<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1999.
REGISTRATION NO. 333-82759
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ASHFORD.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<TABLE>
<S> <C> <C>
DELAWARE 5944 76-0565398
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3355 WEST ALABAMA, SUITE 175
HOUSTON, TEXAS 77098
(713) 369-1300
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
----------------------
KENNETH E. KURTZMAN
3355 WEST ALABAMA, SUITE 175
HOUSTON, TEXAS 77098
(713) 369-1300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
<TABLE>
<S> <C>
BRIAN K. BEARD ROBERT F. GRAY, JR.
ANTHONY M. ALLEN MICHAEL D. HANSEN
GUNDERSON DETTMER STOUGH FULBRIGHT & JAWORSKI L.L.P.
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 1301 MCKINNEY STREET, SUITE 5100
8911 CAPITAL OF TEXAS HIGHWAY, SUITE 4240 HOUSTON, TEXAS 77010
AUSTIN, TEXAS 78759 (713) 651-5151
(512) 342-2300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
----------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED AUGUST 3, 1999.
Shares
ASHFORD.COM, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of
Ashford.com, Inc. All of the shares of common stock are being sold by
Ashford.com.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Ashford.com intends to list the common
stock on the Nasdaq National Market under the symbol "ASFD".
See "Risk Factors" beginning on page 8 to read about certain factors you
should consider before buying shares of the common stock.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Ashford.com................... $ $
</TABLE>
The underwriters may, under specific circumstances, purchase up to an
additional shares from Ashford.com at the initial public offering
price, less the underwriting discount.
---------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DEUTSCHE BANC ALEX. BROWN
E*TRADE SECURITIES, INC.
---------------------
Prospectus dated , 1999.
<PAGE> 3
[ART WORK]
----------------------
ASHFORD(R) and Ashford.com(R) are registered trademarks of Ashford.com. All
other brand names or trademarks appearing in this prospectus are the property of
the companies that own them. The inclusion of those products in this prospectus
is not an endorsement of Ashford.com. These companies are not involved with the
offering of our securities.
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
regarding Ashford.com and the financial statements and notes appearing elsewhere
in this prospectus. Unless otherwise indicated, this prospectus assumes the
automatic conversion of all of our outstanding preferred stock into shares of
common stock upon the closing of this offering. This prospectus also assumes no
exercise of the underwriters' over-allotment option. References in this
prospectus to "we", "us" or "our" refer to Ashford.com unless otherwise noted.
ASHFORD.COM, INC.
OUR BUSINESS
We are a leading Web-based retailer focused exclusively on luxury and
premium products, including new and vintage premium watches and fine writing
instruments. By combining our expertise in luxury products and our commitment to
excellent customer service with the benefits of Internet retailing, we are able
to deliver a unique shopping experience to consumers. Our initial product focus
has been fine watches and, since our inception, we have grown into one of the
leading online retailers of new and vintage premium watches. We carry over 7,000
new and vintage watch SKUs, or styles, from more than 70 of the finest brands.
We also offer more than 600 different styles of fine writing instruments from 12
leading brands. We believe that additional luxury and premium product
categories, such as leather goods, sunglasses, fragrances, ties and scarves, and
jewelry, also represent significant online commerce opportunities. We believe
these luxury and premium product categories are well suited for online commerce
given brand recognition, generally high average sales prices and relatively low
average distribution and shipping costs.
OUR MARKET OPPORTUNITY
We believe that many people find shopping for luxury and premium products
to be time-consuming and inconvenient because few traditional store-based
retailers currently combine an extensive selection, convenient shopping hours,
broad geographic coverage and knowledgeable staff.
Our online store is designed to provide consumers with a convenient and
enjoyable shopping experience in a Web-based retail environment. The key
components of the Ashford.com experience include:
- - EXTENSIVE PRODUCT SELECTION. We offer a variety of luxury and premium
products, including one of the largest selections of premium watches available
on the Internet.
- - COMPELLING CONTENT AND DETAILED PRODUCT INFORMATION. Our Web site includes
significant content and detailed product information, such as displaying over
7,500 product photos, specific brand histories and key messages. We also
employ numerous specialists to provide a convenient and enjoyable shopping
experience and to help customers make informed purchasing decisions.
- - COMPETITIVE PRICES AND COMPELLING VALUE. Compared to our traditional
store-based retail competitors, we believe that our cost structure is lower.
As a result, we offer our customers products at competitive prices and,
combined with our high-quality shopping experience, provide compelling value.
- - COMMITMENT TO EXCELLENT CUSTOMER SERVICE. Luxury and premium goods consumers
expect the highest level of personalized customer service. We are committed to
superior customer service by providing trained customer service
representatives, extended warranties, complimentary shipping and
gift-wrapping, a generous return policy and comprehensive repair services for
watches.
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<PAGE> 5
- - PERSONALIZED SHOPPING EXPERIENCE. We provide convenient and useful services
that enhance the shopping experience. Our Web site includes features such as
an innovative online product showcase that allows customers to choose and
compare products side-by-side, gift suggestions and software that allows
real-time online customer interaction.
- - GEOGRAPHIC COVERAGE. By selling online, we are able to offer an extensive
selection of products throughout the U.S. and worldwide where the products
might not otherwise be available.
OUR STRATEGY
Our objective is to be one of the leading online retailers of luxury and
premium products. Key elements of our strategy include:
- - FOCUS ON THE PREMIUM RETAIL WATCH MARKET. We intend to capitalize on our
leading online market position in watches to become the primary destination
for consumers to purchase premium watches. Our objective is to grow our market
position and expand our customer base through superior execution and strong
relationships with leading brands.
- - EXTEND LEADERSHIP POSITION IN FINE WATCHES TO OTHER LUXURY AND PREMIUM PRODUCT
CATEGORIES. We intend to enhance our product offerings by expanding into
additional luxury and premium product categories that we believe present
significant online market opportunities, including leather goods, sunglasses,
fragrances, ties and scarves, and jewelry. We believe that offering a broader
selection of luxury goods will enable us to increase sales per customer visit,
encourage repeat purchases and expand our customer base.
- - BUILD ASHFORD.COM EXPERIENCE AND BRAND. We intend to establish a brand
identity that will support the creation of an Internet luxury community and
provide leading brands a powerful new distribution channel consistent with
their luxury identities. We will focus our brand campaign on selection,
convenience, value, trust and service.
- - EXPAND RELATIONSHIPS WITH LEADING LUXURY BRANDS. Our intent is to be the
Internet retailer of choice for leading luxury and premium brands. We intend
to maintain and strengthen our existing relationships while establishing
relationships with additional luxury brands as we increase the number of
products we offer.
- - PURSUE WAYS TO INCREASE OUR SALES. We intend to pursue new opportunities to
increase our sales by expanding into new product categories, increasing
product selection in our existing departments and continuing to take steps to
add new customers and to promote repeat purchases. In addition, we intend to
pursue international market opportunities, establish strategic alliances and
acquire complementary businesses, products and technologies.
- - EXPAND OUR OPERATIONAL AND SYSTEMS INFRASTRUCTURE. We plan to continue to
devote resources to growing our systems and operational infrastructure to
handle increased volume, enhance our service offerings and take advantage of
the unique characteristics of online luxury goods retailing.
4
<PAGE> 6
RISK FACTORS
An investment in our common stock involves a high degree of risk. Since our
inception in March 1998, we have incurred significant losses, and as of June 30,
1999, we had an accumulated deficit of $4.4 million. We expect our operating
losses and negative cash flow to continue for the foreseeable future. Before
deciding whether to invest in shares of our common stock, you should carefully
consider the risks and uncertainties described in "Risk Factors" beginning on
page 8 of this prospectus.
CORPORATE INFORMATION
We were incorporated in Texas in March 1998 under the name NewWatch Company
and began doing business as Ashford.com in May 1999. In July 1999, we changed
our name to Ashford.com, Inc. and reincorporated in Delaware. Our corporate
offices are located at 3355 West Alabama, Suite 175, Houston, Texas 77098. The
telephone number is (713) 369-1300. Information contained on our Web site does
not constitute part of this prospectus.
5
<PAGE> 7
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in the offering. The number
below excludes 2,521,000 shares of common stock reserved for issuance under our
stock plans, of which 617,855 were subject to outstanding options as of June 30,
1999 with a weighted average exercise price of $1.23 per share. See
"Underwriting", "Management -- Stock Plans" and Notes 4 and 8 of the notes to
our financial statements.
Shares offered by Ashford.com......... shares
Shares to be outstanding after the
offering.............................. shares
Use of proceeds....................... For general corporate purposes,
principally working capital and other
operating expenses. See "Use of
Proceeds".
Proposed Nasdaq National Market
symbol................................ "ASFD"
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<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived from our financial
statements included at the back of this prospectus. You should read this summary
financial information in conjunction with our financial statements and the
related notes. For example, Note 2 of the notes to our financial statements
explains the determination of the number of shares and share equivalents used in
computing the pro forma per share amounts shown below. You should also read "Use
of Proceeds" and "Capitalization".
This summary financial information reflects the fact that we were
incorporated on March 6, 1998, but did not commence operations or activities
until April 1998. The pro forma share amounts in the statement of operations
data reflect the assumed conversion of outstanding Series A and Series B
preferred stock into common stock. The balance sheet data displayed in the "Pro
Forma" column reflect the receipt of $16.3 million for the issuance of Series C
preferred stock in July 1999.
The balance sheet data displayed in the "Pro Forma As Adjusted" column
reflect the pro forma adjustments discussed in the preceding paragraph and the
application of the net proceeds from the sale of shares of common
stock offered by us at an assumed initial public offering price of $ per
share, after deducting the underwriting discount and estimated offering
expenses.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(MARCH 6, 1998) JUNE 30,
THROUGH -----------------------
MARCH 31, 1999 1998 1999
--------------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 5,938 $ 296 $ 3,623
Gross profit....................................... 828 16 626
Operating expenses:
Marketing and sales.............................. 1,013 23 2,401
General and administrative....................... 1,086 91 1,705
---------- ---------- ----------
Loss from operations............................... (1,271) (98) (3,480)
Interest income (expense), net..................... 7 -- 302
---------- ---------- ----------
Net loss........................................... $ (1,264) $ (98) $ (3,178)
========== ========== ==========
Net loss per share -- basic and diluted............ $ (0.58) $ (0.04) $ (1.30)
========== ========== ==========
Pro forma net loss per share for the assumed
conversion of outstanding Series A and Series B
preferred stock -- basic and diluted............. $ (0.45) $ (0.04) $ (0.56)
========== ========== ==========
Shares used to compute net loss per share -- basic
and diluted...................................... 2,188,757 2,250,000 2,442,857
Shares used to compute pro forma net loss per share
for the assumed conversion of outstanding Series
A and Series B preferred stock -- basic and
diluted.......................................... 2,792,338 2,250,000 5,683,242
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $24,502 $40,826
Working capital...................................... 29,645 45,949
Total assets......................................... 32,108 48,432
Total stockholders' equity........................... 30,313 46,617
</TABLE>
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<PAGE> 9
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose part
or all of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES FUTURE FORECASTING DIFFICULT. BECAUSE MOST
OF OUR EXPENSES ARE FIXED BASED ON PLANNED OPERATING RESULTS, FAILURE TO
ACCURATELY FORECAST REVENUE COULD CAUSE NET LOSSES IN A GIVEN QUARTER TO BE
GREATER THAN EXPECTED.
We were incorporated in March 1998. We began selling products on our Web
site in April 1998 and the results for the 1999 fiscal year are the same as
those for the period from inception, March 6, 1998, through March 31, 1999.
Accordingly, we have an extremely limited operating history upon which to base
an evaluation of our business and prospects. Our business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. As a
result of our limited operating history, it is difficult to accurately forecast
our net sales and we have limited meaningful historical financial data upon
which to base planned operating expenses. We base our current and future expense
levels on our operating plans and estimates of future net sales, and our
expenses are to a large extent fixed. Sales and operating results are difficult
to forecast because they generally depend on the volume and timing of the orders
we receive, which is uncertain. As a result, we may be unable to adjust our
spending in a timely manner to compensate for any unexpected revenue shortfall.
This inability could cause our net losses in a given quarter to be greater than
expected.
WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW, WHICH MAY LIMIT OR DELAY OUR
ABILITY TO BECOME PROFITABLE.
Since our formation, we have expended significant resources on our
technology, Web site development, advertising, hiring of personnel and startup
costs. As a result, we have incurred losses since our inception and expect to
experience operating losses and negative cash flow for the foreseeable future.
We anticipate our losses will continue to increase from current levels because
we expect to incur additional costs and expenses related to:
- - brand development, marketing and other promotional activities;
- - the expansion of our fulfillment operations, which includes supply
procurement, warehousing, order receipt, packaging and shipment;
- - the addition of customer service personnel;
- - the continued development of our Web site, the systems and staff that process
customer orders and payments, and our computer network;
- - the expansion of our product offerings and Web site content; and
- - development of relationships with strategic business partners.
As of June 30, 1999, we had an accumulated deficit of $4.4 million. We
incurred net losses of $1.3 million for the fiscal year ended March 31, 1999 and
$3.2 million for the quarter ended June 30, 1999.
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<PAGE> 10
Our ability to become profitable depends on our ability to generate and
sustain substantially higher net sales while maintaining reasonable expense
levels. If we do achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability on a quarterly or annual basis in the
future. See "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE FAIL TO MEET
THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF
OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY.
Our quarterly operating results have fluctuated in the past and we expect
both our quarterly and annual operating results to fluctuate significantly in
the future. Because our operating results are volatile and difficult to predict,
we believe that quarter-to-quarter comparisons of our operating results are not
a good indication of our future performance. In some future quarter our
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of our common stock may decline
significantly. Factors that may harm our business or cause our operating results
to fluctuate include the following:
- - our inability to obtain new customers at reasonable cost, retain existing
customers or encourage repeat purchases;
- - decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- - our inability to maintain an adequate selection of products;
- - seasonality;
- - our inability to manage inventory levels or control inventory theft;
- - our inability to manage our fulfillment operations;
- - our inability to adequately maintain, upgrade and develop our Web site, the
systems that we use to process customer orders and payments or our computer
network;
- - the ability of our competitors to offer new or enhanced Web sites, services or
products;
- - price competition;
- - an increase in the level of our product returns;
- - fluctuations in the demand for premium watches and other luxury goods;
- - our inability to obtain product lines from our suppliers;
- - the availability and pricing of merchandise from vendors;
- - consumer confidence in online encrypted transactions;
- - the termination of existing or failure to develop new marketing relationships
with key business partners;
- - increases in the cost of online or offline advertising;
- - the amount and timing of operating costs and capital expenditures relating to
expansion of our operations;
- - unexpected increases in shipping costs, particularly during the holiday
season, and our inability to recover these costs from customers;
- - unexpected increases in delivery times, particularly during the holiday
season, which could harm our reputation, increase returns and cause customer
dissatisfaction;
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- - technical difficulties, system downtime or Internet brownouts;
- - government regulations related to use of the Internet for commerce or for
sales and distribution of watches and other luxury goods; and
- - economic conditions specific to the Internet, online commerce and the luxury
goods market.
A number of factors will cause our gross margins to fluctuate in future
periods, including the mix of watches and other products sold by us, inventory
management, marketing and supply decisions, inbound and outbound shipping and
handling costs, the level of product returns and the level of discount pricing
and promotional coupon usage. Any change in one or more of these factors could
reduce our gross margins in future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations".
WE EXPECT TO EXPERIENCE SEASONAL FLUCTUATIONS IN OUR NET SALES, WHICH WILL CAUSE
OUR QUARTERLY RESULTS TO FLUCTUATE AND COULD CAUSE OUR ANNUAL RESULTS TO BE
BELOW EXPECTATIONS.
We expect to experience significant seasonal fluctuations in our net sales
that will cause quarterly fluctuations in our operating results. In particular,
we realized approximately 40% of our net sales for fiscal year 1999 during the
fourth calendar quarter primarily due to gift purchases made during the holiday
season and this trend may continue in the future.
In anticipation of increased sales activity during the fourth calendar
quarter, we expect to hire a significant number of temporary employees to
bolster our permanent staff and significantly increase our inventory levels. For
this reason, if our net sales are below seasonal expectations during this
quarter, our annual operating results could be below the expectations of
securities analysts and investors.
Due to our limited operating history, it is difficult to predict the
seasonal pattern of our sales and the impact of seasonality on our business and
financial results. In the future, our seasonal sales patterns may become more
pronounced, may strain our personnel and warehousing and order shipment
activities and may cause a shortfall in net sales as compared to expenses in a
given period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
WE PURCHASE CERTAIN OF OUR PRODUCT LINES DIRECTLY FROM THE MANUFACTURER. IF WE
ARE UNABLE TO PURCHASE OR CONTINUE TO PURCHASE CERTAIN PRODUCT LINES DIRECTLY
FROM THE MANUFACTURER, OUR NET SALES COULD DECREASE.
We currently purchase watches directly from the manufacturer on
approximately 50 of the 70 watch brands that we sell. We are negotiating with
manufacturers of the remaining and additional brands to purchase those brands
directly, in both the watch and other product categories. Part of our success is
contingent on attaining or maintaining our ability to buy directly from the
manufacturer. If we lose our ability to buy direct from the manufacturer, our
net sales or margins may decrease.
OUR ABILITY TO MEET CONSUMER DEMAND IS IN PART DEPENDENT UPON THE AVAILABILITY
OF PRODUCTS PURCHASED INDIRECTLY FROM SOURCES OTHER THAN THE MANUFACTURER. IF WE
ARE UNABLE TO OBTAIN POPULAR PRODUCTS THROUGH INDIRECT SOURCES, OUR NET SALES
WILL DECLINE.
As is customary in our business, we purchase brands indirectly from
distributors and other third parties that we do not purchase directly from the
manufacturer. The availability of products purchased indirectly depends on many
factors, including consumer demand, manufacturer production and fashion trends.
Since there are no guarantees that we will be able to obtain a sufficient supply
of products indirectly from third-party distributors and other suppliers,
customer demand may, at times, exceed our supply of those products. If this
occurs we could lose customers and our net sales would decline. In addition, the
luxury goods manufacturers could
10
<PAGE> 12
establish procedures to limit or control our ability to purchase products
indirectly. This could impact our ability to obtain sufficient quantities of
popular luxury goods, such as watches, and alienate our customers.
IF WE ARE UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF KEY PRODUCTS, OUR NET SALES
COULD DECREASE.
If we are not able to offer our customers a sufficient supply and selection
of products in a timely manner, we could lose customers and our net sales could
be below expectations. Our success depends on our ability to purchase products
in sufficient quantities at competitive prices, particularly for the holiday
shopping season. As is common in the industry, we do not have long-term or
exclusive arrangements with any manufacturer, distributor or broker that
guarantee the availability of products for resale.
From time to time, we may have trouble obtaining sufficient product
allocations of key brands. In addition, our key suppliers have established, and
may expand, their own online retailing efforts, which may impact our ability to
get sufficient product allocations from suppliers. In several cases, the
manufacturers of brands that we wish to carry have delayed establishing a
relationship with us until they have their own Web site up and running. In other
cases, manufacturers produce only a small amount of product and rely partially
on the scarcity of that product to provide a merchandising mystique. It is
unlikely that we will obtain product for our Web site from manufacturers who
follow the scarcity mystique, and there is no assurance that we will actually
obtain relationships within all sectors that we have planned to offer.
Therefore, we do not have a predictable or guaranteed supply of products.
WE FACE SIGNIFICANT INVENTORY RISK BECAUSE CONSUMER DEMAND CAN CHANGE FOR
PRODUCTS AFTER WE RECEIVE THEM.
We carry a significant level of inventory. As a result, the rapidly
changing trends in consumer tastes in the market for luxury and premium products
subject us to significant inventory risks. It is critical to our success that we
accurately predict these trends and do not overstock unpopular products. The
demand for specific products can change between the time the products are
ordered and the date of receipt. We are particularly exposed to this risk
because we derive a majority of our net sales in the fourth calendar quarter of
each year. Our failure to sufficiently stock popular products in advance of the
fourth calendar quarter would harm our operating results for the entire fiscal
year. In the event that one or more products do not achieve widespread consumer
acceptance, we may be required to take significant inventory markdowns, which
could reduce our net sales and gross margins. This risk may be greatest in the
first calendar quarter of each year, after we have significantly increased
inventory levels for the holiday season. We believe that this risk will increase
as we begin to offer additional luxury items due to our lack of experience in
purchasing these items. In addition, to the extent that demand for our products
increases over time, we may be forced to increase inventory levels. Any increase
would subject us to additional inventory risks. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business".
WE FACE THE RISK OF INVENTORY THEFT.
In the past, we have experienced theft of merchandise shipments in route
from our facility to our customers. In the future, we expect that we may also
experience theft of merchandise while it is being held in our fulfillment
facility. We have worked with our shipping carriers and have taken steps aimed
at preventing theft. If these steps are inadequate or if security measures fail
at our fulfillment facility, we could incur significant inventory theft, which
could cause gross profit margins and results of operations to decrease
significantly.
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SALES OF LUXURY GOODS ARE PARTICULARLY SUSCEPTIBLE TO GENERAL ECONOMIC
DOWNTURNS. IF GENERAL ECONOMIC CONDITIONS DETERIORATE, OUR SALES COULD SUFFER.
Purchases of luxury products are typically discretionary for consumers and
may be particularly affected by negative trends in the general economy. The
success of our operations depends to a significant extent on a number of factors
relating to discretionary consumer spending and affecting disposable consumer
income, such as employment, wages and salaries, business conditions, interest
rates, exchange rates, availability of credit and taxation. In addition, because
the purchase of luxury products is relatively discretionary, any reduction in
disposable income in general may affect us more significantly than companies in
other industries.
TO MANAGE OUR GROWTH AND EXPANSION, WE NEED TO RELOCATE TO NEW FACILITIES,
IMPROVE AND IMPLEMENT FINANCIAL AND MANAGERIAL CONTROLS AND IMPROVE OUR
REPORTING SYSTEMS AND PROCEDURES. IF WE ARE UNABLE TO DO SO SUCCESSFULLY, WE MAY
NOT BE ABLE TO MANAGE GROWTH EFFECTIVELY AND OUR OPERATING RESULTS WOULD BE
HARMED.
Our rapid growth in personnel and operations has placed, and will continue
to place, a significant strain on our management, information systems and
resources. In order to manage this growth effectively, we need to continue to
improve our financial and managerial controls and reporting systems and
procedures. In addition, we are moving to new headquarters facilities in the
second quarter of fiscal year 2000, which we expect will be a disruptive, time
consuming and expensive process. Our management team has been assembled recently
and has not worked together extensively in the past. There can be no assurance
that the management team can work together effectively and can implement our
internal growth and acquisition strategies. Any inability of our management to
integrate additional companies, customer databases, merchandise lines,
categories of merchandise, technology advances, fulfillment systems, and
customer service into operations and to eliminate unnecessary duplication may
have a materially adverse effect on our business, financial condition and
results of operations.
IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR NEW ACCOUNTING AND FINANCIAL
REPORTING SYSTEMS, OUR STOCK PRICE COULD DECLINE.
We anticipate expanding our financial and management information systems to
accommodate new data. If we fail to successfully implement and integrate our new
financial reporting and management information systems with our existing systems
or if we are not able to expand these systems to accommodate our growth, we may
not have adequate, accurate or timely financial information. Our failure to have
adequate, accurate or timely financial information would hinder our ability to
manage our business and operating results. If we grow rapidly, we will face
additional challenges in upgrading and maintaining our financial and reporting
systems.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because current
and new competitors can launch new Web sites at a relatively low cost and enter
our market with little difficulty. Increased competition is likely to result in
price pressure, reduced gross margins and loss of market share, any of which
could seriously harm our net sales and operating results. In addition, the watch
retail industry is intensely competitive. We currently or potentially compete
with a variety of other companies, including:
- - traditional retailers of watches, pens and other luxury products, which may
compete with both an online and offline presence, including high-end
department stores, jewelers and national department stores;
- - manufacturers of our products that decide to sell directly to end-customers,
either through physical retail outlets or through an online store;
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- - other online retailers of watches and other luxury products, including online
service providers that feature shopping services; and
- - catalog retailers of watches, pens and other luxury products.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to Web site and systems development than we
can. In addition, larger, well-established and well-financed entities may
acquire, invest in or form joint ventures with online competitors.
Certain of our competitors may be able to secure products from vendors on
more favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet. Given our limited operating history,
many of our competitors have significantly greater experience selling watches.
Our online competitors are particularly able to use the Internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites and
may direct customers to other online watch sellers, may increase competition.
IF WE ARE UNABLE TO BUILD AWARENESS OF THE ASHFORD.COM BRAND, WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY AGAINST COMPETITORS WITH GREATER NAME RECOGNITION AND OUR
SALES COULD BE ADVERSELY AFFECTED.
If we are unable to economically achieve or maintain a leading position in
online commerce or to promote and maintain our brand, our business, results of
operations and financial condition could suffer. We believe that the importance
of brand recognition will increase as more companies engage in commerce over the
Internet. Development and awareness of our brand will depend largely on our
success in increasing our customer base. If the leading brands do not perceive
us as an effective marketing and sales channel for their merchandise, or
consumers do not perceive us as offering a desirable way to purchase
merchandise, we may be unsuccessful in promoting and maintaining our brand.
Furthermore, in order to attract and retain customers and to promote and
maintain our brand in response to competitive pressures, we plan to increase our
marketing and advertising budgets and otherwise to increase substantially our
financial commitment to creating and maintaining brand loyalty among vendors and
consumers. See "Business -- Business Strategy" and "-- Marketing and Promotion".
Many traditional store-based and online competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Many
of these competitors can devote substantially more resources to Web site
development than we can. In addition, larger, well-established and well-
financed entities may join with online competitors or watch manufacturers as the
use of the Internet and other online services increases. Our competitors may be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can. Traditional store-based retailers also enable
customers to see and feel products in a manner that is not possible over the
Internet. See "Business -- Competition".
IF WE ENTER NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, OUR
BRAND AND REPUTATION COULD BE DAMAGED AND WE COULD FAIL TO ATTRACT NEW
CUSTOMERS.
If we launch or acquire a new department or product category that is not
favorably received by consumers, our brand or reputation could be damaged. This
damage could impair our ability
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to attract new customers, which could cause our net sales to fall below
expectations. An expansion of our business to include other luxury goods will
require significant additional expenses, and strain our management, financial
and operational resources. This type of expansion would also subject us to
increased inventory risk. We may choose to expand our operations by developing
other new departments or product categories, promoting new or complementary
products, expanding the breadth and depth of products and services offered or
expanding our market presence through relationships with third parties. In
addition, we may pursue the acquisition of other new or complementary
businesses, products or technologies, although we have no present
understandings, commitments or agreements with respect to any material
acquisitions or investments.
IF OUR STRATEGY TO SELL PRODUCTS OUTSIDE OF THE UNITED STATES IS NOT SUCCESSFUL,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY
ADVERSELY AFFECTED.
If we are not able to successfully market, sell and distribute our products
in foreign markets or if certain risks and uncertainties of doing business in
foreign markets prove insurmountable then these factors could have a material
adverse effect on our future global operations, and consequently, on our
business, results of operations and financial condition. Although we currently
may not sell merchandise to customers outside the United States, we intend to do
so in the future. We do not currently have any overseas fulfillment or
distribution facility or arrangement or any Web site content localized for
foreign markets, and we cannot be certain that we will be able to establish a
global presence. In addition, there are certain risks inherent in doing business
on a global level, including:
- - regulatory requirements;
- - export restrictions;
- - tariffs and other trade barriers;
- - difficulties in staffing and managing foreign operations;
- - difficulties in protecting intellectual property rights;
- - longer payment cycles;
- - problems in collecting accounts receivable;
- - political instability;
- - fluctuations in currency exchange rates; and
- - potentially adverse tax consequences.
IF WE DO NOT SUCCESSFULLY EXPAND OUR FULFILLMENT OPERATIONS, OUR NET SALES MAY
FALL BELOW EXPECTATIONS.
We must be able to quickly and efficiently fill customer orders. If we do
not successfully expand our fulfillment operations to accommodate increases in
demand, particularly during the fourth calendar quarter of each year, we will
not be able to increase our net sales in accordance with the expectations of
securities analysts and investors. Our success depends on our ability to rapidly
expand our fulfillment operations in order to accommodate a significant increase
in customer orders. We must also be able to rapidly grow our fulfillment
operations and information systems to accommodate significant increases in
demand, which may require us to automate tasks that are currently performed
manually. Our planned expansion may cause disruptions in our business. Our
current fulfillment operations are not adequate to accommodate significant
increases in customer demand that may occur during the fourth calendar quarter
of 1999.
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IF WE EXPERIENCE PROBLEMS WITH OUR THIRD-PARTY SHIPPING SERVICES, WE COULD LOSE
CUSTOMERS.
We rely upon third-party carriers for product shipments, including
shipments to and from our warehouse. We are therefore subject to the risks,
including employee strikes and inclement weather, associated with these
carriers' ability to provide delivery services to meet our shipping needs. In
addition, failure to deliver products to our customers in a timely manner would
damage our reputation and brand.
OUR OPERATING RESULTS DEPEND ON OUR INTERNALLY DEVELOPED WEB SITE, NETWORK
INFRASTRUCTURE AND TRANSACTION-PROCESSING SYSTEMS. IF WE DO NOT SUCCESSFULLY
EXPAND OUR WEB SITE AND THE SYSTEMS THAT PROCESS CUSTOMER ORDERS, WE COULD LOSE
CUSTOMERS AND NET SALES COULD BE REDUCED.
The satisfactory performance, reliability and availability of our Web site,
transaction-processing systems and network infrastructure are critical to our
operating results, as well as to our ability to attract and retain customers and
maintain adequate customer service levels. Any system interruptions that result
in the unavailability of our Web site or reduced performance of the transaction
systems would reduce the volume of sales and the attractiveness of our service
offerings. This would seriously harm our business, operating results and
financial condition. We are currently upgrading our system architecture to
accommodate increased traffic and processing needs. We expect this process to be
time consuming and expensive and our upgrade may not be successful.
We use internally developed systems for our Web site and substantially all
aspects of transaction processing, including customer profiling and order
verifications. We have experienced periodic systems interruptions due to server
failure, which we believe will continue to occur from time to time. If the
volume of traffic on our Web site or the number of purchases made by customers
substantially increases, we will need to further expand and upgrade our
technology, transaction processing systems and network infrastructure. We have
experienced and expect to continue to experience temporary capacity constraints
due to sharply increased traffic during sales or other promotions, which cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and delays in reporting accurate financial
information.
If we fail to rapidly upgrade our Web site or toll-free call center in
order to accommodate increased traffic, we may lose customers, which would
reduce our net sales. Furthermore, if we fail to rapidly expand the computer
systems that we use to process and ship customer orders and process payments, we
may not be able to successfully fulfill customer orders. As a result, we could
lose customers and our net sales could be reduced. In addition, our failure to
rapidly upgrade our Web site or expand these computer systems without system
downtime, particularly during the fourth calendar quarter, would further reduce
our net sales. We may experience difficulty in improving and maintaining our
systems if our employees or contractors that develop or maintain our computer
systems become unavailable to us. We have experienced periodic systems
interruptions, which we believe will continue to occur, while enhancing and
expanding these computer systems.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED PROBLEMS. THE OCCURRENCE OF A NATURAL DISASTER OR OTHER UNEXPECTED
PROBLEM COULD DAMAGE OUR REPUTATION AND BRAND AND REDUCE OUR NET SALES.
The occurrence of a natural disaster or unanticipated problems at our
leased or offsite hosting facilities that house substantially all of our
computer and communications hardware systems could cause interruptions or delays
in our business, destroy data or render us unable to accept and fulfill customer
orders. Any of these interruptions or delays at these facilities would
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reduce our net sales. In addition, our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. We have not established specific
procedures for handling damage or interruptions caused by these events and our
business interruption insurance may not adequately compensate us for losses that
may occur. In addition, the failure by the third-party facility to provide the
data communications capacity required by us, as a result of human error, natural
disaster or other operational disruptions, could interrupt our service. The
occurrence of any or all of these events could damage our reputation and brand
and impair our business.
OUR NET SALES COULD DECREASE IF OUR ONLINE SECURITY MEASURES FAIL.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales could decrease. We rely on security and authentication technology
that we license from third parties. With this technology, we perform real-time
credit card authorization and verification with our bank. We cannot predict
whether events or developments will result in a compromise or breach of the
technology we use to protect a customer's personal information. Furthermore, our
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. We may need to expend significant additional capital
and other resources to protect against a security breach or to alleviate
problems caused by any breaches. We cannot assure that we can prevent all
security breaches.
OUR NET SALES AND GROSS MARGINS WOULD DECREASE IF WE EXPERIENCE SIGNIFICANT
CREDIT CARD FRAUD.
A failure to adequately control fraudulent credit card transactions would
reduce our net sales and our gross margins because we do not carry insurance
against this risk. We have developed procedures to help us to detect the
fraudulent use of credit card information. Nonetheless, to date, we have
suffered losses as a result of orders placed with fraudulent credit card data
even though the associated financial institution approved payment of the orders.
Under current credit card practices, we are liable for fraudulent credit card
transactions because we do not obtain a cardholder's signature.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE COULD LOSE CUSTOMERS.
If we face material delays in introducing new services, products and
enhancements, our customers may forego the use of our services and use those of
our competitors. To remain competitive, we must continue to enhance and improve
the functionality and features of our online store. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new products
and services, or if new industry standards and practices emerge, our existing
Web site and proprietary technology and systems may become obsolete. To develop
our Web site and technology entails significant technical and business risks. We
may use new technologies ineffectively or we may fail to adapt our technology to
meet customer requirements or emerging industry standards.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD IMPAIR OUR
BUSINESS.
Other parties may assert infringement or unfair competition claims against
us. We cannot predict whether they will do so, or whether any past or future
assertions or prosecutions will harm our business. If we are forced to defend
against any infringement claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, or product shipment delays. Further, the
outcome of a dispute may be that we would need to develop non-infringing
technology or enter into royalty or
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licensing agreements. Royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BRAND AND REPUTATION COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.
The steps we take to protect our proprietary rights may be inadequate. We
regard our copyrights, service marks, trademarks, trade dress, trade secrets and
similar intellectual property as critical to our success. We rely on trademark
and copyright law, trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. In April 1999, we filed an application with the United
States Patent and Trademark Office for the registered trademarks "ASHFORD" and
"Ashford.com" for online retail services. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we will sell our products and services online. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL, OR OUR FAILURE TO
ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE,
COULD DISRUPT OUR OPERATIONS AND RESULT IN LOSS OF NET SALES.
Our future performance will depend on the continued services of our
management and key personnel and the ability to attract additional management
and key personnel. The loss of the services of one or more of our key personnel
could seriously interrupt our business. We depend on the continued services and
performance of our senior management and other key personnel. Our future success
also depends upon the continued service of our executive officers and other key
sales, marketing and support personnel. Several of our senior management joined
us in the last six months, including our Chief Executive Officer, Chief
Financial Officer, Vice President of Marketing, Vice President of Business
Development and Vice President of Merchandising. Our future success depends on
these officers effectively working together with our original management team.
Our relationships with these officers and key employees are at will and none of
our officers or key employees is bound by an employment agreement for any
specific term. We currently have key person life insurance policies covering
Kenneth E. Kurtzman and James H. Whitcomb, Jr.
WE MAY NOT ACHIEVE EXPECTED BENEFITS OF ANY INVESTMENTS OR ACQUISITIONS THAT WE
COMPLETE.
Although we are not currently negotiating any acquisitions, if we identify
appropriate opportunities, we intend to make acquisitions of or investments in
complementary companies, products or technologies. We may not correctly identify
or realize the anticipated benefits of any acquisition or investment. For
example, we may not be able to successfully assimilate the additional personnel,
operations, acquired technology and products into our business. Acquisitions may
further strain our existing financial and managerial controls and reporting
systems and procedures. In addition, key personnel of acquired companies may
decide not to work for us. These difficulties could disrupt our ongoing
business, distract our management and employees or increase our expenses.
Further, any physical expansion in facilities due to an acquisition may result
in disruptions that seriously impair our business. We are not experienced in
managing facilities or operations in geographically distant areas. Finally, in
connection with any future acquisitions, we may incur debt or issue equity
securities as part or all of the consideration for the acquired company's assets
or capital stock. We may be unable to obtain sufficient additional financing on
favorable terms, or at all. Equity issuances could be dilutive to our existing
stockholders or us.
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WE MAY BE ADVERSELY IMPACTED IF THE SOFTWARE, COMPUTER TECHNOLOGY AND OTHER
SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT.
Any failure of our material systems, our suppliers' material systems or the
Internet to be year 2000 compliant would have material adverse consequences for
us. These consequences would include difficulties in operating our Web site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business. We are currently assessing the year
2000 readiness of the software, computer technology and other services that we
use. At this time, we have not yet developed a contingency plan to address
situations that may result if we or our suppliers are unable to achieve year
2000 compliance. The cost of developing and implementing a plan, if necessary,
could be material. We also depend on the year 2000 compliance of the computer
systems and financial services used by consumers. A significant disruption in
the ability of consumers to reliably access the Internet or portions of it or to
use their credit cards would have an adverse effect on demand for our services
and would have a material adverse effect on us. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000".
EXECUTIVE OFFICERS, DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL CONTINUE TO
HAVE SUBSTANTIAL CONTROL OVER ASHFORD.COM AFTER THE OFFERING WHICH COULD DELAY
OR PREVENT A CHANGE IN OUR CORPORATE CONTROL FAVORED BY OUR OTHER STOCKHOLDERS.
Executive officers, directors and entities affiliated with them, if acting
together, would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. These
stockholders will, in aggregate, beneficially own approximately % of our
outstanding common stock following the completion of this offering. See
"Principal Stockholders".
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our Certificate of Incorporation, our By-laws and Delaware
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders. See "Description of Capital Stock".
INVESTORS IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION.
We expect the initial public offering price to be substantially higher than
the book value per share of the outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
experience immediate dilution of approximately $ in the book value per
share of the common stock from the price you pay for the common stock. See
"Dilution".
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ONLINE
COMMERCE.
Our future revenues substantially depend upon the increased acceptance and
use of the Internet and other online services as a medium of commerce. Rapid
growth in the use of the Internet, the Web and online services is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates and a sufficiently broad base of customers may not adopt,
and/or continue to use, the Internet and other online services as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products.
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In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant expansion in the number of users, frequency of use or
bandwidth requirements, the infrastructure for the Internet may be unable to
support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.
Our business, financial condition and results of operations would be
seriously harmed if:
- - use of the Internet, the Web and other online services does not continue to
increase or increases more slowly than expected;
- - the infrastructure for the Internet, the Web and other online services does
not effectively support expansion that may occur;
- - the Internet, the Web and other online services do not become a viable
commercial marketplace; or
- - traffic to our Web site decreases or fails to increase as expected or if we
spend more than we expect to attract visitors to our Web site.
IF WE ARE UNABLE TO ACQUIRE THE NECESSARY WEB DOMAIN NAMES, OUR BRAND AND
REPUTATION COULD BE DAMAGED AND WE COULD LOSE CUSTOMERS.
We may be unable to acquire or maintain Web domain names relating to our
brand in the United States and other countries in which we may conduct business.
As a result, we may be unable to prevent third parties from acquiring and using
domain names relating to our brand, which could damage our brand and reputation
and take customers away from our Web site. We currently hold the "Ashford.com"
and "newwatch.com" domain names and may seek to acquire additional domain names.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. The regulation of domain names in the United States
and in foreign countries is subject to change in the near future. The changes in
the United States are expected to include a transition from the current system
to a system that is controlled by a non-profit corporation and the creation of
additional top-level domains. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names.
WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION INCREASES.
The adoption or modification of laws or regulations relating to the
Internet could adversely affect the manner in which we currently conduct our
business. In addition, the growth and development of the market for online
commerce may lead to more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States Congress recently enacted
Internet laws regarding children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. Laws regulating the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel, and taxation apply to the
Internet.
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In order to comply with new or existing laws regulating online commerce, we
may need to modify the manner in which we do business, which may result in
additional expenses. For instance, we may need to spend time and money revising
the process by which we fulfill customer orders to ensure that each shipment
complies with applicable laws. We may need to hire additional personnel to
monitor our compliance with applicable laws. We may also need to modify our
software to further protect our customers' personal information.
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. If we face liability, then our reputation and our business may
suffer. In the past, plaintiffs have brought these types of claims and sometimes
successfully litigated them against online companies. In addition, we could be
exposed to liability with respect to the unauthorized duplication of content or
unauthorized use of other parties' proprietary technology. Although we carry
general liability insurance, our insurance currently does not cover claims of
these types. We cannot be certain that we will be able to obtain insurance to
cover the claims on reasonable terms or that it will be adequate to indemnify us
for all liability that may be imposed on us. Any imposition of liability that is
not covered by our insurance or is in excess of insurance coverage could harm
our business.
OUR NET SALES COULD DECREASE IF WE BECOME SUBJECT TO SALES OR OTHER TAXES.
If one or more states or any foreign country successfully asserts that we
should collect sales or other taxes on the sale of our products, our net sales
and results of operations could be harmed. We do not currently collect sales or
other similar taxes for physical shipments of goods into states other than
Texas. However, one or more local, state or foreign jurisdictions may seek to
impose sales tax collection obligations on us. In addition, any new operation
could subject our shipments in other states to state sales taxes under current
or future laws. If we become obligated to collect sales taxes, we will need to
update our system that processes customer orders to calculate the appropriate
sales tax for each customer order and to remit the collected sales taxes to the
appropriate authorities. These upgrades will increase our operating expenses. In
addition, our customers may be discouraged from purchasing products from us
because they have to pay sales tax, causing our net sales to decrease. As a
result, we may need to lower prices to retain these customers.
RISKS RELATED TO SECURITIES MARKETS
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We cannot be certain that additional financing will be available to us on
favorable terms when required, or at all. If we raise additional funds through
the issuance of equity, equity-related or debt securities, the securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution. We require
substantial working capital to fund our business. Since our inception, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations for the foreseeable future. We
currently anticipate that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures through at least the next 12 months. After
that, we may need to raise additional funds.
Prior to this offering, there has been no public market for our common
stock. We cannot be certain that an active trading market for our common stock
will develop or be sustained following this offering. Further, we cannot be
certain that the market price of our common stock will not
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decline below the initial public offering price. The initial public offering
price will be determined by negotiation among us and the underwriters based upon
several factors and may not be indicative of future market prices for our common
stock.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INDIVIDUAL STOCKHOLDERS.
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following,
some of which are beyond our control:
- - actual or anticipated variations in our quarterly operating results;
- - announcements of technological innovations or new products or services by us
or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the Internet and/or online commerce industries;
- - changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
- - announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- - additions or departures of key personnel;
- - release of lock-up or other transfer restrictions on our outstanding shares of
common stock or sales of additional shares of common stock; and
- - potential litigation.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
IF OUR STOCK PRICE IS VOLATILE, WE COULD FACE A SECURITIES CLASS ACTION LAWSUIT.
In the past, following periods of volatility in the market price of their
stock, many companies have been the subject of securities class action
litigation. If we were sued in a securities class action, it could result in
substantial costs and a diversion of management's attention and resources and
would cause our stock price to fall.
AFTER THE OFFERING, 6,445,143, OR %, OF OUR TOTAL OUTSTANDING SHARES WILL BE
RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR
FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
After this offering, we will have outstanding shares of common
stock. This includes the we are selling in this offering, which may be
resold in the public market immediately. The remaining %, or 6,445,143 shares,
of our total outstanding shares will become available for resale in the public
market from time to time beginning 180 days after the closing of this offering.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them. For a more detailed description, see "Shares Eligible
for Future Sale".
21
<PAGE> 23
USE OF PROCEEDS
The net proceeds to Ashford.com from the sale of the shares of common
stock offered hereby are estimated to be $ , assuming an initial public
offering price of $ per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. The net proceeds of
this offering are estimated to be $ if the underwriters' over-allotment
option is exercised in full.
The primary purposes of this offering are to increase our working capital,
create a public market for the common stock to facilitate our future access to
public capital markets, and to increase our visibility in the retail
marketplace. We expect to use the net proceeds for general corporate purposes,
including working capital and other operating expenses. A portion of the net
proceeds may also be used for the acquisition of businesses, products and
technologies that are complementary to ours. We have no current plans,
agreements or commitments with respect to any acquisition. Pending these uses,
we will invest the net proceeds of this offering in investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual, pro forma, and pro forma as adjusted basis. The "Actual" column reflects
our capitalization as of June 30, 1999 on an historical basis, without any
adjustments to reflect subsequent events or anticipated events. The "Pro Forma"
column reflects our capitalization as of June 30, 1999 with adjustments for the
following:
- - the filing of our certificate of incorporation to provide for authorized
capital stock of 100,000,000 shares of common stock and 10,000,000 shares of
undesignated preferred stock;
- - the issuance of 300,143 shares of Series C preferred stock in July 1999; and
- - the automatic conversion of all shares of outstanding Series A, Series B and
Series C preferred stock into 3,805,143 shares of common stock on a one-to-one
basis upon the closing of this offering.
The "Pro Forma As Adjusted" column reflects our capitalization as of June
30, 1999 with the preceding pro forma adjustments plus the receipt of the
estimated net proceeds from our sale of shares of common stock at an
assumed initial public offering price of $ per share.
None of the columns reflects the 2,521,000 shares of common stock reserved
for issuance under our stock plans, of which 617,855 shares were subject to
outstanding options as of June 30, 1999. The table below reflects that we
recorded amortization expense related to deferred compensation of $17,500 for
the fiscal year ended March 31, 1999 and $591,912 for the quarter ended June 30,
1999.
The table below should be read in conjunction with our balance sheet as of
June 30, 1999 and the related notes, which are included elsewhere in this
prospectus. You should review Notes 4 and 8 to the notes to our financial
statements for descriptions of our Series A preferred stock, Series B preferred
stock and Series C preferred stock.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
--------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock, $.001 par value per share,
4,035,000 shares authorized, 3,505,000 shares issued
and outstanding actual; no shares authorized, issued
and outstanding pro forma and as adjusted............. 3 -- --
Preferred stock, $.001 par value per share, no shares
authorized, issued or outstanding actual; 10,000,000
shares authorized, no shares issued and outstanding
pro forma and as adjusted............................. -- -- --
Common stock, $.001 par value per share, 11,400,000
shares authorized, 2,640,000 shares issued and
outstanding actual; 100,000,000 shares authorized,
6,445,143 shares issued and outstanding pro forma;
100,000,000 shares authorized, issued and
outstanding as adjusted............................... 3 6
Additional paid-in capital............................... 51,451 67,755
Deferred compensation.................................... (15,922) (15,922)
Subscription receivable.................................. (780) (780)
Accumulated deficit...................................... (4,442) (4,442)
-------- ------- -------
Total stockholders' equity....................... 30,313 46,617
-------- ------- -------
Total capitalization............................. $ 30,313 $46,617 $
======== ======= =======
</TABLE>
23
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$46.6 million or $7.23 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets at June 30, 1999 increased by
the net proceeds of the Series C preferred stock issuance in July 1999, reduced
by the amount of our total liabilities and divided by the total number of shares
of common stock outstanding after giving effect to the automatic conversion of
the Series A, Series B and Series C preferred stock. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of shares of
common stock offered by us at an assumed initial public offering price of $
per share, and after deducting the underwriting discount and estimated offering
expenses payable by us, our pro forma net tangible book value at June 30, 1999
would have been approximately $ million or $ per share of common stock.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors of common stock. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering............................................... $ 7.23
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering (as adjusted)....................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes on an as adjusted basis after giving effect
to the offering, as of June 30, 1999, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
New investors.........................
-------- ----- -------- -----
Totals...................... 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
The preceding tables exclude 2,521,000 shares of common stock reserved for
issuance under our option plans, of which 617,855 were subject to outstanding
options as of June 30, 1999 with a weighted average exercise price of $1.23 per
share.
24
<PAGE> 26
SELECTED FINANCIAL DATA
The following selected financial and operating data should be read in
conjunction with the financial statements and the notes to the financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", which are included elsewhere in this prospectus. You
should review Note 2 to the notes to our financial statements for an explanation
of the determination of the number of shares and share equivalents used in
computing the pro forma per share amounts shown below. The pro forma share
amounts reflect the assumed conversion of outstanding preferred stock into
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The selected financial data reflect that prior to March 31, 1998, we had no
operations or activities. The statement of operations data shown below for the
period from inception, March 6, 1998 through March 31, 1999, and the selected
balance sheet data as of March 31, 1999 have been derived from our audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, the unaudited statements of operations data shown for the three
month periods ended June 30, 1998 and June 30, 1999 and the unaudited balance
sheet data as of June 30, 1999 have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the three months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending March
31, 2000. Although we were incorporated in March 1998, we did not commence
operations or activities until April 1998. Our general and administrative
operating expenses include expenses related to the amortization of deferred
compensation, which is $17,500 for the period from inception through March 31,
1999 and $591,912 for the period April 1, 1999 through June 30, 1999.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
INCEPTION ENDED
(MARCH 6, 1998) JUNE 30,
THROUGH -----------------------
MARCH 31, 1999 1998 1999
--------------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 5,938 $ 296 $ 3,623
Cost of sales............................................ 5,110 280 2,997
---------- ---------- ----------
Gross profit............................................. 828 16 626
Operating expenses:
Marketing and sales.................................... 1,013 23 2,401
General and administrative............................. 1,086 91 1,705
---------- ---------- ----------
Total operating expenses........................ 2,099 114 4,106
---------- ---------- ----------
Loss from operations..................................... (1,271) (98) (3,480)
Interest income (expense), net........................... 7 -- 302
---------- ---------- ----------
Net loss................................................. $ (1,264) $ (98) $ (3,178)
========== ========== ==========
Net loss per share -- basic and diluted.................. $ (0.58) $ (0.04) $ (1.30)
========== ========== ==========
Pro forma net loss per share for the assumed conversion
of outstanding preferred stock -- basic and
diluted(1)............................................. $ (0.45) $ (0.04) $ (0.56)
========== ========== ==========
Shares used to compute net loss per share -- basic and
diluted................................................ 2,188,757 2,250,000 2,442,857
========== ========== ==========
Shares used to compute pro forma net loss per share for
the assumed conversion of outstanding Series A and
Series B preferred stock -- basic and diluted(1)....... 2,792,338 2,250,000 5,683,242
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1999
-------------- ----------------------
ACTUAL ACTUAL PRO FORMA(2)
-------------- ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 893 $24,502 $40,826
Working capital.......................................... 2,556 29,645 45,949
Total assets............................................. 5,108 32,108 48,432
Total stockholders' equity............................... 2,809 30,313 46,617
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in
computing pro forma per share amounts.
(2) Pro forma balance sheet data include the issuance of 300,143 shares of
Series C preferred stock for $16.3 million in cash in July 1999.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties. These
statements refer to our future plans, objectives, expectations and intentions.
These statements may be identified by the use of words such as "expects",
"anticipates", "intends", "plans" and similar expressions. Our actual results
could differ materially from those anticipated in the forward-looking
statements. Factors that could contribute to these differences include, but are
not limited to, the risks discussed in the section titled "Risk Factors".
OVERVIEW
We are a leading Web-based retailer focused exclusively on luxury and
premium products, including new and vintage premium watches and fine writing
instruments. Our online store offers an extensive selection of fine watches,
writing instruments and other luxury goods. We carry over 7,000 new and vintage
watch styles from more than 70 of the finest brands. We also offer more than 600
different styles of fine writing instruments from 12 leading brands. We believe
that additional luxury and premium product categories, such as leather goods,
sunglasses, fragrances, ties and scarves, and jewelry, also represent
significant online commerce opportunities.
We were incorporated on March 6, 1998 and commenced operations and began
offering products for sale on our Web site in April 1998. Accordingly, the
results for the 1999 fiscal year are the same as those for the period from our
inception through March 31, 1999. Since launching the site, we have focused on
broadening our product offerings, establishing relationships with leading
brands, generating sales momentum and expanding our operational and customer
service capabilities. Our cost of sales and our operating expenses have
increased significantly since inception. This trend reflects increased product
costs associated with net sales growth and additional marketing and sales costs
to attract new customers and build brand awareness. In addition, general and
administrative expenses increased in connection with building infrastructure and
developing our Web site and associated systems to process customer orders and
payments and manage our anticipated growth in revenue.
We have grown rapidly since launching our site in April 1998. Our net sales
totaled $5.9 million for the fiscal year ended March 31, 1999 and $3.6 million
for the quarter ended June 30, 1999. The market for luxury and premium products
is highly seasonal, with a disproportionate amount of net sales occurring during
the fourth calendar quarter. Although less significant, seasonal sales periods
occur in May and June due to graduation gift giving, Mother's Day and Father's
Day. We expect that these trends will continue in future periods. In addition,
since a disproportionate amount of our net sales are realized during the fourth
calendar quarter, we significantly increase our purchases of inventory during
and in advance of that quarter. Accordingly, we expect that our accounts payable
will be at their highest levels during the fourth calendar quarter. Our gross
margin was 14% for the fiscal year ended March 31, 1999 and 17% for the quarter
ended June 30, 1999. Our gross margin will fluctuate in future periods based on
factors such as:
- - product sales mix;
- - the mix of direct and indirect sources of inventory;
- - pricing strategy;
- - promotional activities;
- - inventory management; and
- - inbound and outbound shipping costs.
26
<PAGE> 28
Since inception, we have significantly increased the depth of our
management team in order to implement our growth strategy. Key additions to our
senior management team include a Chief Executive Officer, Chief Financial
Officer, Vice President of Marketing, Vice President of Business Development and
Vice President of Merchandising.
Since inception, we have incurred significant net losses of $1.3 million
for the fiscal year ended March 31, 1999, and $3.2 million for the quarter ended
June 30, 1999. We expect our net losses to increase and to generate negative
cash flows for the foreseeable future. We expect operating expenses and net
losses will continue to rise as we pursue an aggressive marketing and
advertising campaign to attract new customers and build our brand identity,
develop new strategic partnerships, invest in new operational and customer
service infrastructure and recruit additional employees.
We have a limited operating history upon which to base an evaluation of our
business and prospects. You must consider our business and prospects in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as online commerce. As a result of our limited operating
history, it is difficult to accurately forecast our net sales and we have
limited meaningful historical financial data upon which to base projected
operating expenses. We base our current and future expense levels on our
operating plans and estimates of future net sales, and our expenses are fixed to
a large extent. Sales and operating results are difficult to forecast because
they generally depend on the volume and timing of the orders we receive. As a
result, we may be unable to adjust our spending in a timely manner to compensate
for any unexpected revenue shortfall. This inability could cause our net losses
in a given quarter to be greater than expected.
In connection with this offering of shares of our common stock, certain
options granted have been considered to be granted at exercise prices below the
deemed fair value. Deferred compensation associated with options granted through
June 30, 1999 amounted to $16.5 million. Of this amount, $17,500 was charged to
operations for the fiscal year ended March 31, 1999, and $591,912 was charged to
operations for the quarter ended June 30, 1999. The remaining balance of $15.9
million will be amortized over the vesting periods of the applicable options
through the fiscal year ended March 31, 2004. In addition, we granted 56,110
options during July 1999, for which additional deferred compensation of
approximately $1.6 million will be recorded and amortized over the applicable
vesting periods.
27
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
Because we commenced operations in April 1998 and have a short operating
history, we believe that annual period-to-period comparisons are less meaningful
than an analysis of recent quarterly operating results. Accordingly, we are
providing a discussion and analysis of our operating results that is focused on
the five quarters ended June 30, 1999.
In the following table, we show certain unaudited statement of operations
data both in absolute dollars and as a percentage of net sales for each of our
last five quarters. The unaudited quarterly information for each of the quarters
in the fiscal year ended March 31, 1999 has been derived from our audited
financial statements. In the opinion of management, the unaudited quarterly
information includes all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation in accordance with generally
accepted accounting principles. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
-------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 296 $ 798 $ 2,370 $ 2,474 $ 3,623
Cost of sales.................... 280 651 1,998 2,181 2,997
------- ------- ------- ------- -------
Gross profit..................... 16 147 372 293 626
Operating expenses:
Marketing and sales............ 23 81 260 649 2,401
General and administrative..... 91 52 261 682 1,705
------- ------- ------- ------- -------
Total operating
expenses............. 114 133 521 1,331 4,106
------- ------- ------- ------- -------
Income (loss) from operations.... (98) 14 (149) (1,038) (3,480)
Interest income (expense), net... -- -- (4) 11 302
------- ------- ------- ------- -------
Net income (loss)................ $ (98) $ 14 $ (153) $(1,027) $(3,178)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
--------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales........................ 100% 100% 100% 100% 100%
Cost of sales.................... 95 82 84 88 83
------- ------- ------- ------- -------
Gross profit..................... 5 18 16 12 17
Operating expenses:
Marketing and sales............ 8 10 11 26 66
General and administrative..... 31 7 11 28 47
------- ------- ------- ------- -------
Total operating
expenses............. 39 17 22 54 113
------- ------- ------- ------- -------
Income (loss) from operations.... (33) 2 (6) (42) (96)
Interest income (expense), net... -- -- (0) 0 8
------- ------- ------- ------- -------
Net income (loss)................ (33)% 2% (6)% (42)% (88)%
======= ======= ======= ======= =======
</TABLE>
NET SALES
Net sales consist of product sales to customers and are net of product
returns and promotional discounts. Net sales increased from approximately $0.3
million during the quarter
28
<PAGE> 30
ended June 30, 1998 to approximately $3.6 million during the quarter ended June
30, 1999. The growth in net sales is principally due to increased site traffic
and awareness resulting from advertising expenditures and additional product
offerings. During each of the five quarters ended June 30, 1999, watches
comprised substantially all of our sales as we did not add writing instruments
to our Web site until June 1999. Net sales increased during the quarter ended
March 31, 1999 compared to the quarter ended December 31, 1998 principally due
to promotional activities and increased product offerings and availability that
we financed with the proceeds received from our Series A preferred stock
financing in December 1998. Net sales increased during the quarter ended June
30, 1999 compared to the quarter ended March 31, 1999 principally due to
increased marketing activities and seasonal gift giving associated with
significant holidays and events during the June quarter.
COST OF SALES
Cost of sales consists primarily of the cost of products sold, inbound and
outbound shipping costs and warranty and inventory obsolescence costs. Cost of
sales grew during each quarter as our sales increased. Gross margin ranged from
5% to 18% during the five quarters presented. The fluctuation in gross margin is
principally due to the impact of the mix of product sold, pricing strategy and
certain promotional activities. Gross margin decreased during the quarter ended
March 31, 1999 compared to the quarter ended December 31, 1998 principally due
to promotional pricing during March 1999. Gross margin increased during the
quarter ended June 30, 1999 compared to the quarter ended March 31, 1999
principally due to the absence of promotional pricing in the month of March 1999
that did not continue into the quarter ended June 30, 1999.
OPERATING EXPENSES
MARKETING AND SALES. Marketing and sales expenses consist primarily of
advertising costs, credit card fees, product distribution expenses and related
employee salaries and benefits expenses. Our advertising is intended to build
brand awareness, generate site traffic and increase overall sales. The increase
in marketing and sales expenses is primarily due to increased levels of
advertising activity as well as incremental selling and distribution costs
associated with our growing sales volume. We intend to continue to pursue an
aggressive branding and marketing campaign and, therefore, expect marketing and
sales expenses to increase significantly in absolute dollars in future periods.
In addition, to the extent that our sales volume increases in future periods, we
expect marketing and sales expenses to increase in absolute dollars as we expand
our distribution capabilities to accommodate the increases in sales volume.
Marketing and sales expenses increased during the quarters ended March 31, 1999
and June 30, 1999 compared to the immediately preceding quarters principally due
to increased levels of advertising activity including expenses related to a
promotion agreement with Yahoo!, other online banner advertising and, in the
June quarter, newspaper advertising. Marketing and sales expenses increased
during the quarter ended June 30, 1999 compared to the quarter ended March 31,
1999 principally due to increased levels of advertising activity, including
expenses related to a promotion agreement with Yahoo!, other online banner
advertising and newspaper advertising.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
administrative employee salaries and benefits, professional fees, Web site
design and maintenance, office lease expenses, depreciation and other costs.
These costs increased throughout the fiscal year as we added management depth
and expanded our operations to meet growing sales. We expect general and
administrative expenses to increase as we expand our staff and leased
facilities, continue to develop our Web site and incur additional costs related
to the growth of our business and being a public company. General and
administrative expenses increased during the quarter ended March 31, 1999
compared to the quarter ended December 31, 1998 primarily due to
29
<PAGE> 31
increased staffing levels in operations, finance and development as well as
incremental professional fees associated with attracting new employees. General
and administrative expenses increased during the quarter ended June 30, 1999
compared to the quarter ended March 31, 1999 principally due to amortization of
deferred compensation associated with options granted at exercise prices below
the deemed fair value through June 30, 1999, to a lesser extent, and increased
staffing levels in administration, marketing, finance and development.
In the fiscal year ended March 31, 1999, we recorded deferred stock
compensation of $431,500 in connection with stock options granted during the
period. Also, during the quarter ended June 30, 1999, we recorded additional
deferred stock compensation of approximately $16.1 million in connection with
stock options granted during the period. These amounts will be amortized to
expense over the vesting periods of the applicable options, generally four
years, resulting in $17,500 for the fiscal year ended March 31, 1999 and
$591,912 for the quarter ended June 30, 1999, which are included in general and
administrative expenses.
Amortization of the deferred compensation expense for each of the next five
fiscal years is expected to be as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- ------------------------------------------------------------ ---------------
(IN THOUSANDS)
<S> <C>
March 31, 2000.............................................. $3,692
March 31, 2001.............................................. 4,133
March 31, 2002.............................................. 4,133
March 31, 2003.............................................. 4,115
March 31, 2004.............................................. 441
</TABLE>
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net consists of earnings on our cash and cash
equivalents, net of interest expense attributable to a note payable to an
investor of $1.0 million that was outstanding as of March 31, 1999. The amount
was advanced to us in March 1999 to fund ongoing marketing and operating costs.
The note was converted into Series B preferred stock in April 1999. Interest
income (expense), net increased during the quarter ended June 30, 1999 compared
to the quarter ended March 31, 1999 principally due to interest earned on cash
balances resulting from our sale of Series B preferred stock in April 1999.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our quarterly operating results have fluctuated in the past and may
fluctuate significantly in the future due to a variety of factors, many of which
are outside of our control. Because our operating results are volatile and
difficult to predict, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. It is
likely that in some future quarter our operating results may fall below the
expectations of securities analysts and investors. In this event, the trading
price of our common stock may fall significantly. We refer you to the more
complete discussion of the factors that could harm our business or cause our
operating results to fluctuate in "Risk Factors -- Our Operating Results Are
Volatile and Difficult to Predict. If We Fail to Meet the Expectations of Public
Market Analysts and Investors, the Market Price of Our Common Stock May Decline
Significantly".
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through the private sale of
preferred stock. During the fiscal year ended March 31, 1999, we sold $4.0
million of Series A preferred stock, including conversion of a note payable and
related interest of $755,000 that funded ongoing operations and purchases of
inventory.
30
<PAGE> 32
During the fiscal year ended March 31, 1999 and the quarter ended June 30,
1999, net cash used in operating activities was $3.7 million and $5.2 million,
respectively. Net cash used in operating activities during the fiscal year ended
March 31, 1999 primarily consisted of increases in inventories and net losses,
and, to a lesser extent, increases in prepaid expenses and accounts receivable.
These items were partially offset by increases in accounts payable, accrued
liabilities, compensation expense charges, depreciation and amortization. Net
cash used in operating activities during the quarter ended June 30, 1999
primarily consisted of increases in inventories and net losses, excluding
non-cash compensation charges.
In February 1999, we entered into a 12-month advertising and promotion
agreement with Yahoo!. In connection with this agreement, we are obligated to
make payments of $1.3 million during the term, $0.6 million of which was paid at
execution. The balance is due in installments ending in November 1999.
In April 1999, we sold $30.1 million of Series B preferred stock, including
the conversion of a $1.0 million note payable that was made in March 1999. In
July 1999, we sold $16.3 million of Series C preferred stock.
We currently anticipate that the balance of the net proceeds from our April
1999 sale of Series B preferred stock, our July 1999 sale of Series C preferred
stock and the net proceeds of this offering will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months. We plan to use the rest of the proceeds primarily for
funding operating losses and an expansive marketing campaign. We may need to
raise additional funds in less than 12 months if, for example, we pursue
business or technology acquisitions or experience operating losses that exceed
our current expectations. If we raise additional funds through the issuance of
equity, equity-related or debt securities, these securities may have rights,
preferences or privileges senior to those of the rights of our common stock and
our stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the financial institutions involved
in processing our customers' credit card payments for Internet services and a
third party that hosts our servers. We are also dependent on telecommunications
vendors to maintain our network and the United States Postal Service and other
third-party carriers to deliver orders to customers.
We have assessed the year 2000 readiness of our third-party supplied
software, computer technology and other services and of our vendors, and we will
continue to assess year 2000 readiness of products and services from
third-parties. Based upon the results of this assessment we have not needed to
develop a remediation plan. We will develop and implement, if necessary, a
remediation plan with respect to third-party software, third-party vendors and
computer technology and services that may fail to be year 2000 compliant. At
this time, the expenses associated with this assessment and potential
remediation plan have been immaterial, although expenses that we may have to
incur in the future cannot be determined. The failure of our software and
computer systems and of our third-party suppliers to be year 2000 compliant
would have a material adverse effect on us.
Since inception, we have internally developed substantially all of the
systems for the operation of our Web site. These systems include the software
used to provide our Web site's search, customer interaction, and
transaction-processing and fulfillment functions, as well as
31
<PAGE> 33
firewall, security, monitoring and back-up capabilities. We have reviewed the
year 2000 compliance of our internally developed proprietary software. Based
upon our assessment to date, we believe that our internally developed
proprietary software is year 2000 compliant.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on us.
At this time, we have not yet developed a contingency plan to address
situations that may result if our vendors or we are unable to achieve year 2000
compliance because we currently do not believe that a contingency plan is
necessary. The cost of developing and implementing a plan, if necessary, could
be material and we may not have enough time to implement it before 2000. Any
failure of our material systems, our vendors' material systems or the Internet
to be year 2000 compliant could include difficulties in operating our Web site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business.
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BUSINESS
ASHFORD.COM
We are a leading Web-based retailer focused exclusively on luxury and
premium products, including new and vintage premium watches and fine writing
instruments. By combining our expertise in luxury products and our commitment to
excellent customer service with the benefits of Internet retailing, we are able
to deliver a unique shopping experience to consumers. Our initial product focus
has been fine watches and, since our inception, we have grown into one of the
leading online retailers of new and vintage premium watches. We carry over 7,000
new and vintage watch styles from more than 70 of the finest brands. We also
offer more than 600 different styles of fine writing instruments from 12 leading
brands. We believe that additional luxury and premium product categories, such
as leather goods, sunglasses, fragrances, ties and scarves, and jewelry, also
represent significant online commerce opportunities. We believe these luxury and
premium product categories are well suited for online commerce given brand
recognition, generally high average sales prices and relatively low average
distribution and shipping costs.
Our Web site features detailed product information, helpful and useful
shopping services and innovative merchandising through easy-to-navigate Web
pages. We offer customers the convenience and flexibility of shopping 24 hours a
day, seven days a week, from their homes, offices or other locations. In
addition, we hold an extensive selection of our products in inventory, which
enables us to ship most products to our customers within 24 hours. Our customer
service representatives are available through phone, e-mail and an online chat
service and are trained to answer a broad array of questions regarding product
styles, features and technical specifications, as well as provide product
recommendations. This informative and high-quality shopping experience provides
leading brands a Web-based retail channel consistent with the luxury character
and premium quality of their products.
INDUSTRY OVERVIEW
GROWTH OF THE INTERNET AND ONLINE COMMERCE
Internet usage and online commerce continue to grow worldwide.
International Data Corporation, or IDC, estimates that there were 159 million
Web users worldwide at the end of 1998. IDC anticipates that number will grow to
approximately 510 million users by the end of 2003. IDC also estimates that
revenue generated worldwide from online commerce will exceed $1.3 trillion by
2003. This growth can be attributed to many factors, including:
- - a large and growing installed base of personal computers and other
Internet-connected devices in the workplace and home;
- - advances in performance and speed of personal computers and modems;
- - improvements in network security, infrastructure and bandwidth;
- - easier and cheaper access to the Internet; and
- - the rapidly expanding availability of online content and commerce sites.
The growth in online commerce can also be attributed to a number of
advantages the Internet provides to online retailers. Online retailers can
display a larger number of products at a lower cost than traditional store-based
or catalog retailers. In addition, online retailers can rapidly adjust their
selections, editorial content and pricing, providing significant merchandising
flexibility. Online retailers also benefit from the minimal cost to publish on
the Web, the ability to reach a large group of customers from a central
location, and the potential for low-cost customer interaction. Unlike
traditional retail channels, online retailers do not have the cost of managing
and maintaining a retail store infrastructure or the significant printing and
mailing costs of
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catalogs. Online retailers can also easily obtain demographic and behavioral
data about customers, increasing opportunities for direct marketing and
personalized services.
TRADITIONAL LUXURY GOODS MARKET
The luxury goods market includes a broad selection of product categories.
Based on data from Global Industry Analysts, or GIA, and DataMonitor, leading
independent market research companies, we estimate the worldwide market for
luxury and premium lifestyle products to be greater than $70 billion. This
market includes fine watches and other luxury and premium product categories,
such as leather goods, sunglasses, fragrances, ties and scarves, and jewelry.
Our initial focus within this market has been the sale of fine watches. GIA
reports approximately $6 billion in total worldwide retail sales in 1998 of
mid-range to high-end watches, which typically have retail prices ranging from
approximately $75 to more than $5,000. In addition, GIA estimates total
worldwide retail sales of writing instruments to be over $1 billion in 1998. We
believe that these and other luxury and premium product categories represent
significant online commerce opportunities.
TRADITIONAL RETAIL CHANNELS FOR LUXURY AND PREMIUM PRODUCTS. We believe
that the traditional retailers for luxury and premium products in the United
States today can be grouped as follows:
- - high-end department stores and jewelry stores often strive to provide a high
level of customer service and a knowledgeable sales staff, but typically offer
a limited selection of mid-range to high-end products;
- - national department stores tend to carry broad selections of low-end to
mid-range products from brands that are complementary to the stores' other
offerings, but typically offer limited product-specific customer service;
- - specialty and single brand stores are retail locations that carry a broad
selection of specific product categories, but are limited to the geographic
region in which the few physical stores are located; and
- - boutiques are small stores often located in malls that generally carry a
selection of the latest trends in lower-priced, fashion products and
accessories.
CHALLENGES IN TRADITIONAL LUXURY GOODS RETAILING. We believe that
traditional store-based retailers face a number of challenges in providing a
satisfactory shopping experience for buyers of luxury and premium products.
- - Selection is limited because physical retail space constrains the number of
styles and the amount of product inventory that may be carried by any one
store. In addition, the significant carrying costs of physical inventory in
multiple store locations require traditional store-based retailers to focus
their product selection on the most popular products that produce the highest
inventory turns, further limiting consumer selection.
- - Traditional store-based retailers have a high cost structure. Most of the
leading luxury and premium product retailers are located either in the most
exclusive and expensive shopping locales or in high-cost retail outlets or
malls, both of which must be in close proximity to the target buyers. This is
because their sales are dependent on serving customers who are willing to
physically visit their stores. Traditional retailers sell luxury products
often at a significantly higher price than wholesale to cover high operating
costs. As a result, consumers ultimately pay for the high cost structure of
the retail store.
- - The needs of luxury goods customers are changing. Increasingly, luxury goods
brands are appealing to a broader, time-constrained customer base that is not
willing or able to spend the time necessary to shop in traditional store-based
retail locations.
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- - In many cases, customers are served by employees with limited knowledge
regarding the features of the products they sell, whether due to high employee
turnover, limited training or other factors.
- - Traditional store-based retailers can only serve those customers who have
convenient access to their stores. These store-based retailers must open new
stores to serve additional geographic areas, resulting in significant
investments in inventory, physical space, leasehold improvements and the
hiring and training of store personnel.
We believe that few traditional store-based retailers currently offer an
extensive selection of luxury and premium products, broad geographic coverage
and convenient access, and staff that is sufficiently knowledgeable to assist
with significant customer decisions typically involving purchases of several
hundred dollars. As a result, we believe customers often do not find shopping
for luxury and premium products to be a convenient or enjoyable experience.
THE ASHFORD.COM SOLUTION
Ashford.com is a leading Web-based retailer focused exclusively on luxury
and premium products, including new and vintage premium watches and fine writing
instruments. Our initial product focus has been fine watches and, since our
inception, we have grown into one of the leading retailers of new and vintage
premium watches. Our online store also offers an extensive selection of premium
writing instruments and other luxury goods and services. Our online store is
designed to provide consumers with a convenient and enjoyable shopping
experience in a Web-based retail environment. We provide an extensive selection,
detailed product information that enables consumers to make informed decisions,
competitive pricing compared to traditional retail channels, a commitment to the
highest level of customer service and the convenience of online shopping. The
key components of the Ashford.com experience include:
EXTENSIVE PRODUCT SELECTION. We offer a broad selection of luxury and
premium products that would be economically and physically difficult to offer in
a traditional store, together with the unique environment of the Internet that
enables us to dynamically adjust our product mix and merchandising strategy. Our
online store offers over 7,000 watch styles representing over 70 brands, over
600 styles of fine writing instruments from 12 major brands and an assortment of
related luxury goods. Additionally, some of the brands we offer lack a U.S.
distribution network, making them hard to find in traditional retail outlets. We
believe that our extensive selection increases the likelihood that the consumer
will find the product they would like to purchase.
COMPELLING CONTENT AND DETAILED PRODUCT INFORMATION. Our Web site includes
significant content and detailed product information to provide our customers
with a convenient and enjoyable shopping experience. Our Web site displays
detailed product descriptions and over 7,500 product photos. For certain brands,
we have dedicated pages to communicating specific brand histories and key
messages. We also employ specialists with product expertise, such as master
watchmakers and a certified gemologist, who are available to address detailed
customer questions by phone, e-mail or online chat. Our goal is to provide our
customers with the product information they need to make educated and highly
satisfactory purchase decisions.
COMPETITIVE PRICES AND COMPELLING VALUE. Compared to our traditional
store-based retail competitors, we believe that our cost structure is lower. As
a result, we offer our customers products at competitive prices and, combined
with our high-quality shopping experience, provide compelling value.
COMMITMENT TO EXCELLENT CUSTOMER SERVICE. Luxury and premium goods
consumers expect the highest level of personalized customer service, which we
are committed to providing. Our customer service representatives are available
through phone, e-mail and an online chat service and are trained to answer a
broad array of questions regarding product styles, features and technical
specifications, as well as provide product recommendations. Before shipping, we
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inspect each product, and in the case of watches, adjust the size and set the
time for the customer. We also offer our watch customers a certification of
authenticity, repair and battery replacement services and an extended,
three-year warranty. In addition, we offer complimentary shipping and
gift-wrapping. We also confirm every order by e-mail and offer a 30-day full
product refund to ensure customer satisfaction.
PERSONALIZED SHOPPING EXPERIENCE. We provide a convenient and enjoyable
shopping experience that addresses the dynamic needs of the luxury goods
customer. These services are designed to help consumers search through our
product offerings and make informed selections. Our services include:
- - Search Capability. Our site offers search capabilities making it easy for
customers to find products on the site. Key search criteria include brand,
price, keyword, size, features and other criteria.
- - Product Showcase. An innovative feature of our site enables customers to
create their own virtual product showcases. The showcase is a tool that allows
customers to set aside and view several products simultaneously on their own
customized web pages. A customer can save the showcase on the site, enabling
the customer to return to the showcase in a future shopping visit.
- - Real-Time Customer Interaction. Using real-time, online customer interaction
software, our customer service representatives are able to answer specific
questions about our products and services. This feature allows customers
shopping from home with just one phone line to communicate in real-time with a
customer service representative without losing their Internet connection and
leaving our online store.
- - In-Stock Notification. We carry most of our products in inventory. For items
in stock, we clearly indicate to the customer on our Web site that we can ship
the product generally within 24 hours. For an item not currently in stock, we
indicate on our Web site that the customer can expect a longer delivery time.
- - Price Alert. Customers can ask to be notified by e-mail if the price for a
product changes. Customers can also specify a desired target price and ask to
be notified by e-mail if the product reaches that target price.
- - Gifts and Wish List. We provide a variety of gift suggestions and feature
product suggestions for particular holidays. We also provide a wish list
service that customers can use to provide friends and relatives with gift
ideas by e-mail. Customers buying gifts can choose among a variety of
gift-wrap styles at the time of order.
- - Shopping Hours. Our online store provides consumers the opportunity to shop
from their homes, offices or other locations 24 hours a day, seven days a
week.
GEOGRAPHIC COVERAGE. By selling online, we are able to sell products
throughout the U.S. and worldwide where the products might not otherwise be
available. In addition, consumers are able to go to one location and find an
extensive selection as opposed to visiting several stores with limited product
offerings.
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BUSINESS STRATEGY
Our objective is to be one of the leading online retailers of luxury and
premium products. We intend to extend our leadership in the Internet-based
retail of fine watches to other luxury and premium products, such as writing
instruments, leather goods, sunglasses, fragrances, ties and scarves, and
jewelry. Key elements of our strategy include:
FOCUS ON THE PREMIUM RETAIL WATCH MARKET. We have become one of the leading
sellers of watches on the Internet by providing thousands of styles of new and
vintage watches from the finest major brands at competitive prices. We intend to
capitalize on our leading online market position in watches to become the
primary destination for consumers to purchase premium watches. Our objective is
to grow our market position and expand our customer base through superior
execution and strong relationships with leading brands.
EXTEND LEADERSHIP POSITION IN FINE WATCHES TO OTHER PRODUCT CATEGORIES. We
believe that there are excellent online market opportunities for a variety of
luxury and premium products, including leather goods, sunglasses, fragrances,
ties and scarves, and jewelry. We intend to enhance our product offerings by
expanding into additional luxury and premium product categories, which will
enable us to leverage our customer base, brand name, merchandising expertise and
distribution capabilities. For example, we introduced fine writing instruments
and an assortment of other luxury products in June 1999. We believe that
offering a broader selection of luxury goods will enable us to increase sales
per customer visit, encourage repeat purchases and expand our customer base.
BUILD ASHFORD.COM EXPERIENCE AND BRAND. We intend to establish a brand
identity that will support the creation of an Internet luxury community and
provide leading brands a powerful new distribution channel consistent with their
luxury identities. We will focus our brand campaign on convenience, value,
selection, trust and service. We intend to create an environment where
Ashford.com shoppers are confident that they have found a smarter, easier and
more compelling way to buy luxury goods. We believe this approach will support
an ongoing relationship with and sales to our target customers who are more
likely to purchase Ashford.com's products.
EXPAND RELATIONSHIPS WITH LEADING LUXURY BRANDS. Our intent is to be the
Internet retailer of choice for leading luxury and premium brands. We currently
have over 50 direct relationships with leading watch brands, and nine direct
relationships with manufacturers of fine writing instruments. We plan to expand
the direct relationships with leading brands we have in watches and fine writing
instruments, and to develop strong relationships in new product categories.
Direct relationships enable us to purchase product more efficiently. We believe
that our merchandising history and well-established relationships with leading
brands enable us to provide our customers with compelling product offerings,
while giving us access to additional sources of merchandise.
PURSUE WAYS TO INCREASE OUR SALES. We intend to pursue new opportunities to
increase our sales by:
- - expanding into new product categories;
- - increasing product selection in our existing departments;
- - continuing to take steps to add new customers and to promote repeat purchases;
- - pursuing international market opportunities;
- - establishing strategic alliances; and
- - acquiring complementary businesses, products and technologies.
EXPAND OUR OPERATIONAL AND SYSTEMS INFRASTRUCTURE. We plan to continue to
devote resources to growing our systems and operational infrastructure to handle
increased volume, enhance our service offerings and take advantage of the unique
characteristics of online luxury goods retailing. We have developed technologies
and implemented systems to support secure and reliable online retailing. Among
other technology objectives, we intend to incorporate features
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that provide personalized customer interaction to enhance the customer's
shopping experience and build customer loyalty. We are committed to growing
capacity rapidly in order to sustain high levels of customer service.
THE ASHFORD.COM ONLINE RETAIL STORE
We have designed our online retail store to be the primary place for
consumers to purchase luxury and premium products online. We believe our Web
site provides a secure, reliable and enjoyable shopping experience in an
attractive, easy-to-use online store. The user interface is simple and
consistent throughout the site. The interface also has powerful search features
that allow customers to search product by brand, price, keyword, size, features
and other criteria. A consumer on our site can browse the different departments
of our store, conduct targeted searches, view recommended products, verify
product availability, visit our gifts department and participate in promotions.
Unlike a traditional retail store, consumers can shop in the comfort and
convenience of their homes or offices.
OUR STORE DEPARTMENTS
We have categorized products into different departments, including new
watches, vintage watches, writing instruments and gifts. Within each department,
products can be viewed by brand, or sorted by price, keyword, size, features and
other criteria. The following is a summary of each of these departments.
NEW WATCHES. Since inception, we have focused on becoming the leading
retailer of fine watches on the Internet. A customer visiting the site first
arrives in the new watch department. Here we offer over 6,500 styles from over
70 brands, providing outstanding selection for the customer. Our prices in this
department generally range from $75 to over $5,000. To date, our average
purchase price in this department has been approximately $500 per watch.
VINTAGE WATCHES. This department offers our collection of fine, vintage
watches in various price ranges. Vintage watches are generally high-quality
brand, previously owned watches. These watches often attract collectors or watch
enthusiasts in search of a specific model. Unlike many other sellers of vintage
watches, we offer a broad selection combined with outstanding service, including
maintenance, cleaning, a certification of authenticity and extended warranties.
WRITING INSTRUMENTS. The writing instruments department offers fine pens
and pencils from leading brands, with prices generally ranging from $40 to over
$200. The collection includes over 600 styles from 12 leading brands.
GIFTS. The gifts department highlights products that we recommend based on
holiday seasons or personal events, such as birthdays, anniversaries or
graduations. In June 1999, for example, this department featured several watches
and pens as graduation gift ideas. We also offer complimentary gift-wrapping to
simplify the gift giving experience.
MERCHANDISING
We believe that the breadth and depth of our product selection, together
with the flexibility of our online store and our range of helpful and useful
shopping services, enable us to pursue a unique merchandising strategy. Unlike
store-based retail formats, our online store provides us with significant
flexibility with regard to the organization and presentation of our product
selection. To encourage purchases, we feature various promotions on a rotating
basis throughout the store and continually update our online recommendations. We
also actively create and maintain pages that are designed to highlight certain
products and brands. The following are examples of some of our specific
merchandising strategies.
ONLINE BRAND BOUTIQUES. In partnership with major luxury and premium
brands, we have dedicated pages that communicate a brand's marketing message.
These pages often detail a
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brand's history, product features, quality statements and other key messages. We
provide more consistent and comprehensive information for more products to the
customer than a sales representative in a traditional retail store would be able
to communicate.
PRODUCT SHOWCASE. We offer customers the ability to create their own
virtual product showcases. The showcase is a tool that allows customers to set
aside and view several products simultaneously on their own customized pages. A
customer can save the showcase on the site, enabling the customer to return to
the showcase in a future shopping visit.
FEATURED PRODUCTS. We frequently give a product prominent placement on the
site, describe its key features and potentially highlight it as our Collector's
Choice. Products that receive this merchandising focus generally receive a boost
in sales.
PRODUCT BUNDLING. To promote purchases of higher value items, we combine
products from our large selection to offer bundling promotions. For example, in
June 1999 we offered a complimentary premium pen with the purchase of a watch of
a certain value.
SPECIAL PROMOTIONS. We offer certain products on promotion and provide
special pricing. The technological advantages of online retailing, compared to
traditional store-based retailing, allow us to adjust our promotions rapidly to
promote targeted sales.
We employ a dedicated team of buyers and merchandisers that continually
monitor the consistency and quality of our merchandising efforts. This team,
combined with our technology, is able to pursue a merchandising strategy in
which we dynamically change our product offerings to enhance the consumer's
shopping experience.
MARKETING & PROMOTION
We have designed our marketing and promotion strategy to build the
Ashford.com brand, increase customer traffic, promote the sales of new products,
maximize repeat purchases and build strong customer loyalty. Our marketing and
promotional activities primarily target a customer demographic that is more
likely to buy Ashford.com's luxury and premium products. These activities
include both offline and online advertising.
OFFLINE ADVERTISING. We use offline advertising to promote both our brand
and specific merchandising opportunities. To date, our offline advertising has
primarily consisted of print advertisements in newspapers. Specifically, we have
placed ads in The Wall Street Journal, The New York Times, as well as newspapers
in cities with high Internet use, such as Austin, Boston, San Francisco and San
Jose. We plan to increase our use of traditional offline advertising, including
television, radio, magazines, outdoor advertising and direct mail, in order to
continue building our brand recognition.
ONLINE ADVERTISING. We have an agreement with Yahoo! under which our
advertisement banner will appear on the screen each time one of over 300
keywords relating to watches is entered as a search term by a user. We also
advertise on the sites of major online portals, including Excite@Home, Infoseek,
Lycos and others. We also intend to partner with other major online portals,
Internet service providers and luxury and premium market-related Web sites to
build our brand and increase our reach on the Internet. In addition, we have an
affiliate program and other initiatives aimed at increasing traffic and
supporting our brand development. Under our affiliate program, we pay our
registered affiliates referral fees for sales generated via their links to our
Web site.
ONLINE DIRECT MARKETING. As our customer base grows, we continue to collect
significant data about our customers' buying preferences and habits in an effort
to increase repeat purchases. We intend to maximize the value of this
information by delivering meaningful information and special offers to our
customers via e-mail and other means. In addition, we
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publish a weekly, online newsletter delivered by e-mail to subscribers in which
we highlight important developments and special promotions.
FULFILLMENT OPERATIONS
We obtain our products from brands and a diverse network of distributors,
brokers and retailers. In the watch business, we have established over 50 direct
relationships with leading brands. For our fine writing instruments business, we
have direct relationships with nine leading brands. We have ongoing efforts to
expand the number of direct relationships with brands in all our product
categories over time. For other brands where we do not have direct
relationships, we buy products from a network of distributors, brokers and
retailers.
We carry inventory on most of the products available for sale on our site.
We store our products and conduct our fulfillment operations in our headquarters
facility located in Houston, Texas. When we receive an order, we immediately
begin the packaging and shipping operation. Most orders are shipped out of our
warehouse within 24 hours of receipt. Our inventory management system tracks the
quantities of all stock keeping units, which enables us to display information
about the availability of the products on our Web site.
We offer three choices of shipment for our products: next-day delivery,
three-day delivery and ground delivery. We have developed relationships with
both United Parcel Service and Federal Express to maximize our overall service
level to all 50 states. The ability to provide overnight delivery is an
important ongoing service for our customers.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers, earn their trust and encourage repeat visits
and purchases, largely depends on the strength of our customer support and
service operations and staff. We are committed to providing the high level of
personalized customer service that luxury and premium goods consumers expect. We
have a high-quality customer service staff with a broad range of experience and
knowledge. We provide extensive training to our customer service
representatives, including on-site training from manufacturers, to allow our
representatives to answer a broad array of questions regarding product styles,
features and technical specifications, as well as provide product
recommendations.
Our customer service representatives are available through phone, e-mail
and an online chat service during business hours across all U.S. time zones and
on Saturday. Before shipment, we inspect each product, and in the case of
watches, adjust the size and set the time for the customer. Once shipment is
made, we immediately send e-mail confirmation to the customer. If the customer
is not satisfied with the product for any reason, the customer generally may
return the product for a full refund within 30 days. We also offer our watch
customers a certification of authenticity, repair and battery replacement
services and an extended warranty.
OPERATIONS AND TECHNOLOGY
We have implemented a broad array of scaleable site management, search,
customer interaction and distribution services and systems that we use to
process customer orders and payments. These services and systems use a
combination of our own and commercially available, licensed technologies. These
applications also manage the process of accepting, authorizing and charging
customer credit card orders with an address verification and approval
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system provided by Chase Bank of Texas. We focus our internal development
efforts on creating, implementing and enhancing specialized software that we use
to:
- - accept and validate customer orders;
- - enable customer service representatives to engage in real-time, online
interaction with multiple customers simultaneously;
- - organize, place and manage orders with vendors;
- - receive product and assign it to customer orders; and
- - manage shipment of products to customers based on various ordering criteria.
Our systems are based on industry-standard architectures and have been
designed to reduce downtime in the event of outages or catastrophic occurrences.
Our Web site is available 24 hours a day, seven days a week. Our system hardware
is hosted at a third-party facility in Houston, Texas, which provides redundant
communications lines and emergency power backup. We have implemented load
balancing systems and redundant servers to provide fault tolerant service.
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements and enhancements, and changing customer demands. Accordingly, our
future success will depend on our ability to:
- - adapt to rapidly changing technologies;
- - adapt our services to evolving industry standards; and
- - continually improve the performance, features and reliability of our service
in response to competitive service and product offerings and evolving demands
of the marketplace.
Our failure to adapt to market changes would harm our business. In
addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by us to modify or adapt our services or
infrastructure. This could have a material adverse effect on our business,
results of operations and financial condition.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally and directly
applicable to online commerce, as well as the secondhand watch statutes enacted
in several states, as discussed below. However, as Internet use gains
popularity, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws may cover issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of online commerce may prompt calls for more stringent
consumer protection laws. Several states have proposed legislation to limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties. We
do not currently provide personal information regarding our users to third
parties. However, the adoption of additional consumer protection laws could
create uncertainty in Web usage and reduce the demand for our products and
services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws that
are intended to address these issues could create uncertainty in the Internet
market place. This
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uncertainty could reduce demand for our services or our cost of doing business
may increase as a result of litigation costs or increased service delivery
costs.
In addition, because our services are available over the Internet in
multiple states and foreign countries, other jurisdictions may claim that we are
required to qualify to do business in that state or foreign country. We are
qualified to do business only in Texas. Our failure to qualify in a jurisdiction
where we are required to do so could subject us to taxes and penalties. It could
also hamper our ability to enforce contracts in these jurisdictions. The
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business could have a material adverse effect on our
business, results of operations and financial condition.
Several states have laws regulating the sale of secondhand watches. We have
implemented procedures to ensure that we comply with these statutes, however, if
a court were to find that we have violated these statutes, our business could be
materially adversely affected.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect to face stiff competition in every product category that
we enter. Barriers to entry are minimal, and current and new competitors can
launch new Web sites at a relatively low cost.
We currently or potentially will compete with a variety of competitors,
including the following:
- - traditional retailers of watches, pens and other luxury products, which may
compete with both an online and offline presence, including high-end
department stores, jewelers and national department stores;
- - manufacturers of our products that decide to sell directly to end-customers,
either through physical retail outlets or through an online store;
- - other online retailers of watches and other luxury products, including online
service providers that feature shopping services; and
- - catalog retailers of watches, pens and other luxury products.
We believe that the following are the principal competitive factors in our
market:
- - brand recognition;
- - selection;
- - convenience;
- - order delivery performance;
- - customer service;
- - site features and content; and
- - price.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to Web site and systems development than we
can. In addition, larger, well-established and well-financed entities may
acquire, invest in or form joint ventures with online competitors.
Certain of our competitors may be able to secure products from vendors on
more favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet. Given our limited operating history,
many of our competitors have significantly greater experience selling watches.
Our online competitors are particularly able to use the Internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of
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<PAGE> 44
existing technologies, such as price comparison programs that select specific
titles from a variety of Web sites and may direct customers to other online
watch sellers, may increase competition.
INTELLECTUAL PROPERTY
We rely on various intellectual property laws and contractual restrictions
to protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
employees, contractors, vendors and strategic partners. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
pursue the registration of our trademarks and service marks in the U.S. and
internationally. However, effective intellectual property protection may not be
available in every country in which our services are made available online.
We rely on technologies that we license from third parties. These licenses
may not continue to be available to us on commercially reasonable terms in the
future. As a result, we may be required to obtain substitute technology of lower
quality or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
As of the date of this prospectus, we have not been notified that our
technologies infringe the proprietary rights of third parties. However, there
can be no assurance that third parties will not claim infringement by us with
respect to our current or future technologies. We expect that participants in
our markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any infringement claim,
with or without merit, could be time-consuming, result in costly litigation,
cause service upgrade delays or require us to enter into royalty or licensing
agreements. These royalty or licensing agreements might not be available on
terms acceptable to us or at all. As a result, any claim of infringement against
us could have a material adverse effect upon our business.
EMPLOYEES
As of June 30, 1999, we had 67 full-time employees. None of our employees
is represented by a labor union. We have not had any work stoppages and consider
our employee relations to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom are bound by an employment agreement requiring service for any defined
period of time. The loss of services of one or more of our key employees could
have a material adverse effect on our business, financial condition and results
of operations. Our future success also depends in part upon our continued
ability to attract, hire, train and retain highly qualified technical, sales and
managerial personnel. Competition for these employees is intense and there can
be no assurance that we can retain our key personnel in the future.
FACILITIES
Our corporate offices and fulfillment operations are located in Houston,
Texas, where we lease approximately 10,000 square feet. We will relocate our
operations in August 1999 to a newly leased facility in Houston, Texas, which we
expect will be a disruptive, time consuming and expensive process. The new
facility consists of approximately 62,000 square feet.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would materially adversely affect us.
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following tables sets forth specific information regarding our
executive officers and directors as of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
J. Robert Shaw........................ 34 Chairman of the Board
Kenneth E. Kurtzman................... 36 Chief Executive Officer and Director
James H. Whitcomb, Jr. ............... 33 President, Chief Operating Officer,
and Director
David F. Gow.......................... 36 Vice President, Finance and Chief
Financial Officer
William M. Stewart.................... 36 Vice President, Marketing
James E. Gerber....................... 37 Vice President, Business Development
Elizabeth A. Greenfield............... 38 Vice President, Merchandising
Gary A. Paranzino..................... 38 Vice President, General Counsel and
Secretary
Kevin R. Harvey....................... 34 Director
</TABLE>
J. ROBERT SHAW co-founded Ashford.com and has served as the Chairman of the
Board since April 1998. In 1989, Mr. Shaw founded Synergy Development Corp., an
information-technology consulting firm that provides equipment and services to
online commerce companies, and has been President and Chief Executive Officer
since its inception. From 1985 to 1989, Mr. Shaw served as Vice President of
Sales and Finance for StyleWare, Inc., a software company that was subsequently
sold to Claris Corporation. Mr. Shaw received a Bachelor of Business
Administration in Economics summa cum laude from the University of St. Thomas.
KENNETH E. KURTZMAN joined Ashford.com in May 1999 as our Chief Executive
Officer and a Director. From August 1995 to April 1999, Mr. Kurtzman served as
Vice President and General Manager of several divisions of Compaq Computer
Corporation, including the Small and Medium Business Division and Compaq.com.
From September 1989 to August 1995, Mr. Kurtzman worked for McKinsey & Co., an
international consulting firm, where most recently he served as a Principal
working in the computing, telecommunications, systems integration, banking and
energy industries. Mr. Kurtzman received a Bachelor of Arts degree in Economics
magna cum laude from Rice University, an undergraduate degree in economics from
Cambridge University and a Masters in Business Administration degree from the
Graduate School of Business at Stanford University.
JAMES H. WHITCOMB, JR. co-founded Ashford.com and has served as our
President, Chief Operating Officer and as a Director since March 1998. From our
inception to May 1999, he served as Chief Executive Officer. From February 1990
to March 1998, Mr. Whitcomb served as Vice President and Chief Technology
Officer at Synergy Development Corp. Mr. Whitcomb currently serves as a director
of Synergy Development Corp. Mr. Whitcomb received a Bachelor of Business
Administration in Accounting from the University of Texas.
DAVID F. GOW has served as our Vice President, Finance and Chief Financial
Officer since March 1999. From January 1996 to February 1999, Mr. Gow was the
Director of Strategic Planning at Compaq Computer Corporation. From August 1993
to January 1996, Mr. Gow worked as a consultant with McKinsey & Co., serving the
technology, energy, banking and retail industries. Mr. Gow received a Bachelor
of Arts in Economics from Williams College and a Masters degree from the Kennedy
School of Government at Harvard University.
WILLIAM M. STEWART has served as our Vice President of Marketing since
April 1999. From April 1994 to April 1999, Mr. Stewart worked for the Coca-Cola
Company where he served as
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<PAGE> 46
Director of Strategic Innovation, Global Group Manager and Brand Manager. From
August 1990 to April 1994, he was a brand manager for General Mills, Inc. Mr.
Stewart received a Bachelor of Business Administration in Accounting from the
University of Texas and a Masters in Business Administration in Marketing from
The Wharton School at the University of Pennsylvania.
JAMES E. GERBER has served as our Vice President of Business Development
since June 1999. Prior to joining Ashford.com, Mr. Gerber spent seven years with
Clarify, Inc., a front office electronic business solutions provider, most
recently as Southwestern Branch Manager. Mr. Gerber received a Bachelor of Arts
in Political Economy of Industrial Societies from the University of California
at Berkeley and a Masters in Business Administration from the Graduate School of
Business at Stanford University.
ELIZABETH A. GREENFIELD has served as our Vice President of Merchandising
since June 1999. From 1992 to 1999, Ms. Greenfield served as a general manager
of Cartier, Inc. Prior to joining Cartier, Ms. Greenfield was General Manager of
CIRO/Kenneth Jay Lane. Ms. Greenfield received a Bachelor of Science cum laude
and an Associate degree from the Fashion Institute of Technology. Ms. Greenfield
also received a Masters in Business Administration with honors from the
University of Houston.
GARY A. PARANZINO joined Ashford.com in July 1999 as our Vice President,
General Counsel and Secretary. From July 1996 to July 1999, Mr. Paranzino served
as Vice President, General Counsel and Secretary of PointCast Incorporated, an
internet news and information service. Prior to joining PointCast, Mr. Paranzino
was in private practice in the New York office of Morgan, Lewis and Bockius LLP.
Mr. Paranzino earned a Bachelor of Arts Degree from Cornell University and a
J.D. from Cornell Law School.
KEVIN R. HARVEY has served as a Director of Ashford.com since December
1998. Mr. Harvey has been a General Partner of Benchmark Capital, a venture
capital firm, since January 1995. From July 1993 to January 1995, he served as
General Manager for Lotus Development Corporation. In August 1990, Mr. Harvey
founded Approach Software Corporation, a software company, where he served as
the President and Chief Executive Officer until July 1993 when Approach was sold
to Lotus Development Corporation. Prior to founding Approach, Mr. Harvey founded
Styleware Inc. Mr. Harvey is also a director of Silicon Gaming, Inc., an
entertainment and gaming technology company, Critical Path, Inc., an e-mail
hosting services company, and a director of several privately held companies.
Mr. Harvey received a B.S.E.E. degree from Rice University.
BOARD COMMITTEES
Our Board of Directors established the Audit Committee and the Compensation
Committee in July 1999. The Audit Committee makes recommendations to the Board
of Directors regarding the selection of independent accountants, reviews the
results and scope of audit and other services provided by our independent
accountants and reviews and evaluates our audit and control functions. The
Compensation Committee makes recommendations regarding our stock plans and makes
decisions concerning salaries and incentive compensation for our employees and
consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kurtzman participates in all discussions and decisions regarding
salaries and incentive compensation for all of our employees and consultants,
except that he is excluded from discussions regarding his own salary and
incentive compensation. No member of our 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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<PAGE> 47
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from Ashford.com
for their services as members of the Board of Directors. Directors are eligible
to participate in our stock plans and, following this offering, non-employee
directors will receive automatic option grants under our 1999 Equity Incentive
Plan. A non-employee director who first joins our board following the offering
will receive a fully vested option for 500 shares of our common stock. At each
annual meeting of stockholders, beginning in 2000, all non-employee directors
who will continue to be board members after the annual meeting will receive an
option for 1,500 shares of our common stock. In no event will a non-employee
director receive an option for 1,500 shares in the same calendar year that he
receives the option for 500 shares.
EXECUTIVE COMPENSATION
The following table presents compensation information for the fiscal year
ended March 31, 1999 paid by Ashford.com for services to us by our current Chief
Executive Officer and our former Chief Executive Officer and current President
and Chief Operating Officer. No other executive officer earned more than
$100,000 in total salary and bonus for the last fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------
-------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS(#)
- --------------------------- --------- -------- -----------------------
<S> <C> <C> <C>
Kenneth E. Kurtzman.............................. -- -- --
Chief Executive Officer
James H. Whitcomb, Jr. .......................... $76,923 -- --
President, Chief Operating Officer and former
Chief Executive Officer
</TABLE>
Mr. Kurtzman commenced service with Ashford.com in May 1999 and received a
signing bonus of $50,000 in connection with his employment. Mr. Kurtzman's
current annual salary is $250,000. In May 1999, Ashford.com granted him an
option for 390,000 shares of our common stock at an exercise price of $2.00 per
share. Mr. Whitcomb ceased to be Ashford.com's Chief Executive Officer in May
1999.
OPTION GRANTS IN LAST FISCAL YEAR, AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
No options or stock appreciation rights were granted to our current Chief
Executive Officer, Mr. Kurtzman, and our former Chief Executive Officer and
current President and Chief Operating Officer, Mr. Whitcomb, during the fiscal
year ended March 31, 1999. In May 1999, Ashford.com granted to Mr. Kurtzman an
option to purchase 390,000 shares of Ashford.com's common stock at an exercise
price per share of $2.00 per share. Messrs. Kurtzman and Whitcomb did not
exercise any options during the fiscal year ended March 31, 1999, and neither
officer held outstanding options at the end of the last fiscal year.
EMPLOYMENT AGREEMENT AND CHANGE OF CONTROL ARRANGEMENTS
Under our 1999 Equity Incentive Plan, if a change in control of Ashford.com
occurs, an option or other award will become fully exercisable and fully vested
if the option or award is not assumed by the surviving corporation or its parent
or if the surviving corporation or its parent does not substitute comparable
awards for the awards granted under the 1999 Equity Incentive Plan.
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<PAGE> 48
We entered into an employment agreement with Mr. Kurtzman, our Chief
Executive Officer, as of May 1, 1999, which provides for Mr. Kurtzman's salary,
bonus, option and certain severance payments. Under this agreement, Mr. Kurtzman
was granted an option for 390,000 shares of our common stock. If a change in
control occurs, the vesting of the option shares will accelerate, and an
additional 25% of Mr. Kurtzman's unvested option shares will become vested. If
Mr. Kurtzman is terminated without cause, Mr. Kurtzman will receive a severance
payment equal to nine months of salary and additional vesting of his option
shares as if he provided another nine months of service with us.
In addition, we entered into a stock restriction agreement, dated December
4, 1998, with Mr. Whitcomb, our President and Chief Operating Officer. Pursuant
to that agreement, if a change in control occurs and our repurchase right that
applies to his shares is not assigned to the successor corporation, then Mr.
Whitcomb's shares will become fully vested. Pursuant to an employment agreement
all shares vest upon termination with or without cause and would no longer be
subject to the stock restriction agreement upon such termination.
1999 EQUITY INCENTIVE PLAN
Our Board of Directors adopted our 1999 Equity Incentive Plan on July 9,
1999. We will also seek stockholder approval of this plan. We have reserved
500,000 shares of our common stock for issuance under the 1999 Equity Incentive
Plan. As of April 1 of each year, starting in 2000, the number of shares
reserved for issuance under our 1999 Equity Incentive Plan will be increased
automatically by 5% of the total number of shares of our common stock then
outstanding or, if less, 400,000 shares. No options have yet been granted under
the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the individuals eligible to receive
awards are:
- - employees;
- - non-employee members of the Board of Directors; and
- - consultants.
The types of awards that may be made under the 1999 Equity Incentive Plan
are:
- - options to purchase shares of common stock;
- - stock appreciation rights;
- - restricted shares; and
- - stock units.
Options may be incentive stock options that qualify for favorable tax
treatment for the optionee under Section 422 of the Internal Revenue Code of
1986 or nonstatutory stock options not designed to qualify for favorable tax
treatment. With limited restrictions, if shares awarded under the 1999 Equity
Incentive Plan are forfeited, those shares will again become available for new
awards under the 1999 Equity Incentive Plan.
The compensation committee of our Board of Directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of our 1999 Equity
Incentive Plan. The committee has the discretion to determine which eligible
individuals are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. The exercise price for non-statutory
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of our common stock on the option grant date.
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<PAGE> 49
Our 1999 Equity Incentive Plan provides that no participant may receive
options or stock appreciation rights covering more than 100,000 shares in the
same year, except that a newly hired employee may receive options or stock
appreciation rights covering up to 300,000 shares in the first year of
employment.
The exercise price may be paid with:
- - cash;
- - outstanding shares of common stock;
- - the cashless exercise method through a designated broker;
- - a pledge of shares to a broker; or
- - a promissory note.
The purchase price for newly issued restricted shares awarded under the
1999 Equity Incentive Plan may be paid with:
- - cash;
- - a promissory note; or
- - the rendering of past services.
Any amount payable under a stock appreciation right or stock unit may be
paid with cash or outstanding shares of common stock.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
In specific circumstances, the committee may adjust the number of options,
stock appreciation rights, restricted shares, stock units and shares covered by
options, or reprice options or stock appreciation rights to protect against
dilution.
If a change in control of Ashford.com occurs, an option or other award
under the 1999 Equity Incentive Plan will become fully exercisable and fully
vested if the option or award is not assumed by the surviving corporation or its
parent or if the surviving corporation or its parent does not substitute
comparable awards for the awards granted under the 1999 Equity Incentive Plan.
A change in control includes:
- - a merger or consolidation of Ashford.com after which our then-current
stockholders own less than 50% of the surviving corporation;
- - a sale of all or substantially all of our assets;
- - a change in the composition of the board that results in replacement of more
than one-half of the directors who were directors on the date 24 months prior
to the date of the event that may be a change in control; or
- - an acquisition of 50% or more of our outstanding stock by a person other than
a person related to Ashford.com, including a corporation owned by our
stockholders.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be substituted by options or other awards of the surviving
corporation or its parent, shall be continued by Ashford.com if it is the
48
<PAGE> 50
surviving corporation, shall have accelerated vesting and then expire early, or
shall be cancelled for a cash payment.
Each individual who first joins our Board of Directors as a non-employee
director after the effective date of this offering will receive at that time a
fully vested option for 500 shares of our common stock. In addition, at each of
our annual stockholders meetings, beginning in 2000, each non-employee director
who will continue to be a director after that meeting will automatically be
granted at that meeting a fully vested option for 1,500 shares of our common
stock. However, any non-employee director who receives an option for 500 shares
under this plan will first become eligible to receive the annual option for
1,500 shares at the annual meeting that occurs during the calendar year
following the year in which he received the option for 500 shares.
Our Board of Directors may amend or terminate the 1999 Equity Incentive
Plan at any time. If our board amends the plan, stockholder approval of the
amendment will be sought only if required by an applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the plan earlier.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our Board of Directors adopted our employee stock purchase plan on July 9,
1999. We will also seek stockholder approval of this plan. We have reserved
200,000 shares of our common stock for issuance under our 1999 employee stock
purchase plan. As of April 1 each year, starting in 2000, the number of shares
reserved for issuance under our 1999 employee stock purchase plan will be
increased automatically by 2% of the total number of shares of common stock then
outstanding or, if less, 150,000 shares. Our 1999 employee stock purchase plan
is intended to qualify under Section 423 of the Internal Revenue Code.
Eligible employees may begin participating in the 1999 employee stock
purchase plan at the start of an offering period. Each offering period lasts 24
months. Two overlapping offering periods will start on May 1 and November 1 of
each calendar year. However, the first offering period will start on the
effective date of this offering and end on October 31, 2001. Purchases of our
common stock will occur on approximately April 30 and October 31 of each
calendar year during an offering period.
The compensation committee of our Board of Directors will administer our
1999 employee stock purchase plan. Each of our employees is eligible to
participate if the employee is employed by us for more than 20 hours per week
and for more than five months per year. No employee may participate in the plan
if the employee would possess 5% or more of the company or if the employee's
participation exceeds specific dollar limits.
Our 1999 employee stock purchase plan permits each eligible employee to
purchase our common stock through payroll deductions. Each employee's payroll
deductions may not exceed 15% of the employee's cash compensation. The initial
period during which payroll deductions may be contributed will begin on the
effective date of this offering and end on April 30, 2000. No participant may
purchase more than 200 shares on any purchase date.
The price of each share of common stock purchased under our 1999 employee
stock purchase plan will be 85% of the lower of:
- - the fair market value per share of our common stock on the date immediately
before the first date of the applicable offering period; or
- - the fair market value per share of our common stock on the purchase date.
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<PAGE> 51
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- - the price offered to the public in this offering; or
- - the fair market value per share of our common stock on the purchase date.
Employees may end their participation in the 1999 employee stock purchase
plan at any time. Participation ends automatically upon termination of
employment with Ashford.com.
In specific circumstances, the committee will proportionately adjust the
number of shares offered under the plan, the share limits and the share prices
to protect against dilution. If a change in control of Ashford.com occurs, our
1999 employee stock purchase plan will end, and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
this plan is assumed by the surviving corporation or its parent. Our Board of
Directors may amend or terminate the 1999 employee stock purchase plan at any
time. If our Board of Directors increases the number of shares of common stock
reserved for issuance under the 1999 employee stock purchase plan, it must seek
the approval of our stockholders.
50
<PAGE> 52
CERTAIN TRANSACTIONS
Since March 6, 1998, we have issued and sold preferred stock to the
following persons who are our principal stockholders, executive officers or
directors.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
INVESTOR PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- -------- --------------- --------------- ---------------
<S> <C> <C> <C>
Benchmark Capital Partners II, L.P............ 2,000,000 250,000 36,774
Entities affiliated with Sequoia Capital...... -- 500,000 24,432
Markas Holdings, BV........................... -- 500,000 --
</TABLE>
In connection with the purchase by Benchmark Capital Partners II, L.P. of
our Series A preferred stock, Kevin R. Harvey, a general partner of Benchmark
Capital, became a member of our Board of Directors. In addition, we have granted
options to some of our directors and executive officers. See "Principal
Stockholders".
In May 1999, we loaned $780,000 to Kenneth E. Kurtzman, Chief Executive
Officer and director, in connection with Mr. Kurtzman's exercise of an option to
purchase 390,000 shares of common stock. Mr. Kurtzman issued a promissory note
to us bearing interest at the rate of 5.22% per annum that is secured by a
pledge of the shares acquired and is payable in full by May 2004.
J. Robert Shaw, the Chairman of the Board of Ashford.com and one of our
founders, is the President and Chief Executive Officer of Synergy Development
Corp., an information-technology consulting firm that provides equipment and
services to online commerce companies. In addition, James H. Whitcomb, Jr., our
President, Chief Operating Officer and one of our directors, is also a director
of Synergy Development Corp. In March 1998, we issued 655,000 shares of common
stock to Mr. Shaw and 19,000 shares of common stock to Synergy in consideration
for services provided to Ashford.com in connection with its formation. We
purchase computer equipment, receive consulting services and rent certain office
space at prices and terms that we believe are equivalent to those available to
and transacted with unrelated parties. During the period from inception, March
6, 1998, through March 31, 1999, charges for consulting services and office
rent, and payments for computer equipment to Synergy totaled $172,848.
Our certificate of incorporation limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Delaware General Corporation Law.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our by-laws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Delaware law, including any circumstances in
which indemnification is otherwise discretionary under Delaware law. We have
also entered into indemnification agreements with our officers and directors
containing provisions that may require us to, among other things:
- - indemnify our officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers, other
than liabilities arising from willful misconduct of a culpable nature;
- - advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified; and
- - obtain directors' and officers' insurance if available on reasonable terms.
We believe that all of these transactions were made on terms no less
favorable to us than we could have obtained from unaffiliated third parties. All
future transactions, including loans, between us and our officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to us we could have obtained from unaffiliated
third parties.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of July 31, 1999, as adjusted to
reflect the sale of the common stock that we are offering under this prospectus,
by:
- - each stockholder known by us to own more than 5% of our common stock;
- - each director;
- - Mr. Kurtzman, our Chief Executive Officer, and Mr. Whitcomb, our President and
Chief Operating Officer; and
- - all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
------------------------- -------------------------
NUMBER PERCENTAGE(3) NUMBER PERCENTAGE(3)
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Benchmark Capital Partners II, L.P.(4).... 2,286,774 35.48% 2,286,774
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Entities affiliated with Sequoia
Capital(5).............................. 524,523 8.14 524,523
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
Markas Holding B.V........................ 500,000 7.76 500,000
Locatellikade, 1
Parnassustoren 1076 AZ Amsterdam
The Netherlands
John P. McNamara.......................... 448,000 6.95 448,000
c/o Ashford.com
Jeffrey R. Helms.......................... 350,000 5.43 350,000
c/o Ashford.com
Kevin R. Harvey(4)........................ 2,286,774 35.48 2,286,774
J. Robert Shaw............................ 655,000 10.16 655,000
Kenneth E. Kurtzman....................... 390,000 6.05 390,000
James H. Whitcomb, Jr. ................... 655,000 10.16 655,000
All directors and executive officers as a
group (9 persons)(6).................... 3,987,816 61.87 3,987,816
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities.
(2) Assumes no exercise of the underwriters' over-allotment option. See
"Underwriting".
(3) The number of shares of common stock deemed outstanding prior to this
offering includes the shares issuable pursuant to stock options and warrants
that may be exercised within 60 days after June 30, 1999. Shares issuable
pursuant to stock options and warrants are deemed outstanding for computing
the percentage of the person holding these options but are not outstanding
for computing the percentage of any other person. The number of shares of
common stock outstanding after this offering includes the shares of
common stock we are offering in this offering.
(4) Consists of shares held by Benchmark Capital Partners II, L.P. as nominee
for Benchmark Capital Partners II, L.P., Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund II, L.P.
Kevin R. Harvey is a general partner of the general partner of the Benchmark
entities and is a director of Ashford.com. He disclaims beneficial ownership
of the shares held by the entities except to the extent of his proportionate
interest therein.
(5) Includes 190,117 shares held by Sequoia Capital VIII, 2,412 shares held by
Sequoia International Technology Partners VIII, 12,586 shares held by
Sequoia International Technology(q), 4,196 shares held by CMS Partners LLC,
462 shares held by Sequoia 1997, 312,460 shares held by Sequoia Capital
Franchise Fund and 2,190 shares held by Sequoia Capital Franchise Partners.
(6) Includes options to purchase 1,042 shares held by an executive officer not
named in this table which will be exercisable within 60 days of July 31,
1999.
52
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
undesignated preferred stock, $.001 par value. The following description of our
capital stock is not complete and is subject to and qualified in its entirety by
our certificate of incorporation and by-laws and by the provisions of applicable
Delaware law. Our certificate of incorporation and by-laws are included as
exhibits to the registration statement of which this prospectus forms a part.
COMMON STOCK
As of July 31, 1999, we had 6,445,143 shares of common stock outstanding,
held of record by approximately 30 stockholders, assuming the conversion of all
outstanding shares of preferred stock into common stock. In addition, as of June
30, 1999, there were 617,855 shares of common stock subject to outstanding
options. When this offering is completed, there will be shares of common
stock outstanding, assuming no exercise of the underwriter's over-allotment
option or additional exercise of outstanding options.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably any dividends that may be declared by the Board of
Directors out of funds legally available for that purpose. See "Dividend
Policy". In the event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive or conversion rights, other
subscription rights, or redemption or sinking fund provisions. All outstanding
shares of common stock are fully paid and non-assessable, and the shares of
common stock to be issued upon completion of this offering will be fully paid
and non-assessable.
PREFERRED STOCK
As of July 9, 1999, we had three series of preferred stock: Series A,
Series B, and Series C preferred stock. Each series of preferred stock has the
rights, preferences and privileges described in our current certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus forms a part. As of July 31, 1999, the number of
outstanding shares for each series of our preferred stock was:
- - 2,000,000 shares of Series A preferred stock;
- - 1,505,000 shares of Series B preferred stock; and
- - 300,143 shares of Series C preferred stock.
Upon the closing of the offering, all outstanding shares of our preferred
stock will be converted on a share-by-share basis into 3,805,143 shares of
common stock. Thereafter, the Board of Directors will have the authority,
without further action by the stockholders, to issue up to 10,000,000 shares of
preferred stock in one or more series and to designate the rights, preferences,
privileges and restrictions of each preferred stock series. The issuance of
preferred stock could have the effect of restricting dividends on the common
stock, diluting the voting power of the common stock, impairing the liquidation
rights of the common stock or delaying or preventing our change in control
without further action by the stockholders. We have no present plans to issue
any shares of preferred stock after the completion of this offering.
53
<PAGE> 55
REGISTRATION RIGHTS
The holders of the 3,805,143 shares of preferred stock, or the registrable
securities, are entitled to have their shares registered by us under the
Securities Act under the terms of an agreement between us and the holders of
these registrable securities. Subject to limitations specified in the agreement,
these registration rights include the following:
- - The holders of at least 50% of the then outstanding registrable securities may
require, on two occasions beginning 180 days after the date of this
prospectus, that we use our reasonable best efforts to register the
registrable securities for public resale.
- - If we register any common stock, either for our own account or for the account
of other security holders, the holders of registrable securities are entitled
to include their shares of common stock in the registration, subject to the
ability of the underwriters to limit the number of shares included in the
offering in view of market conditions.
- - The holders of at least 30% of the then outstanding registrable securities may
require us to register all or a portion of their registrable securities on
Form S-3 when use of that form becomes available to us, provided that the
proposed aggregate selling price is at least $1,000,000.
We will bear all registration expenses other than underwriting discounts
and commissions. All registration rights terminate on the date five years
following the closing of this offering, or, with respect to each holder of
registrable securities, at the time that the holder is entitled to sell all of
its shares in any three-month period under Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND OUR CERTIFICATE OF INCORPORATION AND BY-LAW
PROVISIONS
Provisions of Delaware law and our certificate of incorporation and by-laws
could make more difficult our acquisition by a third party and the removal of
our incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of Ashford.com to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging these proposals
because negotiation could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless:
- - the Board of Directors approved the transaction in which the stockholder
became an interested stockholder prior to the date the interested stockholder
attained that status;
- - when the stockholder became an interested stockholder, he or she owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and
also officers; or
- - on or subsequent to the date the business combination is approved by the Board
of Directors and authorized at an annual or special meeting of stockholders.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
54
<PAGE> 56
Our certificate of incorporation and by-laws do not provide for the right
of stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our Certificate of
Incorporation permits the Board of Directors to issue preferred stock with
voting or other rights without any stockholder action. Our certificate of
incorporation provides for the Board of Directors to be divided into three
classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders. Each of the
two other classes of directors will continue to serve for the remainder of its
respective three-year term. These provisions, which require the vote of
stockholders holding at least a majority of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes in
our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C. The transfer agent's address is 2323 Bryan Street,
Suite 2300, Dallas, Texas 75201 and telephone number is (214) 965-2232.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and impair our ability to raise
equity capital in the future.
Upon completion of the offering, we will have outstanding shares
of common stock and options to purchase 617,855 shares of common stock, assuming
no additional option grants or exercises after June 30, 1999. Of these shares,
the shares sold in the offering, plus any shares issued upon exercise
of the underwriters' over-allotment option, will be freely tradable without
restriction under the Securities Act, unless purchased by our "affiliates" as
that term is defined in Rule 144 under the Securities Act. In general,
affiliates include officers, directors or 10% stockholders.
The remaining 6,445,143 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of restricted shares for sale, could adversely affect the
market price of the common stock.
Our directors, officers and security holders have entered into lock-up
agreements in connection with this offering. These agreements provide that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus. The shares subject to lock-up agreements may not be
sold without the prior written consent of Goldman, Sachs & Co. until these
agreements expire, even if the shares are eligible for sale under the provisions
of Rules 144, 144(k) and 701. Taking into account the lock-up agreements, and
assuming Goldman, Sachs & Co. does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- - Beginning on the effective date of this prospectus, the shares sold in the
offering will be immediately available for sale in the public market.
- - Beginning 180 days after the effective date, approximately 1,311,000 shares
will be eligible for sale pursuant to Rule 701, no shares will be eligible for
sale pursuant to Rule 144(k), and approximately 5,134,134 additional shares
will be eligible for sale from time to time pursuant to Rule 144.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- - one percent of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after the offering; or
- - the average weekly trading volume of the common stock during the four calendar
weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. A person may sell shares under Rule 144(k) and not be subject to the Rule
144 requirements if the person has not been our
56
<PAGE> 58
affiliate at anytime during the three months preceding a sale and has
beneficially owned the shares proposed to be sold for at least two years.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell their shares subject to certain Rule 144
restrictions. Affiliates may sell their Rule 701 shares under Rule 144 without
complying with the holding period requirement and non-affiliates may sell their
Rule 701 shares in reliance on Rule 144 without complying with the holding
period, public information, volume limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1998 Stock Plan or any other benefit plan after the
effectiveness of the registration statements will also be freely tradable in the
public market. However, the shares held by affiliates will still be subject to
Rule 144's volume limitation, manner of sale, notice and public information
requirements unless they may otherwise be sold under Rule 701. As of June 30,
1999 there were outstanding options for the purchase of 617,855 shares of common
stock. See "Management -- Stock Plans" and "Description of Capital
Stock -- Registration Rights".
57
<PAGE> 59
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Austin, Texas. Members of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP participating in the consideration of legal matters relating to
the common stock offered hereby beneficially own 9,505 shares of preferred
stock, convertible into our common stock on the closing of this offering. Legal
matters in connection with this offering will be passed upon for the
underwriters by Fulbright & Jaworski L.L.P., Houston, Texas. Fulbright &
Jaworski L.L.P. acts as counsel for Ashford.com from time to time in various
matters.
EXPERTS
The financial statements as of March 31, 1999 included in this prospectus
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.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information in the registration statement and its exhibits and schedules. For
further information with respect to Ashford.com and the common stock offered in
this offering, we refer you to the registration statement and to the attached
exhibits and schedules. Statements made in this prospectus concerning the
contents of any document referred to in this prospectus are not necessarily
complete. With respect to each document filed as an exhibit to the registration
statement, we refer you to the exhibit for a more complete description of the
matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
obtain copies of all or any part of our registration statement from the
Securities and Exchange Commission upon payment of prescribed fees. You may also
inspect reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission without charge at a Web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Ashford.com, Inc.:
We have audited the accompanying balance sheet of Ashford.com, Inc. (the
Company), a Delaware corporation, as of March 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (March 6, 1998) through March 31, 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 audit.
We conducted our audit 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 audit provides 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 Ashford.com, Inc. as of
March 31, 1999, and the results of its operations and its cash flows for the
period from inception (March 6, 1998) through March 31, 1999, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Houston, Texas
July 9, 1999
F-2
<PAGE> 62
ASHFORD.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 893,447 $ 24,501,720
Certificate of deposit.................................... 100,000 100,000
Accounts receivable....................................... 135,619 177,565
Merchandise inventory..................................... 3,273,112 6,245,814
Prepaids and other........................................ 452,760 414,470
----------- ------------
Total current assets.............................. 4,854,938 31,439,569
Property and equipment, net of accumulated depreciation of
$48,595 and $109,222 at March 31, 1999 and June 30, 1999,
respectively.............................................. 253,258 529,517
Other assets................................................ -- 138,458
----------- ------------
Total assets...................................... $ 5,108,196 $ 32,107,544
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 976,513 $ 1,514,327
Accrued liabilities....................................... 322,303 279,929
Note payable.............................................. 1,000,000 --
----------- ------------
Total current liabilities......................... 2,298,816 1,794,256
----------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 4,035,000 shares
authorized, 2,000,000 and 3,505,000 shares issued and
outstanding at March 31, 1999 and June 30, 1999,
respectively........................................... 2,000 3,505
Common stock, $.001 par value, 11,400,000 shares
authorized, 2,250,000 and 2,640,000 shares issued and
outstanding at March 31, 1999 and June 30, 1999,
respectively........................................... 2,250 2,640
Additional paid-in capital................................ 4,483,400 51,451,040
Subscription receivable................................... -- (780,000)
Deferred compensation..................................... (414,000) (15,922,002)
Accumulated deficit....................................... (1,264,270) (4,441,895)
----------- ------------
Total stockholders' equity........................ 2,809,380 30,313,288
----------- ------------
Total liabilities and stockholders' equity........ $ 5,108,196 $ 32,107,544
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
ASHFORD.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 6, THREE MONTHS ENDED
1998) JUNE 30,
THROUGH ----------------------
MARCH 31, 1999 1998 1999
-------------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net sales........................................... $ 5,937,555 $296,073 $ 3,623,414
Cost of sales....................................... 5,109,610 279,896 2,997,348
----------- -------- -----------
Gross profit........................................ 827,945 16,177 626,066
Operating expenses:
Marketing and sales............................... 1,013,007 23,141 2,400,616
General and administrative........................ 1,086,356 91,204 1,705,289
----------- -------- -----------
Total operating expenses.................. 2,099,363 114,345 4,105,905
----------- -------- -----------
Loss from operations................................ (1,271,418) (98,168) (3,479,839)
Interest income..................................... 13,189 -- 305,122
Interest expense.................................... (6,041) -- (2,908)
----------- -------- -----------
Net loss............................................ $(1,264,270) $(98,168) $(3,177,625)
=========== ======== ===========
Net loss per share, basic and diluted............... $ (0.58) $ (0.04) $ (1.30)
=========== ======== ===========
Pro forma net loss per share, basic and diluted..... $ (0.45) $ (0.04) $ (0.56)
=========== ======== ===========
Shares used to compute net loss per share:
Basic and diluted................................. 2,188,757 2,250,000 2,442,857
Pro forma basic and diluted....................... 2,792,338 2,250,000 5,683,242
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
ASHFORD.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK
------------------ ------------------ ADDITIONAL
PAR PAR PAID-IN SUBSCRIPTION DEFERRED
SHARES VALUE SHARES VALUE CAPITAL RECEIVABLE COMPENSATION
------ ----- ------ ----- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, March 6, 1998....... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash upon
formation on March 6, 1998............. -- -- 1,329,000 1,329 262 -- --
Issuance of common stock for services in
April 1998............................. -- -- 921,000 921 53,638 -- --
Issuance of Series A preferred stock in
exchange for cash and conversion of
note payable on December 4, 1998....... 2,000,000 2,000 -- -- 3,998,000 -- --
Deferred compensation related to grants
of options to purchase common stock.... -- -- -- -- 431,500 -- (431,500)
Amortization of deferred compensation.... -- -- -- -- -- -- 17,500
Net loss................................. -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- ------------
Balance at March 31, 1999................. 2,000,000 2,000 2,250,000 2,250 4,483,400 -- (414,000)
Issuance of Series B preferred stock in
exchange for cash and conversion of
note payable on April 17, 1999
(unaudited)............................ 1,505,000 1,505 -- -- 30,088,116 -- --
Deferred compensation related to grants
of options to purchase common stock
(unaudited)............................ -- -- -- -- 16,099,914 -- (16,099,914)
Amortization of deferred compensation
(unaudited)............................ -- -- -- -- -- -- 591,912
Officer exercise of options to purchase
common stock pursuant to note
receivable (unaudited)................. -- -- 390,000 390 779,610 (780,000) --
Net loss (unaudited)..................... -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- ------------
Balance at June 30, 1999.................. 3,505,000 $3,505 2,640,000 $2,640 $51,451,040 $(780,000) $(15,922,002)
========= ====== ========= ====== =========== ========= ============
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at inception, March 6, 1998....... $ -- $ --
Issuance of common stock for cash upon
formation on March 6, 1998............. -- 1,591
Issuance of common stock for services in
April 1998............................. -- 54,559
Issuance of Series A preferred stock in
exchange for cash and conversion of
note payable on December 4, 1998....... -- 4,000,000
Deferred compensation related to grants
of options to purchase common stock.... -- --
Amortization of deferred compensation.... -- 17,500
Net loss................................. (1,264,270) (1,264,270)
----------- -----------
Balance at March 31, 1999................. (1,264,270) 2,809,380
Issuance of Series B preferred stock in
exchange for cash and conversion of
note payable on April 17, 1999
(unaudited)............................ -- 30,089,621
Deferred compensation related to grants
of options to purchase common stock
(unaudited)............................ -- --
Amortization of deferred compensation
(unaudited)............................ -- 591,912
Officer exercise of options to purchase
common stock pursuant to note
receivable (unaudited)................. -- --
Net loss (unaudited)..................... (3,177,625) (3,177,625)
----------- -----------
Balance at June 30, 1999.................. $(4,441,895) $30,313,288
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
ASHFORD.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(MARCH 6, 1998) JUNE 30,
THROUGH ------------------------
MARCH 31, 1999 1998 1999
--------------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(1,264,270) $ (98,168) $(3,177,625)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................ 48,595 -- 60,627
Amortization of deferred compensation
related to common stock options....... 17,500 -- 591,912
Compensation expense related to issuance
of common stock....................... 53,900 53,900 --
Changes in assets and liabilities:
Accounts receivable................... (135,619) -- (41,946)
Merchandise inventory................. (3,273,112) (134,913) (2,972,702)
Prepaids and other.................... (452,760) (3,235) 38,290
Other assets.......................... -- -- (38,458)
Accounts payable...................... 976,513 167,468 537,814
Accrued liabilities................... 322,303 45,644 (152,753)
----------- --------- -----------
Net cash provided by (used in)
operating activities............. (3,706,950) 30,696 (5,154,841)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (301,853) (6,806) (336,886)
Certificate of deposit..................... (100,000) -- --
----------- --------- -----------
Net cash used in investing
activities....................... (401,853) (6,806) (336,886)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................... 2,250 2,250 --
Issuance of Series A preferred stock....... 3,245,000 -- --
Issuance of Series B preferred stock....... -- -- 29,100,000
Proceeds from notes payable................ 1,755,000 -- --
----------- --------- -----------
Net cash provided by financing
activities....................... 5,002,250 2,250 29,100,000
----------- --------- -----------
Net increase in cash and cash
equivalents............................. 893,447 26,140 23,608,273
CASH AND CASH EQUIVALENTS:
Beginning of period........................ -- -- 893,447
----------- --------- -----------
End of period.............................. $ 893,447 $ 26,140 $24,501,720
=========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of preferred stock upon conversion
of note payable......................... $ 755,000 $ -- $ 1,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
INCLUDING AMOUNTS RELATED TO UNAUDITED INTERIM PERIODS
1. OPERATIONS AND ORGANIZATION OF BUSINESS
BACKGROUND
Ashford.com, Inc. (Ashford.com or the Company), formerly NewWatch Company,
is a Delaware corporation which was incorporated on March 6, 1998, but did not
commence operations until April 1998. The Company is engaged in the distribution
of brand name watches and other luxury and premium products primarily through
online sales. The Company has emerged as a leading online commerce retailer in
the watch category, providing one of the industry's largest selections of
watches. Payment for substantially all of the Company's sales are made through
third-party credit cards.
The Company has experienced negative cash flows from operations and has
incurred a net loss for the period from inception, March 6, 1998, through March
31, 1999. The Company has funded its activities to date primarily from equity
financings. The Company may continue to incur losses, and there can be no
assurance that the Company will attain successful operations. The business
activities in which the Company is engaged involve a high degree of risk, and
future success is dependent upon a number of factors which include, among
others, generating sufficient revenues, attracting and retaining key personnel
and consultants, expanding and maintaining a supply of products and successfully
developing sales and marketing operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and cash flows for the three months ended
June 30, 1998 and 1999 and the consolidated statement of stockholders' equity
for the three months ended June 30, 1999 are unaudited, but in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for the interim
periods. Results for the three months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2000.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized on sales of merchandise held for sale when the
product is sold and shipped, net of estimated returns.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and short-term, highly
liquid investments with original maturities of three months or less.
F-7
<PAGE> 67
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CERTIFICATE OF DEPOSIT
A certificate of deposit was issued to the Company in January 1999 for the
purpose of securing the Company's account with a bank. The certificate of
deposit will remain pledged to the bank until its final maturity in January
2000.
MERCHANDISE INVENTORY
Inventory consists of merchandise held for sale, principally watches and
watch accessories, and is stated at the lower of cost or market. The Company
uses the first-in, first-out (FIFO) method of determining cost of inventory
obtained directly from manufacturers. For inventory obtained from brokers, cost
is determined principally using the average cost method.
ADVERTISING COSTS
The costs of advertising are expensed as incurred. Through March 31, 1999,
the Company incurred advertising expense of approximately $694,000.
TECHNOLOGY AND DEVELOPMENT COSTS
Technology and development costs consist principally of payroll and related
expenses for development, systems and telecommunications operations personnel
and consultants. Through March 31, 1999, approximately $129,000 in development
costs have been expensed as incurred as general and administrative expenses.
START-UP COSTS
In accordance with the American Institute of Certified Public Accountants'
Statement of Position (SOP) No. 98-5, the Company has expensed all start-up
costs, including organization costs, as incurred.
WARRANTY
The Company guarantees its watches to be genuine, in new condition and free
from defects for a period of at least two years. If the Company is an authorized
agent or service center for the manufacturer, it will extend the original
manufacturer's warranty for a period of two years. The Company estimates future
warranty costs not covered by the original manufacturer's warranty. Through
March 31, 1999, the Company has recorded warranty expense of approximately
$40,000.
INCOME TAXES
The Company is a C corporation for U.S. federal income tax purposes and
uses the liability method in accounting for income taxes. Under this method,
deferred taxes are recorded based upon differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted rates and laws that will be in effect when the differences are expected
to reverse. A valuation allowance has been established where necessary to reduce
deferred tax assets to the amount more likely than not expected to be realized
in future tax returns.
F-8
<PAGE> 68
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from nonowner sources. To date, the Company
has not engaged in transactions that are required to be reported in
comprehensive income.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a fair
value-based method of accounting for stock-based compensation plans. SFAS No.
123 allows the Company to adopt one of two methods for accounting for stock
options. The Company has elected the method that requires disclosure only of
stock-based compensation. Because of this election, the Company accounts for its
employee stock-based compensation plans under Accounting Principles Board (APB)
Opinion No. 25 and the related interpretations. Accordingly, deferred
compensation is recorded for stock-based compensation grants based on the excess
of the estimated fair value of the common stock on the measurement date over the
exercise price. The deferred compensation is amortized over the vesting period
of each unit of stock-based compensation grant. If the exercise price of the
stock-based compensation grants is equal to the estimated fair value of the
Company's stock on the date of grant, no compensation expense is recorded.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Shares associated with stock options and the
convertible preferred stock are not included because they are antidilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of outstanding preferred stock into shares of the Company's common
stock effective upon the closing of the Company's initial public offering as if
such conversion occurred on the dates of original issuance.
F-9
<PAGE> 69
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of basic and dilutive, and
pro forma basic and dilutive, net loss per share for the respective periods:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(MARCH 6, 1998) JUNE 30,
THROUGH -------------------------
MARCH 31, 1999 1998 1999
---------------- ---------- -----------
<S> <C> <C> <C>
Numerator:
Net Loss....................................... $(1,264,270) $ (98,168) $(3,177,625)
=========== ========== ===========
Denominator:
Weighted average common shares................. 2,188,757 2,250,000 2,442,857
=========== ========== ===========
Denominator for basic and diluted
calculation................................. 2,188,757 2,250,000 2,442,857
Weighted average effect of pro forma
securities:
Series A preferred stock.................... 603,581 -- 2,000,000
Series B preferred stock.................... -- -- 1,240,385
----------- ---------- -----------
Denominator for pro forma basic and diluted
calculation................................. 2,792,338 2,250,000 5,683,242
=========== ========== ===========
Net loss per share:
Basic and diluted.............................. $ (0.58) $ (0.04) $ (1.30)
=========== ========== ===========
Pro forma basic and diluted.................... $ (0.45) $ (0.04) $ (0.56)
=========== ========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at original cost and includes primarily
computer equipment, office equipment and leasehold improvements. Depreciation is
provided based on the straight-line method over the estimated useful lives of
the respective assets, generally three years to five years for computer and
office equipment. Leasehold improvements are amortized over six months, the
estimated useful lives of the improvements. Repair and maintenance costs are
charged to expense as incurred. Property and equipment consists of the
following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1999
--------- -----------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment............................... $255,599 $ 592,485
Leasehold improvements...................................... 46,254 46,254
-------- ---------
301,853 638,739
Less -- Accumulated depreciation............................ (48,595) (109,222)
-------- ---------
Property and equipment, net....................... $253,258 $ 529,517
======== =========
</TABLE>
F-10
<PAGE> 70
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY
In April 1999, the Company increased the number of authorized shares of its
common and preferred stock to 11,400,000 shares and 3,600,000 shares,
respectively, each with a par value of $.001 per share. In addition, 1,600,000
shares of the Company's preferred stock was designated as Series B preferred
stock.
SERIES A AND SERIES B PREFERRED STOCK
In December 1998, the Company entered into a stock purchase agreement with
an investor whereby the Company issued 2,000,000 shares of Series A preferred
stock in exchange for approximately $3,245,000 in cash and conversion of a
$755,000 note payable, including accrued interest. The holder of the Series A
preferred stock is entitled to receive dividends, prior and in preference to any
declaration or payment of dividends on the common stock, at the rate of $0.16
per share per annum, or, if greater, an amount equal to that paid on any other
outstanding shares of the Company. The dividends are not cumulative, and the
holder can waive any dividend preference.
In the event of any liquidation, dissolution or winding up of the Company,
the holder of the Series A preferred stock is entitled to receive, prior and in
preference to any distribution to the holders of common stock, an amount per
share equal to the sum of $2.00 and declared but unpaid dividends on such share.
Each share of Series A preferred stock is convertible, at the option of the
holder, into common stock on a share-for-share basis. Each share of preferred
stock automatically converts to common stock upon the Company's sale of its
common stock in a firm commitment underwritten public offering. The conversion
feature is adjusted for certain dilutive issuances, splits and combinations of
common stock so that the number of shares of common stock issuable upon
conversion is increased or decreased in proportion to any increase or decrease
in the aggregate shares of common stock outstanding.
As long as at least a majority of the shares of Series A preferred stock
originally issued remain outstanding, the holders are entitled to elect two
directors of the Company at each annual election of directors.
In April 1999, the Company entered into a stock purchase agreement with
five investors whereby the Company issued 1,505,000 shares of Series B preferred
stock in exchange for approximately $29.1 million in cash and conversion of a
$1.0 million note payable, including accrued interest. The terms of the Series B
preferred stock purchase agreement are substantially the same as those of the
Series A preferred stock purchase agreement, except the holders of Series B
preferred stock are entitled to receive dividends at the rate of $1.60 per share
per annum, a liquidation preference of $20.00 per share and are not entitled to
elect a specified number of directors of the Company at each annual election of
directors.
COMMON STOCK
The holders of the common stock are entitled to receive dividends when and
as declared by the Board of Directors. Upon the liquidation, dissolution or
winding up of the Company, all of the remaining assets of the Company available
for distribution after that required for holders of Series A preferred stock
shall be distributed among the holders of common stock pro rata based on the
number of shares held by each. The common stock is not redeemable. The holders
of outstanding common stock are entitled to elect two directors of the Company
at each annual election of directors.
F-11
<PAGE> 71
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 4, 1998, the Company entered into an agreement with certain
existing stockholding employees whereby the employees agreed to allow 1,254,126
shares of previously issued common stock to be subject to certain restrictions
(Restricted Stock). The restrictions provide the Company with the right, but not
the obligation, to repurchase any unvested shares of Restricted Stock upon
termination of employment. Under this agreement, one holder's Restricted Stock,
representing 399,126 shares, vests ratably over a 39-month service period. Of
the other holders' Restricted Stock, 213,750 shares vested on March 6, 1999; the
remaining shares vest ratably over a 36-month service period. During fiscal
1999, restrictions on 267,143 lapsed into unrestricted common stock. With the
exception of the vesting period, holders of Restricted Stock retain all the
rights of common stock stockholders including voting, dividend and liquidation
rights. The remaining 986,983 shares subject to restrictions are included in
outstanding common stock in the accompanying balance sheet at March 31, 1999.
STOCK OPTIONS
In April 1998, the Company adopted an incentive compensation plan (the 1998
Stock Incentive Plan) which provides the ability to grant incentive stock
options, nonqualified stock options and restricted stock. The 1998 Stock
Incentive Plan is administered by the Board of Directors of the Company, which
has the authority to determine the option recipients, the number of shares
subject to each option grant, the term of the grants, the exercise price and the
vesting schedule. The Company may grant a total of 1,821,000 shares of options
and Restricted Stock under the 1998 Stock Incentive Plan, as amended.
Pursuant to the provisions of SFAS No. 123 applicable to nonpublic
entities, the Company computed the fair value of options granted during fiscal
1999 using the minimum value method. Significant weighted average assumptions
used to estimate fair value include a risk-free interest rate of 5.6 percent,
expected lives of 10 years and no expected dividends. Had compensation expense
been determined consistent with the provisions of SFAS No. 123, the Company's
net loss for the period ended March 31, 1999, would have been increased to the
following pro forma amount:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(1,264,270)
Pro forma................................................. (1,272,900)
</TABLE>
Stock option activity during the period from inception, March 6, 1998,
through March 31, 1999, includes the grants of 265,000 shares of common stock at
exercise prices of $0.20 per share issued to employees of the Company. The
options granted to these individuals generally vest over a period of four years.
The options expire 10 years from the date of grant if not exercised. The Company
recorded $431,500 in deferred compensation relating to these options for the
excess of the deemed fair value of the common stock on the date of grant over
the exercise price. The deferred compensation is being amortized over the
vesting period of the options. Of those shares granted, 40 shares were canceled
during the period from inception, March 6, 1998, through March 31, 1999, and
10,938 shares were exercisable as of March 31, 1999.
As of March 31, 1999, 635,040 shares of common stock were available for
grant under the 1998 Stock Incentive Plan, as amended.
From April 1, 1999 through June 30, 1999, the Company granted options to
purchase 743,635 shares of common stock at exercise prices of $2.00 per share to
employees and consultants, of which 353,635 were granted pursuant to the 1998
Stock Incentive Plan. The
F-12
<PAGE> 72
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options granted to these individuals vest over a period of four years. The
options expire 10 years from the date of grant if not exercised. The Company
will record approximately $16.1 million in deferred compensation during fiscal
2000 relating to these options for the excess of the estimated fair value of the
common stock on the date of grant over the exercise price. The deferred
compensation will be amortized over the four-year vesting period of the options.
During the quarter ended June 30, 1999, the company recognized $591,912 in
compensation expense related to these options.
EMPLOYEE LOAN
In May 1999, the Company entered into a $780,000 full-recourse promissory
note with its Chief Executive Officer, in connection with the exercise of
options to purchase 390,000 shares of common stock. The note bears interest at
the rate of 5% per annum, is secured by a pledge of the shares acquired and is
payable in full by May 2004.
5. INCOME TAXES
Differences between accounting rules and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting and tax
purposes primarily as a result of different treatments of start-up costs. The
tax effects of these differences, to the extent they are temporary, are recorded
as deferred tax assets and liabilities and consisted of the following components
as of March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 592,146
Capitalized start-up costs for tax purposes............... 14,661
Accruals and reserves..................................... 10,200
Other..................................................... 7,693
---------
Total deferred tax assets................................. 624,700
Deferred tax liabilities:
Prepaids and other........................................ (129,545)
---------
Total deferred tax liabilities............................ (129,545)
Valuation allowance....................................... (495,155)
---------
Deferred tax assets, net.................................. $ --
=========
</TABLE>
Due to the uncertainty surrounding the realization of these assets, a
valuation allowance has been provided to fully offset the deferred tax assets.
As of March 31, 1999, the Company had a net operating loss carryforward of
approximately $1.7 million, which may be used to offset taxable income in future
years. The net operating loss carryforward will begin to expire in the Company's
fiscal year 2014. A change in control, as defined by federal income tax
regulations, could significantly limit the Company's ability to utilize its
carryforwards.
6. RELATED-PARTY TRANSACTIONS
Certain key members of management and the board of Ashford.com are
stockholders of a company from which Ashford.com purchases computer equipment,
receives consulting services and rents certain office space at prices and terms
that management believes are equivalent to those available to and transacted
with unrelated parties. During the period from inception, March 6, 1998, through
March 31, 1999, charges for consulting services and office rent, and payments
for computer equipment to this related party totaled $172,848.
F-13
<PAGE> 73
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
LEASES
There were no amounts charged to expense for the period from inception
(March 6, 1998) through March 31, 1999, pursuant to noncancelable and
month-to-month operating leases. Rent expense through March 31, 1999, was
approximately $47,000.
The Company has entered into various leases for equipment used in its
operations, which expire at various dates through 2002. Future minimum lease
payments relating to noncancelable operating leases are as follows for the year
ending March 31:
<TABLE>
<S> <C>
2000........................................................ $2,160
2001........................................................ 2,160
2002........................................................ 360
------
$4,680
======
</TABLE>
401(k) PLAN
Effective February 1, 1999, the Company established a defined contribution
401(k) plan. Employees eligible to join the plan are those 21 years of age or
older and have a minimum of 1,000 hours of service within a 12-month period
after their date of hire. Eligible employees may enter the plan on the effective
date and thereafter on any January 1 or July 1. The service requirement is
waived for those employed on the effective date. The Company does not contribute
to the plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its
employees. Either party may terminate such employment agreement at any time. The
employment agreements provide for employees to receive the compensation and
benefits offered to and accepted by them. The employment agreements also provide
the Company with protection for its trade secrets, intellectual property rights
and other confidential information.
ADVERTISING AGREEMENT
In February 1999, the Company entered into a 12-month advertising and
promotion agreement with an Internet search engine company, which is being
expensed ratably over the period of the agreement. The Company is obligated to
pay a $1,274,000 fee, of which $550,000 was paid upon execution of the
agreement. The remaining balance is due in certain installment payments ending
in November 1999.
OTHER MATTERS
From time to time, the Company is a party to various claims and legal
proceedings generally incidental to its business. Although the ultimate
disposition of these matters is not presently determinable, management does not
believe that ultimate settlement of any or all of such matters will have a
material adverse effect upon the financial condition or results of operations of
the Company.
8. SUBSEQUENT EVENTS (UNAUDITED)
STOCK OPTION GRANTS
The Company granted 56,110 options during July 1999, for which additional
deferred compensation of approximately $1.6 million will be recorded and
amortized over the applicable vesting periods.
F-14
<PAGE> 74
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999 EQUITY INCENTIVE PLAN
In July 1999, the Company adopted an incentive compensation plan (the 1999
Equity Incentive Plan) which provides the ability to award incentive stock
options, nonqualified stock options, restricted stock, stock units and stock
appreciation rights. The 1999 Equity Incentive Plan is administered by the Board
of Directors of the Company, which has the authority to determine the type,
number, vesting requirements and other features and conditions of such awards.
The aggregate number of awards shall not exceed 500,000 shares of common stock.
The 1999 Equity Incentive Plan allows for annual increases of the lesser of 5%
of the total number of shares of common stock then outstanding or 400,000 shares
of common stock.
PREFERRED STOCK FINANCING
In July 1999, the Company increased the number of authorized shares of its
preferred stock to 4,035,000 shares with a par value of $.001 per share. In
addition, 435,000 shares of the Company's preferred stock was designated as
Series C preferred stock. Also in July 1999, the Company entered into a stock
purchase agreement with six investors whereby the Company issued 300,143 shares
of Series C preferred stock in exchange for approximately $16.3 million in cash.
The terms of the Series C preferred stock agreement are substantially the same
as those of the Series A and Series B preferred stock agreements, except the
holders of Series C preferred stock are not entitled to receive dividends, do
not have a specified liquidation
F-15
<PAGE> 75
ASHFORD.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
preference and are not entitled to elect a specified number of directors of the
Company at each annual election of directors.
Had the Series C stock issuances occurred on June 30, 1999, the pro forma
effect of the net proceeds would be as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $24,502 $40,826
Total assets................................................ 32,108 48,432
Accrued liabilities......................................... 280 300
Preferred stock............................................. 3 3
Common stock................................................ 3 3
Additional paid-in capital.................................. 51,451 67,755
Total stockholders' equity.................................. 30,313 46,617
</TABLE>
REGISTRATION WITH SECURITIES AND EXCHANGE COMMISSION
On July 9, 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. In addition, upon
the effectiveness of a registration statement, the Board of Directors authorized
200,000 shares of common stock be made available for an employee stock purchase
plan.
LEASE COMMITMENT
In July 1999, the Company entered into an operating lease for the Company's
principal administrative offices and warehouse facilities. The commitment
provides for aggregate annual payments of approximately $875,000 through the
term of the lease expiring in March 2003.
F-16
<PAGE> 76
UNDERWRITING
Ashford.com and the underwriters named below will enter into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., BancBoston
Robertson Stephens Inc., Deutsche Bank Securities Inc. and E*TRADE Securities,
Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
BancBoston Robertson Stephens Inc. .........................
Deutsche Bank Securities Inc. ..............................
E*TRADE Securities, Inc. ...................................
-------
Total.............................................
=======
</TABLE>
---------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Ashford.com to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as on the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid by the Company to the underwriters. In addition, the
table includes certain other items considered by the NASD to be underwriting
compensation for purposes of the NASD's Rules of Fair Practice. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------- --------------------
No Full No Full
Exercise Exercise Exercise Exercise
Paid by Ashford.com -------- -------- -------- --------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions... $ $
-------- -------- -------- --------
Other items..............................
-------- -------- -------- --------
Total............................... $ $ $ $
======== ======== ======== ========
</TABLE>
The Goldman Sachs Group, Inc., the parent of Goldman, Sachs & Co., owns
13,790 shares of Ashford.com Series C preferred stock. All shares of Series C
preferred stock will automatically convert into shares of common stock of
Ashford.com at the time of this offering. Shares of common stock held by The
Goldman Sachs Group, Inc. will be subject to an agreement with the NASD that
restricts the sale, transfer, pledge, assignment or hypothecation of such shares
for one year from the effective date of this offering. The additional
compensation included in the chart above was computed based on the difference in
the maximum offering price and $54.39, the price paid for the shares of Series C
preferred stock held by The Goldman Sachs Group, Inc., less the applicable
discount permitted under the NASD's Rules of Fair Practice.
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
U-1
<PAGE> 77
Ashford.com and its directors, officers, employees and other security
holders have agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. See "Shares Eligible for Future
Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be negotiated
among Ashford.com and the representatives of the underwriters. Among the factors
to be considered in determining the initial public offering price of the shares,
in addition to prevailing market conditions, will be Ashford.com's historical
performance, estimates of Ashford.com's business potential and earnings
prospects, an assessment of Ashford.com's management and the consideration of
the above factors in relation to market valuation of companies in related
businesses.
Ashford.com has applied to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "ASFD".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short-sale covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock offered hereby for certain
individuals designated by Ashford.com who have expressed an interest in
purchasing such shares of common stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby.
Ashford.com estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
Ashford.com has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE> 78
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 22
Dividend Policy..................... 22
Capitalization...................... 23
Dilution............................ 24
Selected Financial Data............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 27
Business............................ 34
Management.......................... 45
Certain Transactions................ 52
Principal Stockholders.............. 53
Description of Capital Stock........ 54
Shares Eligible for Future Sale..... 57
Legal Matters....................... 59
Experts............................. 59
Additional Information.............. 59
Index to Financial Statements....... F-1
Underwriting........................ U-1
</TABLE>
----------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
ASHFORD.COM, INC.
Common Stock
----------------------
[LOGO]
----------------------
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DEUTSCHE BANC ALEX. BROWN
E*TRADE SECURITIES, INC.
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 79
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 Ashford.com in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration fee........................................ $27,800
NASD fee.................................................... 10,500
Nasdaq National Market initial listing fee.................. 17,500
Printing and engraving......................................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Directors and Officers Liability Insurance..................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous...............................................
-------
Total.............................................
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article IX of Ashford.com's Amended and Restated Certificate of
Incorporation, to be filed in connection with the offering, provides for
indemnification of directors to the fullest extent permissible under Delaware
law.
Article VII of Ashford.com's Amended and Restated By-laws provides for the
indemnification of officers, directors and third parties acting on behalf of
Ashford.com if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interests of Ashford.com, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
Ashford.com has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in
Ashford.com's Amended and Restated By-laws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
Delaware law permits Ashford.com to purchase and maintain insurance on
behalf of any director, officer, employee or agent of Ashford.com against any
liability asserted against or incurred by them in such capacity or arising out
of their status as such whether or not Ashford.com would have the power to
indemnify such director, officer, employee or agent against such liability under
the applicable provisions of Delaware law, the Amended and Restated Certificate
of Incorporation or the Amended and Restated By-laws.
II-1
<PAGE> 80
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the foregoing liabilities and expenses.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since Ashford.com's inception on March 6, 1998, Ashford.com has sold and
issued the following securities:
(1) On December 4, 1998, Ashford.com issued 2,000,000 shares of Series
A preferred stock to one accredited investor for aggregate consideration of
approximately $3,245,000 in cash and conversion of a $755,000 note payable.
The issuance of the shares of Series A preferred stock was made in a
transaction exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering.
(2) On April 17, 1999, Ashford.com issued 1,505,000 shares of Series B
preferred stock to five accredited investors for aggregate consideration of
approximately $29,096,000 in cash and conversion of a $1,004,000 note
payable. The issuance of the shares of Series B preferred stock was made in
a transaction exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering.
(3) On July 8, 1999, Ashford.com issued 300,143 shares of Series C
preferred stock to eight accredited investors for aggregate consideration
of approximately $16,324,000 in cash. The issuance of the shares of Series
C preferred stock was made in a transaction exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering.
(4) Since inception, Ashford.com has issued an aggregate of 2,640,000
shares of common stock and 1,008,635 options to purchase shares of its
common stock to a number of our employees, directors and consultants. These
options and direct stock issuances have been issued in transactions exempt
from registration under the Securities Act in reliance upon Rule 701 under
the Securities Act.
The recipients of securities in Items (1), (2) and (3) described above
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with Ashford.com, to information about Ashford.com.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1** -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
of the Registrant, to be filed after the closing of the
offering made pursuant to this Registration Statement.
3.3 -- By-laws of the Registrant, as currently in effect.
3.4 -- Form of Amended and Restated By-laws of the Registrant to
be in effect after the closing of the offering made
pursuant to this Registration Statement.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 -- Amended and Restated Investor Rights Agreement, dated
July 9, 1999, among the Registrant and the investors and
founders named therein.
4.2 -- Specimen Certificate of the Registrant's common stock.
4.3 -- See Exhibits 3.1 and 3.2 for provisions of the Company's
Amended and Restated Articles of Incorporation defining
the rights of the holders of common stock.
4.4 -- See Exhibits 3.3 and 3.4 for provisions of the Company's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to the Registrant.
10.1 -- Form of Indemnification Agreement entered into between
the Registrant and its directors and officers.
10.2* -- 1998 Stock Incentive Plan.
10.3 -- 1999 Equity Incentive Plan.
10.4 -- 1999 Employee Stock Purchase Plan.
10.5+ -- Watch Merchant Program Advertising and Promotion
Agreement dated February 26, 1999 between the Registrant
and Yahoo!, Inc.
10.6 -- Office Lease dated July 23, 1999 between the Registrant
and Crescent Real Estate Funding III, L.P.
10.7 -- Employment Agreement dated May 10, 1999 between the
Registrant and Kenneth E. Kurtzman.
10.8 -- Employment Agreement dated November 28, 19098 between the
Registrant and James H. Whitcomb, Jr.
21.1** -- List of Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP, independent public
accountants.
23.2* -- Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to the Registrant. Reference is
made to Exhibit 5.1.
24.1** -- Power of Attorney.
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit.
(B) FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuations and Qualifying accounts.
Schedules not listed above have been omitted because the information
required to be shown 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 agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
II-3
<PAGE> 82
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on this 3rd day of August, 1999.
ASHFORD.COM, INC.
By: /s/ KENNETH E. KURTZMAN
----------------------------------
Kenneth E. Kurtzman
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ J. ROBERT SHAW* Chairman of the Board August 3, 1999
- -----------------------------------------------------
J. Robert Shaw
/s/ KENNETH E. KURTZMAN Chief Executive Officer, Director August 3, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Kenneth E. Kurtzman
/s/ DAVID F. GOW* Vice President, Finance and Chief August 3, 1999
- ----------------------------------------------------- Financial Officer (Principal
David F. Gow Financial and Accounting
Officer)
/s/ JAMES H. WHITCOMB, JR.* President and Chief Operating August 3, 1999
- ----------------------------------------------------- Officer, Director
James H. Whitcomb, Jr.
/s/ KEVIN R. HARVEY* Director August 3, 1999
- -----------------------------------------------------
Kevin R. Harvey
*By: /s/ KENNETH E. KURTZMAN
------------------------------------------------
Kenneth E. Kurtzman
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
II-5
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the financial statements of Ashford.com, Inc. included in this Form S-1
Registration Statement and have issued our report thereon dated July 9, 1999.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. This Schedule is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Houston, Texas
July 9, 1999
II-6
<PAGE> 85
ASHFORD.COM, INC. -- SCHEDULE II VALUATION
AND QUALIFYING ACCOUNTS
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
BALANCE AT THE AMOUNTS AT
BEGINNING OF CHARGED TO THE END OF
DESCRIPTION YEAR EXPENSE DEDUCTIONS YEAR
- ----------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
March 31, 1999:
Allowance for Inventory
Obsolescence................... $-- $100 $-- $100
Allowance for Warranty Costs...... -- 40 (4) 36
</TABLE>
<PAGE> 86
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1** -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
of the Registrant, to be filed after the closing of the
offering made pursuant to this Registration Statement.
3.3 -- By-laws of the Registrant, as currently in effect.
3.4 -- Form of Amended and Restated By-laws of the Registrant to
be in effect after the closing of the offering made
pursuant to this Registration Statement.
4.1 -- Amended and Restated Investor Rights Agreement, dated
July 9, 1999, among the Registrant and the investors and
founders named therein.
4.2 -- Specimen Certificate of the Registrant's common stock.
4.3 -- See Exhibits 3.1 and 3.2 for provisions of the Company's
Amended and Restated Articles of Incorporation defining
the rights of the holders of common stock.
4.4 -- See Exhibits 3.3 and 3.4 for provisions of the Company's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to the Registrant.
10.1 -- Form of Indemnification Agreement entered into between
the Registrant and its directors and officers.
10.2* -- 1998 Stock Incentive Plan.
10.3 -- 1999 Equity Incentive Plan.
10.4 -- 1999 Employee Stock Purchase Plan.
10.5+ -- Watch Merchant Program Advertising and Promotion
Agreement dated February 26, 1999 between the Registrant
and Yahoo!, Inc.
10.6 -- Office Lease dated July 23, 1999 between the Registrant
and Crescent Real Estate Funding III, L.P.
10.7 -- Employment Agreement dated May 10, 1999 between the
Registrant and Kenneth E. Kurtzman.
10.8 -- Employment Agreement dated November 28, 1998 between the
Registrant and James H. Witcomb.
21.1** -- List of Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP, independent public
accountants.
23.2* -- Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to the Registrant. Reference is
made to Exhibit 5.1.
24.1** -- Power of Attorney.
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit.
<PAGE> 1
EXHIBIT 3.1
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"ASHFORD.COM, INC.", FILED IN THIS OFFICE ON THE TWELFTH DAY OF JULY, A.D.
1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
[SEAL]
/s/ EDWARD J. FREEL
------------------------
Edward J. Freel,
Secretary of State
3051377 8100 AUTHENTICATION: 9859708
991284200 DATE: 07-12-99
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/12/1999
991284200 - 3051377
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASHFORD.COM, INC.
The original Certificate of Incorporation of Ashford.com, Inc. (this
"corporation") was filed on July 9, 1999. This Amended and Restated Certificate
of Incorporation, which amends, integrates and restates this corporation's
Certificate of Incorporation, has been duly adopted by this corporation in
accordance with the provisions of Sections 242 and 245 of the Delaware General
Corporation Law.
ARTICLE I
The name of this corporation is Ashford.com, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 15 East North Street in the City of Dover, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares that this corporation is authorized to issue is
fifteen million four hundred and thirty five thousand (15,435,000) shares.
Eleven million four hundred thousand (11,400,000) shares shall be Common Stock
and four million thirty five thousand (4,035,000) shares shall be Preferred
Stock, each with a par value of $0.001 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of two million (2,000,000) shares
(the "Series A Preferred Stock"), the Series B Preferred Stock, which series
shall consist of one million six hundred thousand (1,600,000) shares (the
"Series B Preferred Stock") and the Series C Preferred Stock, which series shall
consist of four hundred and thirty
<PAGE> 3
five thousand (435,000) shares (the "Series C Preferred Stock) are as set forth
below in this Article IV(B).
1. DIVIDEND PROVISIONS.
(a) The holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Common Stock of this corporation, at the rate of (i) in
the case of the Series A Preferred Stock, $0.16 per share per annum, and (ii) in
the case of the Series B Preferred Stock, $1.60 per share per annum, and (iii)
in the case of the Series C Preferred Stock, $4.61 per share per annum (each
amount as adjusted for any stock splits, stock dividends, recapitalizations or
the like) or, if greater (as determined on a per annum basis and on an
as-converted basis for the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock), an amount equal to that paid on any other
outstanding shares of this corporation, payable when, as, and if declared by the
Board of Directors. Such dividends shall not be cumulative. The holders of the
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock can waive any dividend preference that such holders shall be
entitled to receive under this Section 1 upon the affirmative vote or written
consent of the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(voting together as a single class and not as separate series, and on an
as-converted basis).
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Common Stock by reason of their ownership
thereof, (i) for the Series A Preferred Stock, an amount per share equal to the
sum of (A) $2.00 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (B) declared but unpaid dividends on such
share (subject to adjustment of such fixed dollar amounts for any stock splits,
stock dividends, combinations, recapitalizations or the like), (ii) for the
Series B Preferred Stock, an amount per share equal to the sum of (A) $20.00 for
each outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price") and (B) declared but unpaid dividends on such share (subject to
adjustment of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like) (the "Series B Liquidation
Preference") and (iii) for the Series C Preferred Stock, an amount per share
equal to the sum of (A) $54.39 for each outstanding share of Series C Preferred
Stock (the "Original Series C Issue Price") and (B) declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combinations, recapitalization or the like)
(the "Series C Liquidation Preference"). If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire
3
<PAGE> 4
assets and funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock and the Series C Stock in proportion to the preferential amount
each holder is otherwise entitled to receive.
(b) Upon completion of the distribution required by subsection (a) of
this Section 2, all of the remaining assets of this corporation available for
distribution to shareholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c)
(i) For purposes of this Section 2, a liquidation, dissolution
or winding up of this corporation shall be deemed to be occasioned by, or to
include (unless the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (voting together as a single class and not as separate series,
and on an as-converted basis) shall determine otherwise), (A) the acquisition of
this corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of this corporation; or (B) a sale of all or
substantially all of the assets of this corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange or system over the
thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
this corporation.
4
<PAGE> 5
(iii) In the event the provisions of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing or other consummation of such
event to be postponed until such time as the provisions of this Section 2 have
been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall revert to and be
the same as such rights, preferences and privileges existing immediately prior
to the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock written
notice of such impending transaction not later than twenty (20) days prior to
the shareholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and this
corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after this corporation has given the first notice provided for herein or
sooner than ten (10) days after this corporation has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. CONVERSION. The holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of this corporation or any transfer agent for such stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Series A Issue Price, Original Series B Issue Price or
the Original Series C Issue Price, as applicable, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price, the initial Conversion Price per share for shares of Series B
Preferred Stock shall be the Original Series B Issue Price and the Initial
Conversion Price per share for shares of Series C Preferred Stock shall be the
Original Series C Issue Price; provided, however, that the Conversion Price for
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall be subject to adjustment as set forth in subsection 3(d).
5
<PAGE> 6
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock and
Series B Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price at the time in effect for such series of Preferred
Stock immediately upon the earlier of (i) this corporation's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 or Form SB-2 under the Securities Act of
1933, as amended, (the "Securities Act") the public offering price of which was
not less than $25.00 per share (as adjusted for any stock splits, stock
dividends, recapitalizations or the like) and $15,000,000 in the aggregate or
(ii) the date specified by written consent or agreement of the holders of a
majority of the then outstanding shares of Series A Preferred Stock and Series B
Preferred Stock (voting together as a single class and not as separate series,
and on an as-converted basis); provided, however, that in the event that the
conversion of the Series B Preferred Stock pursuant to this subsection 3(b) is
sought in connection with a liquidation, dissolution, or winding up of the
corporation (as defined in subsection 2(c)(i)) in which the holders of Series B
Preferred Stock would receive an amount per share less than the Series B
Liquidation Preference, then such shares of Series B Preferred Stock shall only
be converted into shares of Common Stock with the written consent or agreement
of the holders of a majority of the then outstanding shares of Series B
Preferred Stock (voting together as a separate series). Each share of Series C
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such series of Preferred Stock
immediately upon this corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 or Form SB-2 under the Securities Act, the public offering price of
which was not less than $54.39 per share (as adjusted for any stock splits,
stock dividends, recapitalizations or the like).
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, and shall give written notice to
this corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A
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<PAGE> 7
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN DILUTIVE
ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock shall
be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date upon
which any shares of Series B or Series C Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for such series
in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for such series in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common Stock
deemed to be issued pursuant to subsection 3(d)(i)(E)(1) or (2)) plus the number
of shares of Common Stock that the aggregate consideration received by this
corporation for such issuance would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to subsection 3(d)(i)(E)(1) or (2)) plus the number of shares
of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 3(d)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
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<PAGE> 8
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 3(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for, any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 3(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 3(d)(i)(A)), the Conversion Price of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or
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<PAGE> 9
rights related to such convertible or exchangeable securities, the Conversion
Price of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities or options or rights related to such
securities (unless such options or rights were merely deemed to be included in
the numerator and denominator for purposes of determining the number of shares
of Common Stock outstanding for purposes of subsection 3(d)(i)(A)), shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 3(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation;
(C) shares of Common Stock issuable or issued in a firm
commitment underwritten public offering before or in connection with which all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock will be converted to Common Stock;
(D) shares of Common Stock issuable or issued upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock or as dividends or distributions on the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock;
(E) the issuance of securities in connection with a bona
fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise; or
(F) the issuance of stock, warrants or other securities
or rights to persons or entities with which the Company has business
relationships, provided such issuances are for other than primarily equity
financing purposes and are approved by the Board of Directors.
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<PAGE> 10
(iii) In the event this corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 3(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease of the aggregate of
shares of Common Stock outstanding.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(d)(iii), then, in each such
case for the purpose of this subsection 3(e), the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of this
corporation into which their shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 3
or Section 2) provision shall be made so that the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
the number of shares of stock or other securities or property of this
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series A
Preferred Stock, the Series B
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<PAGE> 11
Preferred Stock and the Series C Preferred Stock after the recapitalization to
the end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Preferred Stock, the Series B Preferred
Stock or the Series C Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share (with one-half being
rounded upward). Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock pursuant to this Section 3, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
at the time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property that at the time would be received upon the
conversion of a share of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of
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<PAGE> 12
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Amended and Restated
Articles of Incorporation.
(k) NOTICES. Any notice required by the provisions of this Section 3 to
be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock and the Series C Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
Notwithstanding the foregoing, all notices and communications to addresses
outside the United States shall be given by facsimile and confirmed in writing
sent by overnight or two-day courier service.
4. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall have
the right to one vote for each share of Common Stock into which such Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock could then
be converted, and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
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(b) VOTING FOR THE ELECTION OF DIRECTORS. As long as at least a majority
of the shares of Series A Preferred Stock originally issued remain outstanding,
the holders of such shares of Series A Preferred Stock shall be entitled to
elect two (2) directors of this corporation at each annual election of
directors. The holders of outstanding Common Stock shall be entitled to elect
two (2) directors of this corporation at each annual election of directors. The
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock and Common Stock (voting together as a single class and not as
separate series, and on an as-converted basis) shall be entitled to elect any
remaining directors of this corporation.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 4(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such shareholders duly called for that purpose or pursuant to a written
consent of shareholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
5. PROTECTIVE PROVISIONS. So long as at least twenty-five percent (25%)
of the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock originally issued remain outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(voting together as a single class and not as separate series, and on an
as-converted basis provided, however, that Section 5(d) shall require approval
of the holders of at least a majority of the then outstanding shares of the
Series C Preferred Stock):
(a) sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of this corporation is disposed of;
(b) alter or change the rights, preferences or privileges of the shares
of Series A Preferred Stock or Series B Preferred Stock so as to affect
adversely the shares;
(c) alter or change the rights, preferences or privileges of the shares
of Series C Preferred Stock so as to affect adversely the shares;
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<PAGE> 14
(d) increase or decrease the total number of authorized shares of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock (other
than by redemption or conversion or in connection with a stock split of such
series);
(e) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security, having a preference over, or being on a parity with, the Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock with
respect to dividends, liquidation, redemption or voting;
(f) declare or pay any dividends on its Common Stock;
(g) redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any share or shares of Preferred Stock or
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment; or
(h) increase the authorized number of directors of this corporation to a
number greater than five (5).
6. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
converted pursuant to Section 3 hereof, the shares so converted shall be
cancelled and shall not be issuable by this corporation. The Amended and
Restated Articles of Incorporation of this corporation shall be appropriately
amended to effect the corresponding reduction in this corporation's authorized
capital stock.
C. COMMON STOCK. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in this
Article IV(C).
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Article IV(B) hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS.
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(a) The holder of each share of Common Stock shall have the right to one
vote for each such share, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
(b) The rights of the holders of Common Stock to elect directors of this
corporation shall be as set forth in Section 4(b) of Article IV(B).
D. NO CUMULATIVE VOTING. No shareholder of the corporation shall have
the right of cumulative voting at any election of directors or upon any other
matter.
E. NO PREEMPTIVE RIGHTS. No holder of securities of the corporation
shall be entitled as a matter of right, preemptive or otherwise, to subscribe
for or purchase any securities of the corporation now or hereafter authorized to
be issued, or securities held in the treasury of the corporation, whether issued
or sold for cash or other consideration or as a share dividend or otherwise. Any
such securities may be issued or disposed of by the Board of Directors to such
persons and on such terms as in its discretion it shall deem advisable.
Notwithstanding the forgoing, the corporation may expressly grant preemptive or
other such rights to holders of securities of the corporation pursuant to
agreements between the corporation and such holders.
ARTICLE V
The number of directors constituting the present Board of Directors is
five and the names and addresses of the persons presently serving as director
until the next annual meeting of the stockholders or until their successors are
elected and qualified are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
J. Robert Shaw 3355 W. Alabama, Suite 175
Houston, Texas 77098-1718
James H. Whitcomb, Jr. 3355 W. Alabama, Suite 175
Houston, Texas 77098-1718
Kevin Harvey 2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Kenneth Kurtzman 3355 W. Alabama, Suite 175
Houston, Texas 77098-1718
</TABLE>
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ARTICLE VI
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VII
Except as otherwise provided in this Certificate of Incorporation, the
number of directors of this corporation shall be fixed from time to time by a
bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders.
ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE X
A director of this corporation shall, to the fullest extent permissible
by the Delaware General Corporation Law, not be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended, after
approval by the stockholders of this Article, to authorize corporation action
further eliminating or limiting the personal liability of directors, then the
liability of a director of this corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any amendment, repeal or modification of this Article Eleven, or the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article Eleven, by the stockholders of this corporation shall not apply to
or adversely affect any right or protection of a director of this corporation
existing at the time of such amendment, repeal, modification or adoption.
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ARTICLE XI
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XII
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which the Delaware General
Corporation Law permits this corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested director or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware General Corporation Law (statutory or nonstatutory), with respect to
actions for breach of duty to this corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article Thirteen shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed by the President and the Secretary of this
corporation on this 12th day of July, 1999.
/s/ JAMES H. WHITCOMB, JR.
------------------------------------
James H. Whitcomb, Jr.,
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ASHFORD.COM, INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Ashford.com, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on July 9,
1999, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Amended and Restated Certificate of Incorporation of
this corporation, declaring said amendment and restatement to be advisable and
in the best interests of this corporation and its stockholders, and authorizing
the appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation
of this corporation, as amended, be amended and restated in its entirety as
follows:
ARTICLE I
The name of the corporation is Ashford.com, Inc. (the "Corporation").
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of stock, to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is One
Hundred Million (100,000,000), par value $.001 per share, and the number of
Preferred Stock authorized to be issued is Ten Million ($10,000,000) par value
$.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and Restated
Certificate, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
The Board of Directors shall be and is divided into three classes,
Class I, Class II and Class III. Such classes shall be as nearly equal in number
of directors as possible. Each director shall serve for a term ending on the
third annual meeting following the annual meeting at which such director was
elected; provided, however, that the directors first elected to Class I shall
serve for a term ending on the annual meeting next following the end of fiscal
year 2000, the directors first elected to Class II shall serve for a term ending
on the second annual meeting next following the end of fiscal year 2000, and the
directors first elected to Class III shall serve for a term ending on the third
annual meeting next following the end of fiscal year 2000. The foregoing
notwithstanding, each director shall serve until such director's successor shall
have been duly elected and qualified, unless such director shall resign, become
disqualified, disabled or shall otherwise be removed.
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At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors each director then continuing to serve as such
shall nevertheless continue as a director of the class of which the director is
a member until the expiration of the director's current term, or the director's
prior death, resignation or removal. If any newly created directorship may,
consistently with the rule that the three classes shall be as nearly equal in
number of directors as possible, be allocated to either class, the Board shall
allocate it to that of the available class whose term of office is due to expire
at the earliest date following such allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of the stockholders of the Corporation, and may not be effected by any consent
in writing of such stockholders.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
IX by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of, or
increase the liability of any director of this Corporation with respect to any
acts or omissions of such director occurring prior to, such repeal or
modification.
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<PAGE> 4
ARTICLE X
In addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of a majority
of the voting power of all of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal the provisions
of Article I, Article II, Article III and Article IV of this Amended and
Restated Certificate of Incorporation. Notwithstanding any other provision of
this Amended and Restated Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Amended and Restated Certificate of Incorporation,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the voting power of all of the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal any provision
of this Amended and Restated Certificate of Incorporation not specified in the
preceding sentence.
* * * *
THIRD: The foregoing Amended and Restated Certificate of Incorporation
has been duly adopted by the Corporation's Board of Directors in accordance with
the applicable provisions of Section 245 of the General Corporation Law of the
State of Delaware.
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<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this Amended and
Restated Certificate of Incorporation this ___ day of _________, 1999.
---------------------------------
Kenneth E. Kurtzman
Chief Executive Officer
5
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
ASHFORD.COM, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES.......................................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS......................................1
ARTICLE III. DIRECTORS.....................................................3
ARTICLE IV. NOTICES.......................................................5
ARTICLE V. OFFICERS......................................................5
ARTICLE VI. CERTIFICATE OF STOCK..........................................8
ARTICLE VII. GENERAL PROVISIONS............................................9
ARTICLE VIII. AMENDMENTS...................................................11
ARTICLE IX. LOANS TO OFFICERS............................................12
</TABLE>
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BYLAWS
OF
ASHFORD.COM, INC.
ARTICLE I
OFFICES
1.1 The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
1.2 The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors
shall be held in the City of Houston, State of Texas, at such place as may be
fixed from time to time by the Board of Directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual meetings of stockholders, commencing with the year 1999,
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a Board of Directors, and transact such other
business as may properly be brought before the meeting.
2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not fewer than ten (10) nor more than sixty (60) days before the date
of the meeting.
2.4 The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
<PAGE> 4
2.5 Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the president and shall be called by the president or
secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of stockholders owning at least fifty percent (50%)
in amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
2.6 Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.8 The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.9 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three
years from its date, unless the proxy provides for a longer period.
2.11 Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking
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<PAGE> 5
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
3.1 The number of directors that shall constitute the whole Board of
Directors shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 3.2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors
(as constituted immediately prior to any such increase), the Court of Chancery
may, upon application of any stockholder or stockholders holding at least ten
percent (10%) of the total number of the shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
3.3 The business of the corporation shall be managed by or under the
direction of its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
3.4 The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.5 The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
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<PAGE> 6
3.6 Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.7 Special meetings of the Board of Directors may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of two (2) directors unless the Board of
Directors consists of only one director, in which case special meetings shall
be called by the president or secretary in like manner and on like notice on
the written request of the sole director.
3.8 At all meetings of the Board of Directors a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9 Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
3.10 Unless otherwise restricted by the certificate of incorporation
or these bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
3.11 The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
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recommending to the stockholders, any action or matter expressly required by
the General Corporation Law of Delaware to be submitted to stockholders for
approval or (ii) adopting, amending or repealing any provision of these bylaws.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
3.13 Unless otherwise restricted by the certificate of incorporation
or these bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
3.14 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.1 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of
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Directors may also choose one or more vice-presidents, assistant secretaries
and assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these bylaws otherwise provide.
5.2 The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary
and may choose vice-presidents.
5.3 The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
5.6 The Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be present.
He shall have and may exercise such powers as are, from time to time, assigned
to him by the Board of Directors and as may be provided by law.
5.7 In the absence of the Chairman of the Board, the Vice Chairman of
the Board, if any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Directors and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
5.8 The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
5.9 He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
5.10 In the absence of the president or in the event of his inability
or refusal to act, the vice-president, if any, (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation,
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then in the order of their election) shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
5.11 The secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or president,
under whose supervision he shall be. He shall have custody of the corporate
seal of the corporation and he, or an assistant secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
5.12 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
5.13 The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
5.14 He shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
5.15 If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
5.16 The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of Directors (or if
there be no such
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determination, then in the order of their election) shall, in the absence of
the treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
6.1 Every holder of stock in the corporation shall be entitled to have
a certificate, signed by, or in the name of the corporation by, the Chairman or
Vice Chairman of the Board of Directors, or the president or a vice-president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
6.2 Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
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and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
6.4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
6.6 The corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
7.1 Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for
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equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purposes as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
CHECKS
7.3 All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
FISCAL YEAR
7.4 The fiscal year of the corporation shall be fixed by resolution of
the Board of Directors.
SEAL
7.5 The Board of Directors may adopt a corporate seal having inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
7.6 The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a
predecessor corporation or, at the corporation's request, a director or officer
of another corporation; provided, however, that the corporation shall indemnify
any such agent in connection with a proceeding initiated by such agent only if
such proceeding was authorized by the Board of Directors of the corporation.
The indemnification provided for in this Section 7.6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who
has ceased to be a director, and (iii) inure to the benefit of the heirs,
executors and administrators of such a person. The corporation's obligation to
provide indemnification under this Section 7.6 shall be offset to the extent of
any other source of indemnification or any otherwise applicable insurance
coverage under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding
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the foregoing, the corporation shall not be required to advance such expenses
to an agent who is a party to an action, suit or proceeding brought by the
corporation and approved by a majority of the Board of Directors of the
corporation that alleges willful misappropriation of corporate assets by such
agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful
and deliberate breach in bad faith of such agent's duty to the corporation or
its stockholders.
The foregoing provisions of this Section 7.6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 7.6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 7.6, be interpreted as
follows: an "other enterprise" shall be deemed to include such an employee
benefit plan, including without limitation, any plan of the corporation that is
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974," as amended from time to time; the corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
8.1 These bylaws may be altered, amended or repealed or new bylaws may
be adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
bylaws is conferred upon the Board of Directors by the certificate or
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal bylaws.
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ARTICLE IX
LOANS TO OFFICERS
9.1 The corporation may lend money to, or guarantee any obligation of,
or otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares
of stock of the corporation. Nothing in these bylaws shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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CERTIFICATE OF SECRETARY OF
ASHFORD.COM, INC.
The undersigned, James Whitcomb, hereby certifies that he is the duly
elected and acting Secretary of Ashford.com, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by Action by Written Consent in Lieu of
Organizational Meeting by the Directors on July 12, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this July 12, 1999.
/s/ JAMES WHITCOMB
-------------------------------------
James Whitcomb
President and Chief Operating Officer
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Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
ASHFORD.COM, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of Dover, County
of Kent, State of Delaware.
SECTION 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of
directors shall be held at such time and place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2.
(a) Annual meetings of stockholders, commencing with the fiscal year
2000, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
(b) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice of meeting, (ii) by or at the direction of the Board
of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of the notice provided for in this
bylaw, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this bylaw.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of
this bylaw, the stockholder
<PAGE> 2
must have given timely notice thereof in writing to the Secretary of the
Corporation and any such business must otherwise be a proper matter for
stockholder action under Delaware law. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (ii) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (a) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (b) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(d) Notwithstanding anything in the second sentence of paragraph (c)
of this bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the Corporation at least
70 days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required by this bylaw shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(e) Only such persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as directors
and only such business shall be conducted at an annual meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in these Bylaws. The chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in
these Bylaws. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in these
Bylaws, and, if any proposed nomination or business is not
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in compliance with these Bylaws, to declare that such defective proposed
business or nomination shall be disregarded.
(f) For purposes of these Bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(g) Notwithstanding the foregoing provisions of this bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to
vote at such meeting not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called at any time by the Board of Directors pursuant to
a resolution approved by a majority of the whole Board of Directors. Such
resolution shall state the purpose or purposes of the proposed meeting.
SECTION 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
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represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted that might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
SECTION 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
vote of 75% of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Directors shall be divided
into three classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the 2000 annual meeting of
stockholders, the term of office of the second class to expire at the 2001
annual meeting of stockholders and the term of office of the third class to
expire at the 2002 annual meeting of stockholders. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. All directors shall hold office until the expiration of
term for which elected, and until their respective successors are elected and
qualified, except in the case of the death, resignation or removal of any
director. Directors need not be stockholders.
SECTION 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and not by stockholders, and the directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute.
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SECTION 3. The business of the corporation shall be managed by or
under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the Board of Directors may be called by
the president on ten (10) days' notice to each director by mail or forty-eight
(48) hours notice to each director either personally or by telephone, telegram
or facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two (2) directors
unless the board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director.
SECTION 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
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SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or amending the bylaws of the
corporation; and, unless the resolution or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram, telephone or
facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
SECTION 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
SECTION 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
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THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. He or she shall have and may exercise such powers as are,
from time to time, assigned to him or her by the Board and as may be provided
by law.
SECTION 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he or she shall be present. He or
she shall have and may exercise such powers as are, from time to time, assigned
to him or her by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The president shall be the chief operating officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
the president shall preside at all meetings of the stockholders and the Board
of Directors; the president shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
SECTION 9. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
SECTION 10. In the absence of the president or in the event of the
president's inability or refusal to act, the vice-president, if any, (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the president. The vice-presidents shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. The secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he or she shall be.
The secretary shall have custody of the corporate seal of the corporation and
the secretary, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
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<PAGE> 9
SECTION 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. Unless otherwise appointed, the chief financial officer shall be the
treasurer.
SECTION 14. The treasurer shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as treasurer and of the financial condition of the
Corporation.
SECTION 15. If required by the Board of Directors, the treasurer shall
give the Corporation a bond (which shall be renewed every six years) in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the treasurer's office
and for the restoration to the Corporation, in case of the treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the treasurer's possession or
under the treasurer's control belonging to the Corporation.
SECTION 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares
owned by such stockholder in the Corporation.
9
<PAGE> 10
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate that the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
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<PAGE> 11
FIXING RECORD DATE
SECTION 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE> 12
CHECKS
SECTION 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the Corporation shall initially end on
March 31 and shall thereafter, from time to time, be fixed by resolution of the
Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to
be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
Corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
Corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the Corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
Corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the Corporation or
any other person.
Expenses incurred by a director or officer of the Corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he or she is or was a director or officer of the Corporation (or was
serving at the corporation's request as a director or officer of another
corporation) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified by the Corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
Corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding
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brought by the Corporation and approved by a majority of the Board of Directors
of the Corporation that alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the Corporation or any other willful
and deliberate breach in bad faith of such agent's duty to the Corporation or
its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the Corporation and each director or officer who serves in
such capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the Corporation to indemnify any person, other than a director or officer, made
a party to any action, suit or proceeding by reason of the fact that such
person, their testator or intestate, is or was an officer or employee of the
Corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the Corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the Corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the Corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit
plan pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by stockholders holding at least seventy-five percent
(75%) of the Corporation's outstanding capital stock ("Amending Stockholders")
or by the Board of Directors, when such power is conferred upon the Board of
Directors by the certificate of incorporation at any regular meeting of the
stockholders or of the Board of Directors or by the Amending Stockholders at
any special meeting of the stockholders or by the Board of Directors at any
special meeting of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred
upon the Board of Directors by the certificate or incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal bylaws.
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<PAGE> 14
CERTIFICATE OF SECRETARY OF
ASHFORD.COM, INC.
The undersigned, James Whitcomb, hereby certifies that he is the duly
elected and acting Secretary of Ashford.com, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by the Directors on ____________, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of __________, 1999.
-----------------------------------
James Whitcomb
Secretary
<PAGE> 1
EXHIBIT 4.1
NEWWATCH COMPANY
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
JULY 9, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights............................................................................................1
1.1 Definitions.........................................................................................1
1.2 Request for Registration............................................................................2
1.3 Company Registration................................................................................4
1.4 Form S-3 Registration...............................................................................5
1.5 Obligations of the Company..........................................................................6
1.6 Information from Holder.............................................................................7
1.7 Expenses of Registration............................................................................7
1.8 Delay of Registration...............................................................................7
1.9 Indemnification.....................................................................................7
1.10 Reports Under Securities Exchange Act of 1934.....................................................10
1.11 Assignment of Registration Rights.................................................................10
1.12 Limitations on Subsequent Registration Rights.....................................................10
1.13 "Market Stand-Off"Agreement.......................................................................11
1.14 Termination of Registration Rights................................................................11
2. Covenants of the Company......................................................................................11
2.1 Delivery of Financial Statements...................................................................11
2.2 Inspection.........................................................................................12
2.3 Termination of Information and Inspection Covenants................................................13
2.4 Right of First Offer...............................................................................13
2.5 Board of Directors.................................................................................14
2.6 Restrictions on Future Issuances...................................................................14
2.7 Proprietary Rights.................................................................................15
2.8 Termination of Certain Covenants...................................................................15
3. Miscellaneous.................................................................................................16
3.1 Successors and Assigns.............................................................................16
3.2 Governing Law......................................................................................16
3.3 Counterparts.......................................................................................16
3.4 Titles and Subtitles...............................................................................16
3.5 Notices............................................................................................16
3.6 Expenses...........................................................................................16
3.7 Entire Agreement: Amendments and Waivers...........................................................16
3.8 Severability.......................................................................................17
3.9 Aggregation of Stock...............................................................................17
3.10 Prior Agreement....................................................................................17
3.11 Additional Parties.................................................................................17
</TABLE>
Schedule A Schedule of Investors
Schedule B Schedule of Founders
i
<PAGE> 3
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of the 9th day of July, 1999, by and among NewWatch
Company, a Texas corporation (the "Company"), and the investors listed on
Schedule A hereto, each of which is herein referred to as an "Investor," and the
holders of Common Stock listed on Schedule B hereto, each of which is herein
referred to as a "Founder."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A and Series B Preferred Stock and/or shares of
Common Stock issued upon conversion thereof (the "Series A Preferred Stock" and
"Series B Preferred Stock," respectively) and possess registration rights,
information rights, rights of first offer, and other rights pursuant to an
Amended and Restated Investors' Rights Agreement dated as of April 16, 1999
among the Company, the Founders and such Existing Investors (the "Prior
Agreement");
WHEREAS, the undersigned Existing Investors are holders of at least a
majority of the "Registrable Securities" of the Company (as defined in the Prior
Agreement), and desire to amend and restate the Prior Agreement and to accept
the rights created pursuant hereto in lieu of the rights granted to them under
the Prior Agreement; and
WHEREAS, certain Investors are parties to the Series C Preferred Stock
Purchase Agreement of even date herewith among the Company and certain of the
Investors (the "Series C Agreement"), which provides that as a condition to the
closing of the sale of the Series C Preferred Stock (the "Series C Preferred
Stock"), this Agreement must be executed and delivered by such Investors, the
Founders, Existing Investors holding at least a majority of the "Registrable
Securities" of the Company (as defined in the Prior Agreement) and the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the undersigned Existing Investors and the Founders hereby
agree that the Prior Agreement shall be amended and restated in its entirety by
this Agreement, and the parties hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE> 4
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(f) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock or the Series C Preferred Stock and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) above, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned.
(h) The number of shares of "Registrable Securities" outstanding
shall be determined by the number of shares of Common Stock outstanding that
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after the earlier of (i) June 1, 2002 or (ii)
six (6) months after the effective date of the Initial Offering, a written
request from the Holders of fifty percent (50%) or more of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Act covering the registration of Registrable
Securities with an anticipated aggregate offering price of at least $7,500,000,
then the Company shall, within twenty (20) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations of
this Section 1.2, use reasonable best efforts to effect, as soon as practicable,
the registration under the Act of all Registrable Securities that the Holders
request to be registered in a written request received by the Company within
twenty (20) days of the mailing of the Company's notice pursuant to this Section
1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall
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<PAGE> 5
include such information in the written notice referred to in Section 1.2(a). In
such event the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company (which underwriter or
underwriters shall be reasonably acceptable to a majority in interest of the
Initiating Holders). Notwithstanding any other provision of this Section 1.2, if
the underwriter advises the Company that marketing factors require a limitation
of the number of securities underwritten (including Registrable Securities),
then the Company shall so advise all Holders of Registrable Securities that
would otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act;
(ii) after the Company has effected two (2) registrations
pursuant to this Section 1.2, and such registrations have been declared or
ordered effective;
(iii) during the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of the filing of,
and ending on a date one hundred eighty (180) days following the effective date
of, a Company-initiated registration subject to Section 1.3 below, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective;
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Company's Chief Executive Officer or Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be effected at such time, in which event the Company shall have the
right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders, provided that
such right to delay a request shall be exercised by the Company not more than
once in any twelve (12)-month period.
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<PAGE> 6
1.3 Company Registration.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.3(c), use all reasonable efforts to cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
(b) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below twenty-five percent (25%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be excluded
if the underwriters make the determination described above and no other
stockholder's securities are included, or (ii) notwithstanding (i) above, any
shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
4
<PAGE> 7
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder," and any pro rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
1.4 Form S-3 Registration. In case the Company shall receive from
the Holders of at least thirty percent (30%) of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related blue sky or similar qualification or compliance with respect to
all or a part of the Registrable Securities owned by such Holder or Holders, the
Company shall:
(a) promptly give written notice of the proposed registration,
and any related blue sky or similar qualification or compliance, to all other
Holders; and
(b) use all reasonable efforts to cause, as soon as practicable,
such Registrable Securities to be registered for the offering on Form S-3 and to
cause such Registrable Securities to be qualified in such jurisdictions as such
Holders may reasonable request, together with all or such portion of the
Registrable Securities of any other Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
such written notice from the Company, provided, however, that the Company shall
not be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.4:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $1,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period;
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected one registration on Form
S-3 for the Holders pursuant to this Section 1.4; or
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(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or, if earlier, until the distribution contemplated in the Registration
Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
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(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.6 Information from Holder. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.7 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 or Section 1.4 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses pro rata based upon the number of Registrable Securities that were
to be requested in the withdrawn registration), unless, in the case of a
registration requested under Section 1.2, the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 1.2, provided, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2 or 1.4.
1.8 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or
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several) to which they may become subject under the Act, the 1934 Act or any
state securities laws, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities laws or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities laws; and the Company will reimburse
each such Holder, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection l.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person; provided further, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Holder or underwriter, or any person controlling such Holder or
underwriter, from whom the person asserting any such losses, claims, damages or
liabilities purchased shares in the offering, 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 such Holder or
underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the shares to such person, and
if the prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such selling Holder expressly for use in
connection with such registration; and each such selling Holder will reimburse
any person intended to be indemnified pursuant to this subsection l.9(b), for
any legal or other expenses reasonably incurred by such person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection l.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the selling Holder (which consent shall not be
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unreasonably withheld), provided that in no event shall any indemnity under this
subsection l.9(b) exceed the net proceeds from the offering received by such
selling Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
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1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, affiliate,
partner, limited partner, retired partner or stockholder of a Holder, (ii) is a
Holder's family member or trust for the benefit of an individual Holder, or
(iii) after such assignment or transfer, holds at least 150,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), provided: (a) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.3 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the
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amount of the Registrable Securities of the Holders that are included or (b) to
demand registration of their securities.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
will not, without the prior written consent of the managing underwriter, during
the period commencing on the date of the final prospectus relating to the
Company's Initial Offering and ending on the date specified by the Company and
the managing underwriter (such period not to exceed one hundred eighty (180)
days) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any Registrable Securities or any securities convertible into or
exercisable or exchangeable for Registrable Securities (whether such shares or
any such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
Registrable Securities, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Registrable Securities or such other
securities, in cash or otherwise. The foregoing provisions of this Section 1.13
shall apply only to the Company's Initial Offering of equity securities, shall
not apply to the sale of any shares to an underwriter pursuant to an
underwriting agreement, and shall only be applicable to the Holders if all
officers and directors and greater than five percent (5%) stockholders of the
Company enter into similar agreements. The underwriters in connection with the
Company's Initial Offering are intended third party beneficiaries of this
Section 1.13 and shall have the right, power and authority to enforce the
provisions hereof as though they were a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after five (5) years
following the consummation of the Initial Offering or, as to any Holder, such
earlier time at which all Registrable Securities held by such Holder (and any
affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and
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audited and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, statement of cash flows for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets,
income statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with GAAP consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
GAAP) and fairly present the financial condition of the Company and its results
of operation for the period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 2.1 to provide information that it deems in good faith to
be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor that holds at
least 100,000 shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and/or Common Stock (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations)
issued upon conversion thereof, at such Investor's expense, to visit and inspect
the Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information that it reasonably considers to be a trade secret or
similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and
be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to
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the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean any Investor or transferee that
holds at least 100,000 shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock (and/or the Common Stock issued upon
conversion thereof) issued pursuant to the Series A Agreement, Series B
Agreement, or Series C Agreement, as the case may be (as adjusted for stock
splits, stock dividends, combinations and other recapitalizations). For purposes
of this Section 2.4, an Investor includes any general partners and affiliates of
an Investor. An Investor shall be entitled to apportion the right of first offer
hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with
Section 3.5 ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock then held, by such Major Investor bears to the total number of shares of
Common Stock of the Company then outstanding (assuming full conversion of all
convertible securities) issued and held, or issuable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
then held, by all the Major Investors.
(c) If all Shares that Major Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the portion of such Shares within such period, or if such
agreement is not consummated within ninety (90) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to the Major Investors in accordance
herewith.
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(d) The right of first offer in this paragraph 2.4 shall not be
applicable to (i) the issuance or sale of up to 750,000 shares of Common Stock
(or options therefor) to employees, directors and consultants for the primary
purpose of soliciting or retaining their services; (ii) the issuance of
securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act, at an offering price of at
least $25.00 per share in the case of holders of Series A and Series B Preferred
Stock and resulting in proceeds to the Company of at least $15,000,000 in the
aggregate, and at an offering price of at least $54.39 in the case of holders of
Series C Preferred Stock (in each case appropriately adjusted for any stock
split, dividend, combination or other recapitalization), (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise or (v) the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships provided such issuances are for other
than primarily equity financing purposes.
2.5 Board of Directors.
(a) With respect to the member of the Company's Board of
Directors that the Amended and Restated Articles of Incorporation of the Company
(the "Restated Articles") provides is to be elected by the holders of Series A
Preferred Stock, Series B Preferred Stock and Common Stock, voting together as a
single class and not as separate series, and on an as converted basis (the
"Fifth Director"), the Founders and the Investors hereby agree to vote all of
their shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Common Stock now owned or hereafter acquired, and the
Company hereby agrees to use its best efforts, so that the Fifth Director is a
person (i) not otherwise affiliated with the Company who has executive
experience in a related industry and (ii) reasonably acceptable to the other
members of the Board of Directors.
(b) The Company hereby covenants and agrees that the Fifth
Director will be elected to the Board within a reasonable period after the date
hereof.
2.6 Restrictions on Future Issuances of Common Stock. Unless
otherwise approved by the Board of Directors (including at least one of the
directors elected by the holders of a majority of the Series A Preferred Stock),
all future issuances of Common Stock by the Company shall be subject to the
following restrictions in a form approved by the Board of Directors:
(a) The Common Stock shall not be transferable (i) prior to
vesting nor (ii) during the period commencing on the date of the final
prospectus relating to the Company's Initial Offering and ending on the date
specified by the Company and the managing underwriter (such period not to exceed
one hundred eighty (180) days).
(b) Upon termination of employment, the Company shall have a
right of repurchase at cost on all of such terminated employee's unvested shares
of Common Stock, including all options therefor.
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(c) The Company shall have a right of first refusal on all
transfers of vested shares of Common Stock.
(d) Common Stock issuable or issued to officers, employees or
consultants of the Company shall vest 25% after the first twelve (12) months of
continuous service to the Company with the remainder to vest in equal monthly
installments over the following thirty-six (36) months of continuous service to
the Company.
2.7 Proprietary Rights. The Company hereby covenants and agrees to
use its best efforts to cause all future officers, employees and consultants to
execute an Employment Agreement, or other similar agreement related to the
protection of the Company's proprietary information, in substantially the forms
provided to special counsel to the Investors.
2.8 Observer Rights. As long as entities or individuals affiliated
with Austin Ventures hold at least fifty percent (50%) of the shares of the
Series C Preferred Stock originally issued to such entities on an as converted
basis (or an equivalent amount of Common Stock issued upon conversion thereof),
the Company shall invite a representative of Austin Ventures to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors; provided,
however, that such representative shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so provided;
and, provided further, that the Company reserves the right to withhold any
information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secrets or similar confidential
information to such representative or if such Investor or its representative is
a direct competitor of the Company.
2.9 Termination of Certain Covenants. The covenants set forth in
Sections 2.4, 2.5, 2.6 and 2.7 shall terminate and be of no further force or
effect (a) with respect to the Series A and Series B Preferred Stock upon the
consummation of the sale of securities pursuant to a bona fide, firmly
underwritten public offering of shares of common stock, registered under the
Act, at an offering price of at least $25.00 per share (appropriately adjusted
for any stock split, dividend, combination or other recapitalization) and
resulting in proceeds to the Company of at least $15,000,000 and (b) with
respect to the Series C Preferred Stock upon the consummation of the sale of
securities pursuant to a bona fide, firmly underwritten public offering of
shares of common stock, registered under the Act, at an offering price of at
least $54.39 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization).
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights,
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remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Texas as applied to agreements among Texas
residents entered into and to be performed entirely within Texas.
3.3 Counterparts. 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.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, internationally recognized
overnight courier service, or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement: Amendments and Waivers. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities; provided, however, that (a) in the event that any amendment or
waiver with respect to Section 2.6 hereof affects the obligations and/or rights
of the Founders, such amendment or waiver shall also require the written consent
of a majority in interest of the Founders and (b) any amendment or waiver with
respect to Section 2.8 shall also require the written consent of the entities or
individuals affiliated with Austin Ventures. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities each future holder of all such Registrable Securities,
and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
16
<PAGE> 19
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.10 Prior Agreement. The Prior Agreement is hereby superseded in
its entirety and shall be of no further force and effect.
3.11 Additional Parties. In the event of a subsequent closing with
an investor as provided for in Section 1.3 of the Series C Agreement, such
investor shall become a party to this Agreement as an "Investor" upon receipt
from such investor of a fully executed signature page hereto.
[remainder of page intentionally left blank]
17
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NEWWATCH COMPANY
By: /s/ Kenneth E. Kurtzman
----------------------------------------
Kenneth E. Kurtzman
Chief Executive Officer
Address:
3355 West Alabama, Suite 175
Houston, TX 77098
INVESTOR:
BENCHMARK CAPITAL PARTNERS II, L.P.
As nominee for
Benchmark Capital Partners II, L.P.
Benchmark Founders' Fund II, L.P.
Benchmark Founders' Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.
By: Benchmark Capital Management
Co. II, L.L.C., general partner
By: /s/ Kevin Harvey
----------------------------------------
Managing Member
Address for Benchmark affiliated entities:
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 21
SPINNAKER CLIPPER FUND, L.P.
By: Bowman Capital Management, L.L.C.
By: /s/ Eric Moore
-------------------------------------
Name: Eric Moore
Title: Controller
Address:
1875 South Grant Street, Suite 600
San Mateo, CA 94402
SPINNAKER FOUNDERS FUND, L.P.
By: Bowman Capital Management, L.L.C.
By: /s/ Eric Moore
-------------------------------------
Name: Eric Moore
Title: Controller
Address:
1875 South Grant Street, Suite 600
San Mateo, CA 94402
SPINNAKER OFFSHORE FOUNDERS FUND CAYMAN
LIMITED
By: Bowman Capital Management, L.L.C.
By: /s/ Eric Moore
-------------------------------------
Name: Eric Moore
Title: Controller
Address:
1875 South Grant Street, Suite 600
San Mateo, CA 94402
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 22
SPINNAKER TECHNOLOGY FUND, L.P.
By: Bowman Capital Management, L.L.C.
By: /s/ Eric Moore
-------------------------------------
Controller
Address:
1875 South Grant Street, Suite 600
San Mateo, CA 94402
SPINNAKER OFFSHORE TECHNOLOGY FUND, LTD
By: Bowman Capital Management, L.L.C.
By: /s/ Eric Moore
-------------------------------------
Controller
Address:
1875 South Grant Street, Suite 600
San Mateo, CA 94402
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
G & H PARTNERS
By: /s/ Brian K. Beard
-------------------------------------
Partner
Address:
155 Constitution Drive
Menlo Park, California 94025
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Joseph H. Gleberman
-------------------------------------
Name: Joseph H. Gleberman
-------------------------------------
Title: Attorney-In-Fact
-------------------------------------
Address:
85 Broad Street, 19th Floor
New York, New York 10004
Attention: Eve Gerriets
Fax: (212) 357-5505
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
MARKAS HOLDING, BV
By: /s/ M. C. Van der Sluijs-Plantz
-------------------------------------
Name: M. C. Van der Sluijs-Plantz
Title: Managing Director
Address:
Locatellikade, 1
Parnassustoren
1076 AZ Amsterdam, The Netherlands
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
Sequoia Capital VIII
Sequoia International Technology Partners VIII
Sequoia International Technology Partners VIII (Q)
By: SC VIII Management, LLC
A California Limited Liability Company
its General Partner
By: /s/ Michael Moritz
----------------------------------------------
Managing Member
CMS Partners LLC
Sequoia 1997
By: /s/ Michael Moritz
----------------------------------------------
Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
By: SCFF Management, LLC
A Delaware Limited Liability Company
its General Partner
By: /s/ Michael Moritz
----------------------------------------------
Managing Member
Address for Sequoia affiliated entities:
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
AUSTIN VENTURES V, L.P.
By: AV Partners V, L.P.,
its General Partner
By: /s/ AV Partners V, L.P.
----------------------------------------------
General Partner
AUSTIN VENTURES V AFFILIATES
FUND, L.P.
By: AV Partners V, L.P.
Its General Partner
By: /s/ AV Partners V, L.P.
----------------------------------------------
General Partner
AUSTIN VENTURES VI, L.P.
By: AV Partners VI, L.P.
Its General Partner
By: /s/ AV Partners VI, L.P.
----------------------------------------------
General Partner
/s/ J. Ross Cockrell
--------------------------------------------------
J. Ross Cockrell
/s/ Brian S. Goffman
--------------------------------------------------
Brian S. Goffman
Address for Austin Ventures affiliated entities:
114 West 7th Street, Suite 1300
Austin, Texas 78701
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
FOUNDERS:
/s/ James H. Whitcomb, Jr.
--------------------------------------------------
James H. Whitcomb, Jr.
/s/ J. Robert Shaw
--------------------------------------------------
J. Robert Shaw
SIGNATURE PAGE TO NEWWATCH COMPANY
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
SCHEDULE A
Schedule of Investors
Name
Benchmark Capital Partners II, L.P.
Spinnaker Clipper Fund, L.P.
Spinnaker Founders Fund, L.P.
Spinnaker Offshore Founders Fund Cayman Limited
G & H Partners
The Goldman Sachs Group, Inc.
Sequoia Capital VIII
Sequoia International Technology Partners VIII
Sequoia International Technology Partners VIII (Q)
CMS Partners LLC
Sequoia 1997
Sequoia Capital Franchise Fund
Austin Ventures V, L.P.
Austin Ventures V Affiliates Fund, L.P.
Austin Ventures VI, L.P.
J. Ross Cockrell
Brian S. Goffman
<PAGE> 30
SCHEDULE B
Schedule of Founders
Name
J. Robert Shaw
James H. Whitcomb, Jr.
<PAGE> 1
EXHIBIT 4.2
SEE LEGENDS ON REVERSE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CS-XX *XXX*
ASHFORD COM, INC.
THIS CERTIFIES THAT SPECIMEN STOCK CERTIFICATE is the registered holder of
NUMBER OF SHARES (XXX) Shares OF THE COMMON STOCK OF ASHFORD.COM, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this___________day of______________A.D.______
- -------------------------- ------------------------------
Secretary President
<PAGE> 2
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED.
THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED
OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY
CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND
CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.
FOR VALUE RECEIVED, ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO _________
_________________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT______________________________________ ATTORNEY TO TRANSFER THE SAID
SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED__________________________
IN PRESENCE OF________________________________________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of July
__, 1999, between ASHFORD.COM, INC., a Delaware corporation ("the Company"), and
________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article VII
of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section l(a) if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or
participant in any Proceeding (as hereinafter defined) other than a Proceeding
by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee
shall be indemnified against all Expenses (as hereinafter defined), judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such Proceeding or any claim, issue
or matter therein, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
1
<PAGE> 2
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1
and 2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), Company shall pay,
in the first instance, the entire amount of any judgment or settlement of such
action, suit or proceeding without requiring Indemnitee to contribute to such
2
<PAGE> 3
payment and Company hereby waives and relinquishes any right of contribution it
may have against Indemnitee. Company shall not enter into any settlement of any
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding) unless such
settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold
Indemnitee harmless from any claims of contribution which may be brought by
officers, directors or employees of the Company other than Indemnitee who may be
jointly liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that
3
<PAGE> 4
Indemnitee is not entitled to be indemnified against such Expenses. Any advances
and undertakings to repay pursuant to this Section 5 shall be unsecured and
interest free. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 5 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 6(b) hereof, the
Independent Counsel shall be selected as provided in this Section 6(c). The
Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board of Directors). Indemnitee or
the Company, as the case may be, may, within 10 days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection; provided, however, that
such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 13 of this Agreement, and the
4
<PAGE> 5
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(f) If the person, persons or entity empowered or selected
under Section 6 to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be
5
<PAGE> 6
extended for a reasonable time, not to exceed an additional fifteen (15) days,
if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 6(g) shall
not apply if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
6
<PAGE> 7
indemnification or such determination is deemed to have been made pursuant to
Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification. Indemnitee
shall commence such proceeding seeking an adjudication within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 7(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to
Section 6(b) of this Agreement that Indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the certificate of
incorporation of the Company, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in the Law, whether by statute or judicial
decision, permits greater indemnification than would be afforded currently under
the Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy
7
<PAGE> 8
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or
remedy.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, or agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is an
officer or director of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 7 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or any
other Enterprise at the Company's request.
11. Security. To the extent requested by the Indemnitee and approved by
the Board of Directors of the Company, the Company may at any time and from time
to time provide
8
<PAGE> 9
security to the Indemnitee for the Company's obligations hereunder through an
irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party (other
than with respect to matters concerning the Indemnitee under this Agreement, or
of other indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
9
<PAGE> 10
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
15. Modification and Waiver. No supplement, modification, termination
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
10
<PAGE> 11
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below
Indemnitee signature hereto.
(b) If to the Company, to:
3355 West Alabama,
Suite 175 Houston,
Texas 77098
Attention:_______________
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ASHFORD.COM, INC.
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 3355 West Alabama, Suite 175
Houston, Texas 77098
INDEMNITEE
-------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
<PAGE> 1
EXHIBIT 10.3
ASHFORD.COM, INC.
1999 EQUITY INCENTIVE PLAN
(AS ADOPTED EFFECTIVE JULY 9, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
ARTICLE 1. INTRODUCTION..........................................................................................1
ARTICLE 2. ADMINISTRATION........................................................................................1
2.1 Committee Composition...............................................................................1
2.2 Committee Responsibilities..........................................................................1
2.3 Committee for Non-Officer Grants....................................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS...........................................................................2
3.1 Basic Limitation....................................................................................2
3.2 Annual Increase in Shares...........................................................................2
3.3 Additional Shares...................................................................................2
3.4 Dividend Equivalents................................................................................2
ARTICLE 4. ELIGIBILITY...........................................................................................2
4.1 Incentive Stock Options.............................................................................2
4.2 Other Grants........................................................................................3
ARTICLE 5. OPTIONS...............................................................................................3
5.1 Stock Option Agreement..............................................................................3
5.2 Number of Shares....................................................................................3
5.3 Exercise Price......................................................................................3
5.4 Exercisability and Term.............................................................................3
5.5 Modification or Assumption of Options...............................................................4
5.6 Buyout Provisions...................................................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES.............................................................................4
6.1 General Rule........................................................................................4
6.2 Surrender of Stock..................................................................................4
6.3 Exercise/Sale.......................................................................................4
6.4 Exercise/Pledge.....................................................................................4
6.5 Promissory Note.....................................................................................5
6.6 Other Forms of Payment..............................................................................5
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS..........................................................5
7.1 Initial Grants......................................................................................5
7.2 Annual Grants.......................................................................................5
7.3 Exercise Price......................................................................................5
7.4 Term 5
7.5 Affiliates of Outside Directors.....................................................................5
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 8. STOCK APPRECIATION RIGHTS.............................................................................5
8.1 SAR Agreement.......................................................................................5
8.2 Number of Shares....................................................................................6
8.3 Exercise Price......................................................................................6
8.4 Exercisability and Term.............................................................................6
8.5 Exercise of SARs....................................................................................6
8.6 Modification or Assumption of SARs..................................................................6
ARTICLE 9. RESTRICTED SHARES.....................................................................................7
9.1 Restricted Stock Agreement..........................................................................7
9.2 Payment for Awards..................................................................................7
9.3 Vesting Conditions..................................................................................7
9.4 Voting and Dividend Rights..........................................................................7
ARTICLE 10. STOCK UNITS..........................................................................................7
10.1 Stock Unit Agreement...............................................................................7
10.2 Payment for Awards.................................................................................7
10.3 Vesting Conditions.................................................................................7
10.4 Voting and Dividend Rights.........................................................................8
10.5 Form and Time of Settlement of Stock Units.........................................................8
10.6 Death of Recipient.................................................................................8
10.7 Creditors' Rights..................................................................................8
ARTICLE 11. PROTECTION AGAINST DILUTION..........................................................................8
11.1 Adjustments........................................................................................8
11.2 Dissolution or Liquidation.........................................................................9
11.3 Reorganizations....................................................................................9
ARTICLE 12. CHANGE IN CONTROL....................................................................................9
ARTICLE 13. DEFERRAL OF AWARDS..................................................................................10
ARTICLE 14. AWARDS UNDER OTHER PLANS............................................................................11
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES............................................................11
15.1 Effective Date....................................................................................11
15.2 Elections to Receive NSOs, Restricted Shares or Stock Units.......................................11
15.3 Number and Terms of NSOs, Restricted Shares or Stock Units........................................11
ARTICLE 16. LIMITATION ON RIGHTS................................................................................11
16.1 Retention Rights..................................................................................11
16.2 Stockholders' Rights..............................................................................11
16.3 Regulatory Requirements...........................................................................11
ARTICLE 17. WITHHOLDING TAXES...................................................................................12
17.1 General...........................................................................................12
</TABLE>
ii
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<TABLE>
<S> <C> <C>
17.2 Share Withholding.................................................................................12
ARTICLE 18. FUTURE OF THE PLAN..................................................................................12
18.1 Term of the Plan..................................................................................12
18.2 Amendment or Termination..........................................................................12
ARTICLE 19. LIMITATION ON PAYMENTS..............................................................................12
19.1 Scope of Limitation...............................................................................12
19.2 Basic Rule........................................................................................13
19.3 Reduction of Payments.............................................................................13
19.4 Overpayments and Underpayments....................................................................13
19.5 Related Corporations..............................................................................14
ARTICLE 20. DEFINITIONS.........................................................................................14
</TABLE>
iii
<PAGE> 5
ASHFORD.COM, INC.
1999 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective on the
effective date of the Company's initial public offering of its Common Shares.
The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b)
encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended
to qualify for exemption under Rule 16b-3 (or its successor) under the
Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who
<PAGE> 6
need not satisfy the requirements of Section 2.1. Such secondary committee may
administer the Plan with respect to Employees and Consultants who are not
considered officers or directors of the Company under section 16 of the Exchange
Act, may grant Awards under the Plan to such Employees and Consultants and may
determine all features and conditions of such Awards. Within the limitations of
this Section 2.3, any reference in the Plan to the Committee shall include such
secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 500,000 Common Shares (pre-split) plus (b) the additional Common
Shares described in Sections 3.2 and 3.3. The limitations of this Section 3.1
and Section 3.2 shall be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of April 1 of each year,
commencing with the year 2000, the aggregate number of Options, SARs, Stock
Units and Restricted Shares that may be awarded under the Plan shall
automatically increase by a number equal to the lesser of (a) 5% of the total
number of Common Shares then outstanding or (b) 400,000 Common Shares
(pre-split).
3.3 ADDITIONAL SHARES. If Restricted Shares or Common Shares issued
upon the exercise of Options are forfeited, then such Common Shares shall again
become available for Awards under the Plan. If Stock Units, Options or SARs are
forfeited or terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan. If Stock Units are settled, then only the number of Common Shares (if any)
actually issued in settlement of such Stock Units shall reduce the number
available under Section 3.1 and the balance shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of Common
Shares (if any) actually issued in settlement of such SARs shall reduce the
number available under Section 3.1 and the balance shall again become available
for Awards under the Plan. The foregoing notwithstanding, the aggregate number
of Common Shares that may be issued under the Plan upon the exercise of ISOs
shall not be increased when Restricted Shares or other Common Shares are
forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for
2
<PAGE> 7
the grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.
4.2 OTHER GRANTS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Stock Units,
NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
100,000 Common Shares (pre-split), except that Options granted to a new Employee
in the fiscal year of the Company in which his or her service as an Employee
first commences shall not cover more than 300,000 Common Shares (pre-split). The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
3
<PAGE> 8
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options or
may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to
buy out for a payment in cash or cash equivalents an Option previously granted
or (b) authorize an Optionee to elect to cash out an Option previously granted,
in either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan,
payment shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee may at any
time accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to pledge all or part of the Common Shares being purchased under the
Plan to a securities broker or lender approved by the Company, as security for a
loan, and to deliver all or part of the loan proceeds to the Company.
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6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note. However, the par value of the Common Shares being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 INITIAL GRANTS. Each Outside Director who first becomes a
member of the Board after the date of the Company's initial public offering
shall receive a one-time grant of a fully vested NSO covering 500 Common Shares
(pre-split) (subject to adjustment under Article 11). Such NSO shall be granted
on the date when such Outside Director first joins the Board. An Outside
Director who previously was an Employee shall not receive a grant under this
Section 7.1.
7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual
meeting of the Company's stockholders held in the year 2000 or thereafter, each
Outside Director who will continue serving as a member of the Board thereafter
shall receive a fully vested NSO covering 1,500 Common Shares (pre-split)
(subject to adjustment under Article 11), except that such NSO shall not be
granted in the calendar year in which the same Outside Director received the NSO
described in Section 7.1. An Outside Director who previously was an Employee
shall be eligible to receive grants under this Section 7.2.
7.3 EXERCISE PRICE. The Exercise Price under all NSOs granted to
an Outside Director under this Article 7 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3 and 6.4.
7.4 TERM. All NSOs granted to an Outside Director under this
Article 7 shall terminate on the earlier of (a) the 10th anniversary of the date
of grant, or (b) the date that is 12 months after the termination of such
Outside Director's service for any reason.
7.5 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide
that the NSOs that otherwise would be granted to an Outside Director under this
Article 7 shall instead be granted to an affiliate of such Outside Director.
Such affiliate shall then be deemed to be an Outside Director for purposes of
the Plan, provided that the service-related vesting and termination provisions
pertaining to the NSOs shall be applied with regard to the service of the
Outside Director.
ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all
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applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various SAR Agreements entered
into under the Plan need not be identical. SARs may be granted in consideration
of a reduction in the Optionee's other compensation.
8.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number
of Common Shares to which the SAR pertains and shall provide for the adjustment
of such number in accordance with Article 11. SARs granted to any Optionee in a
single fiscal year shall in no event pertain to more than 100,000 Common Shares
(pre-split), except that SARs granted to a new Employee in the fiscal year of
the Company in which his or her service as an Employee first commences shall not
pertain to more than 300,000 Common Shares (pre-split). The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 11.
8.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
8.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
8.5 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or
any person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion.
8.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under such
SAR.
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ARTICLE 9. RESTRICTED SHARES.
9.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
9.2 PAYMENT FOR AWARDS. Subject to the following sentence,
Restricted Shares may be sold or awarded under the Plan for such consideration
as the Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past services and future services.
To the extent that an Award consists of newly issued Restricted Shares, the
consideration shall consist exclusively of cash, cash equivalents or past
services rendered to the Company (or a Parent or Subsidiary) or, for the amount
in excess of the par value of such newly issued Restricted Shares, full-recourse
promissory notes, as the Committee may determine.
9.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 10. STOCK UNITS.
10.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
10.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
10.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
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10.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall
have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
10.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) Common Shares or (c)
any combination of both, as determined by the Committee. The actual number of
Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions
applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
10.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
10.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Unit Agreement.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar
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occurrence, the Committee shall make such adjustments as it, in its sole
discretion, deems appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of NSOs to be granted to Outside Directors
under Article 7;
(d) The number of Common Shares covered by each outstanding
Option and SAR;
(e) The Exercise Price under each outstanding Option and SAR;
or
(f) The number of Stock Units included in any prior Award
which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised or settled, Options, SARs and Stock Units shall terminate immediately
prior to the dissolution or liquidation of the Company.
11.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. CHANGE IN CONTROL
Unless the applicable agreement evidencing the Award provides
otherwise, in the event of any Change in Control, the vesting and exercisability
of each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the Common Shares at the time subject to such Award
and may be exercised for any or all of those shares as fully-vested Common
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Shares. However, the vesting and exercisability of an outstanding Award shall
not so accelerate if and to the extent such Award, in connection with the Change
in Control, remains outstanding, or is assumed by the surviving corporation (or
parent thereof) or substituted with an award with substantially the same terms
by the surviving corporation (or parent thereof). The determination of whether a
substituted award has substantially the same terms as an Award shall be made by
the Committee, and its determination shall be final, binding and conclusive.
If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting and
exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately determine
in good faith that such acceleration would preclude the use of "pooling of
interests" accounting.
ARTICLE 13. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the settlement of
Stock Units credited to a deferred compensation account established for
such Participant by the Committee as an entry on the Company's books;
(b) Have Common Shares that otherwise would be
delivered to such Participant as a result of the exercise of an Option
or SAR converted into an equal number of Stock Units; or
(c) Have Common Shares that otherwise would be
delivered to such Participant as a result of the exercise of an Option
or SAR or the settlement of Stock Units converted into amounts credited
to a deferred compensation account established for such Participant by
the Committee as an entry on the Company's books. Such amounts shall be
determined by reference to the Fair Market Value of such Common Shares
as of the date when they otherwise would have been delivered to such
Participant.
A deferred compensation account established under this Article 13 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 13.
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ARTICLE 14. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs.
Such awards may be settled in the form of Common Shares issued under this Plan.
Such Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce the
number of Common Shares available under Article 3.
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
15.1 EFFECTIVE DATE. No provision of this Article 15 shall be effective
unless and until the Board has determined to implement such provision.
15.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 15 shall be filed with the Company on the prescribed form.
15.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 16. LIMITATION ON RIGHTS.
16.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
16.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Common Shares by filing any required notice of exercise
and paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
16.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be
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required. The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such Common Shares, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
ARTICLE 17. WITHHOLDING TAXES.
17.1 GENERAL. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
17.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when they are withheld or surrendered.
ARTICLE 18. FUTURE OF THE PLAN.
18.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the effective date of the Company's initial public offering of its
Common Shares. The Plan shall remain in effect until it is terminated under
Section 18.2, except that no ISOs shall be granted on or after the 10th
anniversary of the later of (a) the date when the Board adopted the Plan or (b)
the date when the Board adopted the most recent increase in the number of Common
Shares available under Article 3 which was approved by the Company's
stockholders.
18.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 19. LIMITATION ON PAYMENTS.
19.1 SCOPE OF LIMITATION. This Article 19 shall apply to an Award only
if:
(a) The independent auditors most recently selected
by the Board (the "Auditors") determine that the after-tax value of
such Award to the Participant, taking into account the effect of all
federal, state and local income taxes, employment taxes and excise
taxes applicable to the Participant (including the excise tax under
section 4999 of the Code), will be greater after the application of
this Article 19 than it was before the application of this Article 19;
or
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(b) The Committee, at the time of making an Award
under the Plan or at any time thereafter, specifies in writing that
such Award shall be subject to this Article 19 (regardless of the
after-tax value of such Award to the Participant).
If this Article 19 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
19.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 19, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
19.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 19, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 19 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
19.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which
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he or she shall repay to the Company, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code; provided, however, that
no amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly be
paid or transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
19.5 RELATED CORPORATIONS. For purposes of this Article 19, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 20. DEFINITIONS.
20.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
20.2 "AWARD" means any award of an Option, an SAR, a Restricted Share
or a Stock Unit under the Plan.
20.3 "BOARD" means the Company's Board of Directors, as constituted
from time to time.
20.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of
the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (i) the continuing or surviving entity and (ii)
any direct or indirect parent corporation of such continuing or
surviving entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a
result of which fewer than 50% of the incumbent directors are directors
who either (i) had been directors of the Company on the date 24 months
prior to the date of the event that may constitute a Change in Control
(the "original directors") or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a
majority of the aggregate of the original directors who were still in
office at the time of the election or nomination and the directors
whose election or nomination was previously so approved; or
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(d) Any transaction as a result of which any person
is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least 50%
of the total voting power represented by the Company's then outstanding voting
securities. For purposes of this Paragraph (d), the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but
shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the Common Shares of
the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
20.5 "CODE" means the Internal Revenue Code of 1986, as amended.
20.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.
20.7 "COMMON SHARE" means one share of the common stock of the Company.
20.8 "COMPANY" means Ashford.com, Inc., a Delaware corporation.
20.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
20.10 "EMPLOYEE" means a common-law employee of the Company, a Parent,
a Subsidiary or an Affiliate.
20.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
20.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
20.13 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
20.14 "ISO" means an incentive stock option described in section 422(b)
of the Code.
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20.15 "NSO" means a stock option not described in sections 422 or 423
of the Code.
20.16 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
20.17 "OPTIONEE" means a person or estate who holds an Option or SAR.
20.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
20.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
20.20 "PARTICIPANT" means a person or estate who holds an Award.
20.21 "PLAN" means this Ashford.com, Inc. 1999 Equity Incentive Plan,
as amended from time to time.
20.22 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
20.23 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
20.24 "SAR" means a stock appreciation right granted under the Plan.
20.25 "SAR AGREEMENT" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
20.26 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
20.27 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
20.28 "STOCK UNIT AGREEMENT" means the agreement between the Company
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
20.29 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation
16
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that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
17
<PAGE> 1
EXHIBIT 10.4
ASHFORD.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE JULY 9, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
SECTION 1. PURPOSE OF THE PLAN...................................................................................1
SECTION 2. ADMINISTRATION OF THE PLAN............................................................................1
(a) Committee Composition...............................................................................1
(b) Committee Responsibilities..........................................................................1
SECTION 3. ENROLLMENT AND PARTICIPATION..........................................................................1
(a) Offering Periods....................................................................................1
(b) Accumulation Periods................................................................................1
(c) Enrollment..........................................................................................1
(d) Duration of Participation...........................................................................1
(e) Applicable Offering Period..........................................................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS................................................................................2
(a) Frequency of Payroll Deductions.....................................................................2
(b) Amount of Payroll Deductions........................................................................2
(c) Changing Withholding Rate...........................................................................2
(d) Discontinuing Payroll Deductions....................................................................3
(e) Limit on Number of Elections........................................................................3
SECTION 5. WITHDRAWAL FROM THE PLAN..............................................................................3
(a) Withdrawal..........................................................................................3
(b) Re-Enrollment After Withdrawal......................................................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS...........................................................................3
(a) Termination of Employment...........................................................................3
(b) Leave of Absence....................................................................................3
(c) Death...............................................................................................3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES..................................................................4
(a) Plan Accounts.......................................................................................4
(b) Purchase Price......................................................................................4
(c) Number of Shares Purchased..........................................................................4
(d) Available Shares Insufficient.......................................................................4
(e) Issuance of Stock...................................................................................4
(f) Unused Cash Balances................................................................................5
(g) Stockholder Approval................................................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP........................................................................5
(a) Five Percent Limit..................................................................................5
(b) Dollar Limit........................................................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE............................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE..........................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER........................................6
SECTION 12. SECURITIES LAW REQUIREMENTS.......................................6
SECTION 13. STOCK OFFERED UNDER THE PLAN......................................7
(a) Authorized Shares................................................7
(b) Anti-Dilution Adjustments........................................7
(c) Reorganizations..................................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE.......................................7
SECTION 15. DEFINITIONS.......................................................7
(a) Accumulation Period..............................................7
(b) Board............................................................7
(c) Code.............................................................7
(d) Committee........................................................7
(e) Company..........................................................8
(f) Compensation.....................................................8
(g) Corporate Reorganization.........................................8
(h) Eligible Employee................................................8
(i) Exchange Act.....................................................8
(j) Fair Market Value................................................8
(k) IPO..............................................................9
(l) Offering Period..................................................9
(m) Participant......................................................9
(n) Participating Company............................................9
(o) Plan.............................................................9
(p) Plan Account.....................................................9
(q) Purchase Price...................................................9
(r) Stock............................................................9
(s) Subsidiary.......................................................9
</TABLE>
ii
<PAGE> 4
ASHFORD.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO.
The purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each May 1 and November 1,
except that the first Offering Period shall commence on the date of the IPO and
end on October 31, 2001.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each May 1 and November 1, except
that the first Accumulation Period shall commence on the date of the IPO and end
on April 30, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 10 days prior
to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her
until the earliest of (A) the end of such Offering Period, (B) the end
of his or her participation under Subsection (d) above or (C)
re-enrollment for a subsequent Offering Period under Paragraph (ii) or
(iii) below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading
day before the commencement of any subsequent Offering Period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Company (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants shall be
re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant
shall automatically be re-enrolled for the Offering Period that
commences immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as
2
<PAGE> 6
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
two elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
3
<PAGE> 7
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first
Offering Period under the Plan, 85% of the price at which one share of
Stock is offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 200 (pre-split) shares
of Stock with respect to any Accumulation Period nor more than the amounts of
Stock set forth in Sections 8(b) and 13(a). The Committee may determine with
respect to all Participants that any fractional share, as calculated under this
Subsection (c), shall be (i) rounded down to the next lower whole share or (ii)
credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
4
<PAGE> 8
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) or (d) above, Section 8(b) or Section 13(a) shall be refunded to
the Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Company or any parent or
Subsidiary of the Company. For purposes of this Subsection (a), the following
rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan;
and
(iii) Each Participant shall be deemed to have the right to
purchase 200 (pre-split) shares of Stock under this Plan with respect
to each Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal
to (A) $25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the
Stock that the Participant previously purchased (under this Plan and
all other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the
immediately preceding calendar year.
5
<PAGE> 9
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall
be equal to (A) $75,000 minus (B) the Fair Market Value of the Stock
that the Participant previously purchased (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the two
preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
6
<PAGE> 10
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 200,000 (pre-split) (subject to adjustment
pursuant to this Section 13). On April 1 of each year, commencing with April 1,
2000, the aggregate number of shares of Stock available for purchase during the
life of the Plan shall automatically be increased by the number of shares equal
to the lesser of (a) 2% of the number of shares of Stock then outstanding or (b)
150,000 (pre-split) shares of Stock (subject to adjustment pursuant to this
Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 200-share limitation described in Section 7(c)
(pre-split) and the price of shares that any Participant has elected to purchase
shall be adjusted proportionately by the Committee for any increase or decrease
in the number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 13, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
7
<PAGE> 11
(e) "COMPANY" means Ashford.com, Inc., a Delaware corporation.
(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation
or dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
who meets the following requirements: his or her customary employment is for
more than five months per calendar year and for more than 20 hours per week. The
foregoing notwithstanding, an individual shall not be considered an Eligible
Employee if his or her participation in the Plan is prohibited by the law of any
country which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on
the date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for such
date; or
(iii) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange.
Such determination shall be conclusive and binding on all persons.
8
<PAGE> 12
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this Ashford.com, Inc. 1999 Employee Stock Purchase
Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE> 1
EXHIBIT 10.5
CONFIDENTIAL
EXECUTION COPY
WATCH MERCHANT PROGRAM
ADVERTISING AND PROMOTION AGREEMENT
This Advertising and Promotion Agreement (this "Agreement") is entered into as
of February 26, 1999 (the "Effective Date") between YAHOO! INC., a California
corporation with offices at 3420 Central Expressway, Santa Clara, CA 95051
("Yahoo") and NEWWATCH COMPANY, a Texas corporation with offices at 3355 West
Alabama - Suite 175, Houston, Texas 77098 ("Newwatch").
In consideration of the mutual promises contained in this Agreement, Yahoo and
Newwatch hereby agree as follows:
SECTION 1: DEFINITIONS.
The following terms are used in this Agreement with the respective meanings set
forth below:
1.1 "Category Pages" shall mean those Pages identified as such on
Exhibit A.
1.2 "Click-through" shall mean a user's "pressing" or "clicking" on any
Newwatch Link as measured by Yahoo's advertiser reporting system.
1.3 "Launch Date" shall mean the date on which Yahoo first activates a
Newwatch Link.
1.4 "Newwatch Banner" shall mean an advertising promotion substantially
similar in form as that set forth on Exhibit B and which meets the
following criteria: (a) promotes the on-line sale of Watch Products,
(b) has dimensions no larger than 468 pixels wide by 60 pixels high,
(c) is in .GIF, .GIF89A or .JPEG format, (d) does not have "looped"
animation, (e) does not have any animation longer than six (6)
seconds, (f) has a file size no greater than 12K, and (f) will permit
users to navigate directly to a page relating to Watch Products on
the Newwatch Site. Yahoo may modify these specifications at its
discretion.
1.5 "Newwatch Button" shall mean a link substantially similar in form as
that set forth on Exhibit B that: (a) contains a Newwatch logo and
has dimensions no larger than 88 pixels wide by 31 pixels high, (b)
does not contain animation, (c) has a file size no greater than 2K,
(d) will permit users to navigate directly to a Page on the Newwatch
Site relating to the online sale of Watch Products, (e) contain
alternative text of no more than ten (10) characters when placed on
a Yahoo Directory Page or sixteen (16) characters when placed on a
Yahoo Keyword Page and (f) contain three text links if the Newwatch
Button is on Yahoo Directory Pages or one text link if the Newwatch
Button is on a Yahoo Keyword Pages of no more than 16 characters.
Yahoo may modify these specifications at its discretion.
1.6 "Newwatch Front Page Promotion" shall mean a promotion substantially
similar in form as that set forth on Exhibit B that: (a) has
dimensions no larger than 230 pixels wide by 33 pixels high and
promotes Watch Products, (b) has no animation longer than six
seconds, (c) does not have "looped" animation, and (d) has a file
size no greater than 3K.
<PAGE> 2
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In addition, the Newwatch Front Page Promotion shall comply with
Yahoo's current front-page promotion guidelines attached as Exhibit
D, which may be modified by Yahoo at its discretion.
1.7 "Newwatch Link" shall mean any link placed by Yahoo under this
Agreement, including, without limitation, the Newwatch Banner,
Newwatch Shopping Banner, Newwatch Button, Newwatch Mail Button,
Newwatch Shopping Module and Newwatch Front Page Promotion.
1.8 "Newwatch Mail Button" shall mean a link substantially similar in
form as that set forth on Exhibit B that: (a) On the "welcome pages":
(i) contains a Newwatch logo with dimensions no Larger than 88 pixels
wide by 31 pixels high and has no animation, (ii) promotes Watch
Products, (iii) has a text message of not more than 50 characters (2
lines of not more than 25 characters each) below the button; (b) In
the email sent to users: (i) all pages will be emailed by Yahoo, (ii)
the same message will be sent to all users, (iii) the email may
contain text and graphics not to exceed 30K total; and (c) on the
"log out" pages: (i) contains a Newwatch logo with dimensions no
larger than 88 pixels wide by 31 pixels high and has no animation;
(ii) includes an HTML drop-down box with up to 10 items, 25
characters maximum per line; (iii) includes a text message of not
more than 25 characters describing the drop-down box content. Yahoo
may modify these specifications at its discretion.
1.9 "Newwatch Site" shall mean the web site owned by Newwatch currently
located at http://www.newwatch.com.
1.10 "Newwatch Shopping Module" shall mean a promotion substantially
similar in form as that set forth on Exhibit B that: (a) has
dimensions no larger than 150 pixels wide by 275 pixels high, (b)
visually promotes a Watch Product for sale in Newwatch's Yahoo Store
that is not a special offer or promotion, (c) contains text with the
name of the product (and nothing else) that does not exceed fifty
(50) characters, (d) does not contain animation, (e) is in JPEG or
GIF format, (e) has a file size no greater than 20K, (f) contains an
optional Newwatch logo which shall be no greater than ten percent
(10%) of the image space in the Module, (g) will permit users to
navigate directly to a Page in the Newwatch Store relating to the
Watch Product promoted in the module and (h) specifies the price of
the product being sold. Yahoo may modify these specifications at its
discretion.
1.11 "Newwatch Store" shall mean an online store created with Yahoo Store
technology and located in the Yahoo Store.
1.12 "Page" means any World Wide Web page (or, for online media other than
Web sites, the equivalent unit of the relevant protocol).
1.13 "Page View" shall mean a user's request for a Page as measured by
Yahoo's advertiser reporting system.
<PAGE> 3
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1.14 "Page View Obligations" shall be Yahoo's obligations to put Newwatch
links on its pages as set forth in Sections 5.1 and 5.2 of this
Agreement.
1.15 "Run of Network" shall mean banners rotating throughout the Yahoo
Properties.
1.16 "Search Results Pages" shall mean those Pages identified as such on
Exhibit A.
1.17 "Watch Merchant" shall mean any company or other entity engaged in
the online sale of Watch Products.
1.18 "Watch Merchant Program" shall mean Yahoo's program consisting of
certain marketing, advertising and promotional activities with Watch
Merchants.
1.19 "Watch Products" shall mean timepieces meant to be worn or carried,
as well as associated accessories such as replacement batteries or
watchbands.
1.20 "Term" shall mean the period beginning on the Launch Date and
continuing for a period of * months.
1.21 "Yahoo Mail Pages" shall mean those Pages identified as such on
Exhibit A.
1.22 "Yahoo Main Site" shall mean Yahoo's principal U.S. based directory to
the World Wide Web currently located at http://www.yahoo.com.
1.23 "Yahoo Properties" shall mean any Yahoo branded or co-branded media
properties, including, without limitation, Internet guides, that are
developed in whole or in part by Yahoo or its affiliates.
1.24 "Yahoo Shopping Pages" shall mean those Pages identified as such on
Exhibit A.
1.25 "Yahoo Store" shall mean that Yahoo branded property containing
various online stores and currently located at http://store.yahoo.com.
SECTION 2: LINKS TO NEWWATCH.
2.1 Newwatch Banner. Yahoo shall provide the Newwatch Banner on the
Category Pages designated on Exhibit A and on pages associated with
the keywords specified on Exhibit A on a rotating basis until its
Page View Obligations are met.
2.2 Newwatch Button. Yahoo shall provide the Newwatch Button on the
Category Pages and Search Results Pages designated in Exhibit A,
during the Term. Each Newwatch Button and associated text links shall
promote Watch Products and permit users to navigate directly to a
Page on the Newwatch Site relating to the Watch Products relevant to
the Category Page or Search Results Page on which such Button and
text link appears.
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 4
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2.3 Newwatch Mail Button. Yahoo shall provide the Newwatch Mail Button
on the Yahoo Mail Pages on a rotating basis until its Page View
Obligations are met.
2.4 Newwatch Shopping Module. Yahoo shall provide the Newwatch Shopping
Module in the Apparel/Accessories area within Yahoo Shopping on a
rotating basis until its Page View Obligations are met.
2.5 Newwatch Front Page Promotion. Yahoo shall provide the Newwatch Front
Page Promotion on a rotating basis until its Page View obligations
are met, on the home page of the Yahoo Main Site, currently located
at http://www.yahoo.com in connection with the following four
"multi-sponsored" promotions: (i) Mother's Day 1999, (ii) Father's
Day 1999, (iii) Holiday Extravaganza 1999 and (iv) Valentine's Day
2000.
2.6 Newwatch Store. Newwatch agrees to open an online store at Yahoo
Store and to abide by the specifications, terms and conditions of the
Yahoo Store program as further detailed at http://store.yahoo.com.
2.7 Limited Exclusivity. Yahoo shall not include merchant buttons
promoting or pointing directly to pages selling Watch Products on the
Yahoo pages containing a Newwatch Button. This restriction applies to
buttons only and Yahoo is in no way restricted from (a) displaying
any non-button advertising on the pages containing a Newwatch Button
or (b) providing links to other merchants as a part of Yahoo's search
or editorial directory on a Yahoo page containing a Newwatch Button.
3 IMPLEMENTATION.
3.1 Subject to the provisions of this Agreement, Yahoo will be solely
responsible for the user interface and placement of the Newwatch Links
and Newwatch shall be solely responsible for and shall provide
Yahoo with all artwork and design elements of the Newwatch Links.
3.2 Newwatch shall promptly provide Yahoo all URLs, URL formats (as appli-
cable), content, and other materials necessary for Yahoo to provide
the Newwatch Links. All content and material contained in the
Newwatch Links are subject to Yahoo's approval and must comply with
all applicable federal, state and local laws, rules and regulations,
including, without limitation, consumer protection laws and rules and
regulations governing product claims, truth in labeling, and false
advertising.
3.3 Newwatch hereby grants to Yahoo a non-exclusive, worldwide, fully
paid license to use, reproduce and display Newwatch's trade names,
trademarks, service names, other proprietary marks and any other
intellectual property provided by Newwatch to Yahoo, as is reasonably
necessary to perform its obligations under this Agreement.
3.4 In no event shall any Page on the Newwatch Site to which users
Click-through from any Newwatch Link, contain graphic or textual
hyperlinks, banner advertisements or promotions of any navigational
guides or other online services similar to Yahoo including, but not
limited to: Amazon, America Online, CNET/Snap, Disney, eBay,
<PAGE> 5
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Excite, Infoseek/Go Network, Lycos, Microsoft, Netscape, and their
successors.
3.5 Newwatch shall place a Yahoo graphic or text link on all Pages of the
Newwatch Site to which users Click-through from any Newwatch Link.
Such Yahoo graphic or text link shall (a) be placed in a manner
approved by Yahoo, (b) contain the Yahoo name and/or logo as provided
by Yahoo and (c) directly link the user back to a Page on the Yahoo
Properties designated by Yahoo.
3.6 The Newwatch Site shall comply with the scale, speed and performance
requirements mutually agreed upon by the parties but in no event
shall be less than that provided by the Yahoo Main Site.
4 RIGHT OF FIRST PRESENTATION.
4.1 Within thirty (30) days prior to the expiration of the Term, Yahoo
will provide written notice to Newwatch in the event that Yahoo, at
its sole discretion, elects to extend this Watch Merchant Program.
Yahoo shall describe Yahoo's reasonable business requirements for the
extension in its written notice to Newwatch. The parties will use
good-faith efforts to negotiate and execute a written extension to
this Agreement under reasonable terms and conditions. If Newwatch
declines to commence good faith negotiations with Yahoo within ten
(10) days after receiving such written notice from Yahoo, or if the
parties fail to reach agreement within ten (10) days following the
commencement of good faith negotiations (or such later date as is
agreed by the parties), Yahoo may offer the opportunity to any third
party.
4.2 Yahoo will provide written notice to Newwatch in the event that
Yahoo, at its sole discretion, elects to create a new promotional
opportunity similar and scope and nature to the program contemplated
by this Agreement, primarily related to Watch Products on a site
solely owned, created and branded by Yahoo and targeted to the U.S.
audience. Yahoo shall describe Yahoo's reasonable business
requirements for the new promotional opportunity in its written notice
to Newwatch. If Newwatch declines to commence good faith negotiations
with Yahoo within ten (10) days after receiving such written notice
from Yahoo, or if the parties fail to reach agreement within ten (10)
days following the commencement of good faith negotiations (or such
later date as is agreed by the parties), Yahoo may offer the
opportunity to any third party. Advertising and promotional
opportunities that are in the normal course of Yahoo's business
including, but not limited to, banner ads on category pages and
keyword search results pages, shall not be considered new promotional
opportunities for the purposes of this Section 4.2.
5 PAGE VIEWS.
5.1 With respect to the Newwatch Links, Yahoo shall deliver a minimum of
* Page Views.
5.2 Yahoo will use reasonable commercial efforts to deliver such Page
Views as follows: * Page Views of the Newwatch Button; * Page Views of
the Newwatch Banner; * Page
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 6
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Views of the Newwatch Front Page Promotion; and * Page Views of the
Newwatch Shopping Module. Notwithstanding the foregoing, Yahoo's Page
View obligations are with respect to the program as a whole as set
forth in Section 5.1 above and Yahoo shall not be in breach of this
Agreement for failure to deliver the number of Page Views in any of
the areas set forth in this Section 5.2.
5.3 In the event that Yahoo fails to deliver the number of Page Views
referred to in Section 5.1 above by the expiration of the Term, Yahoo
will "make good" the shortfall by extending its obligations under
Section 2 in the areas of the Yahoo Main Site set forth therein (or
similar inventory) beyond the end of the Term until the Yahoo Page
View Obligations are satisfied. The provisions set forth in this
Section 5.3 set forth the entire liability of Yahoo, and Newwatch's
sole remedy, for Yahoo's breach of its Page View obligations set
forth in this Section 5.
5.4 Yahoo shall provide Newwatch access to an electronic database that
describes Yahoo's calculation of the Page Views. The database will be
updated according to Yahoo's standard procedure for providing such
updates.
6 COMPENSATION
6.1 Slotting Fee. In consideration of Yahoo's performance and
obligations as set forth herein, Newwatch will pay Yahoo a
non-refundable slotting fee equal to * . Such fee shall be payable as
follows: (i) * upon execution of this Agreement, * of such payment
designated as a set up fee for design, consultation, development,
implementation and placement of the Newwatch Links; (ii) * payable on
each of * and (iii) * on or before * .
6.2 Payment Information. All payments herein are non-refundable and
non-creditable and shall be made by Newwatch via wire transfer into
Yahoo's main account pursuant to the wire transfer instructions set
forth on Exhibit C.
6.3 Late Payments. Any portion of the above payments which has not been
paid to Yahoo within ten (10) days of the dates set forth above shall
bear interest at the lesser of (i) * percent (*%) per month or (ii)
the maximum amount allowed by law. Notwithstanding the foregoing, any
failure by Newwatch to make the payments specified in Sections 6.1 and
6.2 on the dates set forth therein shall constitute a material breach
of this Agreement.
6.4 Creditworthiness. On or before the date of this Agreement, Newwatch
shall provide Yahoo with sufficient information and assurances to
demonstrate to Yahoo's satisfaction that Newwatch has the ability to
make the payments described in Section 6.1. It is expressly understood
that Newwatch's failure to provide such information and assurances
shall be a material breach of this Agreement and, in addition to any
other
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 7
\
EXECUTION COPY
rights that it may possess, afford Yahoo the right to immediately
suspend its performance under this Agreement.
7 TERMINATION.
7.1 Term. Unless terminated as provided herein, this Agreement shall
remain in effect for the Term.
7.2 Termination by Either Party with Cause. This Agreement may be
terminated at any time by either party: (i) immediately upon written
notice if the other party: (a) becomes insolvent; (b) files a
petition in bankruptcy; or (c) makes an assignment for the benefit of
its creditors; or (ii) thirty (30) days after written notice to the
other party of such other party's breach of any of its obligations
under this Agreement in any material respect (ten (10) days in the
case of a failure to pay), which breach is not remedied within such
notice period. In the event that Yahoo provides a notice of
termination under clause (ii) above, Yahoo shall have the right to
suspend performance under Section 2 of this Agreement for the notice
period unless and until the breach is fully remedied by Newwatch
prior to the expiration of the notice period.
7.3 Termination by Yahoo. Yahoo may terminate this Agreement upon
forty-five (45) days written notice to Newwatch if at any time during
the Term Yahoo reasonably determines that (i) the Newwatch Site is
not fully operational with support for conducting on-line sales of
Watch Products, or (ii) the Newwatch Site is no longer one of the top
ten (10) sites for the on-line sale of Watch Products (as determined,
to the extent practical, over a reasonable period of time, by an
independent, qualified and industry-recognized third party based on
the quantity and quality of customers and product offerings).
7.4 Survival. The provisions of Sections 7, 8, 9, 10, 11 and 12 shall
survive expiration or termination of this Agreement.
8 CONFIDENTIAL INFORMATION AND PUBLICITY.
8.1 Terms and Conditions. The terms and conditions of this Agreement
shall be considered confidential and shall not be disclosed to any
third parties except to such party's accountants, attorneys, or except
as otherwise required by law. Neither party shall make any public
announcement regarding the existence of this Agreement without the
other party's prior written approval and consent.
8.2 Publicity. Any and all publicity relating to this Agreement and
subsequent transactions between Yahoo and Newwatch and the method of
its release shall be approved in advance of the release by both Yahoo
and Newwatch.
8.3 Nondisclosure Agreement. Yahoo and Newwatch acknowledge and agree to
the terms of the Mutual Nondisclosure Agreement attached hereto as
Exhibit E with respect to the use and disclosure of confidential
information and all discussions pertaining to or leading to this
Agreement.
<PAGE> 8
EXECUTION COPY
8.4 User Data. All information and data provided to Yahoo by users of the
Yahoo Properties or otherwise collected by Yahoo relating to user
activity on the Yahoo Properties shall be retained by and owned
solely by Yahoo. All information and data provided to Newwatch on the
Newwatch Site or otherwise collected by Newwatch relating to user
activity on the Newwatch Site shall be retained by and owned solely by
Newwatch. Each party agrees to use such information only as
authorized by the user and shall not disclose; sell, license or
otherwise transfer any such user information to any third party or use
the user information for the transmission of "junk mail," spam," or
any other unsolicited mass distribution of information.
8.5 Privacy of User Information. Newwatch shall ensure that all
information provided by users of the Newwatch Site is maintained,
accessed and transmitted in a secure environment and in compliance
with security specifications to be mutually agreed upon by the
parties. Newwatch shall provide a link to its policy regarding the
protection of user data on those pages of the Newwatch Site where the
user is requested to provide personal or financial information.
9 INDEMNIFICATION,
9.1 Newwatch, at its own expense, will indemnify, defend and hold
harmless Yahoo and its employees, representatives, agents and
affiliates, against any claim, suit, action, or other proceeding
brought against Yahoo based on or arising from a claim that any
Newwatch trademark, service mark or other Newwatch brand feature, any
material, product or service produced, distributed, offered or
provided by Newwatch, or any material presented on the Newwatch Site,
infringes in any manner any copyright, patent, trademark, trade secret
or any other intellectual property right of any third party, is or
contains any material or information that is obscene, defamatory,
libelous, slanderous, or that violates any law or regulation, or
that otherwise violates any rights of any person or entity,
including, without limitation, rights of publicity, privacy or
personality, or has otherwise resulted in any consumer fraud, product
liability, tort, breach of contract, injury, damage or harm of any
kind to any third party; provided, however, that in any such case:
(a) Yahoo provides Newwatch with prompt notice of any such claim; (b)
Yahoo permits Newwatch to assume and control the defense of such
action upon Newwatch's written notice to Yahoo of its intention to
indemnify; and (c) upon Newwatch's written request, and at no expense
to Yahoo, Yahoo will provide to Newwatch all available information
and assistance necessary for Newwatch to defend such claim. Newwatch
will not enter into any settlement or compromise of any such claim,
which settlement or compromise would result in any liability to
Yahoo, without Yahoo's prior written consent, which shall not
unreasonably be withheld. Newwatch will pay any and all costs,
damages, and expenses, including, but not limited to, reasonable
attorneys' fees and costs awarded against or otherwise incurred by
Yahoo in connection with or arising from any such claim, suit, action
or proceeding.
10 LIMITATION OF LIABILITY.
<PAGE> 9
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10.1 EXCEPT AS PROVIDED IN SECTION 9, UNDER NO CIRCUMSTANCES SHALL
NEWWATCH, YAHOO, OR ANY OF THEIR RESPECTIVE AFFILIATES BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
11 INSURANCE.
11.1 Newwatch agrees that it will maintain insurance with a carrier that
is reasonably acceptable by Yahoo and with coverage for commercial
general liability and errors and omissions of at least one million
dollars per occurrence. Newwatch will name Yahoo as an additional
insured on such insurance and will provide evidence of such insurance
to Yahoo within ten (10) days of the Effective Date. Such insurance
policy shall not be cancelled or modified without Yahoo's prior
written consent.
12 GENERAL PROVISIONS.
12.1 Independent Contractors. It is the intention of Yahoo and Newwatch
that Yahoo and Newwatch are, and shall be deemed to be, independent
contractors with respect to the subject matter of this Agreement, and
nothing contained in this Agreement shall be deemed or construed in
any manner whatsoever as creating any partnership, joint venture,
employment, agency, fiduciary or other similar relationship between
Yahoo and Newwatch.
12.2 Entire Agreement. This Agreement, together with all Exhibits hereto,
represents the entire agreement between Yahoo and Newwatch with
respect to the subject matter hereof and thereof and shall
supersede all prior agreements and communications of the parties,
oral or written, including without limitation the Letter of Intent
executed on February 3, 1999 between Yahoo and Newwatch.
12.3 Amendment and Waiver. No amendment to, or waiver of, any provision of
this Agreement shall be effective unless in writing and signed by
both parties. The waiver by any party of any breach or default shall
not constitute a waiver of any different or subsequent breach or
default.
12.4 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to
the conflicts of laws principles thereof.
12.5 Successors and Assigns. Neither party shall assign its rights or
obligations under this Agreement without the prior written consent
of the other party, which consent shall not unreasonably be withheld
or delayed. Notwithstanding the foregoing, either party may assign
this Agreement to an entity who acquires substantially all of the
stock
<PAGE> 10
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or assets of a party to this Agreement; provided that consent will be
required in the event that the non-assigning party reasonably
determines that the assignee will not have sufficient capital or
assets to perform its obligations hereunder, or that the assignee is
a direct competitor of the non-assigning party. All terms and
provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted
transferees, successors and assigns.
12.6 Force Majeure. Neither party shall be liable for failure to perform
or delay in performing any obligation (other than the payment of
money) under this Agreement if such failure or delay is due to fire,
flood, earthquake, strike, war (declared or undeclared), embargo,
blockade, legal prohibition, governmental action, riot, insurrection,
damage, destruction or any other similar cause beyond the control of
such party.
12.7 Notices. All notices, requests and other communications called for by
this agreement shall be deemed to have been given immediately if made
by facsimile or Electronic mail (confirmed by concurrent written
notice sent via overnight courier for delivery by the next business
day), if to Yahoo at 3420 Central Expressway, Santa Clara, CA 95051,
Fax: (408) 731-3301 Attention: Vice President, Business Development
(e-mail: [email protected]), with a copy to its General Counsel
(e-mail: [email protected]), and if to Newwatch at the physical
and Electronic mail addresses set forth on the signature page of this
Agreement, or to such other addresses as either party shall specify
to the other. Notice by any other means shall be deemed made when
actually received by the party to which notice is provided.
12.8 Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable for any reason, such invalidity,
illegality or unenforceability shall not effect any other provisions
of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
12.9 Sole Responsibility. Newwatch will remain solely responsible for the
operation of the Newwatch Site, and Yahoo will remain solely
responsible for the operation of the Yahoo Main Site. Each party: (a)
acknowledges that the Newwatch Site and the Yahoo Main Site may be
subject to temporary shutdowns due to causes beyond the operating
party's reasonable control; and (b) subject to the terms of this
Agreement retains sole right and control over the programming,
content and conduct of transactions over its respective
Internet-based service.
12.10 Counterparts. This Agreement may be executed in two counterparts,
both of which taken together shall constitute a single instrument.
Execution and delivery of this Agreement may be evidenced by
facsimile transmission.
12.11 Authority. Each of Yahoo and Newwatch represents and warrants that
the negotiation and entry of this Agreement will not violate,
conflict with, interfere with, result in a breach of, or constitute a
default under any other agreement to which they are a party.
<PAGE> 11
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12.12 Attorneys Fees. The prevailing party in any action to enforce this
Agreement shall be entitled to reimbursement of its expenses,
including reasonable attorneys' fees.
[Signature page follows]
<PAGE> 12
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This Advertising and Promotion Agreement has been executed by the duly
authorized representatives of the parties, effective as of the Effective Date.
<TABLE>
<CAPTION>
YAHOO! INC. NEW WATCH, INC.
<S> <C>
By: /s/ ELLEN SIMINOFF By: /s/ JAMES WHITCOMB
-------------------------------- ---------------------------
Name: Ellen Siminoff Name: James Whitcomb
Title: Vice President, Business Development ---------------------------
Attn: VP, Business Development
3420 Central Expressway Title:
Santa Clara, CA 95051 ------------------------
Tel.: (408) 731-3300 Attn:
Fax: (408) 731-3302 -------------------------
e-mail: [email protected]
Tel:
---------------------------
Fax:
---------------------------
</TABLE>
<PAGE> 13
EXHIBIT A: BUTTON PLACEMENTS
KEYWORDS:
- --------
*
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 14
EXHIBIT A: BANNER PLACEMENTS
Keywords:
- --------
*
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 15
EXECUTION COPY
EXHIBIT B
[INSERT SCREEN SHOTS OF NEWWATCH LINKS]
<PAGE> 16
EXHIBIT B
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Inside Yahoo!
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Copyright(c) 1994-99 Yahoo! Inc. - Company Information - Suggest a Site - FAQ
<PAGE> 17
EXHIBIT 7B
YAHOO! Personalize Help - Check Email
-------------------------------------------------------------------------
SEARCH RESULT Found 3 categories and 484 sites for VITAMINS
===============================================================
drugstore.com. Type product name Search!
health beauty wellness personal care pharmacy
===============================================================
- --------------------------------------------------------------------------------
CATEGORIES Web Sites Web Pages Related News Net Events
- --------------------------------------------------------------------------------
YAHOO! CATEGORY MATCHES (1 - 3 OF 3) ----------------
BUY IT HERE!
Business and Economy > Companies > Health > Nutrition > Get $10 off now!
Supplements > VITAMINS drugstore.com
click here
Business and Economy > Business Opportunities > Multi-Level ----------------
Marketing > Health > Vitamist Spray VITAMINS
Entertainment > Music > Artists > Vitamin Z ----------------
BUY BOOKS ON
vitamins
YAHOO! SITE MATCHES (1 - 17 OF 484) BUY BOOKS NOW
AMAZON.COM
Business and Economy > Companies > Health > Nutrition > ----------------
Supplements
o VITAMINS.com - sells VITAMINS, herbs, and nutritional supplements.
o Dodson's Online VITAMINS - offer VITAMINS, minerals, multi's, herbs,
nutritional formulas, and body-building supplements.
o Personal Support VITAMINS & Health Foods - offers discount, mail order
VITAMINS and herbs prescription drugs through our partner PrideMed.
o Power VITAMINS-offers VITAMINS, supplemental products, and nutritional
skincare items.
o VITAMINS for Life - provides brand name VITAMINS, herbs, and supplements.
o Chaya's VITAMINS - offers kosher nutritional resources.
Health > Nutrition
o VITAMINS Network UK
Regional > Countries > Brazil > States > Rio de Janeiro > Cities > Niteroi >
Business and Shopping > Companies
o VITAMINS & Minerals - produtos importados e nacionais. Farmacia
especializada em vitaminas minerais e enzimas. Novidades sobre
rejuvenescimento. Medicina Ortomolecular. Melatonina e radicais livres.
Regional > Countries > Brazil > States > Rio de Janeiro > Cities > Rio de
Janeiro > Business and Shopping > Companies > Health
o VITAMINS & Minerals - produtos importados e nacionais. Farmacia
especializada em vitaminas, minerais e enzimas. Novidades sobre
rejuvenescimento. Medicina Ortomolecular. Melatonina e
<PAGE> 18
EXHIBIT B
================================================================================
[YAHOO! LOGO]
What's New Check Email Personalize Help
[SAMPLE FRONT
My Yahoo! PAGE PROMOTION] Score NBA Gear
create your own LOWEST PRICES ON EARTH with Nestle
--------------------------- --------
Search advanced search
--------------------------- --------
Yahoo! Pager - buddy lists, instant messaging, EMAIL NOTIFICATION, stock alerts
Shopping - Yellow Pages - People Search - Maps - Travel Agent - Classifieds -
Personals - Games - Chat - Email - Calendar - Pager - My Yahoo! - Today's News -
Sports - WEATHER - TV - Stock Quotes - more...
================================================================================
<TABLE>
<S> <C> <C>
ARTS & HUMANITIES NEWS & MEDIA IN THE NEWS
Literature, Photography... Full Coverage, Newspapers, TV... o King to be executed for
dragging death
BUSINESS & ECONOMY RECREATION & SPORTS o Pentium III release
Companies, Finance, Jobs... Sports, Travel, Autos, Outdoors... o Snowstorm pounds
Northeast
COMPUTERS & INTERNET REFERENCE more...
Internet, WWW, Software, Games... Libraries, Dictionaries, Quotations...
EDUCATION REGIONAL MARKETPLACE
Universities, K-12, College Entrance... Countries, Regions, US States... o Y! Auctions - a shopping
treasure hunt
ENTERTAINMENT SCIENCE o Top selling videos
Cool Links, Movies, Humor, Music... Biology, Astronomy, Engineering... more...
GOVERNMENT SOCIAL SCIENCE INSIDE YAHOO!
Military, Politics, Law, Taxes... Archaeology, Economics, Languages... o Y! Movies - showtimes,
reviews
HEALTH SOCIETY & CULTURE oo Y! Clubs - create your
Medicine, Diseases, Drugs, Fitness... People, Environment, Religion... own
o Free Fantasy Baseball -
sign up today
more...
</TABLE>
===============================================================================
<TABLE>
<S> <C>
WORLD YAHOO!S Europe: Denmark - France - Germany - Italy - Norway - Spain - Sweden - UK & Ireland
Pacific Rim: Australia & NZ - HK - Japan - Korea - Singapore - Taiwan - Asia - Chinese
Americas: Canada - Spanish
------ ----------------
YAHOO! GET LOCAL LA - NYC - SF Bay - Chicago - more... Enter Zip Code
------ ----------------
OTHER GUIDES Autos - Computers - Employment - Local Events - Net Events - Message Boards - Movies
Music - Real Estate - Small Business - Ski & Snow - Y! Internet Life - Yahooligans!
</TABLE>
===============================================================================
<TABLE>
<S> <C>
Yahoo! prefers VISA
How to Suggest a Site - Company Info - Privacy Policy - Contributors - Openings at Yahoo!
</TABLE>
<PAGE> 19
EXHIBIT B
UNREAD MESSAGE SUMMARY FOR: [email protected] HELP
WELCOME TO YAHOO! MAIL
You have 1 unread messages
Folder name Unread
Inbox 1
Reminder: Yahoo! will never ask you for your password or other sensitive
information via e-mail.
- --------------------------------------------------------------------------------
NON-FRAMES/NON-JAVASCRIPT VERSION: Set your Preferences under Options on the
left-hand navigation bar. View non-frames version.
CHECK FOR UNREAD MESSAGES AT ANY TIME: You will see this page each time you
login. You can check for unread messages whenever you want by clicking on the
Yahoo! Mail logo in the upper left-hand corner.
ONLINE HELP: If you have any questions or problems, please make sure to check
out our online Help Desk.
[YOUR EMAIL HAS SOMETHING TO SAY! LOGO]
NEED A FAX MACHINE?
HERE'S A LOW-COST OPTION!
SPECIAL OFFERS DIRECT TO YOUR MAILBOX
[Sample Mail Button: login page]
[MEGA CDNOW STOREWIDE SALE LOGO]
CDNOW STOREWIDE SALE
PLUS A BONUS! CLICK HERE!
INSTANT MAIL ALERTS: Find out when you have new email with the YAHOO! PAGER.
You can even send instant messages to your friends!
WINDOWS 95/98NT VERSION - JAVA VERSION
[PICTURE] YAHOO! CALENDAR: NEW! Access your schedule from anywhere. Synchronize
with Palm Pilot and Outlook. Send email reminders. Get a Yahoo! Calendar for
free.
NEW! Yahoo! ADDRESS BOOK: Organize your Yahoo! Mail address book contacts.
Synchronize contacts with Outlook and Palm Pilot. Get Yahoo! Address Book for
Free!
YAHOO SMALL BUSINESS: NEW! Small Business users of Yahoo! Mail? Check out Yahoo
Small Business - How-to's, services, editorial and more!
Copyright (C) 1997-99 Yahoo! Inc. All rights reserved.
<PAGE> 20
EXHIBIT B
Read Message Help
Reply Reply All Forward as attachment Prev - Next Back to Inbox
Delete Message - Download Choose Folder Move
Date: Fri, 26 Feb 1999 13:17:09 -0800 (PST)
From: Yahoo! Sponsor <[email protected]>Add to Address Book
Subject: Your Requested Information from CDnow
To: [email protected]
Sample email sent from mail button
[PICTURE]
Delete Message - Download Choose Folder Move
Reply Reply All Forward as attachment Prev - Next Back to Inbox
Copyright(C) 1997-99 Yahoo! Inc. All rights reserved.
<PAGE> 21
EXHIBIT B
Welcome to [YAHOO MAIL LOGO]
Thanks chaka_1998 for using Yahoo! Mail!
BACK TO ....if you exited by mistake.
YAHOO! MAIL
DON'T Yahoo! offers several personalized services. Since you're
FORGET! already logged in as a Yahoo user, click below to visit
our other custom sites.
o My Yahoo!
o Yahoo! One
o Yahoo! Classifieds
o Yahoo! Finance
SIGN OUT if you want to sign out of Yahoo!'s other personalized
COMPLETELY services also. You have already exited Yahoo! Mail.
For added privacy, Sign out Completely, then exit your
browser program when you're done using Yahoo! Mail.
[GRAPHIC] Need a fax machine?
Here's a cheaper option!
30% OFF MUSIC CDnow Top 200 on sale!
- ---------------------------------------
1. Dave Matthews - Luther College Go! [SAMPLE MAIL LOGOUT PAGE]
- ---------------------------------------
===============================================================================
Copyright(c) 1994-1999 Yahoo! Inc. All rights reserved. Yahoo Privacy Policy
<PAGE> 22
EXHIBIT B
Shopping Home - Yahoo! - Help
YAHOO! APPAREL
SHOPPING ---------------------------------------------------------------
Welcome, elizabeth View Cart/Check Out - Order Status - Edit Account - Log Out
YAHOO! APPAREL AND ACCESSORIES SHOPPING Apparel Home
- --------------------------------------------------------------------------------
Home > Apparel and Accessories > Women's > Accessories > Watches
Featuring Apparel and Accessories Categories
[SAMPLE SHOPPING MODULE]
<TABLE>
<CAPTION>
---------------- ---------- ------------------
Search All of Y! Shopping o
---------------- ---------- ------------------
<S> <C> <C> <C>
o ACCUTRON (22) o LUMINOX (12)
[PHOTO] o ADIDAS (19) o MIDO (10)
o AUDEMARS PIGUET (11) o MOMO DESIGN (6)
o AUGUSTE REYMOND (11) o MONTRE NOUVELLE (17)
o AUSTERN AND PAUL (4) o MOVADO (330)
Yahoo! BUY! o BAUME ET MERCIER (69) o NOBLIA (8)
Watch $45.00 o BERTOLUCCI (6) o OMEGA (122)
o BREITLING (22) o PHILIPPE CHARRIOL (4)
o BULOVA (443) o PIERRE CARDIN (13)
YAHOO! TOP SELLERS o CARTIER (54) o PULSAR (375)
1. Yahoo! Watch o CHARLES HUBERT (10) o RADO (16)
2. MUSEUM DIAL STRAP o CITIZEN (358) o REVUE THOMMEN (6)
3. PACER/UNISEX o CONCORD (210) o ROLEX (18)
4. Rolex Steel And Gold Datejust o EBEL (10) o ROTARY (7)
For Ladies o ELLESSE (29) o SAINT HONORE (13)
5. ACTIVE/UNISEX o ESQUIRE (161) o SECTOR (46)
6. FORMULA 1 SERIES/LADIES o FESTINA (115) o SEIKO (371)
7. Rolex Lady Datejust Stainless o FRANCHI MENOTTI (25) o SPOON (10)
18kt Diamond o GENUINE SAK (13) o SWATCH (1)
8. SOLAR TECH ELITE/LADIES o GUCCI (7) o SWISS ARMY (14)
9. TWO-TONE MUSEUM o INTERNATIONAL WATCH CO. o TAG HEUER (184)
BRACELET (IWC) (14) o TIMEX (1)
o JAEGER-LECOULTRE (5) o TISSOT (75)
o JAGUAR (13) o WENGER (25)
o JEAN MARCEL (1) o WITTNAUER (290)
o KRIEGER (18) o ZODIAC (34)
o LASSALE (36) o MORE... (3896)
o LONGINES (129)
------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
Copyright (c) 1994-99 Yahoo! Inc. All rights reserved. Privacy Policy - Security
and Disclaimer. Questions, comments, suggestions? Send us feedback.
<PAGE> 23
EXECUTION COPY
EXHIBIT C
Wire Transfer Instructions
Yahoo's Bank Information:
Institution Name: Imperial Bank
Institution Address: Inglewood, CA
ABA: 122 201 444
Beneficiary Name: Yahoo! Inc.
Beneficiary Account Number: 0017-063-286
<PAGE> 24
EXECUTION COPY
EXHIBIT D
(attach front page promotion guidelines)
<PAGE> 25
Mediakit - Promotions - Advertisements - Contacts
YAHOO!
-------------------------------------------------------------------
YAHOO! PROMOTIONS
================================================================================
GENERAL POLICY REVIEW
================================================================================
o Signing an insertion order or contract for a promotion implies agreement with
these requirements.
o All Yahoo! promotions must include a consumer sweepstakes or contest.
o Yahoo! reserves the right to have final approval on creative, copy, content
and contest components of a promotion.
FRONT PAGE BANNER SPECIFICATIONS
===============================================================================
o Size 230 pixels wide by 33 pixels high. File size MUST NOT EXCEED 3K.
o Banner can animate for a period of not more than 6 seconds.
No endless looping is permitted.
o Background Color:
o Backgrounds which are not transparent must have a color(s) which are
using a HSB color space, between 0% and 50% in Saturation and between
50% and 80% in Brightness. The Hue may be any value.
o Click here for acceptable background colors.
NOTE: Yahoo! reserves the right to define the portion of a submitted
image which comprise the Background.
o Transparent backgrounds are permitted.
o Sponsor may run up to 6 different banners for a 14 day promotion campaign and
banners will rotate equally.
o ALL BANNERS ARE SUBJECT TO AESTHETIC AND CONTENT APPROVAL BY YAHOO!
NOTE: If sponsor or agency creates the promotional banners, ALL ARTWORK
(BANNERS) MUST BE SUBMITTED TO YAHOO! AT LEAST FIVE BUSINESS DAYS PRIOR TO
WHEN THE PROMOTION GOES LIVE. Yahoo! reserves the right to REVIEW REJECT OR
MODIFY ANY PART OF ANY CREATIVE at its sole discretion.
Back
STANDARD PROMOTION HOSTED BY YAHOO!
<PAGE> 26
o The Standard Yahoo! hosted promotion will consist of the following:
o Banner(s) on the Yahoo! Front Page which will link to the promotion
Jump page.
o 1 Jump page consisting of promotion graphics, client graphics,
copy/content and contest description.
o 1 Rules page consisting of official rules which govern the
sweepstakes. (Yahoo! Composes the rules).
o 1 Entry form page consisting of promotion graphics and the entry form.
NOTE: Entry form must include the following disclaimer located
directly next to the "submit" button.
THIS INFORMATION WILL BE SHARED WITH (SPONSOR'S NAME). (SPONSORS NAME)
IS SOLELY RESPONSIBLE FOR ITS USE OF THIS INFORMATION.
O 1 Thank you page consisting of graphics and text.
Changes subject to approval by Yahoo! Promotions.
Back
STANDARD PROMOTION HOSTED BY SPONSOR
o Sponsor hosted promotions consist of the following:
o Banner(s) on the Yahoo! Front Page which link to the promotion Jump
page.
o 1 Jump page consisting of promotion graphics, client graphics,
copy/content and contest description.
o 1 Rules page consisting of official rules which govern the
sweepstakes.
o 1 Entry form page consisting of promotion graphics and the entry form.
o Entry form page must include the following disclaimer located directly
next to the "submit" button.
(SPONSOR NAME) IS SOLELY RESPONSIBLE FOR ITS USE OF THIS INFORMATION.
o 1 Thank you page consisting of graphics and text.
o Total size of all graphics on each page of the promotion must be less
than 35K. This is to optimize loading times for contestants and to
reduce the amount of people who turn away from the promotion before
the page loads.
NOTE: ALL CREATIVE MUST BE SUBMITTED TO YAHOO! AT LEAST FIVE BUSINESS DAYS
PRIOR TO WHEN THE PROMOTION GOES LIVE.
Yahoo! reserves the right to REVIEW OR REJECT ANY CREATIVE at its sole
discretion.
<PAGE> 27
o IF SPONSOR CHOOSES TO HOST THE PROMOTION; sponsor hereby agrees to the
following:
o Allow Yahoo! Engineers will run a stress test program to test
the sponsor's server(s) capacity. A mutually agreed upon time
will be arranged with sponsor to run this test program, which
simulates the traffic level that can be expected from a front
page promotion.
o Submit promotion URLs at least five business days prior to
when the promotion goes live date for Yahoo! final approval
(which may include Yahoo! required modifications to the
promotion).
o Yahoo! reserves the right to review, reject or modify any part of
any page at its sole discretion. Sponsor may not post any Contest
Page until it receives final approval of entire page from Yahoo!.
o Yahoo! reserves the right to have access upon request to all
aggregate information captured on Entry Form submissions through
the promotion. Yahoo!'s use of this information will be
restricted to internal purposes.
o TRAFFIC SENT TO SPONSOR HOME PAGE: In order to send traffic directly to a
sponsor home page (from the promotional banner on Yahoo!), the following
requirements must be met with no exceptions:
o Sponsor agrees to create a customized PROMINENT graphic
dedicated to prize/contest details.
o Graphic must ALWAYS be above the fold of the page and link
directly to the sweepstakes page/entry form.
o Total pixel area of Graphic must be AT LEAST 28,080K or the
equivalent of a 468X60 banner.
o Graphic MUST be submitted at least five business days prior to
promotional live date for approval.
NOTE: Yahoo! reserves the right to REVIEW, REJECT OR MODIFY GRAPHIC at its
sole discretion.
Back
FRONT PAGE TEXT LINK PROMOTION
<PAGE> 28
* Front Page Text Link Promotion will consist of the following:
o A non-branded text link on the Yahoo! Front Page which links to the
promotion
o 1 Jump page consisting of promotion graphics, client graphics,
copy/content and contest description
o 1 Rules page consisting of official rules, which govern the sweepstakes
o 1 Entry form page consisting of promotion graphics and the entry form
o Entry form page must include the following disclaimer located directly
next to the "submit" button
o THIS INFORMATION WILL BE SHARED WITH (SPONSOR'S NAME)
(SPONSOR'S NAME) IS SOLELY RESPONSIBLE FOR ITS USE OF THIS INFORMATION
o 1 Thank you page consisting of graphics and text
* For Front Page Text link promotions, the following requirements must be met:
o If sponsor creates or hosts the promotion, ALL MATERIALS (creative copy
and URL of promotional page) MUST BE SUBMITTED FIVE BUSINESS DAYS PRIOR
TO LIVE DATE. If the deadline is missed, Yahoo! reserves the right to
schedule the text link promotion for a later date
o Text links supplied by sponsor must contain no more than 24 characters
including spaces
o Text link must consist of plain HTML text and must not be in all
capital letters, bolded, animated, outlined, or shadowed and must not
contain brand features
NOTE: ALL TEXT LINK COPY IS SUBJECT TO FINAL APPROVAL BY YAHOO! PROMOTIONS.
Yahoo! reserves the right to cancel or reschedule a text link if it decides in
its sole discretion that a news event warrants such action. Text link position
on front page to be determined at sole discretion of Yahoo!
Changes subject to approval by Yahoo! Promotions
Back
In Category Text Link Promotion
<PAGE> 29
- --------------------------------------------------------------------------------
o In Category Text Link Promotion will consist of the following:
o A Text link which may be branded with Sponsor's name on a Yahoo!
Category Page which links to the promotion.
o 1 Jump page consisting of promotion graphics, client graphics,
copy/content and contest description.
o 1 Rules page consisting of official rules which govern the sweepstakes.
o 1 Entry form page consisting of promotion graphics and the entry form.
o Entry form page must include following disclaimer located directly next
to the "submit" button.
THIS INFORMATION WILL BE SHARED WITH (SPONSOR'S NAME). (SPONSOR'S NAME)
IS SOLELY RESPONSIBLE FOR ITS USE OF THIS INFORMATION.
o 1 Thank you page consisting of graphics and text.
o For Text link promotions the following requirements must be met:
o If sponsor creates or hosts the promotion, ALL MATERIALS (creative,
copy, and URL of promotional page) MUST BE SUBMITTED FIVE BUSINESS DAYS
PRIOR TO LIVE DATE. If the deadline is missed Yahoo! reserves the right
to schedule the in-category text link promotion for a later date.
o Text links supplied by sponsor must contain no more than 32 characters
including spaces. This may run on 2 lines.
o Text link must consist of plain HTML text and must not be in all capital
letters, bolded, animated, outlined or shadowed and may not read "Click
here".
NOTE: ALL TEXT LINK COPY IS SUBJECT TO FINAL APPROVAL BY YAHOO! PROMOTIONS.
Yahoo! reserves the right to cancel or reschedule a text link if it decides in
its sole discretion that a news event warrants such action. Text link appears
above the fold on Category pages.
Changes subject to approval by Yahoo! Promotions.
- --------------------------------------------------------------------------------
BACK
- --------------------------------------------------------------------------------
SWEEPSTAKES PRIZES
================================================================================
o Yahoo! requires that promotion sponsors provide a prize package at a
minimum retail value. Values for different types of promotions are
outlined in the table below.
o Sponsor is responsible for the shipping/handling charge associated with
fulfillment.
o Sponsor is responsible for sending 1099 notifications to the prize
winner/IRS.
NOTE: Prize values for Multi-sponsored promotions may vary.
- --------------------------------------------------------------------------------
<PAGE> 30
<TABLE>
<CAPTION>
=================================================================
TYPE OF PROMOTION PRIZE PACKAGE MINIMUM
======================================= =========================
<S> <C> <C>
Front Page Banner *
- ---------------- ---------------------- -------------------------
Front Page Text *
- ---------------- ---------------------- -------------------------
In Category Text Business and Economy *
- ---------------- ---------------------- -------------------------
In Category Text Computers and Internet *
- ---------------- ---------------------- -------------------------
In Category Text Entertainment *
- ---------------- ---------------------- -------------------------
In Category Text Health *
- -----------------------------------------------------------------
</TABLE>
Back
- --------------------------------------------------------------------------------
Suggest A Site - Info Center - Press Releases
Yahoo! and the Yahoo! logo are trademarks of Yahoo! Inc.
(C)1998 Yahoo! Inc. All rights reserved DO YOU YAHOO!?
- -----------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 31
EXECUTION COPY
EXHIBIT E
MUTUAL NON-DISCLOSURE AGREEMENT
This Agreement governs the disclosure of information by and between Yahoo!
Inc., a California corporation, and Newwatch Company, a [Texas] corporation with
offices at 3 3 55 West Alabama - Suite 175, Houston, Texas 77098
("Participant").
1. The "Confidential Information" is that confidential, proprietary, and trade
secret information being disclosed by the disclosing party described as
(please be specific):
Yahoo Confidential Information (owned by Yahoo and any of its affiliates)
page view projections, product plans, business plans, pricing and
deal/partnership terms.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Participant Confidential Information:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2. Except as set forth in this Section 2, all Confidential Information shall
be in tangible form and shall be marked as Confidential or proprietary
information of the disclosing party. If the Confidential Information is
disclosed orally or visually, it shall be identified as such at the time of
disclosure and confirmed in a writing to the recipient within thirty (30)
days of such disclosure.
3. Each of the parties agrees that it will not make use of, disseminate, or in
any way disclose any Confidential Information of the other party to any
person, firm or business, except to the extent necessary for negotiations,
discussions, and consultations with personnel or authorized representatives
of the other party and any purpose the other party may hereafter authorize
in writing. Each of the parties agrees that it shall disclose Confidential
Information of the other party only to those of its employees who need to
know such information and who have previously agreed, either as a condition
to employment or in order to obtain the Confidential Information, to be
bound by terms and conditions substantially similar to those of this
Agreement.
4. There shall be no liability for disclosure or use of Confidential
Information which is (a) in the public domain through no fault of the
receiving party (b) rightfully received from a third party without any
obligation of confidentiality, (c) rightfully known to the receiving party
without any limitation on use or disclosure prior to its receipt from the
disclosing party, (d) independently developed by the receiving party (e)
generally made available to third parties without any restriction on
disclosure, or (f) communicated in response to a valid order by a
<PAGE> 32
EXECUTION COPY
court or other governmental body, as otherwise required by law, or as
necessary to establish the rights of either party under this Agreement
(provided that the party so disclosing has provided the other party with a
reasonable opportunity to seek protective legal treatment for such
Confidential Information).
5. "Residual Information" shall mean any Confidential Information of the
disclosing party which may be retained in intangible form in the minds of
those individuals of the receiving party who have had proper access to such
Confidential Information. Notwithstanding anything else in this Agreement,
the receiving party shall be free to use any Residual Information for any
purpose whatsoever, including, without limitation, the development of its
own products, or business, provided that such party shall not be entitled
to disclose Residual Information to any third parties unless such
disclosure is in the course of, or as part of, any disclosure of its own
products or business or their development.
6. Each of the parties agrees that it shall treat all Confidential Information
of the other party with the same degree of care as it accords to its own
Confidential Information, and each of the parties represents that it
exercises reasonable care to protect its own Confidential Information.
7. Each of the parties agrees that it will not modify, reverse engineer,
decompile, create other works from, or disassemble any software programs
contained in the Confidential Information of the other party unless
otherwise specified in writing by the disclosing party.
8. All materials (including, without limitation, documents, drawings, models,
apparatus, sketches, designs and lists) furnished to one party by the
other, and which are designated in writing to be the property of such
party, shall remain the property of such party and shall be returned to it
promptly at its request, together with any copies thereof.
9. This Agreement shall govern all communications between the parties that are
made during the period from the effective date of this Agreement to the
date on which either party receives from the other written notice that
subsequent communications shall not be so governed, provided, however, that
each party's obligations under Sections 2 and 3 with respect to
Confidential Information of the other party which it has previously
received shall continue unless and until such Confidential Information
falls within Sections 4 or 5. Neither party shall communicate any
information to the other in violation of the proprietary rights of any
third party. Neither party acquires any licenses under any intellectual
property rights of the other party under this Agreement.
<PAGE> 1
EXHIBIT 10.6
Office Lease
Between
CRESCENT REAL ESTATE FUNDING III, L.P.
("LANDLORD")
and
ASHFORD.COM, INC.
("TENANT")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPHS:
- ----------- Page
<S> <C> <C>
1. BUSINESS POINTS........................................................... -1-
2. INTERPRETING THIS LEASE................................................... -8-
3. UNDERSTANDING THE PROJECT................................................. -9-
4. TERM...................................................................... -10-
5. PREPARING THE PREMISES.................................................... -11-
6. RENT AND SECURITY DEPOSIT................................................. -13-
7. EXCESS OPERATING EXPENSES................................................. -16-
8. LANDLORD SERVICES......................................................... -20-
9. OCCUPANCY AND CONTROL..................................................... -25-
10. TENANT'S COVENANTS........................................................ -26-
11. REPAIRS, MAINTENANCE AND ALTERATIONS...................................... -28-
12. ASSIGNMENT AND SUBLETTING BY TENANT....................................... -31-
13. INDEMNITY................................................................. -32-
14. INSURANCE................................................................. -35-
15. FIRE OR CASUALTY.......................................................... -37-
16. CONDEMNATION.............................................................. -39-
17. DEFAULTS AND REMEDIES..................................................... -40-
18. END OF TERM............................................................... -43-
19. NOTICES................................................................... -44-
20. LANDLORD'S FINANCING...................................................... -44-
21. RIGHTS RESERVED BY LANDLORD............................................... -45-
22. HAZARDOUS MATERIALS....................................................... -47-
23. LANDLORD'S INTEREST....................................................... -48-
24. EXECUTION AND SIGNING AUTHORITY........................................... -49-
25. QUIET ENJOYMENT........................................................... -49-
26. ADDITIONAL PROVISIONS..................................................... -50-
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS & RIDERS:
- ------------------
<S> <C>
EXHIBIT "A" LEGAL DESCRIPTION OF THE PROJECT
EXHIBIT "B" FLOOR PLAN OF PREMISES
EXHIBIT "C" CONSTRUCTION AGREEMENT
EXHIBIT "D" CERTIFICATE OF ACCEPTANCE OF PREMISES
EXHIBIT "E" RULES AND REGULATIONS
EXHIBIT "F-1" LIABILITY INSURANCE CERTIFICATE
EXHIBIT "F-2" PROPERTY INSURANCE CERTIFICATE
EXHIBIT "G" FORM OF LETTER OF CREDIT
RIDER NO. 1 OPTION TO EXTEND
RIDER NO. 3 PREFERENTIAL RIGHT TO LEASE
</TABLE>
<PAGE> 3
OFFICE LEASE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are acknowledged, the Landlord named below leases to the Tenant named
below, and Tenant leases from Landlord, the Premises described below pursuant to
this Office Lease (this "LEASE") entered into effective as of the Date of Lease
specified below:
1. BUSINESS POINTS. The key business terms used in this Lease are defined
as follows:
(a) "DATE OF LEASE" (for reference purposes only): July 23, 1999.
(b) "LANDLORD": CRESCENT REAL ESTATE FUNDING III, L.P.,
a Delaware limited partnership
(c) "TENANT": ASHFORD.COM, INC.,
a Delaware corporation
(d) "BUILDING": Collectively,
(i) The office building (the "3800
BUFFALO BUILDING") commonly known
as the "3800 Buffalo Speedway".
Street Address: 3800 Buffalo
Speedway, Houston, Texas 77046
RSF of the 3800 Buffalo
Building: 148,622
and
(ii) The office building (the "FIVE
GREENWAY BUILDING") commonly known
as the "Five Greenway Plaza".
Street Address: Five Greenway
Plaza, Houston, Texas 77046
RSF of the Five Greenway Building:
879,244
(e) "PREMISES": Collectively,
(i) Suite 400, 4th floor of the 3800
Buffalo Building, shown on floor
plan attached as EXHIBIT "B-1",
consisting of 32,124 RSF, which is
comprised of 20,000 RSF (the
"ORIGINAL 3800 BUFFALO PREMISES")
and 12,124 RSF, (the "ADDITIONAL
3800 BUFFALO PREMISES"); and
(ii) Suites B100 and B150 of the Five
Greenway Building, shown on floor
plan attached as EXHIBIT "B-2",
consisting of 16,155 RSF (the "FIVE
GREENWAY STORAGE PREMISES");
(iii) Suite B125 of the Five Greenway
Building, shown on floor plan
attached as EXHIBIT "B-2",
consisting of 6,207 RSF (the
"ADDITIONAL FIVE GREENWAY STORAGE
PREMISES"); and
(iv) Suite C530 of the Five Greenway
Building, shown on floor plan
attached as EXHIBIT "B-3",
consisting of 6,606 RSF (the "FIVE
GREENWAY VAULT PREMISES").
Total RSF of the Premises: 61,092.
-1-
<PAGE> 4
(f) "TERM": 44 months.
(g) "ESTIMATED COMMENCEMENT DATE": August 7, 1999, for the Original
3800 Buffalo Premises.
September 1, 1999, for the Five
Greenway Vault Premises and the
Five Greenway Storage Premises.
November 1, 1999, for the
Additional Five Greenway Storage
Space.
March 1, 2000, for the
Additional 3800 Buffalo
Premises. This date is not
subject to change under
PARAGRAPH 4.
(h) "BASE RENT":
ORIGINAL 3800 BUFFALO PREMISES
<TABLE>
<CAPTION>
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
<S> <C> <C>
CD1 thru August 31, 2000 $16.00 $26,666.67
September 1, 2000 thru August 31, 2001 $17.00 $28,333.33
September 1, 2001 thru ED $18.00 $30,000.00
</TABLE>
ADDITIONAL 3800 BUFFALO PREMISES
<TABLE>
<CAPTION>
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
<S> <C> <C>
March 1, 2000 thru August 31, 2000 $16.00 $16,165.33
September 1, 2000 thru August 31, 2001 $17.00 $17,175.67
September 1, 2001 thru ED $18.00 $18,186.00
</TABLE>
FIVE GREENWAY VAULT PREMISES
<TABLE>
<CAPTION>
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
<S> <C> <C>
CD2 thru ED $18.00 $9,909.00
</TABLE>
FIVE GREENWAY STORAGE PREMISES
<TABLE>
<CAPTION>
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
<S> <C> <C>
CD3 thru ED $10.00 $13,462.50
</TABLE>
ADDITIONAL FIVE GREENWAY STORAGE PREMISES
<TABLE>
<CAPTION>
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
<S> <C> <C>
CD4 thru ED $10.00 $5,172.50
</TABLE>
CD1 = Original 3800 Buffalo Commencement Date (pursuant to PARAGRAPH 4)
CD2 = Vault Commencement Date (pursuant to PARAGRAPH 4)
CD3 = Storage Commencement Date (pursuant to PARAGRAPH 4)
CD4 = Additional Storage Commencement Date (pursuant to PARAGRAPH 4)
ED = Expiration Date (pursuant to PARAGRAPH 4)
(i) "SECURITY DEPOSIT": $71,376.00 cash. In addition, see the
requirement for letter of credit in PARAGRAPH 6(c).
-2-
<PAGE> 5
(j) "BASE YEAR": Calendar year 1999.
(k) "PARKING PERMITS":
(i) 3800 Buffalo Unreserved Parking. Within 30 days after the
Original 3800 Buffalo Commencement Date (and with respect to any future permits,
within 30 days after the delivery of additional RSF applicable to such future
permits), Tenant may elect to take, by giving Landlord written notice within
such 30 day period, and Landlord shall then provide, up to 4 unreserved permits
(the "3800 BUFFALO PERMITS") per 1,000 RSF leased and occupied by Tenant in the
3800 Buffalo Building allowing access to the Project's parking facilities which
Landlord may now or subsequently own, build, or contract for Tenant's use, as
set forth below. Subject to the boundaries set forth below, Landlord shall have
the right, at any time and from time to time, to change the designation of such
parking garages and/or parking areas. At such time, Landlord shall have the
option to reissue all or a portion of Tenant's permits to reflect the changes in
parking locations.
(A) Of the 4 per 1,000 RSF 3800 Buffalo Permits, 1 per
1000 RSF shall be in the 3800 Buffalo Speedway Garage, and Tenant shall
pay during the initial Term of this Lease $35.00 per month, plus any
taxes thereon, for each of such permits.
(B) Of the 4 per 1,000 RSF 3800 Buffalo Permits, 2 per
1000 RSF shall be in the area (the "PHASE I AREA") bounded by Richmond
Avenue on the North, Buffalo Speedway on the East, the Southwest Freeway
on the South, and Edloe Street on the West, and Tenant shall pay during
the initial Term of this Lease $30.00 per month, plus any taxes thereon,
for each of such permits in garages and/or areas owned by Landlord.
(C) Of the 4 per 1,000 RSF 3800 Buffalo Permits, 1 per
1000 RSF shall be in any of the Project's parking facilities, as
designated by Landlord, provided that such parking facilities are within
2 blocks of the boundaries, as they exist from time to time, of the
portion of the Project that is contiguous (ignoring streets and other
strips of property) to the Project as it exists on the Date of Lease,
and Tenant shall pay during the initial Term of this Lease $50.00 per
month, plus any taxes thereon, for each of such permits in garages
and/or areas owned by Landlord.
If any of the parking permits issued under SUB-PARAGRAPHS 1(k)(i)(B) AND (z)
above are for facilities that are not owned by Landlord, then, instead of the
amounts set forth in such Sub-Paragraphs, Tenant shall pay the monthly contract
rate Landlord negotiates with the owner thereof (plus Landlord's overhead,
administration and other directly-related costs such as security and insurance)
or as Landlord deems comparable to Landlord's quoted monthly contract rates in
its own comparable facilities (as set from time to time), plus any taxes thereon
for each of such permits.
(ii) Five Greenway Unreserved Parking. Within 30 days after the
Vault Commencement Date (and with respect to any future permits, within 30 days
after the delivery of additional RSF applicable to such future permits), Tenant
may elect to take, by giving Landlord written notice within such 30 day period,
and Landlord shall then provide, up to 25 unreserved permits (the "FIVE GREENWAY
PERMITS") allowing access to the Project's parking facilities in the Phase I
Area which Landlord may now or subsequently own, build, or contract for Tenant's
use, as set forth below. Landlord shall have the right, at any time and from
time to time,
-3-
<PAGE> 6
to change the designation of such parking garages and/or parking areas, within
the Phase I Area. At such time, Landlord shall have the option to reissue all or
a portion of Tenant's permits to reflect the changes in parking locations.
Tenant shall pay during the initial Term of this Lease $30.00 per month, plus
any taxes thereon, for each of such permits in garages and/or areas owned by
Landlord. If any of such parking permits are for facilities that are not owned
by Landlord, then Tenant shall pay the monthly contract rate Landlord negotiates
with the owner thereof (plus Landlord's overhead, administration and other
directly-related costs such as security and insurance) or as Landlord deems
comparable to Landlord's quoted monthly contract rates in its own comparable
facilities (as set from time to time), plus any taxes thereon for each of such
permits.
(iii) Non-Used Permits. Tenant may permanently return, all or
any, of the parking permits that it has timely elected to take by giving
Landlord 30 days written notice of the effective date of the return. Upon such
effective date, Landlord's obligation to provide, and Tenant's obligation to pay
for, such returned permits shall terminate. Prior to such effective date, Tenant
shall return any key-card, sticker, or other identification or entrance enabling
device provided by Landlord. Landlord shall have no obligation to provide
Tenant, and Tenant shall have no right to, any parking permits that are returned
or that Tenant does not timely elect to take.
(iv) Reserved Parking. Tenant shall have the right to convert
up to 5 unreserved permits in the 3800 Buffalo Speedway Garage to reserved
permits providing access to the 3800 Buffalo Speedway Garage in locations
determined by Landlord, in its sole discretion. During the initial Term, Tenant
shall pay Landlord $75.00 per month, plus any taxes thereon, for each of such
permits.
(v) Visitor Parking. Landlord shall provide a system for
validating Tenant's visitor parking in designated areas (visitor parking being
subject to availability). Tenant shall, within 30 days after written demand, pay
any validated visitor parking charges incurred. However, all charges incurred
during the first hour per visitor shall be free, and Landlord shall deduct the
cost thereof from each visitor parking ticket that has been properly validated
by Tenant in accordance with Landlord's validation procedure.
(vi) Renewals and Extensions: During any renewal or extension
of the Term of this Lease, Tenant shall pay Landlord its full monthly contract
parking rate(s) (as set from time to time) for all monthly parking permits plus
any taxes thereon.
(l) "PERMITTED USE": Original 3800 Buffalo Premises -
general office and related office
uses, including, but not limited to,
the marketing and sale of fine
watches, writing instruments and
other premium and luxury products
over the Internet, subject to
PARAGRAPH 9(a);
Additional 3800 Buffalo Premises -
general office and related office
uses, including, but not limited to,
the marketing and sale of fine
watches, writing instruments and
other premium and luxury products
over the Internet, subject to
PARAGRAPH 9(a);
Five Greenway Vault Premises -
Showroom and Storage for the sale of
fine watches, writing instruments,
and other related products and
related office uses, subject to
PARAGRAPH 9(a); and
-4-
<PAGE> 7
Five Greenway Storage Premises -
Storage, shipping, and handling
facilities not visible to the public
and related office uses, subject to
PARAGRAPH 9(a).
Additional Five Greenway Storage
Premises - Storage, shipping, and
handling facilities not visible to
the public and related office uses,
subject to PARAGRAPH 9(a).
-5-
<PAGE> 8
(m) ADDRESSES:
LANDLORD'S ADDRESSES FOR NOTICE:
Five Greenway Plaza, Suite 110
Houston, Texas 77046
Attn: Property Manager
Telephone: (713) 965-1702
Facsimile: (713) 965-2950
with a copy to:
Post Oak Central
2000 Post Oak Central, Suite 1950
Houston, Texas 77036
Attn: Vice President,
Houston Region -- Asset Management
Telephone: (713) 840-1170
Facsimile: (713) 840-1180
with a copy to:
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attn: Legal Department
Telephone: (817) 321-2100
Facsimile: (817) 321-2000
LANDLORD'S ADDRESS FOR PAYMENTS:
P.O. Box 200805, Houston, Texas 77216-0805
TENANT'S ADDRESS PRIOR TO THE
ORIGINAL 3800 BUFFALO COMMENCEMENT
DATE:
3355 West Alabama, Suite 175
Houston, Texas 77098
Attention: Mr. James Whitcomb
Telephone: (713) 369-1300
Facsimile: (713) 623-0444
TENANT'S ADDRESS ON AND AFTER
THE ORIGINAL 3800 BUFFALO COMMENCEMENT
DATE:
The Original 3800 Buffalo Premises
Attention: Mr. James Whitcomb
with a copy to:
Robert F. Gray, Jr.
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5566
Facsimile: (713) 651-5246
-6-
<PAGE> 9
(n) ADDITIONAL DEFINITIONS: In addition to the key business terms
defined above, an index of the other defined terms used in the text of this
Lease is set forth below, with a cross-reference to the paragraph in this Lease
in which the definition of such term can be found:
ABS.......................................................8(d)
ADA.......................................................2(c)
Alterations..............................................11(c)
Applicable Law............................................2(c)
Beneficiary...........................................13(a)(i)
Bodily Injury.......................................13(a)(iii)
Building Standard.........................................2(b)
CERCLA....................................................2(c)
Certificates........................................14(b)(iii)
Claims...............................................13(a)(ii)
Collateral...............................................17(h)
Commencement Date............................................4
Common Areas..............................................3(b)
Construction Agreement....................................5(a)
Contamination............................................22(a)
Control..................................................12(a)
Default Rate.............................................17(b)
Defend................................................13(a)(v)
EOE.......................................................7(a)
Event of Default.........................................17(a)
Excess Operating Expenses.................................7(a)
Expiration Date..............................................4
Fair Rental Value........................................17(d)
Hazardous Materials......................................22(a)
Hold Over................................................18(c)
HVAC......................................................8(a)
Indemnify.............................................13(a)(v)
Insurable Injuries...................................13(a)(ii)
ISO..................................................13(a)(ii)
Land......................................................3(a)
Landlord Parties......................................13(a)(i)
Landlord's Contribution..................................15(b)
Landlord's Mortgagee........................................20
Landlord's Reletting Expenses............................17(d)
Landlord's Rental Damages................................17(d)
Minor Alterations........................................11(c)
Operating Expenses........................................7(b)
Permitted Use.............................................9(a)
Personal Injury.....................................13(a)(iii)
Prime Rate...............................................17(d)
Project...................................................3(a)
Project Systems........................................7(b)(i)
Property Damage.....................................13(a)(iii)
Provider..................................................8(f)
Punchlist Items...........................................5(b)
Relocated Premises.......................................21(c)
Relocation Date..........................................21(c)
Rent......................................................6(a)
RSF.......................................................3(a)
Rules and Regulations.....................................9(b)
Service Areas.............................................3(b)
Service Interruption......................................8(e)
State.....................................................2(c)
Substantial Completion.............................4(e) of the
Construction Agreement
Tenant Parties........................................13(a)(i)
Tenant's Contribution....................................15(b)
Tenant's FF&E......................................14(b)(i)(C)
Tenant's Insurable Injuries..........................13(a)(iv)
Tenant's Share............................................7(a)
Transfer.................................................12(a)
Waive.................................................13(a)(v)
Work...............................................4(a) of the
Construction Agreement
-7-
<PAGE> 10
2. INTERPRETING THIS LEASE.
(a) USAGE OF CERTAIN WORDS. Bold italicized print in quotations marks,
e.g., "TRANSFER", indicates definition of a term. A defined term includes all
grammatical variations which are also shown with initial capital letters. For
example, the defined word "Transfer" includes "Transferee", "Transferring",
"Transferred", etc., as grammatically appropriate in the text. Cross-references
to other provisions of this Lease are in bold print following the word
"PARAGRAPH". The word "including" shall not be construed restrictively to limit
or exclude other items not listed. Unless the context otherwise requires, the
singular includes the plural and the plural the singular, and the masculine,
feminine and neuter genders are interchangeable. Unless otherwise specified as a
business day, a "day" means a calendar day.
(b) BUILDING STANDARD. "BUILDING STANDARD" means the type, brand,
quantity or quality of materials, equipment, services, insurance coverages,
methods, scheduling and usages Landlord designates or determines from time to
time to be standard for the(1) Building or the Project(2).
(c) APPLICABLE LAW. "APPLICABLE LAW" means all federal, state and local
laws, statutes, ordinances, court rulings, orders, regulations, public or
private restrictions and requirements now or hereafter adopted by any
governmental or other authority, board of fire underwriters, utility company,
property association, declarant or similar body, affecting the Project or this
Lease, including (i) those pertaining to health, safety, the environment or any
Hazardous Material, (ii) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), and (iii) Title III of The
Americans with Disabilities Act of 1990, the Accessibility Guidelines for
Buildings and Facilities and any other law pertaining to disabilities and
architectural barriers (collectively, "ADA"). THE VALIDITY, PERFORMANCE AND
ENFORCEMENT OF THIS LEASE ARE GOVERNED BY THE APPLICABLE LAW OF THE STATE OR
OTHER JURISDICTION WHERE THE BUILDING IS LOCATED ("STATE"). ALL OBLIGATIONS
UNDER THIS LEASE ARE PERFORMABLE IN THE COUNTY OR OTHER JURISDICTION IN WHICH
THE BUILDING IS LOCATED, WHICH SHALL BE VENUE FOR ALL LEGAL ACTIONS.
(d) ENTIRE AGREEMENT. This Lease contains the parties' entire agreement
regarding the subject matter hereof. There are no representations or warranties
between the parties not contained in this Lease. No amendment of this Lease
shall be effective unless in writing and duly signed by the party against whom
enforcement is sought. Any invalidated provision of this Lease shall be severed
from, and shall not impair the validity of, this Lease. The exhibits and riders
attached hereto are incorporated herein and made a part of this Lease for all
purposes.
- ---------------
(1) applicable
(2) , so long as any decrease in the standards from those in effect on the Date
of Lease are in keeping with the standards in comparable office buildings in the
Greenway Plaza area of Houston, Texas, taking into account age, size and other
relevant factors
-8-
<PAGE> 11
3. UNDERSTANDING THE PROJECT.
(a) PROJECT AND RENTABLE AREA. The "PROJECT" consists of the tract of
land described on EXHIBIT "A" (the "LAND"), the Building and all appurtenant
parking facilities, landscaping, fixtures, Common Areas, service buildings and
related improvements now or hereafter constructed thereon or on land acquired by
Landlord (or its affiliates) and added to the Project from time to time. The
"RSF" is the square footage of rentable area of a given space calculated using
Building Standard methods of measurement.(3)
- ----------------
(3) Landlord and Tenant stipulate that the RSF of the Building and the portions
of the Premises as set forth in Paragraph 1 shall be fixed and are not subject
to change, except in the event of a condemnation or an expansion or contraction
of the Premises.
-9-
<PAGE> 12
(b) COMMON AREAS AND SERVICE AREAS. Landlord grants Tenant a
non-exclusive right to use the Common Areas during the Term for their intended
purposes, in common with others and subject to the provisions of this Lease.
"COMMON AREAS" are all present and future areas, facilities and equipment in the
Project designated by Landlord for the common use of the occupants of the(4)
Building and their customers, employees and invitees, including tunnels,
walkways, sky bridges and driveways, lobbies, landscaped areas, loading areas,
public corridors, public restrooms, stairs and elevators, and drinking
fountains. "SERVICE AREAS" are all present and future areas, facilities and
equipment serving the Project which are not generally accessible to Tenant or
other occupants of the(5) Building, including mechanical, telecommunications,
electrical and similar rooms, roof, risers and HVAC equipment areas.
- --------------
(4) applicable
(5) applicable
-10-
<PAGE> 13
4. TERM. The Term(6) shall commence on the earlier of (a) the(7) date of
Substantial Completion of the Work pursuant to the Construction Agreement (if
applicable)(8); and (b) the(9) date Tenant takes possession of(10) of the
Premises for purposes of conducting business(11)
- ----------------
(6) with respect to the Original 3800 Buffalo Premises shall commence on the
earlier of (i) the date the carpet is installed in the Original 3800 Buffalo
Premises; and (ii) the date Tenant takes possession of any portion of the
Original 3800 Buffalo Premises for purposes of conducting business, which
possession may be prior to Substantial Completion provided that Tenant does not
interfere with the completion of the Work (the "Original 3800 Buffalo
Commencement Date") and shall end on the last day of the 44th full calendar
month after the Original 3800 Buffalo Commencement Date (the "Expiration Date"),
subject to Paragraph 17. The Term with respect to each of the Five Greenway
Vault Premises, the Five Greenway Storage Premises, and the Five Greenway
Additional Storage Premises
(7) respective
(8) for each of such portions of the Premises
(9) respective
(10) each of such portions
(11) , which possession may be prior to Substantial Completion provided that
Tenant does not interfere with the completion of the Work (the dates the Term
commences for the Five Greenway Vault Premises, the Five Greenway Storage
Premises, and the Additional Five Greenway Storage Premises are referred to as
the "Vault Commencement Date", the "Storage Commencement Date", and the
"Additional Storage Commencement Date", respectively; each of which commencement
dates along with the Original 3800 Buffalo Commencement Date and the Additional
3800 Buffalo Commencement Date are generically referred to as the "Commencement
Date") and shall end on the Expiration Date
-11-
<PAGE> 14
(12) Landlord shall not be liable or responsible for Claims made or incurred by
Tenant due to any delay in tendering the Premises.
5. PREPARING THE PREMISES.
(a) CONDITION. Tenant agrees to accept the Premises "as-is". However,
all improvements, if any, shall be constructed in the Premises, and the cost
thereof paid, in accordance with the "CONSTRUCTION AGREEMENT" attached as
EXHIBIT "C" (if applicable). Except as expressly provided in this Lease or the
Construction Agreement, Landlord has not undertaken to perform any alteration or
improvement to the Premises.
- --------------------------------------------------------------------------------
(12) The Term with respect to the Additional 3800 Buffalo Premises shall
commence on March 1, 2000 (the "Additional 3800 Buffalo Commencement Date") and
shall end on the Expiration Date.
-12-
<PAGE> 15
(b) ACCEPTANCE. BY TAKING POSSESSION OF THE PREMISES, AND TO THE FULLEST
EXTENT PROVIDED BY PARAGRAPH 13(c), TENANT WAIVES (i) ANY CLAIMS DUE TO DEFECTS
IN THE PREMISES AND/OR THE PROJECT EXCEPT (A) MINOR FINISH ADJUSTMENTS IN WORK
PERFORMED BY LANDLORD ("PUNCHLIST ITEMS") SPECIFIED IN REASONABLE DETAIL BY
TENANT(13), AND (B) LATENT DEFECTS IN LANDLORD'S WORK OF WHICH TENANT NOTIFIES
LANDLORD WITHIN 180 DAYS AFTER TAKING POSSESSION; AND (ii) ALL EXPRESS AND
IMPLIED WARRANTIES OF SUITABILITY, HABITABILITY AND FITNESS FOR ANY PARTICULAR
PURPOSE. Except to the extent otherwise expressly provided in this Lease, Tenant
Waives the right to terminate this Lease due to Punchlist Items or the condition
of the Premises, the Building or the Project. Tenant shall, within 15 days after
Landlord's request, execute and deliver a Certificate of Acceptance of the
Premises substantially in the form attached as EXHIBIT "D".
6. RENT AND SECURITY DEPOSIT.
(a) RENT. Beginning on the(14) Commencement Date(15), Tenant shall pay
Landlord the Base Rent(16). The term "RENT" includes Base Rent, Excess Operating
Expenses and any and all other sums payable by Tenant under this Lease. All Rent
(plus any applicable taxes thereon) shall be payable to Landlord at the Address
for Payments set forth above, or to such other place or entity as may from time
to time be designated in writing by Landlord, in lawful money of the United
States of America. Tenant shall pay Landlord monthly installments of Base Rent
and Excess Operating Expenses in advance on or before the first day of each
calendar month during the Term, without deduction, setoff or prior request for
payment. Rent for any partial month shall be prorated on a daily basis based on
a 360-day calendar year. Tenant may make Rent payments by electronic transfer in
accordance with Landlord's instructions.
- -----------------
(13) WITHIN 10 DAYS AFTER SUBSTANTIAL COMPLETION OF EACH PORTION OF THE PREMISES
(14) applicable
(15) for each portion of the Premises
(16) for the applicable portion of the Premises
-13-
<PAGE> 16
(b) SECURITY DEPOSIT. Concurrently with its execution of this Lease,
Tenant shall pay Landlord the(17) Security Deposit(18) in order to secure
Tenant's faithful performance under this Lease (without being considered Rent or
a measure of Landlord's damages and without prejudice to any other rights or
remedies of Landlord),(19) The Security Deposit shall be held without interest
and may be commingled with other funds. Landlord may apply the Security Deposit
as necessary to make good any Rent arrearage, pay the cost of curing an Event of
Default by Tenant or reimburse Landlord for expenditures made or damages
suffered due to an Event of Default by Tenant. If all or any portion of the
Security Deposit is ever applied under this Lease, Tenant shall(20) deposit
additional funds with Landlord equal to the amount so applied. Provided no
uncured Event of Default then exists under this Lease (and no condition exists
which, with the passage of time or giving of notice, would become an Event of
Default), the Security Deposit (or the remaining balance after application under
this Lease) shall be refunded to Tenant within 30 days after the latest of (i)
the Expiration Date; (ii) payment of all Rent due under this Lease; (iii)
surrender of possession of the Premises to Landlord in accordance with this
Lease; and (iv) Landlord's receipt of Tenant's forwarding address and written
request for refund.
- -----------------
(17) cash portion of the
(18) AND DELIVER TO LANDLORD A LETTER OF CREDIT IN ACCORDANCE WITH PARAGRAPH
6(c) OF THIS LEASE,
(19) The cash portion of the Security Deposit and EACH LETTER OF CREDIT AND ANY
AMOUNTS DRAWN ON ANY LETTER OF CREDIT ARE COLLECTIVELY REFERRED TO IN THIS LEASE
AS THE "SECURITY DEPOSIT".
(20) within 5 days after written notice
-14-
<PAGE> 17
(21) (See footnote below)
- --------------
(21) (c) LETTER OF CREDIT. TENANT SHALL OBTAIN AT ITS EXPENSE AND DELIVER TO
LANDLORD, UPON TENANT'S EXECUTION OF THIS LEASE, AN IRREVOCABLE AND
UNCONDITIONAL LETTER OF CREDIT THAT SATISFIES EACH OF THE FOLLOWING
REQUIREMENTS: (a) ISSUED IN THE AMOUNT OF $500,000.00 BY CHASE BANK OF TEXAS,
N.A., (b) DATED THE DATE OF DELIVERY OF THE LETTER OF CREDIT, (c) NAMING
LANDLORD AS BENEFICIARY, (d) EXPIRING NO EARLIER THAN SEPTEMBER 1, 2000, AND (e)
BEING IN THE FORM ATTACHED HERETO AS EXHIBIT "G" (THE "ORIGINAL LETTER OF
CREDIT"). ON OR BEFORE AUGUST 1 OF EACH YEAR DURING THE TERM, TENANT SHALL
DELIVER TO LANDLORD A REPLACEMENT LETTER OF CREDIT EACH DATED THE EXPIRATION
DATE OF THE LETTER OF CREDIT IT REPLACES AND IN ALL OTHER RESPECTS SATISFYING
THE FOREGOING REQUIREMENTS (A "REPLACEMENT LETTER OF CREDIT"); PROVIDED,
HOWEVER, THAT ONCE TENANT HAS COMPLETED A PUBLIC OFFERING OF ITS COMMON STOCK
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, NETTING TENANT AT LEAST $15,000,000, TENANT SHALL NO LONGER BE
REQUIRED TO MAINTAIN A LETTER OF CREDIT OR LC SECURITY DEPOSIT (DEFINED BELOW),
AND LANDLORD SHALL RETURN THE ORIGINAL LETTER OF CREDIT, THE REPLACEMENT LETTER
OF CREDIT, OR LC SECURITY DEPOSIT, AS APPLICABLE, TO TENANT WITHIN 10 DAYS AFTER
LANDLORD RECEIVES (i) A WRITTEN REQUEST FROM TENANT FOR THE RETURN, (ii) A
LISTING CONFIRMATION FROM THE NASDAQ, AND (iii) A CERTIFICATE OF THE PRESIDENT
OR VICE PRESIDENT OF TENANT CERTIFYING THAT SUCH PUBLIC OFFERING HAS BEEN
COMPLETED AND THE PROCEEDS OF AT LEAST $15,000,000 RECEIVED. FAILURE TO REPLACE
THE ORIGINAL LETTER OF CREDIT AND EACH REPLACEMENT LETTER OF CREDIT AS PROVIDED
ABOVE AT LEAST THIRTY (30) DAYS PRIOR TO ITS EXPIRATION DATE SHALL BE DEEMED AN
EVENT OF DEFAULT BY TENANT UNDER THIS LEASE, WITHOUT NOTICE OR OPPORTUNITY TO
CURE, IN WHICH EVENT LANDLORD'S SOLE REMEDY SHALL BE TO PRESENT THE ORIGINAL
LETTER OF CREDIT OR THE REPLACEMENT LETTER OF CREDIT, AS APPLICABLE, TO THE
LENDING INSTITUTION FOR PAYMENT AND HOLD THE PROCEEDS AS A SECURITY DEPOSIT
PURSUANT TO PARAGRAPH 6(b) ABOVE (THE PROCEEDS TO THE EXTENT NOT NEEDED TO
REPLENISH THE $71,376.00 CASH PORTION OF THE SECURITY DEPOSIT ARE REFERRED TO AS
THE "LC SECURITY DEPOSIT"). ANY AMOUNTS DRAWN AND NOT APPLIED TO CURE AN EVENT
OF DEFAULT BY TENANT UNDER THIS LEASE SHALL BE HELD AS AN ADDITIONAL SECURITY
DEPOSIT PURSUANT TO PARAGRAPH 6(b) ABOVE.
-15-
<PAGE> 18
7. EXCESS OPERATING EXPENSES.
(a) CALCULATION. During the Term, Tenant shall pay Landlord Tenant's
Share of the amount (prorated for any partial calendar year) by which Operating
Expenses for each calendar year exceed Operating Expenses for the Base Year
("EXCESS OPERATING EXPENSES" or "EOE"). "TENANT'S SHARE" is equal to(22) the RSF
of the(23) Premises divided by the RSF of the(24). Operating Expenses are
computed on an accrual basis in accordance with sound accounting principles
consistently applied.(25) If the Building is less than fully occupied or
Building Standard services are not provided to the entire Building during any
calendar year (including the Base Year), all Operating Expenses which vary
directly with occupancy shall be "grossed-up" by Landlord as if the Building had
been fully occupied and Building Standard services had been provided to the
entire Building during such calendar year.
(b) OPERATING EXPENSES. "OPERATING EXPENSES" are all costs and
expenditures of every kind incurred by Landlord in connection with the
ownership, operation, maintenance, management, repair and protection of the
Project which are directly attributable or reasonably allocable to the(26),
including Landlord's personal property used in connection with the Project and
including all costs and expenditures within the following expense categories:
(i) Operation, maintenance, repair and replacements of any part
of the Project, including the mechanical, electrical, plumbing, HVAC, vertical
transportation, fire prevention and warning and security systems (collectively,
"PROJECT SYSTEMS"); materials and supplies (such as light bulbs and ballasts);
equipment and tools; floor, wall and window coverings; personal property;
required or beneficial easements; and related service agreements and rental
expenses.
(ii) Administrative and management fees, including accounting,
information and professional services (except for negotiations and disputes with
specific tenants not affecting other parties)(27); management office(s); and
wages, salaries, benefits, reimbursable expenses and taxes (or allocations
thereof) for full and part time personnel involved in operation, maintenance and
management.
(iii) Janitorial service; window cleaning; waste disposal; gas,
water and sewer charges (including add-ons); and landscaping, including all
applicable tools and supplies.
(iv) Property, liability and other insurance coverages carried
by Landlord, including deductibles and an allocation of a portion of the cost of
blanket insurance policies maintained by Landlord and/or its affiliates.
(v) Real estate taxes, assessments, business taxes, excises,
association dues, fees, levies, charges and other taxes of every kind and nature
whatsoever, general and special, extraordinary and ordinary, foreseen and
unforeseen, including interest on installment payments, which may be levied or
assessed against or arise in connection with ownership,
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(22) with respect to each of the 3800 Buffalo Building and the Five Greenway
Building
(23) applicable portion of the
(24) 3800 Buffalo Building or the Five Greenway Building, as applicable
(25) As used in this Lease, the "sound accounting principles" used by landlord
in calculating Operating Expenses will, to the extent applicable and except as
otherwise provided in this Lease, be consistent with "generally accepted
accounting principles" or "GAAP".
(26) 3800 Buffalo Building and the Five Greenway Building, as applicable
(27) , provided that the management fee shall not exceed 4% of gross revenues
for the Project
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<PAGE> 19
use, occupancy, rental, operation or possession, or substituted, in whole or in
part, for a tax previously in existence by any taxing authority, or paid as rent
under any ground lease. Real estate taxes do not include Landlord's income,
franchise or estate taxes (except to the extent such excluded taxes are assessed
in lieu of taxes included above).
(vi) Compliance with Applicable Law, including license, permit
and inspection fees; and all expenses and fees, including attorneys' fees and
court costs, incurred in negotiating or contesting real estate taxes or the
validity and/or applicability of any governmental enactments which may affect
Operating Expenses; provided Landlord shall credit against Operating Expenses
any refunds received from such negotiations or contests to the extent originally
included in Operating Expenses (less Landlord's costs).
(vii) Security services, to the extent provided or contracted
for by Landlord.
(viii) Goods and services purchased from Landlord's
subsidiaries and affiliates to the extent the cost of same is generally
consistent with rates charged by unaffiliated third parties for similar goods
and services.
(ix) Depreciation (or amortization) of capital expenditures
incurred: (A) to conform with Applicable Law(28); (B) to provide or maintain
Building Standards (other than Building Standard tenant improvements); or (C)
with the intention of promoting safety or reducing or controlling increases in
Operating Expenses, such as lighting retrofit and installation of energy
management systems. Such expenditures shall be depreciated or amortized
uniformly over a reasonable period of time determined by Landlord, together with
interest on the undepreciated or unamortized balance at the Prime Rate (as of
the date incurred) plus 2%.
(x) The costs incurred by Landlord for (A) any and all forms of
fuel or energy utilized in connection with the operation, maintenance, and use
of the Project, (B) sales, use, excise and other taxes assessed by governmental
authorities on energy sources supplied to the Project, and (C) other costs of
providing energy to the Project.
(c) EXCLUSIONS. Operating Expenses exclude costs and expenditures in the
following categories:
(i) Leasing commissions, attorneys' fees and other expenses
related to leasing tenant space and constructing improvements for the sole
benefit of an individual tenant.
(ii) ABS goods and services furnished to an individual tenant
of the Project(29) which are separately reimbursable directly to Landlord in
addition to EOE(30).
(iii) Repairs required because of casualty or condemnation
damage to the extent of insurance or condemnation proceeds actually received by
Landlord.
(iv) Except as provided in PARAGRAPH 7(b)(ix), depreciation,
amortization, interest payments on any encumbrances on the Project(31) and the
cost of capital improvements or additions and replacements.
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(28) , but excluding the initial cost to conform the core restrooms on the 4th
floor of the 3800 Buffalo Building to ADA standards
(29)(A)
(30) or (B) with whom Landlord has agreed in their Lease not to charge for such
ABS goods and services
(31) , ground rentals
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<PAGE> 20
(32) (See footnote below)
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(32) (v) Costs incurred due to (A) a breach by Landlord of its covenants,
obligations and duties under this Lease or any other lease in the Project or (B)
a breach by another tenant, that in either case would not have been incurred but
for such breach.
(vi) Principal payments of indebtedness secured by liens against the
Project or any portion thereof, or costs of refinancing such indebtedness.
(vii) Compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord which customarily sell products
or services to the public, including tenants of the Building.
(viii) Costs (other than maintenance costs) of any artwork (such as
sculptures or paintings) used to decorate the Building.
(ix) Interest and penalties due to late payment of any amounts owed by
Landlord, except such as may be incurred as a result of Tenant's failure to
timely pay its portion of such amounts or as a result of Landlord's
contesting such amounts in good faith.
(x) Costs incurred in connection with the sale, transfer, refinancing,
or mortgaging of the Project or any portion thereof, including without
limitation, brokerage commissions, attorneys' fees and other professional
fees, appraisals, and closing costs.
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<PAGE> 21
(d) ESTIMATED MONTHLY PAYMENTS. During each calendar year of the Term
after the Base Year, Tenant shall pay Landlord, in advance concurrently with
each monthly payment of Base Rent, 1/12th of Landlord's good-faith estimate of
the EOE to be payable by Tenant for such calendar year. By April 30th of the
next calendar year, or as soon thereafter as practical, Landlord shall furnish
Tenant a statement of actual Operating Expenses for the prior calendar year.
Provided no uncured Event of Default then exists hereunder (and no condition
exists which, with the passage of time or giving of notice, would become an
Event of Default), Landlord shall(33) refund any overpayment to Tenant for the
prior calendar year (or, at Landlord's option, apply such amount against Rent
due or to become due hereunder). Likewise, Tenant shall, within 30 days of
Landlord's invoice, pay Landlord any underpayment for the prior calendar year.
The foregoing obligations shall survive the Expiration Date. Landlord may alter
its billing procedures at any time, including adjusting estimated EOE based on
actual or expected increases in Operating Expenses. In no event shall Base Rent
be reduced if Operating Expenses for any calendar year are less than Operating
Expenses for the Base Year.
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(33) , within 30 days after its final determination thereof,
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<PAGE> 22
8. LANDLORD SERVICES.
(a) BASIC SERVICES. Landlord shall furnish the following services to the
Premises (to which services Landlord may at any time and from time to time make
reasonable changes(34)): (i) running tap water from the local utility at the
supply points provided for general tenant use; (ii) heating, ventilating and air
conditioning ("HVAC") on weekdays between 8:00 a.m. and 6:00 p.m. and Saturdays
between 8:00 a.m. and 12:00 noon, excluding generally recognized business
holidays; (iii) janitorial service 5 days per week (excluding holidays); (iv)
exterior window washing; (v) non-exclusive passenger elevators sufficient for
ingress and egress to the Premises, subject to proper authorization and the
Rules and Regulations; (vi) routine maintenance of the Common and Service Areas;
and (vii) replacement of Building Standard light bulbs, tubes and ballasts.
(b) ELECTRICAL SERVICE.
(i) Landlord shall furnish Building Standard electrical service
to the Premises sufficient to operate lighting,(35) office machines and other
equipment of similar low electrical consumption. Landlord may, at any time and
from time to time, determine Tenant's electrical demand and consumption within
the Premises either by a survey conducted by a reputable consultant selected by
Landlord, or through separate meters installed, maintained and read by Landlord,
all at Tenant's expense if such consultant or separate meter indicates ABS
electrical consumption(36). The cost of ABS electrical consumption shall be paid
by Tenant in accordance with PARAGRAPH 8(d).
(ii) Landlord reserves the right to select the provider of
electrical services to the(37) Building and/or the Project. To the fullest
extent permitted by Applicable Law, Landlord shall have the continuing right,
upon 30 days written notice, to change such utility provider and install a
submeter for the Premises at Tenant's expense. All charges and expenses
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(34) , so long as such changes are in keeping with the standard of services in
comparable office buildings in the Greenway Plaza area of Houston, Texas, taking
into account age, size and other relevant operating factors
(35) personal computers (including network and related server system), copiers,
(36) , which shall mean with respect to each portion of the Premises separately,
electrical consumption (A) for any period of time during the Building Standard
operating hours of the Building in excess of the Building Standard electrical
design capacity (as set forth in Section 4(c) of the Construction Agreement) for
such portion of the Premises and (B) at any other time in excess of the normal
electrical consumption of a tenant, as reasonably determined by Landlord
(37) 3800 Buffalo Building, the Five Greenway
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<PAGE> 23
incurred by Landlord due to any such changes in electrical services, including
maintenance, repairs, installation and related costs, shall be included in the
Operating Expenses, unless paid directly by Tenant.
(iii) If submetering is installed for the Premises, Landlord
may charge Tenant monthly for the actual electrical consumption at the Premises
at commercially reasonable rates(38) determined by Landlord, except as to
electricity directly purchased by Tenant from third party providers. Even if the
Premises are submetered, Tenant shall remain obligated to pay Tenant's Share of
the cost of electrical services, except that Tenant shall be entitled to a
credit against electrical services costs equal to that portion of the amounts
actually paid by Tenant separately and directly to Landlord which is
attributable to Building Standard electrical services submetered to the
Premises.
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(38) (without a profit to Landlord unless allowed by law)
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<PAGE> 24
(c) PARKING SERVICES. Landlord shall provide the Parking Permits
described in PARAGRAPH 1, which shall allow "in-and-out" privileges to the
designated parking facilities areas or areas using parking access cards or
permits, as applicable. No deductions from the monthly charge shall be made for
days on which the parking facilities are not used by Tenant. (39)Landlord shall
have the continuing right to change the designation of such parking facilities
or areas. Tenant, its employees, contractors and invitees, shall at all times
comply with the applicable parking rules issued from time to time. Neither
Tenant nor its employees shall use any parking spaces designated for visitors or
other occupants of the Project. Tenant shall, within 15 days of Landlord's
written request, furnish Landlord a complete list of license plate numbers for
all vehicles operated by any Tenant Party. Tenant's sole remedy for any period
during which Tenant's use of any Parking Permit is precluded for any reason
shall be abatement of parking charges for such precluded permits(40).
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(39) Subject to the general location requirements set forth in Paragraph 1
above,
(40) , provided however, that if Tenant is precluded from using any of its
Parking Permits for more than 5 consecutive business days, then upon Tenant's
request Landlord shall use commercially reasonable efforts to locate temporary
alternative parking for the precluded parking Permits. In addition, Landlord
shall direct its third party parking contractor to cooperate with Tenant as
reasonably necessary under the circumstances to rectify any problems.
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<PAGE> 25
(d) ABS SERVICES. Building Standard services are furnished based upon
Building Standard (i) leasehold improvements; (ii) population density; (iii)
electrical consumption; (iv) electrical design capacity; and (v) hours of
operation, and any other applicable qualifications set forth in this Lease.
"ABS" means over and above Building Standard (including related modifications
and equipment changes). All requests for ABS services, whether HVAC, electrical,
janitorial or other services, shall be made in writing and are subject to
Landlord's prior written approval(41), which may include, as a condition to such
approval, the imposition of restrictions or other requirements by Landlord.
Landlord shall install any equipment or other modifications necessary to furnish
any approved ABS services, all at Tenant's expense (including all related
consulting, acquisition, installation and maintenance costs). Unless otherwise
specified in this Lease, Tenant shall, within 15 days of invoicing, pay the
foregoing expenses and Landlord's then-quoted standard charges for any ABS
services furnished to or necessitated by any Tenant Party.(42) Landlord may
withhold its consent to any ABS services or, having previously granted consent,
terminate or suspend any ABS services (and remove any related equipment or
modifications at Tenant's expense), if (A) Landlord determines the provision or
continuation of such ABS services is unnecessary or could damage the Building or
Project Systems, create a dangerous condition, entail unreasonable Alterations
or expense, or disturb other tenants in(43) Building; or (B) there exists an
Event of Default. ABS HVAC shall be furnished upon Tenant's written request
given no later than(44).
(e) SERVICE INTERRUPTIONS. Upon interruption of any service furnished by
Landlord under this Lease (a "SERVICE INTERRUPTION") other than a Service
Interruption for scheduled maintenance, tests and inspections, Tenant shall
immediately notify Landlord, in which event Landlord shall use commercially
reasonable efforts to restore such service to the Premises. No Service
Interruption shall (i) constitute a breach by Landlord under this Lease; (ii)
relieve Tenant of any obligation under this Lease (except as provided below); or
(iii) be deemed a constructive eviction of Tenant from the Premises.(45) In the
event
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(41) (not to be unreasonably withheld, conditioned, or delayed for ABS services
normally provided by Landlord in the applicable Building)
(42) Landlord and Tenant agree that Landlord may install, at Tenant's cost, a
meter on the 15 ton capacity air handler serving either or both of the Original
3800 Buffalo Premises and the Additional 3800 Buffalo Premises. If the meter is
installed, then during the initial Term of this Lease Landlord shall bill Tenant
for overtime HVAC using the 15 ton air handler at the rate charged for chilled
water usage in Phase I of Greenway Plaza. In addition, during the initial Term
of this Lease, Landlord shall charge $25.00 per hour for the first 50 hours per
month of overtime HVAC using the 40 ton capacity air handler serving either or
both of the Original 3800 Buffalo Premises and the Additional 3800 Buffalo
Premises. All additional overtime HVAC each month shall be billed at Landlord's
then standard rate. Tenant shall not be entitled to any credit or carry forward
of hours if it uses less than 50 hours of overtime HVAC in a month.
(43) any
(44) 3 hours in advance, but in no event later than 12:00 noon of the preceding
business day, if the request is for a Saturday, Sunday, or holiday
(45) Commencing on the 6th consecutive business day of a Service Interruption
within the control of Landlord and on the 31st consecutive business day of a
Service Interruption not within the control of Landlord, and in each case except
to the extent such Service Interruption is caused by a Tenant Party, Tenant
shall, as its sole remedy, be entitled to an equitable diminution of Base Rent
based upon the pro rata portion of the Premises which is rendered unfit for
occupancy for the Permitted Use. In addition, if a Service Interruption (i) is
not caused by a fire or other casualty to the Building, (ii) relates to the
furnishing by Landlord of HVAC, elevator, running water necessary for full use
of restrooms or electrical service to the Premises, (iii) was not caused by
Tenant, and (iv) Tenant is unable to conduct operations from the Premises that
are necessary to the operation of its business by reason of the interruption of
services for a period exceeding sixty (60) consecutive days, then upon written
request of Tenant Landlord shall use commercially reasonable efforts to provide
temporary alternate space to Tenant in the Project. If Tenant desires to utilize
the temporary alternate space provided by Landlord, Tenant shall accept the
space in its AS-IS condition and the rental abatement of Base Rent shall cease
upon Landlord's tender of the alternate space. Upon the cessation of the Service
Interruption Tenant shall immediately vacate the temporary alternate space and
reoccupy the Premises.
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<PAGE> 26
of any conflict between this PARAGRAPH 8(e) and the casualty and condemnation
provisions of PARAGRAPHS 15 and 16, the latter shall control.
(f) THIRD PARTY SERVICES. If Tenant desires any service which Landlord
has not specifically agreed to provide in this Lease, such as private security
systems or telecommunications services serving the Premises, Tenant shall
procure such service directly from a reputable third party service provider
("PROVIDER") for Tenant's own account. Tenant shall require each Provider to
comply with the Rules and Regulations, Applicable Law and Landlord's reasonable
policies and practices for the Building. Tenant acknowledges Landlord's current
policy that requires all Providers utilizing any areas of the Building outside
the Premises to be approved by Landlord and to enter into a written agreement
acceptable to Landlord prior to gaining access to, or making any installations
in or through, such areas. Accordingly, Tenant shall give Landlord advance
written notice sufficient for such purposes.
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<PAGE> 27
9. OCCUPANCY AND CONTROL.
(a) PERMITTED USES. The Premises shall be used by Tenant (and its
permitted Transferees) solely for the "PERMITTED USE" consistent with Building
Standard services, population density and hours of operation. Except as provided
below, the following uses are expressly prohibited in the Premises: government
offices or agencies; personnel agencies; collection agencies; credit unions;
data processing(46), telemarketing(47) or reservation centers; medical treatment
and health care; restaurants and other retail; customer service offices of a
public utility company; or(48) any other purpose which would, in Landlord's
reasonable opinion, impair the reputation or quality of the Building, overburden
any of the Project Systems, Common Areas, Service Areas or parking facilities,
impair Landlord's efforts to lease space or otherwise interfere with the
operation of the Project. Notwithstanding the foregoing, the following ancillary
uses shall be permitted in the Original 3800 Buffalo Premises and the Additional
3800 Buffalo Premises only so long as they do not, in the aggregate, occupy more
than 10% of the RSF of the Premises or of any single floor (whichever is less):
(i) the following services provided by Tenant exclusively to its employees:
schools, training and other educational services; credit unions; and similar
employee services; and (ii) the following services directly and exclusively
supporting Tenant's business: telemarketing(49); reservations; storage; data
processing(50); debt collection; and similar support services.(51)
(b) RULES AND REGULATIONS. During the Term, Tenant shall comply with
the(52) "RULES AND REGULATIONS" established by Landlord for the Project, as
amended from time to time. The current Rules and Regulations are attached as
EXHIBIT "E". This Lease shall control in the event of any conflict between this
Lease and any Rules and Regulations.
(c) SIGNAGE. Tenant shall not, without Landlord's prior written
approval(53), paint, affix, erect, display or distribute any signs,
advertisements or notices upon (or visible from) the exterior of the Premises or
elsewhere in the Project, except for Building Standard tenant identification
information permitted by Landlord in the main building directory or adjacent to
the main entrance to the Premises.(54)
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(46) (which does not include sales made over the Internet)
(47) (which does not include sales made over the Internet)
(48) except as specifically provided in Paragraph 1(l),
(49) (which does not include sales made over the Internet)
(50) (which does not include sales made over the Internet)
(51) Notwithstanding the foregoing, the entire Five Greenway Storage Premises
and the Additional Five Storage Premises may be used for storage and up to 50%
of the Five Greenway Vault Premises may be used for storage so long as (y) none
of glassed in store front area is used for storage, and (z) none of the storage
area is visible from outside the Five Greenway Vault Premises or from the
showroom portion of the Five Greenway Vault Premises.
(52) reasonable
(53) (not to be unreasonably withheld, conditioned or delayed)
(54) Landlord shall install, in a location selected by Landlord on the East side
of the 3800 Buffalo Building and visible from Buffalo Speedway, a lighted
monument sign (similar to the other monument signs in the Project) for the 3800
Buffalo Building, which sign shall be selected by Landlord. So long as Tenant
leases at least 32,124 RSF in the 3800 Buffalo Building, Tenant shall have the
right to have its name displayed on the monument sign, which may also be used by
at least three other persons. Tenant's display name must be approved by Landlord
and must conform to the requirements of the Greenway Plaza Scenic District and
the general exterior signage scheme of Greenway Plaza. Tenant shall pay for (i)
the cost of its name display, (ii) the maintenance and repair of its name
display, and (iii) one quarter of the purchase cost, installation, maintenance,
and repair of the monument sign. Landlord's obligation to provide the monument
sign is conditioned upon Landlord obtaining all necessary third party approvals
and permits, including, without limitation, those required by the City of
Houston, the Greenway Plaza Improvement Association, and the Greenway Plaza
Scenic District. So long as Tenant continues to lease and occupy the entirety of
the Original 3800 Buffalo Premises and the Additional 3800 Buffalo Premises,
Tenant will be entitled to the use of 20% of the listing strips in the 3800
Buffalo Building directory board.
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<PAGE> 28
(d) CONSENTS. Where Landlord's consent or approval is required in this
Lease, Landlord may withhold such consent or approval in its sole discretion,
except as otherwise specified in the applicable provision. If Tenant requests
Landlord's consent or approval under any provision of this Lease and Landlord
fails or refuses to give such consent or approval, Tenant's sole remedy shall be
an injunction or an action for specific performance.
10. TENANT'S COVENANTS. Tenant covenants and agrees as follows:
(a) OPERATIONS. Tenant shall, at its expense, promptly comply with
Applicable Law in its use and occupancy of the Premises (including construction
of Alterations required by Applicable Law). Tenant shall not do or permit
anything to be done in the Premises which shall in any way (i) obstruct or
interfere with operation of the Project or with rights of other tenants of the
Project; (ii) injure, disturb or annoy other tenants of the Project, including
emission of offensive odors, noises or vibrations; (iii) tend to harm the
reputation of Landlord or the Project; (iv) deceive or defraud the public; or
(v) increase Landlord's insurance costs. Tenant shall, within 30 days of
Landlord's invoice, pay Landlord any increased insurance premiums resulting from
Tenant's actions or the conduct of Tenant's business in the Premises.
(b) NO RECORDATION OR LIENS. Tenant shall not record this Lease (or a
memorandum thereof). Tenant shall not in any way encumber any interest in the
Premises or the Project, and shall cause any liens arising from acts or
omissions of, or due to a Claim against, a Tenant Party to be discharged(55) by
payment, bonding or otherwise. If Tenant fails to timely discharge any such
lien, Landlord may, without further notice to Tenant, discharge such lien in any
reasonable manner determined by Landlord on Tenant's behalf and at Tenant's
expense, payable within 30 days of Landlord's invoice.
(c) SECURITY. Tenant shall (i) take reasonable steps to secure the
Premises from unlawful intrusion, theft, fire and other hazards; (ii) keep and
maintain in good working order all ABS security devices installed in the
Premises (such as locks, smoke detectors and burglar alarms), which shall be
integrated with any other Building security systems; and (iii) cooperate with
Landlord and other tenants in the Project on security matters. Tenant
acknowledges that Landlord is not a guarantor of the security or safety of the
Tenant Parties or their property, and that such matters are the responsibility
of Tenant and the local law enforcement authorities.(56)
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(55) within 30 days after Tenant has knowledge of the lien (but in any event
prior to a suit being filed to foreclose such lien)
(56) Landlord and Tenant acknowledge that neither is responsible for the safety
and security of Tenant's employees, invitees, licensees, and contractors in the
Common Areas, and neither shall have any obligation to provide any security in
the Common Areas.
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<PAGE> 29
(d) TAXES. Tenant shall promptly pay directly to the taxing authority
all sales and/or ad valorem taxes now or hereafter levied by separate bill on
Tenant's personal property and ABS leasehold improvements. Tenant Waives all
rights under Applicable Law to protest appraised values or receive notice of
reappraisal regarding the Project (including Landlord's personalty),
irrespective of whether Landlord contests same. To the extent such Waiver is
prohibited, Tenant shall, at Landlord's election, be deemed to have appointed
Landlord as Tenant's attorney-in-fact, coupled with an interest, to appear and
take all actions which Tenant would otherwise be entitled to take under
Applicable Law(57).
(e) THIRD PARTY COMMISSIONS. Tenant represents and warrants that no
broker or agent has represented Tenant in connection with this Lease except
Grubb & Ellis Company, which is acting as Tenant's agent in connection with this
Lease. Tenant shall Indemnify and Defend each Landlord Party against any Claims
for real estate commissions or fees in connection with this Lease made by any
party(58) Claiming through Tenant.(59)
(f) ESTOPPEL LETTERS AND FINANCIAL STATEMENTS. Within(60) business days
after written request, Tenant shall execute and deliver to Landlord and/or its
designee (i) a current and complete financial statement for Tenant certified as
true and correct by Tenant's chief financial officer; and/or (ii) an estoppel
letter certifying (A) as true and correct, a copy of this Lease and any
amendments; (B) the then-effective business terms under PARAGRAPH 1; (C) whether
Landlord is in default and, if so, the nature of such default; (D) the date to
which Rent has been paid; and (E) any other matters Landlord, Landlord's
Mortgagee or any prospective purchaser may require; provided such statements are
true and accurate. Tenant's failure to timely execute and return the requested
estoppel letter(61) shall be conclusive evidence of the matters set forth
therein.
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(57) with respect to any such protest
(58) other than Grubb & Ellis Company
(59) Landlord represents and warrants that no broker or agent has represented
Landlord in connection with this Lease except Senterra Real Estate Group,
L.L.C., which is acting as Landlord's agent in connection with this Lease.
Landlord shall Indemnify and Defend each Tenant Party against any Claims for
real estate commissions or fees in connection with this Lease made by any party
Claiming through Landlord.
(60) 10
(61) as modified by Tenant to reflect current facts
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<PAGE> 30
11. REPAIRS, MAINTENANCE AND ALTERATIONS.
(a) LANDLORD'S OBLIGATIONS. Except as otherwise provided in this Lease,
Landlord shall maintain(62) the roof(63), foundation, exterior windows and
surfaces, load-bearing components of the Building and the Project Systems, the
cost of which shall be included in Operating Expenses. In addition, Landlord
shall (i) maintain wiring, ducts, conduit, plumbing or pipes necessary to extend
services from the existing Project Systems to or within the Premises and (ii)
repair damage caused by a Tenant Party to the roof, foundation, exterior windows
and surfaces, load-bearing components of the Building and the Project Systems;
and the cost of items (i) and (ii) shall(64) be separately reimbursed directly
to Landlord by Tenant in addition to EOE, within 10 days of Landlord's invoice.
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(62) , in a manner consistent with comparable office buildings in the Greenway
Plaza area of Houston, Texas, taking into account the age, size, and other
relevant maintenance factors of the Building,
(63) , structural steel, floors below the level of Tenant's floor covering
(64) , subject to the provisions of Paragraph 13(e),
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<PAGE> 31
(b) TENANT'S OBLIGATIONS. Tenant shall throughout the Term keep the
Premises and all furnishings, trade fixtures, equipment and leasehold
improvements therein in good condition and repair, including all necessary
repairs and replacements, but excluding ordinary wear and tear and damage from
casualty or condemnation. If Tenant fails to do so within 15 days after written
notice, Landlord may make the necessary repairs or replacements, and Tenant
shall reimburse Landlord therefor, plus a 15% administrative fee, within 15 days
of Landlord's invoice. Tenant shall not in any manner deface or injure any part
of the Project, and shall(65), upon demand, pay the cost (plus 15%) of
Landlord's repair and replacement of any damage or injury caused by any Tenant
Party.
(c) ALTERATIONS. No alterations or improvements to the Premises
(collectively, "ALTERATIONS") shall be made without Landlord's prior written
consent, which shall not be unreasonably withheld. However, in no event shall
(and it shall be reasonable for Landlord to withhold its consent if) any
Alterations (i) interfere with construction in progress or other tenants in the
Project; (ii) adversely affect or alter the Project Systems, structural
integrity or exterior appearance of the Building; (iii) impair Building Standard
services or require ABS services (either during or after such work)(66); (iv) be
visible from the exterior of the Premises or the Building; or (v) be permitted
if any uncured Event of Default then exists (or any condition exists which, with
the passage of time or giving of notice, would become an Event of Default). At
least 15 business days prior to commencing construction, Tenant shall furnish
complete plans and specifications for any proposed Alterations for Landlord's
review and approval. All Alterations shall be constructed at Tenant's expense in
a good and workmanlike manner, and otherwise in compliance with Applicable Law,
the Rules and Regulations, Building Standard construction criteria and
Landlord's other reasonable requirements. Tenant shall also pay a construction
management fee to Landlord equal to(67) of the contract price of all
Alterations. Tenant acknowledges that Landlord is not an architect or engineer,
and that the Alterations will be designed and/or constructed by Landlord using
independent architects, engineers and contractors. Accordingly, Landlord does
not guarantee or warrant that the applicable construction documents will comply
with Applicable Law or be free from errors or omissions, nor that the
Alterations will be free from defects, and Landlord will have no liability
therefor(68). Upon completion, Tenant shall, at its expense, provide Landlord
with "as built" plans on Landlord's CAD system (or other format requested by
Landlord). So long as Tenant otherwise complies with all provisions of this
PARAGRAPH,
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(65) , subject to the provisions of Paragraph 13(e),
(66) not normally provided by Landlord
(67) 5%
(68) ; provided however, that after written request from Tenant, Landlord, at
its election, shall either (A) pursue in a commercially reasonable manner
correction of defects and deficiencies identified in Tenant's request against
the responsible architects, engineers, and/or contractors during the applicable
warranty period or (B) assign to Tenant Landlord's warranty rights with respect
to the defects and deficiencies identified in Tenant's request
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Landlord shall not withhold its consent to minor non-structural Alterations
(collectively, "MINOR ALTERATIONS"), the aggregate cost of which does not exceed
the lesser of $10,000 or $1 per RSF in the Premises in any 12 month period.
Minor Alterations may be constructed by Tenant, so long as Landlord's approved
contractors are used, in which event no construction management fee will be
charged.(69)
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(69) The provisions of this Paragraph do not apply to the Work performed under
the Construction Agreement.
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<PAGE> 33
12. ASSIGNMENT AND SUBLETTING BY TENANT.
(a) TRANSFER. Tenant shall not, without Landlord's prior written consent
in each instance in accordance with PARAGRAPH 12(c), convey, assign or encumber
this Lease or any interest herein, directly or indirectly, voluntarily or by
operation of law, including the merger or conversion of Tenant with or into
another entity, or sublet all or any portion of the Premises, or permit the use
or occupancy of any part of the Premises by anyone other than Tenant
(collectively, "TRANSFER"). If Tenant is other than an individual, any change in
"control" of Tenant shall constitute a Transfer, and the surviving party in
control shall be the Transferee. "CONTROL" means the direct or indirect power to
direct or cause direction of the management and policies of an entity, whether
through ownership of voting securities, by contract or otherwise(70).
Conversely, Tenant shall not sublease space from, or assume the lease
obligations of, another tenant in the Project without Landlord's prior written
consent. Following any Transfer, Tenant (and any guarantors) shall remain fully
liable under this Lease, as then or thereafter amended(71) with or without
notice to or consent of Tenant (or any guarantors), and Landlord may proceed
directly under this Lease against Tenant (or any guarantor) without first
proceeding against any other party. Tenant shall give Landlord written notice of
any proposed Transfer at least 30 days prior to the anticipated effective date
of the proposed Transfer, which notice shall include a complete detailed written
description of the Transfer; the name, address, business and intended use of the
Transferee; a current audited financial statement for the Transferee certified
by a recognized accounting firm; a copy of the proposed Transfer document;
appropriate evidence of the existence, good standing and signature authority of
the Transferee in the State; and such other pertinent information as Landlord
reasonably requests, together with Landlord's then-quoted Transfer processing
fee(72). If the proposed Transferee is subject to any new requirements under
Applicable Law (including ADA), (i) Tenant shall be liable for any costs or
expenses to comply with such requirements, and (ii) to the extent such
requirements require Alterations, Tenant shall deliver for Landlord's approval
plans and specifications complying with such additional requirements and
acceptable security assuring timely, lien-free completion of construction. If
the aggregate consideration paid to Tenant for a Transfer exceeds that payable
by Tenant under this Lease (prorated according to the Transferred interest),
then Tenant shall, within 15 days after receipt, pay such excess to
Landlord(73).
(b) LANDLORD'S OPTIONS. Within 30 days after receipt of all required
Transfer information, Landlord shall give Tenant written notice of its election
(i) to consent to the Transfer; or (ii) to terminate this Lease as of the
effective date of the Transfer as to the space covered by such Transfer for the
remainder of the Term, in which event Tenant shall, subject to PARAGRAPH 18, be
relieved of its obligations accruing after the termination date with respect to
the terminated interest; or (iii)
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(70) , provided that the sale of the common stock of Tenant on a nationally
recognized stock exchange shall not constitute a change in control
(71) (except that the Tenant assignor's liability shall be determined without
giving effect to any amendments executed by the assignee without the Tenant
assignor's written consent)
(72) , which shall not exceed $1,500 during the initial portion of the Term of
this Lease.
(73) (after deducting therefrom all expenses and concessions or inducements
[excluding Tenant's internal overhead and administrative and legal expenses]
incurred or provided by Tenant in connection with such Transfer)
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<PAGE> 34
not to consent to the Transfer, in which event this Lease shall continue in full
force and effect. If Landlord fails to timely make such election, Landlord shall
be deemed to have elected option (iii) above. Any Transfer occurring without
Landlord's consent shall be void. In any event, all renewal and expansion
options and other preferential rights under this Lease are personal to the
original Tenant under this Lease and shall not be exercisable by any Transferee.
Neither Landlord's acceptance of any name for listing on the Building directory
or other signage, nor Landlord's acceptance of Rent from any Transferee, shall
be deemed, or substitute for, Landlord's consent to a Transfer.
(c) CONSENT. Landlord shall not unreasonably withhold consent to any
Transfer (other than an encumbrance of this Lease) pursuant to PARAGRAPH
12(b)(iii). Landlord shall not be deemed to have unreasonably withheld consent
if: (i) Transferee's financial condition is not reasonably satisfactory to
Landlord or does not evidence Transferee's ability to pay its obligations
(including those undertaken in connection with the Transfer) when due;(ii)
Transferee's use of the Premises conflicts with the Permitted Use or any
exclusive usage rights granted to any other tenant in the Building; (iii) the
use, nature, business, activities or reputation in the business community of
Transferee (or its principals, employees or invitees) are not(74) acceptable to
Landlord; (iv) either the Transfer or any consideration payable to Landlord in
connection therewith adversely affects the real estate investment trust (or
pension fund) qualification tests applicable to Landlord or its affiliates; (v)
an uncured Event of Default exists under this Lease (or a condition exists
which, with the passage of time or giving of notice, would become an Event of
Default); (vi) Transferee is an occupant of, or Landlord is otherwise engaged in
lease negotiations with Transferee for, other premises in the Project; (vii)
Transferee is or has been involved in a dispute or litigation with any Landlord
Party; or (viii) Transferee fails to execute Landlord's then-standard consent
form containing an assumption by Transferee of all obligations of Tenant under
this Lease accruing after the date of Transfer.
13. INDEMNITY.
(a) DEFINITIONS. The "TENANT PARTIES" are Tenant and its shareholders,
members, managers, partners, directors, officers, employees, agents,
contractors, sublessees, licensees and invitees. The "LANDLORD PARTIES" are
Landlord, the property manager, Landlord's Mortgagee(s) and any affiliates or
subsidiaries of the foregoing, and all of their respective officers, directors,
employees, shareholders, members, partners, agents and contractors. A
"BENEFICIARY" is the intended recipient of the benefits of an Indemnity, Waiver
or obligation to Defend. "CLAIMS" means all damages, losses, injuries,
penalties, costs, expenses (including attorneys' fees and expert and consulting
fees),demands, litigation, settlement payments, causes of action or judgments
incurred by a Beneficiary. "INDEMNIFY" means to protect a party against a
potential Claim and/or to compensate a party for a Claim actually incurred.
"WAIVE" means to relinquish a right and/or to release another party from
liability. "DEFEND" means to provide a competent legal defense of a Beneficiary
against a Claim with counsel reasonably acceptable (and at no cost) to the
Beneficiary. The terms "BODILY INJURY", "PROPERTY DAMAGE" and "PERSONAL INJURY"
will have the same meanings as in Insurance Services Offices ("ISO") commercial
general liability insurance form CG 0001 0196, without consideration as to any
modifications, exceptions or exclusions available for or included in such form.
(b) INDEMNITY AND WAIVER. (75)Tenant Waives as to the Landlord Parties,
and will Indemnify and Defend the Landlord Parties against, all Claims arising,
or alleged to arise, from (i) BODILY INJURY OR PERSONAL INJURY SUFFERED BY ANY
PARTY AND OCCURRING IN THE PREMISES; (ii) BODILY INJURY OR PERSONAL INJURY
CAUSED BY A TENANT PARTY AND OCCURRING OUTSIDE THE PREMISES; (iii) PROPERTY
DAMAGE SUFFERED BY ANY PARTY INSIDE THE PREMISES OR CAUSED(76) or suffered by a
Tenant Party outside the Premises, and/or (iv) CONTAMINATION.
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(74) reasonably
(75) SUBJECT TO THE LIMITATIONS CONTAINED IN THIS PARAGRAPH 13,
(76) (SUBJECT TO LANDLORD'S WAIVER IN PARAGRAPH 13(e))
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<PAGE> 35
(c) SCOPE OF INDEMNITIES AND WAIVERS. (77)Indemnities, Waivers and
obligations to Defend contained in this Lease are independent of(78), and will
not be limited by any insurance obligations in this Lease (whether or not
complied with) and will survive the Expiration Date.
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(77) EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, ALL
(78) EACH OTHER
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<PAGE> 36
(d) NEGLIGENCE OF THE BENEFICIARY. (79)Indemnities, Waivers and
obligations to Defend contained in this Lease will be enforced to the fullest
extent permitted by applicable law for the benefit of a Beneficiary thereof,
regardless of any extraordinary shifting of risks, and even if the applicable
Claim is caused by the sole, joint, concurrent or comparative negligence of a
Beneficiary, and regardless of whether liability without fault or strict
liability is imposed upon or alleged against a Beneficiary, but will not be
enforced with respect to a Beneficiary to the extent that a court of final
resort holds a Claim is caused by the willful misconduct or gross negligence of
the Beneficiary.(80)
(81) (See footnote below)
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(79) EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, ALL
(80) NOTWITHSTANDING ANYTHING IN THIS PARAGRAPH 13(d) TO THE CONTRARY, LANDLORD
WILL NOT BE REQUIRED TO INDEMNIFY A TENANT PARTY, OR TO WAIVE A CLAIM AGAINST A
TENANT PARTY FOR THE TENANT PARTY'S OWN NEGLIGENCE TO THE EXTENT THAT THE CLAIM
AGAINST THE TENANT PARTY EXCEEDS $6,000,000 OR TO THE EXTENT IT CANNOT BE
COVERED BY INSURANCE; PROVIDED HOWEVER THAT LANDLORD'S INDEMNITY AND WAIVER IN
CLAUSE 13(e)(II) SHALL NOT BE LIMITED. NOTWITHSTANDING ANYTHING IN THIS
PARAGRAPH 13(d) TO THE CONTRARY, TENANT WILL NOT BE REQUIRED TO INDEMNIFY A
LANDLORD PARTY, OR TO WAIVE A CLAIM AGAINST A LANDLORD PARTY FOR THE LANDLORD
PARTY'S OWN NEGLIGENCE TO THE EXTENT THAT THE CLAIM AGAINST THE LANDLORD PARTY
EXCEEDS $6,000,000 OR TO THE EXTENT IT CANNOT BE COVERED BY INSURANCE; PROVIDED
HOWEVER THAT TENANT'S INDEMNITY AND WAIVER IN CLAUSE 13(b)(III) WILL NOT BE
LIMITED.
(81) (e) Landlord's Indemnity and Waiver. SUBJECT TO LIMITATIONS CONTAINED
ELSEWHERE IN THIS
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<PAGE> 37
14. INSURANCE.
(a) LANDLORD'S INSURANCE. Landlord shall procure and maintain (i)
commercial general liability insurance with a combined single limit of at least
$5,000,000, and (ii) special form or all risks property insurance covering the
full replacement cost of (A) the shell and core of the Building, (B) any
fixtures and leasehold improvements Landlord is required by this Lease to
restore, and (C) any equipment and other personal property owned by Landlord and
used in connection with the Building(82).
- --------------------------------------------------------------------------------
LEASE, INCLUDING PARAGRAPH 23, LANDLORD WAIVES AS TO THE TENANT PARTIES, AND
WILL INDEMNIFY AND DEFEND THE TENANT PARTIES AGAINST, ALL CLAIMS ARISING, OR
ALLEGED TO ARISE, FROM (I) BODILY INJURY OR PERSONAL INJURY SUFFERED BY ANY
PARTY (OTHER THAN A TENANT PARTY) OCCURRING IN THE PROJECT (OTHER THAN THOSE
AREAS LEASED BY, POSSESSED BY, OCCUPIED BY, LICENSED TO, OR OTHERWISE CONTROLLED
BY ANY PERSON OTHER THAN LANDLORD) AND CAUSED BY LANDLORD OR ANY OF ITS
OFFICERS, DIRECTORS, OR EMPLOYEES, BUT NOT AS TO CLAIMS FOR WHICH THE LANDLORD
PARTIES ARE INDEMNIFIED PURSUANT TO PARAGRAPH 13(b) AND (II) PROPERTY DAMAGE
SUFFERED BY LANDLORD OUTSIDE THE PREMISES TO THE EXTENT COVERABLE BY LANDLORD'S
SPECIAL FORM OR ALL RISKS PROPERTY INSURANCE , WHETHER OR NOT SUCH INSURANCE IS
ACTUALLY MAINTAINED AS REQUIRED TO BE MAINTAINED BY LANDLORD UNDER THIS LEASE.
(82) , which special form or all risks property insurance shall contain a waiver
of subrogation in favor of the Tenant Parties, and (iii) worker's compensation
insurance
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<PAGE> 38
(b) TENANT'S INSURANCE. Tenant will procure and maintain the following
insurance coverages: (i) commercial general liability insurance on ISO Form CG
0001 0196 with the coverages described in EXHIBIT "F-1", naming the Landlord
Parties as "additional insureds" using ISO additional insured form CG 2026 1185,
without modification, and containing a waiver of subrogation in favor of
Landlord Parties and an "aggregate limits of insurance per location"
endorsement; (ii) workers' compensation and employer's liability coverage as
required by Applicable Law, with the coverages described in EXHIBIT "F-1", and
with a waiver of subrogation in favor of the Landlord Parties; (iii) "special
form" (formerly "all risks") property insurance on ISO form CP 1030 in
conformity with EXHIBIT "F-2" with no exclusions other than standard printed
exclusions,, containing an ordinance or law coverage endorsement and a waiver of
subrogation in favor of the Landlord Parties, and covering 100% replacement cost
of Tenant's furnishings, trade fixtures, equipment and inventory ("TENANT'S
FF&E") and all Non-Standard Leasehold Improvements and Alterations; and (iv)
business income and extra expense coverage for 6 months' income and ongoing
expenses with a waiver of subrogation in favor of the Landlord Parties and an
"off premises services" endorsement. If the forms of policies, endorsements,
certificates or evidence of insurance required by this Lease are not used by
Tenant's insurance carrier or are superseded or no longer available, Landlord
will have the right to require other equivalent forms(83) satisfactory to
Landlord.
(c) FORM OF POLICIES AND ADDITIONAL REQUIREMENTS. All insurance
providers will maintain ratings of Best's Insurance Guide A/VIII or Standard &
Poor Insurance Solvency Review A-, or better, and must be admitted to engage in
the business of insurance in the State. All policies must be primary and
noncontributing, with the policies of Landlord and Landlord's Mortgagees being
excess, secondary and noncontributing. No cancellation, non-renewal or material
modification will occur without 30 days' prior written notice by the insurance
carrier to Landlord and Landlord's Mortgagees. If any aggregate limit is reduced
because of losses paid to below 75% of the limit required by this Lease, Tenant
will notify Landlord in writing within 10 days of the date(84) reduction. No
policy will contain a deductible or self-insured retention in excess of $10,000
without Landlord's prior written approval. Tenant will,(85) at its expense, also
procure and maintain any other insurance Landlord's Mortgagees may reasonably
require(86).
(d) EVIDENCE OF INSURANCE. Commercial general liability and workers'
compensation insurance must be evidenced by ACORD form 25-S "Certificate of
Insurance" in the form and substance of EXHIBIT "F-1", and property and business
income insurance must be evidenced by ACORD form 27 "Evidence of Property
Insurance" in the form and substance of EXHIBIT "F-2" (collectively,
"CERTIFICATES"). The Certificates must be delivered with the executed Lease, and
new Certificates must be delivered no later than 30 days prior to expiration of
the current policies. Copies of endorsements required by this Lease must be
attached to the Certificates delivered to Landlord. If requested in writing,
Tenant will promptly deliver to Landlord a certified copy of any insurance
policies required by this Lease.
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(83) reasonably
(84) Tenant becomes aware of such reduction or potential
(85) after notice and
(86) that if not procured and maintained would put Landlord in default under its
mortgage
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<PAGE> 39
15. FIRE OR CASUALTY.
(a) NO RESTORATION. If the Premises or the Building are(87) damaged by
fire or other casualty to the extent that (i) reconstruction cannot reasonably
be completed within(88) after the date of damage, as(89) determined by
Landlord(90), (ii) more than 50% of the RSF of the Premises becomes untenantable
due to casualty damage within the last 12 months of the Term, or (iii) the
aggregate cost of reconstructing the Premises and the Building to their
condition existing immediately prior to the date of damage exceeds the insurance
proceeds made available for such purposes by Landlord's Mortgagee and Landlord
elects not to pay the difference, then either Landlord or Tenant may, by written
notice given within 90 days of such damage, terminate this Lease (91)
(b) RESTORATION. If this Lease is not so terminated(92), Landlord shall
reconstruct the Premises and/or the Building to substantially the same condition
as existed immediately prior to the date of damage, except that Landlord shall
only be required to reconstruct the Building Standard leasehold improvements
existing in the Premises on the date of damage ("LANDLORD'S CONTRIBUTION").
Tenant shall pay the difference between the total cost of reconstructing the
Premises and Landlord's Contribution ("TENANT'S CONTRIBUTION"). Prior to
Landlord's commencement of reconstruction, Tenant shall place Landlord's
estimate of Tenant's Contribution in escrow with Landlord (or furnish Landlord
with other commercially
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(87) materially
(88) 270 days
(89) reasonably
(90) and Landlord is unable to provide comparable (for the intended use)
temporary or permanent alternate space reasonably acceptable to Tenant in the
other Building, if it is undamaged
(91) Upon the completion of the restoration of the Premises, Tenant shall
immediately vacate any temporary alternate space and reoccupy the Premises.
(92) and Tenant is not permanently relocated
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<PAGE> 40
reasonable assurances of payment). Tenant shall be entitled to a fair diminution
of Base Rent(93) while and to the extent Tenant is unable to conduct its
business in the Premises(94).
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(93) based upon the pro rata portion of the Premises which is rendered unfit for
occupancy for the Permitted Use
(94) or alternate premises to which tenant is relocated
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<PAGE> 41
16. CONDEMNATION. If any portion of the Premises becomes permanently
untenantable upon condemnation (or conveyance by deed in lieu thereof) of any
portion of the Project, then either Landlord or Tenant may, by written notice
given within 60 days after the date of the taking, terminate this Lease as to
the untenantable portion of the Premises effective as of the date of the
taking.(95) If this Lease is so terminated as to only part of the Premises,
Landlord shall (a) grant a fair diminution of Base Rent; and (b) make all
repairs necessary to convert the remaining Premises to a complete architectural
and tenantable unit, but only to the extent proceeds attributable to the area
taken (based on an equitable allocation excluding any award for land) are made
available for such purpose by Landlord's Mortgagee(96). Tenant Waives the right
to assert any claim for the taking (or conveyance by deed in lieu thereof) of
any right, interest or estate under this Lease, and assigns such right to
Landlord. However, Tenant may, to the extent permitted by Applicable Law, pursue
a claim against the condemnor for its moving expenses, inconvenience and
business interruption in a proceeding independent of Landlord's condemnation
suit, so long as Landlord's award is not thereby reduced or delayed.
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(95) If any portion of the Premises becomes permanently untenantable upon
condemnation (or conveyance by deed in lieu thereof) of any portion of the
Project such that Tenant is unable to and does not conduct operations from the
Premises that are integral to the operation of its business, then Tenant may, by
written notice given to Landlord within 60 days after the date of the taking,
terminate this Lease in its entirety as of the date of such notice.
(96) , provided that if Landlord elects not to convert the remaining Premises to
a complete architectural and tenantable unit because of the lack of proceeds,
then Tenant may, by written notice given to Landlord, terminate this Lease in
its entirety as of the date of such notice.
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<PAGE> 42
17. DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. Each of the following shall be an "EVENT OF
DEFAULT" under this Lease: (i) Tenant fails to pay any monetary obligation under
this Lease when due(97); or (ii) Tenant fails to comply with any non-monetary
obligation under this Lease within 10 days after written notice or, if such
non-monetary failure is of a nature requiring more than 10 days to cure using
reasonable diligence, fails to promptly commence such cure within such 10-day
period and thereafter diligently prosecute same to completion within(98)
additional days; or (iii) the failure to dismiss any petition filed by or
against Tenant or any guarantor under the U.S. Bankruptcy Code (or similar law)
within 45 days; or (iv) the assignment of, or appointment of a receiver or
trustee for, Tenant's leasehold interest or substantially all of the assets of
Tenant or any guarantor; or (v) Tenant fails to take possession of, or
subsequently abandons or(99) vacates, the Premises; or (vi) Tenant or any
guarantor dissolves, dies, liquidates or fails to exist in good standing in the
State; or (vii) Tenant becomes or is declared insolvent according to Applicable
Law; or (viii) any(100) misrepresentation is made by Tenant or any guarantor in
connection with this Lease. In addition, Tenant's failure to comply with any
single provision of this Lease more than 2 times during any consecutive 12 month
period during the Term, regardless of cure, shall be an independent Event of
Default. Notwithstanding the notice provisions of clause (ii) above, Landlord
shall only be required to give a single informative notice of default, without
further opportunity to cure, upon the occurrence of an Event of Default arising
pursuant to the immediately preceding sentence or otherwise described in clauses
(iii) through (viii) above.
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(97) , provided that the first 2 such failures during any consecutive 12 month
period shall not be an Event of Default if Tenant pays the amount due within 5
days after written notice from Landlord
(98) 30
(99) for more than 60 days
(100) material non-verbal
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<PAGE> 43
(b) REMEDIES. Upon any Event of Default, Landlord shall have the right:
(i) to terminate this Lease as to all or any interest therein; (ii) to terminate
Tenant's right of possession of all or any part of the Premises (including any
Parking Permits attributable thereto) without terminating this Lease; (iii) to
re-enter the Premises, change or pick locks, alter security devices and lock out
or expel Tenant and any other occupant of the Premises without complying with
Applicable Law(101), the benefits of which are Waived by Tenant to the fullest
extent permitted; (iv) to remove and store, at Tenant's expense, all property in
the Premises using such lawful force as may be necessary; (v) to apply any
Security Deposit as permitted under this Lease; (vi) to cure such Event of
Default for Tenant at Tenant's expense (plus a 15% administrative fee); (vii) to
withhold or suspend payment of sums Landlord would otherwise be obligated to pay
to Tenant under this Lease, as amended; and/or (viii) to require all future
payments to be made by cashier's check or money order after the(102) time any
check is returned for insufficient funds, or the second time any sum due
hereunder is more than 5 days late. In addition, Landlord may, without regard to
any notice or cure provision and whether or not an Event of Default exists, (A)
impose a late charge of(103) on any amount not paid within 5 days after becoming
due or(104) on any amount not paid within 10 days after becoming due and (B)
charge interest on any amount not paid when due from the due date through the
date of payment at the "DEFAULT RATE", which is the lesser of 18% per annum or
the highest interest rate permitted by Applicable Law. TO THE FULLEST EXTENT
PROVIDED BY PARAGRAPH 13, TENANT SHALL INDEMNIFY AND DEFEND LANDLORD PARTIES
AGAINST CLAIMS(105) any breach of Tenant's obligations under this Lease.
(c) ELECTION OF REMEDIES. Landlord may exercise the foregoing rights and
remedies, as well as any other rights or remedies available under Applicable
Law, without (i) judicial process; (ii) further notice to Tenant(106); (iii)
incurring liability of any kind to Tenant, including liability for trespass or
conversion; (iv) constituting an eviction of Tenant; (v) releasing Tenant or any
guarantor from any obligation under this Lease; (vi) waiting until the
Expiration Date; or (vii) prejudicing any other right or remedy of Landlord. All
such rights and remedies, together with any rights and remedies available under
Applicable Law, are cumulative with no exercise of any one or more of them
prohibiting or waiving the exercise of any other. Landlord may, at any time
after terminating Tenant's right to possess the Premises without terminating
this Lease, elect to terminate this Lease and thereupon pursue any and all other
rights and remedies otherwise available upon such latter election.
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(101) , but not in breach of the peace
(102) second
(103) 5%
(104) 10%
(105) OF THIRD PARTIES IN CONNECTION WITH
(106) except as provided in this Lease
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<PAGE> 44
(d) MEASURE OF DAMAGES. If Landlord either terminates this Lease or
terminates Tenant's right to possess the Premises without terminating this
Lease, Tenant shall immediately surrender and vacate the Premises and pay
Landlord (i) the cost of recovering the Premises; (ii) all Rent accrued through
the end of the month in which the termination becomes effective; (iii) all
expenses reasonably incurred by Landlord in enforcing its rights and remedies
under this Lease, including attorneys' fees, court costs and interest at the
Default Rate; (iv) "LANDLORD'S RELETTING EXPENSES" equal to commercially
reasonable costs, losses and expenses incurred by Landlord in reletting all or
any portion of the Premises, including the cost of removing and storing Tenant's
FF&E or other property, repairing and/or demolishing the Premises, removing
and/or replacing Tenant's signage and other fixtures, making the Premises ready
for a new tenant, including the cost of advertising, commissions, architectural
fees and leasehold improvements (even if amortized over a new lease term which
exceeds the balance of the Term), and any allowances and/or concessions provided
by Landlord; and (v) "LANDLORD'S RENTAL DAMAGES" equal to the amount (never less
than zero) by which (A) the total Rent payable by Tenant for the portion of the
Term that is or would be remaining after the month in which the termination
becomes effective exceeds (B) the Fair Rental Value of the Premises for such
period. In calculating Landlord's Rental Damages, each monthly payment of Rent
and Fair Rental Value shall be discounted at the Prime Rate from its respective
due date to its present value as of the date of termination. The "FAIR RENTAL
VALUE" is the total rental that would be received from a comparable tenant for a
comparable lease of premises in the(107) Building of equivalent quality, size,
condition, remaining lease term and location as the Premises, taking into
account rental rates and concessions then generally prevailing in the market
place, the period of time the Premises are reasonably expected to remain vacant
before commencement of rental payments by a suitable new tenant, and all other
relevant factors. If any portion of the Premises is relet, the Fair Rental Value
for such relet portion shall be calculated based upon the rental receivable by
Landlord for the applicable reletting term. The "PRIME RATE" is the "prime" rate
then published by Citibank, N.A., its successors or assigns, or another major
financial institution selected by Landlord. Until the earlier of the termination
of this Lease or the final determination of all damages under this Lease, all
Rent payable under this Lease shall continue to accrue and be payable when due
during the Term. Once the aggregate amount of damages is determined as provided
above, the unpaid balance, if any, shall thereafter accrue interest at the
Default Rate until paid in full.
(e) MITIGATION OF DAMAGES. Upon termination of Tenant's right to possess
the Premises, Landlord shall, to the extent required by Applicable Law (and no
further), use objectively reasonable efforts to mitigate damages by reletting
the Premises. Landlord shall not be deemed to have failed to do so if Landlord
refuses to lease the Premises to a prospective new tenant with respect to whom
Landlord would be entitled to withhold its consent pursuant to PARAGRAPH 12(c),
or who (i) is an affiliate, parent or subsidiary of Tenant; (ii) is not
acceptable to Landlord's Mortgagee(s); (iii) requires improvements to the
Premises to be made at Landlord's expense; or (iv) is unwilling to accept lease
terms then proposed by Landlord, including: (A) leasing for a shorter or longer
term than remains under this Lease, (B) re-configuring or combining the Premises
with other space, (C) taking all or only a part of the Premises, and/or (D)
changing the use of the Premises.
(f) ATTORNEYS' FEES. In any dispute regarding this Lease, the prevailing
party shall be entitled to recover reasonable attorneys' fees, court costs and
expenses from the other party.
(g) FORCE MAJEURE. Time is of the essence. If either party is unable to
perform any obligation under this Lease due to unavailability of materials or
equipment, strikes or other labor difficulties, governmental restrictions,
casualties or other causes beyond such party's reasonable control, such
obligation shall be stayed for the duration of such condition. This Paragraph
shall not affect or postpone the payment of Rent or other amounts due, except as
otherwise expressly provided in the attached Construction Agreement (if any).
- -----------------------
(107) applicable
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<PAGE> 45
(h) LANDLORD'S LIEN. To secure Tenant's obligations under this Lease,
Tenant grants Landlord a contractual security interest on all of Tenant's
FF&E(108) now or hereafter situated in the Premises and all proceeds therefrom,
including insurance proceeds (collectively, "COLLATERAL"). No Collateral shall
be removed from the Premises without Landlord's prior written consent until all
of Tenant's obligations are fully satisfied (except in the ordinary course of
business and then only if replaced with items of same value and quality). Upon
any Event of Default, Landlord may, to the fullest extent permitted by
Applicable Law and in addition to any other remedies provided herein, enter upon
the Premises and take possession of any Collateral without being held liable for
trespass or conversion, and sell the same at public or private sale, after
giving Tenant at least 5 days written notice (or more if required by Applicable
Law) of the time and place of such sale. Such notice may be sent with or without
return receipt requested. Unless prohibited by Applicable Law, any Landlord
Party may purchase any Collateral at such sale. The proceeds from such sale,
less Landlord's expenses, including reasonable attorneys' fees and other
expenses, shall be credited against Tenant's obligations. Any surplus shall be
paid to Tenant (or as otherwise required by Applicable Law) and any deficiency
shall be paid by Tenant to Landlord upon demand. Upon request, Tenant shall
execute and deliver to Landlord a financing statement sufficient to perfect the
foregoing security interest or Landlord may file a copy of this Lease as a
financing statement, as permitted under Applicable Law.(109)
18. END OF TERM.
(a) SURRENDER. Upon the earlier of the Expiration Date or Landlord's
termination of Tenant's right of possession of the Premises, Tenant shall
peaceably surrender(110) the Premises (including all Alterations and leasehold
improvements) to Landlord, vacuum-clean, free of debris and in the same
condition existing as of the(111) Commencement Date(112), subject to ordinary
wear and tear and except for damage due to casualty and condemnation.
(b) REMOVAL OF IMPROVEMENTS AND TENANT'S PROPERTY. Upon the earlier of
the Expiration Date or Landlord's termination of Tenant's right of possession of
the Premises pursuant to PARAGRAPH 17(b), and except as otherwise expressly
provided in writing by Landlord at the time of installation, (i) all leasehold
improvements and Alterations installed in the Premises, including all built-in
fixtures and cabling, shall become Landlord's property; and (ii) provided there
is no uncured Event of Default, Tenant shall, at its expense, immediately remove
all of Tenant's FF&E from the Premises. However, except as otherwise expressly
provided in writing by Landlord at the time of installation, Landlord may, at
Tenant's expense, remove from the Premises (or require to be removed by Tenant
or an approved third party contractor) any or all Alterations, cabling and/or
ABS leasehold improvements(113). Tenant shall, within 30 days after Landlord's
invoice, reimburse Landlord for the cost to restore the Premises(114) and
otherwise repair any damage caused by any of the foregoing removal work. All of
Tenant's
- -----------------
(108) (other than inventory)
(109) Landlord waives its statutory landlord's lien with respect to Tenant's
inventory.
(110) all portions of
(111) applicable
(112) for each portion of the Premises
(113) installed by or for Tenant, including, without limitation, the Work.
Landlord acknowledges that Tenant shall not be required to remove the vault that
is currently located in the Five Greenway Vault Premises
(114) to the condition required under this Lease
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<PAGE> 46
foregoing obligations shall survive the Expiration Date. If Tenant's FF&E is not
timely removed, Landlord may, upon 10 days written notice to Tenant's address
(which notice Tenant agrees shall be deemed "reasonable"), and to the fullest
extent permitted by Applicable Law: (i) treat such property as abandoned by
Tenant with full rights of ownership in Landlord; (ii) remove and store such
property at Tenant's expense with reimbursement by Tenant to Landlord upon
demand; and/or (iii) sell or dispose of such property without delivering any
proceeds to Tenant. Tenant Waives all Claims against the Landlord Parties
arising from any right available to Tenant under Applicable Law restricting
Landlord's foregoing rights, and the right to assert any Claim against Landlord
for the value or use of any property abandoned by Tenant in the Premises.
(c) HOLD OVER. If any Tenant Party remains in possession of the Premises after
the Expiration Date, whether or not with Landlord's consent but without
executing a new lease ("HOLD OVER"), the Term shall not be extended, nor shall
any rights or remedies of Landlord be adversely affected, even if Landlord
thereafter accepts Rent. Instead, during the Hold Over, Tenant shall be deemed a
tenant at sufferance (and not a tenant at will or month-to-month tenant) subject
to all provisions of this Lease except that Base Rent and all amounts payable to
Landlord under PARAGRAPH 7 shall be double the greater of (i) the amount payable
during the last month of the Term, or (ii) Landlord's then-quoted rental rate
for comparable space in the Project(115). Either party may terminate the Hold
Over immediately upon written notice. Tenant shall pay Landlord all damages
incurred by reason of any Hold Over.
19. NOTICES. All notices shall be delivered by hand, reputable overnight courier
or certified mail (return receipt requested), postage prepaid, or by facsimile,
to Landlord at the Addresses for Notice specified in the Business Points (or
such other addresses specified in writing to Tenant); and to Tenant at the
appropriate address specified in the Business Points. Notice shall be deemed
given upon the date of confirmed receipt, if sent by hand, or the next business
day after the date sent, if sent by post, overnight courier or
electronically-confirmed facsimile, except that a change of address notice shall
be effective 5 business days after actual receipt. Notices to Tenant addressed
to the Premises may be made by posting on the entrance door of the
Premises(116).
20. LANDLORD'S FINANCING. This Lease is subordinate to all liens, encumbrances,
easements, deeds of trust and ground leases now or hereafter encumbering the
Building, and all refinancings, replacements, modifications, extensions or
consolidations thereof. Tenant shall attorn to any mortgagee, ground lessor,
trustee under a deed of trust or purchaser at a foreclosure or trustee's sale
("LANDLORD'S MORTGAGEE") as "Landlord" under this Lease. Tenant shall,
within(117) business days after Landlord's request, execute and deliver to
Landlord in recordable form whatever true and correct instruments may be
required to evidence such subordination and attornment. If Tenant fails to
execute and deliver such instrument as required, the statements therein shall be
deemed to be true. Landlord's Mortgagee may at any time subordinate its lien to
this Lease by unilaterally executing a subordinating instrument. Tenant shall
not exercise any right or remedy under this Lease or at law or in equity unless
(a) Tenant gives written notice to Landlord and Landlord's Mortgagee (whose name
and address shall be provided upon request) specifying the exact nature of the
alleged breach and how it may be remedied; and (b) both Landlord and Landlord's
Mortgagee fail to cure same within 30 days after receipt of Tenant's notice
(plus such additional time as Landlord's Mortgagee may(118) require).(119)
- ---------------
(115); provided however, so long as no uncured Event of Default exists under
this Lease, the Base Rent and all amounts payable to Landlord under Paragraph 7
for the first 30 days of any such Hold Over shall be increased to only 150% of
such greater amount
(116) , if allowed by Applicable Law
(117) 10
(118) reasonably
(119) The current address for the mortgagee of the Building is c/o AEGON USA
Realty Advisors, Inc., 4333 Edward Road, N.E., Cedar Rapids, Iowa 52499-5443,
Attn: Director-Mortgage Loan Servicing. Landlord shall use commercially
reasonable efforts, at Tenant's costs, to obtain Landlord's Mortgagee's current
form of subordination, non-disturbance, and attornment agreement for the benefit
of Tenant.
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<PAGE> 47
21. RIGHTS RESERVED BY LANDLORD. Landlord (and its designated agents,
contractors and managers) shall have the following rights:
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<PAGE> 48
(a) ACCESS TO THE PREMISES. To enter the Premises upon reasonable notice
(except in emergencies, when no notice is required) for purposes of (i)
inspection; (ii) making repairs, additions, improvements or alterations to the
Premises, any adjoining space or the Building as permitted or required under
this Lease or as Landlord elects; (iii) confirming Tenant's compliance with this
Lease; and (iv) exhibiting the Premises to prospective purchasers, mortgagees
or(120) tenants. During each entry, Landlord shall use reasonable good faith
efforts to minimize interference with Tenant's use of the Premises. In no(121)
event shall Tenant be deemed constructively evicted nor entitled to any
abatement of Rent. Landlord shall at all times retain a mechanical or card key
to all doors in or about the Premises, except Tenant's vaults, safes and other
portions of the Premises reasonably designated by Tenant in writing as "secure
areas" (to which Landlord shall not be required to provide Building Standard
maintenance or janitorial services). In emergencies or if otherwise required to
comply with this Lease, Landlord shall have the right to use any and all means
necessary to open any doors, including doors to any designated secure areas, as
may be reasonably necessary under the circumstances. Landlord may erect
scaffolding and other structures where reasonably required by the character of
the work.
(b) PROJECT MODIFICATIONS. (122)alter, decorate and repair or construct
new improvements upon the Project or any adjacent property, structurally or
otherwise, as determined by Landlord in its sole discretion, including changing
the arrangement, location and/or size of entrances, passageways, doorways,
corridors, elevators, stairs, restrooms and other public components, and to
place, inspect, repair and replace in the Premises (below floors, above ceilings
or next to columns) any utilities, pipes, cables or similar equipment serving
areas outside the Premises, or to rename the Project.
(c) OTHER RIGHTS. To take such other(123) measures Landlord deems
necessary or advisable for the ongoing operation, management, maintenance,
repair and protection of the Project. Tenant shall fully cooperate with all of
such further measures undertaken by Landlord.
- --------------------
(120) during the last 9 months of the Term
(121) such
(122) Without unreasonably interrupting Tenant's business given the
circumstances, to
(123) reasonable
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<PAGE> 49
22. HAZARDOUS MATERIALS.
(a) DEFINITIONS. A "HAZARDOUS MATERIAL" is any substance (i) the
presence of which requires, or may hereafter require, notification,
investigation or remediation under Applicable Law; or (ii) which is now or
hereafter defined, listed or regulated by any governmental authority as a
"hazardous waste", "extremely hazardous waste", "solid waste", "toxic
substance", "hazardous substance", "hazardous material" or "regulated
substance", or otherwise regulated under Applicable Law. "CONTAMINATION" means
any release or disposal of a Hazardous Material(124) in, on, under, at or from
the Premises or the Project which may result in any liability, fine, use
restriction, cost recovery lien, remediation requirement or other government or
private party action or imposition affecting any Landlord Party. For purposes of
this Lease, Claims arising from Contamination shall include diminution in value,
restrictions on use, adverse impact on leasing space, and all costs of site
investigation, remediation, removal and restoration work, including response
costs under CERCLA and similar statutes.
(b) RESTRICTIONS. No Hazardous Material (except for de minimis
quantities of household cleaning products and office supplies used in the
ordinary course of Tenant's business at the Premises and that are used, kept and
disposed of in compliance with Applicable Law) shall be brought upon, used, kept
or disposed of in or about the Premises or the Project by any Tenant Party
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion. Tenant's request for such consent shall
include a representation and warranty by Tenant that the Hazardous Material in
question (i) is necessary in the ordinary course of Tenant's business ,and (ii)
shall be used, kept and disposed of in compliance with Applicable Law.
(c) REMEDIATION. If Contamination occurs as a result of an act or
omission of a Tenant Party, Tenant shall, at its expense, promptly take all
actions necessary to comply with Applicable Law and to return the Premises, the
Project and/or any adjoining or affected property to its condition prior to such
Contamination, subject to Landlord's prior written approval of Tenant's proposed
methods, times and procedures for remediation. Tenant shall provide Landlord
reasonably satisfactory evidence that such actions shall not adversely affect
any Landlord Party or Contaminated property. Landlord may require that a
representative of Landlord be present during any such actions and/or that such
actions be taken after business hours. If Tenant fails to take and diligently
prosecute any necessary remediation actions within 30 days after written notice
from Landlord or an authorized governmental agency (or any shorter period
required by any governmental agency), Landlord may take such actions and Tenant
shall reimburse Landlord therefor, plus a 15% administrative fee, within 30 days
of Landlord's invoice.
- ---------------
(124) occurring as a result of an act or omission of a Tenant Party
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<PAGE> 50
(125) (See footnote below)
23. LANDLORD'S INTEREST.
(a) LANDLORD'S LIABILITY. Landlord's liability for failure to perform
its obligations under this Lease shall be recoverable solely out of proceeds
from judicial sale upon execution and levy made against Landlord's interest in
the Building. Except as provided in the preceding sentence, Tenant Waives (i)
all other rights of recovery against any Landlord Party; and (ii) all Claims
against any Landlord Party and Landlord's Mortgagee for consequential, special
or punitive damages allegedly suffered by any Tenant Party, including lost
profits and business interruption. No Landlord Party shall have any personal
liability under this Lease.
(b) CONVEYANCE. Landlord may convey any or all of its interest in this
Lease or the Project at any time. The term "Landlord" means only the owner of
the Landlord's interest in this Lease at the time in question. Immediately upon
conveyance by Landlord of such interest, the conveying party shall be released
from all obligations of "Landlord" thereafter arising under this Lease, and
Tenant shall attorn and look solely to the new Landlord for performance of such
obligations. Upon conveyance, the balance of any Security Deposit shall be
delivered to the new Landlord and Tenant shall thereafter look solely to the new
Landlord for application or return.
- --------------------
(125) (d) Landlord's Disclosure.
(i) The Five Greenway Building. Spray-on fireproofing
that contained varying amounts of asbestos was used in the original
construction of the Five Greenway Building including the portions of
the Premises in the Five Greenway Building. Tenant acknowledges that
asbestos-containing fireproofing exists, and will not be removed, from
the plenum above the Five Greenway Vault Premises and a portion of the
Five Greenway Storage Premises. In other portions of the Five Greenway
Building where such asbestos-containing fireproofing still exists, the
ambient air is monitored periodically (but not less frequently than
annually) in accordance with EPA guidelines. The results of the air
quality tests have been and continue to be below the levels set by the
EPA and are a matter of record in the property manager's office.
(ii) The 3800 Buffalo Building. Asbestos containing
materials exist in the mechanical rooms on the 1st and 2nd floors of
the 3800 Buffalo Building and in the roofing materials of the 3800
Buffalo Building.
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<PAGE> 51
24. EXECUTION AND SIGNING AUTHORITY. Draft documents submitted for review do not
convey any right to Tenant in the Premises or other space. This Lease shall
become effective only upon full execution and delivery by all parties. This
Lease may be executed in counterparts, each of which shall be an original and
all of which shall be one and the same instrument. Each party and its counsel
have reviewed and revised this Lease after arms-length negotiations.
Accordingly, the rule of construction that ambiguities are resolved against the
drafting party shall not apply to this Lease or any amendments hereof. This
Lease shall bind and inure to the benefit of the parties and their respective
heirs, executors, administrators, successors and permitted Transferees, unless
otherwise expressly set forth herein. Each individual person or entity executing
this Lease as Tenant shall be jointly and severally bound and liable as Tenant
under this Lease. If Tenant is a legal entity, each person signing this Lease
for Tenant represents and warrants to Landlord (who reserves the right to
request satisfactory evidence) that he is authorized to do so without further
signature or authorization from such legal entity; that this Lease is fully
binding on Tenant; and that Tenant is qualified to do business in the
State.(126) Except as otherwise expressly provided in this Lease, no beneficial
rights are given to any third parties by or under this Lease.
25. QUIET ENJOYMENT. So long as no Event of Default exists, Tenant shall have
the right to occupy the Premises without hindrance from Landlord or any person
lawfully claiming through Landlord, subject to the terms of this Lease, all
superior mortgages, ground leases, deeds of trust, insurance requirements and
Applicable Law.
- --------------------
(126) Each person signing this Lease for Landlord represents and warrants to
Tenant that she is authorized to do so without further signature or
authorization from such legal entity; that this Lease is fully binding on
Landlord; and that Landlord is qualified to do business in the State.
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<PAGE> 52
26. ADDITIONAL PROVISIONS.
(a) MOVE-IN. UNLESS TENANT MOVES-IN PRIOR TO SUBSTANTIAL COMPLETION, THE
PREMISES WILL BE THOROUGHLY CLEANED, AT LANDLORD'S SOLE COST AND EXPENSE, PRIOR
TO TENANT'S MOVE-IN. TENANT SHALL NOT BE CHARGED FOR ELECTRICITY, HVAC,
INSURANCE, AND TAXES PRIOR TO ITS MOVE-IN.
(b) CURRENT ACCESS, PATROLS, AND SURVEILLANCE. AFTER HOURS ACCESS TO THE
BUILDING IS CURRENTLY PROVIDED BY CARD KEY ACCESS. PATROLS BY VEHICLE AND ON
FOOT CURRENTLY HAPPEN BETWEEN 7:00 P.M. AND 6:00 A.M. MONDAY THROUGH FRIDAY AND
ALL DAY ON SATURDAY AND SUNDAY. ALSO, CLOSED CIRCUIT TELEVISION IS MONITORED AND
TAPED AT PERIMETER LOCATIONS. LANDLORD PROVIDES THESE SERVICES AS A COURTESY
ONLY AND RESERVES THE RIGHT TO CHANGE OR DISCONTINUE THESE SERVICES AS IT DEEMS
APPROPRIATE, IN ITS SOLE DISCRETION. TENANT (i) STATES TO LANDLORD THAT IT IS
NOT RELYING ON THESE SERVICES, (ii) ACKNOWLEDGES THAT LANDLORD IS NOT
CONTRACTUALLY OBLIGATED TO PROVIDE ANY SECURITY SERVICES TO TENANT OR ANY TENANT
PARTY, AND (iii) ACKNOWLEDGES THAT TENANT IS RESPONSIBLE FOR SECURITY OF THE
PREMISES AS SPECIFIED IN PARAGRAPH 10(c).
ACCORDINGLY, the parties execute and deliver this Lease as of the Date
of Lease.
LANDLORD:
CRESCENT REAL ESTATE FUNDING III, L.P.,
a Delaware limited partnership
By: CRE Management III, Corp., a Delaware
corporation, its General Partner
By: /s/ JANE B. PAGE
-------------------------------------
Jane B. Page, Vice President
Houston Region--Asset Management
SPECIAL NOTICE: THIS LEASE CONTAINS WAIVERS AND INDEMNITIES WHICH MAY MATERIALLY
AFFECT TENANT'S RIGHTS AND REMEDIES UNDER APPLICABLE LAW REGARDING THIS LEASE,
INCLUDING "EXPRESS NEGLIGENCE" PROVISIONS IN PARAGRAPH 13.
TENANT:
ASHFORD.COM, INC.,
a Delaware corporation
By: /s/ JAMES WHITCOMB
-------------------------------------
Name: James Whitcomb
--------------------------------
Title: President
-------------------------------
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<PAGE> 53
EXHIBIT "A"
LEGAL DESCRIPTION OF THE PROJECT
THE LAND IS COMPRISED OF TWO TRACTS WHICH ARE DESCRIBED AS FOLLOWS:
TRACT 1:
Being a tract or parcel of land containing 33.431 acres out of the A.C. Reynolds
League, Abstract 61, Harris County, Texas, with said tract including all of
Greenway Plaza, Section 1, of record per the map recorded in Volume 127, Page
71, Harris County Map Records, and being more particularly described by metes
and bounds as follows, basing all bearings and distances on an unrecorded plat
entitled Composite Map of Greenway Plaza, prepared by Turner, Collie and Braden,
Inc., dated May 1971, revised September 18, 1972, July 19 and August 3, 1973:
COMMENCING at the southwest corner of the intersection of Richmond Avenue (120
feet wide) and Buffalo Speedway (100 feet wide), said intersection being a point
on a curve to the left;
THENCE, 509.49 feet southwesterly along the arc of said curve and the southerly
right-of-way line of said Richmond Avenue (Delta Angle = 6(degree)53'23", Radius
= 4237.18 feet, Chord = South 79(degree)26'34" West, 509.21 feet) to the
northwest corner of the tract of land conveyed to Texas Investment Builders
Company per the deed recorded in Volume 5044, Page 560, Harris County Deed
Records and the POINT OF BEGINNING of the tract herein described;
THENCE, South 09(degree)53'00" East, along the westerly line of said Texas
Investment Builders Company tract, and the westerly line of an additional tract
conveyed to said Texas Investment Builders Company per the deed recorded in
Volume 6164, Page 422 of said Deed Records a distance of 224.00 feet to the
southwest corner of last mentioned deed;
THENCE, North 80(degree)07'00" East, 250.00 feet along the southerly line of
said deed recorded in Volume 6164, Page 422, to an intersect with the westerly
line of the tract of land conveyed to Greenway Bank and Trust per the deed
recorded in Volume 6051, Page 610 of said Deed Records;
THENCE, South 09(degree)53'00" East along the westerly line of said Greenway
Bank and Trust tract and the tract conveyed to Buffalo Tower Company per the
deed recorded in Volume 6652, Page 369 of said Deed Records, at 115.41 feet pass
the common corner to said tracts, a total distance of 323.25 feet to the
southwest corner of said Buffalo Tower Company tract;
THENCE, along the southerly boundary of said tract recorded in Volume 6652, Page
369 the following four courses:
A-i
<PAGE> 54
North 80(degree)07'00" East, 163.22 feet;
North 74(degree)22'39" East, 100.00 feet;
North 80(degree)07'00" East, 54.00 feet;
North 32(degree)20'38" East, 13.37 feet to an intersect with the
westerly right-of-way line of said Buffalo Speedway, said intersect
being a point on a non-tangent curve to the right;
THENCE, 358.32 feet southeasterly along the arc of said curve and westerly
right-of-way line of Buffalo Speedway (Delta Angle = 03(degree)36'53", Radius =
5679.65 feet, Chord = South 13(degree)59'45" East, 358.26 feet) to the
northeasterly corner of the tract conveyed to The First City National Bank,
trustee, per the deed recorded in Volume 6327, Page 156 of said Deed Records;
THENCE, departing said Buffalo Speedway right-of-way, South 80(degree)07'00"
West, 262.89 feet to the northwest corner of said First City National Bank
tract;
THENCE, South 09(degree)53'00" East, 370.00 feet to the southwest corner of said
First City National Bank tract and an intersect with the northerly right-of-way
line of U.S. 59, Southwest Freeway (varying width);
THENCE, South 80(degree)07'00" West, 781.45 feet along the northerly line of
said Freeway to the beginning of a tangent curve to the right;
THENCE, 514.43 feet westerly along the arc of said curve and northerly Freeway
right-of-way line (Delta Angle = 05(degree)10'22", Radius = 5698.09 feet, Chord
= South 82(degree)42'11" West, 514.26 feet) to an intersect with the southerly
cut-back corner of the easterly right-of-way line of Edloe Street (varying
width);
THENCE, North 47(degree)18'03" West, 20.33 feet along said cut-back and easterly
right-of-way line of Edloe Street;
THENCE, continuing along said Edloe Street right-of-way line, North
00(degree)02'00" East, 1149.87 feet to an intersect with the southerly
right-of-way line of said Richmond Avenue, said intersect being a point on a
non-tangent curve to the left;
THENCE, 381.81 feet easterly along the arc of said curve and Richmond Avenue
right-of-way line (Delta Angle = 05(degree)38'18", Radius = 3879.72 feet,
Chord = North 74(degree)34'09" East, 381.64 feet);
THENCE, continuing along said Richmond Avenue right-of-way line and tangent to
said curve, North 71(degree)45'00" East, 79.75 feet to the beginning of a
tangent curve to the right;
THENCE, 314.16 feet easterly along the arc of said curve and Richmond Avenue
right-of-way line (Delta Angle = 04(degree)14'53", Radius = 4237.18 feet, Chord
= North 73(degree)52'26" East, 314.08 feet) to the POINT OF BEGINNING,
containing a computed area of 33.431 acres of land.
A-ii
<PAGE> 55
TRACT 2:
Being a tract of land out of the A.C. Reynolds Survey, Abstract No. 61, Harris
County, Texas, with said tract being more particularly described as follows:
Being all of the land bounded on the west by the east right-of-way line of
Timmons Lane, bounded on the east by the west right-of-way line of Edloe Street,
on the south by the north right-of-way line of Norfolk Street and bounded on the
north by a line that is 225 feet, more or less, north of the north right-of-way
line of Colquitt Street, SAVE AND EXCEPT streets and easements dedicated for
public use and that 20,590 square foot tract conveyed to Maxims, Inc. by Special
Warranty Deed from Nine Greenway Venture dated December 18, 1980 filed in the
Official Public Records of Real Property of Harris County, Texas on January 12,
1981 under film code number ###-##-####.
A-iii
<PAGE> 56
EXHIBIT "B"
FLOOR PLAN OF PREMISES
[To be attached]
B-i
<PAGE> 57
EXHIBIT "C"
CONSTRUCTION AGREEMENT
This Construction Agreement is attached as an Exhibit to an Office Lease
(the "LEASE") between CRESCENT REAL ESTATE FUNDING III, L.P., as Landlord, and
ASHFORD.COM, INC., as Tenant, for approximately 61,092 RSF of Premises on the
4th floor of the 3800 Buffalo Speedway and on the basement and concourse levels
of Five Greenway Plaza, Houston, Texas. Unless otherwise specified, all
capitalized terms used in this Construction Agreement shall have the same
meanings as in the Lease.
1. APPROVED CONSTRUCTION DOCUMENTS.
(a) Tenant's Information. Tenant has submitted to Landlord all
information necessary for the preparation of complete, detailed architectural,
mechanical, electrical and plumbing drawings and specifications for construction
of the Work (as defined below) in the Premises, including Tenant's partition and
furniture layout, reflected ceiling, telephone and electrical outlets and
equipment rooms, initial Provider(s) of telecommunications services, doors
(including hardware and keying schedule), glass partitions, windows, critical
dimensions, structural loads, millwork, finish schedules, and HVAC and
electrical requirements, together with all supporting information and delivery
schedules ("TENANT'S INFORMATION").
(b) Construction Documents. Within 10 business days following Landlord's
execution of the Lease and receipt of Tenant's Information, Landlord's
designated architectural/engineering firm shall prepare and submit to Tenant all
finished and detailed architectural drawings and specifications, including
mechanical, electrical and plumbing drawings (the "CONSTRUCTION DOCUMENTS"). In
addition, Landlord shall advise Tenant of the number of days of Tenant Delay (as
defined below) attributable to extraordinary requirements (if any) contained in
Tenant's Information.
(c) Approved Construction Documents. Within 3 business days after
receipt, Tenant shall (i) approve and return the Construction Documents to
Landlord, or (ii) provide Landlord Tenant's written requested changes to the
Construction Documents, in which event Landlord shall have the Construction
Documents revised (as Landlord reasonably deems appropriate) and resubmitted to
Tenant for approval within 3 business days after receipt. If Tenant fails to
provide Landlord Tenant's written requested changes within the applicable 3
business day period, Tenant shall be deemed to have approved the Construction
Documents. Upon Tenant's approval, the Construction Documents shall become the
"APPROVED CONSTRUCTION DOCUMENTS".
2. PRICING AND BIDS.
(a) Estimates. Following receipt of the Approved Construction Documents,
Landlord will promptly price the construction of the Work in accordance with the
Approved Construction Documents and furnish written price estimates (based on
the bids for the construction of the Work) to Tenant.
(b) Approved Pricing. Upon receipt, Tenant shall promptly review such
estimates and complete negotiations with Landlord for any changes or adjustments
thereto. Within 5 days after such receipt, Tenant shall return the estimates
with written approval to Landlord.
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(c) Competitive Bids. After Tenant's written request which must be
submitted with the Approved Construction Documents, Landlord shall seek 3
competitive bids from third-party general contractors from Landlord's approved
bidding list. Only subcontractors from Landlord's approved subcontractor list
shall be allowed to work on the mechanical, electrical and plumbing components
of the Building. Tenant shall be invited to the bid opening and allowed to
participate in the selection of the successful bidder; provided Landlord shall
make the final selection of the general contractor.
3. LANDLORD'S CONTRIBUTIONS.
(a) Construction Allowance.
(i) 3800 Buffalo Premises. Landlord will contribute a sum (the
"3800 BUFFALO CONSTRUCTION ALLOWANCE") not to exceed $8.00 per RSF in the
Original 3800 Buffalo Premises and the Additional 3800 Buffalo Premises, toward
the cost of constructing the Work in accordance with this Construction Agreement
in connection with the Original 3800 Buffalo Premises and the Additional 3800
Buffalo Premises.
(ii) Five Greenway Vault Premises. Landlord will contribute a
sum (the "FIVE GREENWAY VAULT CONSTRUCTION ALLOWANCE") not to exceed $6.00 per
RSF in the Five Greenway Vault Premises, toward the cost of constructing the
Work in accordance with this Construction Agreement in connection with the Five
Greenway Vault Premises.
(iii) Five Greenway Storage Premises. Landlord will contribute
a sum (the "FIVE GREENWAY STORAGE CONSTRUCTION ALLOWANCE") not to exceed $3.00
per RSF in the Five Greenway Storage Premises and the Additional Five Greenway
Storage Premises, toward the cost of constructing the Work in accordance with
this Construction Agreement in connection with the Five Greenway Storage
Premises.
(iv) General. The 3800 Buffalo Construction Allowance, the Five
Greenway Vault Construction Allowance, and the Five Greenway Storage
Construction Allowance are collectively referred to as the "CONSTRUCTION
ALLOWANCE". Payments shall be made directly to Landlord's contractor performing
the Work. The cost of (i) all space planning, design, consulting or review
services, (ii) construction drawings, (iii) extension of electrical wiring from
Landlord's designated location(s) to the Premises, (iv) purchasing and
installing all equipment for the Premises (including any submeters and other ABS
electrical equipment approved by Landlord), (v) required metering, re-circuiting
or re-wiring for metering, equipment rental, engineering design services,
consulting services, studies, construction services, cost of billing and
collections, (vi) cabling, and (vii) materials and labor, shall all be included
in the cost of the Work and may be paid out of the Construction Allowance, to
the extent sufficient funds are available for such purpose.
(b) Reallocation of Construction Allowance. Up to $64,248.00 of the 3800
Buffalo Construction Allowance may be used to complete the portion of the Work
in the Five Greenway Vault Premises and the Five Greenway Storage Premises.
(c) Application to Rent. If the total cost of the Work is less than the
Construction Allowance, then Tenant may apply up to $54,885.00 of the excess
portion of the Construction Allowance against Base Rent to become due during the
remaining portion of the first year of this Lease. The excess amount to be
applied shall be prorated so that the same amount is applied to each month in
the remaining portion of the first year of this Lease.
(d) Unused Allowance(s). Any allowance made available to Tenant under
this Construction Agreement must be utilized for its intended purpose or have
been elected to be credited against Base Rent in accordance with
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PARAGRAPH 3(c) above within 6 months of the Date of Lease or be forfeited with
no further obligation on the part of Landlord.
4. CONSTRUCTION.
(a) The Work. Subject to the terms of this Construction Agreement,
Landlord agrees to cause permanent leasehold improvements to be constructed in
the Premises (the "WORK") in a good and workmanlike manner in accordance with
the Approved Construction Documents. Subject to Landlord's approval and Tenant's
compliance with Landlord's policies and procedures, including, without
limitation, Landlord's supervision, Tenant may utilize its own contractor's to
perform some of the Work. Landlord, at its cost, shall remove the safe deposit
boxes from the Five Greenway Vault Premises. Tenant acknowledges that the
Additional Five Greenway Storage Premises will be turned over to Tenant in a
slab condition without a ceiling grid.
(b) General Terms. Tenant acknowledges that Landlord is not an architect
or engineer, and that the Work will be designed and performed by independent
architects, engineers and contractors. Accordingly, Landlord does not guarantee
or warrant that the Approved Construction Documents will comply with Applicable
Law or be free from errors or omissions, nor that the Work will be free from
defects, and Landlord will have no liability therefor. In the event of such
errors, omissions or defects, and upon Tenant's written request, Landlord will
use commercially reasonable efforts to cooperate with Tenant in enforcing any
applicable warranties. In addition, unless expressly agreed to in writing by
Landlord prior to commencement of the Work, Landlord's approval of the
Construction Documents or the Work shall not be interpreted to Waive or
otherwise modify the terms and provisions of the Lease. Except with respect to
the economic terms set forth in PARAGRAPH 3 of this Construction Agreement, the
terms and provisions contained in this Construction Agreement shall survive the
completion of the Work and shall govern in all applicable circumstances arising
under the Lease throughout the Term, including the construction of future
improvements in the Premises.
(c) Electrical Design Capacity. The following parameters constitute
Building Standard electrical design capacity: (i) the total connected electrical
load of all electrical equipment serving the Premises shall not exceed an
average of 4.5 watts per RSF, consisting of approximately 1.5 watts per RSF of
120/208 volt power and approximately 3.0 watts per RSF of 277/480 volt power;
(ii) the connected electrical load for lighting shall not exceed an average of
2.0 watts per RSF; (iii) emergency power shall be limited to egress lighting
only and at Landlord's option shall be provided by Tenant's battery backup
fixtures or from Landlord's emergency power system; and (iv) no electrical
equipment shall exceed the safe and lawful capacity of the existing electrical
circuit(s) and facilities serving the Premises. Any requirements, services or
equipment in excess or contravention of any of the foregoing parameters (or any
combination thereof) shall constitute ABS electrical services subject to
Landlord's approval and Tenant's compliance with the other applicable provisions
of the Lease, specifically including PARAGRAPH 8(d) thereof.
(d) ADA Compliance. Landlord shall, as an Operating Expense, be
responsible for ADA compliance for the base Building, core areas (including
elevators, Common Areas, Service Areas and the Project's parking facilities) and
all points of access into the Project. Tenant shall, at its expense, be
responsible for ADA compliance in the Premises, including restrooms on any floor
now or hereafter leased or occupied in its entirety by Tenant, its affiliates or
Transferees. Landlord and not Tenant shall be responsible for the initial cost
to conform the core restrooms on the 4th floor of the 3800 Buffalo Building to
ADA standards, the cost of which will not be included in Operating Expenses.
Landlord shall not be responsible for determining whether Tenant is a public
accommodation under ADA or whether the Approved Construction Documents comply
with ADA requirements. Such determinations, if desired by Tenant, shall be the
sole responsibility of Tenant.
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(e) Substantial Completion.
(i) Definition. Subject to adjustment under PARAGRAPHS
4(e)(iii) and 4(e)(iv) below, "SUBSTANTIAL COMPLETION" shall occur, with respect
to the Premises, when (A) all of the Work has been completed in accordance with
this Construction Agreement and the Approved Construction Documents, to the
extent that Tenant would have access to the Premises and would be able to
conduct its business in a reasonable manner, and (B) Landlord has obtained final
inspection approval from all appropriate regulatory authorities (if required)
for the Premises, even though adjustments or corrections may be necessary and
Punchlist Items remain to be completed. Landlord shall notify Tenant in writing
when Substantial Completion occurs.
(ii) Time of the Essence. Time is of the essence in connection
with the obligations of Landlord and Tenant under this Construction Agreement.
(iii) Tenant Delay. If Landlord is delayed in achieving
Substantial Completion due to a delay caused by a Tenant Party or for any other
cause arising from an act or omission of any Tenant Party, including (A)Tenant's
request for Change Orders (as defined below), (B) Tenant's failure to timely
deliver or approve any required documentation, such as {Tenant's Information},
the Construction Documents, pricing estimates, and the like, (C) Tenant's
failure to timely pay any Cost Overruns (as defined below), (D) Tenant's failure
to otherwise timely respond to any other Landlord request, and (E) the fact that
non-Building Standard materials to be incorporated into the Work require a lead
time (not due to Landlord error) to obtain, or construction time to perform, in
excess of the time required for Work that is Building Standard (collectively,
"TENANT DELAY"), Substantial Completion shall be deemed to have occurred on the
date Substantial Completion would have been achieved but for such Tenant Delay.
(iv) Other Delay. If Substantial Completion is delayed for any
reason other than Tenant Delay, Substantial Completion shall occur on the date
when actually achieved (subject to adjustment for Tenant Delay).
(v) Landlord Liability. Landlord shall not be liable or
responsible for any Claims incurred (or alleged) by Tenant due to any delay in
achieving Substantial Completion for any reason. However, Tenant's sole and
exclusive remedy for any delay in achieving Substantial Completion for any
reason other than Tenant Delay shall be the resulting postponement (if any) of
the commencement of rental payments under the Lease.
5. COSTS.
(a) Change Orders and Cost Overruns. All changes to, and deviations
from, the Approved Construction Documents (each, a "CHANGE ORDER"), including
any (i) direction of Tenant to omit any portion of the Work, (ii) additional
architectural or engineering services, (iii) changes to materials whether
standard materials, specially ordered materials, or specially fabricated
materials, (iv) cancellation or modification of supply or fabrication orders,
and (v) removal or alteration of any portion of the Work, must be approved in
advance in writing by Landlord. Change Orders requested by Tenant and approved
by Landlord which increase the cost of the Work above the Construction Allowance
shall be paid by Tenant within 30 days of receipt of Landlord's invoice therefor
(which payment may be required by Landlord prior to commencing construction).
Except as otherwise expressly provided in this Construction Agreement, all costs
of the Work in excess of the Construction Allowance (collectively, "COST
OVERRUNS") shall be paid by Tenant to Landlord within 30 days of Landlord's
invoice. In addition, at Landlord's election, Landlord may require Tenant to
prepay any projected Cost Overruns within 5 days of Landlord's invoice. Landlord
may stop or decline to commence all or any portion of the Work until such
payment (or prepayment) is received. On or before the Original 3800 Buffalo
Commencement Date, and as a condition to Tenant's right to take possession of
the Premises, Tenant shall pay Landlord the entire amount of all Cost Overruns,
less any prepaid
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amounts. Tenant's failure to pay, when due, any Cost Overruns or the cost of any
Change Order shall constitute an Event of Default under the Lease.
(b) Construction Management Fee. Within 30 days following the date of
invoice, Tenant shall, for supervision and administration of the construction
and installation of the Work, pay Landlord a construction management fee equal
to 10% of the aggregate contract price for the Work in excess of the
Construction Allowance, which may be paid from the unused portion of the
Construction Allowance (if any). Tenant's failure to pay such construction
management fee when due shall constitute an Event of Default under the Lease.
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EXHIBIT "D"
CERTIFICATE OF ACCEPTANCE OF PREMISES
Re: Office Lease dated __________________ , 199__ (the "LEASE") between
CRESCENT REAL ESTATE ________________ ("LANDLORD") and _______________
________________________________________ ("TENANT") for approximately
____ RSF of Premises on the _____ floor of _______________________.
Unless otherwise specified, all capitalized terms used herein shall
have the same meanings as in the Lease.
Landlord and Tenant agree that:
1. Except for Punchlist Items if any, Landlord has fully completed
all Work required under the terms of the Lease.
2. The Premises are usable by Tenant as intended; Landlord has no
further obligation to perform any Work or other construction
(except Punchlist Items), and Tenant acknowledges that both the
Building and the Premises are satisfactory in all respects.
3. The Commencement Date of the Lease is ______________, 199___.
4. The Expiration Date of the Lease is the last day of
______________, ______.
5. Tenant's Address at the Premises after the Commencement Date
is:
--------------------------------------------------------------
--------------------------------------------------------------
Attention:
----------------------------------------------------
Telephone: ( )
--------
Facsimile: ( )
--------
All other terms and conditions of the Lease are ratified and acknowledged to be
unchanged.
EXECUTED as of ______________________ , 199__.
{ATTACH APPROPRIATE SIGNATURES}
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EXHIBIT "E"
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, elevators, shopping
mall, escalators and stairways of the Building shall not be obstructed
by any of the tenants or used by them for any purpose other than for
ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, escalators and stairways are not
for the use of the general public, and Landlord shall, in all cases,
retain the right to control and prevent access thereto of all persons
whose presence, in the judgment of Landlord, shall be prejudicial to
the safety, character, reputation and interests of the Building and its
tenants; provided that nothing herein contained shall be construed to
prevent such access to persons with whom any tenant normally deals in
the ordinary course of its business, unless such persons are engaged in
illegal activities. No tenants and no employee, agent or invitee of any
tenant shall go upon the roof of the Building. The two (2) emergency
stairwells located on each floor of the Building shall not be
obstructed by tenants or used by tenants or any tenant's agents,
servants, employees, invitees or contractors or the public in general
for any reason or purpose except as an escape route in the event of an
emergency.
2. No sign, placard, picture, name, advertisement or notice, visible from
the exterior of any tenant's premises shall be inscribed, painted,
affixed or otherwise displayed by any tenant on any part of the
Building without the prior written consent of Landlord, and Landlord
shall have the right to remove any such sign, placard, picture, name,
advertisement or notice at the expense of the tenant responsible for
the installation of these items and without notice to such tenant. If
Landlord shall have given its consent at any time, such consent shall
be deemed to relate only to the particular sign, placard, picture,
name, advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to each and every other sign,
placard, picture, name, advertisement or notice. All approved signs or
lettering shall be printed, painted, affixed or inscribed at the
expense of the tenant by a person approved by Landlord.
3. No tenant's premises shall be used for the storage of merchandise
(other than inventory) or for lodging. No cooking, other than warming
in microwave ovens, shall be done or permitted by any tenant in the
Building. The preparation of coffee, tea, hot chocolate and similar hot
drinks for tenants and their employees shall be permitted. A tenant
shall be permitted to bring into its premises bottled drinking water
dispensed from a machine for use by the tenant and its employees.
4. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning its premises, unless otherwise
agreed to by Landlord in writing. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord
shall be permitted to enter the Building for the purpose of cleaning
the same. No tenant shall cause any unnecessary labor by reason of the
tenant's carelessness or indifference in the preservation of good order
and cleanliness. Subject to the terms of the Lease, Landlord shall in
no way be responsible to any tenant
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for any loss of property on its premises, or for any damage done to the
furniture or other effects of any tenant by the janitor or any other
employee or any other person. Janitor service shall include ordinary
dusting and cleaning by the janitor assigned to such work and shall not
include shampooing of carpets or rugs or moving of furniture or other
special services. Janitor services will not be furnished on nights when
rooms are occupied after 9:30 P.M.
5. No animals, reptiles, birds, fish (or aquariums) or other non-human,
non-plant living things shall be allowed in the offices, halls,
corridors, elevators, escalators or elsewhere in the Building, except
for seeing eye dogs.
6. All electric door locking device plans or proposals must be approved in
writing by the City of Houston's Building Department, as well as by
Landlord, prior to installation. All electric locks must have a key
override so that Landlord and/or its agents can gain access during an
emergency. Additionally, Landlord shall choose the type of keyway used
in the key override.
7. Landlord will furnish each tenant with two keys free of charge.
Landlord may make a reasonable charge for any additional keys. No
tenant shall have any keys made except by Landlord. No tenant shall
alter any lock or install a new or additional lock or bolt on any door
of its premises without prior written consent of Landlord. If Landlord
shall give its consent, the tenant shall in each case furnish Landlord
with a key for any such lock. Each tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Building
which shall have been furnished to tenant.
8. No safes, electronic equipment or other objects larger or heavier than
that which the freight elevators of the Building are designed to carry
shall be brought into or installed on any premises without Landlord's
prior written approval. The moving of such equipment shall occur only
between such hours as may be designated by, and only upon previous
notice to, the manager of the Building. No freight, furniture or bulky
matter of any description shall be received into the Building or
carried into the elevators, except during hours and in a manner
approved by Landlord. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment
brought into the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on supports designed to
properly distribute their weight. Subject to the terms of the Lease,
Landlord will not be responsible for loss of or damage to any such safe
or property from any cause, and all damage done to the Building by
moving or maintaining such safe or other property shall be repaired at
the expense of the tenant.
9. No tenant shall use or keep in, on or about its premises or the
Building any kerosene, gasoline or flammable or combustible fluid or
material, or use any method of heating or air conditioning other than
that supplied by Landlord. No tenant shall use, keep or permit to be
used or kept any foul or noxious gas or substance in, on or about its
premises, or permit or suffer its premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the
Building by reason of noise, odors, and/or vibrations, or interfere in
any way with other tenants or those having business therein.
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10. Standard practices of the building trades at the time of construction
incorporated into the Building materials containing various quantities
of asbestos (primarily spray on fire proofing). All repairs,
renovations, alterations or installations (including, without
limitation, electrical and communications systems) must be conducted in
accordance with and pursuant to OSHA and EPA guidelines and Landlord's
standard Building guidelines. All of such work, including, but not
limited to, such major improvements as remodeling and something as
minor as adding electrical outlets or painting, must be coordinated
through the Building Office and approved by Landlord prior to work
beginning. Upon completion of such work, the tenant will be required to
furnish Landlord with a certification that the completed work was done
in accordance with these rules and regulations as they may be amended
from time to time.
11. In accordance with and pursuant to OSHA and EPA guidelines regarding
asbestos containing materials, no tenant shall cause to be open any
part of the ceilings in the Building without having first received
written permission from Landlord. It is the intent of this policy to
prevent any ceiling from being opened in leased space while occupied or
in the public areas of the Building during business hours, and includes
any action or penetration which would break the plane of the ceiling
surface, no matter how slight.
12. Landlord shall have the following rights, exercisable without notice
and without liability to any tenant for damage or injury to property,
persons or business and to the extent not in conflict with the Lease
without effecting an eviction or disturbance of any tenant's use or
possession or giving rise to any claim for offset or abatement of rent:
1. To change the Building's name and street address.
2. To install, affix and maintain any and all signs on the
exterior and interior of the Building.
3. To control all internal lighting that may be visible from the
Building exterior.
4. To retain at all times and to use in appropriate instances
keys to all doors within and into each tenant's premises.
5. To decorate and to make repairs, alterations, additions,
changes or improvements, whether structural or otherwise, in
and about the Building or any part thereof, and to enter upon
any tenant's premises for such purposes, to temporarily close
doors, entryways, public space, corridors, interrupt or
temporarily suspend Building services and facilities, change
the arrangement and location of entrances, passageways, doors,
elevators, shafts, stairs, toilets, etc., without abatement of
rent or affecting any obligations of any tenant under its
lease so long as the tenant's premises are reasonably
accessible.
6. To bear and retain a permanent title to each tenant' s
premises free and clear of any act of the tenant purporting to
burden or encumber its premises.
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7. To grant to anyone the exclusive right to conduct any business
or render any service in or to the Building, provided such
exclusive right shall not operate to exclude a tenant from the
use expressly permitted in its lease.
8. To prohibit the placing of vending machines or dispensing
machines of any kind in any premises without Landlord's
written permission.
9. To take all reasonable measures as Landlord may deem advisable
for the security of the Building and its occupants, including,
without limitation, the search of the Building and its
occupants and persons entering and leaving the Building,
evacuation of the Building for cause, suspected cause or drill
purposes, temporary denial of access to the Building and the
closing of the Building after regular working hours.
10. To deny entrance to the Building or remove any person or
persons (including tenants and their employees, business
invitees, visitors or any other persons) from the Building in
any case where the conduct of such person involves a potential
hazard, nuisance, unreasonable risk, or threat of bodily
injury or harm to any tenant or other party whose presence is
permitted in the Building, or to the public, or in the event
of any fire or other emergency, riot, civil commotion or
similar disturbance involving a substantial risk of damage to
the Building or bodily harm to the tenants or their employees,
business invitees, visitors or the general public. An
unreasonable risk of bodily harm is to be determined by
Landlord in its sole discretion and shall include possessing
or carrying a club, explosive, weapon, firearm, illegal knife,
switchblade knife, hoax bomb, chemical dispensing device or
zip gun (as those terms are defined in Section 46.01 of the
Texas Penal Code). Landlord shall have the right at any time
and from time to time to install and utilize metal detectors
or similar security screening devices in the Building and to
deny access to persons who create an unreasonable risk of
bodily harm to tenants or other persons lawfully present in
the Building.
13. Landlord reserves the right to exclude from the Building between the
hours of 7:00 P.M. and 7:00 A.M., after 1:00 P.M. on Saturdays, and at
all hours on Sundays and legal holidays all persons who do not present
either an access card issued by Landlord or a pass to the Building
signed by Landlord. Landlord will furnish a pass to each person for
whom a tenant requests a pass in writing. Each tenant shall be
responsible for all persons for whom it requests passes and shall be
liable to Landlord for all acts of such persons. Subject to the terms
of the Lease, Landlord shall not be liable for damages for any error
with regard to the admission to or exclusion from the Building of any
person. In the case of invasion, mob, riot, public excitement, or other
circumstances rendering such action advisable in Landlord's opinion,
Landlord reserves the right to prevent access to the Building during
the continuance of the same by such actions as Landlord may deem
appropriate, including closing and locking doors.
14. The directory board of the Building will be provided at no charge for
the display of the name and location of tenants only, and Landlord
reserves the right to exclude any other names therefrom. Any
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additional name which a tenant shall desire to place upon the directory
board (subject to availability) must first be approved by Landlord, and
if so approved, a charge will be made therefor.
15. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed
in, or used in connection with any window of the Building without the
prior written consent of Landlord. In any event, with the prior written
consent of Landlord, the above items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from
the exterior of the Building.
16. No tenant shall obtain for use in its premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
shoe shining services in its premises, except from persons authorized
by Landlord, and at hours and under regulations fixed by Landlord,
except as otherwise set forth in the tenant's lease.
17. At any party where alcoholic beverages are to be served or consumed
within a tenant's premises, the tenant is required to have two off-duty
policemen attend the party. One policeman should remain in the suite
during the party, and one should position himself near the proper
elevator bank.
18. Each tenant shall see that the doors of its premises are closed and
securely locked and must observe strict care and caution that all water
faucets, water apparatus and utilities are shut off before the tenant
or its employees leave the tenant's premises, so as to prevent waste or
damage. On multiple-tenancy floors, all tenants shall keep the door or
doors to the Building corridors closed at all times except for ingress
and egress.
19. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed. No foreign substance of any kind whatsoever shall be
thrown therein. Subject to the terms of the Lease, the expense of any
breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees, agents or
invitees, shall have caused it.
20. Except with the prior written consent of Landlord, no tenant shall sell
or permit the sale of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise in or on its premises, nor
shall any tenant carry on, permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from its premises for the services or accommodation of
occupants of any other portion of the Building.
21. No tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building. No tenant
shall install or use a garbage disposal unit that discharges into the
sewer lines of the Building.
22. No hand trucks or dollies, except those approved by Landlord, shall be
used in any public space (including lobbies, elevators and escalators)
of the Building by any tenant. No other vehicles of any
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kind, including bicycles, shall be brought into the Building or kept in
or about any premises by any tenant, their employees, agents or
invitees.
23. Each tenant shall store all its trash and garbage within its premises.
No material shall be placed in the trash boxes or receptacles that is
of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage in the
City of Houston, without being in violation of any law or ordinance
governing such disposal. All garbage and refuse disposal shall be made
only through entryways and elevators provided for such purposes and at
such times as Landlord shall designate. Large containers and any
non-compactible trash shall be kept in the tenant's premises until such
time as the tenant has made suitable arrangements for its removal.
24. Canvassing, soliciting and peddling in the Building are prohibited, and
each tenant shall cooperate to prevent the such activities.
25. Each tenant and/or each tenant's employees will be required to pay a
security deposit in the amount of Ten and 00/100 Dollars ($10.00) for
each garage parking permit/access card and building access card. The
deposit(s) will be refunded following return of the permit(s) and/or
card(s) to Landlord. All garage parking permits/access cards must be
delivered to the Greenway Transportation Services Office and all
building access cards must be delivered to the Greenway Security
Office.
26. The requirements of the tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall
not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord.
27. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of the Rules and Regulations in
favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any of the Rules and Regulations against any or
all of the tenants of the Building.
28. These Rules and Regulations are in addition to and shall not be
construed in any way to modify, alter or amend, in whole or in part,
the terms, covenants, agreements and conditions of any lease of any
premises in the Building.
29. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation
of good order therein.
E-vi
<PAGE> 69
EXHIBIT "F-1"
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY)
- -----------------------------------------------------------------------------------------------------------------------------------
PRODUCER ADDRESS THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE
DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE
POLICIES BELOW.
----------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
----------------------------------------------------------------------
COMPANY
A
- -----------------------------------------------------------------------------------------------------------------------------------
INSURED COMPANY
B
----------------------------------------------------------------------
COMPANY
C
----------------------------------------------------------------------
COMPANY
D
- -----------------------------------------------------------------------------------------------------------------------------------
COVERAGES
- -----------------------------------------------------------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE
POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH
RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED
HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED
BY PAID CLAIMS.
- -----------------------------------------------------------------------------------------------------------------------------------
CO POLICY EFFECTIVE POLICY EXPIRATION
LTR TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS
- -----------------------------------------------------------------------------------------------------------------------------------
A GENERAL LIABILITY GENERAL AGGREGATE $ 1000000
----------------------------------- -------------------------------------
[X] COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG $ 1000000
----------------------------------- -------------------------------------
[ ] [ ] CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $ 1000000
----------------------------------- -------------------------------------
[ ] OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $ 1000000
-------------------------------------
[ ] FIRE DAMAGE (Any one fire) $ 50000
-------------------------------------
[ ] MED EXP (Any one person) $ 5000
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
B AUTOMOBILE LIABILITY
-----------------------------------
[X] ANY AUTO COMBINED SINGLE LIMIT $ 1000000
-------------------------------------
[ ] ALL OWNED AUTOS
BODILY INJURY
[ ] SCHEDULED AUTOS (Per person) $
-------------------------------------
[X] HIRED AUTOS
BODILY INJURY
[X] NON-OWNED AUTOS (Per accident) $
-------------------------------------
[ ] --
[ ] PROPERTY DAMAGE $
- -----------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
----------------------------------- -------------------------------------
[ ] ANY AUTO OTHER THAN AUTO ONLY:
-------------------------------------
[ ] -- EACH ACCIDENT $
-------------------------------------
[ ] AGGREGATE $
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
C EXCESS LIABILITY EACH OCCURRENCE $ 5000000
----------------------------------- -------------------------------------
[X] UMBRELLA FORM AGGREGATE $ 5000000
[ ] OTHER THAN UMBRELLA FORM $
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
D WORKERS COMPENSATION AND WC STATU- OTH-
EMPLOYERS' LIABILITY [X] TORY LIMITS ER
-------------------------------------
----------------------------------- EL EACH ACCIDENT $ 1000000
THE PROPRIETOR/ -------------------------------------
PARTNERS/EXECUTIVE [X] INCL EL DISEASE - POLICY LIMIT $ 1000000
-------------------------------------
OFFICERS ARE: [ ] EXCL EL DISEASE - EA EMPLOYEE $ 1000000
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
Crescent Real Estate _________________________________, its successors and/or assigns are Additional Insured's on General
Liability & Auto Liability with Waivers of Subrogation on General Liability, Auto Liability & Employers Liability.
Insured's Insurance is Primary w/Agg. per Loc.
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[SAMPLE]
<PAGE> 70
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Crescent Real Estate ______________________ SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
777 Main Street, Suite 2100 EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30
Fort Worth, Texas 76102 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT
FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF
ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.
----------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
- -----------------------------------------------------------------------------------------------------------------------------------
ACORD 25-S (1/95) (C) ACORD CORPORATION 1988
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT "F-2"
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
EVIDENCE OF PROPERTY INSURANCE DATE (MM/DD/YY)
- -----------------------------------------------------------------------------------------------------------------------------------
THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND
PRIVILEGES AFFORDED UNDER THE POLICY.
- -----------------------------------------------------------------------------------------------------------------------------------
PRODUCER PHONE COMPANY
(A/C, No. Ext):
-------------------------------------
- ----------------------------------------------------------------------------
CODE: SUB CODE:
- ----------------------------------------------------------------------------
AGENCY
CUSTOMER ID#:
- -----------------------------------------------------------------------------------------------------------------------------------
INSURED LOAN NUMBER POLICY NUMBER
-------------------------------------------------------
EFFECTIVE DATE EXPIRATION DATE CONTINUED UNTIL
TERMINATED
[ ] IF CHECKED
-------------------------------------------------------
THIS REPLACES PRIOR EVIDENCE DATED:
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
LOCATION/DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------------------------
COVERAGE INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
COVERAGE/PERILS/FORMS AMOUNT OF INSURANCE DEDUCTIBLE
- -----------------------------------------------------------------------------------------------------------------------------------
Special Form Property Coverage including
Theft and 100% Replacement Cost on
Furniture, Fixtures & Equipment to
include Inventory, Improvements &
Betterments. Limit Ded.
Business Income W/Extra Expense Limit Ded.
Ordinance/Law Coverage Limit Ded.
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS (INCLUDING SPECIAL CONDITIONS)
- -----------------------------------------------------------------------------------------------------------------------------------
Crescent Real Estate ______________________________, its successors and/or assigns are provided a waiver of subrogation on
property & business income coverages.
- -----------------------------------------------------------------------------------------------------------------------------------
CANCELLATION
- -----------------------------------------------------------------------------------------------------------------------------------
THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED,
THE COMPANY WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICE, AND WILL SEND NOTIFICATION OF ANY
CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INTEREST [ ] MORTGAGEE [ ] ADDITIONAL INSURED
NAME AND ADDRESS [X] LOSS PAYEE [X] WAIVER OF SUBROGATION
---------------------------------------------------------
Crescent Real Estate ______________________ LOAN#
777 Main Street, Suite 2100
Fort Worth, TX 76102
---------------------------------------------------------
AUTHORIZED REPRESENTATIVE
- -----------------------------------------------------------------------------------------------------------------------------------
ACORD 27 (3/93)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[SAMPLE]
<PAGE> 71
EXHIBIT "G"
FORM OF LETTER OF CREDIT
[BANK]
___________________, 1999
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attn: David M. Dean
RE: Clean Irrevocable Letter of Credit No. ________________, Dated
________________, ____, in the amount of $__________________
Gentlemen:
We hereby establish our clean irrevocable Letter of Credit No.
_______________, in your favor for the account of ASHFORD.COM, INC., a Delaware
corporation, in the aggregate amount of ____________________________________and
_____/100 Dollars ($_________________).
You may draw upon such Letter of Credit at sight on or before ____________,
19___. You may draw upon this Letter of Credit upon the presentation of your
draft, executed by the President or any Vice President of your General Partner,
accompanied by his/her written statement that (i) an event of default by Tenant
exists under that certain Office Lease between ASHFORD.COM, INC., a Delaware
corporation and CRESCENT REAL ESTATE FUNDING III, L.P., dated ____________ (the
"Lease"), and (ii) such default exists beyond any applicable cure period
provided in the Lease for such default, if any.
This Letter of Credit is binding upon and shall inure to the benefit of,
the parties and their successors and assigns. This Letter of Credit sets forth
our entire undertaking, and shall not be modified, amended or expanded by
reference to any other document, instrument or agreement. Except to the extent
expressly inconsistent therewith, this Letter of Credit is subject to the
Uniform Customs and Practice for Documentary Credits (1983 Revisions),
International Chamber of Commerce Publication 400, and the Uniform Commercial
Code, as adopted in the State in which this Bank is located, as the same may be
revised from time to time. In the event of conflict between the Uniform Customs
and Practice and the Uniform Commercial Code, the former shall govern and
control.
(Name of Bank)
By:
--------------------------------------
Vice President
G-i
<PAGE> 72
RIDER NO. 1
OPTION TO EXTEND
A. RENEWAL PERIOD. Tenant may, at its option, extend the Term for one renewal
period of 5 years (the "RENEWAL PERIOD") by written notice to Landlord (the
"RENEWAL NOTICE") given no earlier than 13 nor later than 10 months prior to the
expiration of the Term, provided that at the time of such notice and at the
commencement of such Renewal Period, (i) Tenant remains in occupancy of the
Premises, and (ii) no uncured Event of Default exists under the Lease (and no
condition exists which, with the passage of time and/or giving of notice, would
be an Event of Default). Such Renewal Period shall commence upon the expiration
date of the initial Term. The Base Rent payable during the Renewal Period shall
be the Market Rental Rate for the Premises. However, in no event shall the Base
Rent for any Renewal Period be less than the Base Rent during the last year of
the Term. Except as provided in this Rider No. 1, all terms and conditions of
the Lease shall continue to apply during the Renewal Period.
B. HVAC AND PARKING CHARGES. During the Renewal Period, Tenant shall pay
Landlord's standard charges, as set from time to time, for parking and overtime
HVAC.
C. ACCEPTANCE. Within 30 days of the Renewal Notice, Landlord shall notify
Tenant of the Base Rent for such Renewal Period (the "RENTAL NOTICE"). Tenant
may accept the terms set forth in the Rental Notice by written notice (the
"ACCEPTANCE NOTICE") to Landlord given within 30 days after receipt of the
Rental Notice. If Tenant timely delivers its Acceptance Notice, Tenant shall,
within 15 days after receipt, execute a lease amendment confirming the Base Rent
and other terms applicable during the Renewal Period. If Tenant fails timely (i)
to deliver its Acceptance Notice or (ii) to execute and return the required
lease amendment, then this Option to Extend shall automatically expire and be of
no further force or effect. In addition, this Option to Extend shall terminate
upon assignment of this Lease or subletting of all or any part of the Premises.
D. MARKET RENTAL RATE. The "MARKET RENTAL RATE" is the rate (including stepped
or graduated rates) a willing tenant would pay and a willing landlord would
accept for a comparable transaction (e.g., renewal, expansion, relocation, etc.,
as applicable, in comparable space and in a comparable building) as of the
commencement date of the applicable term, neither being under any compulsion to
lease and both having reasonable knowledge of the relevant facts, considering
the highest and most profitable use if offered for lease in the open market with
a reasonable period of time in which to consummate a transaction. In calculating
the Market Rental Rate, all relevant factors will be taken into account,
including the location and quality of the Building, lease term, amenities of the
Project, condition of the space and any concessions and allowances commonly
being offered by Landlord for
Rl-i
<PAGE> 73
comparable transactions in the Project. The parties agree that the best evidence
of the Market Rental Rate will be the rate then charged for comparable
transactions in the Project.
RIDER NO. 3
PREFERENTIAL RIGHT TO LEASE
A. PREFERENTIAL RIGHT TO LEASE. So long as twenty-four months remain in the
initial Term, Tenant shall have a continuing Preferential Right to Lease all or
a portion of the floor above or the floor below the Original 3800 Buffalo
Premises, as designated by Landlord in its sole discretion (the "PREFERENTIAL
SPACE"), at such time as such space becomes Available (as defined below) for
direct lease to a new tenant (whether or not a bona fide offer has been made);
provided no uncured Event of Default exists under the Lease (and no condition
exists which, with the passage of time and/or giving of notice, would be an
Event of Default) and Tenant remains in occupancy of the entire Premises. The
Preferential Space shall be deemed "AVAILABLE" at such time as Landlord decides
to offer the Preferential Space for lease and such space is no longer any of the
following: (i) leased or occupied; (ii) assigned or subleased by the
then-current tenant of the space; (iii) re-leased by the then-current tenant of
the space by renewal, extension or renegotiation (whether agreed to prior to or
after the Date of Lease); or (iv) subject to an expansion option, right of first
refusal, preferential right or similar obligation existing under any other
tenant leases for the Project as of the Date of Lease. This Preferential Right
to Lease shall terminate upon relocation of the Premises to another building or
upon any Transfer as defined in the Lease. The Preferential Space shall be
reduced to the extent Tenant leases any portion thereof, whether or not pursuant
to a formal option provision in the Lease.
B. ACCEPTANCE. Prior to leasing any of the Preferential Space to a new tenant,
Landlord shall first offer such space in writing to Tenant specifying the amount
and location of such space, the anticipated date of tender of possession (if
available), the rental rate based on the Market Rental Rate as defined in Rider
No. 1 as of the anticipated Preferential Space Commencement Date (as defined
below) and other applicable terms (the "PREFERENTIAL RENTAL NOTICE"). Tenant
shall have 10 days within which to accept or reject such offer. If Tenant
accepts Landlord's offer, Tenant shall, within 15 days after Landlord's written
request, execute and return a lease amendment adding the Preferential Space to
the Premises for all purposes under the Lease (including any extensions or
renewals) and confirming the Base Rent and other applicable terms specified in
the Preferential Rental Notice. Such lease amendment may, if applicable, contain
a construction agreement using Landlord's then-current form setting forth the
schedule and other terms and obligations of the parties regarding the
construction of any leasehold improvements in the Preferential Space. If Tenant
rejects such offer or fails timely to (i) accept such offer or (ii) execute and
return the required lease amendment, then Landlord may lease the Preferential
Space or any portion thereof to a Tenant with whom Landlord enters negotiations
within 120 days after Tenant's rejection, deemed rejection, or
Rl-ii
<PAGE> 74
failure to execute and if the negotiations are not complete by the end of such
120 day period, Landlord may continue the negotiations until complete. If
Landlord leases all or any portion of the Preferential Space in accordance with
the immediately preceding sentence, then this Preferential Right to Lease shall
be subordinate to the terms of such lease and any renewal or extension whether
by right granted in the lease or through negotiation at a later date.
C. TENDER OF POSSESSION. The Preferential Space shall be leased for the period
commencing upon Landlord's tender of possession of the Preferential Space in
accordance with Landlord's offer and this Rider (the "PREFERENTIAL SPACE
COMMENCEMENT DATE") and continuing through the expiration or earlier termination
of the Term, as it may be extended or renewed. Landlord shall not be liable for
any delay or failure to tender possession of the Preferential Space by the
anticipated tender date for any reason, including by reason of any holdover
tenant or occupant, nor shall such failure invalidate the Lease or extend the
Term.
D. CONDITION OF PREMISES. The Preferential Space shall be tendered in an "as-is"
condition. However, all leasehold improvements shall be constructed in the
Preferential Space in accordance with the construction agreement (if any)
attached to the applicable lease amendment. Any allowances shall be prorated for
any delays in the Preferential Space Commencement Date, taking into account the
economic assumptions underlying the terms in the Preferential Rental Notice.
R3-ii
<PAGE> 1
EXHIBIT 10.7
NEWWATCH COMPANY
May 1, 1999
Kenneth Kurtzman
Dear Kenny:
NewWatch Company (the "Company") is pleased to offer you
employment on the following terms:
1. POSITION. You will serve in a full-time capacity as
Chief Executive Officer of the Company. You will report to the Company's Board
of Directors (the "Board"). You will be nominated to be a member of the Board.
By signing this letter agreement, you represent and warrant to the Company that
you are under no contractual commitments inconsistent with your obligations to
the Company.
2. SALARY. You will be paid a salary at the annual rate
of $250,000, payable in semi-monthly installments in accordance with the
Company's standard payroll practices for salaried employees. This salary will
be subject to adjustment pursuant to the Company's employee compensation
policies in effect from time to time.
3. BONUS. You will receive a signing bonus in the
amount of $50,000 before May 30, 1999. Any other bonus (if any) shall be
awarded based on objective or subjective criteria established in advance by the
Company's Board. The determinations of the Board with respect to such bonuses
shall be final and binding.
4. STOCK OPTIONS. Subject to the approval of the
Company's Board of Directors, you will be granted an option to purchase 390,000
shares of the Company's Common Stock, which represents six percent of the
Company's currently outstanding securities including the share reserve under
the Company's 1998 Stock Incentive Plan. The exercise price per share will be
equal to the fair market value per share on the date the option is granted.
The option will be subject to the terms and conditions applicable to options
granted under the Company's 1998 Stock Incentive Plan, as described in that
Plan and the applicable stock option agreement. You will vest in 1/48th of the
option shares upon your completion of each month of service with the Company,
from April 1, 1999. If a change in control of the Company occurs, 25% of your
unvested option shares will become vested. The Company will allow you to pay
the exercise price of the option with a full-recourse promissory note. The
interest rate of the note will be the minimum interest rate necessary to avoid
imputed interest income. The principal balance and accrued interest on the
note will become due and payable upon the earlier of the date that is (a) five
years following the date of the note or (b) 30 days following the termination
of your employment for any reason. The promissory note will be secured by the
shares subject to the option. The Company will determine the remaining terms
of the promissory note and stock pledge agreement evidencing the security of
the note.
<PAGE> 2
Kenneth Kurtzman May 10, 1999
Page 2
5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.
Like all Company employees, you will be required, as a condition to your
employment with the Company, to sign the Company's standard Proprietary
Information and Inventions Agreement, a copy of which is attached hereto as
Exhibit A.
6. PERIOD OF EMPLOYMENT. Your employment with the
Company will be "at will," meaning that either you or the Company will be
entitled to terminate your employment at any time and for any reason, with or
without cause. Any contrary representations which may have been made to you
are superseded by this offer. This is the full and complete agreement between
you and the Company on this term. Although your job duties, title,
compensation and benefits, as well as the Company's personnel policies and
procedures, may change from time to time, the "at will" nature of your
employment may only be changed in an express written agreement signed by you
and a duly authorized officer of the Company.
7. SEVERANCE. If you are terminated without Cause, you
will receive a cash payment equal to nine months of your most recent base
salary and additional vesting acceleration for your option shares, as if you
performed service for another nine months following such termination; provided
that you must execute a general release (in a form prescribed by the Company)
of all known and unknown claims that you may then have against the Company or
persons affiliated with the Company and agree not to prosecute any legal action
or other proceeding based upon any of such claims. The cash payment will be
paid in nine equal monthly installments following your termination date and the
date that you execute the general release. Cause shall mean commission of any
act of fraud, embezzlement or dishonesty, any unauthorized use or disclosure of
confidential information or trade secrets of the Company or any other
intentional misconduct that adversely affects the business or affairs of the
Company in a material manner.
8. OUTSIDE ACTIVITIES. While you render services to the
Company, you will not engage in any other gainful employment, business or
activity without the written consent of the Company. While you render services
to the Company, you also will not assist any person or organization in
competing with the Company, in preparing to compete with the Company or in
hiring any employees of the Company.
9. WITHHOLDING TAXES. All forms of compensation
referred to in this letter are subject to reduction to reflect applicable
withholding and payroll taxes.
10. ENTIRE AGREEMENT. This letter and the Exhibit
attached hereto contain all of the terms of your employment with the Company
and supersede any prior understandings or agreements, whether oral or written,
between you and the Company.
11. AMENDMENT AND GOVERNING LAW. This letter agreement
may not be amended or modified except by an express written agreement signed by
you and a duly authorized officer of the Company. The terms of this letter
agreement and the resolution of any disputes will be governed by Texas law.
<PAGE> 3
Kenneth Kurtzman May 10, 1999
Page 3
We hope that you find the foregoing terms acceptable. You may
indicate your agreement with these terms and accept this offer by signing and
dating both the enclosed duplicate original of this letter and the enclosed
Proprietary Information and Inventions Agreement and returning them to me. As
required by law, your employment with the Company is also contingent upon your
providing legal proof of your identity and authorization to work in the United
States.
We look forward to having you join us on May 10, 1999 as our
new Chief Executive Officer.
If you have any questions, please call me.
Very truly yours,
NEWWATCH COMPANY
By: /s/ JAMES H. WHITCOMB, JR.
-------------------------------------
James H. Whitcomb, Jr.
I have read and accept this employment offer:
/s/ KENNETH KURTZMAN
- -----------------------------------
Kenneth Kurtzman
Signature of Kenneth Kurtzman
Dated: May 1, 1999
Attachment
Exhibit A: Proprietary Information and Inventions Agreement
<PAGE> 1
EXHIBIT 10.8
NEWWATCH COMPANY
EMPLOYMENT AGREEMENT
Employee Name: James Whitcomb
Initial Position: President
1. INTRODUCTION. I, the employee named above, and NewWatch Company, a Texas
corporation (the "Company"), enter into this Employment Agreement ("Agreement")
in consideration of my employment by the Company. The Company and I agree as
follows:
2. DUTIES. (a) I am being initially hired for the position described above, but
my position, title, and specific job responsibilities may be changed as
reasonably determined by the Company. (b) I will comply with all lawful rules,
regulations, policies, procedures, ethical standards, and special instructions
that may be adopted or developed by the Company from time to time, except that
if such policies conflict with the express provisions of this Agreement, then
the terms of this Agreement will govern. (c) Subject to any obligation of
confidentiality that I may have to former employers, I will make available to
the Company any and all information of which I have knowledge and which I have
a reasonable belief is or would be relevant to the Company's business.
3. COMPENSATION AND BENEFITS. (a) For all the services rendered by me under
this Agreement, and for so long as this Agreement remains in effect, I will
receive the compensation offered to and accepted by me, less withholding
required by law or agreed to by me, payable in installments at such times as
the Company customarily pays its other employees (but in any event no less
often than monthly). (b) I will be entitled to participate in any group
medical, dental, disability, and life insurance plans, 401(k) plans, pension or
profit-sharing plans, stock option plans, and similar benefits, if any, that
may be offered by the Company. I also understand that these benefits may change
at the sole discretion of the Company. (c) In addition to the compensation and
benefits referred to above, I may receive bonus compensation at such intervals
and frequency as shall be determined appropriate in the sole and unilateral
judgment and discretion of the Company, and the Company will not be obligated
to me for any bonus compensation not otherwise so authorized. (d) I will be
entitled to vacations of a duration consistent with usual and customary
practices of the Company. (e) I alone, and not the Company, will be responsible
for the payment of all federal, state and local taxes in respect of the
payments to be made and benefits to be provided under this Agreement or
otherwise (except to the extent withheld by the Company). (f) I will be
reimbursed for reasonable business expenses incurred by me in connection with
my employment in accordance with current travel policies (or as they may be
modified in the future) and IRS guidelines. (g) The compensation and other
benefits described in this Section 3 represent all compensation and benefits to
which I am entitled.
4. TERM OF EMPLOYMENT; TERMINATION. (a) I will be an "at-will" employee during
the entire time of my employment ("Term of Employment"). Either the Company or
I can terminate my employment at any time, with or without cause. (b) As used
in this Agreement "cause" includes, without limitation, (i) material or
repeated failure to perform my duties of a kind and in a manner consistent with
my position, (ii) excessive absenteeism that is not related to an illness,
(iii) an indictment accusing me of a felony, (iv) malfeasance in the conduct of
my duties, including the commission of fraud, embezzlement, theft or other acts
involving dishonesty, (v) substance abuse, (vi) action in bad faith relating
to the Company's business, (vii) long term disability or (viii) death. (c) If
my Term of Employment is terminated by the Company without cause, then the
termination will be effective immediately, and no notice or payment in lieu of
notice by the Company is required. (d) If my Term of Employment is terminated,
with or without cause, then I will be entitled only to my earned compensation,
as well as any other benefits earned and due to me prior to my termination, and
the Company will then have no further obligations to me except as may be
expressly provided otherwise in this Agreement or in a separate authorized
written agreement with the Company. (e) Termination of my Term of Employment,
with or without cause, will not affect the continued enforceability of this
Agreement.
5. CONFIDENTIAL OR PROPRIETARY INFORMATION. (a) I acknowledge that the law
provides companies, such as the Company, with protection for their trade secrets
and confidential information. I will not disclose, directly or indirectly, any
of the Company's confidential business information or confidential technical
information to anyone without the prior written consent of the Company. I will
not use any of the Company's confidential business information or confidential
technical information in any way, either during or after my Term of Employment
with the Company, except as required in the course of that employment. (b) I
will strictly adhere to any obligations that I may have to former employers
insofar as my use or disclosure of their confidential information is concerned.
(c) Information will not be deemed part of the confidential information that is
restricted by this Section 5 if I can show that: (i) the information was in my
possession or within my knowledge before the Company disclosed it to me; or (ii)
the information was or became generally known to those who could take economic
advantage of it; or (iii) I obtained the information from a party having the
right
-1-
<PAGE> 2
to disclose it to me without violation of any obligation to the Company, or (iv)
I am required to disclose the information pursuant to legal process (e.g., a
subpoena), provided that I notify the Company immediately upon receiving or
becoming aware of the legal process in question. No combination of information
will be deemed to be within any of the four exceptions in the previous sentence,
however, whether or not the component parts of the combination are within one or
more exceptions, unless the combination itself and its economic value and
principles of operation are themselves within such an exception. (d) All
originals and all copies of any drawings, blueprints, manuals, reports, computer
programs or data, notebooks, notes, photographs, and all other recorded,
written, or printed matter relating to research, manufacturing operations, or
business of the Company made or received by me during my Term of Employment by
the Company are the property of the Company. Upon termination of my Term of
Employment, whether or not for cause, I will immediately deliver to the Company
all property of the Company which may still be in my possession. I will not
remover or assist in removing such property from the Company's premises under
any circumstances, either during my Term of Employment or after termination
thereof, except with the prior written consent of the Company.
6. OWNERSHIP. (a) The company will be the sole owner of any and all of my
"Inventions" that are related to the Company's business, as defined in more
detail below. (b) For purposes of this Agreement, "Inventions" means all
inventions, discoveries, and improvements (including, without limitation, any
information relating to manufacturing techniques, processes, formulas,
developments or experimental work, work in progress, or business trade secrets),
along with any and all other work product relating thereto, (c) An Invention is
"related to the Company's business" ("Company-related Invention") if it is made,
conceived, or reduced to practice by me (in whole or in part, either alone or
jointly with others, whether or not during regular working hours), whether or
not potentially patentable or copyrightable in the U.S. or elsewhere, and it
either: (i) involves equipment, supplies, facilities, or trade secret
information of the Company; (ii) involves the time for which I was compensated
by the Company; (iii) relates to the business of the Company or to its actual or
demonstrably anticipated research and development; or (iv) results, in whole or
in part, from work performed by me for the Company. (c) I will promptly disclose
to the Company, or its nominee(s), without additional compensation, all the
Company-related Inventions, including without limitation all "Computer Software"
(defined as all computer programs, associated documentation, and copies thereof)
that is so related. (d) I will assist the Company, at the Company's expense, in
protecting any intellectual property rights that may be available anywhere in
the world for such Company-related Inventions, including signing U.S. or foreign
patent applications, oaths or declarations relating to such patent applications,
and similar documents. (e) To the extent that any Company-related Invention is
eligible under applicable law to be deemed a "work made for hire", or otherwise
to be owned automatically by the Company, it will be deemed as such, without
additional compensation to me. In some jurisdictions, I may have a right, title,
or interest ("I.P. Right", defined in more detail below) in certain
Company-related Inventions that cannot be automatically owned by the Company. In
that case, if applicable law permits me to assign my I.P. Right(s) in future
Company-related Inventions at this time, then I hereby assign any and all such
Right(s) to the Company, without additional compensation to me; if not, then I
agree to assign any and all such I.P. Right(s) in any such future
Company-Related Inventions to the Company or its nominee(s) upon request,
without additional compensation to me. In the event that I am unable, as a
matter of law or for any other reason, to assign any I.P. Right, than I agree to
grant a paid-up royalty-free exclusive (if possible, otherwise non-exclusive)
irrevocable license to the Company to use such unassignable I.P. Right. The term
"I.P. Right" includes, without limitation, any and all right, title, and
interest arising under patent law, copyright law, trade-secret law,
semiconductor chip protection law, or otherwise, anywhere in the world,
including the right to sue for present or past infringement. (f) To the extent
that I retain any so-called "moral rights" or similar rights in a
Company-related Invention as a matter of law, I authorize the Company or its
designee to make any changes it desires to any part of that Company-related
Invention; to combine any such part with other materials; and to withhold my
identity in connection with any business operations relating to that
Company-related Invention; in any case without additional compensation or
payments to me.
7. CONFLICTS OF INTEREST. (a) During my Term of Employment with the Company:
(i) I will devote my full productive time, ability and attention and my best
efforts to the business of the Company; or (ii) I will not engage, directly or
indirectly, in the planning, operation or management of any activity
competitive with the Company's interests; (iii) I will not otherwise engage in
any activity in conflict with the Company's interests; and (iv) I will not work
either on a part-time or independent contracting basis for any other business
or enterprise without the prior written consent of the Company. (b) For a
period of one (1) year after the date of termination of my Term of Employment,
I will not, either directly or indirectly, hire or employ or offer or
participate in offering employment to any person who at the time of such
termination or at anytime during such year following the time of such
termination was an
<PAGE> 3
employee of the Company without the prior written consent of the Company.
8. EMPLOYEE MANUALS. The Company may in its sole and unilateral discretion
establish, amend, maintain and distribute policies, employee manuals and/or
personnel policy manuals. I will adhere to and follow all rules, regulations and
policies of the Company set forth in these policies and manuals as they now
exist or may hereafter be amended or modified. I understand and agree that these
policies and manuals are not part of the contractual terms of this Agreement and
do not constitute a separate contract. Rather, these policies and manuals are
only general policies and guidelines of the Company.
9. ASSIGNMENT. All of the terms and provisions of this Agreement will be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that my duties and responsibilities under this
Agreement are of a personal nature and will not be assignable or delegable in
whole or in part by me.
10. ARBITRATION. (a) Except to the extent affirmatively prohibited by
applicable law, any dispute, controversy or claim arising out of or relating to
this Agreement will be submitted to binding arbitration in Houston, Texas, in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association in effect on the date of the demand for
arbitration. (b) To protect Inventions, trade secrets or other confidential
information, the Company may seek temporary or preliminary injunctive relief in
a court of competent jurisdiction with respect to any term of this Agreement,
in each case, without waiving its right to arbitration. (c) At the request of
either party, the arbitration tribunal may take any interim measures it deems
necessary with respect to the subject matter of the dispute, including measures
for the preservation of confidentiality granted in this Agreement. (d) Judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction.
11. MISCELLANEOUS. (a) I represent that I have no obligations, contractual or
otherwise, inconsistent with my obligations set forth in this Agreement. (b) All
notices and statements with respect to this Agreement must be in writing;
notices to the Company will be delivered to my supervisor at the Company;
notices to me may be delivered to me in person or sent to me at my then-current
home address as indicated in the Company's records. (c) This Agreement sets
forth the entire agreement of the parties concerning the subjects covered
herein; there are no promises, understandings, representations, or warranties of
any kind concerning those subjects except as expressly set forth in this
Agreement. (d) Any modification of this Agreement must be in writing and signed
by all parties; any attempt to modify this Agreement, orally or in writing, not
executed by all parties will be void. (e) If any provision of this Agreement, or
its application to anyone or under any circumstances, is adjudicated to be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability will not affect any other provision or application of this
Agreement which can be given effect without the invalid or unenforceable
provision or application and will not invalidate or render unenforceable such
provision or application in any other jurisdiction. (f) THIS AGREEMENT WILL BE
GOVERNED AND INTERPRETED UNDER THE LAWS OF THE UNITED STATES OF AMERICA AND OF
THE STATE OF TEXAS LAW AS APPLIED TO CONTRACTS MADE AND CARRIED OUT IN TEXAS BY
RESIDENTS OF TEXAS. (g) No failure on the part of any party to enforce any
provision of this Agreement will act as a waiver of the right to subsequently
enforce that provision. (h) This Agreement will remain in full force and effect
after any termination of my employment with respect to my obligations concerning
solicitation and hiring of the Company employees, confidential or proprietary
information, noncompetition and assignment of the Company-related Inventions.
(i) Section headings are for convenience only and shall not define or limit the
provisions of this Agreement. (j) This Agreement may be executed in several
counterparts, each of which is an original. It shall not be necessary in making
proof of this Agreement or any counterpart hereof to produce or account for any
of the other counterparts.
THIS AGREEMENT CONTAINS PROVISIONS REQUIRING ARBITRATION OF DISPUTES. BY
SIGNING THIS AGREEMENT, I ACKNOWLEDGE THAT: I have read the entire Agreement; I
have received a copy of it; I have had the opportunity to ask questions and
consult counsel or other advisors about its terms; and I agree to be bound by
it.
/s/ JAMES WHITCOMB 11/25/98
- ---------------------------------------------
Employee signature & date
JAMES WHITCOMB
- ---------------------------------------------
Printed name
NewWatch Company
By: /s/ JAMES WHITCOMB
------------------------------------------
Name: James Whitcomb
----------------------------------------
Title: CEO
--------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Houston, Texas
August 2, 1999
