Begun
------------------------------
Name: Martin A. Begun
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Gary Novetsky 7/6/99
------------------------------
Name: Sandra Novetsky 7/6/99
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David DeAngeles
------------------------------
Name: David DeAngeles
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John G. Schultz
------------------------------
Name: John G. Schultz
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Steven Craig
------------------------------
Name: Steven Craig
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ E. H. Fiedler, Jr.
------------------------------
Name: E. H. Fiedler Jr.
------------------------------
/s/ John F. Kofler
------------------------------
Name: John F. Kofler
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Thomas Fassbinder
------------------------------
Name: Thomas Fassbinder
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Lee E. Tenzer
------------------------------
Lee E. Tenzer
LETCO
440 S. LaSalle St. - 3012
Chicago, IL 60605
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John J. Arundel
------------------------------
Name: John J. Arundel
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Edward Atkins
------------------------------
Name: Edward Atkins
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Douglas M. Kenyon
------------------------------
Name: /s/ Mary L. Kenyon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James M. Crick
------------------------------
Name: JAMES M. CRICK
------------------------------
/s/ Grace M. Crick
------------------------------
Name: GRACE M. CRICK
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard H Solem
------------------------------
Name: RICHARD H SOLEM
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lawrence E. Hiler
------------------------------
Name: LAWRENCE E. HILER
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Stephen A. Spero
------------------------------
Name: STEPHEN A. SPERO
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Kevin S. McGovern
------------------------------
Name: Kevin S. McGovern
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Neil R Friedman
------------------------------
Name: NEIL R FRIEDMAN
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Roger Arlen Milton Jr
------------------------------
Name: Roger Arlen Milton Jr
------------------------------
/s/ Jill Oddy Milton
------------------------------
Name: Jill Oddy Milton
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name: Roger A Milton Jr
------------------------------
Title: Co-Trustee
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Entity shareholder sign here: O. P. Steinwald MD LTD IRA
-----------------------------------
(Print name of entity)
By: /s/ O P Steinwald
--------------------------------
Name: O P Steinwald MD
------------------------------
Title: TTEE of O P Steinwald MD LTD IRA
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Tom A. Alberg
------------------------------
Name: Tom A. Alberg
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James B. Michaelsen
------------------------------
Name: James B. Michaelsen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph M. Cocquyt
------------------------------
Name: Joseph M. Cocquyt
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Richard R. Straus
------------------------------
Name: Richard R. Straus
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ John L. Montgomery
------------------------------
Name: John L. Montgomery
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bruce Berger
------------------------------
Name: Bruce Berger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael Hoban
------------------------------
Name: Michael Hoban
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark W. Rohde
------------------------------
Name: Mark W. Rohde
------------------------------
/s/ Betty A. Rohde
------------------------------
Name: Betty A. Rohde
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bruce N. Crichton
------------------------------
Name: Bruce N. Crichton
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joel S. Schlesinger
------------------------------
Name: Joel S. Schlesinger
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Woodflower Investment Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Kerry Peck
--------------------------------
Name: Kerry Peck
------------------------------
Title: Gen. Ptnr.
-----------------------------
By: /s/ Kenneth Bloom
--------------------------------
Name: Kenneth Bloom
------------------------------
Title: Gen. Ptnr.
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Robert J. Marshall
------------------------------
Name: Robert J. Marshall
------------------------------
/s/ Juli Wilson Marshall
------------------------------
Name: Juli Wilson Marshall
------------------------------
7/7/99
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Don S. Jorgensen
------------------------------
Name: Don S. Jorgensen
------------------------------
/s/ Herbert W. Jorgensen
------------------------------
Name: Herbert W. Jorgensen
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name: Ronald Stone
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ William Choslovsky
------------------------------
Name: William Choslovsky
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael F. Brophy
------------------------------
Name: Michael F. Brophy
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Lon Frocione
------------------------------
Name: Lon Frocione
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin Stoneman
------------------------------
Name: Martin Stoneman
------------------------------
Independent Trust Corp.
FBO Martin Stoneman IRA
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Martin Stoneman
--------------------------------
Name: Martin Stoneman
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James M. Crick
------------------------------
Name: James M. Crick
------------------------------
/s/ Grace M. Crick
------------------------------
Name: Grace M. Crick
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Martin Stoneman
------------------------------
Name: Martin Stoneman
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ James Riley
------------------------------
Name: James Riley
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ M.B. Shah
------------------------------
Name: Mahan B. Shah
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Alexander S. Pasquale
------------------------------
Name: Alexander S. Pasquale
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
7/7/99 /s/ Julie A. Cochrane
------------------------------
Name: Julie A. Cochrane
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mark C. McClure
------------------------------
Name: Mark C. McClure
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph T. Majewski
------------------------------
Name: Joseph T. Majewski
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Irv Kessler
------------------------------
Name: Irv Kessler
------------------------------
Managing Member
Arbitrade LLC
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ A.L. Humphrey Jr.
------------------------------
Name: Alfred L. Humphrey Jr.
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Oliver Kwon
------------------------------
Name: Oliver Kwon
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Retail Ventures Int'l, Inc.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/ Oliver Kwon
--------------------------------
Name: Oliver Kwon
------------------------------
Title: President
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ronald L. Piasecki
------------------------------
Name: Ronald L. Piasecki
------------------------------
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Polestar Capital Fund III, L.P.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: Polestar Capital Partners, L.P.
Its General Partner
By: /s/ John W. Doerer
--------------------------------
Name: John W. Doerer
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
------------------------------
Name:
------------------------------
Polestar Capital Fund II, L.P.
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: Polestar Capital Partners, L.P.
Its General Partner
By: /s/ John W. Doerer
--------------------------------
Name: John W. Doerer
------------------------------
Title: General Partner
-----------------------------
[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ W. David Gearhart
------------------------------
Name: W. David Gearhart
------------------------------
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(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
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ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ara Chackerian 6-6-99
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Name: Ara Chackerian
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(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
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ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
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Name:
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Newmark Partnership
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By: /s/
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Name:
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Title: General Partner
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
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ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ W. Lawrence Long
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Name: W. Lawrence Long
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
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ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Trish Millines Dziko
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Name: Trish Millines Dziko
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Michael P. Ryan
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Name: Michael P. Ryan - Trustee
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FBO Michael P. Ryan Rev. Trust
UAD 2-16-84
Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
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ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Bradley E. Ruff MD 7/6/99
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Name: Bradley E. Ruff MD
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Othniel D. Palomino
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Name: Othniel D. Palomino
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ David Bemoras
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Name: David Bemoras
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(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Marvin A. Ginsburg
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Name: Marvin A. Ginsburg
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here: 7/7/99
/s/ Christ J. Pavlatos
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Name: Christ J. Pavlatos
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/s/ Michael J. Pavlatos
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Name: Michael J. Pavlatos
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(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Ken Chamberlin
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Name: Ken Chamberlin
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Joseph S. Kaplan
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Name: Joseph S. Kaplan
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(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Mario Tricoci
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Name: Mario Tricoci
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<PAGE>
ADDITIONAL EXISTING INVESTOR:
Individual shareholder sign here:
/s/ Sebastian Palumbo
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Name: Sebastian Palumbo
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Entity shareholder sign here: -----------------------------------
(Print name of entity)
By:
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Name:
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Title:
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[Signature page to Amendment No. 2 to Second
Amended and Restated Rights Agreement]
<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) Adobe and its affiliates;
(ii) Microsoft and its affiliates; (iii) the Learning Company and its
affiliates: (iv) IMSI and its affiliates including Art Today; (v)
Eyewire; and (vi) Xoom.com. 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.
<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
twelve (12) months from such date.
4.03 RENEWAL. Subject to Section 14, this Agreement shall be renewed for
subsequent periods of twelve (12) months at the end of the prior twelve
(12) month 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 twelve (12) month 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.
<PAGE>
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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 Schedule "B"
Software Price 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 Merchandise Price
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
Technical Support Product Price 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:
------------------------------
Name:
Title:
COREL CORPORATION LIMITED
PER:
------------------------------
Name:
Title:
<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>
22
<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>
COREL ESTORE AND STUDIO 1.0
MARKET REQUIREMENTS DOCUMENT
Document Version: 6.20 (COREL)
Document Date: 5/14/99
Original Draft of Document by: Chris Noble
TECHWAVE CONFIDENTIAL INFORMATION. INTERNAL USE ONLY.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
EXECUTIVE SUMMARY 3
1. AVAILABILITY 3
1.1. Uptime 3
1.2. Load Time 3
1.3. Web Server Scalability 3
1.4. Transaction Server Scalability 4
1.5. Hardware requirements 4
1.6. System Requirements 4
1.7. Database Server Scalability 5
2. BASIC SHOPPING 5
2.1. Simple Search 5
2.2. Advanced Search 5
2.3. Categories 7
2.4. Product Pages 8
2.5. Top X lists 10
2.6. WaterMarkPages 10
2.7. Floating Cart 11
2.8. Shopping Cart 12
2.9. EULA Page 14
2.10. Checkout: Billing and shipping 14
2.11. Checkout: Review Order 17
2.12. Physical & ESD Support 18
2.13. Shipping status 18
2.14. Cross-sell/ upsell 19
2.15. Special offers & coupons 19
3. PAYMENT PROCESSING 20
4. ORDER CONFIRMATION PAGE 21
5. ODER CONFIRMATION E-MAIL 21
6. DATA TRANSFER FROM COREL TO DISTRIBUTOR 21
7. SITE ADMINISTRATION 23
8. REPORTING 26
9. BIZ RULES AND GROUPS 29
10. NEW USER INTERFACE 29
11. E-MAIL FUNCTIONALITY 30
12. NETGREETING SUPPORT 30
13. PARTNERS SUPPORT: RESELLERS AND AFFILIATES AND TRACKING SALES 30
14. OTHER DEVELOPMENT 31
</TABLE>
<PAGE>
EXECUTIVE SUMMARY
This is a requirement document is written for COREL and Distributor Staff. It is
intended to describe all the required functionality for a Distributor built
COREL Studio and online store.
PRIORITY KEY
1.0: REQUIRED ON OR BEFORE MAY 30th, 1999 ("LAUNCH"). This means that the
functionality must be made available on the Store by Distributor for the
Launch.
1.1: REQUIRED ON OR BEFORE JUNE 14th, 1999. This means that the functionality
must be made available on the Store by Distributor on or before June 14th, 1999.
1.2: REQUIRED ON OR BEFORE JULY 12th, 1999. This means that the functionality
must be made available on the Store by Distributor on or before July 12th, 1999.
FUNCTIONAL REQUIREMENTS
1. AVAILABILITY
1.1. UPTIME
1.1.1. [ * ]
1.2. LOAD TIME
1.2.1. [ * ]
1.2.2 [ * ]
1.2.3. [ * ]
1.3. WEB SERVER SCALABILITY
1.3.1. [ * ]
1.3.2. [ * ]
3
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
1.3.3. [ * ]
1.3.4. [ * ]
1.4 TRANSACTION SERVER SCALABILITY
1.4.1. [ * ]
1.4.2. [ * ]
1.4.3. [ * ]
1.5. HARDWARE REQUIREMENTS
1.5.1. [ * ]
1.6. SYSTEM REQUIREMENTS
Distributor agrees that the minimum system requirements for browsing
by Customer shall be as follows:
Netscape 3.02 and IE 3.02
640 by 480 resolution*
[ * ]
4
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
1.7. DATABASE SERVER SCALABILITY
1.7.1. [ * ]
1.7.2. [ * ]
1.7.3 [ * ]
2. BASIC SHOPPING
2.1. SIMPLE SEARCH
2.1.1. [ * ]
2.1.2. [ * ]
2.1.3. [ * ]
2.1.4. [ * ]
2.2. ADVANCED SEARCH
2.2.1. [ * ]
2.2.2. [ * ]
5
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.2.3. [ * ]
2.2.4. [ * ]
2.2.5. [ * ]
2.2.6. [ * ]
2.2.7. [ * ]
2.2.8. [ * ]
2.2.9. [ * ]
2.2.10. [ * ]
2.2.11. [ * ]
6
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.2.12. [ * ]
2.2.13. [ * ]
2.2.14. [ * ]
2.2.15. [ * ]
2.2.16. [ * ]
2.2.17. [ * ]
2.2.18. [ * ]
2.2.19. [ * ]
2.2.20. [ * ]
2.2.21. [ * ]
2.2.22. [ * ]
2.3. CATEGORIES
2.3.1. [ * ]
7
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.3.2. [ * ]
2.3.3. [ * ]
2.3.4. [ * ]
2.3.5. [ * ]
2.3.6. [ * ]
2.4. PRODUCT PAGES
2.4.1. [ * ]
2.4.2. [ * ]
2.4.3. [ * ]
2.4.4 [ * ]
2.4.5. [ * ]
2.4.6. [ * ]
2.4.6.a. [ * ]
2.4.7. [ * ]
2.4.8. [ * ]
8
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.4.8.a. [ * ]
2.4.8.b. [ * ]
2.4.8.c. [ * ]
2.4.9. [ * ]
2.4.10. [ * ]
2.4.11. [ * ]
2.4.12. [ * ]
2.4.13. Products will have the following attributes:
Filename (SKU)
Keywords (Studio)
Descriptions (Studio)
Descriptions (Estore)
Classification (Premium, etc.)
Studio Category (People, etc.)
Studio Subcategories
Date Implemented
File Path
Cart Thumbnail
Thumbnail (or Box Shot)
Watermark
Media (Download or CD) (If download available on CD specific only to
Studio)
Royalty
Weight (Popularity, Quality)
EStore Keywords
Estore Category
Prices/Resolutions
Related products
File Size
Platform
Active/Inactive/Pending
Specials
9
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
Search results by category
Product weight (physical)
Language (i.e., German, French etc.)
Export Restrictions/Rules
Free (Product ID of Bundled Free Product)
Color Profiles (ICC ... what palate scanned in etc.)
Subscription (Multiple Models)
Associated EULA
Alternate Pricing associated with SKU
A different SKU is used internationally for each product.
File Size (K size)
PRIORITY: 1.0
2.4.14. [ * ]
2.5. TOP X LISTS
2.5.1. [ * ]
2.5.2. [ * ]
2.5.3. [ * ]
2.5.4 [ * ]
2.5.5. [ * ]
2.5.6. [ * ]
2.5.7. [ * ]
2.5.8 [ * ]
2.6. WATERMARK PAGES
2.6.1. [ * ]
10
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.6.2. [ * ]
2.6.3. [ * ]
2.6.4. [ * ]
2.6.5. [ * ]
2.6.6. [ * ]
2.7. FLOATING CART
Distributor shall ensure that:
2.7.1. [ * ]
2.7.2. [ * ]
2.7.3. [ * ]
11
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.7.4. [ * ]
2.7.8. [ * ]
2.7.9. [ * ]
2.8. SHOPPING CART
Distributor shall ensure that:
2.8.1. [ * ]
2.8.2. [ * ]
2.8.2.a. [ * ]
2.8.3. [ * ]
2.8.4. [ * ]
2.8.5. [ * ]
2.8.6. [ * ]
2.8.7. [ * ]
12
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.8.8. [ * ]
2.8.9. [ * ]
2.8.10. [ * ]
2.8.11. [ * ]
2.8.11.a [ * ]
2.8.12. [ * ]
2.8.13. [ * ]
2.8.14. [ * ]
2.8.15. [ * ]
2.8.16. [ * ]
13
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.9. EULA PAGE
2.9.1. [ * ]
2.9.2. [ * ]
2.10. CHECKOUT: BILLING AND SHIPPING
Distributor shall ensure that:
2.10.1. [ * ]
2.10.2. [ * ]
A. FOR CREDIT CARD CUSTOMERS:
1. [ * ]
2. [ * ]
3. [ * ]
4. [ * ]
5. [ * ]
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
10. [ * ]
11. [ * ]
12. [ * ]
13. [ * ]
14. [ * ]
15. [ * ]
16. [ * ]
17. [ * ]
18. [ * ]
19. [ * ]
20. [ * ]
21. [ * ]
22. [ * ]
23. [ * ]
24. [ * ]
25. [ * ]
[ * ]
14
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
B. FOR PURCHASE ORDER CUSTOMERS (PERSONAL AND CORPORATE ORDERS):
1. [ * ]
2. [ * ]
3. [ * ]
4. [ * ]
5. [ * ]
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
10. [ * ]
11. [ * ]
12. [ * ]
13. [ * ]
14. [ * ]
15. [ * ]
16. [ * ]
17. [ * ]
PRIORITY: 1.1
C. RESELLER DATA: (EX. PHOTOSETC, IMSI SOFT, OUTPOST....)
1. [ * ]
2. [ * ]
3. [ * ]
4. [ * ]
5. [ * ]
6. [ * ]
7. [ * ]
8. [ * ]
9. [ * ]
10. [ * ]
11. [ * ]
12. [ * ]
13. [ * ]
14. [ * ]
15. [ * ]
[ * ]
2.10.3. [ * ]
2.10.4. [ * ]
15
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.10.5. [ * ]
2.10.6. [ * ]
2.10.6.a [ * ]
2.10.7. [ * ]
2.10.8. [ * ]
2.10.9. [ * ]
2.10.10. [ * ]
2.10.11. [ * ]
2.10.12. [ * ]
2.10.13. [ * ]
2.10.14. [ * ]
16
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.10.14.a [ * ]
2.10.15. [ * ]
2.10.16. [ * ]
2.10.17. [ * ]
2.10.18. [ * ]
2.10.19. [ * ]
2.10.20. [ * ]
2.10.21. [ * ]
2.10.22. [ * ]
2.10.23. [ * ]
2.10.24. [ * ]
2.11. CHECKOUT: REVIEW ORDER
Distributor shall ensure that:
2.11.1. [ * ]
17
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
2.11.2. [ * ]
2.11.3. [ * ]
2.11.4. [ * ]
2.11.5. [ * ]
2.12. PHYSICAL & ESD SUPPORT
Distributor shall ensure that:
2.12.1. [ * ]
2.12.2. [ * ]
2.12.3. [ * ]
2.12.5. [ * ]
2.13. SHIPPING STATUS
Distributor shall ensure that:
2.13.1. [ * ]
2.13.2. [ * ]
18
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
2.13.3. [ * ]
2.13.4. [ * ]
2.13.5. [ * ]
2.13.6. [ * ]
2.13.7. [ * ]
2.3.17.a [ * ]
2.13.8 [ * ]
2.14. CROSS-SELL/ UPSELL RECOMMENDATION
Distributor shall ensure that:
2.14.1. [ * ]
2.14.2. [ * ]
2.14.3. [ * ]
2.15. SPECIAL OFFERS & COUPONS
19
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
Distributor shall ensure that:
2.15.1. [ * ]
2.15.2. [ * ]
2.15.3. [ * ]
2.15.4. [ * ]
2.15.5. [ * ]
2.15.6. [ * ]
2.15.7. [ * ]
3. PAYMENT PROCESSING
Distributor shall ensure that:
3.1. [ * ]
[ * ]
3.2. [ * ]
3.3. [ * ]
3.4. [ * ]
20
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
3.5. [ * ]
3.6. [ * ]
4. ORDER CONFIRMATION PAGE
4.1. [ * ]
5. ORDER CONFIRMATION EMAIL
Distributor shall ensure that:
5.1. [ * ]
5.2. [ * ]
6. DATA TRANSFER FROM COREL TO DISTRIBUTOR
[ * ]
21
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
22
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
7. SITE ADMINISTRATION
23
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
7.1. CHANGING SITE CONTENT THROUGH WORKPLACE
Distributor shall ensure that:
7.1.1. [ * ]
7.1.2. [ * ]
7.1.3. [ * ]
7.1.4. [ * ]
7.1.4.a [ * ]
7.1.5. [ * ]
7.1.5.a [ * ]
7.1.6. [ * ]
24
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
7.1.7. [ * ]
7.2. CHANGING SITE CONTENT THROUGH DISTRIBUTOR PROFESSIONAL SERVICES
Distributor shall ensure that:
7.2.1. [ * ]
7.2.2. [ * ]
7.2.3. [ * ]
[ * ]
7.2.4. [ * ]
7.2.5. [ * ]
[ * ]
<TABLE>
<S> <C>
[ * ]
</TABLE>
[ * ]
25
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
7.2.6. [ * ]
7.2.7. [ * ]
7.2.8. [ * ]
7.2.9. [ * ]
7.3. POSTING OF NEW ESD SKUS
7.3.1. [ * ]
8. REPORTING
[ * ]
8.1. SALES REPORTS
Distributor shall ensure that:
8.1.1. [ * ]
8.1.2. [ * ]
8.1.3. [ * ]
26
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
8.1.4. [ * ]
8.1.5. [ * ]
8.2. TRAFFIC REPORTS
Distributor shall ensure that:
8.2.1. [ * ]
8.2.2. [ * ]
8.3. UPTIME & SECURITY REPORTS
Distributor shall ensure that:
8.3.1. [ * ]
27
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
8.3.2. [ * ]
8.4. FINANCIAL REPORTS
Distributor shall ensure that:
8.4.1. [ * ]
8.4.2. [ * ]
8.5. INVENTORY REPORTS (ONLY IF APPLICABLE)
[ * ]
8.6. CUSTOMER REPORTS
[ * ]
8.7. SECURITY OF REPORTING
[ * ]
8.8. ESTORE PORTAL (HTML PAGE) FOR CEO AND VP'S.
[ * ]
28
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
8.9. CUSTOMER SERVICE REPORTS
[ * ]
9. BIZ RULES AND GROUPS
Note: both the completion and implementation schedule of all deliverables
in this section 9 are dependent upon Distributor and COREL's timely
completion of all tasks. Distributor will inform COREL in a timely manner
of the deliverables required by Distributor and the deadlines by which
those deliverables are required. Provided that COREL meets the deadlines
agreed upon by both parties Distributor shall complete the tasks set forth
in this section 9 in accordance with the priority deadlines.
[ * ]
10. NEW USER INTERFACE
[ * ]
29
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
11. E-MAIL FUNCTIONALITY
11.1. [ * ]
11.2. EMAIL MAILINGS
[ * ]
12. NETGREETING SUPPORT
[ * ]
13. PARTNERS SUPPORT: RESELLERS AND AFFILIATES AND TRACKING SALES
13.1. [ * ]
13.2. [ * ]
30
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
13.2.2. [ * ]
13.2.3. [ * ]
13.2.4. [ * ]
13.3. TRACKING SALES
[ * ]
14. OTHER DEVELOPMENT
14.01. CANADIAN STORE
[ * ]
31
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
14.02. THIRD PARTY COMMERCE ENABLING
[ * ]
14.03. TECH SUPPORT SALES
[ * ]
14.03.a TECH SUPPORT THROUGH DISTRIBUTOR
[ * ]
14.03.b [ * ]
14.4. REFERENCE STORES: BOOKS/TRAINING
[ * ]
14.5. ECOMMERCE ENABLING PRODUCT PAGES AND COMMUNITY SITES
[ * ]
14.6. E-COMMERCE ENABLING OF POSTER SALES
[ * ]
14.7. AFFINITY (COREL POINTS) PROGRAM
[ * ]
14.8. REBATES
32
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ * ]
14.9. DEVELOPMENT REQUIREMENTS
[ * ]
14.10. INCENTIVE
[ * ]
14.11. LOCALIZATION OF STORES (REQUIREMENTS AND PRIORITY TO BE DETERMINED)
14.12. CUSTOMER REQUIREMENTS DOCUMENT
The Customer requirements document ("CRD") shall be appended to
this Schedule "H" when it is mutually agreed upon by both parties.
33
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
SCHEDULE "I"
TECHNICAL SUPPORT PRODUCTS AND TECHNICAL SUPPORT PRODUCT PRICES
<TABLE>
<CAPTION>
ONLINE
DESCRIPTION COREL SKU SUGG. PRICE DISTI PRICE
<S> <C> <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
Distributor shall provide the following Marketing Services to COREL at no
charge, during the first twelve (12) calendar months after the Effective Date.
Distributor shall provide additional marketing services for any subsequent
twelve (12) month period of this Agreement as agreed in writing by both parties
three (3) months prior to the renewal date and any such services shall be of
equivalent value to those provided by Distributor in the previous twelve (12)
month period. The programs are subject to change and replacement with programs
of equal value upon mutual written agreement between the parties .
The marketing services are broken into two segments:
- - Ongoing -marketing programs intended to drive traffic and attention to COREL,
and Corel products throughout the term of the Agreement.
- - Launch - special considerations provided to coincide with the launch of the
Store with Distributor, and the Corel "Personal Store" program.
ONGOING PROGRAMS
1) ShopNow.com Personal Stores
More than 1 million personal stores online currently, with plan to reach 10
million personal stores by December 1999.
Corel Studio installed as the exclusive Image Gallery in Personal Stores
A Corel Estore Specialty shop will be included in the Computers area of all
personal stores
Corel gets the top slot to make an offer in the Personal Store newsletter
mailed to all Store owners once per quarter.
One front page sweepstakes program that runs in all Personal Stores (value
of prize must exceed $2,000)
LIST VALUE:
Exclusive Category Sponsorship (Images) [ * ]
Specialty Shop in Computer area [ * ]
Newsletter offer once/quarter (1 million names) [ * ]
Front page sweepstakes sponsorship [ * ]
SHOPNOW.COM PERSONAL STORE TOTAL VALUE (12 MONTHS)
Exclusive Category Sponsorship (Images) [ * ]
Specialty Shop in Computer area [ * ]
Newsletter offer once/quarter (1 million names) [ * ]
Front page sweepstakes sponsorship [ * ]
TOTAL VALUE [ * ]
BuySoftware.com
Corel Specialty Shop link on Front page of BuySoftware.com
Corel featured products in BuySoftware.com Graphics Software category
Corel Products and Images featured in BuySoftware.com Download shop
Corel the top slot to make an offer in the BuySoftware.com E-alert
newsletter once per quarter (200,000 subscribers)
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
32
LIST VALUE:
Specialty Shop link - Front page BuySoftware.com [ * ]
Featured product in Graphics Software category [ * ]
Corel Products & Images featured in download shop [ * ]
Quarterly top slot in BuySoftware.com E-alert [ * ]
BUYSOFTWARE.COM TOTAL (12 MONTHS)
Specialty Shop link - Front page BuySoftware.com [ * ]
Featured product in Graphics Software category [ * ]
Corel Products & Images featured in download shop [ * ]
Quarterly top slot in BuySoftware.com E-alert [ * ]
TOTAL VALUE [ * ]
ShopNow.com
Corel E-store and Studio would be given premiere merchant listings on
ShopNow.com in the Technology Center.
ShopNow.com gets more than 1 million unique monthly visitors
LIST VALUE:
ShopNow.com Premiere Merchant Listing Corel Estore [ * ]
ShopNow.com Premiere Merchant Listing Corel Studio [ * ]
SHOPNOW.COM TOTAL (12 MONTHS)
ShopNow.com Premiere Merchant Listing Corel Estore [ * ]
ShopNow.com Premiere Merchant Listing Corel Studio [ * ]
TOTAL VALUE [ * ]
4) NetGreeting.com
Distributor will integrate the thumbnails for all Corel Studio images and
photos into its NetGreeting web site as free electronic greeting cards.
Corel will be the exclusive image supplier for NetGreeting.com
Every NetGreeting sent, will be tagged with copy crediting Corel (i.e.
Images exclusively from Corel Studio)
Copy stating Corel's sponsorship of NetGreeting, and links to Corel offers
will be included on the page thanking senders for using NetGreeting, as
well on the page where recipients receive their card.
This version of NetGreeting will be integrated into:
All ShopNow.com Personal Stores
BuySoftware.com
ShopNow.com
NETGREETING INTEGRATION VALUE:
Within six (6) months from the Effective Date of this Agreement,
Distributor shall provide COREL with the value of the NetGreeting
Integration. By integrating the Studio images and photos into the
ShopNow.com Network, it offers Corel an outstanding, unique branding
opportunity, and another chance to promote its products.
The NetGreeting program we run today has been extremely well received by
users, and is a great example of
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
33
viral marketing. Users often pass cards on to friends, and with the simple
reply function, they can quickly select their own image and send one back.
ONGOING PROGRAMS TOTAL VALUE (12 MONTHS):
ShopNow.com Personal Stores Value [ * ]
BuySoftware.com Value [ * ]
ShopNow.com Value [ * ]
Total Ongoing Program Value [ * ]
Pricing for Personal Stores, BuySoftware.com and ShopNow.com based on
current traffic/sign up levels. These prices would increase monthly based
on the trend at which traffic is currently increasing through these
properties.
LAUNCH PROGRAM
The goal of the launch program is to announce the re-launch of Corel's Store
and Studio, drive traffic and sales through the Store, and help Corel reach
out to current Corel product users and take steps toward establishing an
ongoing relationship with them.
This launch should run during a one to two month period and start after the
Corel Store and Studio, and Corel Personal Stores program have launched with
Distributor.
Theme: A Grand re-opening of Corel's E-Store. Much like when a brick and
mortar store has a Grand Opening, this launch campaign should focus on
driving traffic to the Store.
Concept: Using inventory through Distributor's network, and inventory on other
high traffic sites that Distributor controls, drive traffic to the new
Corel Store. The program will utilize special Grand Opening offers
from Corel to convert traffic to purchases. This would also be a great
opportunity to launch Corel's Personal Store program, and give
shoppers the chance to get free product or images for signing up.
In addition to online media to drive traffic, Corel should consider a
direct mail campaign to its user base to drive their business online,
and get them to sign up for their Personal Store (or just pick them up
if we pre-build them). Distributor, through its Direct Marketing
Agency division, (the "Haggin Group") can assist with creative
direction for a direct mail piece. If Corel elects to use this service
for launch, the Haggin Group will provide the creative at no cost to
COREL.
ONLINE MARKETING:
Distributor will contribute the following to the Launch program:
Yahoo! Impressions. Distributor currently has a presence as a premiere merchant
integrated in the Yahoo site and can provide some targeted visibility to Corel's
Store launch through this program, specifically links from search results on
Yahoo for keywords like graphics software, etc.
Distributor Contribution for Launch :
[ * ]
PC World Impressions. Distributor also has presence throughout PC World. Their
community of computer users a great audience for Corel.
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
34
Distributor Contribution for Launch
[ * ]
TOTAL LAUNCH PROGRAM CONTRIBUTION VALUE
[ * ]
[ * ]
[ * ]
TOTAL VALUE [ * ]
OTHER STRATEGIC PARTNER PROGRAMS
Additionally as a Strategic Partner, the standard Anchor Tenant program will be
expanded to include:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PROGRAM ESTIMATED IMPRESSIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Creation of an exclusive sponsorship of the Web Page Estimate of [ * ] impressions per month.
Designers Floor
http://www.shopnow.com/technology/web_designers/ - and
in services - for Design Services. Graphic in nature and to be
mutually agreed upon for scope and placement.
- -----------------------------------------------------------------------------------------------------------------
One week per month as a "Feature Store" (88 x 31 logo Estimate of [ * ] impressions per month - 8%
button at the top of a floor) for the Technology Floor of all shoppers on ShopNow.com go this section.
(http://www.shopnow.com/technology) Will increase with targeted shopper promotions
for Corel and Technology in general using 3rd
party ad-buys targeted to this section.
- -----------------------------------------------------------------------------------------------------------------
One product or store announcement in our Minimum of [ * ] impressions.
ClubShopNow.com e-newsletter - to over 75,000 online
shoppers - every quarter. Will link to a special offer page to
track response
- -----------------------------------------------------------------------------------------------------------------
One "Smart Tip" link and 25 word tip per month in our Brand - new feature - launched 3/17. Used by
Merchant Center e-Commerce Guide Tip section - perfect over 17,000 merchants and all tips e-mailed to
place to promote Designer.com or Studio. merchant membership list.
http://www.shopnow.com/merchant_center/guides_tips.html
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL VALUE [ * ]
TOTAL DISTRIBUTOR MARKETING CONTRIBUTION
Ongoing Program Total Value [ * ]
Launch Program Total Value [ * ]
TOTAL VALUE [ * ]
Other Marketing Assistance
Distributor will work with Corel to set up the sale of advertising banners from
Corel's Store, the Studio and Corel's corporate website located at corel.com
through existing ad sale relationships Distributor has established at no cost to
COREL.
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
35
BANNER ADVERTISING. Distributor will be responsible for the concept, design,
production, and account management for all animated banners. Distributor shall
develop animated banner solutions based on the unique selling proposition of the
Software being promoted, the desire to build a brand and Customer loyalty, or
gear the animated banners toward the third party site on which such animated
banner shall be placed. COREL shall have prior approval of all such banners.
COREL agrees to pay Distributor [ * ] for each animated banner provided.
Animated banners created and used for the site of an Affiliate shall be
provided free of charge by Distributor to COREL.
ANCHOR TENANT LISTING. From June 1st, 1999 until June 30th, 1999, the Store
shall be an Anchor Tenant on Distributor's "ShopNow" and "MyShopNow"
properties. In addition, from July 1st, 1999 until January 1st, 2000, subject
to mutual agreement of the parties as to the specific dates, the Store shall
be an Anchor Tenant for two (2) additional months on Distributor's "ShopNow"
and "MyShopNow" properties.
* 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
WEBMONITOR PROCEDURES
Distributor's Web Monitor shall perform the following tasks:
[ * ]
ESCALATION PROCEDURE
If the Store goes down because of any of the following:
- - Cannot establish connection
- - Connection times out
- - Any type of VBScript or ODBC/OLE DB error
- - Any HTTP error (ie: HTTP Server Too Busy)
- - Any IWProcessserver error
The Web Monitor shall follow this procedure:
[ * ]
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
43
[ * ]
SITE SECURITY
[ * ]
ESD WRAPPING TECHNOLOGY
Wrappers consist of two components: a client builder and a corresponding ESD
server. The client builder is used to encrypt digital content using a symmetric
key algorithm similar to DES or RC5. After the wrapping process, the digital
content is unusable. In the commonly used "pay after you download" model, the
wrapped content has attached to it a small executable that communicates with the
ESD server. This executable obtains payment information from the client and then
sends it to the ESD server. The ESD server validates the payment information and
then transmits the secret key back to the executing program, which then unwraps
the digital content. The security of a wrapper depends on the following:
- The size of the symmetric encryption key used to wrap digital content.
- The key exchange algorithm used in exchanging symmetric secret keys.
Wrappers do not require source code modification. Instead, executable
content/software can be wrapped using a client builder application. Wrappers are
also extremely simple to implement since they utilize standard
encryption/decryption algorithms.
[ * ]
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
PREVIEW.SHOP.COREL.COM
<TABLE>
<S><C>
[ * ]
</TABLE>
* 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.
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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;
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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
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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.
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* 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
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<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
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<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>
[ * ]
6
* CONFIDENTIAL TREATMENT REQUESTED
<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 [ * ] hours 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 [ * ] days, or [ * ] hours, at a rate of
[ * ] 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 [ * ]
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>
JOB TITLE HOURLY LABOR RATES
--------- ------------------
<S> <C>
Corporate Officer $350.00
Director or Principal Consultant $300.00
Product Manager $250.00
Project Manager $225.00
</TABLE>
7
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Staff Scientist $200.00
Software/Integration Engineer $175.00
Business/Configuration Analyst $150.00
Administrative Support $ 85.00
</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
<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
three (3) years 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
<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: By: /s/ Alan Koslow
------------------------------- --------------------------------
Name: Name: ALAN KOSLOW
------------------------------- --------------------------------
Title: 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 three (3) years after the Effective Date. Unless either party
shall give written notice to the other party at least ninety (90) days prior
to the Expiration Date, this Agreement shall automatically renew for a one
(1) year period ("First Renewal Term"). Unless either party shall give
written notice to the other party at least ninety (90) days prior to the
expiration of the First Renewal Term, this Agreement shall automatically
renew for an additional one (1) year 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 [ * ] prepaid cards. 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 six (6) month period during the term of this Agreement that
begins after that date which is ninety (90) days 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
twelve (12) months of this Agreement meets or exceeds [ * ]
additional commission shall be paid on Business Monthly Affinity
Revenue for the remainder of said twelve month period. In the event
Business Affinity monthly Revenue during the second twelve months
of the Agreement meets or exceeds [ * ] additional commission shall
be paid on Business Affinity Monthly Revenue for the remainder of
that twelve month period. In the event Business Affinity Monthly
Revenue during the third twelve month period of this Agreement
meets or exceeds [ * ] additional commission shall be paid on
Business Affinity Monthly Revenue for that the remainder of that
twelve month 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>
$0 - 9,999
$10,000 - $24,999
$25,000 - $49,999 [ * ]
$50,000 - $99,999
$100,000 - $199,999
* CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE>
EXHIBIT 2(a)
<CAPTION>
COLLECTED REVENUE COMMISSION PERCENTAGE
<S> <C>
$200,000 - $299,999
$300,000 - $399,999 [ * ]
$400,000 - $499,999
$500,000+
</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 ten
thousand dollars ($10,000).
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.
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. 1+ (online/credit card billed) services - $.09/min. (interstate) no
monthly fee (PICC and USF charges apply) and $.05/min. (interstate),
$14.95 monthly fee
2. Associated calling card and international services
3. ISP Services - $19.95/month standalone and $14.95/month with Qwest
1+ service
4. Paging - Service Plans- $9.95/month (numeric), $24.95/month (text) -
Equipment with products - Top Display $49.95, Numeric Side Display
$59.95 and Text $79.95
5. Click to Fax and Click to Conference t (when available)
* CONFIDENTIAL TREATMENT REQUESTED.
5
<PAGE>
EXHIBIT 2(b)
6. Wholesale ISP Service (when available and at its fully loaded cost)
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.
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*
$0-$3,000,000.............................[ * ]
$3,000,000+...............................[ * ]
* 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
1
* CONFIDENTIAL TREATMENT REQUESTED.
<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.
2
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
QWEST-TECHWAVE MARKETING PLAN
- -------------------------------------------------
T
TechWave-Registered Trademark-
March 23, 1999
ride the light
--------------
QWEST-Registered Trademark-
<PAGE>
TABLE OF CONTENTS
> INTRODUCTION..........................................................3
What is this marketing plan for?......................................3
What does this marketing plan contain? ...............................3
Last Revision Date....................................................3
A Reminder about Confidentiality and Risk Management..................3
Agreement/Sign Off....................................................3
PRODUCTS..................................................................4
Consumer Products.....................................................4
Business Products.....................................................6
Product Fulfillment/Collateral/Billing................................9
MARKETING PROGRAMS.......................................................11
WEBSITE PROGRAMS.......................................................11
Qwest Communications Center..........................................11
Personal Stores Program (MyShopNow)..................................14
Cross Merchandising: Up Sell and Cross Sell Programs.................16
Recommendation Program...............................................18
Website Advertising Programs.........................................20
E-MAIL PROGRAMS........................................................23
Electronic Receipt Program...........................................23
Online Direct Mail Program...........................................26
OTHER CONSUMER PROGRAMS................................................27
Quantum Club Program................................................27
Inbound Program.....................................................27
SOHO PROGRAMS..........................................................29
SOHO Survey Program - Online........................................29
SOHO Tradeshow Program..............................................30
SOHO Merchant Center - Online.......................................31
DISTRIBUTOR PROGRAMS...................................................32
Distributor Program - TechWave Sales Force..........................32
ADMINISTRATION PLAN......................................................33
Contacts.............................................................33
Team Coordination/Structure..........................................33
Change Request Process...............................................33
Indoctrination.......................................................33
- -----------------------------------------------------------------------------
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<PAGE>
> INTRODUCTION
UNDERSTANDING AND AGREEMENT OF THE MARKETING PROGRAMS. . .
- -----------------------------------------------------------------------------
WHAT IS THIS MARKETING PLAN FOR?
This manual is divided into separate sections that address each marketing
component of the TechWave/Qwest LOI. These sections are further divided by
program so there is a definite roadmap and plan for implementation. By
Signing Off on this agreement, both companies agree to the scope and
understanding of each marketing program.
WHAT DOES THIS MARKETING PLAN CONTAIN?
Products -- Business and Consumer products for distribution
Marketing Programs -- Consumer and Business distribution marketing,
operational and program planning templates.
Administration Plan -- Methods for communicating program changes, Team
Contacts.
LAST REVISION DATE
This document was last revised on APRIL 13, 1999.
A REMINDER ABOUT CONFIDENTIALITY AND RISK MANAGEMENT. . .
Partner relationships are sensitive and must be given extra consideration
given the competitive nature of our industry. Please recognize the binding
nature and responsibilities you have as an employee of Qwest/TechWave under
the mutually signed Non Disclosure Agreement. Information about each company
and the terms of their relationship with each other should only be shared on
a need to know basis with internal employees to accomplish the program and
implementation of the distribution vehicles, using your best judgment.
AGREEMENT/SIGN OFF
By signing, each company agrees to fulfill the obligations required for each
marketing programs outlined in this document.
Qwest: Date:
------------------------------------ ---------------
TechWave: Date:
--------------------------------- ---------------
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<PAGE>
- - PRODUCTS
CONSUMER AND BUSINESS PRODUCTS DISTRIBUTED BY TECHWAVE
- -----------------------------------------------------------------------------
CONSUMER PRODUCTS
LOI LANGUAGE
TECHWAVE'S MARKETING AND SELLING OF QWEST CONSUMER SERVICES WOULD BE IN
ACCORDANCE WITH THE TERMS OF QWEST'S STANDARD REPRESENTATIVE (AGENT)
AGREEMENT;
1+ PRODUCTS
Qwest will sell 1+ (interstate and intrastate long distance) products on the
TechWave websites.
- Qwest will provide competitive information to TechWave for consumer
education.
- Qwest will provide intrastate rate charts to TechWave so that
consumers can look up their intrastate rates by zip code.
- Qwest will work with TechWave to create basic calling information to
develop savings example (e.g. avg. call times, etc.).
Below are some of the features and benefits of the product set:
- 9 CENTS/NO FEE: 24x7 RATES AT 9 CENTS/MINUTE.
- 5 CENTS/$14.95: 24X7 RATES AT 5 CENTS/MINUTE.
- 30 CENTS CALLING CARD RATE: NO SURCHARGES, LOW FLAT RATES.
- EXACT BILLING (AFTER THE FIRST MINUTE)/NO FEE 800#: EXACT BILLING
SAVES ON AVERAGE 10% OVER FULL MINUTE ROUNDING
- STANDARD 4-HOLIDAY PROMOTION: THE HOLIDAY PROMOTION IS 30
MINUTES/HOLIDAY AT 1 CENT
- STANDARD 90 MINUTES AT 1 CENT/MINUTE PROMOTIONS: THESE PROMOTIONS
APPLY TO NO FEE 800 AND CALLING CARD (FIRST USAGE IS AT 1 CENT)
- CO-BRANDED FULFILLMENT/CALLING CARDS: THE TECHWAVE/QWEST BRANDED
CALLING CARD FEATURES INDUSTRY LEADING COMPONENTS LIKE SPEED DIAL LIST,
VOICEMAIL, AND CONFERENCE CALLING.
- CO-BRANDED/CREDIT CARD/DIRECT BILLING AND ONLINE BILLING: QWEST WILL
CO-BRAND ALL OF ITS DIRECT AND ONLINE BILLING.
- $1.93 PICC/USF CHARGES APPLY TO ALL 1+ PRODUCTS
- COMPETITIVE INTERNATIONAL RATES (Q.WORLD PRODUCT)
QWEST COMMUNICATIONS CORPORATION, RESERVES THE RIGHT TO CHANGE PRODUCTS.
- -------------------------------------------------------------------------------
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<PAGE>
ISP
Qwest will sell its ISP service on the TechWave site.
- Qwest will provide coverage maps and current POP city listings to
TechWave so that consumers can determine if they live in an area which
is covered by a local POP.
- Qwest will use commercially reasonable efforts, to work with TechWave
to develop a program to sell TechWave its ISP service at a wholesale
cost for TechWave to give to its high spending customers as a retention
promotion.
- Qwest will handle all fulfillment and shipping of the ISP product for
the orders that TechWave sends Qwest, however if Qwest sells the ISP to
TechWave, TechWave will be responsible for fulfillment.
Features and benefits of the ISP service include:
- $19.95/MONTH STANDALONE
- $14.95/MONTH BUNDLED: CONSUMER PAYS LESS WHEN THEY SIGN UP FOR ANY
QWEST LONG DISTANCE PLAN
- STANDARD 1ST MONTH FREE PROMOTION
- NO USAGE FEES OR CAPS
- 56K CONNECTIONS
- NETSCAPE PRODUCT INITIALLY, CHOICE OF IE5/NETSCAPE IN DEVELOPMENT.
MACINTOSH VERSIONS ARE NOT YET BEING PLANNED.
- QWEST BRANDED INITIALLY
PAGING
Qwest will sell its paging products via the TechWave online programs.
[ * ] All pagers are Motorola products.
- Qwest will provide TechWave with artwork of the product, as well as
coverage information by zip code.
- Qwest will handle all of the programming and fulfillment of the pager
orders.
Features and benefits of the Paging service include:
- $9.95/MONTH (NUMERIC), $24.95/MONTH (TEXT)
- FREE VOICEMAIL/TOLL FREE ACCESS NUMBER AND PIN
- 50% OF FIRST TWO MONTH SERVICE
- NO PER MESSAGE USAGE FEES OR CAPS
- QWEST BRANDED
- PRODUCTS: NUMERIC TOP DISPLAY, $49.95; NUMERIC SIDE DISPLAY, $59.95;
TEXT, $79.95
QWEST COMMUNICATIONS CORPORATION, RESERVES THE RIGHT TO CHANGE PRODUCTS.
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<PAGE>
ENHANCED SERVICES
Qwest will sell/provide its online products via the TechWave site (when
available).
These products include:
- SEND A PAGE: USERS CAN SEND PAGES TO QWEST PAGING CUSTOMERS VIA AN
ONLINE GUI.
- CLICK TO CONFERENCE: QWEST PROVIDES A CONFERENCE CALLING SERVICE,
WHERE CUSTOMERS CAN SET UP THE CALL ONLINE VIA AN ONLINE ADDRESS BOOK.
CONSUMERS ARE BILLED EITHER TO THEIR LONG-DISTANCE BILL OR TO THEIR
CREDIT CARD. THERE IS NO NEED TO DEAL WITH OPERATORS, CODES OR ADVANCE
SCHEDULING. A FLAT RATE OF 25-CENTS PER MINUTE FOR EACH LINE IS
CHARGED FOR DOMESTIC CALLS. INTERNATIONAL RATES VARY
- CLICK TO FAX: IS AN ONLINE SERVICE THAT LETS CUSTOMERS FAX
INFORMATION BOTH DOMESTICALLY AND INTERNATIONALLY USING ONLY A
BROWSER AND AN INTERNET CONNECTION. SENDING A FAX THROUGH THE FAX
CENTER IS AS SIMPLE AS SENDING AN E-MAIL. A MINIMUM MONTHLY COST OF
$2.95 COVERS THE FIRST 19 PAGES. ADDITIONAL PAGES SENT THROUGHOUT THE
MONTH ARE ONLY 15-CENTS EACH.
PREPAID CARDS
Qwest will provide TechWave with a co-branded prepaid card program.
Qwest will also work with TechWave to develop an online distribution
program (no physical product) for use in personal stores. These programs
will be as an addendum to the existing agreement, between Qwest and
TechWave.
- PRICING TBD
- RECHARGEABLE
- INTERNATIONAL TERMINATION AND ORIGINATION (ORIGINATION IN 47 CITIES)
- CO-BRANDED
- LANGUAGE NEEDS TBD
QWEST COMMUNICATIONS CORPORATION, RESERVES THE RIGHT TO CHANGE PRODUCTS.
BUSINESS PRODUCTS
LOI LANGUAGE
TECHWAVE'S MARKETING AND SELLING OF QWEST BUSINESS SERVICES WOULD BE
IN ACCORDANCE WITH THE TERMS OF QWEST'S STANDARD REPRESENTATIVE
DISTRIBUTOR AND BUSINESS AFFINITY AGREEMENT;
Q.BIZ
Q.biz is a simple business calling solution for SOHO type customers who
have basic business calling needs and are very price sensitive. This
product will be sold via the TechWave websites and is targeted at those
business customers who spend less than [ * ] for business
communications.
- Qwest will provide competitive information to TechWave, as well as
basic demographic information so that TechWave can target the correct
segment of their customer database.
- -------------------------------------------------------------------------------
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<PAGE>
Features and Benefits of the product:
- 7.9 CENTS/$25 MINIMUM: 24X7 RATES AT 7.9 CENTS/MINUTE (REQUIRES ONE
YEAR CONTRACT).
- 8.5 CENTS/$25 MINIMUM: 24X7 RATES AT 8.5 CENTS/MINUTE (MONTH TO MONTH
-NO CONTRACT).
- EXACT BILLING/SPONSOR PROGRAM/MONTH-TO-MONTH AGREEMENT/NO FEE 800#
- CO-BRANDED FULFILLMENT/CALLING CARDS
- 100% SWITCHED
Q.GUARANTEE/WEB HOSTING/DIA
These products are for the more complex business. They will be sold via the
TechWave sales force direct to merchants and retailers. Qwest will provide
all sales material needed to sell the product. This product is targeted at
those accounts that are expected to spend more than [ * ], or those
that have more complex data needs.
- PRICING BASED ON USAGE AND COMMITMENT LEVELS. TYPICALLY 5-6
CENTS/MINUTE.
- IP/FRAME/PRIVATE LINE/TELECONFERENCING/BROADCAST FAX/IVR SERVICES
- INTL TOLL FREE AND DOMESTIC TOLL FREE/EXACT BILLING/GUARANTEED RATES
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will work together to create new offer and product
ideas, when applicable.
QWEST RESPONSIBILITIES
- Qwest will be responsible for communicating new product information to
TechWave. TechWave will be responsible for communicating timing and
informational needs to Qwest regarding website copy changes, etc. See
Administration section for more.
- Qwest will provide materials for TechWave customer service training
for all online products.
- Qwest to provide international rates to TechWave.
- Qwest to provide Telco glossary to TechWave for internal training.
- Business distributor product training for TechWave professional
services will be handled separately.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that signs
up with Qwest service. This e-mail will contain the TPV information so
the customer can call and verify their order in those states where
applicable.
- TechWave will create offers and premiums to keep the Qwest products
"fresh" and compelling for the consumer.
- -------------------------------------------------------------------------------
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<PAGE>
PRODUCT FULFILLMENT/COLLATERAL/BILLING
LOI LANGUAGE
QWEST WOULD PROVIDE TECHWAVE WITH THE FOLLOWING SERVICES, AND BRANDING;
- PROVIDE TECHWAVE WITH CO-BRANDED CONSUMER FULFILLMENT AND CALLING
CARDS FOR ALL RESIDENTIAL AND BUSINESS SERVICES;
- PROVIDE TECHWAVE WITH CO-BRANDED BILLING FOR ALL QWEST RESIDENTIAL
SERVICES SOLD THROUGH SHOPNOW.COM AND OTHER AGREED UPON MARKETING
PROGRAMS;
OVERVIEW
The TechWave/Qwest program is reinforced by co-branded joint marketing
campaigns. From the website, to the fulfillment, and even to the product
offer, the consumer will be presented with a tightly integrated
communications offer that bears the trademarks of both companies. This
section deals with the artwork, copy, and implementation of the co-branding
process.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
QWEST RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest needs approximately 90 days to design/implement/test co-branded
fulfillment.
QWEST RESPONSIBILITIES
- Qwest has responsibility to design - with TechWave input - the
co-branded fulfillment kits for its products.
- Qwest will submit mock ups and final product to TechWave for review.
- Qwest ensures that all materials are approved by branding, legal and
regulatory teams.
- Qwest will implement all co-branded fulfillment programs for its
services.
- Qwest will implement all co-branded invoicing for TechWave customers.
- Qwest will provide the applicable co-branded services as long as all
sales performance levels are maintained.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that signs
up with Qwest service. This e-mail will contain the TPV information so
the customer can call and verify their order in those states where
applicable.
- TechWave will send a follow-up confirmation e-mail to customers who
have not TPV'd within 30 days of PIC submission to Qwest. A report is
provided to all distributors via COINS regarding TPV activity. Please
check the TPV folder for daily files regarding specific TPV held
orders. There are 2 files that are provided. [ * ]
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<PAGE>
[ * ]
- Review any changes to fulfillment (after launch).
- TechWave will need to supply logos, copy and graphics necessary for a
co-branded card, invoice, and welcome kit.
- TechWave must supply customized messages for co-branded invoicing at
least 60 days prior to expected implementation and in accordance with
the parameters set up by the direct billing team within Qwest.
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<PAGE>
OVERVIEW FULFILLMENT PROCESS FLOW--LONG DISTANCE
Customer fills Customer order Q runs edit/reject Order pending
out online LoA received by Q on record. Q TPV. Orders
reworks PIC matched against
freeze, and basic TPV files.
edit problems
TW sends
confirmation
e-mail and TPV
phone #
Customer calls
TPV Center
After TPV
match, Q sends
order to LEC
Q ACTIVATES
CUSTOMER AND
SENDS FULFILLMENT
KIT SPECIFIC TO
TECHWAVE AND LEC returns
PRODUCT confirmed switch
FULFILLMENT PROCESS FLOW--ISP/PAGING
Customer fills Customer order Q runs edit/reject Q generates
out online order received by Q on record. unique
form Forwards order registration code
to fulfillment and sends
TW sends confirmation house. If LD is product to
e-mail and shipping ordered, see customer. Pager
expectations fulfillment is activated by Q
process above.
CUSTOMER
RECEIVES CD OR
PAGER AND
ACTIVATES ISP
ONLINE (VIA
CREDIT CARD).
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<PAGE>
- -- MARKETING PROGRAMS
CONSUMER AND BUSINESS MARKETING PROGRAMS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OVERVIEW
This section addresses each agreed upon marketing program. The LOI language
will be referenced at each subsection. Most of these marketing programs
pertain to the TechWave websites, however some of the business joint
marketing programs are outside of that medium.
WEBSITE PROGRAMS
QWEST COMMUNICATIONS CENTER (QCC)
LOI LANGUAGE
TechWave would create and maintain, without limitation, the following
"Marketing Programs";
- -- a "Qwest Communications Center", a telecommunications shopping category,
that would offer the sale of Qwest business and consumer services and which
would be developed and maintained by TechWave, subject to Qwest input and
with Qwest's control over the Qwest services offered;
OVERVIEW
For the term of the contract, the Qwest Communications Center would be the
online "store" for Qwest products and services. Links from advertising and
other on-line programs for Qwest services would send the user to this online
store. The store is a permanent component of ShopNow.com and is linked
severally to TechWave websites (see advertising programs below).
EXPOSURE
This will be seen by all unique visitors ShopNow, BuySoftware and other
future sites. Current unique visitors are 2.7 million/month and growing
significantly.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
-- The design of the Qwest Communications Center (QCC) will be a joint
effort between Qwest and TechWave, following the basic online templates
used by Qwest but displayed in a manner consistent with the other
shopping categories on ShopNow.com.
-- The QCC will be accessed from the front pages of
ShopNow.com/Buy/Software.com and the TechWave personal stores (My
ShopNow.com) via banners, logos and hyperlinks.
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<PAGE>
-- The QCC makes up the service offering section of the telecommunications
shopping category (created by TechWave). It will include all consumer
products, as well as the SOHO Q.biz product.
-- Consumer will enter data into Qwest order form. Related product
information will also be available, as well as online enhanced features.
Orders will be sent directly to Qwest for processing. TechWave will send
e-mail confirmation upon order submission, with TPV all necessary
information, on a state by state basis.
QWEST RESPONSIBILITIES
-- Qwest will use commercially reasonable efforts to implement its account
management features into the QCC. This will require a shell out to Qwest
servers. All other information will be maintained on the TechWave
servers.
-- Maintenance of the promotions and products in the store is Qwest
responsibility.
-- Qwest will provide keywords for Qwest products for the TechWave product
search database.
-- Qwest will provide relevant competitive information and Qwest press
release information for the dissemination of information to TechWave
shoppers.
-- Qwest will provide intrastate rates to TechWave.
-- TechWave will be given access to Qwest orders and reporting via the
online consumer COINS system. Qwest will provide all training regarding
the usage of this product. Qwest to provide TechWave with 800 number for
PIC freeze for incremental sales campaign.
-- Qwest will work with TechWave to develop a warm transfer capability from
the TechWave service center for Tier 2 customer service issues.
TECHWAVE RESPONSIBILITIES
-- TechWave will send a confirmation e-mail to each customer that signs up
with Qwest service. This e-mail will contain the TPV information so the
customer can call and verify their order in those states where
applicable.
-- TechWave will place Qwest branding in accordance with the website
advertising discussed later in this marketing plan.
-- TechWave is responsible for final implementation and communicating the
required program elements to Qwest, for Qwest approval.
-- Implementation of the programs will be handled by TechWave.
-- Implementation of promotional and content changes is TechWave's
responsibility.
-- TechWave will send QCC activity reports to Qwest on a monthly basis
which will show take rates by programs and product. These reports may
include: number of shoppers/number of visitors, number of customers,
referring URL by program.
-- The QCC site resides on TechWave's servers.
-- TechWave to create a "CALL CALCULATOR" based on calling information and
rate information supplied by Qwest. This will be a simple analyzer
showing savings via the Qwest programs.
Below is an example of the Center consistent with the general and agreed upon
co-branding and joint marketing approach (as seen from within the personal
store section).
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<PAGE>
[GRAPHIC, REPRESENTATIVE OF THE COMPUTER SCREEN]
- -------------------------------------------------------------------------------
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<PAGE>
PERSONAL STORES PROGRAM (MYSHOPNOW)
LOI LANGUAGE
TechWave would create and maintain, without limitation, the following
"Marketing Programs";
-- Incorporate into its existing "Personal Stores Network" Qwest's terms
and conditions and the ability to switch consumers to Qwest residential
1+ service by acceptance of the personal store, subject to other
considerations by both parties and approval by the parties' legal
departments;
Qwest would provide TechWave with the following services, and branding;
-- for all "Personal Stores" provide customers the ability to hyperlink to
the Qwest designated site to handle online maintenance of the customer's
1+ residential bill "on-line billing";
OVERVIEW
The intent of the Personal Stores Program (aka MyShopNow) is to include an
Auto Sign Up Program to simplify the sign up for Qwest consumer services by
bundling the T&Cs within the TechWave Personal Store sign-up process(1).
This allows the personal store to be built with the links to account features
and the Qwest online services such as faxing, conference calls, etc.
EXPOSURE
This will be offered to all existing 1 million store members and new store
members ramping to an estimated 5 million by Year End 1999.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
-- Qwest will be a permanent sponsor (for the term of the contract) on the
front page of personal stores). Links will send the user to the QCC.
-- The Qwest signup will be part of the initial personal store Q&A form
when personal stores are set up by the customer. Qwest sign up will be
an optional component allowing customers to have a Personal
Communication Center within their site which allows them to view their
bills and take advantage of the Online Qwest products such as faxing,
etc.
-- Qwest and TechWave will need counsel collaboration for the Auto Sign Up
program.
QWEST RESPONSIBILITIES
-- Qwest will provide the Consumer T&Cs to TechWave that are needed for the
Auto Sign Up program.
- ----------------------
[ * ]
- -------------------------------------------------------------------------------
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<PAGE>
TECHWAVE RESPONSIBILITIES
-- TechWave will send a confirmation e-mail to each customer that signs up
with Qwest service. This e-mail will contain the TPV information so the
customer can call and verify their order in those states where
applicable.
-- TechWave will send Qwest activity reports indicating how many numbers
are being driven back to the QCC via the links.
-- TechWave is responsible for the technical implementation of this
program.
-- TechWave will place Qwest branding in accordance with the website
advertising discussed later in this marketing plan.
-- TechWave will provide a "Check Your Long Distance" section within the
"My Account" portion of the personal store. A Qwest offer will appear
for users without Qwest LD.
Below is an example of the Personal Stores consistent with the general and
agreed upon co-branding and joint marketing approach:
[GRAPHIC, REPRESENTATIVE OF THE COMPUTER SCREEN]
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<PAGE>
CROSS MERCHANDISING: UP SELL AND CROSS SELL PROGRAMS
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- AN "UP-SELL PROGRAM: WHEREBY IT WOULD INTERJECT A QWEST OFFER INTO THE
SHOPNOW.COM SHOPPING CART CHECKOUT PROCESS FOR OTHER NON QWEST PRODUCTS
AND SERVICES, WHERE CONSUMERS WOULD BE PRESENTED A QWEST OFFER, BUT NOT
BE REQUIRED TO PURCHASE, THAT WOULD ALLOW CUSTOMERS TO SIGN UP FOR
QUEST SERVICES BEFORE COMPLETING THE ONLINE TRANSACTION, SUBJECT TO OTHER
CONSIDERATIONS BY BOTH PARTIES;
- A "CROSS MERCHANDISING" CAMPAIGN THAT COULD PROMOTE CERTAIN TECHWAVE
PRODUCTS WITH CERTAIN QWEST SERVICES, EXAMPLE WOULD INCLUDE, WITHOUT
LIMITATION, BUY A COMPUTER AND RECEIVE QUEST SERVICE;
OVERVIEW
The cross merchandising programs ensure that every shopper at the
TechWave e-commerce sites will see an offer for Qwest products. This is
important so that Qwest is presented when the consumer is in the
"buying mode."
EXPOSURE
This will be offered to [ * ] ShopNow/BuySoftware/MyShopNow purchasers
at the time of check out. Currently this transactional volume ensures
that a majority of the current50,000 purchasers/month will be exposed
to the program (this number is growing significantly)..
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- The Qwest offer will be presented below the checkout area, along with
other suggested product cross and up sells. This soft sell approach adds
validity when other shoppers are cited as the source (e.g. other
shoppers also bought Qwest). The program is passive in the sense that
there is no direct interjection of an offer.
- When consumer elects to purchase they are taken directly to a product
LOA page (not the overall QCC).
- [ * ]
- The Qwest offer will appear in the top 3 lines of the suggestion list.
- Qwest and TechWave will test several offers and approached to the
Upsell and Cross Sell program to maximize the return.
QWEST RESPONSIBILITIES
- Quest will approve the creative and customer presentation of the Up
Sell and Cross Sell Programs as they relate to the presentation of
Qwest services.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that signs
up with Qwest service. This e-mail will contain the TPV information so
the customer can call and verify their order in those states where
applicable.
- ------------------------------------------------------------------------------
Page 16
Revised: April 13, 1999
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
- TechWave will place Qwest branding in accordance with the website
advertising discussed later in this marketing plan.
- TechWave is responsible for the technical implementation of this
program.
- TechWave will send Qwest activity reports indicating program
performance.
Below is an example of the Up-sell/Cross-sell presentation concept consistent
with the general and agreed upon co-branding and joint marketing approach:
[GRAPHIC]
- ------------------------------------------------------------------------------
Page 17
Revised: April 13, 1999
<PAGE>
RECOMMENDATION PROGRAM
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- [ * ]
OVERVIEW
[ * ]
EXPOSURE
This feature will be present on all MyShopNow pages. The consumer exposure is
similar to the unique website visits. No data yet on how many consumers
actually select the Recommendations Tab.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- TechWave and Qwest will jointly develop the recommendation data and
behavior.
QWEST RESPONSIBILITIES
- Qwest will approve the creative and customer presentation of the
Recommendation Program, as it relates to Qwest services.
- Qwest is responsible for communicating offer changes to TechWave.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that signs
up with Qwest service. This e-mail will contain the TPV information so
the customer can call and verify their order in those states where
applicable.
- TechWave will place Qwest branding in accordance with the website
advertising discussed later in this marketing plan.
- TechWave is responsible for the technical implementation of this
program.
- TechWave will send activity reports to Qwest indicating program
performance.
- TechWave will include Qwest products in any expansion of the
Recommendation engine (i.e. to ShopNow, e-mail vehicles, etc.)
Below is an example of the Recommendation presentation concept consistent
with the general and agreed upon co-branding and joint marketing approach
- ------------------------------------------------------------------------------
Page 18
Revised: April 13, 1999
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[GRAPHIC]
- ------------------------------------------------------------------------------
Page 19
Revised: April 13, 1999
<PAGE>
WEBSITE ADVERTISING PROGRAMS
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- A BANNER ADVERTISING CAMPAIGN ON ITS SHOPNOW.COM SITE AS WELL AS ALL
OTHER APPLICABLE TECHWAVE SITES PROMOTING THE QWEST SERVICES AND
ALLOWING FOR A HYPERLINK TO THE QWEST PAGE;
- AN ANIMATED BANNER AD (SIMILAR TO POP-UP AD'S(2) CAMPAIGN THAT WOULD
ALLOW FOR THE USE OF TECHWAVE'S NEW PROGRAM SOFTWARE PLATFORM THAT
WOULD BE IMPLEMENTED WITHIN 120 DAYS, THAT WOULD COMMUNICATE A QWEST
OFFERING TO CONSUMERS WHO ARE SHOPPING ON THE SHOPNOW.COM SITE AS WELL
AS ALL OTHER APPLICABLE SITES CONTROLLED BY TECHWAVE;
- [ * ]
TECHWAVE WOULD ADDITIONALLY PROVIDE QWEST WITH THE FOLLOWING SERVICES, AND
BRANDING;
- PROVIDE PERMANENT QWEST BRANDING DURING THE TERM OF THE AGREEMENT ON
THE FRONT PAGES OF SHOPNOW.COM (ANCHOR BRAND), BUYSOFTWARE.COM
(PERMANENT LINK) AND PERSONAL STORES (PERMANENT SPONSOR);
- PLACE "POWERED BY QWEST" LOGOS, ON ALL TECHWAVE PAGES THAT THEY
CONTROL, AND MAKE THEM ACTIVE HYPERLINKS TO THE QWEST COMMUNICATIONS
STORE;
OVERVIEW
The Qwest/TechWave agreement will provide for aggressive joint marketing and
website banner/button and offer advertising. In addition to advertising on
the TechWave sites, Qwest will receive impressions with TechWave's
advertising partners. Qwest will also receive prominent logo placement on
TechWave pages.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- TechWave and Qwest will develop a Service Level agreement regarding
advertising changes, as well as the related communication processes.
- Qwest will have prominent and permanent banner/button visibility on
the front pages of ShopNow/MyShopNow/BuySoftware websites (anchor
buttons).
- A "Powered by Qwest" logo will appear on each page next to the
TechWave logo. This logo will link to the QCC.
- The cost of external impressions is not funded by the Coop program as
are the other marketing vehicles.
- --------------------------------
[ * ]
- ------------------------------------------------------------------------------
Page 20
Revised: April 13, 1999
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
- Animated logos are discouraged on the TechWave site, however some
amount of animation on the anchor buttons is acceptable. [ * ]
- Qwest and TechWave will develop and determine the timing of a joint
press release (most likely when the site functionality is available).
QWEST RESPONSIBILITIES
- Qwest will be the exclusive carrier (as defined in the contract) in
the Telecommunications Category.
- Qwest will provide all necessary artwork and banner advertisements.
- Qwest will approve of all banner ads and Qwest branding as it related
to presentation of Qwest services and company logo.
- Qwest will supply keywords to TechWave for Product Search functions.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that signs
up with Qwest service. This e-mail will contain the TPV information so
the customer can call and verify their order in those states where
applicable.
- TechWave will maintain hyperlinks and ensuring the banner links to the
correct web pages.
- TechWave will place "Powered by Qwest" logos on all pages where they
main copy privileges.
- TechWave will place anchor banner/buttons for the QCC on the front
pages of ShopNow/MyShopNow/BuySoftware.
- TechWave will place Qwest as the top merchant in the communications
category.
- TechWave will send activity reports to Qwest results of each each ad..
- TechWave will test banner advertising on the front pages of its sites,
but if results suffer this method of advertising will be revisited
(note: these banner ads are not the permanent buttons/logos mentioned
above).
Below are examples of the co-branding components consistent with the general
and agreed upon co-branding and joint marketing approach.
[GRAPHIC]
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[GRAPHIC]
- ------------------------------------------------------------------------------
Page 22
Revised: April 13, 1999
<PAGE>
E-MAIL PROGRAMS
ELECTRONIC RECEIPT PROGRAM
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- AN "ELECTRONIC RECEIPT PROGRAM" WHEREBY IT WOULD SEND
CUSTOMERS WHO BUY PRODUCTS/SERVICES FROM ITS SITE, ELECTRONIC
CONFIRMATION OF THEIR TRANSACTION AND SUCH CONFIRMATION OR
"RECEIPT" WOULD CONTAIN A QWEST SERVICE OFFERING;
TECHWAVE WOULD ADDITIONALLY PROVIDE QWEST WITH THE FOLLOWING SERVICES, AND
BRANDING;
- SEND ELECTRONIC SALES CONFIRMATION TO CONSUMERS WHO WOULD SIGN UP
FOR QWEST SERVICE THROUGH THE TECHWAVE SITE;
OVERVIEW
The Electronic Receipt Program (E-Receipt) further strengthens the
Qwest/TechWave alliance by attaching a Qwest offer to each E-mail receipt
that goes out to recent purchasers as part of the TechWave Order Confirmation
process.
EXPOSURE
This offer is present on each e-mail confirmation receipt.
[ * ]
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave are responsible for offer creation and
maintenance.
- The hypertext link embedded in the E-Receipt would send the
customer to the QCC or to the offer/product page.
- There are minor restrictions on this program for certain TechWave
partners.
QWEST RESPONSIBILITIES
- Qwest will approve the copy presentation of the E-Receipt Program
as it relates to the Qwest offer.
TECHWAVE RESPONSIBILITIES
- TechWave will send a confirmation e-mail to each customer that
signs up with Qwest service. This e-mail will contain the TPV
information so the customer can call and verify their order in those
states where applicable.
- TechWave will attach a Qwest offer at the end of each E-mail
receipt that it sends to buyers on ShopNow/MyShopNow/BuySoftware
websites.
- TechWave is responsible for all e-mailing activities.
- TechWave is responsible for the technical implementation
of this program
- TechWave is responsible for ensuring the E Mail receipts
link to the correct section of the QCC or product/offer LOA page.
- --------------------------------------------------------------------------------
Page 23
Revised: April 13, 1999
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
- TechWave to identify any communication restrictions of Qwest offers
to certain merchant customers.
- TechWave will send activity reports to Qwest indicating how many
numbers are being driven back to the QCC/product page by the program,
and how many are completing an order form.
Below are examples of the E-mail receipt program consistent with the general
and agreed upon co-branding and joint marketing approach.
[Chart]
CONTINUED ON NEXT PAGE
- --------------------------------------------------------------------------------
Page 24
Revised: April 13, 1999
<PAGE>
[Chart]
- --------------------------------------------------------------------------------
Page 25
Revised: April 13, 1999
<PAGE>
ONLINE DIRECT MAIL PROGRAM
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- AN "ONLINE DIRECT MAIL" CAMPAIGN, WHEREBY IT WOULD, ON A MONTHLY
BASIS, SEND AN HTML E-MAIL TO ALL OF ITS CUSTOMERS (SHOPNOW.COM,
PERSONAL STORES AND TRY AND BUY SOFTWARE PROGRAM CUSTOMERS) PROMOTING
THE QWEST SERVICES AND AVAILABILITY OF THE SERVICES WITH THE INTENT TO
SOLICIT CUSTOMERS FOR QWEST;
OVERVIEW
The Online Direct Mail Program is a monthly e-mail touch of each TechWave
customer. The program reinforces the Qwest/TechWave alliance by trumpeting
the availability of Qwest services on TechWave websites. Each marketing offer
will be updated and will serve as a call to action to revisit the TechWave
shopping sites.
EXPOSURE
This offer is presented monthly to each customer in the TechWave database.
Currently TechWave has 1.2 Million customers who will participate initially
and will be ramping this program up.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- The hypertext link embedded in the monthly e-mail directs the
customer to the QCC to obtain the offer/product.
- Qwest and TechWave are responsible for offer creation and
maintenance.
- The physical appearance of the program is similar to the E-mail
receipt program.
- Qwest offers will appear with other offerings in the mailing (i.e.
the e-mail will not be a solo Qwest offer).
- There is a 7 day turnaround time to insert new offers (specific
copy changes). New product/page design may take longer.
QWEST RESPONSIBILITIES
- Qwest will approve the copy presentation of the Direct E-mail
program as it relates to the Qwest offer.
- At a future date, and to the extent that Qwest has the ability to
scrub data lists based on email addresses, Qwest and TechWave will
address the need the Qwest to scrub database lists to filter current
Qwest customers.
TECHWAVE RESPONSIBILITIES
- TechWave is responsible for the technical implementation of this
program and facilitating the e-mail delivery.
- TechWave is responsible for maintaining hyperlinks and ensuring
the E-mails link to the correct section of QCC.
- TechWave will send mailing reports to Qwest indicating program
performance.
- --------------------------------------------------------------------------------
Page 26
Revised: April 13, 1999
<PAGE>
OTHER CONSUMER PROGRAMS
QUANTUM CLUB PROGRAM
LOI LANGUAGE
- QWEST WOULD PROVIDE TECHWAVE WITH THE FOLLOWING SERVICES, AND BRANDING;
- QWEST WOULD WORK WITH TECHWAVE TO IDENTIFY QUANTUM CLUB OPPORTUNITIES
FOR THE CO-MARKETING OF TECHWAVE SERVICES AS A PREMIUM OFFER FOR
QWEST., QUANTUM CLUB MEMBERS, SUBJECT TO OTHER CONSIDERATIONS BY
BOTH PARTIES;
OVERVIEW
By creating joint marketing programs within the Qwest Quantum Club, both
TechWave and Qwest can enjoy and leverage retention aspects of the Quantum
club and related cross-related offers.
EXPOSURE
The majority of Quantum club members and TechWave customers would receive
information about any eventual joint marketing programs that utilize the
Quantum club reward system. Parameters around the exposure will be determined
by both parties after meetings with the Qwest Retention Team to define
possible programs.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will hold subsequent marketing meetings to
develop and explore co-marketing programs that take advantage of
the Quantum club system.
QWEST RESPONSIBILITIES
- Qwest will arrange a meeting to discuss the Quantum Club with
TechWave no more than 90 days after the launch of the Qwest/TechWave
programs.
TECHWAVE RESPONSIBILITIES
- TechWave will provide the initial "concepts" for integration of the
Quantum Club into the TechWave shopping environment.
INBOUND PROGRAM
LOI LANGUAGE
- NONE
OVERVIEW
Qwest and TechWave will create calling programs on inbound customer service
or informational calls. A Qwest offer upsell would be presented to TechWave
customers that call in to the TechWave service center.
- --------------------------------------------------------------------------------
Page 27
Revised: April 13, 1999
<PAGE>
EXPOSURE
The exact opportunity to attach Qwest offers to inbound calls is being
determined by TechWave.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave jointly develop the inbound call offer to
TechWave customers.
- Qwest and TechWave will have further discussions to develop the
operational aspects of the program since TechWave is using a 3rd
party call center.
QWEST RESPONSIBILITIES
- Qwest will provide any training that is required for the Inbound
program.
- Qwest will accept orders via the batch record system (GBUS) if
needed.
- Qwest will assist in writing and approving the inbound sales
scripts.
- Qwest will set up the TPV process for these sales.
TECHWAVE RESPONSIBILITIES
- TechWave will provide reporting to Qwest on program performance.
- TechWave will train all call centers.
- TechWave will ensure compliance with all FCC regulation regarding
telemarketing.
- --------------------------------------------------------------------------------
Page 28
Revised: April 13, 1999
<PAGE>
SOHO PROGRAMS
SOHO SURVEY PROGRAM - ONLINE
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- DEVELOP A SOHO CUSTOMER PROFILE AND SHARE ALL RELATED SOHO DATA
WITH QWEST ABOUT SOHO SHOPPERS WHO PURCHASE PRODUCTS THROUGH ITS
SITES, AS WELL AS CUSTOMER FEEDBACK AND DATA ON CUSTOMERS WHO BUY
QWEST BUSINESS SERVICES ONLINE;
OVERVIEW
SOHO is an emerging and important market, given the typical high spending
demographic. Qwest and TechWave will explore how best to market to these
customers via a survey program.
EXPOSURE
To be determined by TechWave.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will partner to gather SOHO data to better
understand how to market to and capture TAF/SOHO households.
- Qwest and TechWave will determine the profiling and survey
questions.
- Qwest and TechWave will determine the incentive for the SOHO
consumer to fill out the survey (e.g. free prepaid card).
QWEST RESPONSIBILITIES
- Qwest will be responsible for any offers needed, if applicable.
- Qwest will provide TechWave with SOHO demographic data and profiles
to help develop the survey program.
TECHWAVE RESPONSIBILITIES
- TechWave will be responsible for the technical implementation of
the program.
- TechWave will determine the placing of the survey to garner the
most positive and honest response.
- TechWave will recommend the operational and marketing plan for the
program.
- TechWave will communicate to Qwest the frequency of the survey (i.e.
how long it will run for).
- TechWave will share the results of the survey with Qwest.
- --------------------------------------------------------------------------------
Page 29
Revised: April 13, 1999
<PAGE>
SOHO TRADESHOW PROGRAM
LOI LANGUAGE
TECHWAVE WOULD CREATE AND MAINTAIN, WITHOUT LIMITATION, THE FOLLOWING
"MARKETING PROGRAMS";
- A NATIONAL TRADESHOW/SEMINAR CAMPAIGN ON E-COMMERCE FOR THE SOHO
MARKET PLACE WHERE QWEST WOULD BE THE FEATURED PROVIDER OF TELCO
SERVICES FOR THE SOHO MARKET PLACE AND QWEST WOULD HAVE THE OPTION
TO PARTICIPATE IN SUCH CAMPAIGN TO PROMOTE ITS SERVICES;
OVERVIEW
Qwest will have the opportunity to partner with TechWave to promote Qwest
technology and services as a simplified answer to the growing SOHO
marketplace. Qwest would be the featured communications company in such a
"road show."
EXPOSURE
To be determined by TechWave.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will jointly target and develop a plan to
participate in a SOHO tradeshow.
- Qwest and TechWave agree to set an exploratory meeting to develop
and determine a SOHO tradeshow program within 90 days of contract
signature.
QWEST RESPONSIBILITIES
- TBD
TECHWAVE RESPONSIBILITIES
- TBD
- --------------------------------------------------------------------------------
Page 30
Revised: April 13, 1999
<PAGE>
SOHO MERCHANT CENTER - ONLINE
LOI LANGUAGE
- NONE
OVERVIEW
Q.biz and SOHO products can be leveraged in the Merchant Center of the
ShopNow site. This page is directed at merchants and potential merchants
interested in expanding their e-commerce and SOHO relationship with TechWave.
EXPOSURE
To be determined by TechWave.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will work together to craft integrated SOHO offers
utilizing the Q.biz product.
- Both companies agree to meet and develop a plan for the merchant
center within 30 days of contract signature.
QWEST RESPONSIBILITIES
- Qwest will provide product information and demographics to assist
TechWave in the bundling of offers.
- Qwest is responsible for offer review and approval as it relates to
the presentation of Q.biz and Qwest services.
- Qwest will provide rate information and competitive information for
TechWave customer education and rate analysis.
- Qwest will handle all OE call backs to customers.
TECHWAVE RESPONSIBILITES
- TechWave will be responsible for the technical implementation of the
program.
- TechWave will determine the placing of the Q.biz product into the
Merchant center offerings.
- TechWave will provide reports to Qwest on the program performance.
- -------------------------------------------------------------------------------
Page 31
Revised: April 13, 1999
<PAGE>
DISTRIBUTOR PROGRAMS
DISTRIBUTOR PROGRAM - TECHWAVE SALES FORCE
LOI LANGUAGE
- DISTRIBUTOR - TECHWAVE ACTS AS THE SELLING AGENT AND COMPLETES THE END
TO END TRANSACTION...
OVERVIEW
TechWave will integrate Qwest business products such as IP products
(dedicated internet access, for example) and Q.guarantee into its product
portfolio, allowing the TechWave sales staff (Professional Services) to sell
complete communication solutions in addition to the TechWave services and
products. The targets for those products are those accounts with complex
business communication needs, and/or those accounts that generate greater
than [ * ] in billable revenue.
EXPOSURE
Qwest products will be exposed to new and exisitng TechWave accounts at
TechWave's discretion.
ROLES/RESPONSIBILITIES/PROGRAM ASPECTS
JOINT RESPONSIBILITIES/PROGRAM ASPECTS
- Qwest and TechWave will work together on larger, strategic accounts
where extra technical support is needed, or there are relationship
cross-over issues.
- TechWave will need a program coordinator to support the TechWave
sales staff.
QWEST RESPONSIBILITIES
- Qwest will provide all training and collateral support.
- Qwest will provide (via its Seattle sales office) technical and
account support, including e-mail Q&A, cost analysis coaching,
Q.partner website support (product presentations, subagent ID
assignment, special pricing requests, collateral ordering, etc.).
- Qwest will handle and track all orders and commissions.
- Qwest will provide TechWave a list of accounts that cannot be handled
by Qwest distributors.
- Qwest to provide list of top selling products to TechWave so that they
can focus on maximizing their initial sales potential.
TECHWAVE RESPONSIBILITIES
- TechWave will ensure that its entire sales staff is trained in the
Qwest business services.
- TechWave handled all order entry.
- TechWave will use the Qwest resources as their first line of support.
- -------------------------------------------------------------------------------
Page 32
Revised: April 13, 1999
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
- -- ADMINISTRATION PLAN
IMPLEMENTATION, CONTACTS, TEAM COORDINATION...
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTACTS
- -------------------------------------------------------------------------------
NAME COMPANY NUMBER ROLE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
John Trobough Qwest 303-992-1567 Sponsor
- -------------------------------------------------------------------------------
CHARLIE HERRIN QWEST 800-386-1230 PROGRAM MANAGEMENT
- -------------------------------------------------------------------------------
Jeff Grant Qwest 303-992-5142 Business Affinity Sponsor
- -------------------------------------------------------------------------------
Sandy Spencer Qwest 303-992-5164 Business Distributor Sponsor
- -------------------------------------------------------------------------------
Rick Miller Qwest 614-798-6473 Counsel
- -------------------------------------------------------------------------------
Scott Nicholls Qwest 703-363-4866 Regulatory Counsel
- -------------------------------------------------------------------------------
Othniel Palamino TechWave 888-223-1996 EVP, TechWave Sponsor
- -------------------------------------------------------------------------------
Alan Koslow TechWave 888-223-1996 EVP, Finance/Counsel
- -------------------------------------------------------------------------------
Peter Wenzel TechWave 888-223-1996 Counsel
- -------------------------------------------------------------------------------
BILL BASSETT TECHWAVE 888-223-1996 PROGRAM MANAGEMENT
- -------------------------------------------------------------------------------
Chris Noble TechWave 888-223-1996 Marketing
- -------------------------------------------------------------------------------
Joe Arcinega TechWave 888-223-1996 Operations
- -------------------------------------------------------------------------------
Val Sanford TechWave 888-223-1996 Merchant Services
- -------------------------------------------------------------------------------
Brian TechWave 888-223-1996 Professional Services
- -------------------------------------------------------------------------------
Dan Happ WGI 815-337-4404 Consultant
- -------------------------------------------------------------------------------
</TABLE>
TEAM COORDINATION/STRUCTURE
Both Qwest and TechWave will have dedicated account managers for the project.
They will be responsible for all issues on the account and ensuring that each
issue is addresed by the various business units. They will establish a
regular schedule of meetings.
CHANGE REQUEST PROCESS
The Qwest account manager will initiate any changes via the TechWave forms.
These are signed and faxed to TechWave. TechWave will e-mail a confirmation
receipt. There is a 7 day turnaround for minimal changes.
The TechWave account manager will review the request for feasibility and will
begin working with the necessary groups (engineering, marketing, etc.). The
change will be accepted or returned for further discussion. Once accepted, a
project plan will be sent to Qwest.
INDOCTRINATION
Qwest will provide TechWave with adequate industry materials and training to
shorten the "ramp time" for selling and marketing communication products
(e.g. Glossary). Qwest will also investigate whether TechWave could
participate in Qwest new employee training or similar derivatives to
understand the Qwest culture.
- -------------------------------------------------------------------------------
Page 33
Revised: April 13, 1999
<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>
SHOPNOW.COM INC.
DWAYNE M. WALKER EMPLOYMENT AGREEMENT
This Agreement is made by and between ShopNow.com Inc. (the "Company"),
and Dwayne M. Walker ("Executive") as of July 23, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive will continue to serve as
Chairman, President and Chief Executive Officer of the Company. Executive
will render such business and professional services in the performance of his
duties, consistent with Executive's position within the Company, as shall
reasonably be assigned to him by the Company's Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is
referred to herein as the "Employment Term."
(b) BOARD MEMBERSHIP. Executive will continue to serve as a
member and Chairman of the Company's Board of Directors (the "Board"),
subject to any required Board and/or stockholder approval.
(c) OBLIGATIONS. During the Employment Term, Executive will
devote his full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board (which approval will not
be unreasonably withheld); provided, however, that Executive may, without the
approval of the Board, serve in any capacity with any civic, educational or
charitable organization, or as a member of corporate Boards of Directors (but
in all cases subject to Section 10).
2. EMPLOYEE BENEFITS. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans that are applicable to other senior executives of the Company,
as such plans and terms may exist from time to time. The benefits available
to Executive may be greater than (but will not be less than) those provided
to the Company's other senior executives.
3. AT-WILL EMPLOYMENT. Executive and the Company agree that
Executive's employment with the Company constitutes "at-will" employment.
Executive and the Company acknowledge that this employment relationship may
be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the
Company or Executive.
<PAGE>
However, as described in this Agreement, Executive may be entitled to
severance benefits depending upon the circumstances of Executive's
termination of employment.
4. COMPENSATION.
(a) BASE SALARY. During the Employment Term, the Company will pay
Executive as compensation for his services a base salary at the annualized
rate of $400,000 (the "Base Salary"). The Base Salary will be paid through
payroll periods that are not less frequent than twice per month and be
subject to the usual, required withholding. The Compensation Committee of the
Board (the "Committee") will reevaluate the Base Salary at least annually and
may increase the Base Salary in accordance with its normal practices. The
Base Salary will not be reduced without Executive's consent.
(b) BONUSES. For each fiscal year of the Company, Executive will
be eligible to receive a bonus of up to $200,000 based upon the achievement
of performance criteria specified by the Committee. The actual amount of the
bonus payable for any year will depend upon the extent to which the
applicable performance criteria have been satisfied. Any bonus that actually
is earned will be paid no later than 2 1/2 months after the end of the fiscal
year for which the bonus is earned, but only if Executive was employed with
the Company through the end of the fiscal year.
(c) STOCK OPTIONS. As of the date of the Company's initial public
offering of common stock (the "IPO"), the Company will grant Executive an
option to purchase up to 500,000 shares of the Company's common stock
("Shares") at a per Share exercise price equal to the IPO price per Share.
During the second year of the Employment Term, the Company will grant
Executive an option or options to purchase up to an additional 500,000 Shares
at a per Share exercise price equal to the fair market value per Share on the
grant date(s) of the option(s). During the third year of the Employment Term,
the Company will grant Executive an option or options to purchase up to an
additional 500,000 Shares at a per Share exercise price equal to the fair
market value per Share on the grant date(s) of the option(s). Each grant will
be appropriately adjusted to reflect any stock splits, stock dividends or
similar change affecting the Shares. The grant of any option is subject to
Executive remaining an employee of the Company through the grant date. The
options to be granted during each of the second and third years of the
Employment Term generally will be granted in quarterly installments (that is,
an option for 125,000 Shares will be granted each quarter), unless determined
otherwise by the Committee. All options will be options that are not intended
to be "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each option may be exercised
by Executive only if it becomes vested in accordance with a two (2) year
vesting schedule providing for vesting of 25% of the Shares subject to the
option on each six-month anniversary of the grant date, except that Shares
actually will vest on any scheduled vesting date only if Executive's
employment with the Company is not terminated on or before the scheduled
vesting date. In addition, Shares may vest earlier than provided in the
preceding sentence (i) due to attainment of performance objectives set by the
Committee and set forth in the written option agreement, or (ii) as otherwise
provided in the option agreement to reflect the severance benefit provisions
of this Agreement. Also, to the extent not inconsistent with this
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<PAGE>
Agreement, each option will be subject to all of the provisions of the
Company's stock option plan and to the provisions of the Company's standard
stock option agreement for options granted under the plan, provided that the
exercise price, number of shares and maximum vesting schedule of each option
will be as stated in this Section 4(c). For purposes of this Section 4(c),
"fair market value" means the closing price of a Share on Nasdaq on the date
in question.
(d) CAR ALLOWANCE. During the Employment Term, the Company will
pay Executive a car allowance of $400 per month.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE, DEATH OR
DISABILITY. If the Company involuntarily terminates Executive's employment
with the Company without "Cause" (as defined below) and not on account of
either Executive becoming "Disabled" (as defined below) or Executive's death,
then promptly following such termination of employment, Executive will (i)
receive a lump-sum payment equal to 100% of the Base Salary, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
the Company's then existing employee benefit plans and policies, (iii) be
entitled to immediate 100% vesting of any stock options granted to Executive
pursuant to Section 4(c), (iv) be paid his then existing Base Salary for a
period of two (2) years following his termination of employment, (v) be
entitled to a loan of up to $2 million for the purpose of exercising his
Company stock options, and (vi) receive such other compensation or benefits
from the Company as may be required by law (for example, under Section 4980B
of the Code). All payments and benefits will be subject to applicable
withholding. Any such loan will be implemented by Executive signing a full
recourse promissory note concurrently with his exercise of stock options
within thirty (30) days after his termination of employment. Repayment of the
promissory will be secured by the Shares acquired upon exercise of the
associated options. The note and associated security agreement will be in a
form specified by the Company and delivered to Executive within fifteen (15)
days after his termination of employment. Although Executive will not be
required to pay interest on the loan, Executive will have taxable income due
to imputed interest at the minimum rate required under the Code. Repayment of
the principal on the note must be made no later than the earlier of two years
from the loan date or sixty (60) days from the sale or other disposition of
the Shares purchased with the note.
(b) VOLUNTARY TERMINATION FOR GOOD REASON. If Executive
voluntarily terminates his employment with the Company for "Good Reason" (as
defined below) then Executive will be entitled to the same payments and
benefits provided in Section 5(a) above (and subject to the same terms and
conditions provided in Section 5(a)).
(c) OTHER VOLUNTARY TERMINATIONS. If Executive voluntarily
terminates his employment with the Company within six (6) months after a
"Change of Control" (as defined below) then Executive will be entitled to the
same payments and benefits provided in Section 5(a) above (and subject to the
same terms and conditions provided in Section 5(a)). Except to the limited
extent
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<PAGE>
provided in the preceding sentence, if Executive voluntarily terminates his
employment with the Company without Good Reason, then Executive will (i)
receive the Base Salary through the date of termination of employment, (ii)
receive all accrued vacation, expense reimbursements and any other benefits
due to Executive through the date of termination of employment in accordance
with established Company plans and policies, (iii) be entitled to immediate
vesting of any stock options granted to Executive pursuant to Section 4(c)
that were scheduled to vest (only due to the passage of time) within six (6)
months after Executive's termination date (but only if Executive gave the
Board specific written notice of his voluntary termination date at least
ninety (90) days before such date), and (iv) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting
of stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for
example, under Section 4980B of the Code). All payments and benefits will be
subject to applicable withholding.
(d) INVOLUNTARY TERMINATION FOR CAUSE OR DEATH. If the Company
involuntarily terminates Executive's employment with the Company for Cause or
due to Executive's death, then Executive will (i) receive the Base Salary
through the date of termination of employment, (ii) receive all accrued
vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with established
Company plans and policies, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting
of stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for
example, under Section 4980B of the Code).
(e) INVOLUNTARY TERMINATION FOR DISABILITY. If the Company
involuntarily terminates Executive's employment with the Company due to
Executive becoming Disabled, then Executive will (i) receive the Base Salary
for a period of two (2) years following the date of termination of
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means intentional misconduct
that has a material adverse effect on the Company. Misconduct by Executive will
be considered Cause only if Executive has received written notice from the Board
of the misconduct and Executive has not cured the misconduct within fifteen (15)
business days of his receipt of the notice.
For purposes of this Agreement, "Disabled" means Executive being unable
to perform the principal functions of his duties due to a physical or mental
impairment, but only if such inability has lasted or is reasonably expected to
last for at least six months. Whether Executive is Disabled shall be determined
by the Committee based on evidence provided by one or more medical experts
selected by the Committee.
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<PAGE>
For purposes of this Agreement, "Good Reason" means (i) a material
reduction (without Executive's consent) in his title, authority, status, or
responsibilities, or (ii) a material breach by the Company of its obligations
under this Agreement.
For purposes of this Agreement, "Change of Control" means the
occurrence of any of the following events: (i) Any "person" as such term is used
in Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of
1934, as amended (the ("Exchange Act")) (other than the Company, Executive, a
group of persons including Executive or another person approved by Executive) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the Company's
then outstanding securities; or (ii) the occurrence of a transaction requiring
stockholder approval, involving the sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation (but only if Executive, acting in his capacity as a member of the
Board (and assuming that he is then a member of the Board), votes against such
transaction). For purposes of clause (ii) of the previous sentence, a
transaction that would not be considered a Change of Control solely because
Executive does not vote against the transaction nevertheless will be considered
a Change of Control if, before the Board votes on the transaction, Executive
notifies the Board in writing that he elects to treat the transaction as a
Change of Control.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not
by way of limitation, any accelerated vesting on stock options) (the "TOTAL
PAYMENTS") would subject Executive to the excise tax (the "Excise Tax")
imposed under Section 4999 of the Code, then the Company will pay Executive
(i) an amount sufficient to pay such excise tax, and (ii) an additional
amount sufficient to pay the excise tax and federal and state income taxes
arising from the payments made by the Company pursuant to this sentence;
provided, however, that in no event will the Company be required to pay the
Executive more than $2,000,000 pursuant to this Section 6(b). Any amount
required to paid to Executive under this Section 6(b) will be paid to him
(and/or paid to the appropriate authorities as tax withholding on Executive's
behalf) no later than five (5) days prior to the time when the excise and/or
income taxes are due. In addition, the Company will use its reasonable best
efforts to pay the amount to Executive or the appropriate authorities as
early as administratively practicable after the amount of the excise tax is
determined, but in no event will the Company be required to pay the amount
earlier than sixty (60) days before the excise tax is due. The determination
of Executive's excise tax liability and the amount, if any, required to be
paid under this Section 6(b) will be made in writing by the Company's
independent auditors (the "Accountants"). For purposes of making the
calculations required by this Section 6(b), the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Executive will
furnish to the Accountants such information and documents as the Accountants
may reasonably request in order to make a determination under this Section
8(b). The
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<PAGE>
Company will pay all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 6(b).
7. ASSIGNMENT. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such
successor of the Company will be deemed substituted for the Company under the
terms of this Agreement for all purposes. For this purpose, "successor" means
any person, firm, corporation or other business entity which at any time,
whether by purchase, merger or otherwise, directly or indirectly acquires all
or substantially all of the assets or business of the Company. None of the
rights of Executive to receive any form of compensation payable pursuant to
this Agreement may be assigned or transferred except by will or the laws of
descent and distribution. Any other attempted assignment, transfer,
conveyance or other disposition of Executive's right to compensation or other
benefits will be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent
by a well established commercial overnight service, or (iii) four (4) days
after being mailed by registered or certified mail, return receipt requested,
prepaid and addressed to the parties or their successors at the following
addresses, or at such other addresses as the parties may later designate in
writing:
If to the Company:
ShopNow.com Inc.
411 First Avenue South
Suite 200 North
Seattle, WA 98104
ATTN: Chairman, Compensation Committee of the Board of Directors
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending when
Executive ceases to be employed by the Company for any reason whatsoever,
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, director, member, consultant, agent, founder,
co-venturer or otherwise, will: (i) not engage, participate or invest in any
business activity anywhere
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<PAGE>
in the world which develops, manufactures or markets products or performs
services which are competitive with the products or services of the Company
at the time of Executive's termination, or products or services which the
Company has under development or which are the subject of active planning at
the time of Executive's termination; PROVIDED, HOWEVER, that Executive, may
own as a passive investor, securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 10% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users on behalf of any
business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement)
and establish customer relationships in good will, and agrees that such
restrictions are reasonable, necessary and appropriate for this purpose.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees
that to the extent permitted by law, any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof will be
settled by arbitration to be held in or about Seattle, Washington, in
accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the "Rules"). The
arbitrator may grant injunctions or other relief in such dispute or
controversy. The decision of the arbitrator will be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.
(b) The arbitrator will apply Washington law to the merits of any
dispute or claim, without reference to rules of conflict of law. Executive
hereby expressly consents to the personal jurisdiction of the state and
federal courts located in Washington for any action or proceeding arising
from or relating to this Agreement and/or relating to any arbitration in
which the parties are participants.
(c) The Company will pay the direct costs and expenses of the
arbitration. The Company and Executive each will separately pay its counsel
fees and expenses.
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<PAGE>
(d) The Company or Executive may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or
other interim or conservatory relief, as necessary to enforce the provisions
of the confidential information and trade secrets agreement between the
Company and Executive, without breach of this arbitration agreement and
without abridgement of the powers of the arbitrator.
(e) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(f) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION
THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES
A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION
OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF THE
STATE OF WASHINGTON; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
13. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
be changed or terminated only in writing (signed by Executive and the
Company).
14. WITHHOLDING. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.
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<PAGE>
15. GOVERNING LAW. This Agreement will be governed by the laws of the
State of Washington (with the exception of its conflict of laws provisions).
16. EFFECTIVE DATE. This Agreement is effective July 1, 1999.
17. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
EXECUTIVE
/s/ Dwayne M. Walker Date: July 23, 1999
------------------------------------
Dwayne M. Walker
SHOPNOW.COM INC.
/s/ David Lonsdale Date: July 23, 1999
------------------------------------
David Lonsdale
Chairman, Compensation Committee
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<PAGE>
[LOGO]
TERMS OF AGREEMENT
This to serve as the general Terms of Agreement regarding an integrated
e-commence and advertising business relationship between About.com, Inc., a
Delaware Corporation located at 220 East 42nd Street, New York, NY 10017 and
shopnow.com, located at 411 First Avenue South, Suite 200, Seattle, Washington
98104. About.com and shopnow.com agree to the following:
1. PROGRAM DESCRIPTION
A. shopnow.com will have a 116x31 button on the About.com Home Page
(See attachment A), which will link to a co-branded About Shopping
Channel page as described below in Paragraph 3.
B. shopnow.com will be the first shopping service link from all
ShopAbout content navigation links on About.com as shown in Attachment
B. shopnow.com to be the only third-party generalized aggregated
merchant directory shopping service link from all ShopAbout content
navigation links on About.com as shown in Attachment B. About.com
agrees to not wrap the horizontal line of links in ShopAbout.
ShopAbout shopping links are located above the fold on individual
GuideSite pages and top-level section pages. ShopNow shopping links
will deliver a minimum of [ ** ] impressions in each year of the
agreement. The [ ** ] minimum impressions shall be delivered
based on a monthly minimum of [ ** ] impressions.
C. shopnow.com will have a single tile (as shown in Attachment C) in
About.Com ShopCenter section in every channel across the About.com
network. In the About.com Shopping Channel only, shopnow.com will be
the first link in the ShopCenter Section and within the top-third of
all listings in all other ShopCenter channels across the About.com
network.
D. shopnow.com's ShopCenter tile will deliver a minimum of [ ** ]
impressions in each year of the agreement. shopnow.com and About.com
will work together to maximize the targeting and effectiveness of the
message delivered in the ShopCenter tile and all other advertising
locations. A list of the available sections for targeting is shown in
Attachment D. About.com shall include an in-queue 120X60 banner
button on the About Shopping channel GuideSite pages in either the top
or bottom position. The 120x60 banner buttons have no minimum
delivery but will be served to a maximum of [ ** ] of AboutShopping
channel page views.
E. About.com will deliver [ ** ] 468x60 pixel sized banners during
each year of this agreement with a minimum of [ ** ] per month.
These banners can be targeted to any of the individual About.com
sections as shown in Attachment D. The parties agree that shopnow.com
may at its discretion adjust the balance of the delivered impressions
described in paragraphs 1E by a factor of 10% while maintaining the
overall delivery guarantee of [ ** ]
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
** CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
[ ** ] impressions per year. The 468 banners cannot exceed [ ** ]
per year. About.com agrees that the 468 banners can be scheduled at
a rate of [ ** ] per month for the months of September 1999 through
December 1999, and [ ** ] per month for the eight other months of the
first year. Parties agree that 468x60 advertising impressions will be
run and targeted to maximize their effectiveness and that maximum
exposure in any/all targeted GuideSites and Channels will not exceed
[ ** ] of total available inventory.
2. EXCLUSIVITY: shopnow.com will be the exclusive third party generalized
aggregated merchant directory shopping service listed in the ShopAbout
navigation links section described in paragraph 1B above. Exclusivity
shall specifically include but not be limited to the third-party
generalized aggregated merchant directory shopping service sites of the
following: Imall, shopping.com, FreeShop.com, DigitalRiver, Xoom, TheGlobe,
Go2Net, InfoSpace, Excite shopping area, Lycos shopping area, Yahoo
shopping area, Microsoft shopping area, Looksmart, Inktomi or their
derivative aggregated merchant directory shopping service sites.
3. CO-BRANDED PAGE: This shopnow.com link as described in Sections 1A and 1B,
above will link to a co-branded page which will reside on About.com's
servers. This page, Attachment E, will include About.com editorial and
advertising space and shopnow.com's top-level directory structure in
approximate proportion as shown on Attachment E. All links to shopnow.com
content from this co-branded page will go to shopnow.com servers and
shopnow.com will retain all advertising impressions on these pages.
About.com may insert additional vendors to the shopnow.com directory during
the term of this agreement.
Both parties agree that the end user experience on their respective sites
and services is paramount to the goals and objectives of this agreement.
Towards that end, both parties agree to use their best efforts to maintain
their sites and services in a manner that exceeds industry standards.
4. CO-BRANDING ON ShopNow.com: To ensure continuity of the user experience,
shopnow.com agrees to display an About.com logo on all shopnow.com's pages
directly accessed by About.Com users coming from shopnow.com links/banners
described in paragraph 1 and 2 above. The About.com logo will link back to
the referring About.com URL.
5. SERVICE DESIGN: About.com reserves the right to redesign its service at any
time, including, but not limited to, the page layout, the presentation of
advertising units and advertisers throughout the service, with the goals of
improving both the user experience and advertising effectiveness; provided
however, that no redesign will be undertaken for the purpose of reducing
shopnow.com's exposure on About.Com pursuant to this agreement. shopnow.com
agrees not knowingly to employ any technology on its service that
effectively disables the Back button on the user's browser.
6. SUCCESSION: This agreement supersedes all prior advertising and e-commerce
agreements and obligations between the parties.
7. TERM: The term of this agreement is five years beginning July 1, 1999 and
extending through June 30, 2004. Following the first nine months of the
term, either party may serve notice of termination by providing written
notice of its intention to terminate 90 days prior to the intended date of
effective termination. Additionally, in the event that one of the parties
undergoes a change of control (where new third party owns more than 50% of
new equity), either party may terminate this agreement upon 120 days prior
written notice. Either party can terminate for cause with 15 days notice
(cause is defined as not delivering terms of this agreement and not
correcting problems with 15 days of notification).
** CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
8. REPORTING: About.com will provide weekly advertising impression reports
from its ad server, currently Doubleclick's DART. Such reports will be
delivered no later than 7 days from the end of each week.
9. CONFIDENTIALITY: The terms of the agreement between shopnow.com and
About.com are strictly confidential and not to be disclosed without prior
approval by the other party. However, either party may disclose terms to
bankers, financial partners, potential investors or as part of financial
due diligence or as required by statute.
10. ANNOUNCEMENTS: No later than July 10, 1999 About.com and ShopNow agrees to
do a PR announcement after the signing of this agreement by both parties
citing shopnow.com as a premiere shopping partner of About.com and stating
that ShopNow.com is the exclusive third party aggregated merchant directory
shopping partner on the About.com shopping channel. Both parties will
mutually approve the announcement of this agreement prior to its release.
Approval will cover the content of the announcement and the timing of its
release.
11. ADVERTISING GUIDELINES: shopnow.com agrees to About.com's Standard
Advertising Terms and Conditions which (see Attachment F) may change from
time to time at About.com's sole discretion.
12. TRADEMARK AND EXCLUSION: Nothing in this agreement gives either party
ownership rights in the other's operations, intellectual property or
trademarks.
13. INDEMNIFICATION: shopnow.com agrees to indemnify, defend and hold About.com
its successors, officers, directors and employees harmless from any and all
actions, cause of action, claims, demands, costs, liabilities, expenses
(including reasonable attorney's fees) and damages arising out of or in
connection with any claim relating to shopnow.com. About.com agrees to
indemnify, defend and hold shopnow.com, its successors, officers, directors
and employees harmless from any and all actions, cause of action, claims,
demands, costs, liabilities, expenses (including reasonable attorney's
fees) and damages arising out of or in connection with any claim relating
to About.com.
14. ASSIGNMENT: Neither party may assign this agreement without prior written
consent of the other party.
15. COST AND PAYMENT TERMS: The annual cost of this program to shopnow.com is
[ ** ] net per year billed monthly at the rate of [ ** ], shopnow.com
agrees to remit to About.com within 30 days of receipt of monthly invoices.
16. AUDITS: Each party may cause an audit to be made, at its expense, of the
applicable records of the other party in order to verify reports rendered
and payments made hereunder. Any such audits shall be conducted (other than
on a contingency fee basis), only by an independent and U.S. nationally
prominent certified public accountant (or other mutually approved
independent auditor) after reasonable prior written notice to the audited
party, and shall be conducted during regular business hours at the audited
party's offices and in such a manner as to unreasonably interfere with the
audited party's normal business activities. In no event shall an audit with
respect to any report commence later than eighteen (18) months from the
date of the report involved, nor shall audits be made hereunder more
frequently than twice annually, nor shall the records supporting any
reports be audited more than once. The results of any such audit shall be
subject to the confidentiality obligations set forth in Paragraph 8. In the
event that an audit hereunder shall have disclosed an undisputed
underpayment or overpayment, then the respective party shall immediately
pay to the other party the amount of such underpayment or overpayment,
whichever the case. If such underpayment or
** CONFIDENTIAL TREATMENT REQUESTED.
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overpayment is more than five percent (5%) of the amount owed to the
auditing party, then the other party shall reimburse the auditing party for
the reasonable direct, out-of-pocket costs actually paid by the auditing
party for such audit.
17. DEFAULT: either party may terminate this Agreement if the other party is in
default of any of the provisions in this Agreement and such default is not
cured within fifteen (15) days after written notice of the default is
received.
18. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between
the parties as to the matters set forth herein. No modification of this
Agreement shall be binding unless such modification shall be in writing and
signed by both parties. If any provision of this Agreement is ever
determined to be not enforceable, the remaining provisions shall remain in
full force and effect.
19. NOTICES: All notices shall be in writing, mailed by certified or registered
mail, return receipt requested, or by an overnight courier service that
provides a receipt, to the parties at the addresses set forth in the first
paragraph of this Agreement. Any party may change its notice address by
written notice to the other party. Copies of all notices given to About.com
shall be sent to About.com Inc. 220 East 42nd Street, 24th Floor, New York,
NY, Attention: General Counsel and Frankfurt, Garbus, Klein & Selz, P.C.,
488 Madison Avenue, 9th Floor, New York, NY 10022, Attention: Gavin D.
McElroy, Esq. Copies of all notices given to ShopNow shall be sent to:
21. JURISDICTION AND DISPUTES: This Agreement shall be governed in accordance
with the laws of the State of New York applicable to contracts made and to
be performed fully therein without giving effect to the conflicts of laws
principles thereof. All disputes under this Agreement shall be resolved
exclusively by the state or federal courts located in the New York or
mutually agreeable neutral state. Each party hereby consents to the
jurisdiction of such courts, agrees to accept service of process by mail,
and waives any jurisdictional or venue defenses otherwise available to it.
Agreed and Accepted
shopnow.com ABOUT.COM
Anne-Marie Savage Mr. Alan Wragg
Executive Vice-President President, Advertising Sales
E-commerce Services And E-Commerce
Sig: /s/ Anne-Marie Savage Sig: /s/ Alan Wragg
-------------------------------- --------------------------
Date: 7-7-99 Date: July 7, 1999
------------------------------- -------------------------
<PAGE>
AGREEMENT
This Agreement (this "Agreement") is entered into to be effective as of July
12, 1999 (the "Effective Date"), by and between ShopNow.com Inc., a
Washington corporation with a place of business at 411 First Avenue South,
Suite 200, Seattle, WA 98104 ("ShopNow.com"); and Chase Manhattan Capital,
L.P. ("CB"), with an address at 380 Madison Avenue, 12th Floor, New York, NY
10017 or with such other affiliate of CB to which this Agreement may be
assigned ("Chase").
WHEREAS, the parties desire to enter into a business arrangement as set forth
in this Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. In addition to capitalized terms defined elsewhere
herein, the following terms shall have the following meanings:
1.1 "Chase Consumers" means those consumers who initiate a
transaction after visiting a Chase Site (as defined herein) or use a Chase
credit or debit card, Chase eWallet or other Chase payment mechanism to
complete a purchase transaction, from the Chase Sites.
1.2 "Chase Marks" means the trade names, trademarks, logos,
service marks and product designations of Chase and its licensors.
1.3 "Chase Merchants" means those merchants introduced by
Chase to ShopNow.com, excluding ShopNow.com Merchants, that have completed
either (i) a listing agreement or (ii) agreement for other services with
ShopNow.com or that are otherwise identified as such by Chase.
1.4 "Chase Sites" means those sites that will be developed
by ShopNow.com at Chase's option pursuant to this Agreement, and that will
contain ShopNow.com's functionality and Chase's look and feel, and any other
website agreed to in writing by the parties.
1.5 "Cobranded Card" means a credit and/or debit card or
other payment mechanism bearing the names and/or logos of the parties hereto
on the face of the card or any other co-marketed card or payment mechanism
that may be developed pursuant to this Agreement.
1.6 "Content" means the graphics, text, pictures, and other
content provided by one party to the other party in connection with this
Agreement.
1.7 "Financial Services Company" means a company and its
affiliates that provides deposit, lending, investment, and securities
services and advice; provided, however, that when such term is used in
connection with any Chase Site, it shall include insurance services and
advice.
1.8 "Marks" means the trade marks, tradenames, service
marks, logos and product designations of Chase or ShopNow.com, individually
or collectively.
1.9 "Merchant Services" means the current or future services
offered by Chase to merchants, as accepted by ShopNow.com, and as provided in
EXHIBIT A as such shall be amended from time to time or as the parties shall
otherwise mutually agree.
1.10 "Preferred" means that the applicable goods or services
are marketed and given more exposure than identical goods or services of any
third parties (e.g., in an appropriate context, either
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
<PAGE>
the greatest exposure, the first opportunity to offer the product or service
(or right of first refusal), or preferred placement of the offer on any
ShopNow.com Site.
1.11 "ShopNow.com Consumers" means those individuals or
entities that have a MyShopNow.com personal store , or have otherwise
transacted business with ShopNow,or who have not visited a Chase Site
immediately prior to initiating a transaction.
1.12 "ShopNow.com Marks" means the trade names, trademarks,
logos, service marks and product designations of ShopNow.com and its
licensors.
1.13 "ShopNow.com Merchants" means those merchants listed on
the ShopNow.com Sites or who are customers of ShopNow.com and who were not
introduced to ShopNow.com by Chase.
1.14 "ShopNow.com Sites" means ShopNow.com, MyShopNow.com, or
GO Software Inc. websites, any ShopNow.com website that lists ShopNow.com
Merchants or provides ShopNow.com services and that is exclusively operated
and controlled by ShopNow.com, other than any Chase Sites, or any other
website agreed to in writing by the parties.
1.15 "Tax" or "Taxes" shall mean any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
franchise, capital, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, custom duty,
transfer, documentary or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, including any obligation to contribute to
the payment of a Tax determined upon a consolidated, combined or unitary
basis with respect to a group of corporations any information reporting or
back-up withholding obligation, liability or penalty, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental authority responsible for the imposition of any such tax.
2. SERVICES. The parties shall use commercially reasonable efforts to
perform the obligations set forth in EXHIBIT B.
3. MARKETING OBLIGATIONS. The parties shall use commercially
reasonable efforts to perform the marketing obligations set forth in EXHIBIT
C.
4. DEVELOPMENT OF THE COBRANDED CARD. The parties shall work together
to develop the Cobranded Card and accompanying products and services,
provided there is a sound business case for the Cobranded Card. Chase shall
not be under any obligation to launch a Cobranded Card, if in its sole and
absolute discretion, a sound business case for the product is not evident. As
soon as Chase decides that a sound business case for the product is not
evident, it shall inform ShopNow.com. ShopNow.com may create a co-branded
credit, debit or other payment card with a third party of its choice if: (i)
Chase informs ShopNow.com that a sound business case for the Cobranded Card
is not evident; (ii) Chase does not reach a decision that there is a sound
business case for the Cobranded Card within thirty (30) days of the Effective
Date; or (iii) if the Cobranded Card is not launched within one hundred
twenty (120) days of the Effective Date. In the event the Cobranded Card is
launched, ShopNow.com shall:
4.1 Make the Cobranded Card the Preferred and first card on
all check-out and on all purchase screens for the ShopNow.com Sites.
4.2 Endorse and actively promote on the ShopNow.com Sites,
on an exclusive basis, programs for the Cobranded Card that are marketed to
consumers in the U.S. Chase shall have the right
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of first refusal, on a country-by-country basis, to have new ShopNow.com
websites continue such endorsements and promotions as such websites are
developed on a country-specific basis.
4.3 Mutually determine with Chase the introductory pricing
(i.e., introductory rate, go-to rate, annual fee (if any) and the term of the
introductory rate (e.g. 3 months) during the Launch of the Co-branded Card.
For purposes hereof, Launch shall be deemed to mean the 3 or 6-month period,
whichever is deemed preferable, from the public announcement of the
introduction of the Cobranded Card.
4.4 Notwithstanding anything in this Agreement to the
contrary, receive from Chase, according to terms to be mutually agreed upon,
the names and contact information (including e-mail address) of those
consumers that apply to receive a Cobranded Card and that Chase elects not to
issue a Cobranded Card
4.5 DECLINED APPLICATIONS. ShopNow.com acknowledges and
agrees that, as between the parties, all information on application received
by Chase for the Co-branded card shall be deemed Chase's Confidential
Information. Chase and ShopNow.com shall mutually agree on the process to be
utilized for declinded applications for the Co-branded card. The parties
intend, however, that the process shall include the following:
a. Chase shall enter into good faith negotiations with another
financial institution with which it presently has an agreement
to sell declined applications ("Alternative Institution") in
order to create an online process to provide such Alternative
Institution with Chase's declined applications for the
Co-branded card.
b. The Alternative Institution will be authorized to charge
rates and fees higher than that offered by Chase for the Co-branded card in
order to solicit an application for alternative credit card ("Alternate Card"),
but Chase shall have the right to prohibit any rate and/or fee structure on
the Alternate Card that it determines to be so high as to be a concern from a
reputational risk standpoint to either Chase or ShopNow.com
c. The Alternative Institution will provide the same value
proposition on the Alternate Card to cardholders who accept its solicitation as
Chase and ShopNow.com will provide on the Co-branded card.
d. ShopNow.com and Chase shall mutually determine how to
provide appropriate licenses for use of ShopNow.com Marks by the Alternative
Institution.
e. The Alternative Institution shall not be permitted to use
the Chase Site or any ShopNow.com Site for soliciting declined applicants for
the Alternate Card. It will be authorized to e-mail solicitations directly to
declined applicants.
f. The parties shall mutually agree on the compensation to be
paid to each party (or from Chase to ShopNow.com) as a result of this process.
The parties intend to share, at a minimum, 50% each, of any payment made by the
Alternative Institution to Chase for each booked account for the Alternate
Card.
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5. MARKS, CONTENT AND LINKS.
5.1 BY ShopNow.com. ShopNow.com shall provide Chase with the
ShopNow.com Marks and ShopNow.com Content, in the format, resolution and size
and via the method agreed upon by the parties, including updates as
necessary, to enable Chase to perform its obligations under this Agreement.
ShopNow.com hereby grants to Chase a non-exclusive, royalty free, worldwide
license to use the ShopNow.com Marks and ShopNow.com Content to perform its
obligations under this Agreement. Chase's use of the ShopNow.com Marks shall
be in accordance with ShopNow.com's policies regarding trademark usage as
established from time to time by ShopNow.com at its discretion and
communicated to Chase. Chase understands and agrees that its use of the
ShopNow.com Marks in connection with this Agreement shall not create any
right, title or interest in or to the ShopNow.com Marks and that all such use
and goodwill associated with the ShopNow.com Marks will inure to the benefit
of ShopNow.com and its licensors. Chase shall not make use of the ShopNow.com
Marks except as specifically provided for in this Agreement or as authorized
in writing by ShopNow.com prior to such use.
5.2 BY CHASE. Chase shall provide ShopNow.com with the Chase
Marks and Chase Content, in the format, resolution and size and via the
method agreed upon by the parties, including updates as necessary, to enable
ShopNow.com to perform its obligations under this Agreement. Chase hereby
grants to ShopNow.com a non-exclusive license, royalty free, worldwide
license to use the Chase Marks and Chase Content to perform its obligations
under this Agreement. ShopNow.com's use of the Chase Marks shall be in
accordance with Chase's policies regarding trademark usage as established
from time to time by Chase at its discretion and communicated to ShopNow.com.
ShopNow.com understands and agrees that its use of the Chase Marks in
connection with this Agreement shall not create any right, title or interest
in or to such Marks and that all such use and goodwill associated with the
Chase Marks will inure to the benefit of Chase and its licensors.
ShopNow.com shall not make use of the Chase Marks except as specifically
provided for in this Agreement or as authorized in writing by Chase prior to
such use.
5.3 ShopNow.com TECHNOLOGY. Except for any software,
technology, know-how or other materials or information, tangible or
intangible ("Technology") which Chase may provide to ShopNow.com on such
terms as shall be mutually agreeable, as between the parties, ShopNow.com
shall retain all right, title and interest to any software, technology,
know-how, or other materials or information, tangible or intangible, used in
connection with performing its obligations under this Agreement
(collectively, the "ShopNow.com Technology"). As between the parties, Chase
shall retain all right, title and interest to any Technology provided by
Chase to ShopNow.com. To the extent necessary for Chase to utilize the Chase
Sites as contemplated hereunder, and so long as Chase is not in breach of its
obligations under this Agreement, ShopNow.com hereby grants Chase a
nonexclusive, nontransferable license to use the ShopNow.com Technology for
the term of this Agreement. Neither party shall decompile, reverse engineer,
or disassemble any Technology provided to it by the other party, or authorize
or encourage the same. This Agreement shall not be construed in any manner as
transferring to either party any rights of ownership in the other party's
Technology, and neither party shall make any claim contrary to the foregoing
5.4 NEW MATERIAL. All marketing and promotional materials
developed by one party ("Work Product") shall remain the exclusive property
of that party, and all marketing and promotional materials developed jointly
by the parties shall be co-owned, except for any of the other party's Marks
which may be contained therein. All marketing or promotional materials that
contain any of the other party's Marks shall be subject to the review and
written approval of the party owning such Marks prior to their use. Each
party reserves the right to revoke such use of its Marks at any time upon
reasonable prior
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written notice to the other party. Each party hereby grants to the other
party until the effective date of termination, or for such longer period as
is reasonably necessary to remove its Work Product from either the Sites or
marketing materials, a limited, nonexclusive license to use its Work Product
solely as necessary to perform such party's obligations hereunder.
5.5 LINKING. ShopNow.com acknowledges that Chase may
establish links from the Chase Sites to the ShopNow.com Sites. Chase
acknowledges that ShopNow.com may establish links from the ShopNow.com Sites
to the Chase Sites. In addition, links to such other websites as the parties
may agree upon shall be established pursuant to such terms and conditions as
the parties shall agree upon in writing.
6. FEES AND PAYMENTS.
6.1 FEES PAYABLE TO ShopNow.com. Chase will pay ShopNow.com
pursuant to the terms set forth in EXHIBIT D. Chase shall include with each
payment a report detailing the fee payable hereunder and how it was determined.
6.2 FEES PAYABLE TO CHASE. ShopNow.com will pay Chase
pursuant to the terms set forth in EXHIBIT D. ShopNow.com shall include with
each payment a report detailing the fee payable hereunder and how it was
determined.
6.3 RECORDS AND AUDITS. Each party (in such case the
"Audited Party") agrees to maintain books and records relating to this
Agreement in accordance with its normal business practices. Either party (in
such case the "Auditing Party") shall have the right to conduct, at its
expense and no more than twice per calendar year, an audit of such books and
records of the Audited Party pertaining to the terms and conditions of the
Agreement by an independent accounting firm in accordance with generally
accepted auditing standards during regular business hours upon at least ten
(10) business days' advance notice. Audits shall be for the sole purpose of
determining whether amounts payable have been properly calculated and paid.
In the event that such an audit reveals any underpayment to the Auditing
Party, the Audited Party shall immediately reimburse the Auditing Party for
all underpaid amounts. If the underpayment is greater than 5%, the Audited
Party shall pay the reasonable costs of that audit.
7 CONFIDENTIALITY.
7.1 Each party that receives any Confidential Information
("Recipient") from the disclosing party ("Owner") agrees that during the
existence of this Agreement and thereafter it will hold in strictest
confidence, and will not use or disclose to any third party, any Confidential
Information of the Owner. The term "Confidential Information" shall mean all
non-public information, whether business or technical in nature, that either
party, or such party's agents or affiliates, provides to the other party. If
either party has any questions as to what comprises Confidential Information
of the other party, it agrees to consult with such other party. Nothing in
this Section shall prohibit or limit Recipient's use of information if (i) at
the time of disclosure hereunder such information is generally available to
the public; (ii) after disclosure hereunder such information becomes
generally available to the public, except through breach of this Agreement by
Recipient; (iii) Recipient can demonstrate such information was in
Recipient's possession prior to the time of disclosure by the Owner and was
not acquired directly or indirectly from Owner or its affiliates; (iv) the
information becomes available to Recipient from a third party that is not
legally prohibited from disclosing such information, provided such
information was not acquired directly or indirectly from the Owner or its
affiliates; or (v) such information must be disclosed pursuant to applicable
federal, state or local law, regulation, court order or other legal process,
provided the Recipient has notified the Owner within a reasonable time prior
to such required disclosure and, to the
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extent reasonably possible, has given the Owner an opportunity to contest or
seek confidential treatment of such required disclosure.
7.2 Both parties agree that, during the term of this Agreement and
thereafter, Confidential Information will be used by each party solely in the
performance of its obligations pursuant to this Agreement. Each party will
receive Confidential Information in confidence and not disclose, give, sell,
or otherwise transfer or make available, directly or indirectly, any
Confidential Information to any third party, except as may be necessary to
perform its obligations pursuant to this Agreement, and except as may be
agreed upon in writing by the other party.
7.3 Upon request or upon the termination of this Agreement, each
party will return to the other party all Confidential Information in its
possession or control except information required to be retained for
records-retention purposes. Neither party will disclose, furnish, or use in
any way whatsoever, and will take measures to prevent its agents, employees
and subcontractors from so using, any Confidential Information to which it
becomes privy, except as may be necessary for that party to perform its
obligations pursuant to this Agreement, and for which the prior written
consent of the other party has been obtained.
8 SUBCONTRACTORS/AUDITORS
8.1 In the event that either party intends to utilize any
subcontractor (which term shall include any sub-subcontractor) or auditor to
furnish services in connection with the business relationship between the
parties hereto, such party shall ensure that, prior to the commencement of
work, such subcontractor executes a Confidentiality Agreement with
substantially the same terms and conditions as the Chase standard
Confidentiality Agreement attached hereto as Exhibit "G". Upon the request
of a party, the other party shall assist in enforcing the provisions of its
agreement with any such subcontractor. Each party shall remain primarily
responsible for the performance or nonperformance of any subcontractor.
9 REPRESENTATION AND WARRANTIES.
9.1 BY ShopNow.com. ShopNow.com represents and warrants that: (i)
the ShopNow.com Marks and ShopNow.com Content do not and will not infringe
any intellectual property or other right of any third party; (ii) it has all
right and authority to enter into this Agreement and to grant Chase the
rights granted herein; and (iii) it is permitted by applicable law and
regulations to enter into this Agreement.
9.2 ShopNow.com represents and warrants that, to the best of its
knowledge, all hardware, software and systems utilized by it or provided by
it to Chase pursuant hereto will record, sort, process, calculate and present
calendar dates falling on or after (and, if applicable, spans of time
including), January 1, 2000, in a substantially similar manner and with
substantially similar functionality as such hardware, software and systems
performed on or before December 31, 1999, provided that such hardware,
software and systems are used with accurate date data in accordance with
their documentation and any accompanying product manuals and provided that
all other products used with such hardware, software and systems properly
exchange date data. ShopNow.com shall use commercially reasonable best
efforts to assure that the hardware, software and systems will (i) have no
materially lesser functionality with respect to records containing dates
both, or either, before or after January 1, 2000 than heretofore with respect
to dates prior to January 1, 2000, and (ii) be interoperable with other
hardware, software and systems used by Chase which may deliver records to,
receive records from or otherwise interact with the hardware, software and
systems of Chase or any ShopNow.com Merchant.
9.3 ShopNow.com represents and warrants that no material, product or
other aspect of any Technology, trade secret or other intellectual property
utilized by ShopNow.com will infringe on or
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violate any patent, copyright, trade secret, trademark or other proprietary
right of any third party.
9.4 ShopNow.com represents and warrants that the performance of its
obligations pursuant to this Agreement is and will be in material compliance
with all applicable laws, rules and regulations.
9.5 ShopNow.com warrants that it shall upgrade the ShopNow.com Sites
and the Chase Sites with new ShopNow.com Technology within a reasonable time
after it is available and provided that such technology would have a material
impact on the ShopNow.com Sites and the Chase Sites. ShopNow.com shall
provide Chase thirty (30) days notice before the Chase Sites are to be
upgraded to provide Chase with the opportunity to (i) review each proposed
upgrade and (ii) have the option to decline the upgrade.
9.6 ShopNow.com warrants that it shall make the Chase corporate card
the exclusive travel and entertainment card for ShopNow.com employees
provided that such card provides similar or better terms than ShopNow.com's
current corporate card.
9.7 BY CHASE. Chase represents and warrants that: (i) the Chase Marks
and Chase Content do not and will not infringe any intellectual property or
other right of any third party; (ii) it has all right and authority to enter
into this Agreement and to grant ShopNow.com the rights granted herein; (iii) it
is permitted by applicable law and regulations to enter into this Agreement.
9.8 Chase represents and warrants that no material, product or other
aspect of any Technology, trade secret or other intellectual property utilized
by Chase will infringe on or violate any patent, copyright, trade secret,
trademark or other proprietary right of any third party.
9.9 Chase represents and warrants that the performance of its
obligations pursuant to this Agreement is and will be in material compliance
with all applicable laws, rules and regulations
9.10 LIMITATION OF WARRANTY. EXCEPT AS EXPRESSLY STATED HEREIN, THE
PARTIES MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
OR IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR
USAGE OF TRADE.
10 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL
DAMAGES, ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOST
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR COVER, EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT THAT MAY BE CONSTRUED
TO THE CONTRARY, OTHER THAN THE IMMEDIATELY FOLLOWING PROVISION IN THIS
SECTION, EITHER PARTY'S MAXIMUM LIABILITY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OTHER THAN AS PROVIDED IN THIS SECTION, SHALL BE LIMITED TO THE
TOTAL PAYMENTS MADE BY CHASE TO SHOPNOW.COM UNDER THIS AGREEMENT.
NOTWITHSTANDING THE FOREGOING, NO LIMITATION OF LIABILITY SHALL BE AVAILABLE
TO EITHER PARTY WITH RESPECT TO ANY CLAIM FOR BREACH OF SECTION 5.3 OR 7
HEREOF OR ANY THIRD PARTY CLAIM MADE WHICH ALLEGES, RELATES TO OR IS A RESULT
OF A CLAIM OF NEGLIGENCE, INTENTIONAL TORT, BREACH OF ANY REPRESENTATION OR
WARRANTY CONTAINED HEREIN OR ANY CLAIM OF
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INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL
PROPERTY RIGHT.
11 INDEMNIFICATION. Each party shall indemnify and hold harmless the other,
and its parent, affiliates, subsidiaries, directors, officers, employees and
agents, from and against any and all claims, demands, actions, suits, losses,
liabilities, damages, injuries, fines, penalties, costs and expenses
including, without limitation, reasonable attorneys' fees arising out of a
breach of any of its representations, warranties or covenants provided
herein, provided that the party claiming a right of indemnification promptly
notifies the other party (the "Indemnifying Party") in writing of the claim
and allows the Indemnifying Party to control the defense and all related
settlement negotiations.
12 TERM AND TERMINATION.
12.1 TERM. The initial term of this Agreement shall be twenty-seven (27)
months from the Effective Date ("Initial Term"). Thereafter, this Agreement may
be renewed, subject to the payment terms of Section 1 of EXHIBIT D, for an
additional term of three (3) years at Chase's option by giving ShopNow.com
written notice of its intent to renew at least ninety (90) days prior to the end
of the Initial Term.
12.2 TERMINATION FOR CAUSE. This Agreement may be terminated by a party
for cause immediately by written notice upon the occurrence of any of the
following events: (i) if the other ceases to do business, or otherwise
terminates its business operations; (ii) if the other shall fail to promptly
secure or renew any license, registration, permit, authorization or approval for
the conduct of its business in the manner contemplated by this Agreement or if
any such license, registration, permit, authorization or approval is revoked or
suspended and not reinstated within thirty (30) days; (iii) if the other
breaches any material provision of this Agreement and fails to fully cure such
breach within sixty (60) days (ten (10) days in the case of failure to pay) of
written notice describing the breach; (iv) if the other becomes insolvent, or
seeks protection under any bankruptcy, receivership, trust deed, creditor's
arrangement composition or comparable proceeding, or if any such proceeding is
instituted against the other and not dismissed within thirty (30) days; (v) by
Chase, if a bank regulatory agency having authority over Chase issues an order
or directive finding the services provided to Chase will cause Chase to be
subject to regulatory sanction unless such services are modified and ShopNow.com
fails to modify such services in accordance with such order or directive within
such period of time as permitted by such regulatory agency; (vi) if a transfer
of control of ShopNow.com to an entity that performs any of the services of a
Financial Services Company (as defined in Section 1.7); or (vii) if more than
50% of the members of the board of directors of ShopNow.com resign during any
6-month period. For the purposes of this subsection, a transfer of control
shall mean a transfer of 25% or more of the voting stock or assets of
ShopNow.com after the closing of the Chase investment in ShopNow.com.
12.3 EFFECT OF TERMINATION. Upon termination of this Agreement, each
party will cease to perform any of its services described herein. Each party
shall remit all fees accrued but unpaid as of the effective date of termination
to the other party within ninety (90) days of such termination. Upon
termination, each party will destroy or return to the other party any copies of
materials embodying or containing the other party's Marks or content. Chase
shall have a reasonable period of time, which shall not exceed six (6) months
after the termination of the Agreement, to remove the ShopNow.com Marks from
Co-branded cards, periodic statements and such other printed materials on which
they may appear. Termination by either party will not affect rights that have
already accrued hereunder prior to the effective date of termination. In the
event of a termination by Chase pursuant to Section 12.2, Chase shall have the
right to a pro-rata return of the license fee paid to ShopNow.com pursuant to
this Agreement. In
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addition, the provisions of Sections 1, 6.3, 7, 9, 10, 11, 26, and 29 will
survive if this Agreement is terminated for any reason whatsoever.
13 FORCE MAJEURE. Failure of either party to perform, if occasioned in
whole or in part by any act of God, act of governmental authority, or any
other occurrence, act or thing beyond the reasonable control of that party,
shall excuse that party from its obligation to perform when due and shall
suspend its performance until such time as its performance can reasonably be
undertaken, but in no event for more than ten (10) days. The applicable
party shall have no liability arising out of or in connection with such
failure provided that the party shall take all reasonable steps to prevent,
correct or remedy such failure which renders its obligations impossible.
14 ARBITRATION. This Agreement shall be governed by the laws of the State
of Washington without regard to its conflicts of laws rules, and shall not be
governed by the United Nations Convention on Contracts for the International
Sale of Goods, the application of which is hereby excluded. Any dispute or
controversy arising out of or relating to this Agreement which cannot be
amicably resolved by the parties shall be finally settled by arbitration in
accordance with the Commercial Arbitration Rules of the National Arbitration
Forum ("NAM"). Unless otherwise agreed by the parties, the arbitration panel
shall consist of one neutral arbitrator who has at least ten (10) years
experience in the computer software industry. The arbitrator shall have no
authority to grant punitive damages. The place of arbitration shall be New
York, NY if Chase is the respondent, and Seattle, WA if ShopNow.com is the
respondent. Each party shall be entitled to representation by counsel, to
appear and present written and oral evidence and argument and to
cross-examine witnesses presented by the other party. The arbitration award
shall be in writing and the arbitrator shall provide written reasons for the
award. The award of the arbitrator shall be final and binding on the parties
hereto and may be enforced in any court of competent jurisdiction. The
prevailing party shall be entitled to recover reasonable attorneys' fees and
other reasonable costs, including fees of the arbitrator and NAM, incurred in
the action or proceedings. Notwithstanding the foregoing, either party may
seek injunctive or other equitable relief from any court of competent
jurisdiction for any breach or threatened breach by the other of the
provisions of Sections 5 and 7.
15 ASSIGNMENT. Neither party shall assign this Agreement or any rights
hereunder without the prior written consent of the other party; provided,
that either party may assign this Agreement to an entity that succeeds by
operation of law to, or otherwise acquires substantially all of the stock or
assets of such party, or into which such party is merged, and that assumes
such party's obligations hereunder; provided, however, that, in such
instance, ShopNow.com may not assign this Agreement to an entity that
performs, directly or through an "affiliate", any of the services of a
Financial Services Company (as defined in Section 1.7) without Chase's prior
written consent. Chase may assign any of its rights and obligations hereunder
to any Chase "affiliates" ) upon prior written notice to ShopNow.com.
ShopNow.com acknowledges that Chase has notified it that upon execution of
this Agreement, Chase shall assign its rights and obligations hereunder to
Chase Manhattan Bank USA, National Association and ShopNow.com hereby
consents to such assignment. For purposes of this Agreement, an "affiliate"
of a party shall mean any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such party. For purposes of this definition, "control" means the power to
direct the management and policies of such party, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
16 INTERPRETATION. This Agreement is intended to be the parties' complete,
integrated expression of the terms of their agreement with respect to its
subject matters, and any prior agreements or understandings with respect to
such subject matters, including but not limited to that certain Letter of
Intent dated June 14, 1999, are superseded hereby and fully merged herein. No
waiver of any term or provision of this Agreement or right hereunder shall be
valid unless the waiver is in writing and signed
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by the waiving party. No waiver or failure to enforce any provision or right
hereunder shall be deemed to be a waiver of the same or any other provision
or right in any other instance. If any provision of this Agreement shall be
found to be unenforceable, the remainder of this Agreement shall not be
affected. Headings shall not be used in interpreting this Agreement.
17 NOTICES. All notices and demands hereunder shall be in writing and shall
be served by personal service or by registered or certified mail, return
receipt requested, or sent by a nationally recognized overnight delivery
service to the applicable party at its address set forth below (or at such
different address as may be designated by such party by written notice to the
other party). All notices and demands by mail shall be deemed complete upon
receipt.
If to Chase: The Chase Manhattan Bank
2 Chase Manhattan Plaza
New York, New York 10081
Attn: William van Wagner , Vice President
With a copy to: The Chase Manhattan Bank
100 Duffy Avenue
Hicksville, New York 11566
Attn: Robert Birnbaum, S.V.P. & Associate General
Counsel
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If to ShopNow.com: ShopNow.com
411 First Avenue South, Suite 200
Seattle, Washington 98104
Attn: Dwayne Walker, CEO & President
With a copy to: ShopNow.com
411 First Avenue South, Suite 200
Seattle, Washington 98104
Attn: Alan Koslow, E.V.P. & General Counsel
18 COUNTERPARTS AND FAXES. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement shall be
deemed to be an original.
19 CONSENTS. Unless explicitly stated to the contrary, when one party requires
any approval or consent from the other party pursuant to the terms of this
Agreement, such approval or consent shall not be unreasonably withheld or
delayed.
20 CUSTOMER SERVICE
20.1 ShopNow.com shall be responsible for responding to and resolving
all claims relating to ShopNow.com. Chase shall advise ShopNow.com of all
cardmembers receiving services who may have an inquiry or problem regarding
ShopNow.com and shall refer to ShopNow.com copies of all correspondence
and/or complaints by an attorney representing a cardmember receiving
services, an Attorney General's office, a regulatory agency or department or
a consumer protection agency. ShopNow.com shall provide Chase, within five
(5) business days of receipt of correspondence and/or complaints,
documentation and/or explanations necessary for Chase to respond to billing
error inquiries of cardmembers receiving Services.
20.2 Chase will promptly forward any and all complaints or inquiries it
receives concerning ShopNow.com's responsibilities under this Agreement. The
methods of transmittal of such inquiries will be determined by the required
response time of the inquiry, but in no event will it exceed five (5) business
days. If Chase desires to respond to any inquiry directly, it will promptly
notify ShopNow.com of its decision to respond. This response will be given to
ShopNow.com for review prior to it being sent.
20.3 ShopNow.com shall:
20.3.1 use its best efforts to respond in writing, to all
cardmembers inquiries, claims and complaints which require written
response within two (2) business days of receipt thereof;
20.3.2 without limiting the foregoing subsection, establish and
maintain a reasonable policy for resolution of all cardmembers inquiries,
claims and complaints within thirty (30) days of receipt thereof;
20.3.3 provide toll-free telephone numbers available seven (7)
days per week at the following hours:6:30 AM to 1:30 AM E.S.T or E.D.T and
will be reviewed semi-annually to determine if the foregoing hours need to
be changed.
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20.3.4 instruct its employees and agents who handle customer
service calls that are directed to a specific number established for Chase
customers to greet them by acknowledging that they are Chase customers.
(The parties anticipate that ShopNow.com shall be able to identify Chase
customers and deliver the appropriate greeting by third quarter 1999);
20.3.5 provided that it is given reasonable advance notice of
activities that are likely to materially increase typical call volumes,
answer at least eighty (80%) percent, and make commercially reasonable best
efforts to answer one hundred (100%) percent, of all customer telephone
calls within twenty (20) seconds by a service representative and/or
pre-recorded hold message and respond to all telephone calls placed on hold
in two (2) minutes or less; and use commercially reasonable best efforts to
maintain an abandonment rate of less than five (5%) percent of best efforts
of three (3%) percent of telephone calls received
20.3.6 maintain records with respect to all customer service
telephone calls and written inquiries, claims and complaints in reasonable
detail to enable verification of ShopNow.com's compliance with the
subsections above, and permit Chase, during all business hours and with
reasonable prior notice and no more often than once every six months, to
inspect such records including without limitation written inquiries, claims
and complaints, to verify ShopNow.com's compliance with the above
subsections; and
20.3.7 provide a sufficient number of customer service
representatives dedicated to handling cardmember inquiries.
20.4 ShopNow.com shall designate certain customer service managers to
interface with Chase's Customer Service Department to handle cardmember
inquiries. ShopNow.com shall furnish Chase with the names, addresses and
telephone numbers, as appropriate, of ShopNow.com personnel to assist Chase in
resolving inquiries.
20.5 ShopNow.com shall, consistent with its own record retention policy,
maintain files pertaining to inquires or complaints relating to the services
received from cardmembers and shall permit Chase to review such files upon
Chase's written request.
20.6 The parties will cooperate with and provide reasonable assistance
to each other, and/or their attorneys, with respect to such inquiries and/or
complaints which require responses. Such assistance will include providing
information and witnesses, when requested, and timely response, assistance
and cooperation with each other and/or their attorneys with respect to such
other reasonable requests and/or instructions related to this Agreement or to
cardmembers or to the services which are the subject matter of this Agreement.
20.7 Notwithstanding the foregoing, the parties do not intend to waive
any of their rights and/or obligations, as such may exist from time to time,
pursuant to the rules and regulations of VISA USA, Inc. or MasterCard
International Inc.
21 INSURANCE
ShopNow.com agrees to maintain insurance of the kinds and limits set forth
below, with companies acceptable to Chase:
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21.1 INSURANCE CARRIED BY ShopNow.com. ShopNow.com, within five (5)
business days after the execution of this Agreement or before commencing work
or permitting any subcontractor to commence work shall procure and maintain,
at its own expense, the following required insurance of the kinds and limits
enumerated hereunder, with companies reasonably acceptable to Chase. Should
ShopNow.com at any time neglect or refuse to provide the required insurance,
or should such insurance be canceled, Chase shall have the right to procure
such insurance and the cost thereof shall be deducted from monies then due or
thereafter to become due ShopNow.com. ShopNow.com may carry, at its own
expense, such additional insurance as it may deem necessary. ShopNow.com
shall not be deemed to be relieved of any responsibility by the fact that it
carries insurance.
REQUIRED INSURANCE. (a) Workers' Compensation and Employer's Liability
Insurance in accordance with the applicable laws of the State of Washington or
any other state in which the work is to be performed or of the state in which
ShopNow.com is obligated to pay compensation to employees engaged in the
performance of the work. The policy limit under Employer's Liability Insurance
section shall not be less than One Million Dollars ($1,000,000) for any one
accident; (b) Commercial General Liability Insurance covering the work, the
performance of the work and everything incidental thereto, with limits of not
less than Two Million Dollars ($2,000,000) per occurrence combined single limit
or in whatever higher amounts as may be required by Chase from time to time by
notice to ShopNow.com. This policy shall be extended to cover: (1) if any of
the work is subcontracted, INDEPENDENT CONTRACTORS LIABILITY providing coverage
in connection with such portion of the work which may be subcontracted, (2)
BROAD FORM PROPERTY DAMAGE LIABILITY AND (3) PERSONAL INJURY LIABILITY, (c)
Automobile Liability and Property Damage Insurance, including coverage on owned,
hired, and non-owned automobiles and other vehicles, if used in connection with
the performance of the work, with Bodily Injury and Property Damage limits of
not less than Two Million Dollars ($2,000,000) per occurrence combined single
limit; and (d)Errors and Omissions Insurance in the minimal amount of Two
Million Dollars ($2,000,000) per occurance.
"The Chase Manhattan Bank USA, National Association and any and all
subsidiaries as their interests may appear" shall be named as an Additional
Insured under the ShopNow.com's Commercial General Liability and Automobile
Public Liability and Property Damage Insurance coverage.
ShopNow.com's insurance shall be primary.
21.2 CERTIFICATES OF INSURANCE. ShopNow.com shall have its insurance
carrier or carriers certify to Chase that all insurance required is in force,
such certificates to stipulate that the insurance will not be canceled,
unrenewed or substantially changed without thirty (30) days' prior notice by
certified mail to Chase Manhattan Bank USA, National Association, 380 Madison
Avenue 12th Floor, New York, Ny 10017, Attn: Corporate Insurance. ShopNow.com
shall, on written request, permit Chase to examine original insurance policies.
21.3 NOTICE TO CHASE. ShopNow.com shall promptly advise Chase's
authorized representative of all damages to property of Chase or of others or
injuries incurred by persons other than employees of ShopNow.com (or any
subcontractor) in any manner relating either directly or indirectly, to the work
or services performed hereunder.
22 REGULATORY MATTERS
ShopNow.com shall notify Chase of any material claim or demand which is
communicated to ShopNow.com from any federal, state or local regulatory agency
("Agency"), regarding ShopNow.com's
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marketing, telemarketing, customer service, or fee billing activities
(provided such claim or demand is related to this Agreement) or any action
pertaining to the foregoing which is commenced against ShopNow.com by any
person or Agency and shall keep Chase apprised of the status and/or
disposition of all such claims, demands and litigation
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23 EQUAL EMPLOYMENT OPPORTUNITY
Unless inapplicable to ShopNow.com, ShopNow.com agrees to comply with U.S.
Department of Labor regulations regarding: (a) equal employment opportunity
obligations of government contractors and subcontractors, 41 C.F.R. sections
60-1.4(a)(1)-(7); (b) employment by government contractors of Vietnam era and
disabled veterans, 41 C.F.R. sections 60-250.4(a)-(m); (c) employment of the
physically handicapped by government contractors and subcontractors, 41 C.F.R.
sections 741.4(a)-(f); (d) developing written affirmative action programs, 41
C.F.R. sections 60-2.1, 60-250.5 and 60-741.5; (e) certifying to non-segregated
facilities, 41 C.F.R. section 60-1.8; (f) filing annual EEO-1 reports, 41 C.F.R.
section 60-1.7; and (g) utilizing minority-owned and female-owned business
concerns, 48 C.F.R. sections 52-219.9 and 52-219.12, all of which are
incorporated by reference herein
24 RELATIONSHIP OF THE PARTIES.
24.1 Nothing herein shall be construed to create a relationship of
employer and employee, joint venture, partnership or association between Chase
and ShopNow.com. Except as expressly provided herein, neither party shall have
the right to bind or obligate the other party in any manner without the prior
written consent of the other party.
25 NO THIRD PARTY BENEFICIARIES.
25.1 This Agreement shall not provide any person not a party to this
Agreement with any remedy, claim, liability, reimbursement, commission, cause of
action or other right in excess of those existing without reference to this
Agreement.
26 SURVIVAL.
26.1 Termination of this Agreement shall not terminate any obligation
with respect to any fees, costs or other amounts due and owing but unpaid to one
party from the other party. Notwithstanding termination of this Agreement,
either party may assert any rights it may have against the other party hereto
which arose or is claimed to have arisen by virtue of acts or omissions prior to
such termination for a period of one (1) year from termination of this
Agreement. The foregoing limitation shall not be applicable to any
indemnification claim made by one party against the other due to a third-party
claim made against a party hereto.
27 INFORMATION SECURITY COMPLIANCE PROCEDURES
27.1 ShopNow.com and any subcontractors shall comply with the information
security compliance procedures set forth in Exhibit E.
28 CHASE CUSTOMER INFORMATION PRINCIPLES AND ONLINE PRIVACY POLICY
28.1 ShopNow.com shall comply with Chase's Customer Information
Principles and Online Privacy Policy as set forth in Exhibit F as same may be
changed from time to time.
29 TAXES
29.1 ShopNow.com shall be responsible for the payment of all Taxes levied
or imposed on or with respect to direct sales of goods or services by
ShopNow.com or on other business activities of
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ShopNow.com in connection with this Agreement. Chase shall be responsible
for the payment of all Taxes levied on or with respect to direct sales of
goods or services by Chase or on other business activities of Chase in
connection with this Agreement.
30 DISASTER RECOVERY PLAN.
30.1 During the term of the agreement, ShopNow.com shall have a disaster
recovery plan ("Disaster Recovery Plan"). ShopNow.com shall provide Chase with
a written copy of the Disaster Recovery Plan on request. ShopNow.com reserves
the right to change the Disaster Recovery Plan from time to time without notice
to Chase unless the change is a material change affecting ShopNow.com's
performance under this Agreement; in which event ShopNow.com shall provide
notice to Chase. Any such change shall not degrade the quality of the disaster
recovery plan in a manner which may have a material, adverse impact on the
services provided hereunder.
31 SEVERABILITY.
31.1 If any provision of this Agreement is held invalid or unenforceable
for any reason, the invalidity shall not affect the validity of the remaining
provisions of this Agreement, and the parties shall substitute for the invalid
provisions a valid provision which most closely approximates the intent and
economic effect of the invalid provision.
32 ENTIRE AGREEMENT.
32.1 This Agreement, including Exhibits, sets forth all of the promises,
agreements, conditions and understandings between the parties respecting the
subject matter hereof and supersedes all negotiations, conversations,
discussions, correspondence, memorandums and agreements between the parties
concerning the subject matter. This Agreement may not be modified except by a
writing signed by authorized representatives of both parties to this Agreement.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
ShopNow.com Inc. Chase Manhattan Capital, L.P.
By: Chase Manhattan Capital Corporation
General Partner
By: /s/ Alan Koslow By: /s/ Jeffrey C. Walker
--------------------------------- --------------------------------
Print Name: Alan Koslow Print Name: Jeffrey C. Walker
------------------------- ------------------------
Title: EVP Finance/Investment Title: Chairman
------------------------------ -----------------------------
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EXHIBIT A
CHASE SERVICES TO MERCHANTS
Small Business Services
Chase Small Business Financial Services meets the financial services needs of
small businesses and professionals who generate less than $10MM in annual sales.
Financial services includes all services relating to deposit accounts (such as
checking, savings, money market and CDs), deposit maintenance and payment
services (such as on-line banking, bill payment, escrow, payroll processing, tax
payments, ACH transactions, debit cards and foreign exchange), credit accounts
(such as installment loans, lines of credit, credit cards and equipment
leasing), investment services (such as brokerage, mutual funds and retirement
planning), and business insurance (such as group life, key person life, property
and casualty, health and dental).
Middle Market Services:
Chase's Middle Market Group offers companies with annual revenue greater than 3
million dollars a wide range of services including credit, cash management and
treasury solutions, equipment leasing, corporate finance, international trade,
insurance, retirement planning and private banking services for the company's
owners and managers. Chase's Middle Market Group has specialist groups in
dozens of industries - from advertising to manufacturing and from sports and
entertainment to oil and gas.
CHASE MERCHANT SERVICES, L.L.C.
All services necessary to authorize, data capture, process, settle and reconcile
transactions effected with holders of Visa and MasterCard credit and debit cards
and the services necessary to authorize, data capture and process (and when
permitted by the applicable card sponsor, settle and reconcile) transactions
effected with holders of other credit and debit cards, including, without
limitation, American Express, Discover, JCB, Maestro, InterLink, Diners
Club/Carte Blanche, NYCE, MAC and other cards for which merchants need the types
of acquiring services described herein, but excluding private label cards.
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EXHIBIT B
SERVICES TO BE PROVIDED
1. Chase will be the exclusive Cobranded card (e.g., credit, debit, corporate,
small business) to be marketed on the ShopNow.com Sites.. Subject to the
provisions of Section 4 of the Agreement, Chase shall be the Preferred credit
card on all checkout and purchase screens. Nothing herein is intended to
prohibit ShopNow.com from accepting such credit cards or other payment
mechanisms as it deems necessary or appropriate.
2. At Chase's option and within 90 days of giving ShopNow.com all necessary
specifications and Content, ShopNow.com shall: (a) create a site dedicated to
Chase Consumers which will contain ShopNow.com's functionality and Chase's look
and feel. Such site shall include the ShopNow.com name, and shall be considered
a Chase Site (as defined in Section 1.4); and (b) develop for Chase a Chase Site
which will contain MyShopNow.com's functionality and Chase's look and feel. Such
site shall include the ShopNow.com name in a manner to be agreed upon and shall
be considered a Chase Site.
At no additional charge to ShopNow.com, Chase shall assist ShopNow.com in
developing the Chase Sites by providing adequate access to pre-identified key
Chase staff to assist ShopNow.com and by providing Chase Content. Chase will
provide ShopNow.com, without additional charge, such access, information and any
other assistance reasonably necessary to enable ShopNow.com to effectively
develop the Chase Sites.
3. Once a Chase Site is developed: (a) Chase shall have the right to link from
the Chase Site to Chase provided features (i.e., Chase financial services) which
are specific to Chase Consumers and Chase Merchants on the Chase Sites (subject
to Section 5(d) of this EXHIBIT B); (b) Chase may add products, services and
features of Chase Merchants that are not found on the ShopNow.com Sites. If
such products services or features are offered to any third party, Chase shall
offer the same to ShopNow.com on terms at least as favorable as offered to any
third party; (c) merchants on the ShopNow.com Sites will also be on the Chase
Sites; (d) each party will control 50% of the advertising space on the
particular Chase Site that is dedicated to Chase Consumers and neither party
will place ads competitive with the other party's services(each party retains
[ * ] of the advertising revenues that it receives from the space it controls on
the Chase Site); (e) Chase shall be the exclusive Financial Services Company on
the Chase Sites; (f) Chase shall be the exclusive eWallet on the Chase Sites;
(g) Chase shall have the right to decline or remove any advertising on the Chase
Sites that conflicts with any contractual commitment or other reasonable
business purpose; and (h) ShopNow.com shall have the right to decline or remove
any advertising on the ShopNow.com Sites that conflicts with any contractual
commitment or other reasonable business purpose.
4. ShopNow.com shall: (a) evaluate, within 60 days of its being received, a
proposal by Chase Merchant Services, L.L.C. to be the merchant acquirer for the
MyShopNow.com site, and ShopNow.com will choose Chase Merchant Services, L.L.C.
as the merchant acquirer for the MyShopNow.com site provided that ShopNow.com
will not incur any materially detrimental financial, business or operational
risk; (b) add the Chase brand to the ShopNow.com Sites in a manner to be
mutually agreed upon; (c) make Chase the exclusive Financial Services Company on
all ShopNow.com Sites provided however that (1) if Chase doesn't offer a
specific financial service, ShopNow.com may offer such financial service of
another company; or (2) ShopNow.com shall provide Chase the following right of
first refusal to match any offer for exclusive non-card financial services or
products that ShopNow.com receives from another
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company. Upon receipt of notice from ShopNow.com of such an offer, Chase
shall have 15 days to advise ShopNow.com of whether it intends to match such
offer and the parties shall finalize the specific transaction within 30 days
of Chase's receipt of the offer notice from ShopNow.com. If such transaction
is not finalized within such time frame, ShopNow.com may contract with such
other company. (d) make Chase the Preferred eWallet provider on all
ShopNow.com Sites; (e) make Chase the Preferred Financial Service Company
sponsor for any financial service center on all ShopNow.com Sites; (f) make
Chase the Preferred Financial Service Company sponsor for any small business
center on all ShopNow.com Sites; (g) make Chase the Preferred payment
processor on all ShopNow.com Sites; (h) make Chase the Preferred entity for
offering Merchant Services on all ShopNow.com Sites; (i) provide all Chase
Merchants who choose to list as merchants in a ShopNow.com Site with a 50%
discount on the applicable fee for listing in ShopNow.com, and ShopNow.com
may include other Chase Merchants in the ShopNow.com Sites in a manner
approved by Chase; and (k) provide Chase front and back-end technology and
provide service support from ShopNow.com for the ShopNow.com Sites, and Chase
Sites. ShopNow.com will install upgrades on these sites as they are made
commercially available and subject to the provisions of Section 9.5 of the
Agreement. All such technology and upgrades are ShopNow.com Technology and
are licensed to Chase pursuant to this Agreement.
5. Provided that ShopNow.com enters into a written agreement with Chase
Merchant Services, L.L.C., Chase shall: (a) provide ShopNow.com with
multi-currency credit card processing in no less than 40 currencies for
merchants signed up for transaction processing with Chase Merchant Services,
L.L.C. Merchants are required to be U.S.-based and fulfillment must be
completed in the U.S. When available, Chase will offer this service to
foreign-based merchants; (b) provide Merchant Services, Small Business Services
and Consumer Services; (c) provide ShopNow.com with opportunities to market
other Chase services and products as mutually agreed and subject to Chase's
right to be the exclusive provider of card services on all ShopNow.com Sites;
and (d) allow ShopNow.com to add to the ShopNow.com Sites, merchants' products,
services and features that are on the Chase Sites subject to any applicable
Chase contractual limitations. At Chase's request, certain products, services
and features will be made specifically available to Chase Consumers with a
revenue split to be mutually determined.
6. Both parties agree that: (a) except in those cases where a particular
merchant or consumer belongs to both parties, all solicitations to Chase
Merchants and Chase Consumers made by ShopNow.com must be approved by Chase, and
all solicitations to ShopNow.com Merchants and ShopNow.com Consumers made by
Chase must be approved by ShopNow.com; (b) the parties will mutually determine
the kinds and timing of management information reports to be delivered to Chase
(e.g., complaints received, late delivery of goods or services, dates and times
Sites are down, etc.); and (c) the parties shall discuss online approval of
credit card applications at a mutually agreed upon time.
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EXHIBIT C
MARKETING OBLIGATIONS
Each of the parties shall invest at least three million dollars ($3,000,000)
during each twelve (12) month period of this Agreement into marketing efforts in
furtherance of this Agreement . The parties shall mutually design and agree to
key performance measures ("KPMs") to measure the effectiveness of each year's
marketing activities in order to determine if future marketing expenses need to
be restructured.
1. The parties shall mutually agree on how the above marketing funds should be
expended, but it is intended that they will be spent in the following areas: (a)
Public Relations; (b) Advertisements; (c) Radio; (d) Television; (e) Direct
Mail; (f) Database Marketing; (g) Telemarketing; (h) customer, merchant and
marketing research ; (i) National merchant and consumer conferences and
seminars.
2. The parties agree to issue a joint press release at least once every six
months during the existence of this Agreement.
3. Chase shall perform marketing activities, including some or all of the
following: (a) target Chase Merchants and Chase Consumers in a mutually agreed
upon manner; (b) mail ShopNow.com offers to Chase Merchants; (c) telemarket
ShopNow.com offers to Chase Consumers and Chase Merchants; (d) include
ShopNow.com inserts in Chase statements; (e) link to and post preferential
listing of the Chase Sites from other sites owned or controlled by Chase; (f)
the parties shall discuss the relationship of Chase co-branded credit cards of
other parties (e.g., Toys-R-Us, Continental, Shell); and (g) provide ShopNow.com
with expertise in financial services and database marketing.
4. ShopNow.com shall perform marketing activities, including some or all of
the following: (a) place an advertisement on the home page of ShopNow.com that
shows Chase's sponsorship; (b) direct mail Chase Merchant Services offers to
ShopNow.com Merchants; (c) e-mail Chase Merchant Services offers to ShopNow.com
Merchants; (d) mention Chase Merchant Services in radio spots; (e) mention Chase
Merchant Services in print ads; (f) mention Chase Merchant Services in any
ShopNow.com Merchant newsletter; (g) recommend Chase cards (e.g., credit, debit,
Small Business, and Corporate cards) to ShopNow.com's professional services
clients; and (h) provide access to ShopNow.com's 24/7 Media relationship.
5. ShopNow.com agrees that Chase's name will appear in the following areas at
Chase's discretion upon giving reasonable advance notice to ShopNow.com: (a) at
least 50% of outbound e-mails; (b) ShopNow.com recommendation engine; (c)
ShopNow.com gift center; and (d) ShopNow.com greeting cards.
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EXHIBIT D
PAYMENT
1. PAYMENTS TO ShopNow.com. Chase shall make the following payments to
ShopNow.com: (a) a nonrefundable (subject to Section 12.3) payment of
[ * ] to ShopNow.com which represents licensing fees for the Initial Term;
(b) during months 28 through 39 of this Agreement, if applicable, Chase shall
pay a monthly licensing and site hosting fee of [ * ] to ShopNow.com by the
fifth (5th) day of each month; and (c) during months 40 through 63 of this
Agreement, if applicable, Chase shall pay a monthly licensing and site hosting
fee to be mutually determined, but in no event to exceed [ * ] to
ShopNow.com by the fifth (5th) day of each month.
2. REVENUE SHARING.
2.1 Chase shall keep [ * ] of the revenues from services provided by
Chase that are sold to Chase Merchants and Chase Consumers;
2.2 ShopNow.com shall keep [ * ] of the revenues from services provided
by ShopNow.com to ShopNow.com Merchants and ShopNow.com Consumers;
2.3 Chase will receive [ * ] of the gross revenues on all advertising
and merchandizing (e.g., merchant listings, preferred listings, featured
stores and premier listings) received by ShopNow.com from Chase Merchants as
previously introduced by Chase to ShopNow.com. ShopNow.com will receive [ * ]
of the gross revenues on all advertising and merchandizing received by Chase
from ShopNow.com Merchants as previously introduced by ShopNow.com to Chase.
The percentage of gross revenues to be paid will be reviewed semi-annually,
or more frequently if the parties deem necessary, to determine if such
percentage of revenue split should be adjusted so that a [ * ] gross margin
allocation is obtainable. In no event shall either party be obligated to
compensate the other pursuant to the calculation created hereunder if the
gross margin is determined to be a negative number;
2.4 Chase will receive [ * ] of the gross revenues on all transaction
fees received by ShopNow.com from MyShopNow.com Merchants when ShopNow.com,
as the merchant of record, sells goods or services to Chase Consumers or
Chase Merchants. The percentage of gross revenues to be paid will be reviewed
semi-annually to determine if such percentage of revenue split should be
adjusted so that a [ * ] gross margin allocation is obtainable. In no event
shall Chase be obligated to compensate ShopNow.com pursuant to the
calculation created hereunder if the gross margin is determined to be a
negative number;
2.5 When ShopNow.com is not the merchant of record, but receives
transaction fees as its revenues from the sale of a product/service,
ShopNow.com will pay Chase [ * ] of the gross transaction fee revenues
received by ShopNow.com for products/services sold to Chase Consumers. The
percentage of gross transaction fee revenues to be paid will be reviewed
semi-annually, or more frequently if the parties deem necessary, to determine
if such percentage of revenue split should be adjusted so that a [ * ] gross
margin allocation is obtainable. In no event shall Chase be obligated to
compensate ShopNow.com pursuant to the calculation created hereunder if the
gross margin is determined to be a negative number;
2.6 Chase will receive [ * ] of gross revenue from professional services
fees received by ShopNow.com for services rendered to Chase Merchants;
2.7 The parties will mutually determine revenue share on new products
and services sold by
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* CONFIDENTIAL TREATMENT REQUESTED.
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ShopNow.com to Chase Merchants and Chase Consumers;
2.8 ShopNow.com will receive an amount to be mutually determined on a
product by product basis when Chase sells its products or services to
ShopNow.com Merchants or ShopNow.com Consumers; and
2.9 Chase shall pay ShopNow.com [ * ] for each booked credit card
account originated from a ShopNow.com Site. Additionally, during the
existence of this Agreement, Chase shall pay ShopNow.com, on the applicable
account anniversary date, a renewal fee of [ * ] for so long as such credit
card account remains in existence; provided that such account has had at
least 10 purchase transactions in the prior year and purchasing privileges on
the account have not been terminated. No initial or renewal payment shall be
required if a credit card account is originated from a Chase Site unless the
credit card is a Cobranded credit card. All revenue and gross margin
calculations provided in this EXHIBIT D shall be calculated in accordance
with GAAP and as presented in ShopNow.com's financial statements and shall be
consistent with ShopNow.com's revenue recognition calculations contained in
its registration statement filed with the SEC on June 18, 1999.
3. PAYMENTS FOR TRAFFIC VOLUME.
The parties shall mutually agree on a reasonable method for tracking and
measuring the amount of visitors per month that Chase drives to an individual
Chase Site or an individual ShopNow.com Site. During any calendar month when
the number of such visitors to an individual site referenced above equals or
exceeds 500,000, Chase will receive an incremental percentage increase of
ShopNow.com's gross advertising revenues from that site for such month as
follows:
<TABLE>
<CAPTION>
Chase Visitors to an Chase's incremental percentage increase of such month's ShopNow.com
individual site/month gross advertising revenues from the individual ShopNow.com Site or the
individual Chase Site (as applicable)
<S> <C>
500,000 - 1,000,000
1,000,001 - 3,000,000 [ * ]
3,000,001 or more
</TABLE>
THE ABOVE REVENUE SHARING AND TRAFFIC VOLUME PAYMENTS SHALL BE CALCULATED BY THE
PARTIES MONTHLY AND SHALL BE PAID BY EACH PARTY TO THE OTHER BY THE END OF THE
FOLLOWING MONTH.
* CONFIDENTIAL TREATMENT REQUESTED.
EXHIBIT E
INFORMATION SECURITY COMPLIANCE PROCEDURES
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To the extent any of the following materially affect its responsibilities under
the Agreement, ShopNow.com shall be responsible for maintaining in effect at
least the following security procedures:
1. Development, testing and maintenance of emergency plans, including off-site
storage facilities.
2. Development, testing and maintenance of business recovery plans.
3. Supervision and coordination of business recovery testing activities.
4. Development, testing and maintenance of post-disaster resumption
procedures.
5. For each computer system or data center facility or telecommunications
network facility, development and maintenance of:
5.1 physical access controls which restrict entry to the facility;
5.2 fire controls which provide:
5.2.1 automatic detection;
5.2.2 fire department notification; and
5.2.3 automatic or manual suppression.
5.3 water controls which provide:
5.3.1 automatic leak detection; and
5.3.2 drainage.
5.4 emergency lighting;
5.5 environmental controls which permit:
5.5.1 control power disconnection;
5.5.2 power conditioning for critical processing equipment
5.5.3 uninterrupted power during power irregularities and outages
5.5.4 dedicated air conditioning, and
5.5.5 monitoring of air temperature and humidity levels.
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6 Development and maintenance of a system of logical access control process
procedures for data management.
6.1 Logical access control process is a process which identifies each user
having access to data; verifies the identity of each user; restricts access
to information processing resources as appropriate; monitors the activity
through audit trails and access violation logs; prevents unauthorized
disclosure and unauthorized modification of data files; and is certified on
an annual basis.
6.2 Must monitor logical access activity by:
6.2.1 Maintaining a dedicated file (an Access Activity File) to
record all user activity by maintaining a record of all user sign-on
and sign-off activity;
6.2.2 For high risk systems, record the identity of the
individual, date and time of change, and the before and after image of
the record being modified;
6.2.3 Being retrievable for investigatory purposes; and
6.2.4 Not contain passwords
6.3 Must maintain an Access Violations Log which shall record all
violations of data user authorizations and all unsuccessful log-on
attempts.
6.3.1 The log is to be reviewed every day and the review shall be
evidenced on the log by a signature or other indication.
6.3.2 The log shall not contain passwords
6.4 Must report unusual, excessive or suspicious unauthorized access
attempts by a data user, and unsuccessful log-on attempt to the designated
Chase officer.
6.5 Must limit access to Chase or Chase customer information which is
critical or sensitive data or property, including, but not limited to
embossed or unembossed credit or debit cards ("Primary Information") to
those employees, agents or ShopNow.com's having a strict need to know, only
after having informed them of the restrictions on the use or disclosure of
such information.
6.5.1 Must maintain a procedure to prevent unauthorized access and
unauthorized modification of data files by:
6.5.1.1 Reviewing on a quarterly basis, access
authorization to files containing Primary Information, and
updating as necessary;
6.5.1.2 Storing passwords in the computer's authorization
tables in a one-way encrypted state (e.g., non-reversible
(access privilege to password files shall be extremely
limited with stringent audit trail review);
6.5.1.3 Providing a high degree of access control to user
authorization tables (access privilege to user authorization
tables shall be extremely limited with stringent audit trail
review); and
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6.5.1.4 a high degree of access control to access activity
files and violation by files.
6.5.2 Passwords should be constructed as follows:
6.5.2.1 Be a minimum of six characters in length;
6.5.2.2 Be composed of alphabetic and numeric or symbolic
characters; and
6.5.2.3 Not be composed so that they can be easily
guessed.
6.5.2.4 Not contain more than two consecutive repeating
characters.
6.5.3 Passwords shall expire after ninety (90) days, and shall not
be changed to a former value for one year.
6.5.4 Three (3) unsuccessful log-on attempts must disable the
password for that user.
7 With respect to vital information and vital records (defined below), must
develop and maintain the controls set forth in items 7. c. - 7. d. below:
7.1 Vital information is any Chase information which is necessary for the
performance of contracted business functions.
7.2 Vital records is a copy of the vital information to be used in a
disaster.
7.3 Have the ability to relocate the vital information and records to an
off-premises location as soon as possible, but never exceeding three (3)
business days after their creation:
7.3.1 Such location shall be certified by Chase as being in
compliance with these policies and procedures, that proper
environmental controls are in place, and that the storage site and the
site containing the vital information are not exposed to a single
common threat occurrence.
7.3.2 Such location shall be physically separate from the building
containing the original information. Except as stipulated in local
fire codes, buildings which have adjoining walls or a common physical
connector are not considered separate structures.
7.3.3 Such location shall have the following controls:
7.3.3.1 Access to the off-premises location shall be
controlled, according to documented procedures so that only
authorized personnel enter.
7.3.3.2 Temperature and humidity controls shall be
provided consistent with the needs of the media stored
within.
7.3.3.3 Automatic fire detection capability shall be
provided by heat or smoke detectors which are audible at a
location which is continuously manned.
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7.3.3.4 Automatic or manual fire suppression capabilities
shall be provided.
7.3.4 The off-premises location shall be accessible for emergency
retrieval of the vital information or records consistent with the
recovery requirements outlined in the business recovery plan.
7.4 Certifications shall be made to Chase, upon Chase's request, to
confirm that
7.4.1 Vital information has been properly identified (i.e.
all information necessary for business recovery has been
identified);
7.4.2 There are adequate back-up and off-premises storage
cycles;
7.4.3 That access to the off-premises location is adequate
for business recovery;
7.4.4 That emergency retrieval of Vital Records is
adequately demonstrated as part of periodic business
recovery testing; and
7.4.5 That access to Vital Records is only allowed for
emergency, recovery testing and rotational purposes.
8. Provide Chase, upon Chase's request, with access to all third party
non-financial audit reports and internal audit reports during the term of the
Agreement.
9 Allow Chase to audit and perform periodic on-site reviews upon reasonable
advance notice and no more often than every six months, or, at Chase's option,
provide Chase with a third party review completed within the past year within
thirty days of written request.
9.1 Allow any regulatory body to which Chase is subject to perform a
review as may be permitted or required by law.
10. Notify Chase of any material change affecting the availability,
confidentiality or integrity of services provided.
11. All services will be performed pursuant to a written agreement, and all
controls and procedures required hereunder are subject to Chase's review and
reasonable approval.
12. Have such physical access rights as Chase shall from time to time
reasonably require.
13. ShopNow.com agrees to secure the following data in a manner reasonably
acceptable to Chase using Chase customer information, name, social security
number, account number, date of birth and street address.
14. Adopt, test and implement security controls with respect to a change
control procedure which ensures that all moves between the test and production
environments been authorized. No changes to a system may be initiated unless
they have been requested in writing by the appropriate senior level of
management.
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15. Adopt, implement and maintain a virus prevention strategy and virus
scanning software to maintain the integrity of the system and data files
contained therein, including, but not limited to:
15.1 All software and blank diskettes shall be tested for viruses.
15.2 All software and blank diskettes shall be tested for viruses on a
non-primary machine.
15.3 Write protect and store the diskettes in a secure location.
15.4 All PC's shall be tested at regular intervals for viruses.
15.5 All PC's used to display or replicate software must be scanned for
virus infection prior to every deployment/replication session.
15.6 PC software sent to a third party for duplication should be spot
checked.
15.7 Cause maintenance company to adhere to ShopNow.com's virus prevention
strategy and use of virus scanning software prior to the performance of
maintenance.
16 Access by Regulatory Authorities
16.1 ShopNow.com agrees that any regulatory agency with supervisory
responsibility for Chase shall, upon reasonable advance notice, have the right
to examine all records and materials, use the equipment and interview those
employees of ShopNow.com to the extent that such officials deem necessary to
protect the interest of depositors, creditors or stockholders of Chase or as
otherwise permitted under applicable law, rule or regulation.
17. Reports and On-Site Review
17.1 Within thirty (30) days of ShopNow.com's execution and delivery of
this Agreement and annually thereafter during the term of this Agreement,
ShopNow.com shall, upon Chase's request, deliver the following to Chase:
17.1.1 A report by an independent third party audit firm that
describes ShopNow.com control policies and procedures that have been
initiated and function currently at ShopNow.com. These reports must
contain statements on the operating effectiveness of those policies
and procedures for Chase transactions. The requirements of this
section will be satisfied by a Type II SAS 70 Report, as described in
the then-current Statement of Auditing Standard 70 of the American
Institute of Certified Public Accountants, unless otherwise specified
by Chase within 60 days after receiving such a report.
17.1.2 An annual financial statement of ShopNow.com including a
balance sheet, statement of changes in working capital, audited by
independent public accountants reasonably acceptable to Chase.
17.2 During the term of this Agreement, ShopNow.com also shall allow Chase
or external auditors on Chase's behalf to perform periodic on-site reviews
of ShopNow.com's site as Chase deems appropriate provided that such reviews
shall occur upon reasonable advance notice and no more often than every six
months. At Chase's option ShopNow.com may submit evidence of a third party
review, completed within the last year, that addresses the scope and
control objectives
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related to transactions processed for Chase. In addition, annually during
the term of this Agreement ShopNow.com shall allow Chase to access
independent third party non-financial reports, and, if available, internal
audit reports to ShopNow.com.
18 Compliance
18.1 During the term of this Agreement, ShopNow.com shall at all times
substantially comply with all reasonable Chase Information/Technology
Control Policies then in effect (a) that are applicable to ShopNow.com's
obligations under this Agreement and (b) of which ShopNow.com is informed.
18.2 Upon Chase's request, a description of how ShopNow.com shall comply
with such policies shall be attached hereto and made a part of this
Agreement.
18.2.1 If (as a result of an on-site review or audit performed in
accordance with Section 17 above or otherwise) Chase reasonably
determines that ShopNow.com is not materially complying with Chase's
Information/Technology Control Policies as required by this Section
18, ShopNow.com shall at its own expense take steps specified by Chase
to correct such non-compliance within a reasonable time period.
Notwithstanding any contrary provision herein, if ShopNow.com fails to
take such steps in a timely manner, Chase shall be permitted to
terminate this Agreement on 30 calendar days notice and ShopNow.com's
failure to cure within that time.
19 Changes in Services
19.1 ShopNow.com shall notify Chase immediately of any organization,
security-related or other changes that materially affect the ability of
ShopNow.com to perform its obligations under this Agreement, including but
not limited to ShopNow.com's ability to comply with Chase's
Information/Technology Control Policies.
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EXHIBIT F
CHASE CUSTOMER INFORMATION POLICIES AND ONLINE PRIVACY POLICIES
CUSTOMER INFORMATION PRINCIPLES
RETAIL BANKING
At Chase, we strive to make life easier for our customers.
1. One way that we do this is by using customer information to provide our
customers with superior service and convenient access to the right products and
services. We also recognize that our customers have important expectations
regarding the use of that information.
2. Safeguarding customer information is a matter that we take seriously. That
is why we at Chase have set forth the following principles to affirm our
long-standing commitment to confidentiality:
2.1 We share information regarding customers among our banks and
affiliated companies only in accordance with strict internal security
standards and confidentiality policies and with applicable law.
2.2 We hold our employees fully accountable for adhering to those
standards, policies and laws.
2.3 We do not share information about our customers with other companies
except in order to conduct our business, comply with applicable law,
protect against fraud or make available special offers of products and
services that we feel may be of interest to our customers. We may also
provide information to regulatory authorities and law enforcement officials
in accordance with applicable law.
2.4 We have established high standards for protecting information
regarding our customers from unauthorized alteration or destruction.
2.5 We investigate customer inquiries regarding information received from
Chase (or from a credit bureau reflecting information provided by Chase)
that the customer believes to be inaccurate and we take steps to correct
information we determine to be incorrect. Customers should notify us if
they receive information regarding their Chase relationship that they
believe to be inaccurate.
3 At Chase, information regarding our customers is used solely in the
legitimate conduct of our business, to deliver superior service and to design
products and special offers that demonstrate our understanding of our customers
and their needs.
4 As we move forward in developing new products and services in an era of
vast technological change, we will continue to maintain our dedication to
assuring that customer information is properly used and appropriately
safeguarded.
November 1997
***
THESE PRINCIPLES ARE CURRENTLY APPLICABLE TO CHASE BANKS AND AFFILIATES IN THE
CONDUCT OF THEIR CONSUMER BUSINESSES IN THE UNITED STATES.
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THIS IS THE WEBSITE OF THE CHASE MANHATTAN CORPORATION AND ITS SUBSIDIARIES
5 CHASE ONLINE CONSUMER INFORMATION PRACTICES
5.1 We at Chase understand and appreciate that our Website visitors are
concerned about their privacy and about the confidentiality and security of
information we may obtain about them online. We want you to understand the
steps we have taken to safeguard the information we receive online about
visitors who access or interact with our Website.
5.2 Our CUSTOMER INFORMATION PRINCIPLES, which describe how we safeguard,
maintain and use information we obtain about our customers in the normal
course of our business, also apply to the information we obtain online
about our Website visitors. This document, Chase Online Consumer
Information Practices, describes the methods we use to collect and protect
information which are unique to the Internet.
LISTED BELOW ARE THE TOPICS ADDRESSED BY THIS DOCUMENT WITH A BRIEF EXPLANATION.
YOU MAY CLICK ON EACH TOPIC TO OBTAIN THE COMPLETE TEXT OF THE CONTROLS AND
PRACTICES RELATED TO THIS TOPIC.
6 COLLECTION OF INFORMATION ONLINE
6.1 We want to assure you that you can visit the Chase Website without
identifying yourself or giving us any information about yourself. We will
not obtain information that identifies you personally unless you
specifically choose to provide such information to us.
6.2 INFORMATION WE OBTAIN FROM VISITOR BROWSING AND VIA COOKIES
6.2.1 Describes our usage of "cookie" technology, what information
can be obtained by its usage and how consumers may be alerted to their
presence when they are Online.
6.3 IDENTIFYING INFORMATION YOU CHOOSE TO PROVIDE
6.3.1 Describes the various situations you may provide us with
information about yourself on our various web pages, our related
controls and safeguards and how we may utilize this information.
6.4 SECURITY OF INFORMATION TRANSMISSIONS
6.4.1 Describes the security methods we employ in the transmission
of information to our website.
6.5 ACCESS TO YOUR ACCOUNT INFORMATION
6.5.1 Describes how access to your account information is secured
and authenticated.
6.6 CHILDREN VISITING OUR WEBSITE
6.6.1 Addresses children visiting our Website.
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6.7 OTHER WEBSITES LINKED TO THE CHASE WEBSITE
6.7.1 Describes our responsibilities concerning the information
practices of other websites linked to Chase.com.
6.8 ENFORCEMENT
6.8.1 Employee Expectations
6.8.1.1 Describes our Corporate Code of Conduct and our
employee expectations concerning the controlled and
authorized use of customer information.
6.8.2 Verification of Practices
6.8.2.1 Lists the various internal and external
confirmations and reviews performed to ensure that we are
adhering to the consumer privacy practices we have
published.
6.8.3 Consumer Recourse
6.8.3.1 Tells you how you may contact us concerning this
policy, or any related inquiry concerning our usage of
information that you may have provided to us Online.
7 FUTURE UPDATES TO THESE PRACTICES
7.1 As technology evolves, we will continue to look for better ways to
gather and use information in order to offer financial products and
services which best meet your financial needs, and to protect and safeguard
information about you and your accounts. We encourage you to review the
Chase Online Consumer Information Practices periodically for updates.
8 COLLECTION OF INFORMATION ONLINE
8.1 INFORMATION WE OBTAIN FROM VISITOR BROWSING AND VIA COOKIES
8.1.1 In order to constantly improve our Website and better serve
our customers, Chase may use software tools or "cookies" to gather
information about site visitors' browsing activities. This is similar
to a traffic report: it tracks trends and behaviors, but does not
identify individuals. Information gathered may include date and time
of visits, pages viewed, time spent at the site, and the site visited
just before and just after the Chase site. However, we only identify
the site visitor if he or she voluntarily gives us personal
identifying information online.
8.1.2 A "cookie" is information sent from a Website to a visitor's
computer while he or she is visiting the site. It may enable the site
holder to track how a visitor navigates through its site and the areas
in which they show interest. In some cases, if a visitor returns to
the Website after receiving a cookie, their browser sends cookie
information back to the Website. This is useful to the visitor if he
or she has established a password
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at a particular Website and wants to be identified by that site to
perform a function or transaction. The site holder can set cookies to
expire . . .
8.1.2.1 on a specified date
8.1.2.2 after a specific period of time
8.1.2.3 when a transaction has been completed
8.1.2.4 when a user turns off his browser.
This is controlled by the site holder.
8.1.3 Chase may use cookies to help evaluate our Website. Your Web
browser may alert and permit you to refuse cookies. When you receive
an alert you may choose at that time to refuse that cookie. If the
use of cookies is a concern to you, then please make sure your browser
has this capability, and that you set your browser to alert you
accordingly.
9 COLLECTION OF INFORMATION ONLINE
9.1 IDENTIFYING INFORMATION YOU CHOOSE TO PROVIDE
9.1.1 If you choose to request information from Chase, apply for
Chase products or services or conduct transactions online, you will
need to give us certain personal information just as you would if you
were communicating with us in person, by mail or by telephone. The
same internal protections that we employ in the maintenance of
information received via these channels is applicable to the
information we obtain via the Internet.
9.1.2 When you visit our site we may ask you to "sign-in,"
complete a survey or answer simple questions. These may include such
questions as where you live, your E-mail address and your interest in
receiving E-mail from Chase on new products and services. We collect
this information so that we can determine what kinds of products and
services are of most interest to you.
9.1.3 If you choose to send us an E-mail message, we may retain
the content of the E-mail, your E- mail address, and our response.
9.1.4 If you provide identifying information to us online, we may
be able to identify you as you browse through our Chase Website. We
may use this information to determine what kinds of products, services
and sections of our site are of most interest to you.
10 SECURITY OF INFORMATION TRANSMISSIONS
10.1 In most instances, information you provide on electronic forms on the
Chase Website is encrypted. In other words, it is scrambled en route and
decoded once it reaches Chase. Current versions of leading Web browsers
indicate when a document is encrypted for transmission.
10.2 E-mail sent within Chase Online Banking is secure. However, other
E-mail sent to us may not be secure unless we advise you that security
measures will be in place prior to your transmitting the information.
Therefore, we ask that you do not send confidential information
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such as social security or account numbers to us via an unsecured E-mail.
Such communications should be sent to us via postal mail or you may call
1-800-CHASE24 or visit one of our branches.
11 ACCESS TO YOUR ACCOUNT INFORMATION
11.1 As a security measure, you may access your account information from
the Chase Website only if you have registered with Chase for authentication
purposes. Information provided to you will be scrambled en route and
decoded once it reaches your browser. If you have not registered for
authentication purposes and wish to review your account information, you
may write to the address listed on your account statement, call
1-800-CHASE24 or visit one of our branches.
12 CHILDREN VISITING OUR WEBSITE
12.1 Our Website is directed at customers and potential customers, most of
whom are adults. However, children may access our Website and provide
information in the ways previously explained in this policy statement.
They may request information concerning our products and services and apply
for certain products and services such as student loans. Should children
access our Website we are confident that parents will not judge any of the
information provided as objectionable for viewing by their children.
Parents can avail themselves of various software packages that are
available to prevent their children from accessing Websites which they deem
to be inappropriate. Parents can choose to utilize this and other methods
to limit the Websites to which their children have access.
13 OTHER WEBSITES LINKED TO THE CHASE WEBSITE
13.1 Chase is not responsible for the information practices employed by
sites linked to or from our Website. In most cases links to non-Chase
Websites are provided solely as pointers to information on topics that may
be useful to the users of the Chase Website. In some situations, other
site holders agree to follow our CUSTOMER INFORMATION PRINCIPLES. In these
cases you will be notified when you are linking to these sites.
33
<PAGE>
14 ENFORCEMENT
14.1 EMPLOYEE EXPECTATIONS
14.1.1 The Chase Corporate Code of Conduct expresses our absolute
commitment to integrity, our related corporate values and ethical
standards and the associated business conduct we expect from all our
employees. The Code of Conduct includes very specific guidelines
concerning the SAFEGUARDING OF CONFIDENTIAL INFORMATION, which
includes customer information. In general, these guidelines limit
employee access to confidential information, and limit the use and
disclosure of such information to specifically authorized processes
and transactions. If it is determined that employees have violated
the Code of Conduct, corrective action may be taken, including
immediate dismissal.
14.2 VERIFICATION OF PRACTICES
14.2.1 Periodically, our operations and business practices are
reviewed for compliance with corporate policies and procedures
governing the confidentiality of information. These reviews are
conducted by our own internal staff, Chase auditors who report
directly to the Chase Board of Directors, external accounting and
auditing firms and government regulators. Included in these
self-assessments and examinations are reviews of the controls and
safeguards related to consumer privacy which are described in our
Customer Information Principles and Chase Online Consumer Information
Practices.
14.3 CONSUMER RECOURSE
14.3.1 If you believe we have not complied with our stated privacy
policies concerning our usage of personally identifiable information
that we may collect over the Internet, or that information we have
provided to you based upon your Internet activity is inaccurate, you
may inform us by utilizing the "feedback" feature on Chase.com site.
Clicking on "feedback" enables you to create an E-mail message to us.
We will acknowledge receipt of your message via E-mail within seven
business days and endeavor to respond to your concerns within 30
business days.
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Exhibit 21.1
Subsidiaries
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
TechWave Acquisition Inc. Washington
TechWave Acquisition Two Inc. Washington
Go Software, Inc. Washington
CardSecure, Inc. California
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 11, 1999, with respect to the 1998 and 1997
financial statements of GO Software, Inc. included in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-80981) and related Prospectus of
ShopNow.com Inc.
/s/ ERNST & YOUNG LLP
August 25, 1999
Jacksonville, Florida
<PAGE>
ARTHUR ANDERSEN LLP
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
August 24, 1999
