<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HARRIS INTERACTIVE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8532 16-1538028
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code No.)
</TABLE>
135 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(716) 272-9020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GORDON S. BLACK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
135 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(716) 272-9020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
with copies to:
<TABLE>
<S> <C>
THOMAS E. WILLETT, ESQ. CHARLES F. NIEMETH, ESQ.
Harris Beach & Wilcox, LLP O'Melveny & Myers LLP
130 East Main Street 153 East 53rd Street, 53rd Floor
Rochester, New York 14604 New York, New York 10022-4611
(716) 232-4440 (212) 326-2000
</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, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /____
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
Common Stock, par value $.001 per share................................................. $86,250,000 $23,978
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
PROSPECTUS
SHARES
[LOGO]
HARRIS INTERACTIVE INC.
COMMON STOCK
- ----------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our shares.
We will list our shares on the Nasdaq National Market under the symbol
"HPOL." Anticipated Price Range $ to $ per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 9.
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ---------
<S> <C> <C>
Public Offering Price................................................... $ $
Underwriting Discount................................................... $ $
Proceeds to Harris Interactive.......................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
, 1999
<PAGE>
[INTENTIONALLY OMITTED]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 9
Use of Proceeds.................................. 19
Dividend Policy.................................. 19
Capitalization................................... 20
Dilution......................................... 21
Selected Consolidated Financial Data............. 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
Business......................................... 29
<CAPTION>
PAGE
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<S> <C>
Management....................................... 43
Certain Transactions............................. 51
Principal Stockholders........................... 53
Description of Capital Stock..................... 55
Shares Eligible for Future Sale.................. 58
Underwriting..................................... 60
Legal Matters.................................... 62
Experts.......................................... 62
Change in Principal Accountants.................. 63
Available Information............................ 63
Index to Consolidated Financial Statements....... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
SEE THE SECTION OF THIS PROSPECTUS ENTITLED "RISK FACTORS" FOR A DISCUSSION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON
STOCK.
Unless otherwise specifically stated, all information contained in this
prospectus:
- reflects the conversion of all of our preferred stock into common stock
upon the closing of this offering;
- reflects the filing of an amendment to our certificate of incorporation,
upon the closing of this offering, which authorizes five million shares of
undesignated preferred stock; and
- assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to "we," "our" and "us" refer to Harris
Interactive Inc., together with its subsidiaries and predecessor corporations,
unless the context otherwise requires. References in this prospectus to our
fiscal year refer to the 12-month period ended June 30 of that year.
HARRIS POLL, HARRIS INTERACTIVE and the Harris logo design are registered
marks of Harris Interactive. This prospectus also includes other trademarks,
trade names and service marks of Harris Interactive and of other parties.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO
THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
HARRIS INTERACTIVE
OUR BUSINESS
We are the leading Internet-based market research and polling firm in the
world, with the largest online panel of approximately 4.3 million unique
cooperative respondents. Known for our HARRIS POLL, we have provided our clients
with high quality products and services for over 40 years. Our extensive
Internet panel and our proprietary technology infrastructure enable us to
provide our clients with timely and cost-efficient access to the opinions,
experiences and attitudes of people worldwide. We have rapidly grown our
Internet panel, in large part, through our relationship with Excite@Home, a
leading Internet portal. We also conduct market research and polling services
utilizing traditional polling methodologies, which include direct mail,
telephone-based surveys, mall intercepts, focus groups and in-person interviews.
We believe we are the largest full service provider of Internet-based market
research and polling services, providing such services as:
- CUSTOM RESEARCH. Market research and polling conducted on an issue
specifically identified by a client;
- MULTI-CLIENT RESEARCH. Studies developed for and sold to a large number of
clients who have a similar interest in a particular subject area;
- SERVICE BUREAU RESEARCH. Market research and polling conducted for other
market research organizations; and
- CUSTOMER RELATIONSHIP SERVICES. Outsourced customer service operations for
corporations and organizations.
We provide market research and polling products and services to a broad
range of companies, non-profit organizations and governmental agencies. Our key
clients include Eastman Kodak Company, Johnson & Johnson, United Parcel Service
and Xerox Corporation.
OUR MARKET OPPORTUNITY
Companies are operating in an increasingly complex business environment,
characterized by heightened competition, globalization of product markets,
shortened product life cycles and rapidly changing consumer preferences. This
business environment has escalated the need for accurate and timely information
about the preferences, needs, purchase behavior and brand recognition of
potential and existing customers. Companies also need continuous tracking
capabilities so that they can ascertain product performance and competitive
position, monitor consumer satisfaction, measure advertising effectiveness and
determine price sensitivity.
Historically, these information-gathering and tracking functions have been
performed using traditional market research methodologies. The ability of
traditional market research methodologies to deliver accurate and objective data
rapidly is limited by high data acquisition costs, small sample sizes and the
extensive time required to perform the research. As a result, broad-based
research projects, which require a large number of survey participants, are
prohibitively costly except for companies and organizations with significant
resources. The growth and rapid adoption of the Internet is changing the
4
<PAGE>
market research and polling industry, making it possible for the first time to
survey a very broad, diverse population at low cost and at speeds that are
unattainable through any other method.
We believe that Internet-based market research and polling offers
significant advantages over traditional methodologies, including cost
efficiency, versatility, speed and productivity.
THE HARRIS ADVANTAGE
We offer a broad suite of Internet-based market research and polling
products and services to meet our clients' needs for rapid, comprehensive and
accurate information about the views, experiences and attitudes of people
worldwide. We possess several key competitive advantages that we believe will
enable us to maintain and expand our leading market position. Our key
competitive advantages include:
- THE LARGEST INTERNET PANEL. We have developed what we believe to be the
largest Internet panel in the world. Currently, our Internet panel
consists of approximately 4.3 million unique cooperative respondents, who
are individuals that have voluntarily agreed to participate in our various
online market research and polling studies. Our large and diverse Internet
panel enables us to utilize survey sizes that range from a large
representative sample of the overall population to targeted subsets and to
develop new products and services for new markets.
- PROPRIETARY TECHNOLOGY INFRASTRUCTURE. Over the past two fiscal years, we
have expended, and will continue to expend, substantial financial and
management resources in the development of our proprietary technology
infrastructure, data analysis techniques and internal systems and
procedures to capitalize on the Internet opportunity within our industry.
Our technology infrastructure is scalable, which means it can accommodate
the expansion of our business without significant modifications to our
existing system design.
- STRONG BRAND NAME/LONG STANDING CLIENT RELATIONSHIPS. We believe the
HARRIS POLL is one of the best known polls operating in the United States
today. For over 40 years, we have been recognized as providing trusted
market research products and services to a broad range of companies,
non-profit organizations and governmental agencies.
- KEY STRATEGIC RELATIONSHIPS. We have entered into several agreements and
relationships to expand and replenish our Internet panel and to develop
and promote various market research products and services. Our key
strategic relationships include those with Excite@Home, Market Facts, NBC,
Gomez Advisors and ZDNet.
OUR FOCUSED GROWTH STRATEGY
Our goal is to expand our position as the leading global Internet-based
market research and polling firm by providing high quality products and services
to our clients. Key elements of our strategy are to:
- maximize the revenue-generating capacity of our Internet panel by
increasing the size and scope of our business with existing and potential
clients;
- establish new strategic relationships worldwide to expand our online panel
rapidly and to facilitate new product development;
- further enhance our scalable, proprietary technology infrastructure;
- continue to build brand awareness of our Internet-based market research
and polling products and services; and
- seek strategic acquisitions of, or investments in, complementary
businesses, products, services or technologies.
5
<PAGE>
CORPORATE INFORMATION
We were incorporated in Delaware on July 1, 1997 under the name Harris Black
International Ltd. and later changed our name to Harris Interactive Inc. We own
all of the capital stock of Gordon S. Black Corporation, a New York corporation.
Substantially all of our operations are currently conducted through Gordon S.
Black Corporation and its wholly owned subsidiaries, GSBC Ohio Corporation, an
Ohio corporation, and Louis Harris & Associates, Inc., a New York corporation.
In 1996, we acquired substantially all of the assets, including the name, of
Louis Harris and Associates, Inc., which was founded in 1959. Our executive
offices are located at 135 Corporate Woods, Rochester, New York 14623. Our
telephone number at that address is (716) 272-9020, and our Internet address is
www.harrisinteractive.com. INFORMATION ON OUR WEBSITE DOES NOT CONSTITUTE PART
OF THIS PROSPECTUS.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY
THAT ADDRESS, AMONG OTHER THINGS:
- THE ACCEPTANCE OF INTERNET-BASED MARKET RESEARCH AND POLLING BY EXISTING
AND POTENTIAL CLIENTS;
- OUR ABILITY TO EXPAND OUR INTERNET PANEL BOTH DOMESTICALLY AND
INTERNATIONALLY;
- OUR ABILITY TO MARKET OUR MULTI-CLIENT MARKET RESEARCH PRODUCTS AND
SERVICES AND HARRIS INTERACTIVE SERVICE BUREAU RESEARCH;
- OUR ABILITY TO ESTABLISH STRATEGIC RELATIONSHIPS;
- OUR ABILITY TO CONTINUE TO DEVELOP AND IMPROVE OUR TECHNOLOGY
INFRASTRUCTURE;
- SIGNIFICANT INCREASES IN COMPETITIVE PRESSURES IN THE MARKET RESEARCH
INDUSTRY; AND
- COSTS OR DIFFICULTIES RELATING TO OUR TRANSITION FROM OUR TRADITIONAL
BUSINESS TO OUR INTERNET-BASED BUSINESS.
THESE FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE SECTIONS OF THIS
PROSPECTUS ENTITLED "PROSPECTUS SUMMARY," "RISK FACTORS," "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AND IN THIS PROSPECTUS GENERALLY. WHEN USED IN THIS
PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS," "PLANS," "BELIEVES,"
"SEEKS" AND "ESTIMATES" AND SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, AS
MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS
PROSPECTUS.
6
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THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock to be outstanding after the
offering................................... shares
Excludes 3,777,200 shares of common stock
issuable upon exercise of outstanding
options, 1,250,000 additional shares of
common stock that have been reserved for
issuance under our 1999 long-term incentive
plan, 500,000 additional shares of common
stock that have been reserved for issuance
under our 1999 employee stock purchase plan
and 216,608 shares of common stock that have
been reserved for issuance upon exercise of
outstanding warrants.
Use of proceeds.............................. For working capital and general corporate
purposes, including expansion of our Internet
panel, development of new technologies,
products and services, and possible strategic
acquisitions or investments. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... HPOL
</TABLE>
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the audited consolidated financial
information for our business. The consolidated financial data for fiscal years
ended June 30, 1995, 1996 and 1997 reflect the results of operations of our
predecessor corporation. You should read this information together with our
audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus and the information under "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from services................................. $10,865 $14,625 $23,327 $26,290 $ 28,965
Cost of services....................................... 7,558 10,209 15,629 16,618 19,086
---------- ---------- ---------- ---------- ---------
Gross profit........................................... 3,307 4,416 7,698 9,672 9,879
Operating expenses:
Database development expenses........................ -- -- -- 2,753 4,505
Selling, general and administrative expenses......... 2,753 3,781 6,391 9,812 14,401
---------- ---------- ---------- ---------- ---------
Total operating expenses........................... 2,753 3,781 6,391 12,565 18,906
---------- ---------- ---------- ---------- ---------
Operating income (loss)................................ 554 635 1,307 (2,893) (9,027)
Other income (deductions).............................. 33 13 (89) (160) 180
---------- ---------- ---------- ---------- ---------
Earnings (loss) before income taxes.................... 587 648 1,218 (3,053) (8,847)
Income tax expense (benefit)........................... 250 260 490 (1,114) --
---------- ---------- ---------- ---------- ---------
Net earnings (loss).................................... 337 388 728 (1,939) (8,847)
Accrued dividends on preferred stock................... -- -- -- -- (1,176)
---------- ---------- ---------- ---------- ---------
Net earnings (loss) available to the holders of common
stock................................................ $ 337 $ 388 $ 728 $ (1,939) $(10,023)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Basic and diluted net earnings (loss) per share........ $ .03 $ .03 $ .06 $ (.16) $ (1.01)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Basic weighted average shares outstanding.............. 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261
Diluted weighted average shares outstanding............ 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261
</TABLE>
The following table is a summary of our consolidated balance sheet data:
- on an actual basis;
- on a pro forma basis after giving effect to the conversion of all of our
outstanding preferred stock into common stock which will occur upon the
closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares
of common stock at an assumed initial public offering price of $
per share, after deducting underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 108 $ 108 $
Working capital.............................................................. 552 552
Total assets................................................................. 14,785 14,785
Mandatory redeemable preferred stock......................................... 15,876 --
Total stockholders' equity (deficit)......................................... (8,496) 7,380
</TABLE>
8
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THAT CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS, INCLUDING OUR AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS.
RISKS RELATED TO OUR BUSINESS
OUR GROWTH WILL DEPEND UPON THE MARKET'S ACCEPTANCE OF INTERNET-BASED MARKET
RESEARCH AND POLLING
The success of our business will depend on our ability to develop and market
products and services that achieve broad market acceptance by our current and
potential clients. These clients must accept the Internet as an attractive and
sustainable substitute medium for traditional methodologies of conducting market
research to which they are accustomed, such as direct mail, telephone-based
surveys, mall intercepts, focus groups and in-person interviews. We have
expended substantial financial and management resources in the development and
growth of our Internet-based market research and polling business. If our
current and potential clients do not accept our Internet-based market research
and polling methodologies, our revenues may not meet expectations or may
decline, and our business would likely suffer.
WE HAVE A LIMITED INTERNET-RELATED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE
US
Historically, we have provided market research and polling services
utilizing traditional methodologies. In September 1997, we began developing our
Internet panel and building the technology infrastructure to provide online
market research and polling services. In November 1997, we introduced our first
Internet-based market research and polling products and services. For fiscal
1999, we recognized $2.9 million in revenues from our Internet-based market
research and polling business, which represented approximately 10% of our total
revenues. Accordingly, we have a limited Internet-related operating history from
which you can evaluate our business and prospects. We face risks and
uncertainties relating to our ability to implement our business plan
successfully. If we are unsuccessful in addressing these risks and
uncertainties, our business, financial condition and results of operations would
likely suffer.
WE WILL NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN IF THE MARKET FOR OUR
INTERNET-BASED MARKET RESEARCH AND POLLING PRODUCTS AND SERVICES DOES NOT
DEVELOP
To date, sales of our traditional market research and polling products and
services, in particular our custom research products, have accounted for a
significant portion of our revenues. For fiscal 1999, we recognized $26.1
million in revenues from our traditional market research and polling business,
which represented approximately 90% of our total revenues. However, our business
plan assumes that our Internet-based products and services will account for a
significant and growing portion of our revenues in the future. If we are
unsuccessful in implementing our business plan, our revenues would likely not
meet expectations or may decline.
WE MUST CONTINUALLY ATTRACT AND RETAIN SKILLED, TECHNICAL, MANAGERIAL,
MARKETING, SALES AND OTHER PERSONNEL OR WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY
Our future success will depend, in part, on our ability to attract, retain
and motivate highly skilled technical, managerial, marketing, sales and client
support personnel. Competition for these personnel is intense, especially in the
Internet industry, and we may be unable to attract, integrate or retain
sufficiently qualified personnel or the number of qualified personnel our
business plan assumes. We
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have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. To the extent that we are unable to
hire and retain skilled employees, our business would likely suffer.
WE RELY HEAVILY ON TWO CLIENTS FOR A SUBSTANTIAL AMOUNT OF OUR REVENUES. IF WE
WERE TO LOSE, OR IF THERE WERE A MATERIAL REDUCTION IN BUSINESS FROM, EITHER ONE
OF THESE CLIENTS, OUR BUSINESS WOULD LIKELY SUFFER
We derive a substantial portion of our total revenues from Xerox Corporation
and Johnson & Johnson. In fiscal 1999, 15% of our total revenues was derived
from Xerox Corporation and 14% of our total revenues was derived from Johnson &
Johnson. In fiscal 1998, 15% of our total revenues was derived from Xerox
Corporation and 19% of our total revenues was derived from Johnson & Johnson. In
fiscal 1997, Xerox Corporation accounted for approximately 22% of our total
revenues. We do not have long-term contracts with either one of these clients.
The loss of, or material reduction in business from, either one of these
clients, without replacement, would have a material adverse effect on our
business, financial condition and results of operations.
WE HAVE INCURRED LOSSES IN RECENT YEARS AND EXPECT TO CONTINUE TO INCUR LOSSES
FOR THE FORESEEABLE FUTURE
Over the past two fiscal years, we have expended approximately $14.3 million
to develop and maintain our Internet capabilities, comprising approximately $7.3
million to develop our Internet panel and approximately $7.0 million to develop
and maintain our technology infrastructure. As a result, we incurred net losses
of $8.8 million in fiscal 1999 and $1.9 million in fiscal 1998, and we have a
stockholders' deficit of $8.5 million as of June 30, 1999. Given the level of
our planned operating expenditures, we expect to continue to incur losses for
the foreseeable future. Furthermore, we base current and future expense levels
on our operating plans and our estimates of future revenues. If our revenues
grow at a slower rate than we anticipate, or if our spending levels exceed our
expectations or cannot be adjusted to reflect slower revenue growth, we may not
be able to achieve profitability. Even if we achieve profitability in the
future, we may be unable to sustain or increase profitability on a quarterly or
annual basis.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE
Our operating results have in the past and may in the future fluctuate
significantly from quarter to quarter. Our operating results are difficult to
forecast given our limited operating history in Internet-based market research
and polling. In some future periods, our results of operations may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock would likely decline.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Factors that have caused our
results to fluctuate in the past or that may affect us in the future include:
- demand for our Internet-based and traditional market research and polling
products and services;
- demand for market research and polling products and services generally;
- our relative mix of Internet-based and traditional market research and
polling businesses;
- technical difficulties or system downtime affecting the Internet generally
or the operation of our website specifically;
- seasonal fluctuations due to decreases in requests for market research and
polling services during the summer and year-end vacation and holiday
periods;
10
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- our ability to increase the size and scope of our Internet panel that we
will use to develop new products and services to generate revenues;
- fluctuations in general economic conditions or the budgets of our clients;
and
- development of competitive products and services.
Some of these factors are within our control and others are outside of our
control.
OUR CONTRACT WITH EXCITE@HOME MAY TERMINATE
We obtain a significant number of our unique cooperative respondents through
our alliance with Excite@Home, a leading Internet portal. Our agreement with
Excite@Home terminates on December 31, 1999. If we are not successful in
negotiating an extension or renewal, or if this contract were terminated by
either party, we would need to develop another reliable source of unique
cooperative respondents with which to build and replenish our online panel. If
we were unable to develop an alternative source, our business, financial
condition and results of operations would likely suffer.
WE DEPEND ON OUR UNIQUE COOPERATIVE RESPONDENTS FOR RESEARCH INFORMATION AND
INCREASED REVENUES
Our success is highly dependent on our ability to obtain and retain
cooperative respondents and to increase the number of cooperative respondents we
have available in our Internet panel. Moreover, our cooperative respondents
voluntarily participate in our surveys, with some inducement to continue to
participate through minimal promotional campaigns. Our ability to increase the
number of cooperative respondents or increase revenues from our Internet panel
may be harmed if:
- a significant number of our current cooperative respondents decide that
they are no longer willing to participate in our surveys;
- we are required to rely on a small number of cooperative respondents for
numerous surveys on a variety of subjects and, as a result, we lose our
respondents due to numerous requests for participation; or
- our cooperative respondents become frustrated with the layout and design
of our questionnaires and, as a result, reduce their participation in our
surveys.
If we were required to replace or retain our cooperative respondents through
increased promotional campaigns, our operating expenses would increase.
Moreover, if the number of cooperative respondents in our Internet panel
decreases or the demographic composition of our Internet panel narrows, our
ability to provide our clients with accurate and statistically projectable
information would likely suffer. Our business cannot grow and will suffer if our
Internet panel becomes unreliable because of its size or because it is no longer
representative of the general population.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
The markets for our products and services are highly competitive. We compete
for clients with market research firms offering Internet-based and traditional
market research and polling services. We expect to face competition in the
future from other traditional market research firms who develop Internet-related
products and services or other companies with access to large databases of
individuals with whom they can communicate on the Internet. These companies may,
either alone or in alliances with other firms, penetrate the Internet-based
market research and polling market.
Many of our current and potential competitors have longer operating
histories and significantly greater financial and marketing resources. These
competitors may be able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, strategic partners and customers. Further, our
competitors and potential competitors may develop technologies that are superior
to ours, or that achieve greater market
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<PAGE>
acceptance than our own. The above factors, either alone or in combination,
would likely result in a loss of market share and reduced levels of revenue and
profitability.
THERE ARE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
As part of our continued strategy to expand our Internet panel, our
technology infrastructure and our products and services, we may acquire or make
investments in complementary businesses, services, products or technologies if
appropriate opportunities arise. We may be unable to identify suitable
acquisition or investment candidates at reasonable prices or on reasonable
terms. Risks involved with acquisitions are numerous, and include:
- the difficulties in the integration and assimilation of the operations,
technologies, products and personnel of the acquired business;
- the diversion of management's attention from other business concerns;
- the availability of favorable acquisition financing; and
- the potential loss of key employees of any acquired business.
Furthermore, future acquisitions may result in, among other things, the use
of significant amounts of cash, potentially dilutive issuances of equity
securities, and amortizable expenses related to goodwill and other intangible
assets. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL COULD DISRUPT OUR
OPERATIONS AND RESULT IN LOSS OF REVENUES
Our future success depends to a significant extent on the continued services
of our key technical and senior management personnel and their ability to
execute our business plan. The loss of the services of any of these persons, or
certain other key employees, could seriously harm our business. None of our
officers or key employees is bound by an employment agreement, and our
relationships with our officers and key employees are at will. We carry "key
person" life insurance on Gordon S. Black, our Chairman and Chief Executive
Officer. We do not have "key person" life insurance policies covering any of our
other employees.
WE ARE GROWING RAPIDLY AND MUST EFFECTIVELY MANAGE AND SUPPORT OUR GROWTH FOR
OUR BUSINESS STRATEGY TO SUCCEED
We have grown rapidly and will need to continue to grow in all areas of
operation to execute our business strategy. Managing and sustaining our growth
will place significant demands on management as well as on our administrative,
operational, technical and financial systems and controls. If we are unable to
manage our growth effectively, we would have to divert resources away from the
continued growth of our business and the implementation of our business
strategy.
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE COMPETITION OF
THE MARKET RESEARCH AND POLLING INDUSTRY TO SUCCEED
The market research and polling industry is characterized by intense
competition, frequent new product and service introductions and evolving
methodologies. The recent growth of the Internet exacerbates these market
characteristics. To succeed, we will need to develop and integrate effectively
the various software programs, technologies and methodologies required to
enhance and improve our market research product and service offerings and manage
our business. Any enhancements or new services or products must meet the
requirements of our current and potential clients and achieve significant market
acceptance. Our success also will depend on our ability to adapt to rapidly
changing technologies by improving continually the performance features and
reliability of our products and services. We may experience difficulties that
could delay or prevent the successful development,
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<PAGE>
introduction or marketing of new products and services. We could also incur
substantial costs if we need to modify our services or infrastructure to adapt
to these changes.
THE PERFORMANCE OF OUR INTERNET-BASED TECHNOLOGY INFRASTRUCTURE IS CRITICAL TO
OUR BUSINESS AND OUR REPUTATION
Any system failure, including network, software or hardware failure, that
causes an interruption in our ability to communicate with our Internet panel or
in our ability to collect research data could result in reduced revenue, and
could impair our reputation.
Our systems and operations are vulnerable to damage or interruption from
fire, earthquake, power loss, telecommunications failure, break-ins and similar
events and we depend on a third party for protection of most of our systems from
these events. We have no formal disaster recovery plan and our business
interruption insurance may not adequately compensate us for any losses that may
occur due to any failures in our system and any resulting interruptions in our
communications with our Internet panel or in our data collection efforts. In
addition, our servers and software must be able to accommodate a high volume of
traffic. Any substantial increase in demands on our servers will require us to
expand and adapt our network infrastructure. If we were unable to add additional
software and hardware to accommodate increased demand, unanticipated system
disruptions and slower data collection would likely result. Moreover, our
Internet panel members communicate with us using various Internet service
providers. These providers have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems. Any system delays or failures of service providers to
our Internet panel could adversely affect the results of our Internet-based
research data, which could have a material adverse effect on our business,
financial condition and results of operations.
YEAR 2000 PROBLEMS WITH OUR INTERNAL SYSTEMS AND THE SYSTEMS OF OUR SUPPLIERS
AND WEB INFRASTRUCTURE COULD REQUIRE SIGNIFICANT TIME AND EXPENSE AND COULD
REDUCE OUR FUTURE REVENUES
We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure are information
technology, including computers and software which we purchase or license from
third parties and internally developed software, and non-information technology,
including telephone systems and other equipment used internally. The reasonably
likely, worst case scenario for year 2000 issues would be the existence of a
significant defect in key hardware or software without an immediately available
solution. If a problem is detected in these components during our year 2000
compliance testing process, these components will need to be revised or
replaced. If our present efforts to address the year 2000 compliance issues are
not successful, or if suppliers and other third parties with which we do
business do not successfully address these issues, our business would likely
suffer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY
Our success and ability to compete substantially depend on our internally
developed technologies and trademarks, which we protect through a combination of
patent, copyright, trade secret and trademark laws. However, patent applications
or trademark registrations may not be approved. Even if they are approved, our
patents or trademarks may be successfully challenged by others or invalidated.
If our trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks would be restricted unless we enter into
arrangements with the third-party owners, which might not be possible on
commercially reasonable terms or at all. We have trademark registrations for a
number of our trademarks, including the HARRIS POLL. If we were prevented from
using our HARRIS POLL, our brand recognition and business would likely suffer.
We would have to make substantial financial commitments to promote and rebuild
our brand identity and loyalty with our
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<PAGE>
clients and members of our Internet panel, reimplement our website and devise
new hard copy materials, such as promotional brochures and similar marketing
materials. In addition, the prior owner of Louis Harris & Associates sold the
HARRIS name to a third party for use in Europe and the European portion of the
former Soviet Union. As a result, in those territories, we do not have rights to
use the HARRIS name in any form.
We generally enter into confidentiality or license agreements with parties
with whom we do business, and generally control access to and distribution of
our technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use our technologies. The steps we
have taken may not prevent misappropriation of our technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We also rely on off-the-shelf technologies that we license from third
parties. "Off-the-shelf" technology refers to generally commercially available
software that is not customized for a particular user. These third party
licenses may not continue to be available to us on commercially reasonable terms
or at all. The inability to use licensed technology important to our business
could require us to obtain substitute technology of lower quality or performance
standards or at a greater cost. In the future, we may seek to license additional
technology to enhance our current technology infrastructure. We cannot be
certain that any such licenses will be available on commercially reasonable
terms or at all. The loss any of these technology licenses could result in
delays in providing our products and services until equivalent technology, if
available, is identified, licensed and integrated.
POSSIBLE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BY THIRD PARTIES COULD BE
COSTLY
We cannot guarantee that infringement or other claims will not be asserted
or prosecuted against us in the future, whether resulting from our
internally-developed intellectual property or licenses or content from third
parties. Any future assertions or prosecutions could be time consuming, result
in costly litigation and diversion of technical and management personnel or
require us to pay money damages, introduce new trademarks, develop
non-infringing technology, or enter into royalty or licensing agreements. Any of
those events could substantially increase our operating expenses and potentially
reduce our expected revenues. These royalty or license agreements, if required,
may not be available on acceptable terms, or at all. Our ability to execute our
business strategy will suffer if a successful claim of infringement is brought
against us and we are unable to introduce new trademarks, develop non-infringing
technology or license the infringed or similar technology on a timely basis.
Moreover, our general liability insurance may not cover, or may not be adequate
to cover all costs incurred in, defense of potential trademark infringement
claims, or to indemnify us for all liability that may be imposed.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO ACHIEVE OUR BUSINESS OBJECTIVES
We may need to raise additional funds in the future to fund the expansion of
our Internet panel and the marketing of our products and services, or to acquire
complementary businesses, technologies or services. Any required additional
financing may be unavailable on terms favorable to us, or at all. If we raise
additional funds by issuing equity securities, you may experience significant
dilution of your ownership interest and such securities may have rights senior
to those of the holders of our common stock. If additional financing is not
available when required or is not available on acceptable terms, we may be
unable to fund the development and expansion of our business, promote our brand
name successfully, take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and results of operations. We currently anticipate
that our available cash resources, combined with the net proceeds from this
offering and financing available under our existing bank line of credit, will be
sufficient to meet our anticipated needs for the next 24 months.
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<PAGE>
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS IS LARGELY DEPENDENT ON THE DEVELOPMENT AND GROWTH OF THE INTERNET,
WHICH MAY NOT GROW, OR IF IT DOES GROW, MAY BE UNABLE TO SUPPORT THE DEMANDS
PLACED ON IT BY THIS GROWTH
If Internet usage in general does not continue to grow, we may be unable to
attract additional cooperative respondents to our Internet panel or clients for
our Internet-based market research and polling products and services. If
Internet usage does continue to grow, the Internet infrastructure may be unable
to support the demands placed on it by this growth and its performance and
reliability may decline. Varying factors could inhibit future growth or the
ability of the Internet infrastructure to adequately support the growth in
Internet usage, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- unavailability of cost effective, high speed service.
Our Internet panel depends on Internet service providers, online service
providers and other website operators for access to the Internet and our
websites. Many websites have experienced interruptions in their service as a
result of outages and other delays occurring throughout the Internet network
infrastructure. If Internet usage declines or grows at a slower rate than
expected, our ability to retain our Internet panel, add further members to our
Internet panel and gather research data and information quickly will decrease,
which would likely harm our business.
CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR INTERNET ACTIVITIES OR RESULT
IN ADDITIONAL COSTS OF DOING BUSINESS ON THE INTERNET
There are currently few laws or regulations that specifically regulate
communications on the Internet. However, we expect more stringent laws and
regulations to be enacted due to the increasing popularity and use of the
Internet. Any new legislation or regulations or the application of existing laws
and regulations to the Internet could limit our effectiveness in conducting
Internet-based market research and polling, and increase our operating expenses.
In addition, the application of existing laws to the Internet could expose us to
substantial liability for which we might not be indemnified by content providers
or other third parties. Existing laws and regulations currently address, and new
laws and regulations are likely to address, a variety of issues, including the
following:
- user privacy and expression;
- the rights and safety of children;
- intellectual property;
- information security;
- anti-competitive practices;
- the convergence of traditional channels with Internet commerce;
- taxation and pricing; and
- the characteristics and quality of products and services.
Those laws that do reference the Internet have not yet been interpreted by
the courts and their applicability and scope are not defined. Any new laws or
regulations relating to the Internet could adversely affect our business.
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<PAGE>
INTERNET SECURITY CONCERNS COULD HINDER INTERNET COMMUNICATIONS AND OUR ABILITY
TO OBTAIN SUFFICIENT AND RELIABLE RESPONSES FROM OUR COOPERATIVE RESPONDENTS
The need to transmit confidential information securely over the Internet has
been a significant barrier to communications over the Internet. Internet
security concerns could cause some cooperative respondents to reduce their
participation levels or to terminate their membership in our Internet panel. We
could also face concerns with the accuracy and reliability of our data collected
over the Internet. This could harm our creditability with our current clients.
If our clients become dissatisfied, they may stop using our products and
services. In addition, dissatisfied and lost clients could damage our
reputation. A loss of cooperative respondents or a loss of clients would hurt
our efforts to generate increased revenues.
WE MAY BE LIABLE FOR THE USE OR SALE OF THE PERSONAL INFORMATION OF OUR INTERNET
PANEL
If third parties were able to penetrate our network security or otherwise
misappropriate our cooperative respondents' personal information, we could be
subject to liability claims. This could include claims for misuse of personal
information, such as for unauthorized marketing purposes. These claims could
result in costly litigation. We may be required to expend significant financial
and management resources to protect against the threat of breaches or to
alleviate problems caused by such breaches, which could have a material adverse
effect on our business, financial condition and results of operations. In
addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if our privacy practices are
investigated.
RISKS ASSOCIATED WITH CONDUCTING BUSINESS ON A GLOBAL LEVEL
Key components of our strategy are extension of our Internet-based market
research and polling products and services to clients globally, expansion of our
Internet panel to include global cooperative respondents and expansion of our
strategic alliances globally. The following risks are inherent in doing business
on a global level:
- export controls relating to encryption technology;
- more restrictive privacy laws;
- unexpected changes in regulatory requirements;
- lower penetration of Internet use globally;
- currency exchange fluctuations;
- problems in collecting accounts receivable and longer collection periods;
- potentially adverse tax consequences; and
- political instability and Internet access restrictions.
We have little or no control over these risks, and we do not have extensive
experience in global operations or in dealing with these risks.
WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER THE
INTERNET
We may be subject to claims relating to content that is published on or
downloaded from our websites. We also could be subject to liability for content
that is accessible from our website through links to other websites. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type, such as defamation or trademark infringement, or may not be
adequate to
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cover all costs incurred in defense of potential claims or to indemnify us for
all liability that may be imposed. In addition, any claims of this type, with or
without merit, would result in the diversion of our financial resources and
management personnel.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS
The market prices of the securities of Internet-related companies have been
especially volatile and these securities may be overvalued. The market price of
our common stock is likely to be subject to wide fluctuations. If our revenues
do not grow or grow more slowly than we anticipate, or if operating or capital
expenditures exceed our expectations and cannot be adjusted accordingly, or if
some other event adversely affects us, the market price of our common stock
would decline. In addition, if the market for Internet-related stocks or the
stock market in general experiences a loss in investor confidence or otherwise
falls, the market price of our common stock could fall for reasons unrelated to
our business, financial condition and results of operations. Investors might be
unable to resell their shares of our common stock at or above the offering
price. In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. If we were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of management's
attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales of a
large number of shares in the market after this offering, or the perception that
such sales could occur. This may make it more difficult for us to raise funds
through future offerings of our common stock. See "Shares Eligible for Future
Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE PRO FORMA AS ADJUSTED
NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE
The estimated initial public offering price is substantially higher than the
pro forma as adjusted net tangible book value of $ per share that our
outstanding common stock will have immediately after this offering. Accordingly,
if you purchase shares of our common stock, you will incur immediate and
substantial dilution of $ per share. If the holders of outstanding
options or warrants exercise those options or warrants, you will suffer further
dilution.
WE HAVE DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING
Our management will have broad discretion with respect to the expenditure of
the net proceeds of this offering. You will be relying on the judgment of our
management regarding the application of these net proceeds. See "Use of
Proceeds."
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DELAY OR PREVENT AN ACQUISITION OF US
Our restated certificate of incorporation provides for the division of our
board of directors into three classes and provides our board of directors with
the power to issue shares of preferred stock without stockholder approval. This
preferred stock could have voting rights, including voting rights that could be
superior to that of our common stock, and the board of directors has the power
to determine these voting rights. In addition, Section 203 of the Delaware
General Corporation Law contains provisions which impose restrictions on
stockholder action to acquire our company. The effect of these provisions of our
amended and restated certificate of incorporation and Delaware law provisions
could discourage third parties from seeking to obtain control of our company.
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<PAGE>
OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND AFFAIRS
We anticipate that our executive officers, our directors, members of their
families and entities affiliated with them together will beneficially own
approximately % of our outstanding common stock following the completion
of this offering, or approximately % of our outstanding common stock in
the event that the underwriters' over-allotment option is exercised in full. As
a result, these stockholders will be able to exercise substantial influence over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of our company.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock in this
offering at the assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $ million. If the underwriters'
over-allotment option is exercised in full, we estimate that net proceeds will
be $ million.
We intend to use the net proceeds of this offering for working capital and
general corporate purposes, including expansion of our Internet panel and
development of new technologies, products and services. We believe opportunities
may exist to expand our current business through acquisitions or investments in
complementary businesses, technologies, services or products, and we may utilize
a portion of the net proceeds for these purposes. We are not currently a party
to any contracts or letters of intent with respect to any acquisitions or
investments. As of the date of this prospectus, we cannot identify specific uses
of the net proceeds. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering. Pending their uses,
we intend to invest the net proceeds of this offering in interest-bearing bank
accounts or in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We presently intend to retain all of our future earnings, if
any, for use in the operation and expansion of our business and do not expect to
pay any cash dividends in the foreseeable future. Future decisions regarding
cash dividends on our common stock will be made by our board of directors. These
decisions will depend on our results of operations, financial position, capital
requirements, general business conditions and restrictions imposed by any
financing arrangements. Our revolving credit agreement currently prohibits the
payment of dividends, and we anticipate that any future credit agreement would
prohibit or restrict the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
- on an actual basis;
- on an unaudited pro forma basis to reflect the conversion of all of our
outstanding shares of preferred stock into common stock, which will occur
upon the closing of this offering; and
- on an unaudited pro forma as adjusted basis to reflect the sale of the
shares of common stock at the assumed initial public offering price
of $ per share in this offering after deducting underwriting discounts
and commissions and estimated offering expenses to be paid by us. See "Use
of Proceeds."
You should read this information together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------
PRO FORMA PRO FORMA
ACTUAL ------------- AS ADJUSTED
----------- (IN THOUSANDS) -----------
<S> <C> <C> <C>
Mandatory redeemable preferred stock, par value $.01 per share, 147,000
shares authorized; 147,000 shares issued and outstanding, actual; no
shares issued and outstanding pro forma and pro forma as adjusted..... $ 15,876 $ -- $
Stockholders' equity (deficit):
Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, no shares issued and outstanding, actual, pro forma and
pro forma as adjusted............................................... -- --
Common stock, par value $.01 per share, 28,000,000 shares authorized,
actual and pro forma; par value $.001 per share, 100,000,000 shares
authorized, pro forma as adjusted; 10,870,692 shares issued and
outstanding, actual; 22,661,016 shares issued and outstanding pro
forma; and shares issued and outstanding pro forma as
adjusted............................................................ 109 227
Additional paid-in capital.............................................. 4,813 19,395
Unamortized deferred compensation....................................... (650) (650)
Accumulated deficit..................................................... (12,768) (11,592)
----------- ------------- -----------
Total stockholders' (deficit) equity.................................. (8,496) 7,380
----------- ------------- -----------
Total capitalization................................................ $ 7,380 $ 7,380 $
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, as of June 30, 1999, we may issue additional shares of common stock
under the following plans and arrangements:
- 3,777,200 shares underlying stock options issued and outstanding at a
weighted average exercise price of $0.48 per share; and
- 260,960 shares issuable upon exercise of warrants outstanding at an
exercise price of $1.50 per share.
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<PAGE>
DILUTION
Our pro forma net tangible book value at June 30, 1999 was approximately $
million, or approximately $ per share of common stock. Pro
forma net tangible book value per share represents total tangible assets, less
total liabilities, divided by the pro forma number of shares of common stock
outstanding after giving effect to the conversion of all of our outstanding
preferred stock into common stock.
Dilution to net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the shares of common stock offered by this prospectus and after
deducting underwriting discounts and commissions and estimated offering expenses
to be paid by us, our pro forma as adjusted net tangible book value as adjusted
at June 30, 1999 would have been approximately $ million, or
$ per pro forma as adjusted share of common stock. This represents
an immediate increase in net tangible book value of $ per share to
our existing stockholders and an immediate dilution in net tangible book value
of $ per share to new investors of common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ --
Pro forma net tangible book value per share as of June 30, 1999.......... $
Increase per share attributable to this offering......................... --
---------
Pro forma net tangible book value per share after this offering..........
Dilution per share to new investors...................................... $
---------
---------
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma net tangible book value at June 30, 1999 would have been approximately
$ per share, representing an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors.
The following table sets forth, on a pro forma basis as of June 30, 1999,
after giving effect to:
- the conversion of all of our outstanding preferred stock into common
stock; and
- the sale of common stock to investors in this offering;
the number of shares of common stock purchased from us, the total price
paid, and the average price per share paid by the existing stockholders and new
public investors, before deducting underwriting discounts and commissions and
estimated offering expenses to be paid by us, at the assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED AVERAGE
------------------------ ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................................... % $ % $
New investors...................................................
--- --- ----- ---
Totals.......................................................... 100% $ % $
--- --- ----- --- -----
--- --- ----- --- -----
</TABLE>
The above discussion assumes no exercise of outstanding options or warrants.
You will experience additional dilution in the event these options or warrants
are exercised.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected audited consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements and
the notes to those statements and other financial information appearing
elsewhere in this prospectus. The selected consolidated statement of operations
data for each of the years ended June 30, 1997, 1998 and 1999 and the selected
consolidated balance sheet data as of June 30, 1998 and 1999 are derived from
our audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus. The consolidated statement of operations
data for the years ended June 30, 1995 and 1996 and the consolidated balance
sheet data as of June 30, 1995, 1996 and 1997 are derived from our audited
financial statements not included in this prospectus. The consolidated financial
data for the years ended June 30, 1995, 1996 and 1997 reflect the results of
operations and balance sheet data of our predecessor corporation. The historical
results presented below are not necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from services................................ $10,865 $14,625 $23,327 $26,290 $ 28,965
Cost of services...................................... 7,558 10,209 15,629 16,618 19,086
------------ ------------ ------------ ------------ ----------
Gross profit.......................................... 3,307 4,416 7,698 9,672 9,879
Operating expenses:
Database development expenses..................... -- -- -- 2,753 4,505
Selling, general and administrative expenses...... 2,753 3,781 6,391 9,812 14,401
------------ ------------ ------------ ------------ ----------
Total operating expenses........................ 2,753 3,781 6,391 12,565 18,906
------------ ------------ ------------ ------------ ----------
Operating income (loss)............................... 554 635 1,307 (2,893) (9,027)
Other income (deductions)............................. 33 13 (89) (160) 180
------------ ------------ ------------ ------------ ----------
Earnings (loss) before income taxes................... 587 648 1,218 (3,053) (8,847)
Income tax expense (benefit).......................... 250 260 490 (1,114) --
------------ ------------ ------------ ------------ ----------
Net earnings (loss)................................... 337 388 728 (1,939) (8,847)
Accrued dividends on preferred stock.................. -- -- -- -- (1,176)
------------ ------------ ------------ ------------ ----------
Net earnings (loss) available to holders of common
stock............................................... $ 337 $ 388 $ 728 $(1,939) $(10,023)
------------ ------------ ------------ ------------ ----------
------------ ------------ ------------ ------------ ----------
Basic and diluted net earnings (loss) per share....... $ .03 $ .03 $ .06 $ (.16) $ (1.01)
------------ ------------ ------------ ------------ ----------
------------ ------------ ------------ ------------ ----------
Basic weighted average shares outstanding............. 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261
Diluted weighted average shares outstanding........... 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 1,474 $ 1,073 $ 349 $ 4 $ 108
Working capital................................................ 487 (246) (31) (2,196) 552
Total assets................................................... 3,504 6,628 9,721 9,798 14,785
Long-term debt, excluding current installment.................. -- 1,100 700 400 --
Mandatory redeemable preferred stock........................... -- -- -- -- 15,876
Total stockholders' equity (deficit)........................... $ 1,325 $ 1,663 $ 2,392 $ 947 $ (8,496)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We provide market research and polling products and services to a broad
range of companies, non-profit organizations and governmental agencies. Since
1959, we have provided these services utilizing traditional market research and
polling methodologies, such as direct mail, telephone-based surveys, mall
intercepts, focus groups and in-person interviews. In September 1997, we began
developing our Internet panel and building the technology infrastructure to
provide online market research and polling services. In November 1997, we
introduced our first Internet-based market research and polling products and
services.
Through fiscal 1998, all of our revenues were derived from custom research
projects using traditional market research and polling methodologies. In fiscal
1999, revenues from those sources represented 90% of our total revenues, while
revenues from Internet-based products represented 10% of total revenues. We
consider all of the revenues from a project to be Internet-based whenever 50% or
more of the surveys used in the completed project were completed by respondents
over the Internet. We anticipate that, as our online business grows, revenues
derived from Internet-based custom research and multi-client products and Harris
Interactive Service Bureau research will represent the dominant portion of our
total revenues.
We generally perform traditional and Internet-based custom research services
on a fixed fee basis in response to client-generated requests. We sell our
multi-client research products on a periodic subscription basis, typically
quarterly or annual. Harris Interactive Service Bureau performs research for
other market research firms on a project-by-project basis in response to
requests from those firms. We provide customer relationship services on an
outsourced basis to our clients on a project-by-project basis.
Revenues under fixed fee arrangements are recognized on a percentage of
completion method based on the ratio of costs incurred to total estimated costs.
These revenues include amounts billed to our clients to cover subcontractor
costs and other direct expenses. Provision for estimated contract losses, if
any, is made in the period such losses are determined. Subscription revenues
will be recognized upon delivery of the research product.
Gross margin represents revenues less variable project costs and associated
direct labor. Variable project costs related to market research and polling
services utilizing traditional methodologies include interviewer payroll,
subcontractor charges, respondent incentives, telecommunication charges and
mailing costs. In contrast, variable costs related to Internet-based market
research and polling methodologies are nominal. Direct labor costs consist
primarily of survey design costs and are comparable for both traditional and
Internet-based methodologies. We anticipate that our gross margins will increase
as the percentage of revenues we generate from Internet-based products and
services increases.
Operating expenses consist primarily of database development costs and
selling, general and administrative expenses. Database development expenses are
the expenses we incur in connection with the ongoing development of our Internet
panel, primarily through our strategic alliance with Excite@Home. Those costs
are expensed as incurred. Selling expenses consist primarily of marketing
personnel and program expenses, public relations advertising and promotion
costs, commissions and telemarketing costs and other marketing expenses. General
and administrative expenses consist of
23
<PAGE>
salaries, payroll taxes, benefits and related costs for both technology
infrastructure development and general corporate functions, occupancy costs and
depreciation.
Other income (deductions) consists exclusively of net interest income or net
interest expense in each fiscal year.
We had net losses of $8.8 million in fiscal 1999 and $1.9 million in fiscal
1998 and net earnings of $728,000 in fiscal 1997. The net losses incurred in
fiscal 1999 and 1998 reflect our substantial expenditures for the development of
our technology infrastructure and Internet database necessary for our transition
from traditional to Internet-based market research and polling methodologies. As
of June 30, 1999, we had a stockholders' deficit of $8.5 million. We expect to
continue to incur losses for the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for
the periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1997 1998 1999
--------- --------- ---------
Revenues from services......................................... 100.0% 100.0% 100.0%
Cost of services............................................... 67.0 63.2 65.9
Gross profit................................................... 33.0 36.8 34.1
Database development expenses.................................. 0.0 10.5 15.6
Selling, general and administrative expenses................... 27.4 37.3 49.7
Operating income (loss)........................................ 5.6 (11.0) (31.2)
Interest income (expense), net................................. (0.4) (0.6) 0.6
Net earnings (loss)............................................ 3.1% (7.4)% (30.5)%
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
REVENUES FROM SERVICES. Total revenues increased 10.2% to $29.0 million in
fiscal 1999 from $26.3 million in fiscal 1998. The increase in total revenues
was due to the initial market penetration of our Internet-based market research
products which contributed $2.9 million, or 10% of total revenues, in fiscal
1999. Revenues from our market research and polling products and services
utilizing traditional methodologies were relatively unchanged as we focused our
marketing efforts on our Internet-based market research products and services.
GROSS MARGIN. Gross margin decreased to 34.1% in fiscal 1999 from 36.8% in
fiscal 1998 due primarily to a change in project mix and the substantial direct
expenses incurred in connection with the development of multi-client products,
from which only nominal revenues were recognized in fiscal 1999.
DATABASE DEVELOPMENT EXPENSES. Database development expenses increased
63.6% to $4.5 million in fiscal 1999 from $2.8 million in fiscal 1998. The
increase in fiscal 1999 reflects database development expenses incurred over a
full fiscal year and an increased rate of name acquisition for our Internet
panel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 46.8% to $14.4 milion in fiscal 1999 from $9.8
million in fiscal 1998. As a percentage of total revenues, selling, general and
administrative expenses increased to 49.7% in fiscal 1999 from 37.3% in fiscal
1998. These increases were primarily due to higher costs associated with the
development of new products, services and technologies for the Internet.
24
<PAGE>
NET INTEREST INCOME (EXPENSE). We had net interest income of $180,000 in
fiscal 1999 and net interest expense of $160,000 in fiscal 1998. We had net
interest income in fiscal 1999 as a result of paying down our long-term debt and
the short-term investment of the proceeds of redeemable preferred stock issued
in July 1998 to finance our database development expenses. We had net interest
expense in fiscal 1998 primarily due to higher levels of indebtedness incurred
principally to finance database development expenses.
INCOME TAXES. We incurred net losses in both fiscal 1999 and fiscal 1998.
As a result of our net losses, we had no income tax expense in either year. In
fiscal 1998, we recognized a tax benefit due in large part to the availability
of federal net operating loss carrybacks. No such carryback was available in
fiscal 1999 and therefore we did not recognize an income tax benefit in that
year. As of June 30, 1999, we had approximately $9.1 million and $11.1 million
of federal and state net operating loss carryforwards, respectively, available
to offset future taxable income. These carryforwards expire at various times
through 2019.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES FROM SERVICES. Total revenues increased 12.7% to $26.3 million in
fiscal 1998 from $23.3 million in fiscal 1997. In both years, all of our
revenues were earned from custom research services utilizing traditional polling
methodologies. The increase in total revenues in fiscal 1998 was due to growth
in our business from new and existing clients.
GROSS MARGIN. Gross margin increased to 36.8% in fiscal 1998 from 33.0% in
fiscal 1997 due primarily to a change in project mix.
DATABASE DEVELOPMENT EXPENSES. Database development expenses in fiscal 1998
were $2.8 million. Since we commenced the development of our Internet panel in
the first quarter of fiscal 1998, we incurred no database development expenses
in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 53.5% to $9.8 milion in fiscal 1998 from $6.4
million in fiscal 1997. As a percentage of total revenues, selling, general and
administrative expenses increased to 37.3% in fiscal 1998 from 27.4% in fiscal
1997. The increases were primarily due to higher costs associated with the
development of new products, services and technologies for the Internet.
NET INTEREST INCOME (EXPENSE). Net interest expense increased to $161,000
in fiscal 1998 from $89,000 in fiscal 1997. The increase in interest expense was
due to higher levels of indebtedness incurred principally to finance database
development expenses.
INCOME TAXES. We incurred a net loss in fiscal 1998. As a result of our net
loss, we recognized a tax benefit due in large part to the availability of
federal net operating loss carrybacks. In fiscal 1997, we had net earnings of
$728,000, and we recognized federal income tax expense of $390,000 and state
income tax expense of $100,000.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited consolidated quarterly statement of
operations data for each of our eight most recent quarters ended June 30, 1999.
In management's opinion, this information has been prepared on the same basis as
the audited consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments necessary for the fair
presentation of the unaudited information for the periods presented. This
information should be read in conjunction with our audited consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus. The results of operations for any quarter are not necessarily
indicative of results that may be expected for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1998 1998 1998 1998 1999
--------------- --------------- ----------- ----------- --------------- ------------- -----------
<CAPTION>
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from services... $ 5,517 $ 6,410 $ 7,320 $ 7,043 $ 6,530 $ 6,935 $ 6,462
Cost of services......... 3,814 4,046 4,241 4,517 4,133 4,637 4,291
------ ------ ----------- ----------- ------- ------------- -----------
Gross profit............. 1,703 2,364 3,079 2,526 2,397 2,298 2,171
Operating expenses:
Database development
expenses............... -- -- -- 2,753 561 1,751 1,233
Selling, general and
administrative
expenses............... 2,063 2,571 2,450 2,728 2,832 3,163 3,520
------ ------ ----------- ----------- ------- ------------- -----------
Operating (loss)
income................. (360) (207) 629 (2,955) (996) (2,616) (2,582)
Other (deductions)
income................. (29) (30) (49) (52) 23 96 31
------ ------ ----------- ----------- ------- ------------- -----------
Earnings (loss) before
income taxes........... (389) (237) 580 (3,007) (973) (2,520) (2,551)
Income tax (benefit)
expense................ (142) (87) 212 (1,097) -- -- --
------ ------ ----------- ----------- ------- ------------- -----------
Net (loss) earnings...... (247) (150) 368 (1,910) (973) (2,520) (2,551)
Accrued dividends on
preferred stock........ -- -- -- -- (294) (294) (294)
------ ------ ----------- ----------- ------- ------------- -----------
Net (loss) earnings
available to common
stock.................. $ (247) $ (150) $ 368 $ (1,910) $ (1,267) $ (2,814) $ (2,845)
------ ------ ----------- ----------- ------- ------------- -----------
------ ------ ----------- ----------- ------- ------------- -----------
SELECTED RESPONDENT DATA:
Number of cooperative
respondents at end of
quarter................ -- 254 461 606 1,035 1,418 3,021
<CAPTION>
<S> <C>
JUNE 30,
1999
-----------
<S> <C>
Revenues from services... $ 9,038
Cost of services......... 6,025
-----------
Gross profit............. 3,013
Operating expenses:
Database development
expenses............... 960
Selling, general and
administrative
expenses............... 4,886
-----------
Operating (loss)
income................. (2,833)
Other (deductions)
income................. 30
-----------
Earnings (loss) before
income taxes........... (2,803)
Income tax (benefit)
expense................ --
-----------
Net (loss) earnings...... (2,803)
Accrued dividends on
preferred stock........ (294)
-----------
Net (loss) earnings
available to common
stock.................. $ (3,097)
-----------
-----------
SELECTED RESPONDENT DATA:
Number of cooperative
respondents at end of
quarter................ 3,552
</TABLE>
Our revenues and operating results fluctuate on a quarter-to-quarter basis
and may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside our control. For more detailed information
regarding these factors, see "Risk Factors--Fluctuations in our quarterly
operating results may cause our stock price to decline."
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through earnings from operations,
bank financings and, more recently, private placements of our common and
preferred stock. As of June 30, 1999, our sources of liquidity consisted of
approximately $100,000 of cash and cash equivalents, and a $1.5 million line of
credit with a commercial bank.
In July 1999, we increased the total amount available under our line of
credit from $1.5 million to $5.0 million to provide additional funds for
continued development of our Internet panel and to meet working capital
requirements. The interest rate on borrowings up to $2.0 million is prime rate
plus 1.0%, and on borrowings in excess of $2.0 million the interest rate is
10.0% to 12.0%, depending on the period of time that the borrowings remain
outstanding. As of June 30, 1999, the prime rate was
26
<PAGE>
7.75%. This line of credit is collateralized by all of our assets and is
repayable on demand. Outstanding borrowings under our line of credit were
$291,000 as of June 30, 1999 and $2.2 million as of June 30, 1998.
Net cash used in operating activities was $8.2 million in fiscal 1999 and
$1.0 million in fiscal 1998. Net cash used in operating activities in each of
these periods was primarily the result of net operating losses.
Net cash used in investing activities was $4.3 million in fiscal 1999 and
$1.0 million in fiscal 1998. Net cash used in investing activities in each
period was primarily related to capital expenditures associated with our
Internet infrastructure development and facilities expansion.
Net cash provided by financing activities was $12.6 million in fiscal 1999
and $1.7 million in fiscal 1998. In fiscal 1999, our financing activities
consisted primarily of a private placement of preferred stock with net proceeds
of $14.1 million in the first quarter, and the issuance of common stock to a
long-term participant in our Harris Interactive Service Bureau with net proceeds
of $4.1 million in the fourth quarter. These net proceeds were partially offset
by the repurchase of $3.0 million of common stock from two of our executive
officers and several other stockholders, the repayment of $1.9 million on our
line of credit and principal repayments of $700,000 on our long-term debt. In
fiscal 1998, our financing activities consisted primarily of a $1.6 million
increase in short-term borrowings and the issuance of common stock upon exercise
of stock options in the amount of $500,000. These proceeds were partially offset
by $400,000 in principal repayments on our long-term debt.
As of June 30, 1999, we had no material commitments for capital
expenditures. However, we anticipate continuing increases in our capital
expenditures and working capital requirements consistent with our anticipated
growth in operations, Internet infrastructure and personnel. We currently
believe that our available cash and cash equivalents and our line of credit,
combined with the net proceeds from this offering, will be sufficient to meet
our anticipated needs for at least the next 24 months. Our capital requirements
depend on numerous factors, including market acceptance of our products and
services, the resources we allocate to the continuing development of our
Internet infrastructure and Internet panel, marketing and selling of our
services, our promotional activities and other factors.
We may need to raise additional funds in future periods through public or
private financings or other arrangements:
- to fund further development of our database and our technology
infrastructure;
- to fund facilities expansion;
- to develop new or enhance existing services and products;
- to respond to competitive pressures; and
- to acquire or invest in complementary businesses, services or products.
Any additional financing, if needed, might not be available on favorable
terms or at all. Failure to raise capital when needed could harm our business,
financial condition and results of operations. If additional funds are raised
through the issuance of equity securities, further dilution could result. In
addition, any securities issued might have rights, preferences or privileges
senior to our common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software development or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. We expect to
27
<PAGE>
adopt the provisions in fiscal 2000, but have not yet determined whether that
adoption will have a material effect.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to interest rate sensitivity, which
is affected by changes in the general level of United States interest rates. We
intend to invest the net proceeds of this offering, pending their use, in
interest-bearing bank accounts or in short-term, interest-bearing,
investment-grade securities. Because our investments will be short-term, we
believe that we are not subject to any material market risk exposure.
We do not have any foreign currency hedging or other derivative financial
instruments as of June 30, 1999.
YEAR 2000 COMPLIANCE
We may be exposed to a loss of revenue and our operating expenses could
increase if the systems on which we depend to conduct our operations are not
year 2000 compliant. Our potential areas of exposure are information technology,
including computers and software that we purchase or license from third parties
and internally-developed software, and non-information technology, including
telephone systems and other equipment used internally. In addition, any system
delays or failures of Internet service providers to us, our online panel or our
clients could interrupt our business operations. The reasonably likely, worst
case scenario for year 2000 issues would be the existence of a significant
defect in key hardware or software without an immediately available solution. If
a problem is detected in these components during our year 2000 compliance
testing process, these components will need to be revised or replaced.
All areas that are vital to our operations have been tested and validated or
certified for year 2000 compliance. All of our critical systems currently meet
one of the following criteria:
- they have been tested and found to be year 2000 compliant;
- they have been built or developed internally on platforms certified by the
manufacturer as being year 2000 compliant;
- they are purchased integrated hardware and software systems certified by
the manufacturer as being year 2000 compliant; or
- they will be taken out of service prior to December 31, 1999 and replaced
with systems meeting one of the above criteria.
To date, we have not incurred any material costs in connection with
identifying and evaluating year 2000 compliance issues. Most of our expenses
have been related to the operating costs associated with time spent by our
employees in the evaluation process and year 2000 compliance matters generally.
These costs are not separately tracked. We expect similar expenses to continue
and we also intend to engage an independent third party to evaluate our year
2000 compliance prior to the closing of this offering.
In the event that the production and operational facilities that support our
website are not year 2000 compliant, portions of our website may become
inaccessible. A prolonged disruption in our operations could cause our business
clients to stop doing business with us or our unique cooperative respondents
from communicating with us. Our review of our systems has shown that there is no
single application that would make our website totally unavailable, and we
believe that we can quickly address any difficulties that may arise.
If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers, service providers or other third
parties with whom we conduct business do not successfully address such issues,
our business could be significantly disrupted.
28
<PAGE>
BUSINESS
OVERVIEW
We are the leading Internet-based market research and polling firm in the
world, with what we believe to be the largest online panel of approximately 4.3
million unique cooperative respondents. Known for our HARRIS POLL, we have
provided our clients with high quality products and services for over 40 years.
We believe we are the largest full-service provider of Internet-based market
research and polling services, providing such services as custom research,
multi-client research, service bureau research and customer relationship
services. Our extensive Internet panel and proprietary technology infrastructure
enable us to provide our clients with timely and cost-efficient access to the
opinions, experiences and attitudes of people worldwide. We have rapidly grown
our Internet panel, in large part through our relationship with Excite@Home, a
leading Internet portal. We also conduct market research and polling services
utilizing traditional polling methodologies, which include direct mail,
telephone-based surveys, mall intercepts, focus groups and in-person interviews.
Historically, we have provided our market research services exclusively
through traditional methodologies. We believe, however, that the Internet is
changing our industry. Accordingly, we have made, and will continue to make,
significant expenditures in the development of our technology platform, our
online panel and management and staff to lead the transformation of the market
research and polling industry to an Internet-based platform.
OUR MARKET OPPORTUNITY
GENERAL OVERVIEW
Companies are operating in an increasingly complex business environment,
characterized by heightened competition, globalization of product markets,
shortened product life cycles and rapidly changing consumer preferences. This
business environment has escalated the need for accurate and timely information
about the preferences, needs, purchase behavior and brand recognition of
existing and potential clients. Companies also need continuous tracking
capabilities so that they can ascertain product performance and competitive
position, monitor consumer satisfaction, measure advertising effectiveness and
determine price sensitivity. According to the European Society of Opinion and
Marketing Research, $13.4 billion was spent for market research and polling
services worldwide in 1998.
Historically, information-gathering and tracking functions in market
research have been performed using traditional market research methodologies.
The ability of traditional market research methodologies to deliver accurate and
objective data rapidly is limited by high data acquisition costs, small sample
sizes and the extensive time required to perform the research. As a result,
broad-based research projects, which require a large number of survey
participants, are prohibitively costly except for companies and organizations
with significant resources. The growth and rapid adoption of the Internet is
changing the market research and polling industry, making it possible for the
first time to survey a very broad, diverse population at low cost and at speeds
that are unattainable through any other method.
THE INTERNET AND ITS IMPACT ON THE MARKET RESEARCH AND POLLING INDUSTRY
The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to gather and share information and
conduct business electronically. International Data Corporation estimates that
the number of Internet users worldwide will grow from 142 million at the end of
1998 to more than 500 million by the year 2003, and in the United States from 63
million at the end of 1998 to 177 million by the year 2003.
The use of the Internet as a market research and polling tool is still in
its infancy. Companies began the first testing efforts in 1995, at a time when
less than 10 million persons in the United States had access to the Internet and
the population on the Internet was not representative of the general
29
<PAGE>
population. As Internet usage has increased, the demographic composition of
those using the Internet has shifted to better reflect the characteristics of
the overall population, making it a viable medium in which to conduct market
research.
We believe that Internet-based market research and polling offers
significant advantages over traditional methodologies. These include:
- COST-EFFICIENCY--Internet-based market research and polling offers
significant cost benefits when compared to traditional market research
methodologies. Under traditional methodologies, the sample size of a
survey is limited due to the high data collection costs per response.
However, utilizing Internet-based market research methods, larger and more
robust sample sizes can be used for effectively the same cost, or the same
sample size can be used to reduce the overall cost of a study.
- VERSATILITY--Internet-based market research combines the interactivity of
telephone sampling with the visual capabilities of mail surveys. Pictures,
graphics, advertising copy and other visual materials can be viewed over
the Internet, a feature not available with telephone sampling. With
Internet-based methodology, questions and their sequence in surveys can be
modified as panelists respond. Mail panel surveys, in contrast, are
limited to the order and content in the printed text of the survey.
- SPEED--Responses from online panelists are generally received within
several days, while mail panelists' responses are generally received over
several weeks. Further, when compared to a telephone survey, the speed
advantage of the Internet model becomes greater as sample sizes increase.
- PRODUCTIVITY--The Internet is user-friendly to cooperative respondents
because surveys can be completed at the convenience of the participant and
can be conducted 24 hours per day, seven days per week. In addition,
because respondents can read questions faster than they can listen, more
questions can be asked to panelists in the same amount of time on the
Internet than with traditional telephone survey methods.
THE HARRIS ADVANTAGE
We offer a broad suite of Internet-based market research and polling
products and services to meet our clients' needs for rapid, comprehensive and
accurate information about the opinions, experiences and attitudes of people
worldwide. We possess several key competitive advantages that we believe will
enable us to maintain and expand our leading market position. Our key
competitive advantages include:
THE LARGEST INTERNET PANEL. We have developed what we believe to be the
largest Internet panel in the world. Currently, our Internet panel consists of
approximately 4.3 million unique cooperative respondents, who are individuals
that have voluntarily agreed to participate in our various online research
studies. Our large and diverse Internet panel enables us to:
- conduct a broad range of customer specific or multi-client research
studies across a wide set of industries;
- utilize survey sizes that range from a large representative sample of the
overall population to targeted subsets;
- market new products and services through co-branded alliances that we
historically could not develop; and
- market our online panel to other research firms through the Harris
Interactive Service Bureau, enabling us to penetrate new markets in which
we do not have relationships or specific expertise.
PROPRIETARY TECHNOLOGY INFRASTRUCTURE. A significant amount of computer
software and hardware is required to conduct Internet-based market research and
polling. Over the past two fiscal years, we have
30
<PAGE>
expended, and will continue to expend, substantial financial and management
resources in the development of our scalable, proprietary technology
infrastructure, data analysis techniques, and internal systems and procedures to
capitalize on the Internet opportunity within our industry.
Key elements of our technology infrastructure include:
- A high speed customized e-mail system, which enables us to rapidly format,
target and deliver over 290,000 e-mails per hour, inviting panelists in
our database to participate in our online surveys.
- A sophisticated survey engine, which can be programmed to conduct up to
144,000 interactive, five-minute surveys per hour in any language
supported by Microsoft Word.
- An advanced survey dispatcher system, which monitors, controls and
allocates all respondent contact and survey results across our servers. In
addition, our proprietary dispatcher system gathers real-time statistics
on survey starts, suspensions and completions to ensure high quality data
collection.
- Customizable multi-language registration and polling system, which allows
new and existing panel members to add, delete or update registration
information online. In addition, this system, for which a patent
application has been filed, recognizes each panelist's language
preferences and delivers the survey in that language.
- CONCEPTLOC, a patent pending web content protection system, which allows
users to access proprietary and confidential product images and sound and
video files on the computer screen, but precludes retention of the content
in a useable electronic form.
We are developing flexible, automated reporting tools which will allow
online access to survey information at any time and speed the process of data
delivery to clients. We have designed our technology infrastructure to be
scalable, which means that it can accommodate the expansion of our business
without significant modifications to our existing system design.
STRONG BRAND NAME/LONG STANDING CLIENT RELATIONSHIPS. We believe the HARRIS
POLL is one of the best known polls operating in the United States today. For
over 40 years, we have been recognized as providing trusted market research
products and services to a broad range of companies, non-profit organizations
and governmental agencies. We use a variety of marketing strategies to heighten
awareness of and enhance brand recognition for the HARRIS POLL, HARRIS
INTERACTIVE and our Internet-based products and services.
KEY STRATEGIC RELATIONSHIPS. We have entered into several agreements and
relationships to expand and replenish our Internet panel and to develop and
promote our various market research products and services.
- EXCITE@HOME. Our relationship with Match Logic, Inc., a subsidiary of
Excite@Home, began in 1997 and has generated substantially all of the 4.3
million names in our Internet panel. Our agreement with Excite@Home
expires on December 31, 1999, and we are currently negotiating a
three-year extension. We have also entered into discussions related to a
series of additional agreements providing for research services and
co-branded Internet-based polls.
- MARKET FACTS. In April 1999, Market Facts, one of the largest market
research firms in the United States, became our first long-term Harris
Interactive Service Bureau client and agreed to use us exclusively for all
of their Internet-based data collection. In addition to this agreement,
Market Facts purchased $4.1 million of our common stock.
- NBC. Since March 1999, we have been conducting program evaluation studies
for NBC which has resulted in more than 100,000 viewers becoming unique
cooperative respondents in our Internet panel.
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- GOMEZ ADVISORS. Our relationship with Gomez Advisors, a research and
analysis firm, provides us with the opportunity to co-develop and co-own
multi-client research studies. Our first study tracks quarterly changes in
the online securities trading industry. We market this product on a
subscription basis to financial institutions and brokerage houses.
- ZDNET. In September 1999, we began conducting a co-branded quick
"unscientific" poll that is posted on the ZDNetwork web page. A respondent
to the poll is linked directly to our website where he or she has the
opportunity to join our Internet panel. We have the right to use a portion
of the ZDNetwork web page for our own advertising. ZDNet is Ziff-Davis's
website for information technology specialists.
- TALMEY-DRAKE RESEARCH. We have entered into an agreement with
Talmey-Drake, a research organization focused on the ski industry, to
co-develop and co-own a multi-client research study of the spending
habits, preferences and product satisfaction of individuals who ski and
snowboard.
- TELEPHIA, INC. We have entered into an agreement with Telephia, a research
organization focused on the wireless communication industry, to co-develop
and co-own a wireless communication study which tracks wireless
communication usage by market.
- AMERICAN COUNCIL ON EXERCISE. We have collaborated with the American
Council on Exercise, a non-profit organization that promotes physical
fitness, in a co-branded survey on treadmill ownership satisfaction. We
have created two Harris ACE Awards, which are presented annually to
manufacturers of various types of exercise equipment, based on our
customer satisfaction studies.
OUR FOCUSED GROWTH STRATEGY
Our goal is to expand our position as the leading global Internet-based
market research and polling firm by providing high quality products and services
to our clients. Key elements of our strategy are to:
MAXIMIZE THE REVENUE-GENERATING CAPACITY OF OUR INTERNET PANEL. We intend
to generate multiple revenue sources from our proprietary Internet panel by:
- INCREASING THE SIZE AND SCOPE OF OUR CUSTOM RESEARCH BUSINESS. We believe
that the Internet is a viable global communications medium for conducting
rapid, accurate and cost-efficient market research. We intend to
aggressively market all of the benefits of Internet-based market research
to new and existing clients to generate additional custom research
business.
- ACCELERATING THE DEVELOPMENT OF MULTI-CLIENT RESEARCH STUDIES. Our
multi-client products are developed and marketed on a subscription basis
to a large number of interested clients, providing them with general
studies of particular market segments or industries. These studies include
products that could not previously be conducted on a cost-effective basis
or studies for markets and industries that did not exist prior to the
Internet. We intend to invest significantly in multi-client products due
to the high margins and recurring revenue streams associated with these
products.
- PENETRATING NEW MARKETS NOT PREVIOUSLY REACHED. Harris Interactive Service
Bureau provides other market research firms with access to our Internet
panel and our sophisticated technology. We believe the Harris Internet
Service Bureau enables us to derive revenues from markets or industries
that we would not otherwise penetrate because we do not have client
relationships or specific expertise.
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- ACTIVELY MARKETING SPECIALIZED RESEARCH STUDIES. We offer our clients the
means to conduct specialized studies on highly targeted demographic groups
or subsets of the overall population, such as individuals who are
chronically ill. The availability of such groups within our Internet panel
dramatically reduces the cost of recruiting individuals for such studies.
ESTABLISH NEW STRATEGIC RELATIONSHIPS WORLDWIDE. We are actively seeking
new strategic relationships with leading organizations to rapidly expand our
Internet panel worldwide and facilitate new product development. Examples of new
strategic relationships that we are actively pursuing include:
- INTERNATIONAL RESEARCH DATA ALLIANCE. We are establishing an international
research alliance designed to build a worldwide Internet panel. This
alliance will comprise several international market research firms, each
of which will agree to contribute a certain number of unique cooperative
respondents who are willing to participate in online market research and
polling. These respondents' names will be licensed to the other members in
the alliance on a project-by-project basis. We will be exclusively
responsible for the database and monitoring its usage by members.
Currently, we are in discussions with several international market
research firms that we have identified as possible initial members in this
alliance.
- ALLIANCES WITH LEADING GLOBAL NEWS ORGANIZATIONS. In addition to the
program evaluation studies we currently provide for NBC, we are
negotiating with several leading news organizations worldwide to provide
other online television programming evaluations. In exchange for
conducting these evaluations, we will have access to the names of those
respondents to invite them to participate in our Internet panel.
FURTHER ENHANCE OUR SCALABLE, PROPRIETARY TECHNOLOGY INFRASTRUCTURE. We
have expended, and will continue to expend, substantial financial and management
resources in the development and improvement of our scalable, proprietary
technology infrastructure. Our efforts are focused on enhancing the speed,
sophistication, flexibility, functionality and security of our technology. Our
ongoing technology enhancements will allow us to better serve our clients and
better retain participants in our Internet panel, which will increase our
competitive position in the marketplace.
CONTINUE TO BUILD BRAND AWARENESS OF OUR INTERNET-BASED MARKET RESEARCH AND
POLLING PRODUCTS AND SERVICES. We intend to promote actively and aggressively
the awareness of the HARRIS POLL and HARRIS INTERACTIVE as the leading
full-service provider of high quality Internet-based market research and polling
products and services. We intend to utilize a combination of innovative and
cost-effective marketing programs designed to continue to build our brand name
recognition.
SEEK STRATEGIC ACQUISITIONS OR INVESTMENTS. The market research industry is
highly fragmented, providing opportunities to expand our business through
acquisitions or investments with:
- complementary businesses that own or have access to products and services
that we do not offer or that have strategic client relationships which we
do not possess;
- complementary proprietary technologies that would enhance our existing
technology infrastructure; and
- companies in countries where we are expanding our Internet panel
development and Internet-based market research and polling capabilities.
OUR RELATIONSHIP WITH EXCITE@HOME
Our agreement with Excite@Home is a key factor in the growth of our Internet
panel. Under our agreement, Excite@Home offers individuals who visit its web
site the opportunity to participate in a HARRIS POLL online survey. Under this
agreement, we have the exclusive right to use the names of those
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who voluntarily participate in a survey for purposes of conducting other
research and surveys. Excite@Home has the exclusive right to use those same
names for promotional and commercial marketing uses. This agreement provides us
with a rapid and cost-efficient means of building and replenishing our Internet
panel. Since its inception in 1997, substantially all of our 4.3 million names
of unique cooperative respondents came from Excite@Home. Our agreement expires
on December 31, 1999, and we are currently negotiating a three-year extension
subject to termination by either party upon 90 days notice. We have also entered
into discussions related to a series of additional agreements providing for
research services and co-branded Internet-based polls.
OUR PRODUCTS AND SERVICES
We are a full-service provider of market research and polling services,
utilizing both Internet-based and traditional survey methodologies. Our business
model comprises four main sources of revenues:
- custom research;
- multi-client research;
- service bureau research; and
- customer relationship services.
Our custom research products and services and our customer relationship
services are provided using both traditional and Internet-based methodologies,
while our remaining products have been recently developed exclusively using the
Internet-based model. For fiscal 1999, 90% of our total revenues were derived
from custom research utilizing traditional research methods, and 10% of our
total revenues were derived from our Internet-based products and services. We
are transitioning our custom research and polling products and services to
Internet-based research. We plan to dedicate a significant amount of our
financial and management resources to develop and market additional products and
services which utilize our Internet-based methodologies.
The following table summarizes our products and services.
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION METHODOLOGY
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
Custom Research Market research and polling conducted on an issue Traditional and Internet-
specifically identified by a client based
Multi-Client Research Studies developed for and sold to a large number of Internet-based
clients who have a similar interest in a particular
subject area
Harris Interactive Service Market research and polling conducted for other market Internet-based
Bureau research organizations
Customer Relationship Outsourced customer service operations for Traditional and Internet-
Services corporations and organizations based
</TABLE>
CUSTOM RESEARCH
For more than 40 years, we have provided custom business and consumer
research to a broad range of companies, non-profit organizations and
governmental agencies. In custom research, we have particular expertise in the
following markets:
- office equipment and technology;
- pharmaceuticals;
- healthcare;
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- education and public policy; and
- transportation.
We conduct custom research using a variety of traditional methodologies,
including direct mail, telephone-based surveys, mall intercepts, focus groups
and in-person interviews. We use these methods to produce a variety of surveys
and polls, including customer satisfaction surveys, market share studies, new
product introduction studies and brand recognition studies.
Although we rely upon the same methodologies as our competitors with respect
to traditional market research and polling services, we believe that we have
developed several unique competitive strengths in custom research. First, our
proprietary sample design techniques and our questionnaire development process
result in the collection of complete and accurate information responsive to the
specific inquiries of our clients. We have also developed in-depth data
collection techniques that enhance the integrity and reliability of our sample
database. Moreover, we take affirmative steps to assure that our responses are
derived from the appropriate decision makers in each particular survey so as to
assure the accuracy of our results. As a result, we are able to deliver
samplings that represent the desired demographics of our clients based on our
significant expertise in assembling appropriate samples and in developing
effective survey content.
Revenues derived from custom research services in fiscal 1999 were $28.3
million representing 97.7% of our total revenues.
MULTI-CLIENT RESEARCH
Multi-client research products are studies that are conducted and sold on a
subscription basis to a large number of individuals or companies that have an
interest in a particular market segment or research application. Our
multi-client products are developed on an independent or co-branded basis. Our
independent multi-client products are developed and marketed by us. Co-branding
involves the development and marketing of a study with another party having a
unique experience base in a particular subject or market. These other parties
are able to conduct research and collect useful data in their area of expertise
that they could not do without our Internet panel and technology infrastructure.
By combining their expertise and our Internet-based market research
capabilities, we are able to develop and market a product that benefits both
parties.
Our current multi-client products include:
- ECOMMERCEPULSE, a quarterly survey of more than 100,000 online shoppers
assessing the performance of approximately 200 widely visited e-commerce
websites. This service tracks such issues as online brand awareness,
market presence, customer purchases, customer satisfaction, customer
loyalty and future buying intention. ECOMMERCEPULSE also provides analysts
and online merchants with unique, detailed insights into trends which are
emerging in the e-commerce industry.
- INTERMEDIAPULSE, a new monthly consumer tracking survey that captures the
media usage and consumer purchase behaviors of more than 100,000 adults
each year.
- ELECTION 2000, an Internet-based polling of the year 2000 elections,
including the presidential election, 33 senate elections, 13 gubernatorial
elections and a number of congressional elections.
- HEALTHCARE ONLINE, a combination of research products that draw on a
subset of approximately 280,000 households in our Internet panel, in which
someone has been diagnosed with a chronic medical condition. We conduct a
wide range of health-related research, including large-scale population
health surveys, surveys of health care providers, surveys of traditional
difficult-to-reach populations, as well as clinical trial recruitment and
post-market surveillance.
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- SKIER/SNOWBOARDER, a survey of individuals who have skied in the past two
years. This study is co-branded with Talmey-Drake.
- GOMEZ ONLINE TRADING STUDY, a study that tracks quarterly changes in the
online securities trading industry. This study is co-branded with Gomez
Advisors.
- QUICKQUERY, a convenient, cost-effective method for asking questions and
getting accurate responses from more than 2,000 respondents in a two-day
period.
- HARRIS ACE AWARDS, an annual award, based on a survey of individual
satisfaction with exercise equipment. This award is a collaboration with
the American Council on Exercise and is presented to manufacturers of
various types of exercise equipment. We believe that we can expand this
model to other industries.
- TELEPHIA WIRELESS COMMUNICATION STUDY, a study that tracks consumer use of
wireless communication usage by geographic market. This study is
co-branded with Telephia.
- QUICKSCREENER, a cost-efficient way to conduct high-quality single concept
screening, offering results from up to 300 respondents per concept, within
a week.
- QUICKINSIGHTS, a cost-effective research tool designed for gaining
consumer insights from small, targeted populations.
Revenues derived from multi-client research products in fiscal 1999 were
$0.1 million, representing 0.5% of our total revenues.
HARRIS INTERACTIVE SERVICE BUREAU
Our Harris Interactive Service Bureau conducts Internet-based market
research for other market research firms and other organizations that either do
not have the necessary resources to develop an Internet-based market research
service or that have otherwise chosen not to develop such a capability
themselves. Harris Interactive Service Bureau provides us with a new
revenue-generating source utilizing our data collection capabilities, our
proprietary Internet panel and our scalable technology infrastructure. It
enables us to penetrate markets or industries in which we do not have
relationships or specific expertise. We believe that Harris Interactive Service
Bureau reduces the likelihood that those market research firms and other
organizations, which are our clients, will invest significant financial and
management resources in developing their own Internet-based market research
capabilities.
Harris Interactive Service Bureau clients can access our data collection
facilities on a long-term, continuous basis or on a project-by-project basis. We
currently have a long-term agreement with Market Facts, Inc., a major research
firm that focuses on mail panel research. Our agreement with Market Facts
extends through April 2004, and is automatically renewed for one year terms
subject to termination on one year's notice. Market Facts has agreed to pay us
fees to access and use our Internet panel and technologies. In addition, it has
agreed to use us exclusively for all of its Internet-based data collection
rather than developing similar research capabilities during the term of the
agreement. ACNielsen, one of the leading market research firms in the United
States, uses our data collection facilities on a project-by-project basis.
Revenues derived from Harris Interactive Service Bureau in fiscal 1999 were
$0.4 million, representing 1.2% of our total revenues.
CUSTOMER RELATIONSHIP SERVICES
By combining our traditional telephone research capabilities, our experience
in customer contact services, and our sophisticated technology infrastructure,
we provide high quality customer relationship services to clients. Our services
include maintaining customer contact on behalf of our clients for the
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collection of customer-specific data and provision of "help desk" services. We
have an agreement to use LivePerson, an interactive communications software
program, that allows us to provide assistance to the customers of our clients
using both the telephone and the Internet. The LivePerson software enables us to
transition the utilization of our telephone interviewing facilities and
personnel to Internet-based customer relationship services.
Revenues derived from customer relationship services in fiscal 1999 were
$0.2 million, representing 0.6% of our total revenues.
OUR CLIENTS
For over 40 years, we have provided high quality market research products
and services to a broad range of companies, non-profit organizations and
governmental agencies. A selected list of our clients includes the following,
each of which accounted for more than $100,000 of revenues in fiscal 1999.
<TABLE>
<S> <C>
MANUFACTURING SERVICES
The Dow Chemical Company ACNielsen Corporation
Eastman Kodak Company Danka Business Systems, PLC
General Motors Corporation Metropolitan Life Insurance Company
Moog Inc. Roadway Express, Inc.
Xerox Corporation United Parcel Service of America, Inc.
</TABLE>
<TABLE>
<S> <C>
TECHNOLOGY EDUCATION/NON-PROFIT
Ameritech Corporation American Medical Association
Compaq Computer Corporation Educational Testing Service
Excite@Home Harvard School of Public Health
International Business Machines
Corporation The University of Michigan
Packard Bell NEC, Inc. The University of Texas
</TABLE>
<TABLE>
<S> <C>
HEALTHCARE/PHARMACEUTICALS OTHER
Blue Cross and Blue Shield of New Jersey CCH Incorporated
Girl Scouts of the United States of
Bristol-Myers Squibb Company America
Cordis Webster, Inc. National Collegiate Athletic Association
Johnson & Johnson Nationwide Insurance Enterprise
Merck & Co., Inc. Ryder System, Inc.
</TABLE>
We derive a substantial portion of our total revenues from Xerox Corporation
and Johnson & Johnson. In fiscal 1999, 15% of our total revenues was derived
from Xerox Corporation and 14% of our total revenues was derived from Johnson &
Johnson. In fiscal 1998, 15% of our total revenues was derived from Xerox
Corporation and 19% of our total revenues was derived from Johnson & Johnson. In
fiscal 1997, Xerox Corporation accounted for approximately 22% of our total
revenues.
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OUR TECHNOLOGY INFRASTRUCTURE
We have expended, and will continue to expend, significant financial and
management resources to develop and improve our scalable proprietary technology
infrastructure capable of offering our clients high quality Internet-based
market research and polling products and services.
Key components of our technology infrastructure are:
- HIGH SPEED CUSTOMIZED E-MAIL. We send e-mail messages customized for each
panel member targeted as a survey respondent for a project. These e-mail
messages can be formatted rapidly and customized to the individual's
e-mail for receipt in rich text or plain format. Our current capacity is
over 290,000 e-mails per hour.
- SOPHISTICATED SURVEY ENGINE. Our survey engine constructs the page
necessary to ask the respondent a single question or small group of
questions. After the respondents submit their answers, the answers are
immediately checked for respondent errors and processed into the database.
The survey engine then produces the next appropriate question, a process
which continues until the survey is complete. The survey engine provides
the same interactive function as a telephone interview, with all of the
visual, sound, and animation properties of the Internet. Our survey engine
can perform complex experimental designs, randomization, rotation of
questions and response sets, successive disclosure, and reduction and
expansion of response sets based on previous answers. Our current capacity
is 144,000 five-minute completed surveys per hour.
- INTELLIGENT SURVEY DISPATCH SYSTEM. Our survey dispatcher system allows a
single survey project to be conducted over several independently operating
survey engines. It also allows a single survey engine to process
respondents to several different surveys at the same time. Our dispatcher
system observes the load on the survey engines and distributes incoming
respondents appropriately. It checks that valid passwords have been
entered and it senses systems outages and routes around them. It also
allows survey respondents to suspend a survey, return to the point of
suspension at a later time, and resume where they suspended. Finally, it
gathers real time statistics on survey starts, suspensions and
completions, and displays those statistics through a web interface.
- FLEXIBLE, POWERFUL REPORTING TOOLS. We are deploying an online reporting
system that will enable us to process data from the raw completed survey,
through various stages, to a data repository. Using a secure web
interface, clients will be able to access the data, view standard tables
and perform their own analysis with the ability to view data on multiple
levels of detail.
- CUSTOMIZABLE MULTI-LANGUAGE AND MULTI-COUNTRY REGISTRATION AND POLLING
SYSTEM. Our proprietary technology infrastructure allows panel members to
update their own registration information online, as well as add new
respondents to their household, or remove themselves from the database. It
recognizes and stores the member's country and language of choice, so that
information and prompts are provided in their own language. It allows
registration questions to be customized by mode of solicitation. It
provides an incentive to register for the panel by providing the panel
member with the results of the survey to date.
- CONTENT PROTECTION SYSTEM. Our CONCEPTLOC encryption system allows our
clients' proprietary information to be presented to survey respondents in
such a way that they are able to view it on their computer screens for the
purpose of survey participation, but cannot retain the content in a usable
electronic form after viewing. While on the screen, the CONCEPTLOC viewer
disables all of the computer's ability to capture the image, the "Save As"
function, the "Print Screen" key, and any screen saver program interrupts.
The decryption is done in real time. The clear text image is available
only on the screen and is never saved to the computer's memory.
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In fiscal 1997, 1998 and 1999, we expended $137,000, $165,000 and $518,000,
respectively, for research and development of technologies for data collection
and communication.
OUR SYSTEM
Our system consists of more than 40 servers supporting a variety of
functions, operating on a 24-hour, seven days a week basis and conforming to our
stringent performance requirements.
The majority of our servers run the Microsoft NT operating system. Our web
servers run Microsoft Internet Information Server software, with custom written
ISAPI filters and Active Server Pages applications. Our application software is
a combination of off-the-shelf programs and custom-designed programs created by
our in-house engineers and outside consultants. Our database system is Microsoft
SQL Server.
We maintain most of our servers at the Verio Collocation Facility in
Rochester, New York, while some servers are maintained at our corporate
headquarters location in Rochester, New York. A high-speed private line connects
the two locations. Our operations are dependent on Verio's ability to protect
its systems against damage from fire, earthquakes, power loss,
telecommunications failure, break-ins and other similar events. We maintain our
own uninterruptible power supply and heating, ventilation and air conditioning
systems that are independent of the Verio facilities.
Our data are backed up to magnetic tape on a daily basis. Except for servers
used for interactive communication with our Internet panel and the general
public, access to our servers is restricted to authorized users in reliance on
secure communication channels. Strong physical security is in place at both
server locations. We monitor computer security bulletins both from the
manufacturers, as well as government and public advocacy organizations.
Operating systems are continuously upgraded with security program revisions as
they become available.
OUR SALES AND MARKETING PROGRAMS
We have designed and implemented a broad range of sales and marketing
programs, intended to:
- enhance the brand recognition of the HARRIS POLL and build brand name
recognition for HARRIS INTERACTIVE;
- add new clients who purchase our products and services;
- expand our Internet panel; and
- develop additional ways to increase our revenues.
Our marketing activities include both offline advertising and online
promotion, including print publications and direct mail, and promotion on online
portals, including Excite@Home.
- OFFLINE ADVERTISING. We use offline advertising for continuous promotion
of our brand name and our associated products and services. As we
transition our business to the Internet, we engage in promotional
activities with our offline clients about our Internet products and
services. Our most significant offline promotional activity is our
continuous release of HARRIS POLL results to the public. These results are
reported by various newswire services, such as UNITED PRESS INTERNATIONAL,
the ASSOCIATED PRESS and GANNETT NEWS SERVICE. Our offline advertising and
promotional efforts also include print advertising in MARKETING NEWS,
QUIRKS MAGAZINE, INDUSTRY STANDARD, ADVERTISING AGE, other publications
and client brochures.
- ONLINE PROMOTION. We have entered into relationships with Excite@Home and
ZDNet, which allow us to place the HARRIS POLL icon on these online
portals or websites. The HARRIS POLL icon provides a direct link to our
website.
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We recently developed a formal sales management structure, and in July 1999
hired a Vice President of Sales. We intend to create a separate sales force
dedicated to marketing our multi-client products and our Harris Interactive
Service Bureau services.
OUR COMPETITION
The traditional market research and polling industry is highly competitive.
The Internet-based market research and polling industry is new and rapidly
evolving. We expect competition to intensify as existing market research firms
recognize the significance of the Internet to their business and as other
companies already engaged in Internet-based services recognize the potential
market.
In our traditional market research and polling business, we compete on the
basis of our proprietary sample designs techniques, our questionnaire
development, our in-depth data collection and our ability to deliver samplings
that represent the desired demographics of our clients. We believe that the
primary competitive factors in the Internet-based market research and polling
industry are:
- a large and diverse proprietary Internet panel, with geographic scope and
demographic depth;
- a scalable proprietary Internet technology platform to provide a variety
of services and operational support;
- quality, depth and breadth of products and services offered;
- brand recognition and strong reputation; and
- cost.
In the delivery of both our traditional and Internet-based market research
products and services, we compete with numerous market research firms, as well
as corporations and individuals that perform market research studies on an
isolated basis, many of whom have market shares larger than our own. We will
likely also face competition in the future from other traditional market
research firms who move into Internet-based technologies or other companies with
access to large databases of individuals with whom they can communicate on the
Internet. These companies may, either alone or in alliances with other firms,
attempt to penetrate this market.
Many of our current and potential competitors have longer operating
histories, significantly greater financial and marketing resources. These
competitors may be able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, partners, and potential customers. Further, our
competitors and potential competitors may develop technologies that are superior
to ours, or that achieve greater market acceptance than our own.
OUR INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success is dependent upon proprietary software technology, research
methods, data analysis techniques, and internal systems and procedures that we
have developed to address client and Internet-based market research needs. Our
intellectual property is essential to our success and we rely on a combination
of patent, copyright, trademark and trade secret laws and confidentiality and
license agreements with our employees, clients, independent contractors and
other third parties to further protect our proprietary rights, software and
procedures. We currently have two patents pending. One pending patent covers a
multi-location and multi-language registration and polling system being placed
on a variety of websites. Our other pending patent covers our CONCEPTLOC
encryption system. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available.
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Under the terms of our acquisition of Louis Harris & Associates, we
purchased the HARRIS name, including the HARRIS POLL, for use in the United
States. The prior owner of Louis Harris & Associates sold the HARRIS name for
use in Europe and the European portions of the former Soviet Union. Accordingly,
we intend to adopt and promote a new trademark for use in those territories
under which we will offer and sell our Internet-based market research and
polling products and services.
We have licensed in the past, and expect to license in the future, certain
of our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our brand is maintained
by these licensees, licensees may take actions that might harm the value of our
proprietary rights or reputation. The steps taken by us to protect our
proprietary rights may not be adequate and third parties may infringe or
misappropriate our copyrights, trademarks and similar proprietary rights. In
addition, other parties may assert claims of infringement of intellectual
property or other proprietary rights against us.
In addition, there can be no assurance that third parties will not
independently develop functionally equivalent or superior systems, software or
procedures. We believe that our systems, software and procedures and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against us in the future or that any such claim will not
require us to enter into materially adverse license agreements or result in
protracted and costly litigation, regardless of the merits of such claims.
EMPLOYEES
As of September 15, 1999, we employed a total of 728 persons on a full-time
basis. We also employed 150 part-time individuals. None of our employees is
represented by a collective bargaining agreement. We have not experienced any
work stoppages. We consider our relationship with our employees to be good.
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FACILITIES
The following table describes our facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USE TERM OF LEASE
- ------------------------ --------------- -------------------------- --------------------------------------------
<S> <C> <C> <C>
Rochester, New York 50,000 Principal corporate Expires June 30, 2003 with one 5-year
(Corporate Woods) offices renewal option
Rochester, New York 29,600 Telephone interviewing and 13,780 square foot lease expires July 1,
(Carlson Road) customer relationship 2008 with one 3-year renewal option; 10,600
services center square foot lease and 5,220 square foot
lease both expire June 30, 2001 and each has
one 2-year and 4-month renewal option and
one 4-year renewal option
New York, New York 21,000 Health and public policy Expires December 31, 2004 with two 5-year
management, project and renewal options
data processing staff
Vestal, New York 5,000 Telephone interviewing and Expires December 31, 2001 with one 5-year
customer relationship renewal option
services center
Boardman, Ohio 5,500 Telephone interviewing and 4,300 square foot lease is a month-to- month
customer relationship lease; 1200 square foot lease expires March
services center 31, 2000 with one 6-month renewal option
San Francisco, 3,000 Corporate office Month-to-month lease
California
</TABLE>
We lease all of our facilities and believe our current facilities are
adequate to meet our needs for the foreseeable future. We believe additional or
alternative facilities can be leased to meet our future needs on commercially
reasonable terms.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings in the
ordinary course of business. These claims, even if without merit, could cause us
to expend significant financial and managerial resources which could adversely
affect our business operations.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of August 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
Gordon S. Black(a)..................... 57 Chairman of the Board and Chief Executive Officer
David H. Clemm(a)...................... 54 President, Chief Operating Officer and Director
Leonard R. Bayer....................... 49 Executive Vice President, Chief Technology Officer and Director
Elizabeth K. Abbas..................... 52 Executive Vice President, International Division
Arthur E. Coles........................ 56 Executive Vice President, Marketing and Business Development
Kathy C. Lee........................... 44 Executive Vice President, Sales
Bruce A. Newman........................ 45 Chief Financial Officer, Secretary and Treasurer
KEY EMPLOYEES
Rick S. Geiger......................... 42 President, Data Collection Services Division
Stephen J. Hodownes.................... 40 President, Harris Consulting Division
Robert C. Kallstrand................... 56 President, Business and Consumer Research Division
Robert L. Leitman...................... 52 President, Healthcare and Public Policy Research Division
Gregory T. Novak....................... 37 President, Internet Division
DIRECTORS
Thomas D. Berman(b)(c)................. 41 Director
G. Thomas Clark(b)(c).................. 61 Director
James R. Riedman(b)(c)................. 40 Director
</TABLE>
- ------------------------
(a) Non-voting, ex-officio member of the Compensation Committee
(b) Member of the Audit Committee
(c) Member of the Compensation Committee
EXECUTIVE OFFICERS
GORDON S. BLACK has served as our Chairman of the Board and Chief Executive
Officer since he founded Gordon S. Black Corporation in July 1975. From July
1968 to June 1978, Dr. Black was a member of the faculty of the University of
Rochester, where he was an Associate Professor with tenure. Dr. Black received a
Ph.D. in Political Science from Stanford University and a B.A. degree in
Political Science from Washington University.
DAVID H. CLEMM has served as our President and Chief Operating Officer, and
as a director of our company, since April 1984. From November 1981 to March
1984, Mr. Clemm worked for Bausch & Lomb, Inc., where he held a variety of
senior positions as Vice President of Marketing Operations for Graphic Products
and Vice President and General Manager of the Ophthalmic Instruments Division.
From May 1980 to November 1981, Mr. Clemm served as Manager of Market Research
at Xerox Corporation. From June 1973 to June 1979, Mr. Clemm served as manager
of Financial Operations for the Branded Products Division of Pennzoil Company.
Mr. Clemm received an M.B.A. from Boston University and a B.S. degree from the
United States Military Academy at West Point.
LEONARD R. BAYER has served as our Executive Vice President and Chief
Technology Officer, and as a director of our company, since July 1978. From
August 1976 to July 1978, Mr. Bayer worked for
43
<PAGE>
Practice Development Corporation where he served as Vice President of Research
and Development. From September 1975 to August 1976, Mr. Bayer was a member of
the faculty of the University of Rochester School of Medicine where he taught
mathematical statistics. Mr. Bayer received an M.A. degree in Statistics, a B.S.
degree in Astrophysics and a B.A. degree in Mathematics from the University of
Rochester.
ELIZABETH K. ABBAS has served as our Executive Vice President of the
International Division since January 1999. From October 1996 to December 1998,
she served as an independent consultant to us while she resided in Japan. From
June 1986 to October 1996, Dr. Abbas served as Vice President of Research of the
Gordon S. Black Corporation. From June 1980 to June 1986, Dr. Abbas served as a
project manager of the Gordon S. Black Corporation. Dr. Abbas received a Ph.D.
degree in Education and an M.S. degree in Family and Consumption Economics from
the University of Illinois and a B.A. degree in Education from Central College,
Pella, Iowa.
ARTHUR E. COLES has served as our Executive Vice President of Marketing and
Business Development since June 1999. Mr. Coles was President and Chief
Executive Officer of the Gordon S. Black Corporation from June 1997 to June
1999. Prior to joining our company, Mr. Coles worked for Eastman Kodak Company,
where he served as Corporate Director of Digital Strategic Planning. Mr. Coles
received an M.B.A. from the Rochester Institute of Technology and a B.S. degree
in Mathematics from the State University of New York at Albany.
KATHY C. LEE has served as our Executive Vice President of Sales since July
1999. Prior to joining our company, she spent 22 years with IBM, holding a
variety of sales and sales management positions. Ms. Lee received her B.A. in
Business Administration and Political Science from Albion College.
BRUCE A. NEWMAN has served as our Chief Financial Officer, Secretary and
Treasurer since January 1986. From July 1980 to January 1986, Mr. Newman served
as Treasury Manager of The Case-Hoyt Corporation, a national printer. From July
1975 to August 1978, Mr. Newman worked for Price Waterhouse. Mr. Newman received
a B.A. in accounting from the State University of New York at Albany and is a
Certified Public Accountant.
KEY EMPLOYEES
RICK S. GEIGER has served as the President of our Data Collection Services
Division since January 1997. Previously, Mr. Geiger worked at the E.I. Dupont
Company from 1980 to 1994 in various positions, including Manufacturing Manager,
Supply Chain Manager, Sales and Marketing Management. Mr. Geiger received a J.D.
from the School of Law, University at Buffalo, State University of New York, an
M.B.A. from the Executive Development Program at the William E. Simon Graduate
School of Business at the University of Rochester and a B.S. degree in
Organizational Management from Roberts Wesleyan College. Mr. Geiger is a
practicing attorney in New York State.
STEPHEN J. HODOWNES has served as the President of our Harris Consulting
Division since October 1995. Prior to October 1995, Mr. Hodownes worked for
Xerox Corporation in various positions, including as a director of Worldwide
Loyalty Marketing, Manager of Customer Corporation Retention and Loyalty
Operations and Manager of Customer Satisfaction for U.S. Operations. Mr.
Hodownes received an M.B.A. from the Executive Development Program at the
University of Rochester and a B.S. degree in Computer Science from the Rochester
Institute of Technology.
ROBERT C. KALLSTRAND has served as the President of our Business and
Consumer Research Division since July 1999. Mr. Kallstrand was Executive Vice
President and Chief Operating Officer of Gordon S. Black Corporation from July
1997 to July 1999. From 1986 until July 1997, he served in various executive
capacities for our company. Mr. Kallstrand received B.A. degrees in Economics
and Psychology from the University of Rochester.
44
<PAGE>
ROBERT L. LEITMAN has served as the President of our Health, Education and
Public Policy Division since July 1999. From February 1996 to July 1999, he
served as our Chief Operating Officer and served in various other executive
capacities from 1991 to February 1996. Mr. Leitman received an M.S. degree in
Sociology from the University of Connecticut and a B.A. degree in Sociology from
the State University of New York at Stony Brook.
GREGORY T. NOVAK has served as the President of our Internet Division since
June 1999. Prior to joining our company, Mr. Novak was Vice President/General
Manager of Lightning America's, a unit of GSX. Mr. Novak received an M.S. in
Management from Purdue University's Krannert Business School and a B.S. in
Mechanical Engineering from the University of Pittsburgh. Mr. Novak is also a
graduate of General Electric's Nuclear Power Engineering Program and Corporate
Analyst's Training and Development Program.
DIRECTORS
THOMAS D. BERMAN has served as a director of our company since July 1998.
Mr. Berman is an Executive Director of Brinson Partners, Inc., an investment
management firm. Mr. Berman received an S.M. from Massachusetts Institute of
Technology, Sloan School of Management and an S.B. degree in Electrical
Engineering from Massachusetts Institute of Technology. Mr. Berman is a director
of Creo Products Inc., a publicly-traded computer-to-plate prepress equipment
company, and is a member of the compensation, nominating and corporate
governance committees of its board of directors.
G. THOMAS CLARK has served as a director of our company since October 1989.
From April 1979 until his retirement in November 1996, Mr. Clark served as
Senior Vice President of Finance, Secretary and Treasurer of Paychex, Inc. and
currently serves on the board of directors of Paychex. Mr. Clark received a B.S.
degree in Business Administration from Bucknell.
JAMES R. RIEDMAN has served as a director of our company since October 1989.
Mr. Riedman is the President of the Riedman Corp., an insurance agency. From
April 1984 to January 1987, Mr. Riedman served as Senior Vice President of
Transamerica Financial Systems and Concepts. Mr. Riedman also worked for the
Balboa Insurance Group from January 1983 to April 1984, where he served as
Director of Corporate Planning. Mr. Riedman received an M.S. degree in Risk and
Insurance and Finance from the University of Wisconsin and a B.A. degree in
Business Administration from the University of Notre Dame.
Each officer serves at the discretion of our board of directors. There are
no family relationships between any of our directors or executive officers.
VOTING AGREEMENT. Under a voting agreement among our company, the holders
of our preferred stock, Gordon S. Black, David H. Clemm and Leonard R. Bayer:
- the preferred stockholders are entitled to designate two individuals to
serve as directors and, so long as BVCF III L.P., formerly Brinson Venture
Capital Fund III, L.P., is a stockholder, it shall designate these
individuals. Thomas D. Berman is the designee of BVCF III under these
arrangements;
- each of Dr. Black, Mr. Clemm and Mr. Bayer is to be elected as a director
so long as he is a senior executive of our company and owns at least 50%
of the common stock of our company he owned on July 1, 1998; and
- two directors are to be elected jointly by the preferred stockholders and
by Dr. Black, Mr. Clemm and Mr. Bayer. G. Thomas Clark and James R.
Riedman have been elected pursuant to this arrangement.
This voting agreement will terminate upon the completion of this offering.
45
<PAGE>
BOARD COMPOSITION
Our board of directors consists of six directors divided into three classes
with each class serving for a term of three years and such term initially
expiring on the annual stockholder meeting to be held in the year set forth
below:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBERS
- ---------------------------------------------- ------------- -----------------------
<S> <C> <C>
Class I 2000 Leonard R. Bayer
G. Thomas Clark
Class II 2001 Thomas D. Berman
David H. Clemm
Class III 2002 Gordon S. Black
James R. Riedman
</TABLE>
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed those directors whose terms are expiring.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee currently consists of Thomas D.
Berman, G. Thomas Clark and James R. Riedman.
The compensation committee of the board of directors reviews and recommends
to the board of directors the compensation and benefits of all of our executive
officers and establishes and reviews general policies relating to compensation
and benefits of our employees. The compensation committee currently consists of
Thomas D. Berman, G. Thomas Clark and James R. Riedman, with Gordon S. Black and
David H. Clemm serving as non-voting, ex-officio committee members. Gordon S.
Black and David H. Clemm participate in all decisions regarding salaries and
incentive compensation for all employees and consultants, except that they are
excluded from discussions regarding their own salary and incentive compensation.
None of Mr. Berman, Mr. Clark or Mr. Riedman has at any time been an officer
or employee of our company. Mr. Berman is an executive director of Brinson
Partners, Inc., the investment advisor to the Virginia Retirement System and
Brinson Map Venture Capital Fund III Trust, a member of Brinson Venture
Management LLC, the investment adviser to BVCF III, L.P. and an assistant trust
officer of Brinson Trust Company, the trustee for Brinson Map Venture Capital
Fund III Trust. See "Certain Transactions."
No interlocking relationship exists between our board of directors or our
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Our non-employee directors, other than Thomas D. Berman, are paid a fee of
$750 for each board meeting attended, and are entitled to reimbursement for
expenses incurred in attending board meetings. We do not presently provide
additional compensation for committee participation or special assignments of
the board of directors. In September 1998, G. Thomas Clark and James R. Riedman
each received options to purchase an aggregate of 28,000 shares of common stock
at an exercise price per share of $0.465. See "Employee Benefit Plans--1999 Long
Term Incentive Plan" for a description of options that may be granted to
directors.
46
<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our restated certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Delaware General
Corporation Law provides that the personal liability of a director for monetary
damages for breach of his or her fiduciary duties as a director may be
eliminated, except for:
- any breach of the director's duty of loyalty to a corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we may indemnify our directors and officers and may
indemnify our other employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in that
capacity, regardless of whether the bylaws would permit indemnification.
We intend to obtain directors' and officers' insurance providing
indemnification for our directors, officers and some of our employees for
certain liabilities. We believe that this insurance is necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation we paid to our Chief
Executive Officer and our four other most highly compensated executive officers
who earned more than $100,000 during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#)
- ----------------------------------------------------------------- ---------- ----------- -----------------------
<S> <C> <C> <C>
Gordon S. Black.................................................. $ 300,000 $ 12,000 --
Chief Executive Officer
David H. Clemm................................................... 285,000 11,400 --
President and Chief Operating Officer
Leonard R. Bayer................................................. 256,000 10,250 --
Executive Vice President and Chief Technology Officer
Elizabeth K. Abbas............................................... 125,000 5,000 84,000
Executive Vice President, International Division
Arthur E. Coles.................................................. 160,000 30,000 --
Executive Vice President, Marketing and Business Development
</TABLE>
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<PAGE>
STOCK OPTION INFORMATION
The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our four other most highly
compensated executive officers during fiscal 1999. We have never granted any
stock appreciation rights. The exercise price per share was equal to the fair
value of the common stock on the date of grant as determined by the board of
directors. Percentage of total options is based on an aggregate of 560,000
options granted in fiscal 1999. Potential realizable values are net of exercise
price, but before the payment of taxes associated with exercise. Amounts
represent hypothetical gains that could be achieved for the respective options
if exercised at the end of the option term. The 5% and 10% assumed annual rates
of computed stock price appreciation are mandated by rules of the SEC and do not
represent our estimate or projection of our future common stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
INDIVIDUAL GRANTS RATES OF
------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------
GRANTED IN FISCAL YEAR PER SHARE DATE 5%
----------- ----------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Gordon S. Black................................ -- -- -- -- --
David H. Clemm................................. -- -- -- -- --
Leonard R. Bayer............................... -- -- -- -- --
Elizabeth K. Abbas............................. 84,000 15% $ 1.26 2/2/09 $ 5,289
Arthur E. Coles................................ -- -- -- -- --
<CAPTION>
10%
---------
<S> <C>
Gordon S. Black................................ --
David H. Clemm................................. --
Leonard R. Bayer............................... --
Elizabeth K. Abbas............................. $ 10,578
Arthur E. Coles................................ --
</TABLE>
The following table sets forth information concerning stock options held as
of June 30, 1999 by our Chief Executive Officer and our four other most highly
compensated executive officers. No options were exercised by these officers in
fiscal 1999. The value of unexercised in-the-money options at fiscal year-end is
based on $3.70 per share, the assumed fair value of the common stock at June 30,
1999, less the exercise price per share.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1999 JUNE 30, 1999
------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Gordon S. Black.......................................... -- -- -- --
David H. Clemm........................................... 1,274,000 364,000 $ 4,687,240 $ 1,379,210
Leonard R. Bayer......................................... -- -- -- --
Elizabeth K. Abbas....................................... -- 84,000 -- 311,100
Arthur E. Coles.......................................... 56,000 112,000 207,400 414,800
</TABLE>
All of Mr. Clemm's, Dr. Abbas's and Mr. Coles's unvested options will vest
immediately upon the closing of this offering.
48
<PAGE>
EMPLOYEE BENEFIT PLANS
STOCK OPTIONS. We have granted non-qualified stock options from time to
time. In 1997, we adopted our 1997 stock option plan, which provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code and for the granting to employees and
consultants of non-qualified stock options. A total of 4,499,600 shares of
common stock were available for the grant of options under the plan. In
connection with this offering, the 1997 stock option plan was terminated. All
options issued under the plan and that remain outstanding are exercisable in
accordance with their terms.
1997 STOCK PROGRAM. Our 1997 stock program, provided for the:
- granting to employees the right to purchase shares of common stock;
- award of stock bonuses; and
- our repurchase of shares of common stock issued pursuant to the plan.
Any rights to purchase shares of common stock granted to employees under the
1997 stock program terminated 30 days from the date of grant. The aggregate
number of shares of stock awarded as bonuses in any fiscal year could not
exceed, based on the value of the stock as determined by the board of directors,
$500,000. Each fiscal year, we undertook, but were not obligated, to repurchase
that number of shares that was equal to the number of shares subject to purchase
by employees and the number of shares awarded as bonuses. The 1997 stock program
was terminated in connection with this offering.
1999 LONG-TERM INCENTIVE PLAN. In September 1999, our board of directors
and stockholders adopted our 1999 long-term incentive plan. We have reserved
1,250,000 shares of common stock for issuance under the plan. Pursuant to this
plan, we may grant certain combinations of the following to our employees,
officers and non-employee directors, or to the employees, officers and
non-employee directors of our subsidiaries:
- stock options, both incentive stock options within the meaning of Section
422 of the Internal Revenue Code and non-qualified stock options;
- stock appreciation rights;
- restricted or unrestricted share awards; and
- performance-based awards.
The plan is administered by a committee appointed by our board of directors.
The committee will select the individuals to whom options are granted and will
specify the terms of the options.
- INCENTIVE STOCK OPTIONS. These options may only be granted to our
employees, and may not be exercised more than 10 years after the date of
grant. The exercise price must be at least equal to the fair market value
of our common stock on the date of grant. The purchase price of the shares
issued upon exercise of these options may be paid in cash or shares of
common stock having a total fair market value equal to the aggregate
purchase price.
- NON-QUALIFIED STOCK OPTIONS. These options may not be exercised more than
10 years after the date of grant. The purchase price of shares issued upon
exercise of these options may be paid in cash or shares of common stock
having a total fair market value equal to the aggregate purchase price.
- STOCK APPRECIATION RIGHTS. These rights may be granted on a free-standing
or tandem basis. The term of exercise will be determined by the committee,
but in no event will be more than 10 years from the date of grant. These
rights generally entitle the holder to receive a payment
49
<PAGE>
having an aggregate value equal to the product of the excess of the fair
market value over the exercise price per share specified in the grant
multiplied by the number of shares specified in the award. Payment by us
of the amount receivable in respect of the stock appreciation right may be
paid in any combination of cash and common stock.
The 1999 long-term incentive plan provides for adjustments if a
recapitalization or other change in our common stock dilutes the rights of the
1999 long-term incentive plan participants. The board has the authority to
amend, suspend or terminate the plan, provided that no action may affect any
awards previously made under the plan. No options or awards have been granted
under this plan.
EMPLOYEE STOCK PURCHASE PLAN. In September 1999, our board of directors and
stockholders adopted an employee stock purchase plan under which a total of
500,000 shares of common stock are available for sale. The purchase plan, which
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code of 1996, is administered by our board
of directors or by a committee appointed by our board. All eligible employees or
eligible employees of any present or future subsidiary designated by our board
may participate in the purchase plan. The purchase plan permits eligible
employees to purchase shares of our common stock through payroll deductions,
which may not exceed 10% of the employee's compensation, subject to certain
limitations. The purchase plan will be implemented in a series of consecutive,
overlapping offering periods, each approximately three months to 24 months in
duration. The purchase price of each share of common stock under the purchase
plan will be equal to the lesser of 85% of the closing price per share of our
common stock on the Nasdaq National Market on the start date of that offering
period or on the date of termination of the offering period. An employee's
participation ends on the employee's termination of employment with us. The
purchase plan will terminate in September 2009 unless sooner terminated by our
board.
401(K) PLAN
We have an tax-qualified employee savings plan which covers all of our
employees who are at least 21 years of age, who have been employed with us for
at least one year and who have at least 1,000 hours of service with us. Our
employees may, however, begin making contributions to our 401(k) Plan at the
beginning of the quarter following completion of three months of service.
Eligible employees may defer up to 18% of their pre-tax earnings, subject to the
Internal Revenue Service's annual contribution limit. Our 401(k) Plan permits
additional discretionary matching and profit sharing contributions by us on
behalf of all participants in our 401(k) Plan in an amount determined by us.
Matching contributions, if made, are equal to 50% of an employee's contribution,
relating to the first 4%, up to a maximum annual contribution of $600. Profit
sharing contributions may equal up to 15% of total annual compensation of all
employees and are allocated in proportion to each employee's compensation. Our
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code of 1986 so that contributions by employees or by us to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the plan, and so that contributions by us, if any, will be
deductible by us when made.
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<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK PRIVATE PLACEMENT
In July 1998, we sold an aggregate of 147,000 shares of our Series A
preferred stock for an aggregate purchase price of $14.7 million or $100 per
share, to BVCF III, L.P., Brinson Map Venture Capital Fund III Trust and the
Virginia Retirement System. The shares of preferred stock are automatically
convertible into 11,790,324 shares of common stock upon the closing of this
offering. See "Principal Stockholders."
Thomas D. Berman, a director of our company, is an executive director of
Brinson Partners, Inc. Brinson Partners is the investment adviser to Brinson Map
Venture Capital Fund III Trust and the Virginia Retirement System and the
managing member of Brinson Venture Management LLC, which is the investment
advisor to BVCF III, L.P. Mr. Berman is also an assistant trust officer of the
Brinson Trust Company, which is the trustee for Brinson Map Venture Capital Fund
III Trust. The holders of preferred stock have certain registration rights. See
"Description of Capital Stock--Registration Rights."
MARKET FACTS EQUITY INVESTMENT AND STRATEGIC ALLIANCE
In April 1999, Market Facts, Inc. purchased 1,092,980 shares of our common
stock for an aggregate purchase price of $4.1 million or $3.77 per share. Prior
to this offering, Market Facts owned approximately 10% of our outstanding common
stock. See "Principal Stockholders."
In April 1999, we also entered into a strategic alliance agreement with
Market Facts. Under that agreement, we granted Market Facts a non-exclusive
license to access and use our Internet panel and Internet technologies for
purposes of developing market research studies, and for conducting and providing
analysis of surveys and polls. In consideration for such access and use, Market
Facts agreed to pay us use fees, access fees and survey fees. In addition,
Market Facts has granted us a non-exclusive, royalty free license to use its
Internet technologies for the design and development of market research
products, and has agreed to offer certain of its customers, clients and others
with whom they have a relationship, the opportunity to become members of our
Internet panel.
Market Facts has agreed to use us exclusively for all of its Internet-based
market research and polling needs and not to enter into strategic online
alliances with our direct competitors. The agreement also provides for the
development of multi-client studies, either jointly or by each of us
individually. The agreement terminates in April 2004, but automatically extends
for additional one year terms thereafter unless either party terminates upon one
year's prior notice.
CONFIDENTIALLY AND NON-COMPETITION AGREEMENTS WITH EXECUTIVE OFFICERS
In September 1999, we entered into agreements with Gordon S. Black, David H.
Clemm and Leonard R. Bayer. These agreements include confidentiality and
non-competition provisions, and obligate each of these executive officers to
transfer to us any inventions developed by them during their employment with us
and prohibits each of them from competing with us for a period of one year after
their termination of employment. The agreements also provide that, in the event
we terminate Dr. Black's, Mr. Clemm's or Mr. Bayer's employment without cause,
he is entitled to receive severance benefits equal to:
- his base salary in effect before the date of his termination;
- the average of his annual incentive bonus for the past three years;
- his accrued and unused vacation time;
- his expenses incurred on our behalf; and
- insurance benefits for two years following the date of termination.
51
<PAGE>
OTHER TRANSACTIONS
REPURCHASE OF COMMON STOCK. In connection with the sale of our Series A
preferred stock, we repurchased an aggregate of 85,082 shares of our common
stock. We repurchased 54,664 shares from Gordon S. Black, our Chief Executive
Officer, for an aggregate redemption price of $1.9 million and 27,333 shares
from Leonard R. Bayer, our Executive Vice President, for an aggregate redemption
price of $963,761.
LOAN TO OFFICER. In May 1993, we made a demand loan of $70,000 to Gordon S.
Black, our Chairman and Chief Executive Officer. The loan was collateralized by
a pledge of 700,000 shares of our common stock that he owned. The loan bore
interest at a rate equal to the lowest rate of interest permitted by the
Internal Revenue Code (5.1% at the time of repayment) so as to avoid imputation
of interest. The outstanding principal balance of the loan at June 30, 1998 was
$42,500. The loan was fully paid in fiscal 1999.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock, as of August 31, 1999, and as adjusted to reflect
the sale of common stock offered by us in this offering, for:
- each person who we know beneficially owns more than 5% of the common
stock;
- each of our directors;
- each executive officer named in the Summary Compensation Table; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
c/o Harris Interactive Inc., 135 Corporate Woods, Rochester, New York 14623.
Except as indicated by footnote, each person identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. The number of shares of common stock
outstanding used in calculating the percentage for each listed person includes
the shares of common stock issuable upon conversion of outstanding preferred
stock and shares of common stock underlying options held by such person that are
currently exercisable or exercisable within 60 days of August 31, 1999. These
shares, however, are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Percentage of beneficial ownership is
based on 10,915,044 shares of common stock outstanding as of August 31, 1999,
and shares of common stock outstanding after completion of this offering.
The numbers shown in the table assume no exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
TOTAL NUMBER BENEFICIALLY OWNED BENEFICIALLY OWNED
OF SHARES INCLUDES ------------------------
BENEFICIALLY SECURITIES BEFORE AFTER
OWNED UNDERLYING OPTIONS OFFERING OFFERING
------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Market Facts, Inc. (1)................................. 1,092,980 -- 10.0%
Brinson Partners Inc. (2).............................. 11,790,324 -- 51.9%
DIRECTORS AND EXECUTIVE OFFICERS:
Gordon S. Black (3)(7)................................. 3,922,240 -- 35.9%
David H. Clemm (4)(7).................................. 1,165,332 1,638,000 22.3%
Leonard R. Bayer (5)(7)................................ 3,133,060 -- 28.7%
Elizabeth K. Abbas..................................... 114,212 84,000 1.8%
Arthur E. Coles........................................ 14,924 168,000 1.6%
Thomas D. Berman (6)(7)................................ -- -- --
G. Thomas Clark (7).................................... -- 28,000 *
James R. Riedman (7)................................... -- 28,000 *
Directors and Executive Officers as a group (ten
persons)............................................. 8,428,924 2,282,000 90.05%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of Market Facts, Inc. is 3040 West Salt Creek Lane, Arlington
Heights, Illinois 60005.
(2) Represents shares to be issued upon conversion of 147,000 shares of our
Series A preferred stock. Includes 10,185,661 shares issuable upon
conversion to the Virginia Retirement System, 225,195 shares issuable upon
conversion to Brinson Map Venture Capital Fund III Trust and 1,379,468
shares issuable upon conversion to BVCF III, L.P. Brinson Partners, Inc.
acts as investment adviser
53
<PAGE>
to the Virginia Retirement System and Brinson Map Venture Capital Fund III
Trust and has sole voting and investment power over their shares. Brinson
Partners, Inc. is also the managing member of Brinson Venture Management
LLC, the investment advisor to BVCF III, L.P., which has sole voting and
investment power over BVCF III, L.P.'s shares. The address of BVCF III,
L.P., Brinson Map Venture Capital Fund III Trust and the Virginia Retirement
System is c/o Brinson Partners, Inc., 209 South LaSalle, Chicago, Illinois
60604.
(3) Includes 364,000 shares held by Lonny H. Dolin, Dr. Black's wife, 364,980
shares held by the Lindsay L. Black Trust, 121,380 shares held by the Brooke
E. Dolin Trust and 121,380 shares held by the Nathaniel M. Dolin Trust. Dr.
Black is the trustee of these trusts.
(4) Includes 42,000 shares held by Christopher Clemm and 42,000 shares held by
Julie Clemm, Mr. Clemm's children. 42,000 shares held by Jean Clemm, Mr.
Clemm's wife, as custodian for Robert Clemm under the Uniform Transfers to
Minors Act.
(5) Includes 16,800 shares held by Lorraine W. Bayer, Mr. Bayer's wife.
(6) Mr. Berman is an executive director of Brinson Partners, Inc. and in that
capacity, Mr. Berman participates in investment advisory decisions with
other personnel of Brinson Partners, Inc. with respect to the voting and
investment power over the shares of the Virginia Retirement System and the
Brinson Map Venture Capital Fund III Trust. Mr. Berman is also a member of
Brinson Venture Management LLC, the investment adviser to BVCF III, L.P.
and, by virtue of carried interest fee arrangements between Brinson Venture
Management LLC and BVCF III, L.P., may be deemed to have an indirect
pecuniary interest in the common stock owned by BCVF III, L.P. Mr. Berman is
also an assistant trust officer of the Brinson Trust Company, which is the
trustee for Brinson Map Venture Capital Fund III Trust. Mr. Berman disclaims
beneficial ownership of the shares owned by these entities, except to the
extent of his pecuniary interest, if any.
(7) Director.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $.001 par value, and 5,000,000
shares of preferred stock, $.01 par value.
The following summary of the rights of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our amended and restated certificate of incorporation and
bylaws which are included as exhibits to the registration statement of which
this prospectus is a part and by the provisions of Delaware law.
COMMON STOCK
After giving effect to the conversion of all previously outstanding
preferred stock into shares of common stock, as of June 30, 1999, there were
22,661,016 shares of common stock outstanding held of record by approximately 45
stockholders. After giving effect to the sale of common stock in the offering,
there will be shares of common stock outstanding, assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or warrants.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Except as required
under Delaware law or the rules of the Nasdaq National Market, the rights of
stockholders may not be modified otherwise than by a vote of a majority or more
of the shares outstanding. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, the holders of common stock are entitled
to receive ratably any dividends as may be declared by the board of directors
out of funds legally available for the payment of dividends. 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, subject to prior
distribution rights of the preferred stock, if any, then outstanding. Holders of
common stock have no preemptive rights or rights to convert their common stock
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock to be issued in the
offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering, the 147,000 shares of Class A
preferred stock outstanding will automatically convert into a total of
11,790,324 shares of common stock. Pursuant to our restated certificate of
incorporation, the board of directors has the authority, without further action
by the stockholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the designations, powers, preferences and privileges,
which may be greater than the rights of the common stock. The board, without
stockholder approval, can issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. Preferred stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of our company or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock. At
present, there are no shares of preferred stock outstanding, and we have no
plans to issue any of the preferred stock.
COMMON STOCK WARRANTS
Upon completion of the offering, we will have warrants outstanding to
purchase an aggregate of 216,608 shares of common stock, exercisable at an
exercise price of $1.50 per share. Each warrant has a net exercise provision
under which the holder may, in lieu of payment of the exercise price in cash,
55
<PAGE>
surrender the warrant and receive a net amount of shares, based on the fair
market value of our stock at the time of the exercise of the warrant, after
deducting the aggregate exercise price. The warrants expire in November 2003.
REGISTRATION RIGHTS
After the closing of this offering, the holders of 11,790,324 shares of
common stock will be entitled to have their shares registered under the
Securities Act of 1933. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
stockholders exercising registration rights, these holders are entitled to
notice of the registration and are entitled to include their shares as part of
that registration. Holders of registration rights may also require us to file a
registration statement under the Securities Act at our expense with respect to
their shares of common stock. Further, holders may require us to file
registration statements on Form S-3 at our expense when we are eligible to use
that form. All registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in the registration.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKE OVER STATUTE
Provisions of our restated certificate of incorporation and bylaws, to be
effective following the offering, may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of our
common stock. These provisions:
- divide our board of directors into three classes serving staggered
three-year terms;
- eliminate the right of stockholders to act by written consent without a
meeting; and
- allow us to issue preferred stock without any vote or further action by
the stockholders.
The classification system of electing directors may tend to discourage a
third-party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deferring
hostile takeovers, delaying changes in our control or management, or may make it
more difficult for stockholders to take certain corporate actions. An amendment
of the provisions relating to the staggered board or the elinimation of the
prohibition to act by written consent would require approval by holders of at
least 66 2/3% of the outstanding common stock.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with an interested
stockholder, unless:
- prior to the date of the proposed action, the board of directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder's becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
56
<PAGE>
- on or subsequent to the date of the proposed action, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types of transactions that may involve an actual
or threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all of our outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of our company. These
provisions, however, could discourage potential acquisition proposals and could
delay or prevent a change in control of our company. They may also have the
effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for the common stock. Future
sales of substantial amounts of our common stock in the public market following
the offering could cause the prevailing market price of our common stock to fall
and impede our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming that the underwriters do not exercise
their over-allotment option and no exercise of outstanding options or warrants.
Of these shares, the shares sold in this offering will be freely tradable
without registration or further restriction under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. The remaining shares of common stock outstanding
upon completion of this offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701
promulgated under the Securities Act, which rules are summarized below.
LOCK UP AGREEMENTS
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the common
stock. All of our officers, directors, members of their families and certain
other stockholders have entered into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of shares of common stock owned by them, or later acquired
by them, or that could be purchased by them through the exercise of options or
warrants for a period of 180 days after the date of this prospectus without an
exemption from, or without the prior written consent of, Lehman Brothers Inc. As
a result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rule 144 and 701,
additional shares will be eligible for sale beginning 181 days after the
effective date of this offering, subject to the requirements of Rule 144.
Of the remaining restricted shares, will be eligible for sale
immediately upon the effective date of this offering pursuant to Rule 144(k),
and will be eligible for sale pursuant to Rule 144 and Rule 701 beginning 91
days after the effective date of this offering.
RULE 144
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a stockholder who is not deemed to have been our
"affiliate" at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the restricted shares proposed to be
sold, including the holding period of any prior owner except an affiliate, is
entitled to sell the shares, without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
58
<PAGE>
WARRANTS, STOCK OPTIONS AND EMPLOYEE COMMON STOCK PURCHASES
As of June 30, 1999, there were outstanding warrants to purchase 260,960
shares of common stock and options to purchase 3,777,200 shares of common stock,
of which 2,892,624 options were fully vested. The common stock underlying these
warrants and options will be eligible for sale subject to the requirements of
Rule 144 or Rule 701.
An additional 1,250,000 shares are reserved for issuance under our 1999 long
term incentive plan and additional 500,000 shares are reserved under our 1999
employee stock purchase plan. We intend to file a registration statement under
the Securities Act covering the shares of common stock reserved for issuance
under our 1999 long term incentive plan and our 1999 employee stock purchase
plan. The registration statement is expected to be filed simultaneously with the
effectiveness of the registration statement covering the shares of common stock
offered in this offering and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of
the 180-day lock-up period, be available for sale in the open market, except to
the extent that such shares are subject to our vesting schedules.
PREFERRED STOCK
Holders of 11,790,324 shares of common stock issuable upon conversion of a
preferred stock are entitled to registration rights with respect to these shares
for resale under the Securities Act of 1933. If these holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, these sales could harm the market price for our
common stock. These registration rights may not be exercised prior to the
expiration of the 180 days from the date of this prospectus. See "Description of
Capital Stock--Registration Rights."
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirements. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an issuer
before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of such
options, including exercises after the date the issuer becomes so subject.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 91 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one-year minimum holding period requirements.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Lehman Brothers Inc.
59
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., U.S. Bancorp Piper Jaffray Inc., Volpe
Brown Whelan & Company, LLC, and E*OFFERING Corp. are acting as representatives,
have each agreed to purchase from us the respective number of shares of common
stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Lehman Brothers Inc. .............................................................
U.S. Bancorp Piper Jaffray Inc. ..................................................
Volpe Brown Whelan & Company, LLC.................................................
E*OFFERING Corp...................................................................
-----------
Total...........................................................................
-----------
-----------
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement, must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY HARRIS INTERACTIVE NO EXERCISE FULL EXERCISE
- ------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Per Share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc. for a
period of 180 days from the date of this prospectus, we will not directly or
indirectly, offer, sell or otherwise dispose of any shares of common stock or
any securities which may be converted into or exchanged for any such
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<PAGE>
shares of common stock. All of our executive officers and directors, members of
their families and several other stockholders have agreed under lock-up
agreements that, without an exemption from, or without the prior written consent
of, Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities that they may
own, or later acquire, or which may be converted into or exchanged for any such
shares for the period ending 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earning prospects, an overall
assessment of our management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
We will list our common stock for quotation on the Nasdaq National Market
under the symbol "HPOL."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $600,000.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed % of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
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<PAGE>
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
A copy of the prospectus in electronic format will be made available on the
Internet web site hosted by E*OFFERING Corp. and E*TRADE Securities, Inc.
E*TRADE will accept conditional offers to purchase shares from all of its
customers that pass and complete an online eligibility profile. In the event
that the demand for shares from the customers of E*TRADE exceeds the amount of
shares allocated to it, E*TRADE will use a random allocation methodology to
distribute shares in even lots of 100 shares/customer.
At our request, the underwriters have reserved up to 5% of the shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the initial
public offering price set forth on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. In addition to the 5% of the shares of common stock that have
been reserved as described above, E*OFFERING Corp. has reserved up to
shares for sale to some of our cooperative respondents on the same terms and
conditions. The number of shares available for sale to customers of E*OFFERING
Corp. will be reduced to the extent these persons purchase their reserved
shares.
In connection with this offering, we have agreed to pay The Wallach Company
$150,000 as a finder's fee for its assistance in introducing us to the
underwriters.
LEGAL MATTERS
Harris Beach & Wilcox, LLP, Rochester, New York will pass upon the validity
of the common stock that we are selling in this offering. O'Melveny & Myers LLP,
New York, New York will pass upon legal matters for the underwriters. Beth Ela
Wilkens, a partner of Harris Beach & Wilcox, LLP, holds options to purchase
28,000 shares of our common stock.
EXPERTS
Our consolidated balance sheets as of June 30, 1998 and 1999 and our
consolidated statements of operations, stockholders' equity and cash flows for
the three years in the period ended June 30, 1999 have been included in this
prospectus and in the registration statement in reliance upon the reports of
PricewaterhouseCoopers, LLP, independent accountants, appearing elsewhere, and
upon the authority of PricewaterhouseCoopers, LLP as experts in accounting and
auditing.
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<PAGE>
CHANGE IN PRINCIPAL ACCOUNTANTS
In May 1998, we dismissed KPMG LLP and engaged PricewaterhouseCoopers, LLP
as our independent accountants. The selection of PricewaterhouseCoopers, LLP as
our independent accountants was ratified by the Board of Directors in October
1998. KPMG LLP's report on our consolidated financial statements for fiscal 1997
(which does not appear in this prospectus) did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During fiscal 1997, we had no disagreement
with KPMG LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
their satisfaction, would have caused them to make reference in connection with
their report on our consolidated financial statements. KPMG LLP did not issue a
report on our consolidated financial statements for fiscal 1998 or 1999.
During fiscal 1998, we discussed with KPMG LLP the accounting treatment for
database development costs and requested that KPMG consider whether
capitalization and amortization of all or any significant portion of those costs
would be appropriate. KPMG LLP advised us that generally accepted accounting
principles require expensing such costs as incurred. We inquired of KPMG LLP
whether there was any flexibility with respect to the accounting treatment and,
after considerable additional discussion, KPMG LLP confirmed its original
advice. Because this involved a matter of generally accepted accounting
principles, if KPMG LLP had continued as the company's independent accountants
without resolution of the issue to their satisfaction, it would have caused KPMG
LLP to qualify its opinion regarding this matter in its report on our
consolidated financial statements for fiscal 1998. The matter was not pursued
further with KPMG LLP. We subsequently retained PricewaterhouseCoopers, LLP to
replace KPMG LLP as our independent accountants in connection with the audit of
our consolidated financial statements for fiscal 1998. KPMG LLP was authorized
to respond fully to any inquiries of PricewaterhouseCoopers concerning this
subject matter. PricewaterhouseCoopers, LLP confirmed the advice of KPMG LLP
regarding the expensing of database development costs, and our consolidated
statements appearing elsewhere in this prospectus reflect this treatment.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to our company and
the shares we are offering by this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
You may inspect a copy of the registration statement without charge at the
Public Reference Room of the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
HTTP://WWW.SEC.GOV.
63
<PAGE>
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for the quotation on the Nasdaq National Market, such reports, proxy and
information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington D.C. 20006.
We intend to furnish holders of the common stock with annual reports
containing, among other information, audited consolidated financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. We intend to furnish such other reports as we may
determine or as may be required by law.
64
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at June 30, 1998 and 1999...................................................... F-3
Consolidated Statements of Operations for the fiscal years ended June 30, 1997, 1998 and 1999.............. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30, 1997, 1998 and 1999.... F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1997, 1998 and 1999.............. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Harris Interactive Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Harris
Interactive Inc. (the Company) and its subsidiaries at June 30, 1999 and 1998
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 1, 1999, except as to Note 16, which is as of
September 7, 1999
F-2
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
--------------------------- (NOTE 2)
1998 1999 (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 3,751 $ 108,161 $ 108,161
Accounts receivable................................................ 3,918,278 5,989,164 5,989,164
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ 1,249,129 1,705,943 1,705,943
Prepaid expenses................................................... 64,432 82,728 82,728
Deferred income taxes.............................................. 191,000 29,000 29,000
Income taxes receivable............................................ 786,361 41,633 41,633
Loan to officer.................................................... 42,500
------------ ------------- -------------
Total current assets............................................. 6,255,451 7,956,629 7,956,629
Property, plant and equipment, net................................... 1,814,326 5,028,785 5,028,785
Goodwill, less accumulated amortization of $249,722 in 1998 and
$353,055 in 1999................................................... 1,300,278 1,196,945 1,196,945
Deferred income taxes................................................ 289,000 451,000 451,000
Other assets......................................................... 138,735 151,535 151,535
------------ ------------- -------------
$ 9,797,790 $ 14,784,894 $ 14,784,894
------------ ------------- -------------
------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt.............................. $ 300,000
Accounts payable................................................... 177,712 $ 1,843,264 $ 1,843,264
Accrued expenses................................................... 2,648,379 1,799,980 1,799,980
Short-term borrowings.............................................. 2,217,920 291,300 291,300
Billings in excess of costs and estimated earnings on uncompleted
contracts........................................................ 3,107,197 3,470,492 3,470,492
------------ ------------- -------------
Total current liabilities........................................ 8,451,208 7,405,036 7,405,036
Long-term debt, excluding current installment........................ 400,000
------------ ------------- -------------
Total liabilities................................................ 8,851,208 7,405,036 7,405,036
------------ ------------- -------------
Mandatory redeemable preferred stock................................. 15,876,000
------------ ------------- -------------
Stockholders' equity (deficit):
Common stock, $.01 par value -
Authorized--56,000,000 and 28,000,000 shares in 1998 and 1999,
respectively
Issued and outstanding--12,062,960 shares in 1998 and 10,870,692
shares in 1999................................................... 120,629 108,706 226,609
Additional paid-in capital......................................... 492,120 4,812,824 19,394,921
Unamortized deferred compensation.................................. (650,180) (650,180)
Retained earnings (deficit)........................................ 333,833 (12,767,492) (11,591,492)
------------ ------------- -------------
Total stockholders' equity (deficit)............................. 946,582 (8,496,142) 7,379,858
------------ ------------- -------------
$ 9,797,790 $ 14,784,894 $ 14,784,894
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
------------- ------------- --------------
Revenues from services............................................. $ 23,326,862 $ 26,290,496 $28,965,299
Cost of services................................................... 15,629,282 16,617,755 19,086,311
------------- ------------- --------------
Gross profit................................................. 7,697,580 9,672,741 9,878,988
Database development expenses...................................... 2,753,000 4,505,000
Selling, general and administrative expenses....................... 6,390,753 9,811,788 14,400,996
------------- ------------- --------------
Operating income (loss)...................................... 1,306,827 (2,892,047) (9,027,008)
------------- ------------- --------------
Other income (deductions):
Interest income.................................................. 29,735 5,269 206,531
Interest expense................................................. (118,583) (166,329) (26,202)
------------- ------------- --------------
(88,848) (161,060) 180,329
------------- ------------- --------------
Earnings (loss) before income taxes.......................... 1,217,979 (3,053,107) (8,846,679)
Income tax expense (benefit)....................................... 490,000 (1,114,000)
------------- ------------- --------------
Net earnings (loss).......................................... 727,979 (1,939,107) (8,846,679)
Accrued dividends on preferred stock............................... (1,176,000)
------------- ------------- --------------
Net earnings (loss) available to holders of common stock........... $ 727,979 $ (1,939,107) $ (10,022,679)
------------- ------------- --------------
------------- ------------- --------------
Basic net earnings (loss) per share................................ $ .06 $ (.16) $ (1.01)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding--basic....................... 11,741,935 11,903,256 9,955,261
------------- ------------- --------------
------------- ------------- --------------
Diluted net earnings (loss) per share.............................. $ .06 $ (.16) $ (1.01)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding--diluted..................... 12,371,865 11,903,256 9,955,261
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING ADDITIONAL UNAMORTIZED RETAINED TOTAL
------------------------ PAID-IN DEFERRED EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
------------ ---------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996........... 11,793,096 $ 117,931 $ 1,544,961 $ 1,662,892
Issuance of common stock........... 276,332 2,763 $ 71,442 74,205
Purchase and retirement of common
stock from a related party....... (306,768) (3,068) (69,570) (72,638)
Net earnings....................... 727,979 727,979
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1997........... 11,762,660 117,626 1,872 2,272,940 2,392,438
Issuance of common stock........... 314,664 3,147 87,031 90,178
Purchase and retirement of common
stock............................ (14,364) (144) (6,535) (6,679)
Compensation expense on stock
options issued................... 409,752 409,752
Net loss........................... (1,939,107) (1,939,107)
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1998........... 12,062,960 120,629 492,120 333,833 946,582
Purchase and retirement of common
stock............................ (2,382,296) (23,823) (492,120) (2,484,048) (2,999,991)
Issuance costs incurred on
preferred stock.................. (594,598) (594,598)
Issuance of common stock........... 1,190,028 11,900 4,146,960 4,158,860
Deferred compensation on stock
options issued (but not
vested).......................... 665,864 $ (665,864) --
Amortization of deferred
compensation..................... 15,684 15,684
Accrued dividends on preferred
stock............................ (1,176,000) (1,176,000)
Net loss........................... (8,846,679) (8,846,679)
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1999........... 10,870,692 $ 108,706 $ 4,812,824 $ (650,180) $ (12,767,492) $ (8,496,142)
------------ ---------- ------------ ------------- -------------- -------------
------------ ---------- ------------ ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ------------- -------------
Cash flows from operating activities:
Net earnings (loss)................................................. $ 727,979 $ (1,939,107) $ (8,846,679)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization....................................... 639,924 782,649 1,261,141
Amortization of deferred compensation............................... 15,684
Deferred income taxes............................................... (29,000) (385,000)
(Increase) decrease in --
Accounts receivable............................................... (1,521,032) 305,715 (2,070,886)
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... (1,260,673) 681,339 (456,814)
Prepaid expenses.................................................. 38,710 (6,002) (18,296)
Income taxes receivable........................................... (786,361) 744,728
Other assets...................................................... (12,009) (12,260) (12,800)
Increase (decrease) in--
Accounts payable.................................................. 192,404 (304,395) 1,665,552
Accrued expenses.................................................. 505,086 1,076,374 (848,399)
Income taxes payable.............................................. 206,952 (221,411)
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... 559,527 (227,071) 363,295
----------- ------------- -------------
Net cash provided by (used in) operating activities........... 47,868 (1,035,530) (8,203,474)
----------- ------------- -------------
Cash flows from investing activities:
Repayment (borrowings) of loan to officer........................... 17,500 (25,000) 42,500
Capital expenditures................................................ (689,255) (976,971) (4,372,267)
----------- ------------- -------------
Net cash used in investing activities......................... (671,755) (1,001,971) (4,329,767)
----------- ------------- -------------
Cash flows from financing activities:
Principal payments under long-term debt............................. (720,783) (400,000) (700,000)
Increase (decrease) in short-term borrowings........................ 618,600 1,599,320 (1,926,620)
Net proceeds from issuance of preferred stock....................... 14,105,402
Repurchase of common stock.......................................... (72,638) (6,679) (2,999,991)
Issuance of common stock and stock options.......................... 74,205 499,930 4,158,860
----------- ------------- -------------
Net cash (used in) provided by financing activities............. (100,616) 1,692,571 12,637,651
----------- ------------- -------------
Net (decrease) increase in cash and cash equivalents.................. (724,503) (344,930) 104,410
Cash and cash equivalents at beginning of year........................ 1,073,184 348,681 3,751
----------- ------------- -------------
Cash and cash equivalents at end of year.............................. $ 348,681 $ 3,751 $ 108,161
----------- ------------- -------------
----------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest............................................................ $ 133,583 $ 171,329 $ 34,952
----------- ------------- -------------
----------- ------------- -------------
Income taxes........................................................ $ 378,048 $ 255,574 $ (748,117)
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. BUSINESS
Harris Interactive Inc. and Subsidiaries (the Company) is a marketing
research, consulting and polling firm. The Company conducts work in a number of
specialized areas: Commercial Market Research, Media Research and Polling,
Health Care Research and Customer Satisfaction Research, employing various
methods of data collection, including using their exclusive panel of on-line
respondents for both custom and multi-client projects.
The Company includes the accounts of Gordon S. Black Corporation (GSBC),
GSBC Ohio Corporation, with principal operations located in Youngstown, Ohio and
Louis Harris & Associates, Inc. (LHA), with principal operations located in New
York, New York. During fiscal 1999, the Company changed its name from Harris
Black International, Ltd. to Harris Interactive Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
GSBC, GSBC Ohio Corporation and LHA. All intercompany balances and transactions
have been eliminated in consolidation.
UNAUDITED PRO FORMA BALANCE SHEET
The Company's Preferred Stock automatically converts into Common Stock
concurrent with the closing of an initial public offering (Note 11).
Accordingly, the unaudited pro forma balance sheet has been presented on a basis
to give effect to the automatic conversion of such stock as of the closing date
of the initial public offering which is assumed to have been converted as of
June 30, 1999.
CASH AND CASH EQUIVALENTS
Cash equivalents include marketable securities with original maturities of
three months or less.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation of fixed assets is calculated
on the straight-line or accelerated methods over the estimated useful lives of
the assets, which are generally 3 to 7 years. Leasehold improvements are
amortized on the straight-line method over the estimated useful life of the
assets or lease term, whichever is shorter.
GOODWILL
Goodwill, which represents the excess of the purchase price over fair value
of LHA's net assets acquired, is amortized on a straight-line basis over 15
years. The Company evaluates goodwill and all long-lived assets for impairment
at least annually. In completing this evaluation, the Company compares its best
estimate of future cash flows with the respective carrying value of such assets.
Amortization expense amounted to $103,333 in each of the fiscal years ended
1997, 1998 and 1999, respectively.
F-7
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from services principally on the percentage
of completion method in the ratio that costs incurred bears to estimated cost at
completion. Revenues include amounts billed to customers to cover subcontractor
costs and other direct expenses. Provision for estimated contract losses, if
any, is made in the period such losses are determined.
INTERNET DATABASE DEVELOPMENT EXPENSES
The Company is in the process of developing a database of e-mail addresses
through a strategic alliance formed with a marketing services firm. The Company
is using these addresses to conduct marketing research, polling and surveys on
behalf of its customers. The costs to acquire these addresses and other external
database development costs approximated $2.8 million and $4.5 million in fiscal
1998 and 1999, respectively. Such costs have been classified as database
development expenses in the consolidated statement of operations and are
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities, if any, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable and Preferred Stock are valued at their carrying
or redemption amounts, which are reasonable estimates of their fair value. The
carrying value of the note payable and short-term borrowings approximates fair
value, as the interest rate on this debt approximates market rates at June 30,
1998 and 1999. The fair value of all other financial instruments approximates
cost.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist principally of accounts receivable as well as costs and
estimated earnings in excess of billings on uncompleted contracts. The Company
performs ongoing credit evaluations of its customers' financial condition and
based upon the existing client portfolio and limited historical write-offs,
management believes that a reserve for doubtful accounts is not considered
necessary.
INCOME TAXES
The Company accounts for income taxes using the asset and liability approach
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon
F-8
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
enactment. Deferred tax assets are recognized, net of any valuation allowance,
for deductible temporary differences and net operating loss and tax credit
carryforwards.
RECENT PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires companies to capitalize certain costs of
computer software developed or obtained for internal use, provided that those
costs are not research and development. The Company expects to adopt the
provisions of SOP 98-1 in fiscal 2000. Management has not yet determined the
effect that the adoption of SOP 98-1 will have on the Company's results of
operations or financial position.
RECLASSIFICATIONS
It is the Company's policy to reclassify amounts in prior year's financial
statements to conform with the current year's presentation.
3. CONTRACTS IN PROGRESS
Accumulated costs and estimated earnings and billings on contracts in
progress at June 30 follows:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Accumulated costs and estimated earnings........................ $ 6,368,573 $ 6,407,993
LESS--Billings................................................ (8,226,641) (8,172,542)
------------- -------------
$ (1,858,068) $ (1,764,549)
------------- -------------
------------- -------------
</TABLE>
Contracts in progress are included in the accompanying balance sheets under
the following captions:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... $ 1,249,129 $ 1,705,943
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (3,107,197) (3,470,492)
------------- -------------
$ (1,858,068) $ (1,764,549)
------------- -------------
------------- -------------
</TABLE>
4. LOAN TO OFFICER
The Company made a demand loan of $70,000 to an officer of the Company with
an outstanding balance of $42,500 at June 30, 1998. This loan was collateralized
by 700,000 shares of Company stock held by the officer. The loan was fully
repaid in fiscal 1999.
F-9
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Furniture and fixtures.......................................... $ 832,088 $ 1,393,560
Equipment....................................................... 3,441,165 6,435,848
Leashold improvements........................................... 771,562 1,587,674
------------- -------------
5,044,815 9,417,082
LESS--Accumulated depreciation................................ (3,230,489) (4,388,297)
------------- -------------
$ 1,814,326 $ 5,028,785
------------- -------------
------------- -------------
</TABLE>
Depreciation expense amounted to $536,591, $679,316 and $1,157,808 in fiscal
years 1997, 1998 and 1999, respectively.
The Company has several noncancelable operating leases for office space and
office equipment. Future minimum lease payments under noncancelable operating
leases as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30:
- --------------------------------------------------------------------------------
<S> <C>
2000............................................................................ $ 1,418,836
2001............................................................................ 1,415,437
2002............................................................................ 1,295,709
2003............................................................................ 1,149,275
2004............................................................................ 580,500
2005 and beyond................................................................. 265,250
</TABLE>
Total rental expense for operating leases in 1997, 1998 and 1999 was
$1,173,277, $1,335,315 and $1,612,459, respectively.
6. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
In 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 131 superseded SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The Company operates in a single domestic market
engaged principally in marketing research, consulting and polling.
For the year ended June 30, 1999, revenues from the Company's two largest
customers comprised 15% and 14% of revenues, respectively. For the year ended
June 30, 1998, revenues from the two largest customers comprised 19% and 15% of
revenues. For the year ended June 30, 1997, revenues from one major customer
amounted to 22% of revenues.
F-10
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
7. ACCRUED EXPENSES
Accrued expenses consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Internet database development expenses............................ $ 1,000,000
Payroll and withholding expenses.................................. 754,053 $ 474,233
Bonuses........................................................... 665,000 838,700
Other............................................................. 229,326 487,047
------------ ------------
$ 2,648,379 $ 1,799,980
------------ ------------
------------ ------------
</TABLE>
8. LONG-TERM DEBT
Long-term debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Note payable to Gannett Co., Inc.
Interest is payable quarterly at 7 1/2%............................... $ 700,000 $ --
LESS--Current installment............................................. (300,000)
---------- ----------
Long-term debt, excluding current installment......................... $ 400,000 $ --
---------- ----------
---------- ----------
</TABLE>
The note payable was paid in fiscal 1999.
9. LINE OF CREDIT
The Company maintains a line of credit with a commercial bank providing
borrowings up to $3,000,000 in fiscal 1998 and $1,500,000 in fiscal 1999 at
prime plus 1%. The prime rate in effect at June 30, 1999 was 7.75%. Borrowings
under this arrangement are due upon demand. The Company had borrowings of
$2,217,920 and $291,300 under this agreement at June 30, 1998 and 1999,
respectively. The line of credit is collateralized by the assets of the Company.
F-11
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
10. INCOME TAXES
Income tax (benefit) expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- -------------
<S> <C> <C> <C>
1999:
Federal............................................ $ -- $ -- $ --
State
----------- ----------- -------------
$ -- $ -- $ --
----------- ----------- -------------
----------- ----------- -------------
1998:
Federal............................................ $ (728,300) $ (170,500) $ (898,800)
State.............................................. (700) (214,500) (215,200)
----------- ----------- -------------
$ (729,000) $ (385,000) $ (1,114,000)
----------- ----------- -------------
----------- ----------- -------------
1997:
Federal............................................ $ 419,000 $ (29,000) $ 390,000
State.............................................. 100,000 -- 100,000
----------- ----------- -------------
$ 519,000 $ (29,000) $ 490,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance was
recorded in 1999 primarily related to federal and state net operating loss
carryforwards generated for the year ended June 30, 1999. The Company
continually reviews the adequacy of the valuation allowance and recognizes these
benefits only as reassessment indicates that it is more likely than not that the
benefits will be realized. The components of deferred income tax assets at June
30 are presented below:
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 191,000 $ 3,659,000
Financial statement versus tax depreciation....................... 64,000 62,000
Tax credit carryforwards.......................................... 78,000 93,000
Compensation expense accounted for differently between financial
reporting and tax purposes...................................... 147,000 153,000
Book expenses currently not deductible for tax purposes........... 29,000
---------- ------------
Gross deferred tax assets..................................... 480,000 3,996,000
LESS--Valuation allowance....................................... (3,516,000)
---------- ------------
Net deferred tax assets....................................... $ 480,000 $ 480,000
---------- ------------
---------- ------------
</TABLE>
The New York State and Federal net operating loss carryforwards (NOLs) of
approximately $11,120,000 and $9,149,000, respectively, expire at various times
through 2019.
F-12
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
10. INCOME TAXES (CONTINUED)
The differences between income taxes (benefit) at the U.S. statutory rate
and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ------------- -------------
<S> <C> <C> <C>
Provision (benefit) at Federal statutory rate....... $ 414,000 $ (1,038,100) $ (3,008,000)
State income taxes, net of federal income tax
benefit........................................... 66,000 (141,200) (435,000)
Book expenses not deductible for tax................ 64,000 7,400
Other............................................... 10,000 1,300 (80,400)
Valuation allowance................................. 3,516,000
---------- ------------- -------------
$ 490,000 $ (1,114,000) $ --
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
11. STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
In July 1998, the Company authorized and issued 147,000 shares of Preferred
Stock having a par value of $.01 per share and received proceeds in the amount
of $14,700,000. Beginning November 1, 2002, the holders may redeem up to an
aggregate of 49,000 shares and commencing November 1, 2004, they may redeem all
shares outstanding. The redemption value of Preferred Stock is equal to $100 per
share plus accrued and unpaid dividends. The total redemption value of Preferred
Stock at June 30, 1999 in the amount of $15,876,000 is classified on the
Company's balance sheet as mandatory redeemable Preferred Stock and includes
$1,176,000 of accrued and unpaid dividends. In the event of voluntary or
involuntary liquidation of the Company, the holders of Preferred Stock are
entitled to receive liquidating distributions in the amount of $100 per share
plus accrued and unpaid dividends before payment is made to holders of Common
Stock. The costs associated with issuing these securities in the amount of
$594,598 were charged to retained deficit due to the fact that the Preferred
Stock is required to be carried at redemption value.
Dividends are cumulative from the date of issuance at an annual rate of 8%
and are added to the net loss in fiscal 1999 in determining net loss per common
share.
The Preferred Stock is convertible into 11,790,324 shares of Common Stock at
the option of the holders. In the event of a public offering pursuant to an
effective registration statement with the Securities and Exchange Commission
that results in aggregate net proceeds to the Company of not less than
$25,000,000, each share of Preferred Stock will be automatically converted to
Common Stock of the Company.
The holders of Preferred Stock are entitled to vote upon all matters upon
which holders of shares of Common Stock of the Company have the right to vote,
and shall be entitled to the number of votes equal to the largest number of full
shares of Common Stock into which shares of Preferred Stock are then
convertible.
F-13
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
In 1999, the Company amended the Certificate of Incorporation to decrease
the number of authorized Common Stock to 28,000,000 shares.
The Company has outstanding Warrants to purchase 260,960 shares of Common
Stock at $1.50 per share. The Warrants expire in July 2003.
In 1999, the Board of Directors of the Company increased the total number of
shares of Common Stock authorized and reserved for issuance under its stock
option plan by 1,120,000 shares to 4,499,600 shares. There were 560,000 shares
available for future grant at June 30, 1999.
12. EARNINGS PER SHARE
In 1999, the Company adopted SFAS No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share. Basic earnings
per share is computed based on the weighted average number of Common Shares
outstanding during the period. In arriving at the net loss available to holders
of Common Stock, Preferred Stock dividends of $1,176,000 were added in fiscal
1999. Diluted earnings per share reflects the potential dilution that could
occur if dilutive securities and other contracts to issue Common Stock were
exercised or converted into Common Stock or resulted in the issuance of Common
Stock that then shared in the earnings of the Company.
The table below summarizes the amounts used to calculate basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------- ---------------------------------------- --------------
NET EARNINGS WEIGHTED NET LOSS WEIGHTED NET LOSS
AVAILABLE TO AVERAGE AVAILABLE TO AVERAGE AVAILABLE TO
HOLDERS OF OUTSTANDING PER HOLDERS OF OUTSTANDING PER HOLDERS OF
COMMON STOCK SHARES SHARE COMMON STOCK SHARES SHARE COMMON STOCK
-------------- ----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic net earnings (loss) per
share...................... $ 727,979 11,741,935 $ .06 $ (1,939,107) 11,903,256 $ (.16) $(10,022,679)
Effect of dilutive stock
options.................... 629,930
-------------- ----------- -------------- ----------- --------------
Diluted net earnings (loss)
per share.................. $ 727,979 12,371,865 $ .06 $ (1,939,107) 11,903,256 $ (.16) $(10,022,679)
-------------- ----------- --- -------------- ----------- ----- --------------
-------------- ----------- --- -------------- ----------- ----- --------------
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING PER
SHARES SHARE
----------- ---------
<S> <C> <C>
Basic net earnings (loss) per
share...................... 9,955,261 $ (1.01)
Effect of dilutive stock
options....................
-----------
Diluted net earnings (loss)
per share.................. 9,955,261 $ (1.01)
----------- ---------
----------- ---------
</TABLE>
All potentially dilutive securities were excluded from the above
calculations for the years ended June 30, 1998 and 1999 because they were
antidilutive. The equivalent weighted average share effects of Common Stock
options excluded were 1,186,183 and 2,553,434 in fiscal 1998 and 1999,
respectively. The weighted average potentially dilutive shares related to
Preferred Stock excluded were 11,564,208 in fiscal 1999. The equivalent weighted
average share effect of the outstanding Warrant excluded was 255,948 in fiscal
1999.
13. EMPLOYEE STOCK OPTION PLAN
The Company has a nonqualified and incentive stock option plan that enables
key employees and directors of the Company to purchase shares of Common Stock of
the Company. The Company grants options to key employees to purchase its Common
Stock, generally at fair value as of the date of grant,
F-14
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
13. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
based upon valuations determined by management and the Board of Directors. Such
valuations have been prepared by the Company, primarily on an annual basis,
since June 30, 1993. Options generally vest over a period up to 3 years and
expire after 10 years from the date of grant.
During fiscal 1999, 266,000 options were granted to employees at an amount
which was less than the fair value of the Common Stock as of the grant date.
Accordingly, the Company recorded $665,864 in unamortized deferred compensation
for such options which vest over 3 years. Compensation expense will be amortized
over the vesting period and unamortized deferred compensation has been recorded
as a reduction in stockholders' equity. During fiscal 1999, compensation expense
recognized in the consolidated statement of operations amounted to $15,684.
During fiscal 1998, the life was extended on 1,050,000 options. As a result,
a new measurement date occurred. Accordingly, the Company recorded approximately
$301,000 in compensation expense for such options which were fully vested.
Also during fiscal 1998, 980,000 options were granted to employees at an
amount which was less than the fair value of the Common Stock as of the grant
date. Accordingly, the Company recorded approximately $109,000 in compensation
expense for such options which vested immediately upon grant.
Stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE
---------- -------------------
<S> <C> <C>
Outstanding at June 30, 1996................................... 1,134,000 $ .18
Granted...................................................... 1,136,800 .35
Canceled..................................................... 84,000 .18
Exercised.................................................... 81,200 .35
----------
Outstanding at June 30, 1997................................... 2,105,600 .26
Granted...................................................... 2,240,000 .42
Canceled..................................................... 770,000 .35
Exercised.................................................... 196,000 .18
----------
Outstanding at June 30, 1998................................... 3,379,600 .35
Granted...................................................... 560,000 1.26
Canceled..................................................... 65,352 .47
Exercised.................................................... 97,048 .37
----------
Outstanding at June 30, 1999................................... 3,777,200 .48
----------
----------
</TABLE>
Under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue to account for its stock
option plan in accordance with the provisions of APB
F-15
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
13. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
Opinion No. 25. Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123, the Company's net
earnings (loss) and net earnings (loss) per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
BASIC NET EARNINGS DILUTED NET EARNINGS
(LOSS) (LOSS)
PER SHARE PER SHARE
AVAILABLE TO HOLDERS AVAILABLE TO HOLDERS
NET EARNINGS (LOSS)
AVAILABLE TO HOLDERS OF COMMON STOCK OF COMMON STOCK
OF COMMON STOCK
---------------------------- ------------------------ ------------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997.............................. $ 727,979 $ 702,376 $ .06 $ .06 $ .06 $ .06
1998.............................. (1,939,107) (2,043,487) (.16) (.17) (.16) (.17)
1999.............................. (10,022,679) (10,100,110) (1.01) (1.01) (1.01) (1.01)
</TABLE>
For purposes of this disclosure, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants outstanding in 1997,
1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate................................................ 6.23% 5.68% 4.70%
Weighted average expected life (years)................................. 3 3 3
</TABLE>
The weighted average grant date fair value of options granted in 1997, 1998
and 1999 is summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ -----------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED
FAIR EXERCISE FAIR EXERCISE FAIR
VALUE PRICE VALUE PRICE VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Options whose exercise price equaled
the grant date fair value................................. $ .06 $ .35 $ .06 $ .47 $ .15
Options whose exercise price was less
than the grant date fair value............................ $ .28 $ .24 $ 2.63
<CAPTION>
AVERAGE
EXERCISE
PRICE
-----------
<S> <C>
Options whose exercise price equaled
the grant date fair value................................. $ 1.26
Options whose exercise price was less
than the grant date fair value............................ $ 1.26
</TABLE>
The following represents additional information about stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- -----------------------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------------
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE LIFE AVERAGE AVERAGE
PRICES NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
PER SHARE OUTSTANDING (YEARS) (PER SHARE) EXERCISABLE (PER SHARE)
- -------------- ----------- ------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
.$18--$.24.... 1,204,000 8 $ .20 1,204,000 $ .20
.35--.47..... 2,013,200 8 .44 929,712 .42
1.26......... 560,000 10 1.26 7,000 1.26
</TABLE>
F-16
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
14. 1997 STOCK PROGRAM
The 1997 Stock Program replaces a similar program enacted in 1993. Under
this program, the Company purchases outstanding shares of Common Stock and may:
1) grant to certain employees the right to purchase shares; and/or 2) designate
that a portion of the compensation payable under the Company's bonus plans be
paid in Common Stock. All purchases and sales are at the same Board-approved
transaction price (deemed to be fair value) and occur within six months
following the end of the Company's year end. The plan has a repurchase
requirement whereby the Company must attempt to repurchase certain amounts of
its Common Stock.
Transactions under the 1997 Stock Program are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
Shares purchased or retired.............................. 306,768 $ 72,638 14,364 $ 6,679 57,540 $ 72,459
Shares issued............................................ 195,132 46,046 118,664 55,178 57,540 72,459
</TABLE>
15. 401(K) PLAN
Effective January 1, 1995, the Company adopted the Gordon S. Black
Corporation 401(k) Plan (the Plan).
Eligibility to participate in the Plan, including employer matching
contributions, if any, is limited to those employees who are at least 21 years
of age and have completed one year of employment with at least 1,000 hours of
service. However, employees are eligible to contribute to the Plan upon
completion of one quarter of service.
Participants may contribute 1% to 18% of compensation. Employer
contributions are discretionary, and include matching contributions and profit
sharing contributions. Matching contributions, if made, are equal to 50% of a
participant's contributions, relating to the first 4% of compensation up to a
maximum contribution of $600 per year. Profit sharing contributions may range
from 0% to 15% of the total compensation of the participants in the Plan, and
are allocated to each participant based on the ratio that each participant's
compensation bears to the total compensation of all participants eligible for an
allocation.
Matching contribution expense incurred by the Company during 1997, 1998, and
1999 was $72,867, $80,616 and $94,284, respectively.
16. SUBSEQUENT EVENTS
LINE OF CREDIT
In July 1999, the Company increased the total amount available under its
line of credit from $1,500,000 to $5,000,000. The interest rate for borrowings
on the first $2,000,000 will be prime plus 1% and any borrowings in excess of
$2,000,000 will be from 10% to 12%.
F-17
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
16. SUBSEQUENT EVENTS (CONTINUED)
STOCK SPLIT
On September 7, 1999, the Company declared a 28-for-1 stock split. All
references in the consolidated financial statements referring to share prices,
conversion rates, per share amounts, stock option plans and Common Stock issued
and outstanding have been adjusted retroactively for the 28-for-1 stock split.
On September 7, 1999, the Company amended its certificate of incorporation
to increase the authorized number of Common Stock to 100,000,000 with a par
value of $0.001 per share.
F-18
<PAGE>
[Intentionally Omitted]
<PAGE>
SHARES
[LOGO]
HARRIS INTERACTIVE INC.
COMMON STOCK
---------------------
PROSPECTUS
, 1999
------------------------
LEHMAN BROTHERS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses payable by the
Registrant in connection with the issuance and distribution of the common stock
being registered, other than underwriting discounts and commissions. All amounts
are estimates, except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 23,978
NASD Filing Fee.................................................... 8,952
Nasdaq National Market Listing Fee................................. 95,000
Legal Fees and Expenses............................................
Accountants Fees and Expenses......................................
Printing and Engraving Fees........................................
Blue Sky fees and expenses.........................................
Transfer Agent and Registrar Fee and Expenses......................
Miscellaneous......................................................
Total.............................................................. $
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article VIII of the Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that 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) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. Article X of the Registrant's Amended and Restated
Certificate of Incorporation provides for such limitation of liability.
The Registrant intends to obtain directors' and officers' insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to the Underwriting Agreement to be filed as Exhibit
1.1 to the Registration Statement for information concerning the Underwriters'
obligation to indemnify the Registrant and its officers and directors in certain
circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 1996, the Registrant has issued and sold the following
unregistered securities:
(a) From September 1996 to September 1999, the Registrant issued and sold an
aggregate of 374,248 shares of common stock to directors, officers, employees
and former employees at prices ranging from $0.18 to $0.37 per share, for
aggregate cash consideration of approximately $99,032. These shares were sold
pursuant to the exercise of options granted by the Registrant's board of
directors. From September 1996 to September 1999, 371,336 shares of common stock
were awarded to officers and employees pursuant to the Registrant's 1997 Stock
Program. As to each director, officer, employee and former employee of the
Registrant who was issued the common stock described in this paragraph, the
Registrant relied upon Rule 701 of the Securities Act of 1933. Each such person
purchased securities of the Registrant pursuant to a written contract between
such person and the Registrant. In addition, the Registrant met the conditions
imposed by Rule 701(b).
(b) In July 1998, the Registrant issued and sold an aggregate of 147,000
shares of Series A preferred stock at a price per share of $100.00, to three
accredited investors, as that term is defined in Rule 501 of the Securities Act
of 1933, for an aggregate cash consideration of $14,700,000. The shares were
sold pursuant to a purchase agreement between the Registrant and such investors.
The Registrant relied upon Section 4(2) of the Securities Act of 1933 in
connection with the sale of these shares.
(c) In July 1998, the Registrant issued a warrant to purchase 260,960 shares
of common stock, with an exercise price per share of $1.50 to The Wallach
Company, in consideration for The Wallach Company's arrangement of the
investment referenced in subsection (b) above. The warrant was issued pursuant
to an engagement letter. The warrant may be exercised in whole or in part at any
time prior to the fifth anniversary date of grant and may be exercised for cash
or pursuant to a net exercise provision contained therein. The Registrant relied
upon Section 4(2) of the Securities Act of 1933 in connection with the original
issuance of the warrants.
(d) In April 1999, the Registrant issued and sold an aggregate of 1,092,980
shares of common stock at a price per share of $3.77 to an accredited investor,
as that term is defined in Rule 501 of the Securities Act of 1933, for an
aggregate cash consideration of $4,123,000. The shares were sold pursuant to an
investment agreement with the investor. The Registrant relied upon Section 4(2)
of the Securities Act of 1933 in connection with the sale of these shares.
(e) In August 1999, the Registrant issued 44,352 shares of common stock to
an individual upon the exercise, at an exercise price of $1.50 per share, of a
warrant. The Registrant received an aggregate consideration of $66,528. The
Registrant relied upon Section 4(2) of the Securities Act of 1933 in connection
with the issuance of the shares.
Appropriate restrictions were contained in the purchase and/or investment
contracts relating to the sale of the securities issued in the above
transactions, and appropriate legends were fixed to the certificates for the
securities issued in those transactions. All recipients had adequate access,
through their relationships with the Registrant to information about the
Registrant.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
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 upon completion of this offering
3.3 Bylaws of the Registrant
4.1* Specimen Certificate of Common Stock of the Registrant
5.1* Opinion of Harris Beach & Wilcox, LLP
10.1 1999 Long Term Incentive Plan and form of agreements thereto
10.2 1999 Employee Stock Purchase Plan and form of agreements thereto
10.3* Agreement between MatchLogic, Inc. and the Registrant dated October 22, 1997,
together with all amendments
10.4* Strategic Alliance Agreement between Market Facts, Inc. and the Registrant dated
April 23, 1998
10.5.1 Confidentiality and Non-Competition Agreement dated September 1, 1999, between the
Registrant and Gordon S. Black
10.5.2 Confidentiality and Non-Competition Agreement dated September 1, 1999 between the
Registrant and David H. Clemm
10.5.3 Confidentiality and Non-Competition Agreement dated September 1, 1999 between the
Registrant and Leonard R. Bayer
10.6.1 Leases for 135 & 60 Corporate Woods, Rochester, New York dated April 12, 1991
between Gordon S. Black Corporation and Corporate Woods Associates, together with
all amendments
10.6.2 Lease for 70 Carlson Road, Rochester, New York dated July 1, 1998 between Gordon S.
Black Corporation and Carlson Park Associates, together with all amendments thereto
10.7* Lease for 111 Fifth Avenue, New York, New York dated June 9, 1994 between Louis
Harris and Associates, Inc. and B.J.W. Associates
10.8 Registration Agreement dated July 7, 1998 among the Registrant, Brinson Venture
Capital Fund III, L.P., Brinson MAP Venture Capital Fund III Trust and the Virginia
Retirement System
10.9* Revolving Credit Facility dated August 18, 1999 between Gordon S. Black Corporation
and Manufacturers and Traders Trust Company
10.10* Form of Lock-up Agreement
16.1* Letter of KPMG LLP
21.1 List of Subsidiaries
23.1* Consent of Harris Beach & Wilcox, LLP (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on Page II-5)
27.1 Financial Statement Schedules
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
(b) Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
(c) That, 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) under
the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(d) That, 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rochester, State of New
York on September 17, 1999.
HARRIS INTERACTIVE INC.
By: /s/ GORDON S. BLACK
-----------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Gordon S. Black and Bruce
A. Newman, and each of them, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and re-substitution for him or her, and
in his or her name, place and stead, in any and all capacities, to sign any and
all pre-effective or post-effective amendments to this Registration Statement on
Form S-1, any and all registration statements filed pursuant to Rule 462 under
the Securities Act of 1933 in connection with or related to the offering
contemplated by this registration statement and its amendments, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the United States Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and each and every act and thing requisite or necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
Dated: September 17, 1999 /s/ GORDON S. BLACK
------------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board (Principal
Executive Officer)
Dated: September 17, 1999 /s/ DAVID H. CLEMM
------------------------------------------
David H. Clemm, President, Chief Operating
Officer and Director
Dated: September 17, 1999 /s/ BRUCE A. NEWMAN
------------------------------------------
Bruce A. Newman, Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: September 17, 1999 /s/ LEONARD R. BAYER
------------------------------------------
Leonard R. Bayer, Director
Dated: September 17, 1999 /s/ THOMAS D. BERMAN
------------------------------------------
Thomas D. Berman, Director
Dated: September 17, 1999 /s/ G. THOMAS CLARK
------------------------------------------
G. Thomas Clark, Director
Dated: September 17, 1999 /s/ JAMES R. RIEDMAN
------------------------------------------
James R. Riedman, Director
</TABLE>
II-5
<PAGE>
Exhibit 1.1
SHARES
-------------------
HARRIS INTERACTIVE INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1999
-----
LEHMAN BROTHERS INC.
U.S. BANCORP PIPER JAFFRAY INC.
VOLPE BROWN WHELAN & CO.
E*OFFERING CORP.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Harris Interactive Inc., a Delaware corporation (the
"Company"), proposes to sell _________ shares (the "Firm Stock") of the
Company's common stock, par value $0.001 per share (the "Common Stock"). In
addition, the Company proposes to grant to the Underwriters named in Schedule 1
hereto (the "Underwriters") an option to purchase up to an additional _______
shares of the Common Stock on the terms and for the purposes set forth in
Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1, and the
amendments thereto, with respect to the Stock has (i) been
prepared by the Company in conformity with the requirements of
the United States Securities Act of 1933 (the "Securities
Act") and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with
the Commission under the Securities Act and (iii) become
effective under the Securities Act. Copies of such
registration statement, and the amendments
<PAGE>
thereto, have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters.
As used in this Agreement, "Effective Time" means the date and
the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or
amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at
the Effective Time, including all information contained in the
final prospectus filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations in accordance with Section
5 hereof and deemed to be a part of the registration statement
as of the Effective Time pursuant to paragraph (b) of Rule
430A of the Rules and Regulations; and "Prospectus" means such
final prospectus, as first filed with the Commission pursuant
to paragraph (1) or (4) of Rule 424(b) of the Rules and
Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary
Prospectus.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the case
may be, conform in all material respects to the requirements
of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; PROVIDED that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company and each of its subsidiaries (as
defined in Section 15) have been duly incorporated and are
validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and
have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which
they are engaged; and each of the subsidiaries of the Company
is a "significant subsidiary", as such term is defined in Rule
405 of the Rules and Regulations.
2
<PAGE>
(d) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable
and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(e) The shares of the Stock have been duly and
validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly
issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the
Prospectus.
(f) This Agreement has been duly authorized, executed
and delivered by the Company.
(g) The execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties
or assets; and except for the registration of the Stock under
the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Securities Exchange Act of 1934 (the
"Exchange Act") and applicable state securities laws in
connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby.
(h) Except as set forth in the Prospectus or except
for such rights which have been waived, there are no
contracts, agreements or understandings between the Company
and any person granting such person the right to require the
Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to
be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration
3
<PAGE>
Statement or in any other registration statement filed by the
Company under the Securities Act.
(i) Except as set forth in the Registration
Statement, the Company has not sold or issued any shares of
Common Stock during the six-month period preceding the date of
the Prospectus, including any sales pursuant to Rule 144A
under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans,
qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries
has sustained, since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any
change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or
any development involving a prospective material adverse
change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus.
(k) The financial statements (including the related
notes and supporting schedules) filed as part of the
Registration Statement or included in the Prospectus present
fairly the financial condition and results of operations of
the entities purported to be shown thereby, at the dates and
for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(l) PriceWaterhouseCoopers LLP, who have certified
certain financial statements of the Company, whose report
appears in the Prospectus and who have delivered the initial
letter referred to in Section 7(f) hereof, are independent
public accountants as required by the Securities Act and the
Rules and Regulations.
(m) The Company and each of its subsidiaries have
good and marketable title to all personal property owned by
them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed
to be made of such property by the Company and its
subsidiaries; neither the Company nor any of its subsidiaries
have title to any real property in fee simple, and all real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material
and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its
subsidiaries.
4
<PAGE>
(n) The Company and each of its subsidiaries carry,
or are covered by, insurance in such amounts and covering such
risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as
is customary for companies engaged in similar businesses in
similar industries.
(o) Except as set forth in the Prospectus, the
Company and each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and
licenses (including with respect to software currently used by
the Company or any of its subsidiaries) necessary for the
conduct of their respective businesses and have no reason to
believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim
of conflict with, any such rights of others.
(p) Except as described in the Prospectus, there are
no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries
is the subject which, if determined adversely to the Company
or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
(q) There are no contracts or other documents which
are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been described
in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No relationship, direct or indirect, exists
between or among the Company or its subsidiaries on the one
hand, and the directors, officers, stockholders, customers or
suppliers of the Company or its subsidiaries on the other
hand, which is required to be described in the Prospectus
which is not so described.
(s) No labor disturbance by the employees of the
Company or its subsidiaries exists or, to the knowledge of the
Company, is imminent which might be expected to have a
material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(t) The Company and its subsidiaries are in
compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations
and published
5
<PAGE>
interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or
any of its subsidiaries would have any liability; the Company
and its subsidiaries have not incurred and do not expect to
incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension
plan" for which the Company or any of its subsidiaries would
have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such
qualification.
(u) The Company and its subsidiaries have filed all
federal, state and local income and franchise tax returns
required to be filed through the date hereof and has paid all
taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has
had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or
any of its subsidiaries, might have) a material adverse effect
on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company
and its subsidiaries.
(v) Since the date as of which information is given
in the Prospectus through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company and its
subsidiaries have not (i) issued or granted any securities,
(ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were
incurred in the ordinary course of business, (iii) entered
into any transaction not in the ordinary course of business or
(iv) declared or paid any dividend on its capital stock.
(w) The Company and its subsidiaries (i) have made
and kept accurate books and records and (ii) have maintained
internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded
as necessary to permit preparation of their respective
financial statements and to maintain accountability for their
respective assets, (C) access to their respective assets is
permitted only in accordance with management's authorization
and (D) the reported accountability for their respective
assets is compared with existing assets at reasonable
intervals.
(x) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter or by-laws, (ii) is in
default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any
term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it
is bound or to which any of its properties or assets is
subject or (iii) is in violation in any material
6
<PAGE>
respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or
assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other
governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business.
(y) Neither the Company nor any of its subsidiaries,
nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of
its subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated
or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries
in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a
material adverse effect on the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been
no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or
into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or
hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any
of its subsidiaries have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely
to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings
and releases, a material adverse effect on the general
affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries;
and the terms "hazardous wastes", "toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign
laws or regulations with respect to environmental protection.
(aa) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
7
<PAGE>
(bb) The Company and its subsidiaries have developed
a plan (the "Y2K Plan") intended to ensure that all computer
hardware and software used in and material to the business of
the Company and its subsidiaries is designed to be Year 2000
Compliant. The Y2K Plan includes reasonable steps to determine
whether the failure of any suppliers or customers with which
the Company or any of its subsidiaries has a material
relationship to be Year 2000 Compliant would have or would
reasonably be expected to have a material adverse effect on
the financial position, stockholders' equity, results of
operations, business or prospects of the Company or any of its
subsidiaries, and assuming the consummation of the Y2K Plan,
the occurrence of the calendar year 2000 will not reasonably
be expected to have a material adverse effect on the financial
position, stockholders' equity, results of operations,
business or prospects of the Company or any of its
subsidiaries. There are no issues related to the Company's or
any of its subsidiaries' preparedness to be Year 2000
Compliant that are of a character required to be described or
referred to in the Prospectus by the Securities Act that have
not been accurately described in the Prospectus. For purposes
of this section (bb), "Date Data" means any data of any kind
that consists of date information or which is otherwise
derived from, dependent on or related to date information;
"Date-Sensitive System" means any software, microcode or
hardware system or component, including any electronic or
electronically-controlled system or component that processes
any Date Data and that is installed, in development or on
order, for internal or external use, or the provision or
operation of which provides a benefit to customers, vendors,
suppliers or any other party; "Year 2000 Compliant" means (i)
with respect to Date Data, that such data is in proper format
and (ii) with respect to Date-Sensitive Systems, that each
such system accurately processes all Date Data, including for
the 20th and 21st centuries, without loss of any functionality
or performance, including, without limitation, calculating,
comparing, sequencing, storing and displaying such Date Data
(including all leap year considerations), when used as a
stand-alone system or in combination with other software or
hardware.
2. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _______ shares of the
Firm Stock to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option
to purchase up to _______ shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set forth opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock
8
<PAGE>
shall be adjusted by the Representatives so that no Underwriter shall be
obligated to purchase Option Stock other than in 100 share amounts. The price of
both the Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock
to be delivered on any Delivery Date (as hereinafter defined), as the case may
be, except upon payment for all the Stock to be purchased on such Delivery Date
as provided herein.
3. OFFERING OF STOCK BY THE UNDERWRITERS.
Upon authorization by the Representatives of the release of
the Firm Stock, the several Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
It is understood that _______ shares of the Firm Stock will
initially be reserved by the several Underwriters for offer and sale upon the
terms and conditions set forth in the Prospectus and in accordance with the
rules and regulations of the National Association of Securities Dealers, Inc. to
employees and certain persons having business relationships or who are
"cooperative respondents" (as described in the Prospectus) who have heretofore
delivered to the Representatives offers or indications of interest to purchase
shares of Firm Stock in form satisfactory to the Representatives, and that any
allocation of such Firm Stock among such persons will be made in accordance with
timely directions received by the Representatives from the Company; PROVIDED,
that under no circumstances will the Representatives or any Underwriter be
liable to the Company or to any such person for any action taken or omitted in
good faith in connection with such offering to employees and persons having
business relationships with the Company and its subsidiaries. It is further
understood that any shares of such Firm Stock which are not purchased by such
persons will be offered by the Underwriters to the public upon the terms and
conditions set forth in the Prospectus.
4. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and
payment for the Firm Stock shall be made at the New York office of O'Melveny &
Myers LLP, at 10:00 A.M., New York City time, on the fourth full business day
following the date of this Agreement or at such other date or place as shall be
determined by agreement between the Representatives and the Company. This date
and time are sometimes referred to as the First Delivery Date." On the First
Delivery Date, the Company shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the purchase
price by wire transfer in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Firm Stock shall be registered in such names and in such
denominations as the Representatives shall request in writing not less than two
full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company shall make the certificates representing the Firm Stock available
for inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
9
<PAGE>
The option granted in Section 2 will expire 30 days after the
date of this Agreement and may be exercised in whole or in part from time to
time by written notice being given to the Company by the Representatives. Such
notice shall set forth the aggregate number of shares of Option Stock as to
which the option is being exercised, the names in which the shares of Option
Stock are to be registered, the denominations in which the shares of Option
Stock are to be issued and the date and time, as determined by the
Representatives, when the shares of Option Stock are to be delivered; PROVIDED,
HOWEVER, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised. The date and time the shares of
Option Stock are delivered are sometimes referred to as a "Second Delivery Date"
and the First Delivery Date and any Second Delivery Date are sometimes each
referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
4 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall
be registered in such names and in such denominations as the Representatives
shall request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to such Second Delivery
Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by
the Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than
Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has
been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to
furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction,
10
<PAGE>
of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a signed
copy of the Registration Statement as originally filed with
the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such
number of the following documents as the Representatives shall
reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than
this Agreement and (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if
the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such
time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the
Securities Act, to notify the Representatives and, upon their
request, to file such document and to prepare and furnish
without charge to each Underwriter and to any dealer in
securities as many copies as the Representatives may from time
to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or
effect such compliance.
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment
to the Registration Statement or supplement to the Prospectus
or any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Representatives
and counsel for the Underwriters and obtain the consent of the
Representatives to the filing;
(f) As soon as practicable after the Effective Date,
to make generally available to the Company's security holders
and to deliver to the Representatives an earnings statement of
the Company and its subsidiaries (which need not be audited)
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complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Representatives copies of
all materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements
furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as
the Representatives may reasonably request to qualify the
Stock for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; PROVIDED
that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or
grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable
for Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), or (2) enter into
any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written
consent of Lehman Brothers Inc.; and to cause each officer and
director of the Company and each of their family members who
are stockholders of the Company to furnish to the
Representatives, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree
not to, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock that they
own or may thereafter acquire or (2) enter into any swap or
other derivatives transaction that transfers to another, in
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whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case for a period of 180 days from
the date of the Prospectus, without the prior written consent
of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the
listing of the Stock on the Nasdaq National Market and to use
its best efforts to complete that listing, subject only to
official notice of issuance and evidence of satisfactory
distribution, prior to the First Delivery Date;
(k) Prior to filing with the Commission its first
periodic report pursuant to Section 13(a) or 15(d) of the
Securities Act that includes information required pursuant to
Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and
consider its comments thereon, and to deliver promptly to the
Representatives a copy of such report filed by it with the
Commission;
(l) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the
Prospectus;
(m) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder; and
(n) To cause each current holder of preferred
stock and certain other holders of common stock of the
Company to execute and deliver prior to the First Delivery
Date an agreement, in form and substance satisfactory to
counsel for the Underwriters, stating that, without the
prior written consent of Lehman Brothers Inc., such holder
of capital stock will not, directly or indirectly, (1)
offer for sale, sell, pledge, or otherwise dispose of (or
enter into any transaction or device that is designed to,
or could reasonably be expected to, result in the
disposition by any person at any time in the future of) any
shares of Common Stock (including, without limitation,
shares of Common Stock that may be deemed to be
beneficially owned by such current stockholder in
accordance with the rules and regulations of the Securities
and Exchange Commission and shares of Common Stock that may
be issued upon exercise of any option or warrant) or
securities convertible into or exchangeable for Common
Stock owned by such holder on the date of the completion of
the offering or thereafter acquired, or (2) enter into any
swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits
or risks of ownership of such shares of Common Stock,
whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise for a period of 180 days
after the date of the final Prospectus relating to the
Offering.
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6. EXPENSES. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (g) any applicable listing or other
fees; (h) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (j) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of shares of the Stock by the
Underwriters to "cooperative respondents", employees and other persons having
business relationships with the Company and its subsidiaries, as described in
Section 3; (k) all travel and lodging expenses of the Company's personnel in
connection with the roadshow as part of the offering of the Stock; and (l) all
other costs and expenses incident to the performance of the obligations of the
Company under this Agreement; PROVIDED that, except as provided in this Section
6 and in Section 11 the Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the Underwriters.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 5; no stop order
suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of O'Melveny & Myers LLP,
counsel for the Underwriters, is material or omits to state a
fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the
statements therein not misleading.
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(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this
Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel
for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Harris Beach & Wilcox, LLP shall have furnished
to the Representatives their written opinion, as counsel to
the Company, addressed to the Underwriters and dated such
Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
(i) The Company and each of its subsidiaries
have been duly incorporated and are validly existing
as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are
duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction
in which their respective ownership or lease of
property or the conduct of their respective
businesses requires such qualification and have all
power and authority necessary to own or hold their
respective properties and conduct their respective
businesses in which they are engaged;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the issued shares of capital stock of the
Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued
shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and
issued and are fully paid, non-assessable and are
owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(iii) There are no preemptive or other rights
to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or by-laws or
any agreement or other instrument known to such
counsel;
(iv) Neither the Company nor any of its
subsidiaries have title to any real property in fee
simple, and all real property and buildings held
under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable
leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be
made of such property and buildings by the Company
and its subsidiaries;
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<PAGE>
(v) Other than as set forth in the
Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries
is the subject which, if determined adversely to the
Company or any of its subsidiaries, might have a
material adverse effect on the consolidated financial
position, stockholders' equity, results of
operations, business or prospects of the Company and
its subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened or
contemplated by governmental authorities or
threatened by others;
(vi) The Registration Statement was declared
effective under the Securities Act as of the date and
time specified in such opinion, the Prospectus was
filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date
specified therein and no stop order suspending the
effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened
by the Commission;
(vii) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements and related
schedules therein, as to which such counsel need
express no opinion) comply as to form in all material
respects with the requirements of the Securities Act
and the Rules and Regulations;
(viii) The statements made in the Prospectus
under the caption "Description of Capital Stock",
insofar as they purport to constitute a summary of
the terms of such capital stock, constitute an
accurate summary thereof in all material respects.
(ix) To the best of such counsel's knowledge,
there are no contracts or other documents which are
required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which
have not been described or filed as exhibits to the
Registration Statement;
(x) This Agreement has been duly authorized,
executed and delivered by the Company;
(xi) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the
Company and the compliance by the Company with all of
the provisions of this Agreement will not conflict
with or result in a breach or violation of any of the
terms or provisions of, or constitute a
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<PAGE>
default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or
instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or
any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of
the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of
their properties or assets; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this Agreement
by the Company and the consummation of the
transactions contemplated hereby; and
(xii) To the best of such counsel's knowledge,
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act.
In rendering such opinion, such counsel may (i) state that
their opinion is limited to matters governed by the Federal
laws of the United States of America, the laws of the State of
New York and the General Corporation Law of the State of
Delaware and that such counsel is not admitted in the State of
Delaware and (ii) rely (to the extent such counsel deems
proper and specifies in their opinion), as to matters
involving the application of the laws of the State of Ohio
upon the opinion of other counsel of good standing, PROVIDED
that such other counsel is satisfactory to counsel for the
Underwriters and furnishes a copy of its opinion to the
Representatives. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to the Company on a
regular basis, has acted as counsel to the Company in
connection with previous financing transactions and has acted
as counsel to the Company in connection with the preparation
of the Registration Statement, and (y) based on the foregoing,
no facts have come to the attention of such counsel which
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<PAGE>
lead them to believe that the Registration Statement (other
than the financial statements, financial data and related
schedules, as to which such counsel need express no opinion),
as of the Effective Date, contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading when
they were filed with the Commission. The foregoing opinion and
statement may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus except for the
statements made in the Prospectus under the caption,
"Description of Capital Stock", insofar as such statements
relate to the Stock and concern legal matters.
(e) The Representatives shall have received from
O'Melveny & Myers LLP, counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to
the issuance and sale of the Stock, the Registration
Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass
upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from
PriceWaterhouseCoopers LLP a letter, in form and substance
satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that
they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date hereof (or, with respect to matters
involving changes or developments since the respective dates
as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the
date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(g) With respect to the letter of
PriceWaterhouseCoopers LLP referred to in the preceding
paragraph and delivered to the Representatives concurrently
with the execution of this Agreement (the "Initial Letter"),
the Company shall have furnished to the Representatives a
letter (the "Bring-Down Letter") of such accountants,
addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within
the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down
letter (or, with respect to matters involving changes or
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<PAGE>
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date
not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with
respect to the financial information and other matters covered
by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial
letter.
(h) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of
its Chairman of the Board, its Chief Executive Officer, its
President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 7 (a)
through 7(m) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(i) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated
in the Prospectus or (ii) since such date there shall not have
been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting
the general affairs, management, financial position,
stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment
of the Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public
offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in
the Prospectus.
(k) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the
Company on any exchange or in
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the over-the-counter market, shall have been suspended or
minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or
by any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall
have been an escalation in hostilities involving the United
States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic,
political or financial conditions (or the effect of
international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of
a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public
offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in
the Prospectus.
(l) The Nasdaq National Market shall have approved
the Stock for listing, subject only to official notice of
issuance and evidence of satisfactory distribution.
(m) The Company shall have furnished to the
Representatives such further information, certificates and
documents as they may reasonably request, including without
limitation a report by an independent consulting firm
confirming that the Company's computer hardware and software
are Year 2000 Compliant.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each of its subsidiaries jointly and
severally, shall indemnify and hold harmless each Underwriter, its officers and
employees and each person, if any, who controls any Underwriter within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (PROVIDED that neither the Company nor any
of its subsidiaries shall be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken
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<PAGE>
or omitted to be taken by such Underwriter through its gross negligence or
willful misconduct), and shall reimburse each Underwriter and each such officer,
employee or controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; PROVIDED, HOWEVER, that neither the Company nor any of
its subsidiaries shall be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein which information consists solely of the
information specified in Section 8(e). The foregoing indemnity agreement is in
addition to any liability which the Company or any of its subsidiaries may
otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent it
has been materially prejudiced by such failure and, PROVIDED FURTHER, that
the failure to notify the indemnifying party shall not relieve it from any
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liability which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED, HOWEVER, that the
Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective
officers, employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the Company or any of its subsidiaries under this
Section 8 if, in the reasonable judgment of the Representatives, it is
advisable for the Representatives and those Underwriters, officers, employees
and controlling persons to be jointly represented by separate counsel, and in
that event the fees and expenses of such separate counsel shall be paid by
the Company and its subsidiaries. No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled
with the consent of the indemnifying party or if there be a final judgment of
the plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and its subsidiaries, on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
its subsidiaries on the one hand and the Underwriters on the other with respect
to the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and its
subsidiaries on the one hand and the Underwriters on the other with respect to
such offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement (before
deducting expenses) received by the Company and its
22
<PAGE>
subsidiaries, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company and its
subsidiaries or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. For purposes of the preceding two sentences, the net
proceeds deemed to be received by the Company shall be deemed to be also for the
benefit of each of its subsidiaries and information supplied by the Company
shall also be deemed to have been supplied by each of its subsidiaries. The
Company, each of its subsidiaries and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
shall be deemed to include, for purposes of this Section 8(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Stock
underwritten by it and distributed to the public was offered to the public
exceeds the amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 8(e) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 8(d) are several in proportion to their respective underwriting
obligations and not joint.
(e) The Underwriters severally confirm and the Company and its
subsidiaries acknowledge that the statements with respect to the public offering
of the Stock by the Underwriters set forth on the cover page of, the legend
concerning over-allotments on the inside front cover page of and the concession
and reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
9. DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in
the performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which
the defaulting Underwriter agreed but failed to purchase on such Delivery
Date in the respective proportions which the number of shares of the Firm
Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters
23
<PAGE>
in Schedule 1 hereto; PROVIDED, HOWEVER, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Stock on such
Delivery Date if the total number of shares of the Stock which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such date
exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock
which it agreed to purchase on such Delivery Date pursuant to the terms of
Section 2. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them,
all the Stock to be purchased on such Delivery Date. If the remaining
Underwriters or other underwriters satisfactory to the Representatives do not
elect to purchase the shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Company to sell, the Option Stock) shall terminate
without liability on the part of any non-defaulting Underwriter or the
Company, except that the Company will continue to be liable for the payment
of expenses to the extent set forth in Sections 6 and 11. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 9, purchases Firm Stock which
a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company for damages caused by
its default. If other underwriters are obligated or agree to purchase the Stock
of a defaulting or withdrawing Underwriter, either the Representatives or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. TERMINATION. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(i) or 7(k) shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the
Company shall fail to tender the Stock for delivery to the Underwriters by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled, the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representative(s). If this Agreement is terminated
pursuant to Section 9 by reason of the default of one or more Underwriters, the
Company shall not be obligated to reimburse any defaulting Underwriter on
account of those expenses.
24
<PAGE>
12. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant
to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285;
(b) if to the Company or any of its subsidiaries,
shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the
Registration Statement, Attention: Gordon S. Black, Ph.D.,
Chairman and Chief Executive Officer (Fax:
716-272-7258);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company, each of its subsidiaries and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY".
For purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday
25
<PAGE>
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close and (b) "subsidiary"
has the meaning set forth in Rule 405 of the Rules and Regulations.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, its subsidiaries] and the Underwriters, please indicate your acceptance
in the space provided for that purpose below.
Very truly yours,
HARRIS INTERACTIVE INC.
By
--------------------------
Name:
Title:
GORDON S. BLACK CORPORATION
By
--------------------------
Name:
Title:
LOUIS HARRIS & ASSOCIATES, INC.
By
--------------------------
Name:
Title:
GSBC OHIO CORPORATION
By
--------------------------
Name:
Title:
<PAGE>
Accepted:
LEHMAN BROTHERS INC.
U.S. BANCORP PIPER JAFFRAY INC.
VOLPE BROWN WHELAN & CO.
E*OFFERING CORP.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
--------------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ------
<S> <C>
Lehman Brothers Inc. . . . . . . . . . . . . . .
U.S. Bancorp Piper Jaffray Inc. . . . . . . . . .
Volpe Brown Whelan & Co. . . . . . . . . . . . .
E*OFFERING CORP. . . . . . . . . . . . . . . . .
---------
Total
---------
---------
</TABLE>
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
HARRIS INTERACTIVE INC.
Harris Interactive Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Harris Interactive Inc. The
corporation was originally incorporated under the name Harris
Black International Ltd. and the original Certificate of
Incorporation of the corporation was filed with the Secretary
of State of the State of Delaware on July 1, 1997.
B. Pursuant to Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, this Restated
Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of
Incorporation of this corporation.
C. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby amended and restated in its
entirety to read as follows:
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
HARRIS INTERACTIVE INC.
ARTICLE I
The name of this Corporation is Harris Interactive Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such office is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The total number of shares which the Corporation is authorized to issue
is One-Hundred Million One Hundred Forty Seven Thousand (100,147,000) shares, of
which One Hundred Million (100,000,000) shares shall be Common Stock, with a par
value of $.001 per share, and One Hundred Forty Seven Thousand (147,000) shares
shall be Preferred Stock, with a par value of $.01 per share. A statement of the
designations and powers, preferences and rights, and the qualifications,
limitations or restrictions of the Preferred Stock is attached hereto as EXHIBIT
A.
ARTICLE V
The number of directors of the Corporation shall not be less than three
(3) nor more than thirteen (13), the exact number to be fixed from time to time
by the Board of Directors.
The Board of Directors shall be divided into three classes in respect
of term of office, each class to contain as near as may be one-third of the
whole number of the total number of directors, with the terms of office of one
class expiring each year. At each annual meeting of stockholders, one class of
directors shall be elected to serve until the annual meeting of stockholders
held three years next following and until their successors shall be elected and
shall qualify.
Newly created directorships and vacancies on the Board of Directors
shall only be filled by a majority vote of the directors then in office,
although less than a quorum, or by a sole remaining director.
<PAGE>
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
rescind or repeal from time to time any of the By-laws of the Corporation.
Notwithstanding the foregoing, the provisions of Article II, Section 3 and
Section 9; Article III, Sections 1 through 3; and Article IX of the By-Laws of
the Corporation shall only be altered, amended, rescinded or repealed by (A)
vote of a majority of the entire Board of Directors of the Corporation or (B)
the affirmative vote of the holders of not less than sixty six and two-thirds
percent (66 2/3%) of the shares of each class of the capital stock of the
Corporation entitled to vote.
ARTICLE VI
The provisions set forth in Article V, Article VIII and this Article VI
may not be altered, amended, rescinded, or repealed in any respect unless such
action is approved by the affirmative vote of the holders of not less than sixty
six and two-thirds percent (66 2/3%) of the shares of each class of the capital
stock of the Corporation entitled to vote.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions 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 the Corporation.
ARTICLE VIII
Holders of stock of any class or series of the Corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
ARTICLE IX
The Corporation shall indemnify each of the Corporation's directors and
officers in each and every situation where, under Section 145 of the General
Corporation Law of the State of Delaware, as amended from time to time ("Section
145"), the Corporation is permitted or empowered to make such indemnification.
The Corporation may, in the sole discretion of the Board of Directors of the
Corporation, indemnify any other person who may be indemnified pursuant to
Section 145 to the extent the Board of Directors deems advisable, as permitted
by Section 145. The Corporation shall promptly make or cause to be made any
determination required to be made pursuant to Section 145.
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (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
<PAGE>
General Corporation Law of the State of Delaware or (iv) for any transaction
from which the director derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is subsequently amended to further
eliminate or limit the liability of a director, then a director of the
corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended General Corporation Law of the State
of Delaware. For purposes of this Article IX, "fiduciary duty as a director"
shall include any fiduciary duty arising out of serving at the Corporation's
request as a director of another corporation, partnership, joint venture or
other enterprise, and "personal liability to the corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
corporation in its capacity as a security holder, joint venture, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
Neither any amendment nor repeal of this Article IX nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article IX, shall eliminate or reduce the effect of this Article IX in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article IX, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE X
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Gordon S. Black, its Chief Executive Officer, and attested by Bruce A.
Newman, its Secretary, this 16th day of September, 1999.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
Gordon S. Black, Chief Executive Officer
Attest:
By: /s/ Bruce A. Newman
----------------------------
Bruce A. Newman, Secretary
<PAGE>
EXHIBIT A
CONVERTIBLE PREFERRED STOCK TERMS
Section 1. DIVIDENDS.
1A. GENERAL OBLIGATION. When and as declared by the
Corporation's Board of Directors and to the extent permitted under the General
Corporation Law of Delaware, the Corporation shall pay preferential dividends in
cash to the holders of the Preferred Stock as provided in this Section 1. Except
as otherwise provided herein, dividends on each share of the Class A Preferred
(a "Share") shall accrue on a daily basis at the rate of 8% per annum of the sum
of the Liquidation Value thereof plus all accumulated and unpaid dividends
thereon from and including the date of issuance of such Share to and including
the earlier to occur of the date on which the Liquidation Value of such Share
(plus all accrued and unpaid dividends thereon) is paid or the date on which
such Share is convened into shares of Conversion Stock hereunder. Such dividends
shall accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on which the Corporation initially issues any
Share shall be deemed to be its "DATE OF ISSUANCE" regardless of the number of
times transfer of such Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such Share.
1B. DIVIDEND REFERENCE DATES. To the extent not paid on
December 31 of each year, beginning December 31, 1998 (the "DIVIDEND REFERENCE
DATES"), all dividends which have accrued on each Share outstanding during the
one-year period (or other period in the case of the initial Dividend Reference
Date) ending upon each such Dividend Reference Date shall be accumulated and
shall remain accumulated dividends with respect to such Share until paid to the
holder thereof. Notwithstanding the foregoing, if an Event of Noncompliance has
occurred and is continuing, the Dividend Reference Dates shall mean each of
March 31, June 30, September 30 and December 31, and, to the extent not paid on
each such Dividend Reference Date, all dividends which have accrued on each
Share outstanding during the three-month period (or other period during the
initial Dividend Reference Date during such Event of Noncompliance) ending upon
each such Dividend Reference Date shall be accumulated and shall remain
accumulated dividends with respect to such Share until paid to the holder
thereof.
1C. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Preferred Stock, such
payment shall be distributed ratably among the holders of such Shares based upon
the aggregate Liquidation Value of such Shares (plus all accrued and unpaid
dividends thereon) held by each such holder.
1
<PAGE>
1D. PARTICIPATING DIVIDENDS. In the event that the Corporation
declares or pays any dividends upon the Common Stock (whether payable in cash,
securities or other property) other than dividends payable solely in shares of
Common Stock, the Corporation shall also declare and pay to the holders of the
Preferred Stock at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Preferred
Stock had all of the outstanding Preferred Stock been converted immediately
prior to the record date for such dividend, or if no record date is fixed, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
Section 2. LIQUIDATION.
Upon any Change in Ownership, Fundamental Change,
consolidation, liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Preferred Stock shall be
entitled to be paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation Value of all
Shares held by such holder (plus all accrued and unpaid dividends thereon), and
the holders of Preferred Stock shall not be entitled to any further payment. If
upon any such Change in Ownership, Fundamental Change, liquidation, dissolution
or winding up of the Corporation the Corporation's assets to be distributed
among the holders of the Preferred Stock are insufficient to permit payment to
such holders of the aggregate amount which they are entitled to be paid under
this Section 2, then the entire assets available to be distributed to the
Corporation's stockholders shall be distributed pro rata among such holders
based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends) of the Preferred Stock held by each such holder. Prior to the Change
in Ownership, Fundamental Change, liquidation, dissolution or winding up of the
Corporation, the Corporation shall declare for payment all accrued and unpaid
dividends with respect to the Preferred Stock, but only to the extent of funds
of the Corporation legally available for the payment of dividends. Not less than
60 days prior to the payment date stated therein, the Corporation shall mail
written notice of any such Change in Ownership, Fundamental Change, liquidation,
dissolution or winding up to each record holder of Preferred Stock, setting
forth in reasonable detail the amount of proceeds to be paid with respect to
each Share and each share of Common Stock in connection with such Change in
Ownership, Fundamental Change, liquidation, dissolution or winding up.
Section 3. PRIORITY OF PREFERRED STOCK ON DIVIDENDS AND
REDEMPTIONS.
So long as any Preferred Stock remains outstanding, without
the prior written consent of the holders of a majority of the outstanding shares
of Preferred Stock, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the
2
<PAGE>
Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Securities, if at the time of or immediately after
any such redemption, purchase, acquisition, dividend or distribution the
Corporation has failed to pay the full amount of dividends accrued on the
Preferred Stock or the Corporation has failed to make any redemption of the
Preferred Stock required hereunder; provided that the Corporation may repurchase
shares of Common Stock from present or former employees of the Corporation and
its Subsidiaries under the terms of the Corporation's 1997 Stock Program, or in
accordance with Section 3D(ii) of the Purchase Agreement so long as no Event of
Noncompliance is in existence at the time of or immediately after such
repurchase or would be caused by such repurchase.
Section 4. REDEMPTIONS.
4A. REDEMPTIONS UPON REQUEST. During (i) the twenty-day period
beginning on each of November 1, 2002 and November 1, 2003, the holders of a
majority of the outstanding Preferred Stock may request the redemption of up to
49,000 Shares (as such number of shares is proportionately adjusted for
subsequent stock splits, stock dividends, combinations and similar changes in
the Preferred Stock) and (ii) the twenty-day period beginning on November 1,
2004, the holders of a majority of the outstanding Preferred Stock may request
the redemption of any Shares then outstanding, in each case by delivering
written notice of such request to the Corporation. The Corporation shall be
required to redeem all Shares with respect to which such redemption request has
been made at a price per Share equal to the Liquidation Value thereof (plus all
accrued and unpaid dividends thereon) on or prior to December 31 of the year in
which the redemption request has been made.
4B. REDEMPTION PAYMENTS. For each Share which is to be
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Share) an amount in
immediately available funds equal to the Liquidation Value of such Share (plus
all accrued and unpaid dividends thereon). If the funds of the Corporation
legally available for redemption of Shares on any Redemption Date are
insufficient to redeem the total number of Shares to be redeemed on such date,
those funds which are legally available shall be used to redeem the maximum
possible number of Shares pro rata among the holders of the Shares to be
redeemed based upon the aggregate Liquidation Value of such Shares held by each
such holder (plus all accrued and unpaid dividends thereon). At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Shares, such funds shall immediately be used to redeem the
balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed. Prior to any redemption of
Preferred Stock, the Corporation shall declare for payment all accrued and
unpaid dividends with respect to the Shares
3
<PAGE>
which are to be redeemed, but only to the extent of funds of the Corporation
legally available for the payment of dividends.
4C. NOTICE OF REDEMPTION. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any Preferred
Stock to each record holder thereof not more than 60 nor less than 30 days prior
to the date on which such redemption is to be made. In case fewer than the total
number of Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares shall be issued to the holder
thereof without cost to such holder within five business days after surrender of
the certificate representing the redeemed Shares.
4D. DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE
REDEEMED. Except as otherwise provided herein, the number of Shares of Preferred
Stock to be redeemed from each holder thereof in redemptions hereunder shall be
the number of Shares determined by multiplying the total number of Shares to be
redeemed times a fraction, the numerator of which shall be the total number of
Shares then held by such holder and the denominator of which shall be the total
number of Shares then outstanding.
4E. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be
entitled to any dividends accruing after the date on which the Liquidation Value
of such Share (plus all accrued and unpaid dividends thereon) is paid to the
holder of such Share. On such date, all rights of the holder of such Share shall
cease, and such Share shall no longer be deemed to be issued and outstanding.
4F. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which
are redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
4G. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
Shares of Preferred Stock, except as expressly authorized herein or pursuant to
a purchase offer made pro rata to all holders of Preferred Stock on the basis of
the number of Shares owned by each such holder.
Section 5. VOTING RIGHTS.
The holders of the Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
the holders of the Preferred Stock shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock voting together as a single class with each share of Common Stock entitled
to one vote per share and each Share
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entitled to one vote for each share of Common Stock issuable upon conversion of
the Preferred Stock as of the record date for such vote or, if no record date is
specified, as of the date of such vote.
Section 6. CONVERSION.
6A. CONVERSION PROCEDURE.
(i) At any time and from time to time, any holder of Preferred
Stock may convert all or any portion of the Preferred Stock held by such holder
into a number of shares of Conversion Stock computed by (a) multiplying the
number of Shares to be converted by the sum of $100 plus the amount (if any) of
dividends accrued on such Shares during an Event of Noncompliance and (b)
dividing the result by the Conversion Price then in effect.
(ii) Except as otherwise provided herein, each conversion of
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Preferred Stock to be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such conversion has been
effected, the rights of the holder of the Shares converted as a holder of
Preferred Stock shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon).
(iv) Notwithstanding any other provision hereof, if a
conversion of Preferred Stock is to be made in connection with a Public
Offering, a Change in Ownership, a Fundamental Change or other transaction
affecting the Corporation, the conversion of any Shares of Preferred Stock may,
at the election of the holder thereof, be conditioned upon the consummation of
such transaction, in which case such conversion shall not be deemed to be
effective until such transaction has been consummated.
(v) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
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(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the converting
holder has specified;
(b) a certificate representing any Shares of
Preferred Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which were
not converted.
(vi) The issuance of certificates for shares of Conversion
Stock upon conversion of Preferred Stock shall be made without charge to the
holders of such Preferred Stock for any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of shares of Conversion Stock. Upon conversion of each Share of
Preferred Stock, the Corporation shall take all such actions as are necessary in
order to insure that the Conversion Stock issuable with respect to such
conversion shall be validly issued, fully paid and nonassessable, free and clear
of all taxes, liens, charges and encumbrances with respect to the issuance
thereof
(vii) The Corporation shall not close its books against the
transfer of Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Preferred Stock in any manner which interferes with the timely
conversion of Preferred Stock. The Corporation shall assist and cooperate with
any holder of Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Shares
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
(viii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Preferred Stock, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Preferred Stock. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon each
such issuance). The Corporation shall not take any action which would cause the
number of authorized but unissued shares of Conversion Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
conversion of the Preferred Stock.
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6B. CONVERSION PRICE.
(i) The initial Conversion Price shall be $1.24679 (which
includes among other items the effect of the 28 for 1 stock split reflected
by the Restated Certificate of Incorporation to which this Exhibit A is
attached) in order to prevent dilution of the conversion rights granted under
this Section 6, the Conversion Price shall be subject to adjustment from time
to time pursuant to this paragraph 6B.
(ii) If and whenever on or after the original date of issuance
of the Preferred Stock the Corporation issues or sells, or in accordance with
paragraph 6C is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale the Conversion Price shall be reduced to
the Conversion Price determined by dividing (a) the sum of (1) the product
derived by multiplying the Conversion Price in effect immediately prior to such
issue or sale by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received by the Corporation upon such issue or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no
adjustment in the Conversion Price as a result of any issue or sale (or deemed
issue or sale) of shares of Common Stock (a) upon the exercise of the options
and warrants in existence as of July 7, 1998 and listed on Exhibit F to the
Purchase Agreement or up to an additional 2,220,400 shares of Common Stock
(which includes among other items the effect of the 28 for 1 stock split
reflected by the Restated Certificate of Incorporation to which this Exhibit
A is attached) to employees of the Corporation pursuant to stock option plans
approved by the Corporation's Board of Directors (as such number of shares is
proportionately adjusted for subsequent stock splits, combinations and
dividends affecting the Common Stock) (b) issued to sellers in connection
with acquisitions by the Corporation approved by the Corporation's Board of
Directors, or (c) upon the exercise of options issued to replace options
described in (a) above that have expired or that have not become vested.
6C. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under paragraph 6B, the following
shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any
manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the
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granting or sale of such Options for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount, if any, received or receivable by
the Corporation as consideration for the granting or sale of such Options, plus
the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 6, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such
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time had such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold; provided that if
such adjustment would result in an increase of the Conversion Price then in
effect, such adjustment shall not be effective until 30 days after written
notice thereof has been given by the Corporation to all holders of the Preferred
Stock. For purposes of paragraph 6C, if the terms of any Option or Convertible
Security which was outstanding as of the date of issuance of the Preferred Stock
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change; provided that no such change shall at any time cause
the Conversion Price hereunder to be increased.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or termination would result
in an increase in the Conversion Price then in effect, such increase shall not
be effective until 30 days after written notice thereof has been given to all
holders of the Preferred Stock. For purposes of paragraph 6C, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of issuance of the Preferred Stock shall not cause the conversion Price
hereunder to be adjusted unless, and only to the extent that, a change in the
terms of such Option or Convertible Security caused it to be deemed to have been
issued after the date of issuance of the Preferred Stock.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor (net of discounts,
commissions and related expenses). If any Common Stock, Option or Convertible
Security is issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation shall be the Market Price thereof as of the date of receipt. If any
Common Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the Corporation is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may
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be. The fair value of any consideration other than cash and securities shall be
determined jointly by the Corporation and the holders of a majority of the
outstanding Preferred Stock. If such parties are unable to reach agreement
within a reasonable period of time, the fair value of such consideration shall
be determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Preferred Stock. The determination of such appraiser shall be
final and binding upon the parties, and the fees and expenses of such appraiser
shall be borne by the Corporation.
(vi) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) RECORD DATE. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (b) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6B. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
6C. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive
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(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock, is referred to herein as an
"Organic Change". Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Preferred Stock then
outstanding) to insure that each of the holders of Preferred Stock shall
thereafter have the right to acquire and receive, in lieu of or in addition to
(as the case may be) the shares of Conversion Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred Stock,
such shares of stock, securities or assets as such holder would have received in
connection with such Organic Change if such holder had converted its Preferred
Stock immediately prior to such Organic Change. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Preferred Stock then
outstanding) to insure that the provisions of this Section 6 and Sections 7 and
8 hereof shall thereafter be applicable to the Preferred Stock (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Preferred Stock, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the holders of a majority of the Preferred Stock then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
6D. CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Preferred
Stock; provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section 6 or decrease the number of shares
of Conversion Stock issuable upon conversion of each Share of Preferred Stock.
6E. NOTICES.
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(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all holders of Preferred
Stock, setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to all holders
of Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the
holders of Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
6F. MANDATORY CONVERSION. All of the outstanding Preferred
Stock shall automatically convert upon the Corporation consummating a firm
commitment underwritten Public Offering of shares of its Common Stock in which
(i) the price per share paid by the public for such shares is at least three
times the Conversion Price in effect immediately prior to the closing of the
sale of such shares pursuant to the Public Offering, and (ii) the Corporation
receives at least $25 million of net proceeds (after payment of underwriting
discounts and commissions) in exchange for the shares of Common Stock sold in
such Public Offering. Any such mandatory conversion shall only be effected at
the time of and subject to the closing of the sale of such shares pursuant to
such Public Offering and upon written notice of such mandatory conversion
delivered to all holders of Preferred Stock at least seven days prior to such
closing.
Section 7. EVENTS OF NONCOMPLIANCE.
7A. DEFINITION. An Event of Noncompliance shall have occurred
if
(i) the Corporation fails to make any redemption payment with
respect to the Preferred Stock which it is required to make hereunder, whether
or not such payment is legally permissible or is prohibited by any agreement to
which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Purchase
Agreement;
(iii) any representation or warranty contained in the Purchase
Agreement is not true and correct in any material respect as of the date made;
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(iv) the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Corporation or any Subsidiary and either (a) the Corporation or any such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within 60 days;
(v) a judgment in excess of $100,000 is rendered against the
Corporation or any Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged;
or
(vi) the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement if the effect of such default is to
cause an amount exceeding $100,000 to become due prior to its stated maturity.
7B. CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
(i) If an Event of Noncompliance of the type described in
subparagraph 7A(ii) has occurred and continues for a period of 30 days or any
other Event of Noncompliance has occurred, the dividend rate on the Preferred
Stock shall increase immediately by an increment of two percentage point(s);
provided that the dividend rate shall not be increased if an Event of
Noncompliance of the type described in subparagraph 7A(ii) has occurred as a
result of the Corporation's breach of a covenant or agreement contained in
Section 3E of the Purchase Agreement and if the Corporation has cured such
breach within 5 days after either the Purchasers have notified the Corporation
(either in writing or orally) that such breach constitutes an Event of
Noncompliance hereunder or the Purchasers and the Corporation have discussed
such breach. Thereafter, until such time as no Event of Noncompliance exists,
the dividend rate shall increase automatically at the end of each succeeding
90-day period by an additional increment of two percentage point(s) up to a
maximum rate of 14% per annum. Any increase of the dividend rate resulting from
the operation of this subparagraph shall terminate as of the close of business
on the date on which the
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condition causing such Event of Noncompliance has been cured or no Event of
Noncompliance exists, subject to subsequent increases pursuant to this
paragraph.
(ii) If any Event of Noncompliance of the type described in
subparagraph 7A(i) has occurred, the number of directors constituting the
Corporation's Board of Directors shall, at the request of the holders of a
majority of the Preferred Stock then outstanding, be increased by one member,
and the holders of Preferred Stock shall have the special right, voting
separately as a single class (with each Share being entitled to one vote) and to
the exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy of such
directorship and to remove any individual elected to such directorship. The
newly created directorship shall constitute a separate class of directors, and
the director elected by the holders of the Preferred Stock shall be entitled to
cast a number of votes on each matter considered by the Board of Directors
(including for purposes of determining the existence of a quorum) equal to the
sum of the number of votes entitled to be cast by all of the other directors
plus one. The special right of the holders of Preferred Stock to elect members
of the Board of Directors may be exercised at the special meeting called
pursuant to this subparagraph (v), at any annual or other special meeting of
stockholders and, to the extent and in the manner permitted by applicable law,
pursuant to a written consent in lieu of a stockholders meeting. Such special
right shall continue until such time as there is no longer any Event of
Noncompliance of the type described in subparagraph 7A(i) in existence, at which
time such special right shall terminate subject to revesting upon the occurrence
and continuation of any Event of Noncompliance which gives rise to such special
right hereunder.
At any time when such special right has vested in the holders
of Preferred Stock, a proper officer of the Corporation shall, upon the written
request of the holder of at least 10% of the Preferred Stock then outstanding,
addressed to the secretary of the Corporation, call a special meeting of the
holders of Preferred Stock for the purpose of electing a director pursuant to
this subparagraph. Such meeting shall be held at the earliest legally
permissible date at the principal office of the Corporation, or at such other
place designated by the holders of at least 10% of the Preferred Stock then
outstanding. If such meeting has not been called by a proper officer of the
Corporation within 10 days after personal service of such written request upon
the secretary of the Corporation or within 20 days after mailing the same to the
secretary of the Corporation at its principal office, then the holders of at
least 10% of the Preferred Stock then outstanding may designate in writing one
of their number to call such meeting at the expense of the Corporation, and such
meeting may be called by such Person so designated upon the notice required for
annual meetings of stockholders and shall be held at the Corporation's principal
office, or at such other place designated by the holders of at least 10% of the
Preferred Stock then outstanding. Any holder of Preferred Stock so designated
shall be given access to the stock record books of the
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Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to this subparagraph.
At any meeting or at any adjournment thereof at which the
holders of Preferred Stock have the special right to elect directors, the
presence, in person or by proxy, of the holders of a majority of the Preferred
Stock then outstanding shall be required to constitute a quorum for the election
or removal of any director by the holders of the Preferred Stock exercising such
special right. The vote of a majority of such quorum shall be required to elect
or remove any such director.
Any director so elected by the holders of Preferred Stock
shall continue to serve as a director until the expiration of the lesser of (a)
a period of three months following the date on which there is not longer any
Event of Noncompliance of the type described in subparagraph 7A(i) in existence
or (b) the remaining period of the full term for which such director has been
elected. After the expiration of such three-month period or when the full term
for which such director has been elected ceases (provided that the special right
to elect directors has terminated), as the case may be, the number of directors
constituting the board of directors of the Corporation shall decrease to such
number as constituted the whole board of directors of the Corporation
immediately prior to the occurrence of the Event or Events of Noncompliance
giving rise to the special right to elect directors.
(iii) If any Event of Noncompliance exists, each holder of
Preferred Stock shall also have any other rights which such holder is entitled
to under any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
Section 8. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register
for the registration of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such Preferred Stock represented by the surrendered certificate.
Section 9. REPLACEMENT.
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Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Shares of Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Preferred Stock represented by such new certificate from the
date to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Section 10. DEFINITIONS.
"CHANGE IN OWNERSHIP" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Stock by the Corporation
or any holders thereof which results in any Person or group of Persons (as the
term "group" is used under the Securities Exchange Act of 1934), other than the
holders of Common Stock and Preferred Stock as of the date of the Purchase
Agreement, owning more than 50% of the Common Stock outstanding at the time of
such sale, transfer or issuance or series of sales, transfers and/or issuances.
"COMMON STOCK" means, collectively, the Corporation's Common
Stock and any capital stock of any class of the Corporation hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to
subparagraphs 6C(i) and 6C(ii) hereof whether or not the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock issuable upon conversion of the Preferred Stock.
"CONVERSION STOCK" means shares of the Corporation's Common
Stock, par value $.001 per share; provided that if there is a change such that
the securities issuable upon conversion of the Preferred Stock are issued by an
entity other than the Corporation or there is a change in the type or class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion
16
<PAGE>
of the Preferred Stock if such security is issuable in shares, or shall mean the
smallest unit in which such security is issuable if such security is not
issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock.
"FUNDAMENTAL CHANGE" means (a) any sale, lease, or other
transfer of all or substantially all of the assets of the Corporation and its
Subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied or
by fair market value determined in the reasonable good faith judgment of the
Corporation's Board of Directors) in any transaction or series of transactions
(other than sales in the ordinary course of business) and (b) any merger or
consolidation to which the Corporation is a party, except for a merger in which
the holders of the Corporation's voting capital stock receive a majority of the
voting capital stock of the surviving corporation.
"JUNIOR SECURITIES" means any capital stock or other equity
securities of the Corporation, except for the Preferred Stock.
"LIQUIDATION VALUE" of any Share as of any particular date
shall be equal to $100.
"MARKET PRICE" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Corporation and the holders of a majority of the
Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of a majority of the Preferred Stock. The determination of such
appraiser shall be final and binding upon the parties, and the Corporation shall
pay the fees and expenses of such appraiser.
17
<PAGE>
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities, excluding (i) options
and warrants in existence as of July 7, 1998 and listed on Exhibit F to the
Purchase Agreement or up to an additional 2,220,400 shares of Common Stock
(which includes among other items the effect of the 28 for 1 stock split
reflected by the Restated Certificate of Incorporation to which this Exhibit
A is attached) to employees of the Corporation pursuant to stock option plans
approved by the Corporation's Board of Directors and (ii) options issued to
replace options described in (i) above that have expired or that have not
become vested (in each case, as such number of shares is proportionately
adjusted for subsequent stock splits, combinations and dividends affecting
the Common Stock).
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof
"PUBLIC OFFERING" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of
July 7, 1998, by and among the Corporation and certain investors, as such
agreement may from time to time be amended in accordance with its terms.
"REDEMPTION DATE" as to any Share means the date specified in
the notice of any redemption at the holder's option or the applicable date
specified herein in the case of any other redemption; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Share (plus all
accrued and unpaid dividends thereon and any required premium with respect
thereto) is actually paid in full on such date, and if not so paid in full, the
Redemption Date shall be the date on which such amount is fully paid.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons
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<PAGE>
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control the
managing general partner of such limited liability company, partnership,
association or other business entity.
Section 11. AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or
effective with respect to any provision of Sections 1 to 14 hereof without the
prior written consent of the holders of a majority of the Preferred Stock
outstanding at the time such action is taken; provided that no such action shall
change (a) the rate at which or the manner in which dividends on the Preferred
Stock accrue or the times at which such dividends become payable or the amount
payable on redemption of the Preferred Stock or the times at which redemption of
Preferred Stock is to occur, without the prior written consent of the holders of
at least 75% of the Preferred Stock then outstanding, (b) the Conversion Price
of the Preferred Stock or the number of shares or class of stock into which the
Preferred Stock is convertible, without the prior written consent of the holder
of at least 75% of the Preferred Stock then outstanding or (c) the percentage
required to approve any change described in clauses (a) and (b) above, without
the prior written consent of the holders of at least 75% of the Preferred Stock
then outstanding; and provided further that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Preferred Stock then
outstanding.
Section 12. NOTICES.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
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<PAGE>
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
HARRIS INTERACTIVE INC.
Harris Interactive Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Harris Interactive Inc. The
corporation was originally incorporated under the name Harris
Black International Ltd. and the original Certificate of
Incorporation of the corporation was filed with the Secretary
of State of the State of Delaware on July 1, 1997.
B. Pursuant to Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, this Restated
Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of
Incorporation of this corporation.
C. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby amended and restated in its
entirety to read as follows:
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
HARRIS INTERACTIVE INC.
ARTICLE I
The name of this Corporation is Harris Interactive Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such office is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
This Corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The total number of shares of
Common Stock which this Corporation has authority to issue is One Hundred
Million (100,000,000) with par value of $.001 per share. The total number of
shares of Preferred Stock which this Corporation has authority to issue is Five
Million (5,000,000) with a par value of $.01 per share.
The shares of Preferred Stock shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the board). The Board of
Directors is further authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series. In case the number of shares
of any such 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. All shares of the
Preferred Stock of any one series shall be identical to each other in all
respects, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon, if cumulative, shall be
cumulative.
<PAGE>
The authority of the Board of Directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
i. the distinctive designation of such class or series and the
number of shares to constitute such class or series;
ii. the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment,
whether dividends at the rate so determined shall be
cumulative or accruing, and whether the shares of such class
or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined,
and if so, on what terms;
iii. the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock
and, if redeemable, the price, terms and manner of such
redemption;
iv. the special and relative rights and preferences, if any, and
the amount or amounts per share, which the shares of such
class or series of Preferred Stock shall be entitled to
receive upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
v. the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable
for, shares of capital stock of any other class or series,
including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
vi. the obligation, if any, of the Corporation to retire, redeem
or purchase shares of such class or series pursuant to a
sinking fund or fund of a similar nature or otherwise, and the
terms and conditions of such obligation;
vii. voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or
series of Preferred Stock;
viii. limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or
series of Preferred Stock; and
ix. such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of
Directors of the Corporation, acting in accordance with this
Certificate of Incorporation, may deem advisable and are not
inconsistent with law and the provisions of this Certificate
of Incorporation.
<PAGE>
ARTICLE V
The number of directors of the Corporation shall not be less than three
(3) nor more than thirteen (13), the exact number to be fixed from time to time
by the Board of Directors.
The Board of Directors shall be divided into three classes in respect
of term of office, each class to contain as near as may be one-third of the
whole number of the total number of directors, with the terms of office of one
class expiring each year. At each annual meeting of stockholders, one class of
directors shall be elected to serve until the annual meeting of stockholders
held three years next following and until their successors shall be elected and
shall qualify.
Newly created directorships and vacancies on the Board of Directors
shall only be filled by a majority vote of the directors then in office,
although less than a quorum, or by a sole remaining director.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
rescind or repeal from time to time any of the By-laws of the Corporation.
Notwithstanding the foregoing, the provisions of Article II, Section 3 and
Section 9; Article III, Sections 1 through 3; and Article IX of the By-Laws of
the Corporation shall only be altered, amended, rescinded or repealed by (A)
vote of a majority of the entire Board of Directors of the Corporation or (B)
the affirmative vote of the holders of not less than sixty six and two-thirds
percent (66 2/3%) of the shares of each class of the capital stock of the
Corporation entitled to vote.
ARTICLE VI
The provisions set forth in Article V, Article VIII, Article IX and
this Article VI may not be altered, amended, rescinded, or repealed in any
respect unless such action is approved by the affirmative vote of the holders of
not less than sixty six and two-thirds percent (66 2/3%) of the shares of each
class of the capital stock of the Corporation entitled to vote.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions 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 the Corporation.
ARTICLE VIII
Holders of stock of any class or series of the Corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
<PAGE>
ARTICLE IX
No action shall be taken by the stockholders of the Corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws and no action shall be taken by the stockholders by written consent.
ARTICLE X
The Corporation shall indemnify each of the Corporation's directors and
officers in each and every situation where, under Section 145 of the General
Corporation Law of the State of Delaware, as amended from time to time ("Section
145"), the Corporation is permitted or empowered to make such indemnification.
The Corporation may, in the sole discretion of the Board of Directors of the
Corporation, indemnify any other person who may be indemnified pursuant to
Section 145 to the extent the Board of Directors deems advisable, as permitted
by Section 145. The Corporation shall promptly make or cause to be made any
determination required to be made pursuant to Section 145.
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (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 General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is subsequently amended to
further eliminate or limit the liability of a director, then a director of the
corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended General Corporation Law of the State
of Delaware. For purposes of this Article X, "fiduciary duty as a director"
shall include any fiduciary duty arising out of serving at the Corporation's
request as a director of another corporation, partnership, joint venture or
other enterprise, and "personal liability to the corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
corporation in its capacity as a security holder, joint venture, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
Neither any amendment nor repeal of this Article X nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article X, shall eliminate or reduce the effect of this Article X in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article X, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE XI
<PAGE>
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Gordon S. Black, its Chief Executive Officer, and attested by Bruce A.
Newman, its Secretary, this day of , 1999.
HARRIS INTERACTIVE INC.
By:
----------------------------------------
Gordon S. Black, Chief Executive Officer
Attest:
By:
----------------------------
Bruce A. Newman, Secretary
<PAGE>
Exhibit 3.3
BY-LAWS
OF
HARRIS INTERACTIVE INC.
ARTICLE I -- OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Harris
Interactive Inc. (the "Corporation") shall be fixed in the Certificate of
Incorporation of the Corporation.
SECTION 2. OTHER OFFICES. The Board of Directors may at any time
establish branch or subordinate offices at any place or places where the
Corporation is qualified to do business.
ARTICLE II -- MEETINGS OF STOCKHOLDERS.
SECTION 1. PLACE OF MEETING. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the Corporation.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors, at which meetings the stockholders shall elect, in
accordance with Article III of these By-laws, by a plurality vote, those
directors belonging to the class or classes of directors to be elected at such
meeting, and transact such other business as may properly be brought before the
meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), special meetings of stockholders may be called only by the
President, Chairman or a Co-Chairman of the Board, if there be one, pursuant to
a resolution adopted by a majority of the entire Board of Directors, or by one
or more stockholders holding a majority of the outstanding stock of the
Corporation entitle to vote on the issues proposed to be considered at the
special meeting. No other person or persons are permitted to call a special
meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, then the request shall be in writing, and shall include the
information required in Section 9 of this Article II, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Secretary of the Corporation. The Secretary shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Section 4 of this Article II and Section 1 of Article VI
of these By-laws, that a meeting will be held at the time requested by the
person or persons calling the meeting, so long as that time is not less than
sixty (60) nor more than ninety (90) days after the receipt of the request. If
the notice is not given within twenty (20) days after receipt of the request,
then the person or persons requesting the meeting may give the notice. Nothing
contain in this paragraph of this Section 3, Article II,
<PAGE>
shall be construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law, all
notices of meetings of stockholders, whether annual or special, shall be sent or
otherwise given in accordance with Article VI of these By-laws, not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to notice of the meeting. Each such notice shall
state the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted at special meeting) or
(ii) in the case of the annual meeting, those matters which the Board of
Directors, at the time of giving the notice, intends to present for action by
the stockholders (but any proper matter may be presented at the annual meeting
for such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the Board of Directors intends to present for election.
SECTION 5. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital 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. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, then 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 of the time and place to which it is
adjourned, until a quorum shall be presented or represented. At such adjourned
meeting at which a quorum shall be presented or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 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 entitled to vote at the
meeting.
SECTION 6. VOTING. Unless otherwise provided by law or by the
Certificate of Incorporation, each stockholder of record shall be entitled to
one vote for each share of voting capital stock of the Corporation, in each
case, registered in such stockholder's name on the books of the Corporation (1)
on the date fixed pursuant to Section 2 of Article V of these By-laws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting; or (2) if no such record date shall have been so fixed,
then at the close of business on the day next preceding the day on which notice
of such meeting is given, or, if notice is waived, at the close of business on
the day on which the meeting is held. At each meeting of the stockholders, a
plurality of votes cast shall be sufficient to elect directors, all other
corporate actions to be taken by vote of the stockholders (except as otherwise
required by law and except as otherwise provided in the Certificate of
Incorporation or these By-laws) shall be authorized by the affirmative vote of a
majority of shares present in person or represented by proxy at the meeting and
entitled to vote thereon, and where a separate vote by class is required, the
affirmative vote of a majority of the outstanding shares of such class, present
in person or
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<PAGE>
represented by proxy, shall be the act of such class. Unless required by law or
determined by the Chairman of the meeting to be advisable, the vote on any
matter, including the election of directors, need not be by written ballot. In
the case of a vote by written ballot, each ballot shall be signed by the
stockholder voting, or by such stockholder's proxy, and shall state the number
of shares voted.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten 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 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 of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 9. NOTICE OF BUSINESS. No business may be transacted at a
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the meeting by any stockholder of the Corporation entitled to
vote on the business proposed to be considered at the meeting (i) who is a
stockholder of record on the record date for the determination of stockholders
entitled to vote at such meeting, (ii) who is otherwise permitted by law to
bring such proposal and (iii) who complies with the notice procedures set forth
in this Section 9.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 calendar days nor more than 120 calendar days
before the date of the Corporation's proxy statement and notice released to
stockholders in connection with the immediately preceding annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year, or the date of the annual meeting has been changed by
more than 30 days from the date of the previous year's annual meeting, notice
3
<PAGE>
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which notice of the date of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
meeting (i) a brief description of the business proposed to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and record address of such stockholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the meeting to bring such business before the meeting.
No business shall be conducted at a meeting of stockholders except
business brought before the meeting in accordance with the procedures set forth
in this Section 9 of this Article II; provided, however, that, once business has
been properly brought before the meeting in accordance with such procedures,
nothing in this Section 9 of this Article II shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of a meeting
determines that business was not properly brought before the meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted or discussed.
ARTICLE III -- DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors
consisting of a number of directors, divided into such classes and subject to
such other provisions as are set forth in the Certificate of Incorporation.
Except as otherwise provided in the Certificate of Incorporation, the exact
number of directors shall be fixed from time to time by the Board of Directors.
SECTION 2. CLASSIFIED BOARD. The Board of Directors shall be divided
into three classes in respect of term of office, each class to contain as near
as may be one-third of the whole number of the total number of directors, with
the terms of office of one class expiring each year. At each annual meeting of
stockholders, one class of directors shall be elected to serve until the annual
meeting of stockholders held three years next following and until their
successors shall be elected and shall qualify.
SECTION 3. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of stockholders or at any
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special meeting of stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors or Nominating Committee
thereof or (b) by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 3 of
this Article III and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 3 of this Article III.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the Corporation (a) in the case
of an annual meeting not less than 90 calendar days nor more than 120 calendar
days before the date of the Corporation's proxy statement and notice released to
stockholders in connection with the immediately preceding annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year, or the date of the annual meeting has been changed by
more than 30 days from the date of the previous year's meeting, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which notice of the date of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which public disclosure
of the date of the special meeting was made.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a
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nominee and to serve as a director if elected.
Subject to Section 5 of this Article III, no person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 3 of this Article III. If the
Chairman of the meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the meeting that
the nomination was defective and such defective nomination shall be disregarded.
SECTION 4. REMOVAL OF DIRECTORS. Unless otherwise restricted by law, by
the Certificate of Incorporation or by these By-laws, any director or the entire
Board of Directors may be removed for cause by the holders of a majority of the
shares then entitled to vote at an election of directors.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any newly created
directorship resulting from an increase in the number of directors or any other
vacancy occurring in the Board of Directors may be filled by a majority vote of
the remaining directors, except as may be otherwise provided in the Certificate
of Incorporation. Any director of any class elected to fill a vacancy shall hold
office until the next meeting of stockholders at which the class, for which such
director whose vacancy was so filled, would have been chosen and until his or
her successor has been elected and shall qualify.
SECTION 6. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors, except as may be
otherwise provided by statute or by the Certificate of Incorporation.
SECTION 7. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman or any Co-Chairman, if there be one, the Chief Executive Officer,
the President or any two directors. Notice thereof stating the place, date and
hour of the meeting shall be given to each director either by mail not less than
48 hours before the date of the meeting, by telephone, electronic facsimile or
telegram on 24 hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances,
provided that notice need not be given to any director who shall, either before
or after the meeting, submit a signed waiver of such notice or who shall attend
such meeting without protesting, prior to or at its commencement, the lack of
notice to such director.
SECTION 8. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-laws, at all meetings of the
Board of Directors, one-half of the entire Board of 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. 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
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other than announcement at the meeting, until a quorum shall be present.
SECTION 9. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-laws, 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 the 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.
SECTION 10. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these By-laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 10 shall constitute
presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, 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 any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, 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.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
SECTION 12. COMPENSATION. 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.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other Corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason,
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or solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorized the
contract or transaction, or solely because the vote or votes of such person or
persons are counted for such purpose if (i) the material facts as to the
relationship or interest of such person or persons and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to the relationship or interest of such
person or persons and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
SECTION 14. MEANING OF "ENTIRE BOARD OF DIRECTORS". As used in this
Article III and in these By-laws generally, the term "entire Board of Directors"
means the total number of directors which the Corporation would have if there
were no vacancies.
SECTION 15. CHAIRMAN AND CO-CHAIRMAN OF THE BOARD OF DIRECTORS. The
Board of Directors may appoint one of its members as Chairman and one or more of
its members as Co-Chairmen of the Board of Directors. The Chairman or a
Co-Chairman of the Board of Directors, if there be one, shall preside at all
meetings of the stockholders and of the Board of Directors and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or as provided in these By-laws or as otherwise may normally be
incident to such office.
SECTION 16. VICE CHAIRMAN. The Board of Directors may also appoint one
or more of its members as Vice Chairman of the Board of Directors, who shall
preside at all meetings of the stockholders and of the Board of Directors in the
absence of the Chairman or Co-Chairman, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or as
provided in these By-laws or as otherwise may normally be incident to such
office (including, without limitation, the power and authority to exercise the
authority of the Chairman or the Co-Chairmen in the absence or disability of
such person or persons).
ARTICLE IV -- OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Secretary and a Treasurer. The officers of the
Corporation may also include, at the discretion of the Board of Directors, a
Chief Financial Officer and one or more Vice Presidents (including, without
limitation, Assistant, Executive and Senior), Vice Chairmen, Assistant
Secretaries, Assistant Treasurers and other officers. The officers of the
Corporation shall be chosen by the Board of Directors, except that the Board may
from time to time authorize any officer to appoint and remove any other officer
or agent and to prescribe such person's authority
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and duties. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these By-laws.
The officers of the Corporation need not be stockholders of the Corporation nor
need such officers be directors of the Corporation.
SECTION 2. ELECTION. Each Officer shall hold office for the term for
which elected or appointed by the Board of Directors and shall exercise such
powers and perform such duties as are provided in these By-laws or as shall be
determined from time to time by the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and qualified,
or until their earlier death, resignation or removal. Any officer may be
removed, either with or without cause, by the Board of Directors, at any regular
or special meeting thereof, or by any officer upon whom such power of removal
may be conferred by the Board of Directors, except that an officer chosen by the
Board of Directors may be removed only by the Board of Directors. A vacancy
occurring in any office of the Corporation shall be filled in the manner
prescribed in these By-laws for regular appointments to such office. The
salaries and other compensation of all officers of the Corporation shall be
fixed by the Board of Directors or in accordance with procedures and approval
authorities established by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chief Executive Officer, the President
or any Vice President and any such officer may, in the name of and on behalf of
the Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any Corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
SECTION 4. CHIEF EXECUTIVE OFFICER. The chief executive officer shall
be the Chief Executive Officer of the Corporation and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
the Chief Executive Officer shall be in general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy-making
officer. The Chief Executive Officer shall see to it that all orders and
resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-laws, the Board of Directors or
the Chief Executive Officer. In the absence or disability of the Chairman of the
Board of Directors or any Co-Chairman or Vice Chairman, or if there be none, the
Chief Executive Officer shall preside at all meetings of the stockholders and
the Board of Directors. The Chief Executive Officer shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to the Chief Executive Officer by these By-laws or by the Board of
Directors.
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SECTION 5. PRESIDENT. The President shall perform such duties and
exercise such powers as are incident to that position, and shall perform such
other duties and exercise such other powers as may from time to time be
prescribed by the Board of Directors.
SECTION 6 VICE PRESIDENTS. At the request of the Chief Executive
Officer or in the absence of the Chief Executive Officer or in the event of the
inability or refusal to act of the Chief Executive Officer (and if there be no
Chairman or Co-Chairman or any Vice Chairman of the Board of Directors), the
Vice President or the Vice Presidents, if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. Each Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman or
Co-Chairman or any Vice Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the Chief Executive Officer or in the event of the
inability or refusal of the Chief Executive Officer to act, shall perform the
duties of the Chief Executive Officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Executive
Officer.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also 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
Chief Executive Officer, under whose supervision the Secretary shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
Chief Executive Officer may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any 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 or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the principal officer of the Corporation having responsibility for financial
matters and shall perform such duties as may be assigned to him by the Board of
Directors or the Chairman or any Co-Chairman.
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SECTION 9. TREASURER. 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. 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 Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all the Treasurer's transactions as Treasurer and of the financial
condition of the Corporation.
SECTION 10. ASSISTANT SECRETARIES. Except as may be otherwise provided
in these By-laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the Chief Executive Officer, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the disability of the Secretary or refusal of the
Secretary to act, shall perform the duties of the Secretary, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chief Executive Officer, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the disability of the Treasurer or refusal of the
Treasurer to act, shall perform the duties of the Treasurer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Directors, an Assistant Treasurer shall
give the Corporation a bond 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 such office and for the restoration to the Corporation, in case of
such Assistant Treasurer's death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the possession or under the control of such Assistant Treasurer
belonging to the Corporation.
SECTION 12. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V -- STOCK
SECTION 1. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by the person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled
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before a new certificate shall be issued.
SECTION 2. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, 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 60 days nor less than ten days before the
date of such meeting, nor more than 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.
SECTION 3. BENEFICIAL OWNERS. 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 required by
law.
SECTION 4. STOCK CERTIFICATES, TRANSFER AND PARTLY PAID SHARES. The
shares of the Corporation shall be represented by certificates, provided that
the Board of Directors of the Corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the Corporation by, the Chairman or Co- Chairman,
if there is one, of the Board of Directors, or the President or Vice-President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of such Corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the Board
of Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of
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transfer, if any; a statement as to any applicable voting trust agreement; if
the shares be assessable, or, if assessments are collectible by personal action,
a plain statement of such facts.
Upon surrender to the Secretary or transfer agent of the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment 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.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares or upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
SECTION 5. SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the Corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 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, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
SECTION 6. LOST CERTIFICATES. Except as provided in this Section 6 no
new certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the Corporation and cancelled at
the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of replacement certificates on such terms and conditions as the board
may require; the board may require indemnification of the Corporation secured by
a bond or other adequate security sufficient to protect the Corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate.
SECTION 7. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint one or more transfer agents or transfer clerks, and one or more
registrars, each of which shall be an incorporated bank or trust company --
either domestic or foreign, who shall be appointed at such
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times and places as the requirements of the Corporation may necessitate and the
Board of Directors may designate.
ARTICLE VI -- NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given personally or by
mail. If mailed, notice is given when deposited in the United States mail,
postage prepaid, addressed to such director, member of a committee or
stockholder, at the address of such person as it appears on the records of the
Corporation. Written notice may also be given personally or by electronic means,
facsimile, telegram, overnight courier or by any other means permitted by law.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, no such notice shall be required to be
given to any director, member of a committee or stockholder, who shall attend
such meeting in person or by proxy without protesting prior to the conclusion of
the meeting the lack of proper notice, or who shall in writing waive notice
thereof.
ARTICLE VII -- GENERAL PROVISIONS
SECTION 1. DIVIDENDS. The Board of Directors of the Corporation,
subject to any restrictions contained in (a) the General Corporation Law of
Delaware or (b) the Certificate of Incorporation, may declare and pay dividends
upon the shares of its capital stock. Dividends may be paid in cash, in
property, or in shares of capital stock. 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 Board of Directors from time to time, in its absolute
discretion, deems 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 any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 3. CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to
time, the Board of Directors shall determine by resolution which person or
persons may sign or endorse all checks, drafts, other orders for payment of
money, notes or other evidences of indebtedness that are issued in the name of
or payable to the Corporation, and only the persons so authorized shall sign or
endorse those instruments.
SECTION 4. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The Board
of Directors, except as otherwise provided in these By-laws, may authorize and
empower any officer or officers, or agent or agents, to enter into any contract
or execute any instrument in the name of
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and on behalf of the Corporation; such power and authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
SECTION 5. CONSTRUCTION; DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of Delaware shall govern the construction of these
bylaws. Without limiting the generality of this provision, as used in these
bylaws, the singular number includes the plural, the plural number includes the
singular, and the term "person" includes both an entity and a natural person.
ARTICLE VIII -- INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware as the same now exists or may hereafter be amended,
indemnify any person against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or proceeding
in which such person was or is a party or is threatened to be made a party by
reason of the fact that such person is or was a director or officer of the
corporation. For purposes of this Article VIII, Section 1, a "director" or
"officer" of the Corporation shall mean any person (i) who is or was a director
or officer of the Corporation, (ii) who is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
The Corporation shall indemnify its directors or officers in connection
with an action, suit, or proceeding (or part thereof) initiated by such director
or officer only if the initiation of such action, suit, or proceeding (or part
thereof) by the director or officer was authorized by the board of directors of
the Corporation.
The Corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the Corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Article VIII, Section 1 in advance of its final disposition; provided, however,
that payment of expenses incurred by a director or officer of the Corporation in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by the director or officer to repay all
amounts advanced if it should ultimately be determined that the director or
officer is not entitled to be indemnified under this Article VIII, Section 1 or
otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other
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rights which such person may have or hereafter acquire under any statute,
provision of the Corporation's Certificate of Incorporation, these bylaws,
agreement, vote of the stockholders or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION 2. INDEMNIFICATION OF OTHERS. The Corporation shall have the
power, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware as the same now exists or may hereafter be amended,
to indemnify any person (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding, in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was an employee or agent of the corporation. For purposes of this Section 2, an
"employee" or "agent" of the Corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the Corporation,
(ii) who is or was serving at the request of the Corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
SECTION 3. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE IX -- AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation, these
By-laws may be altered, amended or repealed, in whole or in part, or new By-laws
may be adopted (i) upon a vote of a majority of the entire Board of Directors or
(ii) by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares of stock of all classes and series of stock
the holders of which are entitled to vote generally in the election of
directors, voting together as a single class. Notwithstanding the foregoing, the
provisions of Article II, Section 3 and Section 9; Article III, Sections 1
through 3; and Article IX of these By-Laws shall only be altered, amended,
rescinded or repealed by (A) vote of a majority of the entire Board of Directors
of the Corporation or (B) the affirmative vote of the holders of not less than
sixty six and two-thirds percent (66 2/3%) of the shares of each class of the
capital stock of the Corporation entitled to vote.
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Exhibit 10.1
HARRIS INTERACTIVE INC.
LONG-TERM INCENTIVE PLAN
SECTION 1 GENERAL
1.1 PURPOSE. This Harris Interactive Inc. Long-Term Incentive Plan (the
"Plan") has been established by Harris Interactive Inc. (the "Company") (a) to
attract and retain persons eligible to participate in the Plan; (b) motivate
Participants, by means of appropriate incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive with those
of other similar companies; and (d) further identify Participants' interests
with those of the Company's other stockholders through compensation that is
based on the Company's common stock; and thereby promote the long-term financial
interest of the Company and the Related Companies, including the growth in value
of the Company's equity and enhancement of long-term stockholder return.
1.2 PARTICIPATION. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan. In the discretion of
the Committee, a Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to a Participant.
Awards may be granted as alternatives to or replacements of awards outstanding
under the Plan, or any other plan or arrangement of the Company or a Related
Company (including a plan or arrangement of a business or entity, all or a
portion of which is acquired by the Company or a Related Company).
1.3 OPERATION, ADMINISTRATION AND DEFINITIONS. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to Operation and
Administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 1.4 of the Plan).
1.4 DEFINED TERMS. For purposes of the Plan, the terms listed below
shall be defined as follows:
(a) AWARD. The term "Award" shall mean any award or benefit granted to
any Participant under the Plan, including, without limitation, the grant of
Options, SARs, Stock Awards and Cash Awards.
(b) BOARD. The term "Board" shall mean the Board of Directors of the
Company.
(c) CHANGE IN CONTROL. The term "Change in Control" means a change in
control of a nature that would be required to be reported in a proxy statement
with respect to the Company (even if the Company is not actually subject to said
reporting requirements) in response to Item 6(e) (or any comparable or successor
Item) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except that any merger,
consolidation or corporate reorganization in which the owners of the Company's
capital
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stock to vote in the election of directors (the "Voting Stock") prior to said
combination receive 75% or more of the resulting entity's Voting Stock shall not
be considered a change in control for the purposes of this Plan; and provided
that, without limitation of the foregoing, such change in control shall be
deemed to have occurred if (i) any "person" (as that term is used in Sections
13(d) and 14(d)(2) of the Exchange Act, excluding any stock purchase or employee
stock ownership plan maintained by the Company or a Related Company) is or
becomes the "beneficial owner" (as that term is defined by the Securities and
Exchange Commission for purposes of Section 13(d) of the Exchange Act), directly
or indirectly, of more than 15% of the outstanding Voting Stock of the Company
or its successors; or (ii) during any period of two consecutive years a majority
of the Board of Directors no longer consists of individuals who were members of
the Board of Directors at the beginning of such period, unless the election of
each director who was not a director at the beginning of the period was approved
by a vote of at least 75% of the directors still in office who were directors at
the beginning of the period.
(d) CODE. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(e) The term "COMMITTEE" is as defined in Section 5.
(f) The term "ELIGIBLE INDIVIDUAL" shall mean any employee, officer or
non-employee director of the Company or a Related Company.
(g) FAIR MARKET VALUE. For purposes of determining the "FAIR MARKET
VALUE" of a share of Stock, the following rules shall apply:
(i) If the Stock is at the time listed or admitted to trading
on any stock exchange or a national market system, including without limitation
the Nasdaq National Market, then the "Fair Market Value" shall be the mean
between the lowest and highest reported sale prices of the Stock on the date in
question on the principal exchange on which the Stock is then listed or admitted
to trading. If no reported sale of Stock takes place on the date in question on
the principal exchange, then the reported closing asked price of the Stock on
such date on the principal exchange shall be determinative of "Fair Market
Value."
(ii) If the Stock is not at the time listed or admitted to
trading on a stock exchange, the "Fair Market Value" shall be the mean between
the lowest reported bid price and highest reported asked price of the Stock on
the date in question in the over-the-counter market, as such prices are reported
in a publication of general circulation selected by the Committee and regularly
reporting the market price of Stock in such market.
(iii) If the Stock is not listed or admitted to trading on any
stock exchange or traded in the over-the-counter market, the "Fair Market Value"
shall be as determined in good faith by the Committee.
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(h) RELATED COMPANIES. The term "Related Company" means (i) any
corporation, partnership, joint venture or other entity during any period in
which it owns, directly or indirectly, at least 50% of the voting power of all
classes of stock of the Company (or successor to the Company) entitled to vote;
and (ii) any corporation, partnership, joint venture or other entity during any
period in which at least 50% voting or profits interest is owned, directly or
indirectly, by the Company, by any entity that is a successor to the Company, or
by any entity that is a Related Company by reason of clause (i) next above.
(i) STOCK. The term "Stock" shall mean shares of common stock of the
Company.
SECTION 2. OPTIONS AND SARS
2.1 DESCRIPTIONS.
(a) The grant of an "Option" entitles the Participant to purchase
shares of Stock at an Exercise Price established by the Committee. Options
granted under this Section 2 may be either Incentive Stock Options or
Non-Qualified Stock Options, as determined in the discretion of the Committee.
An "Incentive Stock Option" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in Section
422(b) of the Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in Section 422(b) of
the Code.
(b) A stock appreciation right (a "SAR") entitles the Participant to
receive, in cash or Stock (as determined in accordance with subsection 2.5),
value equal to all or a portion of the excess of: (a) the Fair Market Value of a
specified number of shares of Stock at the time of exercise; over (b) an
Exercise Price established by the Committee pursuant to Section 2.2 of the Plan.
2.2 EXERCISE PRICE. The "Exercise Price" of each Option and SAR granted
under this Section 2 shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option or
SAR is granted; except that the Exercise Price for Incentive Stock Options shall
not be less than 100% of the Fair Market Value of a share of Stock as of the
Pricing Date (or less than 110% of the Fair Market Value of a share of Stock as
of the Pricing Date in the case of Participants owning 10% of the voting stock
of the Company). For purposes of the preceding sentence, the "Pricing Date"
shall be the date on which the Option is granted.
2.3 EXERCISE. An Option and SAR shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee.
2.4 PAYMENT OF OPTION EXERCISE PRICE. The payment of the Exercise Price
of an Option granted under this Section 2 shall be subject to the following:
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(a) Subject to the following provisions of this subsection 2.4, the
full Exercise Price for shares of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case of
an exercise arrangement approved by the Committee and described in subsection
2.4(c), payment may be made as soon as practicable after the exercise).
(b) The Exercise Price shall be payable in cash or, at the option of
the Committee, by tendering shares of Stock (by either actual delivery of shares
or by attestation, with such shares valued at Fair Market Value as of the day of
exercise), or in any combination thereof, as determined by the Committee.
(c) The Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by authorizing a third party to sell shares
of Stock (or a sufficient portion of the shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to pay
the entire Exercise Price and any tax withholding resulting from such exercise.
2.5 SETTLEMENT OF AWARD. Distribution following exercise of an Option
or SAR, and shares of Stock distributed pursuant to such exercise, shall be
subject to such conditions, restrictions and contingencies as the Committee may
establish. Settlement of SARs may be made in shares of Stock (valued at their
Fair Market Value at the time of exercise), in cash, or in a combination
thereof, as determined in the discretion of the Committee. The Committee, in its
discretion, may impose such conditions, restrictions and contingencies with
respect to shares of Stock acquired pursuant to the exercise of an Option or SAR
as the Committee determines to be desirable.
SECTION 3 OTHER AWARDS
3.1 STOCK AWARD. A Stock Award is a grant of shares of Stock or of a
right to receive shares of Stock (or their cash equivalent or a combination of
both) in the future. Each Stock Award shall be subject to such conditions,
restrictions and contingencies as the Committee shall determine. These may
include continuous service and/or the achievement of performance goals. The
performance goals that may be used by the Committee for such Awards may consist
of cash generation targets, profit, revenue and market share targets,
profitability targets as measured by return ratios, and stockholder returns. The
Committee may designate a single goal criterion or multiple goal criteria for
performance measurement purposes, with the measurement based on absolute Company
or business unit performance and/or on performance as compared with that of
other publicly-traded companies.
3.2 CASH AWARD. A Cash Award is a right denominated in cash or cash
units to receive a payment, which may be in the form of cash, shares of Stock or
a combination, based on the attainment of pre-established performance goals and
such other conditions, restrictions and contingencies as the Committee shall
determine. The performance goals that may be used by the Committee for such
awards may consist of cash generation targets, profits, revenue and market
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share targets, profitability targets as measured by return ratio, stockholder
returns and such other goals as may be designated by the Committee. The
Committee may designate a single goal criterion or multiple goal criteria for
performance measurement purposes with the measurement based on absolute Company
or business unit performance and/or on performance as compared with that of
other publicly-traded companies.
SECTION 4 OPERATION AND ADMINISTRATION
4.1 EFFECTIVE DATE. Subject to the approval of the stockholders of the
Company, the Plan shall be effective as of September 7, 1999 (the "Effective
Date"); provided, however, that to the extent that Awards are made under the
Plan prior to its approval by stockholders, they shall be contingent on approval
of the Plan by the stockholders of the Company. The Plan shall be unlimited in
duration and, in the event of Plan termination, shall remain in effect as long
as any Awards under it are outstanding; provided, however, that, to the extent
required by the Code, no Incentive Stock Options may be granted under the Plan
on a date that is more than ten years from the date the Plan is adopted or, if
earlier, the date the Plan is approved by stockholders.
4.2 SHARES SUBJECT TO PLAN.
(a) (i) Subject to the following provisions of this subsection
4.2, the maximum number shares of Stock that may be delivered to Participants
and their beneficiaries under the Plan shall be 1,250,000.
(ii) Any shares of Stock granted under the Plan that are
forfeited back to the Company because of the failure to meet an Award
contingency or condition shall again be available for delivery pursuant to new
Awards granted under the Plan. To the extent any shares of Stock covered by an
Award are not delivered to a Participant or beneficiary because the Award is
forfeited or canceled, or the shares of Stock are not delivered because the
Award is settled in cash, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
(iii) If the Exercise Price of any Option granted under the
Plan or any Prior Plan is satisfied by tendering shares of Stock to the Company
(by either actual delivery or by attestation), only the number of shares of
Stock issued net of the shares of Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
(iv) Shares of Stock delivered under the Plan in settlement,
assumption or substitution of outstanding awards (or obligations to grant future
awards) under the plans or arrangements of another entity shall not reduce the
maximum number of shares of Stock available for delivery under the Plan, to the
extent that such settlement, assumption or substitution as a result of the
Company or a Related Company acquiring another entity (or an interest in another
entity).
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(b) Subject to subsection 4.2(c), the following additional maximums are
imposed under the Plan.
(i) The maximum number of shares of Stock that may be issued
by Options intended to be Incentive Stock Options shall be 1,250,000 shares.
(ii) The maximum number of shares that may be covered by
Awards granted to any one individual pursuant to Section 2 (relating to Options
and SARs) shall be 500,000 shares during any three consecutive calendar years.
(iii) The maximum payment that can be made for awards granted
to any one individual pursuant to Section 3 (relating to Stock Awards and Cash
Awards) shall be $1,000,000 for any single or combined performance goals
established for any specified performance period. If an Award granted under
Section 3 is, at the time of grant, denominated in shares, the value of the
shares of Stock for determining this maximum individual payment amount will be
the Fair Market Value of a share of Stock on the first day of the applicable
performance period.
(c) Subject to Section 4.14 below relating to changes in control, in
the event of a corporate transaction involving the Company (including, without
limitation, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares), the Committee (a) will make any appropriate
adjustments to the maximum number of shares of Stock that may be delivered to
Participants and their beneficiaries under this subsection 4.2(a) and (b), and
(b) will adjust Awards to preserve the benefits or potential benefits of the
Awards. Action by the Committee may include adjustment of: (i) the number and
kind of shares which may be delivered under the Plan; (ii) the number and kind
of shares subject to outstanding Awards; and (iii) the Exercise Price of
outstanding Options and SARs; as well as any other adjustments that the
Committee determines to be equitable.
4.3 LIMIT ON DISTRIBUTION. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the applicable
requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may be
effected on a noncertificated basis, to the extent not prohibited by applicable
law or the applicable rules of any stock exchange or a national market system,
including without limitation the Nasdaq National Stock Market.
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4.4 TAX WITHHOLDING. Whenever the Company proposes or is required to
distribute Stock under the Plan, the Company may require the recipient to remit
to the Company an amount sufficient to satisfy any Federal, state and local tax
withholding requirements prior to the delivery of any certificate for such
shares or, in the discretion of the Committee, the Company may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of such tax
withholding requirements. Whenever under the Plan payments are to be made in
cash, such payments may be net of an amount sufficient to satisfy any Federal,
state and local tax withholding requirements.
4.5 DIVIDENDS AND DIVIDEND EQUIVALENTS. An Award may provide the
Participant with the right to receive dividends or dividend equivalent payments
with respect to Stock which may be either paid currently or credited to an
account for the Participant, and may be settled in cash or Stock as determined
by the Committee. Any such settlements, and any such crediting of dividends or
dividend equivalents or reinvestment in shares of Stock, may be subject to such
conditions, restrictions and contingencies as the Committee shall establish,
including the reinvestment of such credited amounts in Stock equivalents.
4.6 PAYMENTS. Awards may be settled through cash payments, the delivery
of shares of Stock, the granting of replacement Awards, or combination thereof
as the Committee shall determine. Any Award settlement, including payment
deferrals, may be subject to such conditions, restrictions and contingencies as
the Committee shall determine. The Committee may permit or require the deferral
of any Award payment, subject to such rules and procedures as it may establish,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits into deferred Stock
equivalents.
4.7 TRANSFERABILITY. Except as otherwise provided by the Committee,
Awards under the Plan are not transferable except as designated by the
Participant by will or by the laws of descent and distribution.
4.8 FORM AND TIME OF ELECTIONS. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.9 AGREEMENT WITH COMPANY. At the time of an Award to a Participant
under the Plan, the Committee may require a Participant to enter into an
agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
4.10 LIMITATION OF IMPLIED RIGHTS.
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(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Company or any Related Company whatsoever, including, without limitation, any
specific funds, assets, or other property which the Company or any Related
Company, in their sole discretion, may set aside in anticipation of a liability
under the Plan. A Participant shall have only a contractual right to the stock
or amounts, if any, payable under the Plan, unsecured by any assets of the
Company or any Related Company. Nothing contained in the Plan shall constitute a
guarantee that the assets of such companies shall be sufficient to pay any
benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any Eligible Individual the right to be
retained in the employ of the Company or any Related Company, nor any right or
claim to any benefit under the Plan, unless such right or claim has specifically
accrued under the terms of the Plan. Except as otherwise provided in the Plan,
no Award under the Plan shall confer upon the holder thereof any right as a
stockholder of the Company prior to the date on which the individual fulfills
all conditions for receipt of such rights.
4.11 NO FRACTIONAL SHARES. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid or transferred in lieu of any fractional
shares of Stock, or whether such fractional shares of Stock or any rights
thereto shall be canceled.
4.12 EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
4.13 EXCEEDING LIMITATIONS. To the extent that the aggregate Fair
Market Value of Stock (determined at the time the Option is granted) with
respect to which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under all plans of the Company and all
Related Companies) exceeds $100,000, such Options shall be treated as
Non-Qualified Stock Options, to the extent required by Section 422 of the Code.
4.14 CHANGE IN CONTROL. Subject to the provisions of subsection 4.2
(relating to the adjustment of shares), and except as otherwise provided in the
Plan or the agreement reflecting the applicable Award, upon the occurrence of a
Change in Control:
(a) All outstanding Options (regardless of whether in
tandem with SARs) shall become fully exercisable.
(b) All outstanding SARs (regardless of wh ether in
tandem with Options) shall become fully exercisable.
(c) All Stock Awards shall become fully vested.
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4.15. ACTION BY COMPANY OR RELATED COMPANY. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of the company.
4.16. GENDER AND NUMBER. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 5 COMMITTEE
5.1. ADMINISTRATION. The authority to control and manage the operation
and administration of the Plan shall be vested in a committee (the "Committee")
in accordance with this Section 5.
5.2. SELECTION OF COMMITTEE. The Committee shall be selected by the
Board, and shall consist of two or more members of the Board.
5.3. POWERS OF COMMITTEE. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Individuals those
persons who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section
6) to cancel or suspend Awards. In making such Award determinations, the
Committee may take into account the nature of services rendered by the
individual, the individual's present and potential contribution to the Company's
success and such other factors as the Committee deems relevant.
(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under the Plan
will be structured to conform to the requirements applicable to
performance-based compensation as described in Code Section 162(m), and to take
such action, establish such procedures, and impose such restrictions at the time
such Awards are granted as the Committee determines to be necessary or
appropriate to conform to such requirements.
(c) The Committee will have the authority and discretion to establish
terms and conditions of Awards as the Committee determines to be necessary or
appropriate to conform to applicable requirements or practices of jurisdictions
outside of the United States.
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(d) The Committee will have the authority and discretion to interpret
the Plan, to establish, amend, and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any agreements made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(e) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding.
(f) Except as otherwise expressly provided in the Plan, where the
Committee is authorized to make a determination with respect to any Award, such
determination shall be made at the time the Award is made, except that the
Committee may reserve the authority to have such determination made by the
Committee in the future (but only if such reservation is made at the time the
Award is granted and is expressly stated in the Agreement reflecting the Award).
(g) In controlling and managing the operation and administration of the
Plan, the Committee shall act by a majority of its then members, by meeting or
by a writing filed without a meeting. The Committee shall maintain and keep
adequate records concerning the Plan and concerning its proceedings and acts in
such form and detail as the Committee may decide.
5.4 DELEGATION BY COMMITTEE. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
5.5 INFORMATION TO BE FURNISHED TO COMMITTEE. The Company and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties. The records of the Company and Related
Companies as to an Eligible Individual's employment or other provision of
services, termination of employment or cessation of the provision of services,
leave of absence, reemployment and compensation shall be conclusive on all
persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.
SECTION 6 EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
6.1 EFFECT ON OTHER AWARDS OR BONUSES. Neither adoption of the Plan nor
the grant of Awards to a Participant will affect the Company's right to grant to
such Participant Awards that are not subject to the Plan, to issue to such
Participant Stock as a bonus or otherwise, or to adopt other plans or
arrangements under which Stock may be issued to Eligible Individuals.
6.2 DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Board
may at any time discontinue granting Awards under the Plan. The Board may at any
time or times alter
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or amend the Plan or any outstanding Award for any purpose which may at the time
be permitted by law, or may at any time terminate the Plan as to any further
grants of Awards, provided that (except to the extent expressly required or
permitted by the Plan) no such amendment will, without the approval of (a) the
Company's stockholders, to the extent stockholder approval of the amendment is
required by applicable law or regulations or the requirements of the principal
exchange or interdealer quotation system on which the Stock is listed or quoted,
(i) increase the maximum number of shares available under the Plan, (ii) change
the group of persons eligible to receive Awards under the Plan, (iii) extend the
time within which Awards may be granted, or (iv) amend the provisions of this
Section 6.2, and (b) each affected Participant if the amendment, alteration or
termination would adversely affect the Participant's rights or obligations under
any Award made prior to the date of the amendment, alteration or termination.
The termination of the Plan would not affect the validity of any Award
outstanding on the date of termination.
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<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of the Grant Date (as defined in
Section 1), by and between the Participant and Harris Interactive Inc. (the
"Company");
WITNESSETH THAT:
WHEREAS, the Company maintains the Harris Interactive Inc. 1999
Long-Term Incentive Plan (the "Plan"), which is incorporated into and forms a
part of this Agreement, and the Participant has been selected by the committee
administering the Plan (the "Committee") to receive an Incentive Stock Option
Award under the Plan;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Participant, as follows:
1. TERMS OF AWARD. The following terms used in this Agreement shall
have the meanings set forth in this Section 1:
(a) The "Participant" is ____________________________________.
(b) The "Grant Date" is ____________________________________.
(c) The number of "Covered Shares" shall be _______ shares of
Stock.
(d) The "Initial Exercise Date" is the One-year anniversary of the
Grant Date.
(e) The "Exercise Price" is $____________ per share.
Other terms used in this Agreement are defined in Section 8 or elsewhere in this
Agreement.
2. AWARD AND EXERCISE PRICE. The Participant is hereby granted an
option (the "Option") to purchase the number of Covered Shares of Stock at the
Exercise Price per share as set forth in Section 1. The Option is intended to
qualify as an "Incentive Stock Option," as defined in the Plan and in Section
422(b) of the Code.
3. DATE OF EXERCISE. The Option shall become exercisable with respect
to:
<PAGE>
The Option shall not become exercisable in accordance with the foregoing
schedule as of any date subsequent to the Participant's Date of Termination (as
herein defined). Exercisability under this schedule is cumulative, and after the
Option becomes exercisable under the schedule with respect to any portion of the
Covered Shares, it shall continue to be exercisable with respect to that portion
of the Covered Shares until the Option expires. Notwithstanding the foregoing
provisions of this Section 3, following the Initial Exercise Date the Option
shall become immediately exercisable with respect to all of the Covered Shares
(E.G., 100% VESTED) as follows:
(a) The Option shall become fully exercisable upon the date of the
Participant's Date of Termination by reason of the Participant's death or
Disability.
(b) The Option shall become exercisable upon the date of a Change in
Control, if the Participant's Date of Termination does not occur before the
Change in Control and, to the extent that the aggregate Fair Market Value of
Stock (determined at the time of the Grant Date) with respect to which Incentive
Stock Options are exercisable for the first time by the Participant during any
calendar year (under all plans of the Company and all Related Companies) exceeds
$100,000, such options shall be treated as Non-Qualified Stock Options, to the
extent required by Section 422 of the Code.
4. EXPIRATION. The Option, to the extent not theretofore exercised,
shall not be exercisable on or after the Expiration Date. The "Expiration Date"
shall be EARLIEST to occur of:
(a) the ten-year anniversary of the Grant Date;
(b) if the Participant's Date of Termination occurs by reason of
Disability or death, the one-year anniversary of such Date of Termination;
(c) If the Participant's Date of Termination occurs for reasons other
than death or Disability, the Date of Termination.
In the event of the Participant's death while in the employ of the Company, the
Participant's executors or administrators (or the person or persons to whom the
Participant's rights under the Option shall have passed by the Participant's
will or by the laws of descent and distribution) may exercise, any unexercised
portion of the Option.
Any Option exercised subsequent to the Participant's Date of
Termination as permitted hereunder shall be exercisable only to the extent
vested at the time of the Participant's Date of Termination, regardless of the
reason for the termination, and no extension of time beyond the Participant's
Date of Termination shall permit exercise beyond the date such Option would
otherwise expire if no termination had occurred.
5. METHOD OF OPTION EXERCISE. The Option may be exercised in whole or
in part by
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filing a written notice with the Secretary of the Company at its corporate
headquarters prior to the Expiration Date. Such notice shall (a) specify the
number of shares of Stock which the Participant elects to purchase; provided,
however, that not less than one hundred (100) shares of Stock may be
purchased at any one time unless the number purchased is the total number of
shares available for purchase at that time under the Option, and (b) be
accompanied by payment of the Exercise Price for such shares of Stock
indicated by the Participant's election. Payment shall be by cash or by check
payable to the Company, or, at the discretion of the Committee at any time:
(a) all or a portion of the Exercise Price may be paid by the Participant by
delivery of shares of Stock acceptable to the Committee (including, if the
Committee so approves, the withholding of shares otherwise issuable upon
exercise of the Option) and having an aggregate Fair Market Value (valued as
of the date of exercise) that is equal to the amount of cash that would
otherwise be required; and (b) the Participant may pay the Exercise Price by
authorizing a third party to sell shares of Stock (or a sufficient portion of
the shares) acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise Price and
any tax withholding resulting from such exercise.
6. WITHHOLDING. All distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the Participant, and
subject to such rules as may be established by the Committee, such withholding
obligations may be satisfied through the surrender of shares of Stock which the
Participant already owns, or to which the Participant is otherwise entitled
under the Plan.
7. TRANSFERABILITY. The Option is not transferable other than as
designated by the Participant by will or by the laws of descent and
distribution, and during the Participant's life, may be exercised only by the
Participant.
8. DEFINITIONS. For purposes of this Agreement, the terms listed below
shall be defined as follows:
(a) DATE OF TERMINATION. The Participant's "Date of Termination" shall
be the first day occurring on or after the Grant Date on which the Participant's
employment with the Company and all Related Companies terminates for any reason;
provided that a termination of employment shall not be deemed to occur by reason
of a transfer of the Participant between the Company and a Related Company or
between two Related Companies; and further provided that the Participant's
employment shall not be considered terminated while the Participant is on a
leave of absence from the Company or a Related Company approved by the
Participant's employer. If, as a result of a sale or other transaction, the
Participant's employer ceases to be a Related Company (and the Participant's
employer is or becomes an entity that is separate from the Company), the
occurrence of such transaction shall be treated as the Participant's Date of
Termination caused by the Participant being discharged by the employer.
(b) DISABILITY. Except as otherwise provided by the Committee, the
Participant shall be considered to have a "Disability" during the period in
which the Participant is unable, by
3
<PAGE>
reason of a medically determinable physical or mental impairment, to engage in
any substantial gainful activity, which condition, in the opinion of a physician
selected by the Committee, is expected to have a duration of not less than 120
days.
(c) RETIREMENT. "Retirement," as defined by the Company's applicable
retirement plan, or if not formalized under a plan, by the Company's policies
and procedures.
(d) PLAN DEFINITIONS. Except where the context clearly implies or
indicates the contrary, a word, term, or phrase used in the Plan is similarly
used in this Agreement.
9. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business. In the
event of the Participant's death prior to exercise of this Award, the Award may
be exercised by the estate of the Participant to the extent such exercise is
otherwise permitted by this Agreement. Subject to the terms of the Plan, any
benefits distributable to the Participant under this Agreement that are not paid
at the time of the Participant's death shall be paid at the time and in the form
determined in accordance with the provisions of this Agreement and the Plan, to
the beneficiary designated by the Participant in writing filed with the
Committee in such form and at such time as the Committee shall require. If a
deceased Participant fails to designate a beneficiary, or if the designated
beneficiary of the deceased Participant dies before the Participant or before
complete payment of the amounts distributable under this Agreement, the amounts
to be paid under this Agreement shall be paid to the legal representative or
representatives of the estate of the last to die of the Participant and the
beneficiary.
10. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Committee and
any decision made by it with respect to the Agreement is final and binding.
11. PLAN DEFINITIONS. Notwithstanding anything in this Agreement to the
contrary, the terms of this Agreement shall be subject to the terms of the Plan,
a copy of which may be obtained by the Participant from the office of the
Secretary of the Company.
12. AMENDMENT. This Agreement may be amended by written Agreement of
the Participant and the Company, without the consent of any other person.
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<PAGE>
IN WITNESS WHEREOF, the Participant has executed this Agreement, and
the Company has caused these presents to be executed in its name and on its
behalf, all as of the Grant Date.
Participant
-----------------------------------------
Harris Interactive Inc.
By:
------------------------------------
Its:
-----------------------------------
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<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of the Grant Date (as defined in
Section 1), by and between the Participant and Harris Interactive Inc. (the
"Company");
WITNESSETH THAT:
WHEREAS, the Company maintains the Harris Interactive Inc. 1999
Long-Term Incentive Plan (the "Plan"), which is incorporated into and forms a
part of this Agreement, and the Participant has been selected by the committee
administering the Plan (the "Committee") to receive a Non-Qualified Stock Option
Award under the Plan;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Participant, as follows:
1. TERMS OF AWARD. The following terms used in this Agreement shall
have the meanings set forth in this Section 1:
(a) The "Participant" is ____________________________________.
(b) The "Grant Date" is ____________________________________.
(c) The number of "Covered Shares" shall be _______ shares of Stock.
(d) The "Initial Exercise Date" is the One-year anniversary of the
Grant Date.
(e) The "Exercise Price" is $____________ per share.
Other terms used in this Agreement are defined in Section 8 or elsewhere in this
Agreement.
2. AWARD AND EXERCISE PRICE. The Participant is hereby granted an
option (the "Option") to purchase the number of Covered Shares of Stock at the
Exercise Price per share as set forth in Section 1. The Option is not intended
to qualify as an "Incentive Stock Option," as defined in the Plan and in Section
422(b) of the Code.
3. DATE OF EXERCISE. The Option shall become exercisable with respect
to:
<PAGE>
The Option shall not become exercisable in accordance with the foregoing
schedule as of any date subsequent to the Participant's Date of Termination (as
herein defined). Exercisability under this schedule is cumulative, and after the
Option becomes exercisable under the schedule with respect to any portion of the
Covered Shares, it shall continue to be exercisable with respect to that portion
of the Covered Shares until the Option expires. Notwithstanding the foregoing
provisions of this Section 3, following the Initial Exercise Date the Option
shall become immediately exercisable with respect to all of the Covered Shares
(E.G., 100% VESTED) as follows:
(a) The Option shall become fully exercisable upon the date of the
Participant's Date of Termination by reason of the Participant's death or
Disability.
(b) The Option shall become exercisable upon the date of a Change in
Control, if the Participant's Date of Termination does not occur before the
Change in Control.
4. EXPIRATION. The Option, to the extent not theretofore exercised,
shall not be exercisable on or after the Expiration Date. The "Expiration Date"
shall be EARLIEST to occur of:
(a) the ten-year anniversary of the Grant Date;
(b) if the Participant's Date of Termination occurs by reason of
Disability or death, the one-year anniversary of such Date of Termination;
(c) If the Participant's Date of Termination occurs for reasons other
than death or Disability, the Date of Termination.
In the event of the Participant's death while in the employ of the Company, the
Participant's executors or administrators (or the person or persons to whom the
Participant's rights under the Option shall have passed by the Participant's
will or by the laws of descent and distribution) may exercise, any unexercised
portion of the Option.
Any Option exercised subsequent to the Participant's Date of
Termination as permitted hereunder shall be exercisable only to the extent
vested at the time of the Participant's Date of Termination, regardless of the
reason for the termination, and no extension of time beyond the Participant's
Date of Termination shall permit exercise beyond the date such Option would
otherwise expire if no termination had occurred.
5. METHOD OF OPTION EXERCISE. The Option may be exercised in whole or
in part by filing a written notice with the Secretary of the Company at its
corporate headquarters prior to the Expiration Date. Such notice shall (a)
specify the number of shares of Stock which the Participant elects to purchase;
provided, however, that not less than one hundred (100) shares of Stock may be
purchased at any one time unless the number purchased is the total number of
shares available for purchase at that
2
<PAGE>
time under the Option, and (b) be accompanied by payment of the Exercise Price
for such shares of Stock indicated by the Participant's election. Payment shall
be by cash or by check payable to the Company, or, at the discretion of the
Committee at any time: (a) all or a portion of the Exercise Price may be paid by
the Participant by delivery of shares of Stock acceptable to the Committee
(including, if the Committee so approves, the withholding of shares otherwise
issuable upon exercise of the Option) and having an aggregate Fair Market Value
(valued as of the date of exercise) that is equal to the amount of cash that
would otherwise be required; and (b) the Participant may pay the Exercise Price
by authorizing a third party to sell shares of Stock (or a sufficient portion of
the shares) acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise Price and any
tax withholding resulting from such exercise.
6. WITHHOLDING. All distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the Participant, and
subject to such rules as may be established by the Committee, such withholding
obligations may be satisfied through the surrender of shares of Stock which the
Participant already owns, or to which the Participant is otherwise entitled
under the Plan.
7. TRANSFERABILITY. Except as otherwise provided in this Section 7, the
Option is not transferable other than as designated by the Participant by will
or by the laws of descent and distribution, and during the Participant's life,
may be exercised only by the Participant or by the Participant's guardian or
legal representative. However, the Participant, with the approval of the
Committee, may transfer the Option for no consideration to or for the benefit of
the Participant's Immediate Family (including, without limitation, to a trust
for the benefit of the Participant's Immediate Family or to a partnership or
limited liability company for one or more members of the Participant's Immediate
Family), subject to such limits as the Committee may establish, and the
transferee shall remain subject to all the terms and conditions applicable to
the Option prior to such transfer. The foregoing right to transfer Option shall
apply to the right to consent to amendments to this Agreement and, in the
discretion of the Committee, shall also apply to the right to transfer ancillary
rights associated with the Option. The term "Immediate Family" shall mean the
Participant's spouse, parents, children, stepchildren, adoptive relationships,
sisters, brothers and grandchildren (and, for this purpose, shall also include
the Participant).
8. DEFINITIONS. For purposes of this Agreement, the terms listed below
shall be defined as follows:
(a) DATE OF TERMINATION. The Participant's "Date of Termination" shall
be the first day occurring on or after the Grant Date on which the Participant's
employment with the Company and all Related Companies terminates for any reason;
provided that a termination of employment shall not be deemed to occur by reason
of a transfer of the Participant between the Company and a Related Company or
between two Related Companies; and further provided that the Participant's
employment shall not be considered terminated while the Participant is on a
leave of absence from the Company or a Related Company approved by the
Participant's employer. If, as a result of a sale or other
3
<PAGE>
transaction, the Participant's employer ceases to be a Related Company (and the
Participant's employer is or becomes an entity that is separate from the
Company), the occurrence of such transaction shall be treated as the
Participant's Date of Termination caused by the Participant being discharged by
the employer.
(b) DISABILITY. Except as otherwise provided by the Committee, the
Participant shall be considered to have a "Disability" during the period in
which the Participant is unable, by reason of a medically determinable physical
or mental impairment, to engage in any substantial gainful activity, which
condition, in the opinion of a physician selected by the Committee, is expected
to have a duration of not less than 120 days.
(c) RETIREMENT. "Retirement," as defined by the Company's applicable
retirement plan, or if not formalized under a plan, by the Company's policies
and procedures.
(d) PLAN DEFINITIONS. Except where the context clearly implies or
indicates the contrary, a word, term, or phrase used in the Plan is similarly
used in this Agreement.
9. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business. In the
event of the Participant's death prior to exercise of this Award, the Award may
be exercised by the estate of the Participant to the extent such exercise is
otherwise permitted by the Agreement. Subject to the terms of the Plan, any
benefits distributable to the Participant under this Agreement that are not paid
at the time of the Participant's death shall be paid at the time and in the form
determined in accordance with the provisions of this Agreement and the Plan, to
the beneficiary designated by the Participant in writing filed with the
Committee in such form and at such time as the Committee shall require. If a
deceased Participant fails to designate a beneficiary, or if the designated
beneficiary of the deceased Participant dies before the Participant or before
complete payment of the amounts distributable under this Agreement, the amounts
to be paid under this Agreement shall be paid to the legal representative or
representatives of the estate of the last to die of the Participant and the
beneficiary.
10. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Committee and
any decision made by it with respect to the Agreement is final and binding.
11. PLAN DEFINITIONS. Notwithstanding anything in this Agreement to the
contrary, the terms of this Agreement shall be subject to the terms of the Plan,
a copy of which may be obtained by the Participant from the office of the
Secretary of the Company.
12. AMENDMENT. This Agreement may be amended by written Agreement of
the Participant and the Company, without the consent of any other person.
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<PAGE>
IN WITNESS WHEREOF, the Participant has executed this Agreement, and
the Company has caused these presents to be executed in its name and on its
behalf, all as of the Grant Date.
Participant
------------------------------------
Harris Interactive Inc.
By:
-------------------------------
Its:
-------------------------------
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Exhibit 10.2
HARRIS INTERACTIVE INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Harris Interactive Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Harris Interactive Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross
earnings [and commissions], but exclusive of payments for overtime, shift
premium, [commissions], incentive compensation, incentive payments, bonuses and
other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last day of each Offering
Period.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "OFFERING PERIOD" shall mean a period ranging from three
(3) months to twenty four (24) months (the precise duration of any Offering
Period to be the Offering Period announced at least five (5) days prior to its
commencement as set forth in Section 4 of this Plan) during which an option
granted pursuant to the Plan may be exercised, commencing on the first Trading
Day on or after the termination date of the previous Offering Period; provided,
however, that the first Offering Period under the Plan shall commence with the
first Trading Day on or after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective and ending on
the last Trading Day on or before the termination of the duration of such
Offering Period selected by the Board. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this Employee Stock Purchase Plan.
(m) "PURCHASE PRICE" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE>
(o) "SUBSIDIARY" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (I) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and/or of
any Subsidiary accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after the termination of the previous Offering Period, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
the termination of such Offering Period. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of EXHIBIT A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
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(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of
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shares of the Company's Common Stock determined by dividing such Employee's
payroll deductions accumulated prior to such Exercise Date and retained in the
participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than [5,000] shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. Exercise of the option shall occur as provided in Section 8 hereof. The
option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION. A participant's option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, unless prior to such period the participant has terminated
participation in the Plan as provided in Section 10 hereof. Any other monies
left over in a participant's account after the Exercise Date shall be returned
to the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. NO WITHDRAWAL. A participant may not withdraw from an Offering
Period. A participant may terminate participation in the Plan for any future
Offering Period by giving written notice of termination to the Company in the
form of EXHIBIT B.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
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(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be five hundred thousand (500,000) shares. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse. Certificates representing shares may contain
such legends as may be necessary or appropriate pursuant to applicable
securities laws, including any legends relating to restrictions on transfer as
may be imposed by the Board pursuant to Section 16 of the Plan.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse,
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dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect. The Board shall have the power to impose such restrictions on the
transfer of shares of Common Stock that may be issued under the Plan during any
Offering Period, if such restrictions are announced at least five (5) days prior
to the scheduled beginning of the Offering Period to be affected by such
restrictions.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Offering Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a
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new Exercise Date (the "New Exercise Date"), and shall terminate immediately
prior to the consummation of such proposed dissolution or liquidation, unless
provided otherwise by the Board. The New Exercise Date shall be before the date
of the Company's proposed dissolution or liquidation. The Board shall notify
each participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has terminated participation in the Plan as provided in Section 10
hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has terminated participation in the
Plan as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof and this Section 20, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
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<PAGE>
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequences including, but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in the Purchase
Price;
(2) shortening any Offering Period so that Offering Period end
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term often (10)
years unless sooner terminated under Section 20 hereof.
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EXHIBIT A
HARRIS INTERACTIVE INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ____________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ___________________________ hereby elects to participate in the Harris
Interactive Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that I may not withdraw from an Offering Period and any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only):
__________________________________.
<PAGE>
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or one (1)
year after the Exercise Date, I will be treated for federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased by me over the
price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY
IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY
SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER
TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION
OF THE COMMON STOCK. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan, including any restrictions on the transferability of any shares
received by me pursuant to the Plan. The effectiveness of this
Subscription Agreement is dependent upon my eligibility to participate
in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
------------------------------------------------------------
(First) (Middle) (Last)
Relationship
--------------------------------------
--------------------------------------
(Address)
Employee's Social Security Number:
---------------------------------------------
Employee's Address
---------------------------------------------
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---------------------------------------------
---------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN
EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY
ME.
Dated:
------------- --------------------------------------------------------
Signature of Employee
--------------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)
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EXHIBIT B
HARRIS INTERACTIVE INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF TERMINATION
The undersigned participant in the Harris Interactive Inc. 1999
Employee Stock Purchase Plan terminates participation in the Plan, effective at
the commencement of the next Offering Period. The undersigned understands and
agrees that his or her option for such Offering Period will be automatically
terminated. The undersigned understands further that no further payroll
deductions will be made for the purchase of shares in the next Offering Period
and the undersigned shall be eligible to participate in succeeding Offering
Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Signature:
---------------------------------------------
Date:
---------------------------------------------
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Exhibit 10.5.1
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
This Agreement is made as of September 1, 1999 by and between
HARRIS INTERACTIVE, INC., a Delaware corporation with offices at 135 Corporate
Woods Boulevard, Rochester, New York 14623 ("HI") and its key executive employee
whose name and address appear after his signature at the end of this Agreement
("EXECUTIVE").
WHEREAS, Executive is employed by HI in a key executive and
managerial role, and as such has access to strategic and proprietary information
and material that is critical to the value and success of HI, and
WHEREAS, HI is providing access to such strategic and
proprietary information in reliance upon the obligations undertaken by Executive
in this Agreement, and
WHEREAS, HI has provided certain incentives and support to
Executive in connection with Executive's employment, and in consideration
thereof Executive has agreed that all intellectual and other property developed
by Executive during the period of his employment were developed at the request
of and on behalf of HI and remain the property of HI, and
WHEREAS, Executive and HI mutually agree that any disclosure
or unauthorized use of HI strategic and proprietary material will cause grave
harm to HI,
NOW THEREFORE, in consideration of the continued employment of
Executive by HI, the mutual promises herein contained, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. CONFIDENTIAL INFORMATION. During the course of his
employment, Executive may have access to, develop, or otherwise be exposed to or
aware of any and all information and material proprietary to HI or not generally
known or available to the public in which HI has any interest or rights now or
in the future including without limitation HI's business strategies, customer
lists, supplier lists, partners, agreement terms, pricing, databases, products,
designs, processes, systems, methods; trade secrets, know-how, data, technical
plans, drawings, information, inventions, formulas, technology and anything else
that might be construed as proprietary or confidential in nature (the
"CONFIDENTIAL INFORMATION"). The Confidential Information shall not include
information and material (i) publicly available through no action by the
undersigned, (ii) released by HI with a written waiver of confidentiality, (iii)
lawfully obtained from third parties, or (iv) previously known or developed by
third parties independently of HI and Executive provided that such knowledge or
development can be independently substantiated.
<PAGE>
2. CONFIDENTIALITY OBLIGATION. The Executive recognizes that
the Confidential Information must be kept strictly confidential. During and
after termination of Executive's employment by HI, Executive agrees:
a) to take every reasonable precaution to safeguard and treat the
Confidential Information as confidential;
b) not to disclose the Confidential Information to any third
party except as part and in furtherance of the business of HI;
c) not to use the Confidential Information for any purpose other
than for the purpose for which such Confidential Information
has been disclosed to the undersigned;
d) not to disclose or use the Confidential Information in any
manner that would not be in furtherance of the interests of
HI.
3. OWNERSHIP OF INTELLECTUAL PROPERTY. During the term of
Executive's employment with HI, Executive may develop, invent, or create, or be
involved in the development, invention, or creation of, proprietary material,
methods, intellectual property, inventions, or technology including without
limitation items or materials that may be patentable. Executive hereby agrees
that all such materials, methods, intellectual property, inventions, and
technology are developed on behalf of HI and in the course of Executive's
employment by HI, and that HI shall be the sole and exclusive owner thereof and
shall have all proprietary rights therein. Executive agrees to execute and
deliver any assignments, licenses, or other agreements necessary or desirable
from time to time to give HI the full benefit of such ownership.
4. NON-COMPETITION DURING EMPLOYMENT. The Executive agrees
that during the term of Executive's employment with HI, he shall not, directly
or indirectly (including among others as a director, officer, employee, agent,
partner or equity owner, except as owner of less than 5% of the shares of the
publicly traded stock of a corporation, of any entity), compete in any manner
with HI.
5. NON-COMPETITION AFTER EMPLOYMENT The Executive agrees that
for one year after termination of his employment with HI, by HI or Executive for
any reason, Executive shall not, directly or indirectly (including among others
as a director, officer, employee, agent, partner or equity owner, except as
owner of less than 5% of the shares of the publicly traded stock of a
corporation, of any entity), competitively solicit or otherwise deal in a
competitively way with any of the clients or customers of HI as of the time of
his termination (including any client to whom HI has sold services or products
in the two years prior to termination and any prospective client or customer who
has been targeted or approached by HI within the previous six months) with
respect to any services or products
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competitive with those of HI, or which otherwise directly or indirectly in any
manner compete with HI in any line of business carried on or planned by HI
during Executive's employment.
6. COMPENSATION AFTER EMPLOYMENT Except in the event
termination of employment by the Executive has been a termination by HI for
Cause (as defined below in this Section 6), voluntary termination by Employee,
or termination due to death or Permanent Disability of Employee (as defined
below in this Section 6), HI in consideration for the Executive's agreeing to be
bound by the terms and conditions of this Agreement, agrees that:
a) that beginning in the month following the date of Executive's
termination, to provide the Executive, his designee or estate
twelve (12) monthly payment's in an amount equal to
one-twelfth (1/12) of the sum of (i)Executive's base annual
salary at the rate in effect immediately before the effective
date of his termination and (ii) one times the average annual
value of the Executive's annual incentive bonus (average based
on bonuses earned during the immediately preceding three
years), minus that part, if any, which was paid before the
actual date of termination;
b) pay the Executive's accrued and unused vacation time;
c) pay all the Executive's expenses which were either incurred in
good faith through the effective date of termination or were
approved for payment before the effective date of termination;
d) provide until the end of the twenty-fourth (24th) calendar
month following the date of termination of the Executive's
employment or if earlier, until, the date the Executive
secures comparable coverage through plans of another employer,
continuing welfare benefit plan coverage, including but not
limited to, health plan coverage and other group insurance
coverage comparable to that in effect on the date of
termination, provided that, if such coverage is not available
under the plans of HI, HI shall reimburse the Executive for
his reasonable cost in securing comparable individual
coverage; and
e) pay all amounts to be paid to Executive in accordance with the
terms and conditions of any other contract or agreement.
For purposes of this Section 6, "Cause" shall mean (i) refusal or
failure to perform, or misconduct in the performance of, the ordinary and
customary duties of Executive as required by HI from time to time provided that
such duties are of the general nature and type performed by the Executive in the
six months preceding the date of this Agreement and further provided that such
refusal, failure, or misconduct has continued after HI has given Executive
fifteen days written notice of same, (ii) overt and willful disobedience of
orders or directives issued by the Board of Directors of HI that are within the
customary scope of Executive's duties to HI, (iii)
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conviction or of commission of any felony, whether or not related to performance
of duties under this Agreement, (iv) commission of any other illegal act if
committed in connection with the performance of duties for HI if such act could
reasonably tend to bring HI or Executive into disrepute in the community, (v)
violation of the material terms of this Agreement, and/or (vi) material
violation of HI's written rules, regulations or policies.
For purposes of this Section 6, "Permanent Disability" shall mean
Executive is under a legal decree of incompetency, or Executive is subject to a
medical determination that Executive, due to a medically determinable disease,
injury or other mental or physical condition, has been unable to perform on a
full-time basis substantially all of Executive's regular duties for HI for a
period of at least six months, and that such condition is permanent, or more
likely than not to be permanent, based on the then available medical
information. A medical determination of disability shall exist upon the receipt
by HI of the written opinion of a licensed physician who has examined Executive,
which opinion is that Executive is disabled as described herein. If Executive
disagrees with the opinion of such physician (the "First Physician"), then
Executive may engage, at his expense, another licensed physician (the "Second
Physician") to examine Executive. The Second Physician shall confer with the
First Physician and, if they together agree in writing that Executive is or is
not disabled, then their written opinion shall be conclusive as to such matter.
If the First and Second Physicians do not so agree, then they shall choose a
third licensed physician (the "Third Physician") to examine Executive. The
expense of the Third Physician shall be borne one-half (1/2) by Executive and
one-half (1/2) by HI. The three (3) physicians shall confer, and the written
opinion of a majority of three (3) physicians shall be conclusive as to such
disability or the absence thereof.
7. REMEDIES. Employee acknowledges that HI's damages for any
breach of this Agreement will be difficult to calculate, that legal remedies for
a breach of this provision will be inadequate, and that therefore HI shall be
entitled to obtain injunctive relief to enforce this provision in addition to
any other remedy at law or equity.
8. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of New York, without reference to principles
of conflicts of laws.
9. ENTIRE AGREEMENT/WAIVERS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
shall not be modified or amended except in writing signed by both of the
parties. No waiver of any breach of this Agreement shall be a waiver of any
preceding or succeeding breach, and no waiver of any right under this Agreement
shall be construed as a waiver of any other right. HI or the Executive shall not
be required to give notice to enforce strict adherence to all terms of this
Agreement.
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10. SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining provisions will
continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first above written.
HARRIS INTERACTIVE, INC.
/s/ Gordon S Black
---------------------------------------
By: /s/ David H. Clemm Executive
----------------------
Address: 9 Hidden Springs
Pittsford, New York 14534
Title: President
----------------------
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Exhibit 10.5.2
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
This Agreement is made as of September 1, 1999 by and between
HARRIS INTERACTIVE, INC., a Delaware corporation with offices at 135 Corporate
Woods Boulevard, Rochester, New York 14623 ("HI") and its key executive employee
whose name and address appear after his signature at the end of this Agreement
("EXECUTIVE").
WHEREAS, Executive is employed by HI in a key executive and
managerial role, and as such has access to strategic and proprietary information
and material that is critical to the value and success of HI, and
WHEREAS, HI is providing access to such strategic and
proprietary information in reliance upon the obligations undertaken by Executive
in this Agreement, and
WHEREAS, HI has provided certain incentives and support to
Executive in connection with Executive's employment, and in consideration
thereof Executive has agreed that all intellectual and other property developed
by Executive during the period of his employment were developed at the request
of and on behalf of HI and remain the property of HI, and
WHEREAS, Executive and HI mutually agree that any disclosure
or unauthorized use of HI strategic and proprietary material will cause grave
harm to HI,
NOW THEREFORE, in consideration of the continued employment of
Executive by HI, the mutual promises herein contained, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. CONFIDENTIAL INFORMATION. During the course of his
employment, Executive may have access to, develop, or otherwise be exposed to or
aware of any and all information and material proprietary to HI or not generally
known or available to the public in which HI has any interest or rights now or
in the future including without limitation HI's business strategies, customer
lists, supplier lists, partners, agreement terms, pricing, databases, products,
designs, processes, systems, methods; trade secrets, know-how, data, technical
plans, drawings, information, inventions, formulas, technology and anything else
that might be construed as proprietary or confidential in nature (the
"CONFIDENTIAL INFORMATION"). The Confidential Information shall not include
information and material (i) publicly available through no action by the
undersigned, (ii) released by HI with a written waiver of confidentiality, (iii)
lawfully obtained from third parties, or (iv) previously known or developed by
third parties independently of HI and Executive provided that such knowledge or
development can be independently substantiated.
<PAGE>
2. CONFIDENTIALITY OBLIGATION. The Executive recognizes that
the Confidential Information must be kept strictly confidential. During and
after termination of Executive's employment by HI, Executive agrees:
a) to take every reasonable precaution to safeguard and treat the
Confidential Information as confidential;
b) not to disclose the Confidential Information to any third
party except as part and in furtherance of the business of HI;
c) not to use the Confidential Information for any purpose other
than for the purpose for which such Confidential Information
has been disclosed to the undersigned;
d) not to disclose or use the Confidential Information in any
manner that would not be in furtherance of the interests of
HI.
3. OWNERSHIP OF INTELLECTUAL PROPERTY. During the term of
Executive's employment with HI, Executive may develop, invent, or create, or be
involved in the development, invention, or creation of, proprietary material,
methods, intellectual property, inventions, or technology including without
limitation items or materials that may be patentable. Executive hereby agrees
that all such materials, methods, intellectual property, inventions, and
technology are developed on behalf of HI and in the course of Executive's
employment by HI, and that HI shall be the sole and exclusive owner thereof and
shall have all proprietary rights therein. Executive agrees to execute and
deliver any assignments, licenses, or other agreements necessary or desirable
from time to time to give HI the full benefit of such ownership.
4. NON-COMPETITION DURING EMPLOYMENT. The Executive agrees
that during the term of Executive's employment with HI, he shall not, directly
or indirectly (including among others as a director, officer, employee, agent,
partner or equity owner, except as owner of less than 5% of the shares of the
publicly traded stock of a corporation, of any entity), compete in any manner
with HI.
5. NON-COMPETITION AFTER EMPLOYMENT The Executive agrees that
for one year after termination of his employment with HI, by HI or Executive for
any reason, Executive shall not, directly or indirectly (including among others
as a director, officer, employee, agent, partner or equity owner, except as
owner of less than 5% of the shares of the publicly traded stock of a
corporation, of any entity), competitively solicit or otherwise deal in a
competitively way with any of the clients or customers of HI as of the time of
his termination (including any client to whom HI has sold services or products
in the two years prior to termination and any prospective client or customer who
has been targeted or approached by HI within the previous six months) with
respect to any services or products
2
<PAGE>
competitive with those of HI, or which otherwise directly or indirectly in any
manner compete with HI in any line of business carried on or planned by HI
during Executive's employment.
6. COMPENSATION AFTER EMPLOYMENT Except in the event
termination of employment by the Executive has been a termination by HI for
Cause (as defined below in this Section 6), voluntary termination by Employee,
or termination due to death or Permanent Disability of Employee (as defined
below in this Section 6), HI in consideration for the Executive's agreeing to be
bound by the terms and conditions of this Agreement, agrees that:
a) that beginning in the month following the date of Executive's
termination, to provide the Executive, his designee or estate
twelve (12) monthly payment's in an amount equal to
one-twelfth (1/12) of the sum of (i)Executive's base annual
salary at the rate in effect immediately before the effective
date of his termination and (ii) one times the average annual
value of the Executive's annual incentive bonus (average based
on bonuses earned during the immediately preceding three
years), minus that part, if any, which was paid before the
actual date of termination;
b) pay the Executive's accrued and unused vacation time;
c) pay all the Executive's expenses which were either incurred in
good faith through the effective date of termination or were
approved for payment before the effective date of termination;
d) provide until the end of the twenty-fourth (24th) calendar
month following the date of termination of the Executive's
employment or if earlier, until, the date the Executive
secures comparable coverage through plans of another employer,
continuing welfare benefit plan coverage, including but not
limited to, health plan coverage and other group insurance
coverage comparable to that in effect on the date of
termination, provided that, if such coverage is not available
under the plans of HI, HI shall reimburse the Executive for
his reasonable cost in securing comparable individual
coverage; and
e) pay all amounts to be paid to Executive in accordance with the
terms and conditions of any other contract or agreement.
For purposes of this Section 6, "Cause" shall mean (i) refusal or
failure to perform, or misconduct in the performance of, the ordinary and
customary duties of Executive as required by HI from time to time provided that
such duties are of the general nature and type performed by the Executive in the
six months preceding the date of this Agreement and further provided that such
refusal, failure, or misconduct has continued after HI has given Executive
fifteen days written notice of same, (ii) overt and willful disobedience of
orders or directives issued by the Board of Directors of HI that are within the
customary scope of Executive's duties to HI, (iii)
3
<PAGE>
conviction or of commission of any felony, whether or not related to performance
of duties under this Agreement, (iv) commission of any other illegal act if
committed in connection with the performance of duties for HI if such act could
reasonably tend to bring HI or Executive into disrepute in the community, (v)
violation of the material terms of this Agreement, and/or (vi) material
violation of HI's written rules, regulations or policies.
For purposes of this Section 6, "Permanent Disability" shall mean
Executive is under a legal decree of incompetency, or Executive is subject to a
medical determination that Executive, due to a medically determinable disease,
injury or other mental or physical condition, has been unable to perform on a
full-time basis substantially all of Executive's regular duties for HI for a
period of at least six months, and that such condition is permanent, or more
likely than not to be permanent, based on the then available medical
information. A medical determination of disability shall exist upon the receipt
by HI of the written opinion of a licensed physician who has examined Executive,
which opinion is that Executive is disabled as described herein. If Executive
disagrees with the opinion of such physician (the "First Physician"), then
Executive may engage, at his expense, another licensed physician (the "Second
Physician") to examine Executive. The Second Physician shall confer with the
First Physician and, if they together agree in writing that Executive is or is
not disabled, then their written opinion shall be conclusive as to such matter.
If the First and Second Physicians do not so agree, then they shall choose a
third licensed physician (the "Third Physician") to examine Executive. The
expense of the Third Physician shall be borne one-half (1/2) by Executive and
one-half (1/2) by HI. The three (3) physicians shall confer, and the written
opinion of a majority of three (3) physicians shall be conclusive as to such
disability or the absence thereof.
7. REMEDIES. Employee acknowledges that HI's damages for any
breach of this Agreement will be difficult to calculate, that legal remedies for
a breach of this provision will be inadequate, and that therefore HI shall be
entitled to obtain injunctive relief to enforce this provision in addition to
any other remedy at law or equity.
8. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of New York, without reference to principles
of conflicts of laws.
9. ENTIRE AGREEMENT/WAIVERS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
shall not be modified or amended except in writing signed by both of the
parties. No waiver of any breach of this Agreement shall be a waiver of any
preceding or succeeding breach, and no waiver of any right under this Agreement
shall be construed as a waiver of any other right. HI or the Executive shall not
be required to give notice to enforce strict adherence to all terms of this
Agreement.
4
<PAGE>
10. SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining provisions will
continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first above written.
HARRIS INTERACTIVE, INC.
/s/ David H. Clemn
---------------------------------------
By: /s/ Gordon S. Black Executive
------------------------
Address: 8 Larwood Drive
Title: Chief Executive Officer Rochester, New York 14618
------------------------
5
<PAGE>
EXHIBIT 10.5.3
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
This Agreement is made as of September 1, 1999 by and between
HARRIS INTERACTIVE, INC., a Delaware corporation with offices at 135 Corporate
Woods Boulevard, Rochester, New York 14623 ("HI") and its key executive employee
whose name and address appear after his signature at the end of this Agreement
("EXECUTIVE").
WHEREAS, Executive is employed by HI in a key executive and
managerial role, and as such has access to strategic and proprietary information
and material that is critical to the value and success of HI, and
WHEREAS, HI is providing access to such strategic and
proprietary information in reliance upon the obligations undertaken by Executive
in this Agreement, and
WHEREAS, HI has provided certain incentives and support to
Executive in connection with Executive's employment, and in consideration
thereof Executive has agreed that all intellectual and other property developed
by Executive during the period of his employment were developed at the request
of and on behalf of HI and remain the property of HI, and
WHEREAS, Executive and HI mutually agree that any disclosure
or unauthorized use of HI strategic and proprietary material will cause grave
harm to HI,
NOW THEREFORE, in consideration of the continued employment of
Executive by HI, the mutual promises herein contained, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. CONFIDENTIAL INFORMATION. During the course of his
employment, Executive may have access to, develop, or otherwise be exposed to or
aware of any and all information and material proprietary to HI or not generally
known or available to the public in which HI has any interest or rights now or
in the future including without limitation HI's business strategies, customer
lists, supplier lists, partners, agreement terms, pricing, databases, products,
designs, processes, systems, methods; trade secrets, know-how, data, technical
plans, drawings, information, inventions, formulas, technology and anything else
that might be construed as proprietary or confidential in nature (the
"CONFIDENTIAL INFORMATION"). The Confidential Information shall not include
information and material (i) publicly available through no action by the
undersigned, (ii) released by HI with a written waiver of confidentiality, (iii)
lawfully obtained from third parties, or (iv) previously known or developed by
third parties independently of HI and Executive provided that such knowledge or
development can be independently substantiated.
<PAGE>
2. CONFIDENTIALITY OBLIGATION. The Executive recognizes that
the Confidential Information must be kept strictly confidential. During and
after termination of Executive's employment by HI, Executive agrees:
a) to take every reasonable precaution to safeguard and treat the
Confidential Information as confidential;
b) not to disclose the Confidential Information to any third
party except as part and in furtherance of the business of HI;
c) not to use the Confidential Information for any purpose other
than for the purpose for which such Confidential Information
has been disclosed to the undersigned;
d) not to disclose or use the Confidential Information in any
manner that would not be in furtherance of the interests of
HI.
3. OWNERSHIP OF INTELLECTUAL PROPERTY. During the term of
Executive's employment with HI, Executive may develop, invent, or create, or be
involved in the development, invention, or creation of, proprietary material,
methods, intellectual property, inventions, or technology including without
limitation items or materials that may be patentable. Executive hereby agrees
that all such materials, methods, intellectual property, inventions, and
technology are developed on behalf of HI and in the course of Executive's
employment by HI, and that HI shall be the sole and exclusive owner thereof and
shall have all proprietary rights therein. Executive agrees to execute and
deliver any assignments, licenses, or other agreements necessary or desirable
from time to time to give HI the full benefit of such ownership.
4. NON-COMPETITION DURING EMPLOYMENT. The Executive agrees
that during the term of Executive's employment with HI, he shall not, directly
or indirectly (including among others as a director, officer, employee, agent,
partner or equity owner, except as owner of less than 5% of the shares of the
publicly traded stock of a corporation, of any entity), compete in any manner
with HI.
5. NON-COMPETITION AFTER EMPLOYMENT The Executive agrees that
for one year after termination of his employment with HI, by HI or Executive for
any reason, Executive shall not, directly or indirectly (including among others
as a director, officer, employee, agent, partner or equity owner, except as
owner of less than 5% of the shares of the publicly traded stock of a
corporation, of any entity), competitively solicit or otherwise deal in a
competitively way with any of the clients or customers of HI as of the time of
his termination (including any client to whom HI has sold services or products
in the two years prior to termination and any prospective client or customer who
has been targeted or approached by HI within the previous six months) with
respect to any services or products
2
<PAGE>
competitive with those of HI, or which otherwise directly or indirectly in any
manner compete with HI in any line of business carried on or planned by HI
during Executive's employment.
6. COMPENSATION AFTER EMPLOYMENT Except in the event
termination of employment by the Executive has been a termination by HI for
Cause (as defined below in this Section 6), voluntary termination by Employee,
or termination due to death or Permanent Disability of Employee (as defined
below in this Section 6), HI in consideration for the Executive's agreeing to be
bound by the terms and conditions of this Agreement, agrees that:
a) that beginning in the month following the date of Executive's
termination, to provide the Executive, his designee or estate
twelve (12) monthly payment's in an amount equal to
one-twelfth (1/12) of the sum of (i)Executive's base annual
salary at the rate in effect immediately before the effective
date of his termination and (ii) one times the average annual
value of the Executive's annual incentive bonus (average based
on bonuses earned during the immediately preceding three
years), minus that part, if any, which was paid before the
actual date of termination;
b) pay the Executive's accrued and unused vacation time;
c) pay all the Executive's expenses which were either incurred in
good faith through the effective date of termination or were
approved for payment before the effective date of termination;
d) provide until the end of the twenty-fourth (24th) calendar
month following the date of termination of the Executive's
employment or if earlier, until, the date the Executive
secures comparable coverage through plans of another employer,
continuing welfare benefit plan coverage, including but not
limited to, health plan coverage and other group insurance
coverage comparable to that in effect on the date of
termination, provided that, if such coverage is not available
under the plans of HI, HI shall reimburse the Executive for
his reasonable cost in securing comparable individual
coverage; and
e) pay all amounts to be paid to Executive in accordance with the
terms and conditions of any other contract or agreement.
For purposes of this Section 6, "Cause" shall mean (i) refusal or
failure to perform, or misconduct in the performance of, the ordinary and
customary duties of Executive as required by HI from time to time provided that
such duties are of the general nature and type performed by the Executive in the
six months preceding the date of this Agreement and further provided that such
refusal, failure, or misconduct has continued after HI has given Executive
fifteen days written notice of same, (ii) overt and willful disobedience of
orders or directives issued by the Board of Directors of HI that are within the
customary scope of Executive's duties to HI, (iii)
3
<PAGE>
conviction or of commission of any felony, whether or not related to performance
of duties under this Agreement, (iv) commission of any other illegal act if
committed in connection with the performance of duties for HI if such act could
reasonably tend to bring HI or Executive into disrepute in the community, (v)
violation of the material terms of this Agreement, and/or (vi) material
violation of HI's written rules, regulations or policies.
For purposes of this Section 6, "Permanent Disability" shall mean
Executive is under a legal decree of incompetency, or Executive is subject to a
medical determination that Executive, due to a medically determinable disease,
injury or other mental or physical condition, has been unable to perform on a
full-time basis substantially all of Executive's regular duties for HI for a
period of at least six months, and that such condition is permanent, or more
likely than not to be permanent, based on the then available medical
information. A medical determination of disability shall exist upon the receipt
by HI of the written opinion of a licensed physician who has examined Executive,
which opinion is that Executive is disabled as described herein. If Executive
disagrees with the opinion of such physician (the "First Physician"), then
Executive may engage, at his expense, another licensed physician (the "Second
Physician") to examine Executive. The Second Physician shall confer with the
First Physician and, if they together agree in writing that Executive is or is
not disabled, then their written opinion shall be conclusive as to such matter.
If the First and Second Physicians do not so agree, then they shall choose a
third licensed physician (the "Third Physician") to examine Executive. The
expense of the Third Physician shall be borne one-half (1/2) by Executive and
one-half (1/2) by HI. The three (3) physicians shall confer, and the written
opinion of a majority of three (3) physicians shall be conclusive as to such
disability or the absence thereof.
7. REMEDIES. Employee acknowledges that HI's damages for any
breach of this Agreement will be difficult to calculate, that legal remedies for
a breach of this provision will be inadequate, and that therefore HI shall be
entitled to obtain injunctive relief to enforce this provision in addition to
any other remedy at law or equity.
8. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of New York, without reference to principles
of conflicts of laws.
9. ENTIRE AGREEMENT/WAIVERS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
shall not be modified or amended except in writing signed by both of the
parties. No waiver of any breach of this Agreement shall be a waiver of any
preceding or succeeding breach, and no waiver of any right under this Agreement
shall be construed as a waiver of any other right. HI or the Executive shall not
be required to give notice to enforce strict adherence to all terms of this
Agreement.
4
<PAGE>
10. SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining provisions will
continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first above written.
HARRIS INTERACTIVE, INC.
/s/ Leonard R. Bayer
---------------------------------------
By: /s/ Gordon S. Black Executive
------------------------
Address: 38 Gaslight Lane
Rochester, New York 14620
Title: Chief Executive Officer
------------------------
5
<PAGE>
Exhibit 10.6.1
AGREEMENT OF LEASE
DATED APRIL 12, 1991
BY AND BETWEEN
CORPORATE WOODS ASSOCIATES
LANDLORD
AND
GORDON S. BLACK CORPORATION
TENANT
<PAGE>
TABLE OF CONTENTS
Section 1 Commencement of Term..............................................1
Section 2 Use...............................................................2
Section 3 Rent..............................................................3
Section 4 Leasehold Improvements............................................6
Section 5 Services..........................................................8
Section 6 Waiver of Certain Claims.........................................11
Section 7 Insurance........................................................12
Section 8 Holding Over.....................................................13
Section 9 Assignment and Subletting........................................13
Section 10 Condition of Premises............................................16
Section 11 Use of Premises..................................................17
Section 12 Repairs..........................................................20
Section l3 Destruction Of Premises..........................................21
Section 14 Condemnation.....................................................22
Section 15 Certain Rights Reserved to Landlord..............................23
Section 16 Landlord's Remedies..............................................24
Section 17 Late Charge......................................................26
Section l8 Subordination of Lease...........................................26
Section 19 Notices and Consent..............................................27
Section 20 No Estate in Land................................................28
Section 21 Invalidity of Particular Provisions..............................28
Section 22 Waiver of Trial by Jury..........................................28
Section 23 Miscellaneous Taxes..............................................28
Section 24 Brokerage........................................................29
Section 25 Force Majeure....................................................29
Section 26 Parking..........................................................29
<PAGE>
Section 27 Repetitive Defaults..............................................29
Section 28 Directory and Signage............................................30
Section 29 Entrance and Exit to Property....................................30
Section 30 Special Stipulations.............................................30
Section 31 Quiet Enjoyment..................................................31
Section 32 Estoppel Certificate by Tenant...................................31
Section 33 Rent Deposit.....................................................32
Section 34 Substitute Premises..............................................32
Section 35 Financial Statemetns.............................................32
Section 36 Extension of Term................................................32
Section 37 Use of Conference Facility.......................................33
Section 38 Right of First Offer.............................................33
Section 39 Moving Allowance.................................................34
Section 40 Exhibits.........................................................39
EXHIBITS
A Legal Description of Premises, Floor Plans and Site Plan...................36
B Building Standard Work.....................................................44
C Cleaning Schedule..........................................................49
D Right of First Offer Floor Plan............................................51
<PAGE>
1
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE, dated April 12, 1991 is entered into by and
between CORPORATE WOODS ASSOCIATES, a partnership organized under the laws of
the State of New York having its principal place of business at 120 Corporate
Woods, Suite 100, Rochester, New York 14623 (the "Landlord"), and GORDON S.
BLACK CORPORATION, a New York corporation with an office at 1661 Penfield Road,
Rochester, New York (the "Tenant").
WITNESSETH:
Landlord hereby leases unto Tenant and Tenant hereby accepts from
Landlord, that certain space consisting of approximately 26,080 square feet (the
"Total Usable Area") located on a portion of the first and all of the second
floors (the "Premises") of the building (the "Building") Suites 150 and 200,
known as Building 135 of Corporate Woods of Brighton, Town of Brighton, County
of Monroe, State of New York, with the right to use the subdivided lot (the
"Lot") on which the Building is located and the right to use the driveways,
parking areas, and all other land to be used in common by all tenants (such
driveways, parking areas and other lands collectively referred to as the
"Corporate Woods Common Areas"), as more particularly described on the legal
description and also more particularly shown on the Floor Plans and Site Plan,
attached as Exhibit A hereto for the term, the rent, and subject to the
conditions and covenants hereinafter provided. The Building, and the Lot, and
all other improvements thereon will sometimes be collectively referred to herein
as the "Property". The definition of Total Usable Area shall be adjusted, in the
event that Tenant exercises its right to lease RFO Premises, as provided in
Section 38 hereof, to include the total usable area of the RFO Premises. In
addition, the definition of Premises shall also be adjusted, in such event, to
include the RFO Premises.
1. COMMENCEMENT OF TERM
(a) DATE OF COMMENCEMENT. The term of this Lease shall
commence on that date (the "Commencement Date") which is the later of August 15,
1991 or the date on which Landlord has substantially completed with respect to
the Premises all leasehold improvements (as defined in Section 4 herein)
including any Building Standard Work listed on Exhibit B attached hereto,
subject only to punchlist items and non--building standard work, if any, to be
performed by Tenant. The term as so commenced shall end at midnight on February
28, 1997. The leasehold improvements, the Building Standard Work and
non--building standard work to be performed by Landlord, if any, and
improvements to be performed by Tenant, if any, will be collectively referred to
herein as the "Work." Notwithstanding the foregoing, Landlord and Tenant agree
that if Tenant takes possession of the Premises prior to Landlord's substantial
completion of the leasehold improvements, for any purpose other than preparing
the Premises for occupancy by Tenant, then the term of this
<PAGE>
2
Lease shall commence on the date Tenant takes such possession of the Premises.
(b) PLANS AND SPECIFICATIONS. Tenant, at its expense, shall
submit to Landlord, for Landlord's review and approval, working architectural,
engineering, electrical and mechanical drawings (the "Plans") and a list or
lists of specifications ("Specifications"), if not set forth on such Plans, for
the Work to be performed at the Premises by May 1, 1991. Tenant reserves the
right, subject to review and approval by Landlord, to supplement, modify or
change such Plans and Specifications provided, however, that Tenant shall be
solely responsible for any delays or additional costs caused in the substantial
completion of the Premises as a result of any such supplementation, modification
or change. Landlord shall have a reasonable time within which to perform its
review and approve or disapprove any Plans or Specifications, or supplement,
modification or change thereof or thereto. Any such approval or disapproval
shall be in writing and in the event of a disapproval the reasons therefor shall
be stated in writing. Landlord, further agrees not to unreasonably withhold or
delay any such approval or disapproval.
(c) TENANT DELAYS. If a delay shall occur in the substantial
completion of the Premises by Landlord as the result of (i) Tenant's failure to
furnish when due the Plans and Specifications for the Work or any additional
information requested in connection therewith, (ii) any supplementation,
modification or change by Tenant in any air conditioning requirement, Plan,
Specification or finish information furnished by Tenant, (iii) any change order
by Tenant other than as described in (ii) above, (iv) the completion of any part
of the Work by a person, firm or corporation employed by Tenant, (v)
installation of Tenant's telephone, word processing, computer and/or other
communications systems, (vi) any direction by Tenant that Landlord hold up
proceeding for any reason, then for each day, or part thereof, of such delay the
Commencement Date of this Lease and Tenant's obligation to pay Rent (as
hereinafter defined) shall be accelerated by one day and become one day earlier
than provided for in this Lease. If any delay will result from those acts set
forth in subsections (ii) through (vi) above, Landlord agrees to give Tenant
written notice as to such delay.
(d) FORCE MAJEURE DELAYS. Both Landlord's and Tenant's
obligations to substantially complete the Premises are expressly qualified by
the provision in this Lease on "Force Majeure" contained in Section 25 hereof,
and each day of delay caused by an event of Force Majeure shall, at Landlord's
election, result in a day's postponement of each date and time limit set forth
in this paragraph.
2. USE
The Premises shall be occupied and used by Tenant for any
lawful use permitted by the Town of Brighton and for any lawful use indigenous
to a corporate market research firm including but not limited to sales, service,
research and related uses.
<PAGE>
3
3. RENT
(a) BASE RENT. Tenant shall pay to Landlord as base or fixed
rent (the "Base Rent"), in U.S. legal tender, at Landlord's offices at 120
Corporate Woods, Suite 100, Rochester, New York 14623, or as otherwise directed
from time to time by Landlord's written notice, the annual sum of THREE HUNDRED
NINETY-ONE THOUSAND TWO HUNDRED AND 00/100 DOLLARS ($391,200.00), such Base Rent
to be paid in equal monthly payments of THIRTY TWO THOUSAND SIX HUNDRED AND
00/100 DOLLARS ($32,600.00) each promptly on the first day of every calendar
month of the term of this Lease and any extension period hereof (except as
modified by Section 3(i) herein), if this Lease is extended, and pro rata, in
advance, for any partial month, without demand, the same being hereby waived,
and without any set--off or deduction whatsoever. A late penalty will be due and
owing at the rate prescribed in Section 17 of this Lease upon any Base Rent and
Additional Rent (below defined) not paid by the fifth (5th) business day of the
calendar month in which due. The definition of Base Rent shall be adjusted in
the event that Tenant exercises its right to lease RFO Premises as provided in
Section 38 hereof to include the current per square foot Base Rent, as adjusted,
which Tenant is paying to Landlord on the Premises on the date of such exercise,
multiplied by the Total Usable Area of the new Premises (including the RFO
Premises).
(b) ANNUAL INCREASE IN BASE RENT. The base rent beginning on
the first day of the second "Lease Year" (below defined) and continuing on the
first day of each Lease Year thereafter (the "Adjustment Date") shall be subject
to an annual increase of three percent (3%) above the Base Rent for the previous
year and such annual increase shall be added to, and become part of, the Base
Rent for the Lease Year commencing on such Adjustment Date and for each Lease
Year thereafter. As used herein, the term "Lease Year" shall mean each
consecutive twelve month period during the term of this Lease so that the first
Lease Year shall begin on the first day of the first month following the
Commencement Date of this Lease (unless the Commencement Date falls on the first
day of the month in which case, the Commencement Date shall be the measuring
date for each Lease Year), the second Lease Year shall begin on the first
anniversary date of such first day of the first month following the Commencement
Date (or the Commencement Date, as the case may be) and so on throughout the
term of this Lease.
(c) REAL PROPERTY TAXES. Tenant shall pay to Landlord each
year, as Additional Rent, a sum equal to the amount by which the real estate
taxes and other assessments (collectively the "Real Property Taxes" as below
defined) allocable to and levied against the Premises during such year exceed
the sum of FORTY-ONE THOUSAND SEVEN HUNDRED TWENTY-EIGHT AND 00/100 DOLLARS
($41,728.00). The amount so allocable to and levied against the Premises will be
the sum obtained by multiplying
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4
Tenant's "Pro Rata Share" (below defined) by the Real Property Taxes levied
against the Building and Lot.
For purposes of this Lease, Real Property Taxes shall be
defined as follows: (i) All real estate taxes, including but not limited to
town, county and school taxes payable (adjusted after protest or litigation, if
any) for any part of the term of this Lease, including any extension period
hereof, but exclusive of penalties on the Property, (ii) any taxes which shall
be levied in lieu of the taxes described in (i) above or which shall be levied
on the gross rentals of the Property but excluding all income taxes of Landlord,
(iii) pure waters charges (part based upon assessment and part upon the water
consumption by other tenants and users in Corporate Woods), sewer district
charges, lighting charges, fire district charges and other charges and any
assessments (special or otherwise) made against the Property which shall be
required to be paid during the calendar year or fiscal year in respect to which
they are being determined, (iv) any water and water pollution charges, (v) and
any other governmental real estate taxes, levies, impositions or charges of a
similar or dissimilar nature, whether general, special ordinary, extraordinary,
foreseen or unforeseen which may be assessed, levied or imposed upon all or any
part of the Property, and (vi) the reasonable expense (with Tenant's share not
to exceed $5,000 per contest), of contesting the amount or validity of any such
taxes, charges or assessments, such expense (including reasonable attorneys
fees) to be applicable to the period of the item contested.
If, after January 1, 1994, the real property tax assessment
for the Building exceeds the amount of such real property tax assessment for the
immediately prior Lease Year by fifteen percent (15%) or more, Tenant shall have
the right to require Landlord to contest the increase in such assessment through
a tax certiorari or other appropriate proceeding. Tenant shall, at the request
of Landlord, join in and cooperate fully with Landlord in any such proceedings.
Landlord and Tenant shall each pay fifty percent of all costs and expenses,
including counsel fees, in connection with such proceedings. In addition, Tenant
shall have the right to approve of the counsel Landlord selects to contest such
real property tax assessment, such approval not to be unreasonably withheld or
delayed. The costs and expenses of any such contest brought pursuant to this
paragraph shall not be considered Real Property Taxes under the preceding
paragraph. Tenant's obligation to pay Real Property Taxes pursuant to Section 3
of this Lease shall continue during any such contest pursuant to this paragraph.
(d) TENANT'S SHARE OF REAL PROPERTY TAXES. For purposes
hereof, Tenant's "Share of Real Property Taxes" shall be that product obtained
by multiplying the amount of the Real Property Taxes against the Building and
Lot by a fraction, the numerator of which shall be the number of square feet of
Total Usable Area of the Premises and the denominator of which shall be the
total number of square feet of Total Usable Area of the Building excluding the
lobby, elevator shafts, mechanical space, boiler room and other areas of the
Building
<PAGE>
5
constituting space in the Building not specifically leased to and occupied by a
specific tenant. Landlord and Tenant agree that Tenant's pro rata share ("Pro
Rata Share") for these purposes shall be 43.47%. The Pro Rata Share shall be
adjusted in accordance with the above formula in the event that Tenant exercises
its right to lease RFO Premises as provided in Section 38 hereof.
(e) ESTIMATES. In order to provide for current payments of
Real Property Taxes Tenant agrees to pay, as Additional Rent, Tenant's Share of
Real Property Taxes in accordance with a reasonable estimate by Landlord as
prepared from time to time, such estimated amount to be paid in twelve (12)
monthly installments commencing on the first day of the month following the
month in which Landlord notifies Tenant of the amount of Tenant's Share of Real
Property Taxes. If, as finally determined, Tenant's Share of Real Property Taxes
shall be greater than or be less than the aggregate of all estimated
installments thereof paid by Tenant on account to Landlord for such twelve (12)
month period, then Tenant shall pay to Landlord the amount of such underpayment,
or Landlord shall promptly refund to Tenant the amount of such overpayment, as
case may be. The obligation of Tenant with respect to the payment of such Real
Property Taxes accrued during the term of this Lease, or any extension period
hereof if this Lease is extended, shall survive the expiration or earlier
termination of this Lease. Any payment or refund made pursuant to this
Subsection (e) shall be made without prejudice to any right of Tenant to
dispute, or of Landlord to correct, any item(s) as billed pursuant to the
provisions hereof so long as Tenant continues to pay the amount as so estimated
and billed.
Landlord covenants and agrees that Landlord will provide
Tenant within thirty (30) days after written request, with copies of any bill
upon which any Real Property Taxes are based together with the calculation used
by Landlord in determining Tenant's Pro Rata Share thereof.
(f) AGREEMENT TO PAY. Tenant does hereby covenant and agree to
pay promptly the amounts computed pursuant to this Section 3 and otherwise
herein as additional rent ("Additional Rent") as and when the same shall become
due and payable, without demand therefor, and without any set-off or deduction
whatsoever.
(g) COSTS AND EXPENSES DEEMED RENT. All costs and expenses
which Tenant assumes or agrees to pay to Landlord pursuant to this Lease shall
be deemed Additional Rent and, in the event of non-payment thereof, Landlord
shall have all the rights and remedies herein provided for in case of
non--payment of Rent (below defined).
(h) RENT. The Base Rent together with the Additional Rent
described in this Section 3 will be collectively referred to herein as Rent.
<PAGE>
6
(i) WAIVER OF BASE RENT. Except for any portion of the lease
term between the Commencement Date and the beginning of the first Lease Year,
for which Tenant shall pay any Base Rent adjusted on a per diem basis, Landlord
hereby waives monthly installment payments of Base Rent from the start of the
first Lease Year only until the first day of the fifth month after the start of
the first Lease Year, except that for each day of delay of the start of the
first Lease Year caused by Tenant Delays, as defined in Section 1(c) of this
Lease, such waiver period shall be reduced by one day and Tenant's obligation to
pay Rent shall be accelerated by one day. Notwithstanding such waiver, all other
terms and conditions of this Lease shall be in full force and effect as of the
Commencement Date and Tenant shall pay all Additional Rent and other charges
incurred or accrued from the Commencement Date of this Lease. This subparagraph
(i) shall not apply with respect to the RFO Premises in the event that Tenant
exercises its right to lease RFO Premises as provided in Section 38 hereof.
4. LEASEHOLD IMPROVEMENTS
Except as otherwise provided herein, Landlord covenants and
agrees to provide certain leasehold improvements at the Premises for occupancy
by Tenant, at Tenant's expense, in accordance with the Plans and Specifications
and finish schedules (collectively the "Leasehold Improvements"). Landlord
agrees to provide Tenant an allowance ("Landlord's Allowance") for the Leasehold
Improvements (except as otherwise set forth herein) which Landlord's Allowance
shall not exceed $19.00 per square feet of the Premises or $495,520.00. The
quality of all Leasehold Improvements shall equal or exceed the standards set
forth as Building Standard Work on Exhibit B attached hereto ("Building Standard
Work") and such Building Standard Work shall serve as the minimum standards for
such Leasehold Improvements. It is understood, however, that such Building
Standard Work as set forth on Exhibit B is intended to set forth only the
guidelines for minimum quality but that the ratios and square footage
allocations set forth therein are not intended to be binding on Landlord in
providing such Leasehold Improvements. In the event that the cost of the
Leasehold Improvements does not equal the amount of Landlord's Allowance set
forth herein, Tenant shall not be entitled to any credit, offset or deduction
for any such surplus, it being understood that any such amount shall belong to
Landlord. If the total cost of the Leasehold Improvements exceeds Landlord's
Allowance as above stated, Tenant shall, upon receipt of Landlord's notice and
invoice, reimburse Landlord in full for the excess cost differential within
thirty (30) days of receipt thereof.
Landlord's Allowance shall not be used for art work, office
equipment, trade fixtures (including but not limited to audio visual equipment),
telephone systems, interior plant landscape, movable furniture and furniture
partition systems or movable telephone work stations. The foregoing items shall
be installed by Tenant at its cost and expense. Landlord shall install any
telephone work stations set forth in the Plans and Specifications which are
permanently affixed to
<PAGE>
7
the Building and Landlord's Allowance may be used for such permanent
telephone work stations.
In addition, except as set forth in subparagraph (g) below,
Landlord's Allowance shall not be used for the removal of three corridors
surrounding the atrium on the second floor of the Building (including the
removal of any carpeting, wallpaper and ceiling lights and all ceilings, floors
and walls in these corridors), nor for the removal of a corridor located on the
west side of the second floor of the Building (which west side corridor provides
passage to and from the bathrooms and the west end stair well). The foregoing
corridors and related materials may be removed by Tenant at its cost and
expense.
Landlord shall prepare a Leasehold Improvement analysis,
detailing a cost breakdown for each item outlined on the Plans and
Specifications, including unit pricing, and give Tenant a copy of such analysis.
With respect to carpeting and wallpaper in the Premises, Tenant shall have the
ability to direct Landlord to purchase carpeting and wallpaper, through Tenant's
suppliers, if Tenant satisfactorily demonstrates to Landlord that Landlord's
pricing is not as competitive as that of Tenant's suppliers.
Tenant covenants and agrees that upon expiration of the term
of this Lease, including any extension thereof, Tenant, at the election of
Landlord, will remove all tenant improvements other than those which are part of
the Work, and return the Premises to Landlord in the same condition as of the
Commencement Date, except for reasonable wear and tear and occurrences pursuant
to Sections 13 and 14 hereof. Landlord agrees to exercise such election by
notifying Tenant in writing 90 days prior to the expiration of this Lease, or
any extension terms, if extended.
In addition to Landlord's Allowance, the following items shall
be provided by Landlord at Landlord's expense and NOT charged against Landlord's
Allowance:
(a) DOOR UPGRADES: Landlord agrees to provide Tenant with
mahogany upgrades and brass hardware to 52 doors in the Premises. Accordingly,
Landlord's Allowance will be utilized to pay for 52 of the oak doors (seven feet
high each) with oak frames and usual hardware but Landlord will upgrade those 52
doors to mahogany doors with mahogany frames and brass hardware at no additional
charge for such upgrades to Tenant and Landlord's Allowance will not be used for
such upgrades. Any doors in excess of the 52 described herein furnished to
Tenant shall be charged against Landlord's Allowance at the full cost of such
mahogany doors and frames and brass hardware.
(b) WINDOW SILLS: Landlord will provide Tenant with mahogany
window sills for all exterior windows of the Premises without charge to Tenant
and without use of Landlord's Allowance for payment of same.
<PAGE>
8
(c) BLINDS: Standard Levolor (or equivalent) window blinds for
all exterior windows shall be provided at Landlord's expense and without being
charged against Landlord's Allowance.
(d) IN-CONCRETE PLUMBING: Landlord will pay for, without
deduction from Landlord's Allowance, all in-concrete plumbing necessary on the
first floor of the Building (but not on the second floor which shall be at
Tenant's expense) to accomodate a garbage disposal and other plumbing needs for
Tenant's lunchroom to be located on the first floor of the building. Such
in--concrete plumbing, to be paid for by Landlord, shall be limited to one
lunchroom location and shall not include plumbing costs incurred for plumbing
run outside of the concrete which shall be the cost of Tenant.
(e) HVAC HEAT PUMPS: Landlord will pay for, without deduction
from Landlord's Allowance, heat pump units to service the Premises according to
the guidelines set forth as Building Standard Work in Exhibit B hereto. Such
payment by Landlord shall be for the costs of the heat pump units only and any
costs for ductwork, wiring, control devices, difusers and the like shall be the
responsibility of Tenant. In addition, Landlord shall only pay for so--called
"building standard" heat pump units and any non-building standard HVAC units
(including any special equipment required in Tenant's computer room) shall be
the responsibility of Tenant.
(f) REMOVAL OF CORRIDOR: Landlord will pay for, without
deduction from Landlord's Allowance, the removal of a corridor, including any
carpeting, wallpaper and ceiling lights in the corridor, located on the second
floor of the Building, running from the east end stairwell to the atrium
opening.
(g) REMOVAL OF PART OF ATRIUM WALL: Landlord will pay for,
without deduction from Landlord's Allowance, the removal of that separate
portion of the atrium wall, contiguous to the reception area, located on the
second floor of the Building.
Section 4 of the Lease shall not apply with respect to the RFO
Premises in the event that Tenant exercises its right to lease RFO Premises as
provided in Section 38 hereof.
5. SERVICES
Landlord shall provide the following services:
(a) HEAT, VENTILATION AND AIR CONDITIONING. Heat, ventilation
and air-conditioning equipment needed for the comfortable use and occupancy of
the Premises as reasonably determined by Landlord and as specified in paragraph
J of the Building Standard Work Letter attached hereto as Exhibit "B",
throughout the term of this Lease and any extension period hereof, at all times.
With respect to the Corporate Woods Common Areas in the Building, the above
services will be provided
<PAGE>
9
from 8:00 a.m. to 6:00 p.m. each Monday through Friday and from 8:00 a.m.
to 1:00 p.m. each Saturday, excluding holidays. Landlord shall pay for
all gas used to provide heat.
(b) ELEVATOR SERVICE. The Passenger and freight elevator shall
be available at all times. If available, an elevator security system will be
installed at Tenant's expense, to limit access to the portion of the Premises
located on the second floor of the Building.
(c) CLEANING. Provided that Tenant shall keep the Premises in
good order, Landlord shall cause the Premises, including those interior hallways
which are located within the Premises, to be cleaned in accordance with the
standards set forth in Exhibit "C" annexed hereto and hereby made a part hereof.
Tenant agrees to reimburse Landlord for the costs incurred by Landlord in so
cleaning the Premises, together with Landlord's administrative costs (not to
exceed five percent (5%) of such cleaning costs) in regard thereto. Such
cleaning costs shall not exceed reasonable costs incurred for similar services
provided to other Class A suburban office parks located in Monroe County. The
cost of such services shall initially be $0.80 per square foot of Total Usable
Area per year (including Landlord's administrative costs) and Tenant shall pay
such costs in equal monthly installments at times for and together with the
payments of Base Rent. The cost to Tenant shall be immediately increased by an
amount equal to any increase in the cost of cleaning services with respect to
the Premises billed to Landlord. Tenant shall also pay to Landlord, within 15
days of billing, the costs incurred by Landlord for any cleaning in or of the
Premises in excess of that specified in Exhibit "C" as well as for any
additional cleaning requested by Tenant. Cleaning services will be provided to
the Premises on a seven-day/week basis provided that extra services beyond those
provided on a five-day/week basis shall be paid for by Tenant.
If Landlord fails to provide the cleaning services set forth
herein, Tenant shall notify the Landlord in writing and provide Landlord with
thirty (30) days to cure such failures. If such failures have not been cured
within such thirty (30) day time period, Tenant shall thereafter have the right
to hire, at Tenant's expense, its own cleaning service(s) and shall not have to
pay Landlord for cleaning of the Premises as set forth herein provided that
before Tenant hires such cleaning service, Tenant must give Landlord another
written notice of such failures and fifteen (15) days to cure such failures.
(d) BUILDING COMMON AREA JANITORIAL SERVICES. Landlord shall
provide janitorial services with respect to the common areas of the Building in
accordance with the standards set forth in Exhibit "C" annexed hereto and made a
part hereof.
(e) WATER. Landlord, at its expense, shall furnish adequate
hot and cold water in public areas for drinking, lavatory and toilet, and
ordinary cleaning purposes.
<PAGE>
10
(f) ELECTRICAL ENERGY. Landlord shall furnish and Tenant shall
reimburse Landlord for the cost of all electrical energy used by Tenant for
heat, air-conditioning, light and other services, and Landlord's administrative
costs (not to exceed five percent (5%) of the actual kilowatt hour costs) in
regard thereto, such costs estimated (but not guaranteed) to be $1.00 per square
foot of Total Usable Area per year as of the date of this Lease. Tenant shall
reimburse Landlord monthly, at the times for and together with the payments of
Base Rent for the cost of such electrical energy and administrative costs as
estimated. Tenant's use of electrical energy will be separately check--metered
and actual usage will be calculated by Landlord twice a year. Landlord agrees to
refund Tenant for any overpayments made by Tenant and Tenant aqrees to reimburse
Landlord with the next monthly installment of Rent then due for any shortage.
Landlord will install and change light bulbs but the cost of such bulbs shall be
paid by Tenant. Tenant shall have the right to purchase light bulbs at its own
expense provided such light bulbs are compatible with the lighting fixtures and
provided further that Tenant shall pay the labor costs to Landlord for
installation of such light bulbs by Landlord. The labor cost of the installation
of such light bulbs shall not exceed the costs charged to other tenants at
Corporate Woods.
(g) PARKING LOT LIGHTING AND MAINTENANCE. Landlord agrees to
light the parking areas for the building from sunset until midnight each Monday
through Friday or as otherwise agreed to by Landlord and Tenant. In addition,
Landlord agrees to keep the parking areas functionally maintained, reasonably
free of snow and ice, and repaired at the expense of Landlord.
(h) SECURITY. The Building will be secured by a perimeter door
system that incorporates infra-red motion detection, electronic striking system
and weather proof exterior numerical key pad system. The Building doors will be
automatically secured by 6:00 p.m. weekdays and are secured all day during
weekends. The system is made by Radionics, features alpha key pad with tape read
out and is monitored off--site by Westec Security Systems. Tenant will be
provided with a sub-system for the Premises which includes infra--red motion
detectors, keypad at main suite entrance door, fire alarm and smoke alarm.
Additionally, the Building security system will monitor all sprinkler line water
pressure, smoke alarms and rate of rise heat detectors via Westec Security
System control headquarters. Local police and fire forces are integral to the
system operation.
(i) ACCESS TO PREMISES. Tenant shall have access to the
Building and the Premises 24 hours per day, 7 days per week, 52 weeks per year
unless such access is prevented by reasons beyond Landlord's control or by the
Acts of Force Majeure as are described in Section 25 of this Lease.
(j) ADDITIONAL WORK OR SERVICES. Notwithstanding any other
provisions herein, should Tenant require any work or services in addition to
those described in Subsection (a) through (h) of this Section 5, Landlord may
upon reasonable advance request by Tenant furnish such
<PAGE>
11
additional service and Tenant agrees to pay Landlord, with the next monthly
installment of Rent, such charges as may be agreed on but in no event less than
Landlord's actual cost plus overhead for the additional services provided.
(k) INTERRUPTIONS IN SERVICE. It is understood that Landlord
does not warrant that any of the services referred to above, or any other
services which Landlord may supply, will be free from interruption. Tenant
acknowledges that any one or more of such services may be suspended by reason of
accident or of repairs, alterations or improvements necessary to be made, or by
strikes or lockouts, or by reason of operation of law, or causes beyond the
reasonable controlof Landlord. No such interruption of service shall be deemed
an eviction or disturbance of Tenant's use and possession of the Premises, or
any part thereof, or render Landlord liable to Tenant for damages by abatement
of Rent or otherwise, direct or consequential, nor shall any such interruption
relieve Tenant from performance by Tenant of its obligations under this Lease.
6. WAIVER OF CERTAIN CLAIMS
Landlord and Tenant agree that, in the event that any part of
the Premises or the whole of the Premises, or the fixtures, merchandise and
contents therein, are damaged or destroyed by fire or other insured casualty,
the rights of either party, or its agents, assignees, subtenants or transferees,
against the other with respect to such liability or responsibility for any
damage, destruction or loss resulting therefrom, including the interruption of
the business of any of the parties and loss suffered as a result of the fault or
negligence of any such parties, are hereby waived. This waiver only applies to
insured casualty losses and is not intended to waive any other rights that
either party may have against the other. Landlord and Tenant agree further that
all policies of fire and extended coverage covering the Premises, business
interruption or other insurance covering the Premises, or the contents, fixtures
and improvements therein shall contain a clause or endorsement providing in
substance that the insurance shall not be prejudiced if the insureds have waived
right of recovery from any person or persons prior to the date and time of loss
or damage, if any. Any additional premium shall be paid by the party benefitted
thereby.
If any property damage results from any act or neglect of
Tenant, Landlord may at Landlord's option, after written notice to Tenant
(except in the case of an emergency where no notice is necessary) repair such
damage and Tenant shall thereupon pay to Landlord so much of the total cost of
such repair or replacement as is not covered or paid to Landlord under
Landlord's insurance policy, including the amount of any deductible, as well as
so much of the total cost of such repair as exceeds any insurance proceeds
Landlord receives in respect of such damage.
Each party agrees to defend and hold the other harmless and
indemnify against each and every claim and liability for injuries to any
<PAGE>
12
person or persons and for damage to or loss of personal property occurring in or
about the Property or Corporate Woods Common Areas, due to any act of negligence
or default under this Lease by the indemnifying party or its respective
contractors, agents or employees.
7. INSURANCE
(a) FIRE AND HAZARD INSURANCE. Landlord shall at its expense,
procure and maintain during the term of this Lease and any extension period
hereof, fire and hazard insurance in an amount equal to the replacement value of
the Building (less footings, foundations and site work) and comprehensive public
liability insurance with a single limitation of liability of not less than
$2,000,000.00, and such insurance shall provide for a waiver of the insurer's
subrogation rights as against Tenant.
(b) PUBLIC LIABILITY INSURANCE, CONTRACTUAL LIABILITY
INSURANCE AND PERSONAL PROPERTY INSURANCE. Tenant shall, at its expense, procure
and maintain during the term of this Lease and any extension period hereof,
comprehensive public liability insurance, contractual liability insurance and
all risk personal property insurance under policies issued by insurers licensed
to do business in the State of New York with a Best rating of not less than A+l5
or equivalent. The Public Liability and Contractual Liability Insurance shall
each have a single limitation of liability of not less than $1,000,000 for
personal injury, bodily injury, death, as well as for damage or injury to or
destruction of property (including the loss of use thereof) for any one
occurrence and an aggregate limitation of liability of not less than
$2,000,000.00. The personal property insurance shall cover all risks and be in
an amount equal to the replacement value of the personal property of Tenant
located on the Property and Corporate Woods Common Areas. Tenant shall maintain
such insurance described in this subsection (b) throughout the term of this
Lease and any extension hereof at that monetary value which the respective
$2,000,000.00 and, replacement value hereinabove stipulated represent as of the
date of this Lease (as determined by Tenant's insurer) and Tenant shall review
the limits of its policies annually to ensure that such monetary value is
maintained each year. Tenant's policies shall:
(i) Name Landlord, its agents, servants and
employees as additional insureds except in the case
of the personal property insurance where Tenant shall
furnish Landlord with a waiver of subrogation;
(ii) Provide for 30 days' notice to Landlord
prior to any amendment, change, modification, lapse
or cancellation of coverage;
(iii) Contain an endorsement that there will
be no defense, disclaimer of coverage, exception or
exclusion based upon any act of the insured.
<PAGE>
13
Tenant shall furnish Landlord with a binder or a copy of the
policy of insurance with evidence of premium payment within 10 days of execution
of this Lease showing the coverage, clauses and endorsements herein required and
thereafter on request of Landlord such binder or copy of the policy and
evidences of premium payment shall be furnished by Tenant to Landlord not less
than 10 days prior to the expiration date of each such policy.
8. HOLDING OVER
If Tenant fails to vacate the Premises at the expiration of
this Lease or any extension period thereof, if extended, then Tenant shall pay
Landlord Base Rent at double the monthly rate specified in Section 1 for the
time Tenant thus remains in possession. In addition thereto, Tenant shall be
responsible for and reimburse Landlord for all direct and consequential damages
sustained by Landlord by reason of Tenant's retention of possession unless
Tenant's failure to vacate the Premises is due to force majeure, as defined in
Section 25 of the Lease. The provisions of this Section do not exclude
Landlord's rights of re-entry or any other right or remedy of Landlord
hereunder.
9. ASSIGNMENT AND SUBLETTING
The following provisions shall govern any desired subletting
or assignment by Tenant of all or part of the Premises:
(a) PROHIBITION. Except as otherwise set forth herein, Tenant
shall not, without Landlord's prior written consent which shall not be
unreasonably withheld or delayed: (a) assign, convey, mortgage, pledge, encumber
or otherwise transfer (voluntarily or involuntarily) this Lease or any interest
under it; (b) allow any transfer thereof or any lien upon Tenant's interest by
operation of law; (c) sublet the Premises or any part thereof, or (d) permit the
use or occupancy of the Premises or any part thereof by any person or entity
other than Tenant.
(b) RECAPTURE. Notwithstanding anything herein to the
contrary, if at any time or from time to time during the term of this Lease or
any extension period hereof, Tenant desires to sublet or assign this Lease with
respect to all or part of the Premises, Tenant shall notify Landlord in writing
(hereinafter referred to in this Section as the "Notice") of the terms of the
proposed subletting or assignment and the area proposed to be sublet or covered
by the assignment and deliver to Landlord an executed copy of the proposed
sublease or assignment thereby giving Landlord the option to either (i) sublet
from Tenant such space (hereinafter referred to as "Sublet Space") at the same
Rent as Tenant is then required to pay to Landlord under this Lease for the same
space, or (ii) terminate this Lease with respect to the Sublet Space in which
case Tenant shall be released from any further liability hereunder. If the
Sublet Space does not constitute the entire Premises and Landlord exercises its
election to terminate this Lease with respect to the Sublet Space, then, as to
that portion of the Premises which is not part of the Sublet Space, this Lease
and the Rent due from Tenant shall be reduced
<PAGE>
14
by a fraction, the numerator of which shall be the rentable square feet of the
Sublet Space and the denominator of which shall be the rentable square feet of
the Premises such fraction to be then multiplied by the Rent then due to
determine the amount of the reduction. The election to either sublet or to
terminate this Lease shall be exercisable by Landlord in writing within a period
of twenty (20) days after receipt of the Notice and the executed copy of the
proposed sublease or assignment.
(c) SUPREMACY OF LEASE. In the event Landlord elects to sublet
the Sublet Space, Tenant shall thereafter be released from any further liability
with respect to the Sublet Space and the term of such subletting from Tenant to
Landlord shall be the term set forth in the Notice and such subletting shall be
on such terms and conditions as are contained in this Lease as the then current
Rent, except that Landlord shall have the right to further sublet the Sublet
Space.
(d) REQUIREMENTS. At the same time Tenant delivers the Notice
to Landlord, Tenant shall also submit to Landlord a proposed copy of the
proposed assignment or sublease and such information concerning the proposed
assignment or sublease and the proposed assignee or sublessee as may be
requested by Landlord for Landlord's review and approval which shall not be
unreasonably withheld or delayed. The following shall, however, be requirements
for any approval by Landlord:
(i) The proposed subtenant or assignee must
submit a current financial statement to Landlord and must have
a credit rating satisfactory to Landlord, in Landlord's
reasonable judgment;
(ii) The proposed subtenant or assignee
must, in Landlord's reasonable judgment, be financially
responsible and of good professional reputation as well as
engaged in a business reasonably compatible with the character
of the business of other tenants in the Building and Corporate
Woods.
(iii)The sublease must by its terms be
expressly subject and subordinate to this Lease, must require
that any subtenant comply with and abide by all of the terms
of this Lease, and must provide that any termination of this
Lease shall also extinguish the sublease;
(iv) The proposed subtenant or assignee may
not be any person or entity either then occupying space in
Corporate Woods or one with whom Landlord is then negotiating
for space in Corporate Woods;
(v) Tenant may not then nor at the
commencement of the sublease be in default under this Lease
beyond any applicable grace period;
A fully executed counterpart of the assignment or sublease
must be delivered to Landlord within sixty (60) days after the date of
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15
Landlord's approval or Landlord's approval of the proposed assignment or
sublease shall be deemed null and void and Tenant shall again comply with all
the conditions of this Section as if the Notice hereinabove referred to had not
been given and received.
(e) REVIEW AND APPROVAL COSTS. Tenant agrees to pay to
Landlord, on demand, the reasonable costs incurred by Landlord in connection
with any request by Tenant for Landlord to consent to any assignment or
subletting by Tenant, including reasonable attorneys' fees.
(f) DEEMED ASSIGNMENT/SUBLET For purposes of this Section 9
the following shall be deemed a prohibited assignment or sublease, as the case
may be:
(i) the transfer of the outstanding capital stock of
any corporate tenant or subtenant or any increase in the
amount of issued and/or outstanding shares of capital stock
and/or the creation of one or more additional classes of
common stock of any corporate tenant or subtenant, or the
transfer of any partnership interest in Tenant or any
subtenant if Tenant or subtenant is a partnership, however
accomplished, whether in a single transaction or in a series
of related or unrelated transactions, such that such corporate
or partnership transfers result in both (a) Gordon S. Black
owning less than thirty-five percent (35%) of the beneficial
and record ownership of such corporate tenant or subtenant or
Gordon S. Black controlling less than thirty--five percent
(35%) of such partnership tenant or subtenant; and (b) an
entity with a financial net worth less than the net worth of
Tenant as of the Commencement Date, as such net worth is
adjusted by three percent (3%) per Lease Year during the term
of this Lease and any extension of the term of this Lease.
(ii) any agreement by any other person or
entity directly or indirectly, to assume Tenant's rights under
this Lease;
(iii) any transfer by operation of law or
otherwise, of Tenant's interest in this Lease; and
(iv) each modification, amendment or
extension of any sublease to which Landlord has previously
consented shall be deemed a new sublease.
Tenant agrees to furnish Landlord upon demand at any time,
such information and assurances as Landlord may reasonably request that neither
Tenant, nor any previously permitted subtenant, has violated the provisions of
this Section.
(g) RIGHTS OF LANDLORD UPON SUBLETTING. If, with the consent
of Landlord, the Premises or any part thereof be sublet or occupied by anybody
other than Tenant, Landlord may, after default by Tenant, collect
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16
rent from the subtenant or occupant, and apply the net amount collected to the
Rent herein reserved. If, without consent of Landlord, the Premises or any part
thereof be sublet or occupied, Landlord may collect rent from such subtenant or
occupant and apply the net amount collected to the Rent herein reserved but no
such subletting, occupancy or collection shall be deemed a waiver of any of
Tenant's covenants contained in this Lease or an acceptance by Landlord of the
subtenant or occupant as Tenant. In neither of the foregoing two circumstances
shall Tenant be relieved from its obligations under this Lease or from further
performance by Tenant of covenants on the part of Tenant herein contained.
(h) RIGHTS OF LANDLORD UPON ASSIGNMENT. If, with the consent
of Landlord, this Lease or any interest herein is assigned by Tenant to a third
party assignee, such assignment shall not relieve Tenant of its obligations
hereunder and Landlord may, after default by the assignee in the payment of Rent
or in the performance of any other obligation of Tenant under this Lease, demand
and enforce performance of this Lease by Tenant--assignor including the payment
of Rent from Tenant-assignor to the fullest extent provided by this Lease and/or
the payment by Tenant-assignor of any direct damages sustained by Landlord.
10. CONDITION OF PREMISES
Subject only to such items as are set out on any punch list
prepared by Landlord and Tenant, Tenant's taking possession of the Premises
shall be conclusive evidence as against Tenant that the Premises were in good
order and satisfactory condition when Tenant took possession. No promises of
Landlord to alter, remodel, repair or improve the Premises or the Building and
no representation respecting the condition of the Premises, the Building or the
Property have been made by Landlord to Tenant, other than as may be contained
herein.
For a period of one (1) year after substantial completion of
the Leasehold Improvements Landlord agrees to warrant that the Leasehold
Improvements were made in a good and workmanlike manner except for problems or
damages arising from the negligence of Tenant, excessive wear and tear by Tenant
or design defects or malfunctions arising from Tenant's Plans and
Specifications.
Any warranty claims made by Tenant shall be in writing to
Landlord. Subject to force majeure, Landlord shall correct the defect within
thirty (30) days after receipt of written notice from Tenant of the defect,
provided, however, that if any such defect cannot be corrected within said
thirty (30) day period with due diligence, then the time to correct such defect
shall be extended for a period reasonably necessary to correct such defect.
At the expiration or earlier termination of this Lease, Tenant
shall return the Premises broom--clean and in as good condition as when Tenant
took possession, ordinary wear and loss by fire or other casualty
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17
excepted, failing which Landlord may restore the Premises to such condition and
Tenant shall pay the cost thereof on demand.
11. USE OF PREMISES
Tenant agrees to comply with the following provisions
regarding the use of the Premises.
(a) PROHIBITION ON SELLING ACTIVITIES. Tenant shall not engage
in the retail or wholesale sale of goods on or from the Premises or in the
Building without the advance consent of Landlord.
(b) COMPLIANCE WITH LAW. Tenant will not make or permit to be
made any use of the Premises or any part thereof which would violate any of the
covenants, agreements, terms, provisions and conditions of this Lease or any
mortgage on the Property or which directly or indirectly is forbidden by public
law, ordinance or governmental regulation (including, without limitation, all
environmental laws) or which may be dangerous to life, limb, or property, or
which may invalidate or increase the premium cost of any policy of insurance
carried on the Building, the Property or covering its operation, or which will
suffer or permit the Premises or any part thereof to be used in any manner or
anything to be brought into or kept therein which, in the judgment of Landlord,
would in any way impair or tend to impair the character, reputation or
appearance of the Property or of Corporate Woods as a high quality office park,
or which would impair or interfere with or tend to impair or interfere with any
of the services performed by Landlord for the Property or Corporate Woods.
Tenant agrees to change, reduce or stop any such use or install necessary
equipment, safety devices, pollution control systems or other installations at
any time during this Lease to comply with the foregoing.
(c) SIGNS. Tenant shall not display, inscribe, print, paint,
maintain or affix on any place on the exterior or interior of the Building
(excepting only such part or parts of the Premises as is or are not visible from
outside the Building) nor on the Lot or any Common Area any decoration, sign,
notice, legend, direction, figure, or advertisement or window treatment,
curtains or display materials except in or at such place or places, and then
only such name(s) and matter, and in such color, size, style, place and
materials, as shall first have been approved by Landlord in writing.
(d) ADVERTISING. Tenant shall not advertise the business,
profession or activities of Tenant conducted in the Building in any manner which
violates the letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such business, profession or
activities and shall not use the name of the Building for any purposes other
than that of the business address of Tenant, and shall never use any picture or
likeness of the Building in any circulars, notices, advertisements or
correspondence without Landlord's consent.
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18
(e) LOCKS. No additional locks or similar devices shall be
attached to any door or window without Landlord's prior written consent and no
keys for any door other than those provided by Landlord shall be made. If more
than two keys for one lock are desired, Landlord will provide the same upon
payment by Tenant. All keys must be returned to Landlord at the expiration or
termination of this Lease.
(f) ALTERATIONS. Tenant shall not make any alterations,
improvements, or additions of or to the Premises (collectively, "Alteration")
without Landlord's advance written consent in each and every instance which
consent shall not be unreasonably withheld or delayed. In the event Tenant
desires to make any Alteration, Tenant shall first submit to Landlord plans and
specifications therefor and obtain Landlord's written approval thereof prior to
commencing any such work. Any such plans and specifications shall be approved or
disapproved by Landlord within thirty (30) days after receipt and if
disapproved, Landlord shall state its reasons for such disapproval. Any
contractor hired by Tenant must be properly insured and, if required, licensed.
Each and every Alteration, whether temporary or permanent in character, made by
Landlord or Tenant in or upon the Premises shall become Landlord's property and
shall remain upon the Premises at the expiration or earlier termination of this
Lease without compensation to Tenant (excepting only Tenant's movable office
furniture, trade fixtures, office and professional equipment) unless Landlord in
writing requires Tenant to remove such Alteration upon expiration of the term of
this Lease or any extension period, if extended. Landlord shall serve such
writing upon tenant regarding the removal of an Alteration not later than ninety
(90) days prior to the expiration of the term of this Lease or extension period,
if extended, and Tenant shall thereafter remove such Alteration as herein
required, repair any damage caused by such removal and restore the Premises to
the condition specified in Section 10 of this Lease.
(g) AFTER HOURS OCCUPANCY AND VISITORS. All persons entering
or leaving the Building after hours on Monday through Friday, or at any time on
Saturdays, Sundays and holidays, may be required to do so under such regulations
as Landlord may impose. The purpose of this provision is not to limit Tenant's
use or occupancy of the Premises but is to secure and protect the Premises.
Landlord may exclude or expel any peddler.
(h) FLOOR PLAN. The load bearing capacities of the floors of
the Premises are 55 lbs/square foot of live load on the second floor space and
75 lbs/square foot of live load on the first floor space. Tenant shall not
overload any floor. Landlord may direct the time and manner of delivery, routing
and removal, and the location, of safes and other heavy articles.
(i) INSTALLATION OF MACHINERY; PROHIBITION AGAINST LODGING.
Unless Landlord gives advance written consent, Tenant shall not install or
operate any steam or internal combustion engine, boiler, machinery,
refrigerating or heating device or air-conditioning apparatus in or about the
Premises, or carry on any mechanical business therein,
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19
or use the Premises for housing accommodations or lodging or sleeping purposes,
or do any cooking therein except as otherwise provided herein, or use any
illumination other than electric light, or use or permit to be brought into the
Building any flammable fluids such as gasoline, kerosene, naphtha, and benzine,
or any explosives, radioactive materials or other articles deemed extra
hazardous to life, limb or property except in a manner which would not violate
any ordinance or regulation of the Town of Brighton. Notwithstanding the
foregoing, Tenant shall have the right to install and use a kitchen in the
Premises for use by Tenant and its employees and guests, which kitchen may
contain a microwave oven, refrigerator, ice machine and dishwasher. Tenant shall
not use the Premises for any illegal or immoral purpose.
(j) ENERGY CONSERVATION. Tenant shall cooperate fully with
Landlord's reasonable directions to assure the effective operation of the
Building's air-conditioning system, including the closing of the venetian blinds
and drapes, and the keeping closed of any operable windows when the
air-conditioning system is in use. Tenant shall further comply with any
applicable federal laws, rules, ordinances or administrative enactments on
energy conservation, in office buildings.
(k) CONTRACTS. Tenant shall not contract for any work or
service which might involve the employment of labor in violation of any contract
with the Building employees or employees of contractors doing the work or
performing services, by or on behalf of Landlord on an ongoing basis (full time
or part time but not ad hoc). It is understood that the provisions of this
subsection shall apply to any construction work, alterations, repairs and
maintenance services provided at or to the Building by Tenant.
(l) ACCESS. Except as otherwise expressly permitted in this
Lease, the Common Area, sidewalks, halls, passages, exits, entrances, and
stairways shall not be obstructed by Tenant or used for any purpose other than
for ingress to and egress from its Premises. The common areas, halls, passages,
exits, entrances, elevators, stairways and roof are not for the use of the
general public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Property, the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of Tenant's business unless such
persons are engaged in illegal activities. No Tenant and no employees or
invitees of Tenant shall go upon the roof or mechanical floors of the Building.
(m) NUISANCE. Tenant shall not use, keep or permit to be used
or kept any foul or noxious gas or substance in the Premises, or permit or
suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Property or the Building by
reason of noise, odors and/or vibrations, or interfere in any way with other
tenants or those having business therein, nor shall any
<PAGE>
20
animals or birds be brought in or kept in or about the Premises of the
Building or the Property.
(n) SECURITY AND ELECTRIC CONSUMPTION. Tenant shall take
reasonable precautions to see that the doors, and windows, if operable, of the
Premises are closed and securely locked before leaving the Building and must
observe strict care and caution that all water faucets or water apparatus in the
Premises are entirely shut off before Tenant or Tenant's employees leave the
Building. The foregoing provisions of this subsection shall not give rise to a
default by Tenant unless Tenant's failure to take such reasonable precautions
results in actual damage being sustained in or to the Building and/or Premises.
If required by law or regulation, all electricity shall likewise be carefully
shut off so as to prevent waste or damage, and for any default or carelessness
Tenant shall make good all injuries and losses sustained by Landlord to the
extent of any deductibles and such excess costs as are not paid or covered under
Landlord's or Tenant's insurance and as are sustained by Landlord as a result,
in whole or in part, from Tenant's negligence.
In addition to any liability for breach of any covenant of
this Section, Tenant shall pay to Landlord an amount equal to any increase in
insurance premiums payable by Landlord, caused by such breach, default or
carelessness on the part of Tenant.
12. REPAIRS
Tenant shall give to Landlord prompt written notice of any
damage to, or defective condition in the Building structure or in any part or
appurtenance of the Building's plumbing, electrical, heating, air--conditioning,
ventilation, sprinkler, elevator or other systems serving, located in, or
passing through the Premises. Subject to the provisions of this Section 12,
Tenant shall, at Tenant's own expense, keep the Premises in good order,
condition and repair during the term, except that Landlord, at Landlord's
expense (unless caused by the fault or negligence of Tenant, its contractors,
agents, or employees in which case Tenant shall pay Landlord for any deductible
and any cost which either exceeds insurance proceeds Landlord receives or which
is not covered under Landlord's insurance policy in respect of such damage)
shall keep in repair and maintain the exterior of the Building, the electrical,
heating, air-conditioning, ventilation, sprinkler, elevator or other systems
serving, located in or passing through the Premises, plumbing fixtures located
in the Building (except those installed by Tenant with Landlord's approval),
outside walls, including windows, loadbearing walls (except as to surface damage
done by or attributable to Tenant) and doors and roof.
Tenant, at Tenant's expense, shall comply with all laws and
ordinances, and all rules and regulations of all governmental authorities and of
all insurance bodies at any time in force, applicable to the Premises or to
Tenant's use thereof, except that Tenant shall not hereby be under any
obligation to comply with any law, ordinance, rule or regulation requiring any
structural alteration of or in connection with
<PAGE>
21
the Premises, unless such alteration is required by reason of a condition which
has been created by, or at the instance of, Tenant, or is required by reason of
a breach of any of Tenant's covenants and agreements hereunder. Landlord shall
not be required to repair any injury or damage by fire or other cause, or to
make any repairs or replacements of any panels, decoration, office fixtures,
railing, ceiling, floor covering, partitions, or any other property installed in
the Premises by Tenant unless such injury or damage is a direct result of
negligence on the part of Landlord or its contractors, agents or employees, and
Tenant is not reimbursed for such injury or damage from insurance proceeds.
13. DESTRUCTION OF PREMISES
(a) If the Premises shall be partially (herein defined as less
than fifty (50%) percent of the then replacement value) damaged by fire or other
causes, the damage shall be repaired promptly (within not more than sixty (60)
days unless such damage cannot be repaired within such time, then within a
reasonable time) by and at the expense of Landlord and the Rent, until such
repairs shall be made, shall be abated by multiplying the rent then due by a
fraction the numerator of which shall be the number of square feet of the
Premises which is not usable and in fact is not used by Tenant and the
denominator of which shall be the number of square feet of the entire Premises.
In the event, however, that such partial damage is due to the fault of Tenant,
Tenant's servants, employees, agents, visitors or licensees, Tenant shall pay
the costs of such repairs to the extent that no insurance proceeds or
insufficient insurance proceeds (including any deductible) are received by
Landlord for such damage. No penalty shall accrue for delays which may arise
through adjustment of insurance or for delays on account of any cause beyond
Landlord's control.
(b) If such partial damage constitutes damage to fifty (50%)
percent or more of the then replacement value of the Premises; and
(i) such damage occurs during the first four and
one-half years of the term of this Lease or the first four years of the Term
if extended pursuant to the option granted Tenant in Article 36 hereof,
Landlord shall, at its expense, within two hundred forty (240) days
subsequent to the event that caused such damage, repair the same as feasibly
as possible to the condition existing immediately prior to such damage
excluding non--Building Standard Work or Tenant improvements not previously
included within Landlord's Allowance. Rent, until such repairs have been
made, shall be abated pursuant to the formula set forth in Section 13(a); or
(ii) in the event the damage or destruction
occurs during the last twelve (12) months of the initial term of this Lease,
Landlord shall be obligated to make any such repair, unless, (x) Landlord
shall notify Tenant of its decision not to repair within sixty (60) days of
the event causing the damage and (y) Tenant, within sixty (60) days of the
event causing such damage, shall fail to exercise its option to extend the
Term. In the event Landlord is obligated to make such repairs,
<PAGE>
22
Landlord shall, at its expense, and within two hundred forty (240) days
subsequent to the event causing the damage, repair the same as feasibly as
possible to the condition existing prior to the damage excluding, however,
non--Building Standard Work or Tenant improvements not previously covered by the
Landlord's Allowance. Rent, until such repairs have been made, shall be abated
pursuant to the formula set forth in Section 13(a). In the event Landlord should
elect not to make repairs as in this subparagraph provided, this Lease shall
terminate and Tenant shall vacate the Premises and surrender the same to
Landlord within a reasonable period of time after notice from Landlord.
(iii) in the event the damage or destruction occurs
during the last twelve (12) months of the extension term of this Lease, Landlord
shall have no obligation to make any repair unless Landlord notifies Tenant of
its decision to repair within sixty (60) days of the event causing the damage.
If Landlord notifies Tenant the repairs shall be made in accordance with
subsection 13(b)(ii) above. If Landlord does not notify Tenant within such time
period, the Lease will terminate in accordance with subsection 13(b)(ii) above.
Tenant hereby expressly waives the provisions of Section 227
of the Real Property Law and agrees that the foregoing provisions shall govern
and control in lieu thereof. The obligation of Landlord under this Section 13
shall be expressly subject to Section 25 on Force Majeure.
14. CONDEMNATION
If the Premises or any part thereof shall be taken by any
public or private authority through condemnation or eminent domain, Landlord
shall immediately notify Tenant in writing.
If such taking reduces the Premises by more than 40% (whether
by a single taking or a series of takings) either party may terminate this Lease
at any time by written notice to the other to be given within ninety (90) days
of the date of the taking. Should Tenant or Landlord elect not to terminate this
Lease, the Rent shall be reduced from and after such taking by an amount to be
determined by multiplying the Rent which would otherwise have been due by a
fraction of which the numerator shall be the number of square feet of the
remaining portion of the Premises, and the denominator the number of square feet
of the entire Premises.
If all of the parking spaces for the Building are taken then
Landlord shall provide Tenant with alternate parking, reasonably located, within
a reasonable time after Tenant's written notice to Landlord of such taking. If
Landlord fails to provide such alternate parking, within a reasonable time after
Tenant's written notice to Landlord of such taking, Tenant may terminate this
Lease.
In the event this Lease is not terminated as above provided,
Landlord covenants and agrees to restore said Premises within 180 days of the
expiration of the 90-day period above referred to.
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23
Whether this Lease is terminated or not, Landlord shall be
entitled to all the proceeds of the condemnation award with respect to the value
of the Building and/or Lot taken, and Tenant shall have no claim against
Landlord or the condemning authority for any unexpired term of this Lease nor
for any other leasehold interests. Notwithstanding the above, Tenant's only
claims shall be for moving expenses, trade fixtures and any Alterations made by
Tenant, provided Tenant's claims do not in any way reduce or diminish Landlord's
claim against the condemning authority.
15. CERTAIN RIGHTS RESERVED TO LANDLORD
Landlord reserves the following rights:
(a) To name the Building or the Property and to change the
name or street address of the Building or Corporate Woods.
(b) To install and maintain a sign or signs on the exterior or
interior of the Building or on the Lot provided any such sign or signs will not
be located in the Premises except as may be required by law, regulation or
administrative enactment.
(c) To designate all sources furnishing sign painting and
lettering, towels, toilet supplies, mobile vending service, and like services
used on the Premises or in the Building. Notwithstanding the foregoing and
notwithstanding any prohibition elsewhere in this Lease on cooking in the
Premises, Tenant may install and use a coffee machine, vending machines,
refrigerator, stove and microwave oven for use by employees so long as the same
is not prohibited under local, state or federal law.
(d) To constantly have pass keys to the Premises.
(e) On reasonable prior notice to Tenant, and during normal
business hours to exhibit the Premises with an agent of Tenant present to
prospective tenants and to any prospective purchaser, mortgagee, or assignee of
any mortgage on the Property and to others having a legitimate interest during
the term or any extension period hereof, if extended, upon reasonable advance
notice to Tenant.
(f) At any time and without notice in the event of an
emergency, and otherwise upon reasonable notice and at reasonable times, to take
any and all measures, including inspections, repairs, alterations, additions and
improvements to the Premises, the Building or to the Property, as may be
necessary or desirable for the safety, protection or preservation of the
Premises, the Building or the Property or Landlord's interests, or as may be
necessary or desirable in the operation or improvement of the Premises, the
Building or the Property or in order to comply with all laws, orders and
requirements of governmental or other authority. To the extent reasonably
possible, Landlord shall minimize any interference with Tenant's use and
occupancy of the Premises.
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24
16. LANDLORD'S REMEDIES
All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other right or remedy allowed by law. In
addition to the other remedies in this Lease provided, Landlord shall be
entitled to the restraint by injunction of any violation or attempted material
violation of any of the covenants, agreements or conditions of this Lease.
(a) BANKRUPTCY; RE-ORGANIZATION. If Tenant shall (i) apply for
or consent to the appointment of a receiver, trustee or liquidator of Tenant or
of all or a substantial part of its assets, (ii) admit in writing its inability
to pay its debts as they come due, (iii) make a general assignment for the
benefit of creditors,(iv) file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law other than
the federal Bankruptcy Code, or (v) file an answer admitting the material
allegations of a petition filed against Tenant in any reorganization or
insolvency proceeding, other than a proceeding commenced pursuant to the federal
Bankruptcy Code, or if any order, judgment or decree shall be entered by any
court of competent jurisdiction, except for a bankruptcy court or a federal
court sitting as a bankruptcy court, adjudicating Tenant insolvent or approving
a petition seeking reorganization of Tenant or appointing a receiver, trustee or
liquidator of Tenant or of all or a substantial part of its assets, and Tenant
is unable to restore its financial position, stay any Bankruptcy proceeding or
cure any of the aforementioned events of default within 60 days after such
occurrence, then, in any such event and upon the passage of 60 days thereafter,
Landlord may give to Tenant a notice of intention to end the term of this Lease
specifying a day not earlier than ten (10) days thereafter, and upon the giving
of such notice the term of this Lease and all right, title and interest of
Tenant hereunder shall expire as fully and completely on the day so specified as
if that day were the date herein specifically fixed for the expiration of the
term.
(b) DEFAULT IN TENANT OBLIGATIONS. If Tenant defaults in the
payment of Rent and such default continues for 5 days after notice, or defaults
in the prompt and full performance of any other provision of this Lease and such
default continues for 30 days after notice, or if such default cannot be cured
within 30 days, Tenant does not commence to cure such default within 30 days and
diligently pursue the same to completion thereafter, or if the leasehold
interest of Tenant be levied upon under execution or be attached by process of
law and such levy or attachment is not removed within 30 days thereafter, or if
Tenant abandons the Premises and ceases to pay Rent hereunder for a period in
excess of 30 days, then and in any such event Landlord may, at its election,
either terminate the Lease and Tenant's right to possession of the Premises or,
without terminating this Lease; endeavor to relet the Premises. Nothing herein
shall be construed so as to relieve Tenant of any obligation, including the
payment of Rent, as provided in this Lease.
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25
(c) SURRENDER OF POSSESSION; LANDLORD'S RIGHT TO RE-ENTER.
Upon any termination of this Lease, Tenant shall surrender possession and vacate
the Premises immediately, and deliver possession thereof to Landlord, and hereby
grants to Landlord full and free license to enter into and upon the Premises to
repossess Tenant of the Premises as of Landlord's former estate and to expel or
remove Tenant and any others who may be occupying or within the Premises and to
remove any and all property therefrom, using such force as may be necessary,
without being deemed in any manner guilty of trespass, eviction or forcible
entry or detainer, and without relinquishing Landlord's right to Rent or any
other right given to Landlord hereunder or by operation of law.
(d) RE-LETTING. If, pursuant to the provisions of this Lease,
Landlord becomes entitled to elect, and Landlord does elect, without terminating
the Lease, to endeavor to relet the Premises, Landlord may, at Landlord's
option, enter into the Premises, remove Tenant's signs and other evidence of
tenancy, and take and hold possession thereof as in Paragraph (c) of this
Section provided, without such entry and possession terminating the Lease or
releasing Tenant, in whole or in part, from Tenant's obligation to pay the Rent
hereunder for the full term as hereinafter provided. Upon and after entry into
possession without termination of the Lease, Landlord may relet the Premises or
any part thereof for the account of Tenant to any person, firm or corporation
other than Tenant for such rent, for such time and upon such terms as Landlord
shall determine to be reasonable. In any such case, Landlord may make repairs,
alterations and additions in or to the Premises, and redecorate the same to the
extent deemed by Landlord necessary or desirable, and Tenant shall, upon demand,
pay the reasonable cost thereof, together with Landlord's reasonable expenses of
the reletting. If the consideration collected by Landlord upon any such
reletting for Tenant's account is not sufficient to pay monthly the full amount
of the Rent reserved in this Lease, together with the cost of repairs,
alterations, additions, redecorating and Landlord's expenses, Tenant shall pay
to Landlord the amount of each monthly deficiency upon demand.
(e) DAMAGES AND ACCELERATION. If Landlord elects to terminate
this Lease for any of the reasons specified in this Section 16 of the Lease, it
being understood that Landlord may elect to terminate the Lease after and
notwithstanding its election to terminate Tenant's right to possession as in
Paragraph (b) of this Section 16, provided Landlord shall forthwith upon such
termination be entitled to recover as damages, and not as a penalty, an amount
equal to the then present value of the Rent provided in this Lease for the
residue of the stated term hereof, less the present value of the fair rental
value of the Premises for the residue of the stated term. The discount rate used
to calculate present value shall be 10%.
If, however, Tenant has defaulted in the payment of Rent, or
in failing to keep in effect the insurance required under Section 7 or by
subletting the Premises or assigning this Lease in violation of Section 9, then
Landlord may terminate this Lease, and accelerate all Rent due hereunder from
the date of such default through the end of the
<PAGE>
26
term of this Lease or any extension period, if extended, and demand immediate
payment in full of all Rent as so accelerated.
(f) TENANT'S PERSONAL PROPERTY. Any and all property which may
be removed from the Premises by Landlord pursuant to the authority of the Lease
or of law, to which Tenant is or may be entitled, may be handled, removed or
stored by Landlord at the risk, cost and expense of Tenant, and Landlord shall
in no event be responsible for the value, preservation or safekeeping thereof.
Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such
removal and all storage charges against such property. Any such property of
Tenant not removed from the Premises or retaken from storage by Tenant within
thirty (30) days after the end of the term or of Tenant's right to possession of
the Premises, however terminated, shall be conclusively deemed to have been
forever abandoned by Tenant and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit.
(g) LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. Tenant
agrees that if it shall at any time fail to make any payment or perform any
other act on its part to be made or performed under this Lease, Landlord may,
but shall not be obligated to, and after reasonable notice or demand and without
waiving, or releasing Tenant from, any obligation under this Lease, make such
payment or perform such other act to the extent Landlord may deem desirable, and
in connection therewith, Landlord may pay expenses and employ counsel. If legal
action is required to enforce performance by Tenant of any condition, obligation
or requirement hereunder, the costs of any such action including attorneys' fees
will be paid solely by the party not prevailing in such action. All sums so paid
by Landlord and all expenses in connection therewith, together with interest
thereon at the maximum rate permitted by law from the date of payment, shall be
deemed Additional Rent hereunder and payable at the time of any installment of
Rent thereafter becoming due and Landlord shall have the same rights and
remedies for the non-payment thereof, or of any other Additional Rent, as in the
case of default in the payment of Rent.
17. LATE CHARGE
A late charge shall be due and owing on any installment of
Rent not received by Landlord by the fifth (5th) business day of the calendar
month in which due and on any monetary obligation of Tenant or charge due from
Tenant not paid by Tenant when due. Such late charge shall equal three percent
(3%) of the then unpaid monthly Rent, shall be billed by Landlord to Tenant with
the Rent for the calendar month next following and shall be paid by Tenant
together with the Rent due for such month.
18. SUBORDINATION OF LEASE
The rights of Tenant under this Lease shall be and are subject
and subordinate at all times to all ground leases, and/or underlying leases, if
any, now or hereafter in force against the Property, and to
<PAGE>
27
the lien of any mortgage or mortgages now or hereafter in force against such
leases and or the Property, and to all advances made or hereafter to be made
upon the security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof. This Section is self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, however, Tenant shall promptly execute such further instruments
as may be requested by Landlord, provided such are reasonably acceptable to
Tenant's counsel. Tenant, at the option of any mortgagee, agrees to attorn to
such mortgagee in the event of a foreclosure sale or deed in lieu thereof.
Notwithstanding the foregoing, however, Landlord agrees to
cause the holders of any leases and/or mortgages currently encumbering the
Property (including the present construction financing on the Property and
initial permanent financing on or to be placed on the Property) to agree that
this Lease shall not be divested or in any way affected by foreclosure or other
default proceedings under such leases and/or mortgages, so long as Tenant shall
not be in default under the terms of this Lease and that this Lease shall remain
in full force and effect notwithstanding any such default proceedings under such
leases and/or mortgages.
19. NOTICES AND CONSENTS
All notices, demands, requests, consents or approvals
(collectively, "Notice") which may or are required to be given by either party
to the other shall be in writing and shall be deemed given on the third (3rd)
day after the date of postmark when sent by United States Certified or
Registered Mail, postage prepaid return receipt requested or if delivered by
hand, on the date of delivery against receipt. Notwithstanding the above, all
Notices by Landlord to Tenant with respect to any defaults by Tenant of any of
the covenants or provisions of this Lease shall be in writing and shall only be
deemed given on the third (3rd) day after the date of postmark, when sent by
United States Certified or Registered Mail, postage prepaid, return receipt
requested.
Such Notice shall be mailed or delivered as follows:
(a) IF TO TENANT: (until the Commencement Date; thereafter such
Notice shall be mailed or delivered to Tenant at
the Premises)
Gordon S. Black Corporation
1661 Penfield Road
Rochester, New York 14625
Attention: Bruce Newman, Treasurer and Secretary
with a copy to: Harris, Beach & Wilcox
130 East Main Street
Rochester, New York 14604
Attention: Thomas P. Moonan, Esq.
<PAGE>
28
(b) IF TO LANDLORD: Corporate Woods Associates
c/o Natapow Management Group, Agent
120 Corporate Woods, Suite 100
Rochester, New York 14623
Attention: Vice President of Leasing
with a copy to: Phillips, Lytle, Hitchcock, Blane & Huber
1400 First Federal Plaza
Rochester, New York 14623
Attention: Cathy Kaman Ryan, Esq. and
John B. Kaman, Esq.
The parties may by written notice to the other designate a
different person or entity to receive notices hereunder and/or a different
address or addresses. If the term Tenant as used in this Lease refers to more
than one person any Notice given as aforesaid to any one of such persons shall
be deemed to have been duly given to Tenant.
20. NO ESTATE IN LAND
This contract and Lease shall create the relationship of
landlord and tenant between Landlord and Tenant; no estate shall pass out of
Landlord; and Tenant has only a usufruct which is not subject to levy and sale.
21. INVALIDITY OF PARTICULAR PROVISIONS
If any clause or provision of this Lease is or becomes
illegal, invalid, or unenforceable because of present or future laws or any rule
or regulation of any governmental body or entity, effective during its term, the
intention of the parties hereto is that the remaining parts of this Lease shall
not be thereby affected.
22. WAIVER OF TRIAL BY JURY
It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and any emergency statutory or any other statutory
remedy.
23. MISCELLANEOUS TAXES
Tenant shall pay prior to delinquency all taxes assessed
against or levied upon its occupancy of the Premises, or upon the fixtures,
furnishings, equipment and all other personal property of Tenant located in the
Premises other than those furnished and paid for by Landlord, if nonpayment
thereof shall give rise to a lien on the real estate, and when possible Tenant
shall cause said fixtures, furnishings,
<PAGE>
29
equipment and other personal property to be assessed and billed separately from
the property of Landlord. In the event any or all of Tenant's fixtures,
furnishings, equipment and other personal property, or upon Tenant's occupancy
of the Premises, shall be assessed and taxed with the property of Landlord,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's occupancy or fixtures, furnishings,
equipment or personal property. Landlord shall pay any and all Real Estate Taxes
assessed and levied against Corporate Woods, in each case prior to the
respective delinquency dates thereof. If such taxes may be paid in installments,
Landlord shall have the right to do so.
24. BROKERAGE
Tenant and Landlord represent and warrant that they have dealt
with no broker, agent or other real estate sales person in connection with this
Lease other than Natapow Realty Corporation and that, other than as herein
expressly set forth, no broker, agent or such other person brought about this
transaction. Tenant and Landlord agree to indemnify and hold each other harmless
from and against any claims by any broker, agent or other real estate sales
person claiming a commission or other form of compensation by virtue of this
Lease or of having dealt with Tenant or Landlord with regard to this leasing
transaction and should a claim for such commission or other compensation be made
it shall be promptly paid or bonded by the party who has dealt with the person
or entity making such claim. The provisions of this Section shall survive the
termination of this Lease.
25. FORCE MAJEURE
Except as otherwise provided in this Lease and except as to
the payment of Rent or other monies due under this Lease neither party shall be
responsible for delays or inability to perform its obligations hereunder for
causes beyond the control of such party including acts of other tenants,
governmental restriction, regulation or control, labor dispute, accident,
mechanical breakdown, shortages or inability to obtain labor, fuel, steam,
water, electricity or materials, acts of God, enemy action, civil commotion, or
fire or other casualty.
26. PARKING
Subject to weather, necessary repair work and any force
majeure occurrences (as described above), Landlord shall provide Tenant, at no
cost, with at least 150 non-reserved parking spaces and 10 designated visitor
parking spaces, all available on a first--come, first--served basis in the
parking areas for the Building.
27. REPETITIVE DEFAULTS
In the event Tenant shall default (i) more than twice in any
twelve month period by failing to pay Rent on or before the 5th business
<PAGE>
30
day of the month when due or (ii) more than twice in any six month period in the
performance of any of its other obligations under this Lease, then,
notwithstanding that such defaults shall have each been cured within the
applicable grace period, Tenant shall no longer be entitled to any written
notice and grace period for a subsequent default but such default shall be
deemed deliberate and Landlord may thereafter enforce this Lease at law and/or
in equity.
28. DIRECTORY AND SIGNAGE
Tenant shall have the right to have its name and suite number
listed in the lobby directory, located in the lobby of the Building and in the
directory, to be placed on the exterior monument in front of the Building. All
such listings shall be in such size, lettering, color and form as are prescribed
by Landlord from time to time. In addition, Landlord shall provide Tenant with
suite signage at one primary entrance to Tenant's Premises on the first floor
and on the second floor of the Building. Such suite signage shall be in
accordance with the Building Standards set forth on Exhibit B attached hereto.
29. ENTRANCE AND EXIT TO PROPERTY
Landlord covenants and agrees that there shall be a double
entrance and exit lane at the entrance of the Premises. In addition, Landlord
covenants and agrees that a traffic signal shall be located at the entrance to
the Property and installed by the Government entity having jurisdiction.
30. SPECIAL STIPULATIONS
(a) No receipt of money by Landlord from Tenant after the
termination of this Lease or after the service of any notice or after the
commencement of any suit or after final judgment for possession of the Premises
shall reinstate, continue or extend the term of this Lease or affect any such
notice, demand or suit or imply consent for any action for which Landlord's
consent is required.
(b) No waiver of any default of Tenant or of Landlord
hereunder shall be implied from any omission by Landlord or Tenant, as the case
may be, to take any action on account of such default if such default persists
or be repeated, and no express waiver shall affect any default other than the
default specified in the express waiver and that only for the time and to the
extent therein stated.
(c) The term "Landlord" as used in this lease, so far as
covenants or agreements on the part of Landlord are concerned, shall be limited
to mean and include only the owner or owners of Landlord's interest in this
Lease at the time in question, and in the event of any transfer or transfers of
such interest Landlord herein named (and in case of any subsequent transfer, the
then transferor) shall be automatically freed and relieved from and after the
date of such transfer of all personal liability from events which occur after
the date of transfer.
<PAGE>
31
Any such release of Landlord under this paragraph shall become effective only at
such time as Landlord's transferee is deemed to be bound to the terms and
provisions of this Lease. It is understood, however, that Landlord shall
reimburse Tenant for any overpayments of Rent made by Tenant prior to the
assignment and any prepayment of Rent for months subsequent to the assignment.
(d) It is understood that Landlord may occupy portions of the
Building in the conduct of Landlord's business. In such event, all references
herein to other tenants of the Building shall be deemed to include Landlord as
an occupant.
(e) Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being dispossessed or removed from the Premises because of default by Tenant
pursuant to the covenants or agreements contained in this Lease.
(f) Tenant specifically agrees to look solely to Landlord's
equity interest in the Property for recovery of any judgment against Landlord.
There shall be absolutely no personal liability of persons, partnerships, firms,
corporations or other entities who at any time constitute the Landlord with
respect to any of the terms, covenants, conditions and provisions of this Lease.
(g) The parties acknowledge that each party and its respective
counsel have reviewed this Lease and that no rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall be
employed in the interpretation of this Lease or any amendment or exhibits
hereto.
31. QUIET ENJOYMENT
So long as Tenant shall observe and perform the covenants and
agreements binding on it hereunder and shall not be in default beyond any
applicable grace period, Tenant shall at all times during the term herein
granted peacefully and quietly have and enjoy possession of the Premises without
any encumbrance or hindrance by, from or through Landlord.
32. ESTOPPEL CERTIFICATE BY TENANT
Landlord and Tenant agree that from time to time upon not less
than five (5) days prior request of the other, to deliver to the party making
the request a statement in writing certifying (a) that this Lease is unmodified
and in full force and effect (or if there have been modifications that the same
is in full force and effect as modified and identifying the modifications), (b)
the dates to which the Rent and other charges have been paid, and (c) that, so
far as the person making the certificate knows, the other party is not in
default under any provision of this Lease, or if such were not to be the fact,
then certifying such default of which the person making the certificate may have
knowledge,
<PAGE>
32
it being understood that any such certificate so delivered may be relied upon by
any landlord under any ground or underlying lease, or any prospective purchaser,
lender, mortgagee, or any assignee of any mortgage on the Property or any party
purchasing the assets of Landlord or Tenant, as the case may be, or acquiring
the same by merger, succession or otherwise.
33. RENT DEPOSIT
Upon execution of this Lease, Tenant will deposit with
Landlord the sum of THIRTY-TWO THOUSAND SIX HUNDRED AND 00/100 DOLLARS
($32,600.00) as a deposit for the first monthly installment of Base Rent due
hereunder. Landlord shall credit this deposit against the first monthly
installment of Base Rent to be paid by Tenant after the expiration of the period
where Landlord waives Base Rent set forth in Section 3(i) herein.
34. SUBSTITUTE PREMISES
If the Premises contain an area of 2,500 square feet or less,
Landlord shall have the right at any time during the term hereof, upon giving
Tenant not less than sixty (60) days prior written notice, to provide and
furnish Tenant with space elsewhere in the Building of Corporate Woods of
approximately the same size as the Premises and remove and place Tenant in such
space, with Landlord to pay all reasonable costs and expenses incurred as a
result of such removal of Tenant. Should Tenant refuse to permit Landlord to
move Tenant to such new space at the end of said sixty (60) day period, Landlord
shall have the right to cancel and terminate this Lease effective ninety (90)
days from the date of original notification by Landlord. If Landlord moves
Tenant to such new space, this Lease and each and all of its terms, covenants
and conditions shall remain in full force and effect and be deemed applicable to
such new space, and such new space shall thereafter be deemed to be the Premises
as though Landlord and Tenant had entered into an express written amendment of
this Lease with respect thereto.
35. FINANCIAL STATEMENTS
Tenant shall provide Landlord with financial statements
detailing the financial condition of Tenant. Such statements shall be provided
on an annual basis (or more frequently if requested by Landlord) and shall be
verified by the affidavit of Tenant or if the same be a corporation by an
affidavit of its principal financial officer. Tenant shall further provide
Landlord such additional financial statements in such form and such
certifications as Landlord may from time to time reasonably request.
36. EXTENSION OF TERM
Tenant shall have the right to extend this Lease for one
additional five year term. Such extension shall be confirmed in writing
<PAGE>
33
by and between the parties and shall be made upon the same terms and conditions
set forth in this Lease (except this section relating to extension of term) and,
in particular, at the then applicable rent (including Base Rent, Additional Rent
and any other charges due hereunder) as increased in accordance with Section
3(b) of this Lease. Tenant must give written notice to Landlord of its desire to
extend this Lease on or before twelve (12) months before the expiration of the
initial term of this Lease and if within thirty (30) days after receipt from
Landlord of notice that Tenant has not given such notice, such notice is not
given by Tenant, this right to extend shall be null and void and of no further
force or effect whatsoever.
37. USE OF CONFERENCE FACILITY
During the first Lease Year of this Lease, Landlord shall
allow Tenant the right to use the Corporate Woods Conference Facility free of
charge. Such use by Tenant must be reasonable in the number of times such
facility is utilized by Tenant and is expressly subject to the availability of
the facility. In addition, Tenant must comply with all rules and regulations
regarding such facility. After the expiration of the first Lease Year, Tenant's
use of the facility shall thereafter be at the customary cost charged by
Landlord for such use. This Section of the Lease shall not apply with respect to
the RFO Premises in the event that Tenant exercises its right to lease RFO
Premises as provided in Section 38 hereof.
38. RIGHT OF FIRST OFFER
Tenant shall have a right of first offer to lease all of that certain
space located on the first floor of the Building, immediately adjacent and
contiguous to the Premises, and more particularly shown on Exhibit D attached
hereto (the "RFO Premises"), from and after the Commencement Date for the term
of this Lease, if and when the space becomes available, and on the condition
that Tenant is not in default of its covenants and obligations under this Lease
at the time the Landlord is required to give Landlord's Notice (described below)
nor as of the Commencment Date for the RFO Premises. Any lease of the RFO
Premises shall be upon the terms and conditions hereafter set forth:
(a) EXERCISE OF RIGHT TO LEASE RFO PREMISES. Landlord shall
give Tenant written notice ("Landlord's Notice") at the time that Landlord
intends to offer the RFO Premises for lease. Landlord's Notice shall set forth
the Total Usable Area of the new Premises (including the RFO Premises), Tenant's
new Pro Rata Share (including the Premises and RFO Premises based on the formula
set forth in Section 3(d) of this Lease), the Base Rent applicable to such new
Premises (including the RFO Premises, based on the formula set forth in Section
3(a) of this Lease) and the Commencement Date for the RFO Premises. The only
improvements to the RFO Premises which Landlord agrees to make is the Building
Standard Work set forth in Exhibit B hereto. The cost of those improvements
shall be allocated between Landlord and Tenant as follows: Landlord's share of
the costs shall be a fraction, the numerator of which is the number of
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34
months remaining in the initial term of this Lease at the time of Landlord's
Notice, and the denominator of which is the total number of months in the
initial term of this Lease, or, if Landlord's Notice is given during the
extension term, a fraction, the numerator of which is the number of months
remaining in the extension term and the denominator of which is the total number
of months in the extension term; and Tenant's share of the costs shall be the
balance; provided, however, if Landlord's Notice is given during the initial
term of the Lease, and Tenant, within thirty (30) business days after receipt of
Landlord's Notice, exercises its right to extend this Lease with respect to both
the Premises and the RFO Premises, as provided in Section 36 hereof, then
Landlord shall be responsible for the entire cost of said improvements to the
RFO Premises. Tenant shall have the right, exercisable upon written notice given
to Landlord within five (5)business days after the giving of Landlord's Notice,
to lease the RFO Premises. If Tenant fails to give such notice in the time
period set forth herein, Tenant shall have no further right to lease the RFO
Premises pursuant to this Section 38. Upon the timely giving of such notice,
Landlord shall lease the RFO Premises to Tenant, upon all of the terms and
conditions of this Lease except as hereinafter set forth.
(b) LEASE PROVISIONS APPLYING TO RFO PREMISES. Except as
otherwise provided herein, the leasing to Tenant of the RFO Premises shall be
upon all of the terms and conditions of this Lease.
(c) EXECUTION OF LEASE AMENDMENTS. Notwithstanding the fact
that Tenant's exercise of the above--described right of first offer to lease RFO
Premises shall be self--executing, the parties hereby agree promptly to execute
a lease amendment reflecting the addition of the RFO Premises, the adjustments
in Base Rent and Additional Rent as well as any modifications of the provisions
of the Lease as shall be necessary to properly include the RFO Premises within
the terms and conditions of this Lease.
39. MOVING ALLOWANCE
Landlord agrees to provide Tenant with a moving allowance (the
"Moving Allowance") in an amount not to exceed FIVE THOUSAND AND 00/100 DOLLARS
($5,000.00) which amount shall equal Tenant's actual van line carrier moving
expenses incurred in connection with Tenant's move to the Premises as evidenced
by actual invoices from such carrier, copies of which are to be furnished to
Landlord. The Moving Allowance shall be credited against the second monthly
installment of Base Rent to be paid by Tenant after the expiration of the period
where Landlord waives Base Rent set forth in Section 3(i) herein. This section
of the Lease shall not apply with respect to moving expenses incurred in the
event that Tenant exercises its right to lease RFO Premises as provided in
Section 38 hereof.
40. EXHIBITS
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35
Exhibits A through D are attached hereto and are made a part
of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively
signed and sealed this Lease as of the day and year first above written.
WITNESS: CORPORATE WOODS ASSOCIATES
/s/ By: /s/
- ----------------------------------- -------------------------------
Landlord
Its GENERAL PARTNER
WITNESS: GORDON S. BLACK CORPORATION
/s/ By: /s/
- ----------------------------------- -------------------------------
Landlord
Its Treasurer and Secretary
-------------------------------
<PAGE>
36
EXHIBIT "A"
LEGAL DESCRIPTION OF PROPERTY
ALL THAT TRACT OR PARCEL OF LAND, situate in part of Town of Brighton, County of
Monroe, State of New York more particularly described as follows:
Beginning at a point, said point being the following courses and distances from
the intersection of the south line of Interstate 390 and the west right-of-way
line of East Henrietta Road; N 36(degree)-31'--ll" W A distance of 88/04 feet; N
74(degree)-55'-26" W a distance of 284.81 feet; N 58(DEGREE)- 44'-36" W a
distance of 56.64 feet to the point and place of beginning.
Thence, 1-S 15(degree)-04'-34" W a distance of 317.18 feet to a point,
Thence, 2-S 87(degree)-18'--27" W a distance of 299.17 feet to a point of
curvature,
Thence, 3-Northwesterly along a curve having a radius of 210.00 a distance of
166.77 feet to a point of tangency,
Thence, 4-N 47(degree)-11'-33" W a distance of 265.96 feet to a point,
Thence, 5-S 87(degree)-l8'-27" E a distance of 116.25 feet to a point,
Thence, 6-N 02(degree)-41'--33" W a distance of 180.00 feet to a point,
Thence, 7-N 87(degree)-18'--27" E a distance of 422.14 feet to a point in THE
south line of Interstate 390,
Thence, 8-S 58(degree)-44'-36" E a distance of 233.60 feet to a point and PLACE
of beginning,
Intending to describe a parcel of land containing 5.42 acres and being Lot B of
the subdivision map of Corporate Woods filed in the Monroe County Clerk's Office
in Liber 236 of Maps, page 12.
<PAGE>
37
EXHIBIT "A"
(cont.)
FLOOR PLANS
<PAGE>
38
First Floor Plan
Bldg. 135
Corporate Woods
<PAGE>
39
Second Floor Plan
Bldg. 135
Corporate Woods
<PAGE>
40
EXHIBIT "A" (CONT.)
SITE PLAN
CORPORATE WOODS OF BRIGHTON
<PAGE>
41
EXHIBIT "B"
BUILDING STANDARD WORK
The items detailed herein are set forth for the purpose of serving as the
minimum standards for the Leasehold Improvements (as defined in the Lease) and
the ratios and square footage allocations set forth herein are not intended to
be binding but instead are to serve as guidelines.
A. LOBBY WALLS AND CORE WALLS
1. FINISH
The exposed surfaces are to receive a wall covering finish.
The atrium lobby will have 9 skylights, oak railings and granite floors or
equal. The second and third floor lobbies will have laminated glass set in solid
oak frames.
2. DOORS-FRAMES
Solid core doors with oak veneer, 3' x 8' x 1 3/4" in
dimension, will be installed in oak frames, except building stairwell doors
which shall be installed in hollow metal frames.
3. HARDWARE
Each swing door shall be provided with a minimum of one and
one-half pairs of butts, a latch set, or lockset where required. A surface
mounted door closer will be provided at such additional locations as may be
required by the local code. All hardware shall be Schlage (or equal).
4. ELEVATORS
Both elevators will have brushed bronze trim and doors with a
natural oak formica interior, bronzed mirror ceilings and recessed lights. One
elevator will have a service door with a baked enamel finish and trim facing the
west side entrance way to the Building. Ceilings in front of the elevators on
all three floors will be mirrored bronze material.
B. PARTITIONS AND DOORS
1. PARTITIONS SEPARATING PREMISES (DEMISING & CORRIDOR)
a. PARTITIONS
Partitions separating premises shall be constructed of metal
studs with one layer of 1/2" gypsum board on each side and one
layer of 1/2" sound board on one side, with each layer of the
gypsum board extending to the underside of the floor
construction above. The wall cavity will be filled with 3 1/2"
fiberglass sound batt insulation.
b. TENANT ENTRANCE DOOR
All doors shall have oak door frames and casings. The 8'0"
height doors shall be solid core oak and shall be provided
with two pairs of butts, a lockset, and a doorstop where
required. A door closer will be provided for the principal
entrance to the premises and at such additional locations as
may be required by the local code. The locksets provided at
the entrance will be master keyed to building standard and
shall
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42
be Schlage or equal. Additionally, Landlord shall install a
2'6" x 8'0" glass sidelite with laminated safety glass next to
the entrance door.
c. SECONDARY EGRESS DOOR
Secondary egress doors shall be provided as required by the
local code. The 8'0" height doors shall be solid core oak
doors set in oak frames. Hardware shall be Schlage or equal.
2. PARTITIONS SEPARATING OFFICE WITHIN PREMISES
a. PARTITIONS
These partitions shall be constructed of metal studs with one
layer of 1/2" gypsum board on each side extending to the
ceiling.
b. SOUND REDUCTION
Landlord can, at Tenant's expense, install sound reduction
material consisting of one layer of 1/2" sound deadening board
and, in the wall cavity, 3 1/2" fiberglass sound batt
insulation.
c. DOORS WITHIN PREMISES
Swing doors shall have solid oak door frames. Each 8'0" height
door shall be solid core with oak veneer and shall be provided
with one and one-half pairs of butts, a latch set, and a
doorstop where required. All hardware shall be Schlage or
equal. The number of doors shall not exceed one door for each
250 square feet of total usable area.
3. STANDARD QUANTITY OF PARTITIONS
Total lineal footage of partitions shall not exceed one lineal
foot for each 15 square feet of Total Usable Area.
4. FLOORING AND WALL BASE
a. Tenant shall choose a carpet and/or a resilient vinyl tile
(where required) from Landlord's selection. The Landlord shall, at his expense,
install the selected carpet and/or resilient vinyl tile where designated by
Tenant's contract documents.
b. WALL BASE VINYL
The Landlord shall install a 4" vinyl wall base where
designated by the Tenant's contract documents. The Landlord's
architect shall assist, select and/or approve material.
Provide vinyl wall base in "roll" quantity.
<PAGE>
43
C. CEILINGS
1. Mechanically suspended acoustic tile ceilings shall be mineral fiber,
Class "A" (non--combustible), 2' by 2' fissure--pattern, sound
absorbent.
2. The Building will be fully sprinklered and sprinkler heads will be
flush mounted in all finished office spaces.
D. LIGHTING
1. Recessed fluorescent lighting fixtures with parabolic lens (2' x 4')
with three (3) 34 watt rapid start tubes shall be installed by
Landlord. One such fixture shall be installed per 100 square feet
(average) of Total Usable Area. Where required by design conditions,
smaller recessed fluorescent fixtures may be substituted at Landlord's
option.
2. Miscellaneous fixtures, fluorescent and/or incandescent, shall be
installed in mechanical spaces, toilet areas, stairwell and utility
areas to conform to building operation requirements and existing
codes.
3. Wall switches of the single pole, quiet type, to the extent of one
switch for each ten lighting fixtures averaged, shall be installed by
the Landlord. Each private office shall have one wall switch.
E. ELECTRICAL AND TELEPHONE
1. Duplex wall, base and floor receptacles (llOv non-dedicated) shall be
installed by the Landlord. The Landlord will provide such receptacles
at a ratio not to exceed one (1) per 125 square feet of Total Usable
Area. Floor mounted receptacles shall not exceed 10% of the total
number of allowed receptacles.
2. Power wiring circuits, including terminal device (277 Volt, 3 Phase,
grounded) shall be made available to Tenant as may be agreed between
the parties in connection with Tenant equipment at the rate of one per
6,000 square feet of Total Usable Area.
3. Installation and expense of the wiring by the telephone company is the
responsibility of the Tenant and shall conform to the National
Electrical Code (Article 800, Paragraph 3, Section D).
F. PLUMBING
Wet stacks are available on the typical office floor containing cold and
hot water, waste and vents. Tenant equipment can be connected at these points by
the Landlord at the Tenant's expense. This would encompass such items as private
restrooms, wet bars, showers and kitchens.
G. PAINTING AND WALL COVERING
1. All wall surfaces shall receive a finish coat of building standard
flat oil off--white paint over one prime coat, or equal. Oak doors,
frames and casings shall have a natural finish of one coat of sealer
and one coat of varnish. Metal frames shall be finish coated with two
coats of semi--gloss enamel.
<PAGE>
44
2. Where the Tenant desires wall covering, the Landlord shall initially
prepare walls to receive wall covering as designated by the Tenant.
Such wall covering shall be furnished and installed at the Tenant's
expense unless otherwise noted as agreed to between the respective
parties. Wall covering shall be subject to the Landlord's approval
prior to installation.
3. Public areas, corridors and lobbies on multi--tenant floors shall be
finished in accordance with the Landlord's Architect's finish
schedule.
H. SUN--CONTROl
The Landlord shall install building standard metal horizontal blinds to be
Levelor or equal.
I. MECHANICAL
The Landlord shall install supply air ceiling diffusers to the extent of
one (1) diffuser per every 200 square feet of Total Usable Area.
J. HEATING AND AIR CONDITIONING SYSTEMS
1. The heating and air conditioning systems shall be designed to maintain
interior temperatures for the comfortable use and occupancy of the
space during business hours.
2. Heating and cooling provided by decentralized electrohydronic water
source heat pumps with one unit per 1500 square feet (average) of
Total Usable Area.
3. The heat pump units are individually thermostatically controlled and
are operable at any time of the day.
4. Any supplemental or additional heating and thermostatic and/or air
conditioning systems required by the Tenant shall be at the expense of
the Tenant and only with the approval of the Landlord.
K. SECURITY SYSTEM
1. A security subsystem will be installed which shall include one
sub--zone control panel (key pad) located at Tenant's primary entrance
and two passive infrared beams (heat sensors) fire horn and smoke
alarm.
2. If Tenant desires, and with Landlord's approval, additional sub-zone
control panels, passive infrared beams and other security features may
be installed in Tenant's suite at Tenant's sole expense.
L. OTHER
Any and all other materials in excess of either the quantity or quality of
Landlord's "Building Standard" shall be installed by Landlord, subject to its
prior approval, at Tenant's expense.
<PAGE>
45
EXHIBIT "C"
CLEANING SCHEDULE
NIGHTLY - GENERAL:
1. Empty ashtrays and pick up paper.
2. Clean all drinking fountains.
3. High traffic carpeted areas vacuum cleaned.
4. Floors, other than carpet, swept.
5. Empty waste baskets and dust furniture.
6. Clean floors, main lobby and public corridor.
7. Freshen all public corridor and lobby sand urns.
8. Clean interior of all elevator cabs including floor.
9. Clean exterior of main lobby hatch doors (elevators).
10. Clean main lobby doors.
11. Sweep sidewalks.
NIGHTLY -- LAVATORIES:
1. All flooring washed nightly.
2. All mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges washed and polished
nightly.
3. All basins, bowls, urinals and toilet lids (both sides) washed
nightly.
4. All partitions, tile walls, dispensers and receptacles dusted
nightly.
5. Paper towel and sanitary disposal receptacles emptied and cleaned
nightly.
6. Dispensers filled with supplies.
WEEKLY:
1. All carpeted areas vacuum cleaned.
AT REGULAR INTERVALS:
1. Wash all toilet walls.
2. Dust A/C wall and ceiling grills, wall hangings.
3. Clean exterior windows, inside and out.
<PAGE>
46
EXHIBIT "D"
FLOOR PLAN
RIGHT OF FIRST OFFER
<PAGE>
47
[GRAPHIC OMITTED]
<PAGE>
LEASE AMENDMENT
LEASE AMENDMENT, dated March 11, 1993, (the "Amendment) by and between
CORPORATE WOODS ASSOCIATES (the "Landlord") and GORDON S. BLACK
CORPORATION ("Tenant").
WITNESSETH
WHEREAS, the Tenant leased approximately 26,080 square feet located on
the first and second floors (the "Premises") of the building known as 135
Corporate Woods of Brighton, Town of Brighton, County of Monroe, State of New
York pursuant to a lease dated April 12, 1991, (the "Lease"); and
WHEREAS, Landlord and Tenant now mutually desire to amend the Lease as
herein set forth and are executing and delivering this Amendment for that
purpose.
NOW, THEREFORE, the parties hereto, in consideration of the covenants,
agreements and terms, provisions, stipulations and conditions therein,
contained, hereby amend the Lease in the following respects, and only in the
following respects.
1. Section 3 (c) REAL PROPERTY TAXES of the Lease is hereby modified and
amended as follows:
"Tenant shall pay to Landlord each year, as Additional Rent, a sum
equal to the amount by which the real estate taxes and other
assessments (collectively the "Real Property Taxes" as below
defined) allocable to and levied against the Premises during such
year exceed the sum of FORTY THREE THOUSAND FIVE HUNDRED AND 00/100
DOLLARS ($43,500.00)..."
2. DEFINITIONS All terms defined in the Lease and used but not defined
herein shall have the meaning set forth in the Lease.
3. APPLICABILITY OF AMENDMENT As amended hereby, the Lease shall continue
unamended and in full force and effect. In the event of a conflict between the
provisions of this Amendment and the Lease, the provisions of this Amendment
shall control.
<PAGE>
--2--
IN WITNESS WHEREOF, the Landlord and the Tenant have respectively signed
this Amendment as of the day and year first above written.
Witness GORDON S. BLACK CORPORATION
_______________________ By:______________________________
Its:_____________________________
Witness CORPORATE WOODS ASSOCIATES
_______________________ By:______________________________
Stephen D. Natapow
Its: Partner
<PAGE>
SECOND LEASE AMENDMENT
SECOND LEASE AMENDMENT, dated January 1, 1996, (the "Second Amendment") by
and between CORPORATE WOODS ASSOCIATES, LLC (the "Landlord") and GORDON S. BLACK
CORPORATION, (the "Tenant").
WITNESSETH
WHEREAS, the Tenant leased approximately 26,080 square feet located on the
first and second floors (the "Premises") of the building known as 135 Corporate
Woods of Brighton, Town of Brighton, County of Monroe, State of New York
pursuant to a tease dated April 12, 1991 and subsequent Lease Amendment dated
March 11, 1993 (collectively the "Lease");
WHEREAS, Tenant shall hire and lease from Landlord an additional 1,560
square feet of Total Usable Area (the "Expansion Premises") located on the first
floor of the Building whereby revising the total leased premises to 27,640
square feet. Further, Landlord shall amend the term of the original lease to
expire December 31, 1995 and simultaneously enter into a new lease term for
seven (7) years, six (6) months commencing January 1,1996.
WHEREAS, Landlord and Tenant now mutually desire to amend the Lease as
herein set forth and are executing and delivering this Amendment for that
purpose.
NOW, THEREFORE, the parties hereto, in consideration of the covenants,
agreements and terms, provisions, stipulations and conditions therein contained,
hereby amend the Lease in the following respects, and only in the following
respects.
1. The "Witnesseth" section of the Lease is hereby amended in relevant
part only as follows:
"Landlord hereby leases unto Tenant and Tenant hereby accepts from
Landlord, that certain space consisting of approximately 27,640
square feet of Total Usable Area, located on the first and second
floors (the "Premises") of the building (the "Building"), Suite 150
and 200, known as Building 135 Corporate Woods of Brighton, Town Of
Brighton ..."
2. Section 1(a) Date of commencement of the Lease is amended where
applicable to reflect the term for this Amendment to read as follows:
<PAGE>
"...the term of this Amendment shall commence on January 1,1996 (the
"commencement Date"), however, Tenant shall not be required to remit
monthly Base Rent or Additional Rent for the Expansion Area
comprised of approximately 1,560 square feet of Total Usable Area
until the date on which Landlord has substantially completed with
respect to the Expansion Premises, all Building Standard Work
applicable to that area, subject only to punchlist items and
non-building standard work, if any to be performed by Tenant. The
term as so commenced shall end at midnight on June 30, 2003.
Landlord shall notify Tenant, in writing, at least two (2) weeks
prior to that date on which substantial completion shall occur of
the Expansion Premises and Tenant shall begin remitting monthly Base
Rent payments as detailed in Section 4 herein."
3. Section 1(b) is hereby modified in relevant part only to reflect that
the required plans and specifications shall be submitted to the Landlord in a
timely manner, but no later than March 15, 1996.
4. The Annual Base Rent as detailed in Section 3(a) Base Rent is hereby
deleted in relevant part only and replaced with the following Base Rent
pertinent to this Amendment:
Period Annual Monthly
------ ------ -------
1/1/96 - 12/31/96* $ 37,429.16
1/1/97 - 12/31/97 $457,441.92 $ 38,120.16
1/1/98 - 12/31/98 $465,733.92 $ 38,811.16
1/1/99 - 12/31/99 $476,790.00 $ 39,732.50
1/1/00 - 12/31/00 $487,845.96 $ 40,653.83
1/1/01 - 12/31/01 $498,901.92 $ 41,575.16
1/1/02 - 12/31/02 $509,958.00 $ 42,496.50
1/1/03 - 6/30/03 --- $ 43,417.83
* Landlord and Tenant agree that Landlord shall abate payment of the
Monthly Base Rent due for the Expansion Premises only until Landlord has
substantially completed those leasehold improvements at which time Tenant shall
begin remitting the applicable monthly Base Rent payments. Tenant shall remit
monthly Base Rent payments for the Existing Premises commencing January 1, 1996.
5. Section 3(b) Annual Increase In Base Rent is deleted in its entirety.
<PAGE>
6. Section 3(c) Real Property Taxes is hereby amended in relevant part
only adjusting Tenant's Base Expense Stop to $69,100.00.
<PAGE>
7. Section 3(d) Tenant's Share of Real Property Taxes is hereby amended to
adjust Tenant's Pro-Rata Share to 46.067% to reflect the Expansion Premises.
8. Section 3(i) Waiver of Base Rent is hereby deleted in its entirety.
9. The first paragraph of Section 4 of the Lease Leasehold Improvements is
hereby deleted and replaced with the following:
"Except as Otherwise provided herein, Landlord covenants and agrees
to provide certain leasehold improvements in the Expansion Premises
only, at Tenant's expense, in accordance with the final Plans and
Specifications and finish schedules (collectively the "Leasehold
Improvements"). Landlord agrees to provide Tenant an allowance
("Landlord's Allowance") for the Leasehold Improvements (except as
otherwise set forth herein) which Landlord's Allowance shall not
exceed $20.00 per square feet of the Expansion Premises or
$31,200.00. The quality of all Leasehold Improvements shall equal or
exceed the standards set forth as Building Standard Work on Exhibit
"B" of the Lease... In the event that the cost of the Leasehold
Improvements does not equal the amount of Landlord's Allowance set
forth herein, Tenant may use any remaining portion of the Allowance
toward leasehold improvements within the Existing Premises or apply
the credit toward monthly Base Rent due the Landlord. Tenant shall
notify Landlord, in writing, as to how the credit, if any, shall be
applied. If the total cost of the Leasehold Improvements exceeds
Landlord's Allowance as above stated, Tenant shall, upon receipt of
Landlord's notice and invoice, reimburse Landlord in full for the
excess cost differential within thirty (30) days of receipt thereof.
With respect to any Leasehold Improvement requested by Tenant to be
performed on the second floor of the Premises, Landlord shall
perform such work at Tenant's sole cost and expense, however, any
excess credit to the Expansion Premises may be applied to Landlord's
cost therein."
10. Section 5(c) of the Lease Cleaning is hereby amended in relevant part
only to change the estimate from "$.80" per square foot of Total Usable Area to
"$.85" per square foot of Total Usable Area.
11. Section 5(f) of the Lease Electric Energy is hereby amended in
relevant
<PAGE>
part only to change the estimate from "$1.00" per square foot of Total Usable
Area to "$2.25" per square foot of Total Usable Area based on Tenant's history
of actual consumption.
12. Section 5(k) of the Lease lnterruptions in Service is modified as
follows:
"...or by reason of operation of law, or other causes beyond the
reasonable control of Landlord, however, Landlord shall exercise
reasonable diligence in causing the services to be restored. No such
interruption of service..."
13. The second paragraph of Section 6 of the Lease Waiver of Certain
Claims is hereby deleted in its entirety and replaced with the following:
"If any property damage results from any act or neglect of Tenant or
Landlord, either party may, at its option, after written notice to
the other (except in the case of an emergency where no notice is
necessary), repair such damage and the other party shall thereupon
pay to the other so much of the total cost of such repair or
replacement as it is not covered or paid to the other under their
respective insurance policies, including the amount of any
deductible, as well as so much of the total cost of such repair as
exceeds any insurance proceeds either party receives in respect of
such damage".
14. Section 8 of the Lease Holding Over is hereby deleted in its entirety
and replaced with the following:
"If Tenant fails to vacate the Premises at the expiration of this
Lease or any extension period thereof, if extended, then Tenant
shall pay Landlord Base Rent at double the monthly rate specified
herein for the time Tenant thus remains in possession. The
provisions of this Section do not exclude Landlord's rights of
re-entry or any other right or remedy of Landlord hereunder".
15. The first paragraph of Section 12 Of the tease Repairs is hereby
modified as follows:
"...shall keep in repair and maintain the exterior of the
Building and its structural components, such as the electrical,
heating...."
<PAGE>
The following language is hereby added to the end of the last
paragraph of Section 12 Of the Lease Repairs as follows:
<PAGE>
..."The landlord shall be responsible for complying with all laws to
the extent they relate to structural components including those
items as detailed in this Section 12."
16. The third line of Section 13(a) of the Lease Destruction of Premises
is hereby modified as follows:
"damage by fire or other causes, the damage shall be repaired
promptly..."
17. The second paragraph only of Section 16(e) of the Lease Damages and
Acceleration is hereby deleted in its entirety.
18. Section 36 Extension of Term shall remain as stated therein.
19. Sections 37, 38 and 39 Use of Conference Facility. Right of First
Offer and Moving Allowances are hereby deleted in their entirety.
20. Definitions All terms defined in the tease and used but not defined
have the meaning set forth in the Lease.
21. Applicability of Amendment As amended hereby, the Lease shall continue
unamended and in full force and effect. In the event of a conflict between the
provisions of this Second Amendment and the Lease, the provisions of this
Amendment shall control.
IN WITNESS WHEREOF, the Landlord and the Tenant have respectively signed
this Amendment as of the day and year first above written.
GORDON S. BLACK CORPORATION
Witness________________ By:______________________________
Its:_____________________________
CORPORATE WOODS ASSOCIATES, LLC
Witness________________ By:______________________________
Its:_____________________________
<PAGE>
THIRD LEASE AMENDMENT
THIRD LEASE AMENDMENT, dated January 6,1999, (the "Third Amendment") by
and between CORPORATE WOODS ASSOCIATES, LLC (the "Landlord") and GORDON S. BLACK
CORPORATION (the "Tenant").
WITNESSETH
WHEREAS, Tenant leased approximately 27,640 square feet located on the
first and second floors (the "Premises") of the building known as 135 Corporate
Woods of Brighton, Town of Brighton, County of Monroe, State Of New York
pursuant to a Lease dated April 12, 1991 and subsequent Lease Amendments dated
March 11, 1993 and January 1,1996, (collectively the "Lease");
WHEREAS, effective upon the termination of the Sublease Agreement between
Tenant and Marsh Capital Management, Inc., Tenant shall hire and direct lease
from Landlord an additional 3,022 square feet of Total Usable Area (the "Second
Expansion Premises") located on the first floor of the Building whereby revising
the total leased premises to 30,662 square feet.
WHEREAS, Landlord and Tenant now mutually desire to amend the Lease as
herein set forth and are executing and delivering this Amendment for that
purpose.
NOW, THEREFORE, the parties hereto, in consideration of the covenants,
agreements and terms, provisions, stipulations and conditions therein contained,
hereby amend the Lease in the following respects, and only in the following
respects.
1. The "Witnesseth" section of the Lease is hereby amended in relevant
part only as follows:
"Landlord hereby leases unto Tenant and Tenant hereby accepts from
Landlord that certain space consisting of approximately 30,662 square feet of
Total Useable Area, located on the first and second floors (the "Premises") of
the Building (the "Building"), Suite 150, 160 and 200, known as Building 135
Corporate Woods of Brighton, Town of Brighton..."
2. Section 1(a) Date of Commencement of the Lease is deleted in its
entirety and replaced with the following:
"...the term of this Third Amendment shall commence on February 1, 1999
(the "Second Expansion Premises Commencement Date"). The term as so commenced
shall end at midnight on June 30, 2003."
<PAGE>
3. Sections 1(b), 1(c), 1(d) and 1(e) are hereby deleted for purposes of
this Third Amendment.
4. The Annual Base Rent as detailed in section 3(a) Base Rent is hereby
deleted in relevant part only and replaced with the following Base Rent
pertinent to this Third Amendment:
Period Annually Monthly
------ -------- -------
2/1/99 - 12/31/99 ----- $44,076.63
1/1/00 - 12/31/00 $541,184.30 $45,098.70
1/1/01 - 12/31/01 $553,449.10 $46,120.76
1/1/02 - 12/31/02 $565,713.90 $47,142.83
1/1/03 - 6/30/03 ----- $48,164.90
5. Section 3(c) Real Property Taxes is hereby amended in relevant part
only adjusting Tenant's Base Expense Stop to $74,388.50.
6. Section 3(d) Tenant's Share Of Real Property Taxes is hereby amended to
adjust Tenant's Pro-Rata Share to 51.107%.
7. For purposes of this Third Lease Amendment, the first paragraph of
Section 4 Leasehold lmprovements is hereby deleted in its entirety and replaced
with the following:
"Tenant shall accept the Second Expansion Premises in its "as is"
condition".
8. Section 5(c) Cleaning of the Lease is hereby modified in relevant part
to reflect $.95 per square foot, plus any additional services requested by
Tenant over and above the Landlord's Cleaning Schedule attached as Exhibit "C"
of the Lease.
9. Further, by virtue Of Tenant's execution of this Third Lease Amendment,
Tenant hereby confirms to Landlord that Tenant is exercising its option to
extend the term of the Temporary Lease dated July 31, 1998, for Tenant's leased
Premises consisting of 5,386 square feet of space located in Building 175
Corporate Woods for one (1) additional six (6) month term, thus, the term for
said Temporary Space shall expire July 31, 1999.
10. Definitions All terms defined in the Lease and used but not defined
herein shall have the meaning set forth in the Lease.
2
<PAGE>
11. Applicability of Amendment As amended hereby, the Lease shall continue
unamended and in full force and effect. In the event of a conflict between the
provisions of this Third Amendment and the Lease, the provisions of this
Amendment shall control.
IN WITNESS WHEREOF, the Landlord and the Tenant have respectively signed
this Amendment as of the day and year first above written.
GORDON S. BLACK CORPORATION
Witness _______________________ By: _______________________________
Its: _______________________________
CORPORATE WOODS ASSOCIATES, LLC
Witness _______________________ By: _______________________________
Stephen D. Natapow
Its: Member
3
<PAGE>
V-C
FOURTH LEASE AMENDMENT
FOURTH LEASE AMENDMENT, dated July 27, 1999, (the "Fourth Amendment") by
and between CORPORATE WOODS ASSOCIATES, LLC (the "Landlord") and GORDON S. BLACK
CORPORATION (the "Tenant").
WITNESSETH
WHEREAS, Tenant leased approximately 30,662 square feet located on the
first and second floors (the "Premises") of the building known as 135 Corporate
Woods of Brighton, Town of Brighton, County of Monroe, State of New York
pursuant to a Lease dated April 12, 1991 and subsequent Lease Amendment dated
March 11, 1993, January 1, 1996, and January 6, 1999 (collectively the "Lease");
WHEREAS, Tenant shall hire and lease from Landlord an additional 23,033
square feet of Total Rentable Area (the "Third Expansion Premises") located on
the first and second floors of the Building known as 60 Corporate Woods, hereby
revising the total combined leased premises in both Buildings 60 and 135
Corporate Woods to 53,695 square feet.
WHEREAS, Landlord and Tenant now mutually desire to amend the Lease as
herein set forth and are executing and delivering this Amendment for that
purpose. The terms and conditions contained herein shall be applicable to
Tenant's Leased Premises at 60 Corporate Woods in addition to those pertaining
to Tenants Leased Premises in 135 Corporate Woods.
NOW, THEREFORE, the parties hereto, in consideration of the covenant,
agreements and terms, provisions, stipulations and conditions therein contained,
hereby amend the Lease in the following respects, and only in the following
respects.
1. The "Witnesseth" section of the Lease is hereby amended in relevant
part only as follows:
"In addition to Tenant's leased Premises in Building 135 Corporate
Woods, Landlord hereby leases unto Tenant and Tenant hereby accepts
from Landlord that certain space consisting of approximately 23,033
square feet of Total Rentable Area, located on the first and second
floors (the "Premises) of the Building (the "Building") Suite 200
known as Building 60 Corporate Woods of Brighton, Town Of
<PAGE>
Brighton..."
2. Section 1(a) Date of Commencement of the Lease is hereby modified to
include the following:
"The term of this Fourth Amendment shall commence on August 1, 1999
(the "Third Expansion Premises Commencement Date"). The term as so
commenced shall end at midnight on June 30, 2003."
3. Commencing December 1, 1999, and continuing each month thereafter, the
Annual Base Rent as outlined in section 3(a) Base Rent is hereby modified as
follows to include the Base Rent due for Tenant's leased Premises at Building 60
Corporate Woods:
Period Annually Monthly
------ -------- -------
12/1/99 - 6/30/01 $368,528.04 $30,710.67
7/1/01 - 6/30/03 $380,044.56 $31,670.38
4. Section 3(c) Real Property Taxes is hereby amended in relevant part to
reflect Tenant's Base Expense Stop for Building 60 shall be the 2000 Town &
County Taxes and the 1999/2000 School Taxes applicable to the Building.
5. Section 3(d) Tenant's Share of Real Property Taxes is hereby amended to
reflect Tenant's Pro-Rata Share of Building 60 to be 38.4%.
6. For purposes of this Fourth Lease Amendment, the first paragraph of
Section 4 Leasehold Improvements is hereby defined as follows:
"Tenant shall accept the Third Expansion Premises in its "as is"
condition, however, Landlord shall, at its expense, remove all
existing carpeting in the first floor reception area and on the
entire second floor.
Any and all work as requested by Tenant shall be performed by
Landlord at Tenant's sole cost and expense. Landlord and Tenant
hereby agree that any and all such unit pricing relative to the
Third Expansion Premises Leasehold Improvements provided by Landlord
to Tenant shall be adjusted to reflect a 15% construction management
fee instead of the customary 20% fee.
Tenant shall have the option to amortize any and all leasehold
improvement costs relative to work performed at
<PAGE>
Building 60 over the term of this Fourth Lease Amendment at an
interest rate of 10% per annum. Should Tenant elect to exercise this
option, Landlord and Tenant shall enter into an agreement outlining
applicable monthly amortization costs due the Landlord."
7. Commencing October 1, 1999, Section 5(c) Cleaning of the Lease is
hereby modified in relevant part to reflect $1.00 per square foot of Total
Rentable Area for cleaning Tenant's leased Premise in 60 Corporate Woods in
accordance Landlord's Cleaning Schedule attached as Exhibit "C" of the Lease.
8. Commencing October 1,1999, all applicable terms and conditions
pertaining to Section 5(f) Electric Energy of the Lease are hereby deemed to be
applicable to Tenant's leased Premises in 60 Corporate Woods.
9. Section 40 Exclusive Right to Lease is hereby added to and shall become
part of the Lease as herein provided:
"Tenant warrants that, in the event its firm is listed on a stock
exchange as a publicly traded company prior to October 31, 1999,
commencing November 1, 1999, Tenant shall lease from Landlord
approximately 10,000 square feet of Total Rentable Area located on
the north side of the first floor of Building 60 as more
particularly shown on Exhibit "A-I" attached hereto. All terms and
conditions for this additional space shall be those same terms and
conditions contained herein. Landlord and Tenant hereby agree to
enter into an agreement outlining applicable terms and conditions
relative to this provision."
10. Section 41 Right Of First Offer is hereby added to and shall become
part of this Fourth Lease Amendment as follows:
Any time prior to June 30, 2001, Tenant shall have a right of first
offer to lease any remaining space located on the first floor of the
Building, as more particularly shown on Exhibit "A-I" attached
hereto (the "RFO Premises") upon the terms and conditions hereafter
set forth:
(a) Exercise of Right to Lease RFO Premises. Landlord shall give
Tenant written notice ("Landlord's Notice", more particularly
described below) that Landlord intends to offer the RFO Premises for
lease.
<PAGE>
(b) Landlord's Notice. Landlord's Notice shall set forth the Base
Rent applicable to such RF0 Premises, Tenant's new Pro Rata Share
(including the Premises and RFO Premises based on the formula set
forth in Section 3(d) of the Lease, the Commencement Date for the
RFO Premises and the Expiration Date for the RFO Premises. Tenant
shall have the right, exercisable upon written notice given to
Landlord within ten (10) days after the giving of Landlord's Notice,
to lease the RFO Premises. If Tenant fails to give such notice in
the time period set forth herein, Tenant shall have no further right
to lease the RFO Premises pursuant to this Section 41. Upon the
timely giving of such notice, Landlord shall lease the RFO Premises
upon all of the terms and conditions of this Lease except as
hereinafter set forth.
(c) Lease Provisions Applying to RFO Premises. The leasing to Tenant
of the RFO Premises shall be at the same cost per square foot and
upon all of the terms and conditions of this Lease unless stated
otherwise in Landlord's Notice and except that the RFO Premises
shall be delivered by Landlord and accepted by Tenant in its "as is"
condition.
(d) Tenant Default. lf Tenant is in default under this Lease on the
date written notice is given to Tenant by Landlord or at any time
thereafter prior to the date the RFO Premises is occupied by Tenant,
then, at Landlord's option, Tenant's rights pursuant to this Section
shall lapse and be of no further force or effect.
(e) Execution of Lease Amendments. Notwithstanding the fact that
Tenant's exercise of the above-described right of first offer to
lease RFO Premises shall be self-executing, the parties hereby agree
promptly to execute a lease amendment reflecting the addition of the
RFO Premises as well as any modifications of the provisions of the
Lease as shall be necessary to properly include the RFO Premises
within the terms and conditions of this Lease."
11. Further, by virtue of Tenant's execution of this Fourth Lease
Amendment, Tenant hereby confirms to Landlord that Tenant is exercising its
option to extend the term of the Temporary Lease dated July 31, 1998, for
Tenant's leased Premises consisting of 5,386 square feet of space located in
Building 175 Corporate Woods for one (1) additional one (1) month term, thus,
the term for said Temporary Space shall expire August 31, 1999.
<PAGE>
12. Definitions All terms defined in the Lease and used but not defined
herein shall have the meaning set forth in the Lease.
13. Applicability of Amendment As amended hereby, the Lease shall continue
unamended and in full force and effect and all terms and conditions of said
lease not specifically addressed herein shall be binding and applicable to
Tenant's leased Premises at both 60, 135 and 175 Corporate Woods, as the case
may be. In the event of a conflict between the provisions of this Fourth
Amendment and the Lease, the provisions of this Amendment shall control.
<PAGE>
IN WITNESS WHEREOF, the Landlord and the Tenant have respectively signed
this Amendment as of the day and year first above written.
GORDON S. BLACK CORPORATION
Witness________________ By:______________________________
Its:_____________________________
CORPORATE WOODS ASSOCIATES, LLC
Witness________________ By:______________________________
Its:_____________________________
<PAGE>
Exhibit 10.6.2
LEASE
THIS LEASE AGREEMENT (the "Lease") is made this 1st day of July, 1998, by and
between CARLSON PARK ASSOCIATES, a New York general partnership, having an
office at: 100 Carlson Road, Rochester, NY 14610 (hereinafter called
"Landlord"), and GORDON S. BLACK CORPORATION, a New York corporation, having a
notice address at: 135 Corporate Woods, Rochester, NY 14623 (hereinafter called
"Tenant").
WITNESSETH
ARTICLE 1. DEMISED PREMISES.
Landlord hereby leases to Tenant, and the Tenant hereby rents from the Landlord
that area on the plan attached hereto as Exhibit "A" (hereinafter sometimes
called the "Demised Premises" or the "Premises"), in building section 10-A-1
(hereinafter collectively referred to as the "Building") situated at 70 Carlson
Road, Carlson Park, Rochester, New York (all such real estate of Landlord
hereinafter referred to as the "Land"), together with the non-exclusive right to
the parking areas shown on Exhibit "B".
The Demised Premises consist of a space, containing approximately 13,780 square
feet ("Floor Area"). The purpose of Exhibit "A" is to show the approximate
location of the Demised Premises.
ARTICLE 2. TERM.
To have and to hold the Demised Premises for a term of ten (10) years, to
commence on Substantial Completion of the Work (as hereafter defined) (the
"Commencement Date"). Tenant shall have the right, provided no Event of Default
then exists or occurs prior to the termination date, to terminate the Lease at
any time beginning six (6) years from the Commencement Date by providing no less
than six (6) months' written notice and a certified check or cashier's check in
the amount shown on Exhibit "C" attached hereto consistent with the date notice
is given. If Tenant fails to provide such payment with notice or an Event of
Default then exists or thereafter occurs, Tenant shall not have the right to
terminate the Lease until one (1) year following the notice then sent.
ARTICLE 3. MINIMUM RENT
Tenant shall pay to Landlord as a minimum guaranteed rent ("Minimum Rent") for
each year of the lease term the amounts shown on Exhibit "D" attached hereto
payable in monthly installments as shown on Exhibit "D" attached hereto. All
such payments shall be made in advance on or before the first day of each
calendar month during the term of this Lease, without demand or setoff, the
first installment to be paid on or before the Commencement Date of the
<PAGE>
term. If the Commencement Date is not the first day of a month, Tenant shall pay
a pro rata portion of the Minimum Rent for the first and last month of the Lease
term, based upon the number of days in such month, and assuming 30 as the total
days in the month.
ARTICLE 4. TAXES.
Beginning with the Commencement Date, and continuing during the balance of the
term, Landlord shall pay prior to delinquency all real estate taxes and
assessments or any payment in lieu thereof (PILOT Payments), both general and
special, imposed by any federal, state or local governmental authority or any
other taxing authority having jurisdiction over the building for the Demised
Premises (collectively "Real Estate Taxes").
Beginning with the Commencement Date and continuing during the balance of the
term, Tenant shall pay Landlord within fifteen (15) days of receipt of an
invoice of its Proportionate Share (as hereafter defined) of any and all of the
Real Estate Taxes, together with any and all expenses incurred by Landlord in
negotiating, appealing or contesting such taxes and assessments (collectively
"Costs"), which Costs shall not exceed Tenant's Proportionate Share of tax
savings from any such negotiation, appeal or contest. Tenant's Proportionate
Share shall be a fraction, the numerator of which is the Floor Area of the
Demised Premises, and the denominator of which shall be the floor area of all
buildings included in all of the tax parcels which encompass the Demised
Premises, however, in computing Proportionate Share for Articles 15 and 18, the
denominator shall be the floor area of all buildings on the Land.
ARTICLE 5. USE.
Tenant agrees that the Demised Premises shall be occupied by Tenant and by no
other person or entity without Landlord's written consent, which consent shall
not be unreasonably withheld, and shall be used only for general office use,
including, but not limited to, a telephone call center with market research, and
for no other use or purpose.
ARTICLE 6. CONDUCT OF BUSINESS.
Tenant will maintain the Demised Premises at its own expense, in a clean,
orderly and sanitary condition and free of insects, rodents, vermin and other
pests; will not permit accumulations of garbage, trash, rubbish and other
refuse, but will remove the same at its expense; will not burn any trash or
garbage whatsoever; will cause all such garbage, trash or rubbish to be removed;
will comply with all laws and ordinances and all valid rules and regulations of
governmental authorities, including, but not limited to, all recommendations of
the municipal and state agency or agencies regulating environmental and health
controls ("SEPA"), the Environmental Protection Agency ("EPA") and the Fire
Insurance Ratings Organization ("FIRO"), now or hereafter enacted, promulgated
or adopted, or any successor entities, with respect to the use or occupancy of
the Demised Premises by Tenant.
<PAGE>
ARTICLE 7. NON-DISRUPTION.
Tenant shall take no action which would create or contribute to any work
stoppage, strike, picketing, labor disruption or dispute, or which would
interfere, in any way, with the business of Landlord or any other tenants of
Landlord or with the rights and privileges of any invitees, licensees, employees
or any other persons lawfully in and upon the Land, or which would cause any
impairment or reduction of the good will and reputation of the Building or the
Land.
ARTICLE 8. DELIVERY OF DEMISED PREMISES.
Tenant has inspected the Demised Premises prior to the execution of this Lease
and accepts the Demised Premises in its present condition, "AS IS" except
Landlord will perform the work (the "Work") described in Exhibit "F" attached
hereto and prepared by Stu Chait, Architect. Substantial Completion of the Work
shall be deemed to have occurred when the Work shall have been performed to
permit the use of the Demised Premises by Tenant for its intended purposes but
shall not require completion of punch list items that shall be established by
Landlord and Tenant upon notice from Landlord that substantially all of the Work
has been completed. Upon completion of the Work, Tenant shall reimburse Landlord
for the cost within fifteen (15) days of invoice. Landlord shall have no
obligation to perform any other work in or on the Demised Premises except as
provided in Articles 15, 19 and 20.
Notwithstanding the foregoing, Landlord represents to Tenant that (i) the
Demised Premises are free and clear of all tenancies except for the use in
common with other tenants and their permittees of the restrooms, hallways,
parking areas and other common areas; (ii) the Demised Premises will be clean,
orderly and in a sanitary condition at the Commencement Date, free of insects,
rodents, vermin and other pests, garbage, trash, rubbish and other refuse and,
to Landlord's actual knowledge, in compliance with all applicable municipal,
state and federal governmental rules, laws and regulations regarding its
condition, and use and maintenance by Landlord; (iii) to Landlord's actual
knowledge, the Leased Premises contains no hazardous materials which are in
violation of any applicable environmental laws, rules or regulations; (iv) no
portion of the Demised Premises is affected by any special assessments, whether
or not constituting a lien thereon; (v) the Demised Premises has access to and
from public highways or rights-of-way which are adequate for the passage of
motor vehicles and Landlord has no actual knowledge of any pending or threatened
termination of such access.
ARTICLE 9. SIGNS.
Landlord agrees that Tenant may affix the sign on the interior of the Building
and a canopy, each as shown on Exhibit "E" attached hereto. All other signs
shall be approved by Landlord, such approval not to be unreasonably withheld.
<PAGE>
ARTICLE 10. PROPERTY IN THE DEMISED PREMISES.
All leasehold or building improvements or additions, such as light fixtures and
heating and air-conditioning equipment and all construction work whether done by
Tenant and/or Landlord shall, when installed or completed, attach to the
Building and become and remain the property of the Landlord. All other fixtures,
personal property (including telephone systems, telephone lines and facsimile
systems) and signs shall remain the property of the Tenant subject at all times
to the Landlord's claim for rent and other sums which may become due to the
Landlord under this Lease. Tenant further agrees that all personal property of
every kind or description which may at any time be in the Demised Premises shall
be at the Tenant's sole risk, or at the risk of those claiming under the Tenant.
Landlord shall not be responsible or liable to Tenant for any loss or damage
that may be occasioned by the acts or omissions of persons occupying any space
in the Building adjacent to or adjoining Tenant's Demised Premises, or any part
thereof. Except for the negligence or willful misconduct of Landlord, its
agents, employees or contractors, Landlord shall not be responsible or liable to
Tenant for any loss or damage resulting to Tenant or its property or its
business from roof leaks, water, gas, steam, fire, or the bursting, stoppage or
leaking water and/or sewer pipes, or from the heating or plumbing fixtures, or
from electric wires, or from gas or odors, or caused in any manner whatsoever.
ARTICLE 11. TRADE FIXTURES.
Tenant may, at the expiration of the term, remove all the Tenant's trade
fixtures (including personal property such as telephone systems, telephone lines
and facsimile systems) which can be removed without substantial damage to, or
undue defacement of the Demised Premises, and that any and all damage to the
Demised Premises or to Landlord's Building (resulting from or caused by such
removal) shall be promptly repaired at Tenant's expense.
ARTICLE 12. ALTERATIONS.
Tenant covenants not to make any additional structural improvements,
alterations, improvements, modifications or changes of or upon any part of the
Demised Premises including, but not limited to, floor, wall and ceiling finishes
and changes to mechanical or electrical equipment, except by prior written
consent of Landlord, such consent not to be unreasonably withheld. All
alterations to the Premises shall be made in accordance with all the
requirements of applicable laws, ordinances and regulations and shall remain for
the benefit of the Landlord unless otherwise provided in the said written
consent; and, the Tenant further agrees, in the event of making such alterations
as herein provided, to indemnify and save harmless the Landlord from all
expense, liens, claims or damages to either persons or property or the Demised
Premises, arising out of or resulting from the undertaking or making of said
alterations.
ARTICLE 13. LIENS.
No work which Landlord permits Tenant to do nor which Tenant is obligated to
perform
<PAGE>
pursuant to this Lease, whether in the nature of erection, construction,
alteration or repair, shall be deemed to be for the immediate use and benefit of
Landlord so that no mechanic's or other lien or encumbrance or charge shall be
allowed against the right, interest or estate of Landlord by reason of any
consent given by Landlord to Tenant to improve the Demised Premises. Tenant
shall pay promptly all persons furnishing labor or materials with respect to any
work performed by Tenant or its contractor on or about the Demised Premises.
In the event any lien is made or filed as the result of any work done by or on
behalf of Tenant, Tenant shall cause the same to be discharged by deposit,
bonding, payment or otherwise satisfactory to Landlord within thirty (30) days
after written request by Landlord. If Tenant shall fail to cause such lien to be
discharged within the period aforesaid, then, in addition to any other right or
remedy which Landlord may have, Landlord may, but shall not be obligated to,
discharge said lien either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit or by bonding proceeding. Any
amount so paid by Landlord and all costs and expenses incurred by Landlord in
connection therewith, together with interest thereon from the respective dates
of Landlord's making of the payment and incurring of the cost and expense, shall
constitute additional rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand. The aforesaid interest shall be at the higher
rate of fifteen (15%) percent per annum or two percent above the prime interest
rate per annum announced from time to time by Chase Lincoln, at its office in
Rochester, New York, such rate to change automatically from time to time,
effective as of the effective date of each change in said prime rate. Nothing
herein contained shall be construed as a consent on the part of Landlord to
subject the estate of Landlord to liability under the mechanics' lien law, it
being expressly understood that Landlord's estate shall not be subject to such
liability. Nothing contained in or contemplated by this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord, by
inference or otherwise, for the performance of any work or service or the
furnishing of any materials for which any lien could be filed against the
Demised Premises or the Building or any part thereof, nor as giving Tenant any
right, power or authority to contract for or permit the performance of any work
or services or the furnishing of any materials for which any lien could be filed
against the Demised Premises or the Building or any part thereof
ARTICLE 14. UTILITIES.
Commencing on the Commencement Date, Tenant shall pay for all utility services
rendered or furnished to the Demised Premises including heat, gas, water,
electricity, sprinkler charges assessed by any governmental authority, fire line
charges, sewer rental, sewage treatment facilities charges and all other similar
charges, together with all taxes levied or other charges on such utilities and
governmental charges based on utility consumption for the Demised Premises. Said
utility services shall be provided by separate meter, which meter shall be paid
for by Landlord. In no event shall Landlord be liable to Tenant for any damages,
costs, expenses, liability or obligations which may be incurred resulting from
the quality, quantity, failure or interruption of such services to the Demised
Premises.
<PAGE>
ARTICLE 15. MAINTENANCE.
Landlord covenants and agrees to keep and maintain, repair and replace as
necessary, (except as hereinafter set forth), the parking areas, driveways and
entrance roads leading to the Demised Premises (including using diligent efforts
to remove snow), lighting of the same, landscaping, grounds maintenance (the
"CAM") and the roof and other exterior portions of the Building, the structural
parts of the Building and the plumbing, sewage and utility lines for the
Building and the Demised Premises, including the mechanical and electrical
equipment and systems, lighting fixtures and bulbs; except, however, that
Landlord shall not be responsible for damage caused by any act or negligence of
Tenant, its employees, agents, invitees, licensees or contractors. Landlord
covenants that the heating, ventilating and air conditioning system shall be
fully operational at the Commencement Date and shall comply with the plans and
specifications to be attached hereto, Landlord shall assign all warranties to
Tenant.
Beginning with the Commencement Date and continuing during the balance of the
term, Tenant shall pay its Proportionate Share of any and all costs and expenses
incurred by Landlord of protecting, operating, repairing, lighting, cleaning,
painting, removing snow, ice and debris for the Building and the Land, police
protection, security and security patrol, fire protection, regulating traffic,
inspecting, repairing and maintaining of machinery and equipment used in the
operation of the Building and the Land, the cost and expense of maintaining and
repairing any sprinkler system in the Building, the cost and expense of
installing, maintaining and repairing any burglar or fire alarm systems in the
Building, the cost and expense of landscaping and shrubbery, expenses of
utilities for the Building and the Land, but excluding any items of capital
replacements or repairs of structural components of the Building (collectively
the "Maintenance Expense").
Landlord shall furnish Tenant a statement in reasonable detail of the actual
Maintenance Expense paid during the prior period and Tenant's annual
Proportionate Share of Maintenance Expense for such period shall be paid within
thirty (30) days of the date of the statement. Tenant reserves the right to
audit the books and records of Landlord to verify the accuracy of the statement.
If the audit evidences any inaccuracies which are acknowledged by Landlord as
being accurate, there shall be an adjustment between Landlord and Tenant, with
payment to or repayment by Landlord, as the case may require.
Tenant shall, at its own cost and expense, enter into a regularly scheduled
janitorial service to clean the Demised Premises, shall repair the heating,
ventilating and air conditioning system servicing the Demised Premises and shall
enter into a regularly (no less than quarterly) scheduled maintenance contract
for the same. The service contractor shall be approved in writing by Landlord,
such approval not to be unreasonably withheld. Tenant shall not be responsible
to replace any of the heating, ventilating and air conditioning systems provided
Tenant has entered into and enforced such maintenance contract.
<PAGE>
ARTICLE 16. SURRENDER OF DEMISED PREMISES.
Tenant covenants and agrees to vacate, remove from and deliver up and surrender
the possession of the Demised Premises to Landlord upon the expiration of the
term, without any specific notice to vacate, and upon any earlier termination of
this Lease, as herein provided, in as good condition and repair as the same
shall be after completion of all improvements by Tenant following delivery of
the Demised Premises at the Commencement Date, or which may have been put by the
Tenant during the continuance thereof, ordinary wear and tear, and damage by
fire or the elements alone excepted. Nothing herein shall be construed as
relieving the Tenant of any of its maintenance obligations provided for in this
Lease.
Tenant covenants and agrees not to assign this Lease or to sublet the whole or
any part of the Demised Premises, or to permit any other persons to occupy same
without the prior written consent of the Landlord, which consent shall not be
unreasonably withheld. Any assignment or subletting, even with the consent of
Landlord, shall not relieve Tenant from liability for payment of rent or other
sums herein provided or for the obligation to keep and be bound by the terms,
conditions and covenants of this Lease. The acceptance of rent from any other
person shall not be deemed to be a waiver of any of the provisions of this Lease
or to be a consent to the assignment of this Lease or subletting of the Demised
Premises.
Any consent by Landlord to an assignment or sublease by Tenant, shall apply only
to the specific transaction thereby authorized and shall not relieve Tenant from
the requirement of obtaining prior written consent of Landlord to any further
assignment or sublease.
An assignment for the benefit of creditors or by operation of law shall not be
effective to transfer any rights to assignee without the prior written consent
of Landlord.
If Tenant, as an assignee of this Lease, is a partnership and if at any time
during the term hereof or any extension or renewal thereof, the person or
persons who, at the time of the execution of this Lease, owns or own the
controlling interest or the general partner's interest, as the case may be,
ceases to own the controlling interest or the general partners' interest upon
such cessation of ownership, Tenant shall promptly notify Landlord in writing of
such change, and Landlord may terminate this Lease at any time after such change
in control by giving Tenant ninety (90) days prior written notice of such
termination.
Landlord may withhold its consent to a subletting or assignment of the Lease for
any of the following reasons, and the withholding of consent shall be deemed to
be reasonable:
(a) the proposed assignee or subtenant desires to use the Premises for
a use other than that which is permitted herein and the proposed use:
(1) conflicts or is incompatible with other uses in the
Building; or
<PAGE>
(2) would adversely affect the reputation of the Building or
the other business located therein.
(b) Tenant is in default of any of the terms, covenants or provisions
of this Lease;
(c) Landlord has had or Landlord is aware of others who have had
previous unsatisfactory experience with the proposed subtenant or assignee.
A. Tenant covenants and agrees to provide to Landlord on or before the
Commencement Date and to keep in force during the entire term of this Lease: (1)
comprehensive general liability insurance for the mutual benefit of Landlord and
Tenant relating to the Demised Premises and its appurtenances in an amount of
not less than Two Million Dollars ($2,000,000.00) in respect of personal injury
or death and of not less than One Million Dollars ($1,000,000.00) in respect of
property damage, which insurance shall name Landlord as an additional insured;
and (2) fire and extended coverage, vandalism, malicious mischief and special
extended coverage insurance in an amount adequate to cover the cost of
replacement of all leasehold or building improvements in the Demised Premises
which were originally constructed or provided by or on behalf of Tenant as well
as the replacement cost of all fixtures, equipment, decorations, contents and
personal property therein. Tenant agrees to deliver to Landlord at least fifteen
(15) days prior to the time such insurance is first required to be carried by
Tenant, and thereafter at least fifteen (15) days prior to the expiration of any
such policy, a certificate of insurance of all policies procured by Tenant in
compliance with its obligations hereunder.
B. All of the aforesaid insurance shall be written by one (1) or more
responsible insurance companies reasonably satisfactory to Landlord; all such
insurance may be carried under a blanket policy covering the Demised Premises
and any other of Tenant's businesses; and shall contain endorsements that: (1)
the insurer shall endeavor to provide thirty (30) days' written notice to
Landlord or its designee if such insurance is to be canceled or amended by
registered mail; and (2) Tenant shall be solely responsible for payment of
premiums for such insurance. In the event Tenant fails to furnish such
insurance, the Landlord may, after ten (10) days' written notice to Tenant,
obtain such insurance and the premiums shall be paid by Tenant to the Landlord
upon demand.
C. The minimum limits of the comprehensive general liability policy of
insurance shall in no way limit or diminish Tenant's liability under Subsection
D hereof
D. Tenant will indemnify, protect, save harmless, and defend Landlord
from and against any and all claims and demands in connection with any accident,
injury or damage whatsoever caused to any person or property arising directly or
indirectly out of Tenant's initial construction, alteration, renovation,
remodeling and/or fixturing of the Demised Premises (whether or not occurring
prior to the Commencement Date hereof), or out of the business conducted in the
Demised Premises or occurring in, on or about the Demised Premises or any
<PAGE>
part thereof, or arising directly or indirectly from any act or omission of
Tenant or any of its contractors, subcontractors or concessionaires or
subtenants or their respective licensees, servants, agents, employees,
contractors or subcontractors (collectively "Agents"), and from and against any
and all costs, expenses and liability incurred in connection with any such claim
or proceeding brought thereon, except as a result of the sole negligence of
Landlord. The comprehensive general liability coverage maintained by Tenant
pursuant to Subsection A above shall specifically insure the contractual
obligations of Tenant as set forth herein.
B. If at any time and from time to time, as a result of or in
connection with any failure by Tenant to comply with all laws, rules,
regulations or ordinances, or any act of omission or commission by Tenant or its
Agents, or as a result of or in connection with the use of which the Demised
Premises are part (notwithstanding that such use may be for the purposes
hereinbefore permitted or that such use may have been consented to by Landlord),
the fire insurance rate(s) or other types of insurance maintained by Landlord
applicable to the Demised Premises or the Building or to any other premises in
said Building, or to any adjacent property owned or controlled by Landlord, or
an affiliate of Landlord, and/or to the contents in any or all of the aforesaid
properties (including rent insurance relating thereto) shall be higher than that
which would be applicable for the least hazardous type of occupancy legally
permitted therein, Tenant agrees that it will pay to Landlord, on demand, such
portion of the premiums for all such insurance policies in force with respect to
the aforesaid properties (including rent insurance relating thereto) and the
contents of any occupant thereof as shall be attributable to such higher
rate(s). If Tenant installs any electrical equipment that overloads the lines in
the Demised Premises or the Building, Tenant shall, at its own cost and expense
promptly make whatever changes are necessary to remedy such condition and to
comply with all requirements of the Landlord, the SEPA, EPA and the FIRO and
their successors and any similar body and any governmental authority having
jurisdiction thereof. For the purpose of this paragraph, any finding or schedule
of the SEPA, EPA or FIRO having jurisdiction thereof shall be deemed to be
conclusive. In the event that this Lease so permits and Tenant engages in the
preparation of food or packaged foods or engages in the use, sale or storage of
inflammable or combustible material; Tenant shall install chemical extinguishing
devices (such as ansul) approved by the FIRO and shall keep such devices under
service as required by such organization. If gas is used in the Demised
Premises, Tenant shall install gas cutoff devices (manual and automatic).
F. Each insurance policy carried by Landlord or Tenant and insuring all
or any part of the Building, the Demised Premises, including improvements,
alterations and changes in and to the Demised Premises made by either of them
and Tenant's trade fixtures and contents therein, shall be written in a manner
to provide that the insurance company waives all right of recovery by way of
subrogation against Landlord or Tenant, as the case may be, in connection with
any loss or damage to the Demised Premises, property or businesses, Building and
contents caused by any of the perils covered by fire and extended coverage, and
business interruption insurance, or any other insurance required hereunder or
for which either party may be reimbursed as a result of insurance coverage
affecting any loss suffered by it. Neither Landlord nor Tenant shall be liable
to the other for any such loss or damage, provided, however, that the foregoing
waivers of
<PAGE>
liability given by Landlord and Tenant to each other shall apply only to the
extent of any recovery made by the parties hereto under any policy of insurance
now or hereafter issued.
G. Landlord agrees to maintain: (1) comprehensive general liability
insurance relating to the Building and its common areas on an occurrence basis
in the minimum amount of Two Million Dollars ($2,000,000.00); (2) fire and
extended coverage, vandalism, malicious mischief and special extended coverage
insurance to the extent of the replacement value of the structure of the
Building excluding improvements made by or on behalf of Tenant.
H. Beginning with the Commencement Date, and continuing during the
balance of the term, Tenant shall pay its Proportionate Share of any and all
costs and expenses relating to the insurance maintained or agreed to be
maintained by Landlord for the Building and the Land and all improvements
surrounding the Building, together with any and all expenses incurred by
Landlord in negotiation, appealing or contesting such premiums, costs and
expenses (collectively the "Insurance Expense").
Landlord shall estimate Tenant's annual Proportionate Share of such Insurance
Expense and one-twelfth (1/12) of the amount so estimated shall be paid by
Tenant on the first (1st) day of each calendar month in advance commencing on
the Commencement Date. Within ninety (90) days after the end of each calendar
year, Landlord shall furnish Tenant a statement in reasonable detail of the
actual Insurance Expense paid during the prior year and thereupon there shall be
an adjustment between Landlord and Tenant with payment to or repayment by
Landlord, as the case may require, to the end that Landlord shall receive the
entire amount of Tenant's annual Proportionate Share of Insurance Expense for
such period. Any repayment that may be due by Landlord to Tenant may, at
Landlord's option, be credited on Tenant's next succeeding payment or payments
pursuant to this Article 18. If Tenant's Proportionate Share of Insurance
Expense is greater than the amount paid by Tenant during the prior year, Tenant
shall pay the Landlord the difference between the amount paid by Tenant and the
amount actually due within thirty (30) days after receipt of Landlord's
statement.
ARTICLE 19. FIRE OR OTHER CASUALTY.
A. In the event all or part of the Demised Premises shall be damaged or
destroyed by fire or other casualty insured under the standard fire and casualty
insurance policy with approved standard extended coverage endorsement applicable
to the Demised Premises, Landlord shall, except as otherwise provided herein,
commence to repair and/or rebuild the same and diligently pursue completion
within one hundred eight (180) days from the commencement of construction,
subject to FORCE MAJEURE. If Substantial Completion is not achieved within such
one hundred eighty (180) day period, Tenant may terminate this Lease upon notice
to Landlord any time prior to Substantial Completion. Landlord's obligation
hereunder shall be limited to the Building and improvements originally provided
by Landlord at the Commencement Date of the term of this Lease. Landlord shall
not be obligated to repair, rebuild or replace any property belonging to Tenant
or any improvements to the Demised Premises furnished by Tenant. If there should
be
<PAGE>
any interference with the operation of Tenant's business in the Demised Premises
as a result of such damage or destruction, the Minimum Rent shall abate in
proportion to the amount of Floor Area of Demised Premises damaged divided by
the Floor Area of the Demised Premises until such repairs are completed as are
reasonably necessary for Tenant to recommence its business. Unless this Lease is
terminated by Landlord, Tenant shall, at its cost and expense, repair and
restore the Demised Premises in a manner and to at least a condition equal to
that existing prior to such damage or destruction, except for the Building and
improvements to be reconstructed by Landlord as above set forth, and the
proceeds of all insurance carried by Tenant on the property and improvements as
well as fixtures and contents in the Demised Premises shall be held in trust by
Tenant for such purposes. Tenant agrees to commence such work promptly after the
receipt of notice by Landlord that it has elected to repair and/or rebuild the
Demised Premises, and Tenant shall diligently pursue such work to its
completion. Notwithstanding the foregoing, Tenant and Landlord agree to
reasonably coordinate all such work.
B. Notwithstanding anything to the contrary contained in the preceding
Subsection A or elsewhere in this Lease, Landlord at its option may terminate
this Lease on thirty (30) days notice to Tenant, given within ninety (90) days
after the occurrence of any damage or destruction if (1) the Demised Premises be
damaged or destroyed as a result of a risk which is not entirely covered by
Landlord's insurance, if any, or (2) the Demised Premises be damaged and the
cost to repair the same shall be more than twenty-five percent (25%) of the cost
of replacement thereof, or (3) the Demised Premises be damaged during the last
three (3) years of the term, or (4) the Building shall be damaged to the extent
of twenty-five percent (25%) or more of the then monetary value thereof (whether
the Demised Premises be damaged or not), or (5) any or all of the Building is
damaged (whether or not the Demised Premises are damaged) to such an extent that
the Building cannot be operated as an integral unit.
C. Except to the extent specifically provided for in this Lease, none
of the rentals payable by Tenant, nor any of Tenant's other obligations under
any provisions of this Lease, shall be affected by any damage to or destruction
of the Premises by any cause whatsoever, and Tenant hereby specifically waives
any and all additional rights it might otherwise have under any law or statute.
ARTICLE 20. EMINENT DOMAIN.
A. Demised Premises.
(1) If the whole of the Demised Premises shall be taken by any public
or quasi-public authority under the power of eminent domain, condemnation or
expropriation or in the event of a conveyance in lieu thereof, then this Lease
shall terminate on the date when Tenant is required to yield possession thereof
(2) If less than twenty-five (25%) percent of the Demised Premises
shall be so taken or conveyed, then this Lease shall terminate only as to the
part taken or conveyed as of the date
<PAGE>
Tenant is required to yield possession thereof, provided that Landlord shall
have the right to provide alternate space within the Building to increase the
balance of the Floor Area of the Demised Premises to the Floor Area described in
Article 1.
(3) If more than twenty-five (25%) percent of the Demised Premises
shall be so taken or conveyed and such partial taking or conveyance shall render
that portion not so taken or conveyed unsuitable for the purpose for which the
Demised Premises were leased, and Landlord is unable or elects not to provide
alternate space within or in close proximity to the Building to increase the
balance of the Floor Area of the Demised Premises to the Floor Area described in
Article 1, then Landlord and Tenant shall each have the right to terminate this
Lease by written notice given to the other within sixty (60) days of the date
Tenant is required to surrender possession of the part so taken or conveyed.
(4) If any part of the Demised Premises is so taken or conveyed, and
the Lease is not terminated as set forth above, then (a) this Lease shall
continue in full force and effect, except that the Minimum Rent and other rent
(including reimbursements under Articles 4. 15 and 18) payable to Landlord shall
be reduced in the same proportion that the Floor Area of the Demised Premises so
taken or conveyed (after deducting all additional floor area provided by
Landlord) bears to the original Floor Area, such reductions commencing as of the
date that Tenant is required to surrender possession of the part taken or
conveyed; and (b) Landlord shall upon receipt of the award in condemnation or
the consideration for a conveyance made in lieu of condemnation diligently make
all necessary repairs or alterations to restore that portion of the Demised
Premises remaining as near to its former condition as the circumstances will
permit, and to the Building to the extent necessary to constitute the portion of
the Building not taken as a complete architectural unit; provided, however, that
Landlord in any event shall not be required to spend for such repair and
alteration work an amount in excess of the amount received by Landlord as
damages for the taking of such part of the Demised Premises exclusive of the
portion of such damages attributable to the then current market value of the
land taken or condemned and after deducting the cost of collecting such damages,
and Tenant, at Tenant's expense, shall, to the extent of any recovery therefor,
make all necessary repairs and alterations to, and restoration of, Tenant's
fixtures, floor covering, furniture, equipment, signs and contents.
(5) If more than twenty (20%) percent of the floor area of the Building
shall be taken or conveyed as aforesaid, notwithstanding the fact that the
Demised Premises is not so taken or conveyed and notwithstanding anything to the
contrary set forth above, Landlord shall have the right, at its option, to be
exercised by notice in writing to terminate this Lease effective, at its option,
either upon the date title vests in the condemning authority, or upon the date
Landlord is required to deliver possession of the part taken or conveyed.
(6) As used in this Article, the amount received by Landlord, as
compensation for any such taking or consideration for any such conveyance shall
mean that portion of the award in condemnation or consideration for such
conveyance received by Landlord from such condemning authority which is free and
clear of all prior claims or collections by the holders of
<PAGE>
any mortgages or other security interest.
(7) As used in this Article, "Demised Premises" and "portion of Demised
Premises" shall not include fixtures, floor covering, furniture, equipment,
signs and contents of Tenant, but this shall not limit Tenant's obligation
above.
B. Waiver of Right to Compensation.
In the event of a taking under the power of eminent domain of the Demised
Premises or any other portion of the Building, whether whole or partial, all
compensation awarded for such taking of the fee and leasehold estate, or
consideration paid for a conveyance in lieu of condemnation, as damages or
otherwise, shall belong to and be the property of Landlord, except that Tenant
shall be entitled to recover from the condemning authority, but not from
Landlord, such amounts as may be separately awarded to Tenant for removal
expenses, leasehold improvements, fixtures and moving expenses, provided no such
claim shall diminish or adversely affect Landlord's award. TENANT MAY ALSO
RECOVER FROM LANDLORD ANY AWARD TO LANDLORD FOR LEASEHOLD IMPROVEMENTS INSTALLED
BY TENANT. Tenant hereby assigns to Landlord all right, title and interest of
Tenant in and to any award made for leasehold damages and/or diminution in the
value of Tenant's leasehold estate.
ARTICLE 21. SUBORDINATION, ATTORNMENT AND
MORTGAGEE'S APPROVAL
The Landlord reserves the right and privilege to subject and subordinate this
Lease at all times to the lien of any mortgage or mortgages now or hereafter
placed upon the Landlord's interest in the said Demised Premises and on the Land
and Buildings or upon any buildings hereafter placed upon the Land of which the
Demised Premises are a part (the holder of any such mortgage hereinafter
referred to as mortgagee), and to any and all advances to be made under such
mortgages, and all renewals, modifications, extensions, consolidations and
replacements thereof, provided however that such mortgagee enters into a
non-disturbance agreement with Tenant in form customarily used by Landlord and
mortgagee for Landlord's tenants.
Tenant covenants and agrees to execute and deliver upon demand, such further
instrument or instruments subordinating this Lease to the lien of any such
mortgage or mortgages as shall be desired by the Landlord and any mortgagees or
proposed mortgagees, and hereby irrevocably appoints Landlord the
attorney-in-fact of Tenant to execute and deliver such instrument or instruments
for and in the name of Tenant in the event Tenant shall fail to execute such
instrument or instruments within ten (10) days after written notice.
Provided such purchaser or mortgagee agrees in writing to recognize Tenant's
rights under this Lease, Tenant shall, in the event of the sale or assignment of
Landlord's interest in the Building, or in the event of any proceedings brought
for the foreclosure of, attorn to and recognize such purchaser or mortgagee as
landlord under this Lease, and in any such events, Landlord named
<PAGE>
herein shall not thereafter be liable for any obligations, terms or conditions
of this Lease.
If any mortgagee shall have given prior written notice to Tenant that it is a
holder of a mortgage as described in the first paragraph of this Article and
such notice includes the address to which notices to such mortgagee are to be
sent, then Tenant agrees to give to such mortgagee notice simultaneously with
any notice given to Landlord to correct any default of Landlord and agrees that
the mortgagee shall have the right, within thirty (30) days after receipt of
said notice, to correct or remedy such default before Tenant may take any action
under this Lease by reason of such default.
Landlord agrees to use diligent efforts to obtain a non-disturbance agreement
from Landlord's lender prior to the Commencement Date.
ARTICLE 22. ESTOPPEL CERTIFICATE
At any time, and from time to time, upon the written request of Landlord or any
mortgagee, Tenant, within ten (10) days of the date of such written request,
agrees to execute and deliver to Landlord and/or such mortgagee, without charge
and in a form reasonably satisfactory to Landlord and/or such mortgagee, a
written statement: (a) ratifying this Lease; (b) confirming the Commencement
Date and expiration date of the term of this Lease; (c) certifying that Tenant
is in occupancy of the Demised Premises, and that this Lease is in full force
and effect and has not been modified, assigned, supplemented or amended, except
by such writings as shall be stated; (d) certifying that all conditions and
agreements under this Lease to be satisfied and performed have been satisfied
and performed, except as shall be stated; (e) certifying that Landlord is not in
default under this Lease and there are no defenses or offsets against the
enforcement of this Lease by Landlord, or stating the, defaults and/or defenses
claimed by Tenant; (f) reciting the amount of advance rental, if any, paid by
Tenant and the date to which rental has been paid, (g) reciting the amount of
security deposited with Landlord, if any; and (h) any other information which
Landlord or the mortgagee shall reasonably require. If Landlord requires more
than one statement per each calendar year, Landlord shall reimburse Tenant for
its out-of-pocket expenses for each statement following the first one in such
year.
ARTICLE 23. DEFAULT.
All rights and remedies of Landlord herein enumerated shall be cumulative, and
none shall exclude any other rights or remedies allowed by law or in equity. The
occurrence of any of the following shall constitute a default and breach of this
Lease by Tenant:
A. If Tenant shall fail, neglect or refuse to pay any installment of
fixed Minimum Rent at the time and in the amount as herein provided, or to pay
any other monies agreed by it to be paid promptly when and as the same shall
become due and payable under the terms hereof and if any such default should
continue for a period of more than ten (10) days after written notice, provided
that no notice shall be required following the second default in any particular
calendar
<PAGE>
year and only a ten (10) day grace period shall be applicable; or if
B. Tenant shall abandon or vacate the Demised Premises or shall fail,
neglect or refuse to keep and perform any of the other covenants, conditions,
stipulations or agreements herein contained, and in the event any such default
shall continue for a period of more than thirty (30) days after notice thereof
is given in writing to Tenant by Landlord or such longer period of time not to
exceed one hundred twenty (120) days following notice if such cure cannot
reasonably be cured within such thirty (30) days period, Tenant commences to
cure such matter within the thirty (30) day period and continues to diligently
cure such matter.
In the event of any such default or breach of this Lease by Tenant, Landlord
shall have any of the rights provided by law or in equity and any or all of the
remedies hereinafter set forth, and further, in the event of such default or
breach of this Lease by Tenant, the Tenant does hereby authorize and fully
empower Landlord or Landlord's agent to immediately cancel or terminate this
Lease and reenter and remove all persons and their property, and such property
may be stored in a public warehouse or elsewhere at the cost of the Tenant, all
without service of notice or resort to legal process and without being deemed
guilty of any manner of trespass and without prejudice to any remedies which
might otherwise be used by Landlord.
Any payment required to be made by Tenant under the provisions of this Lease not
made by Tenant when and as due shall thereupon be deemed to be due at the rate
of twelve percent (12%) per annum and payable by Tenant to Landlord on demand
with interest thereon from the date when the particular amount became due to the
date of payment thereof to Landlord.
The Landlord may, however, at its option, at any time after such default or
violation of condition or covenant, reenter and take possession of the Premises
and remove said property without such reentry working a forfeiture of the rents
and other charges, sums and reimbursements to be paid and the covenants,
agreements and conditions to be kept and performed by Tenant for the full term
of this Lease. In such event, Landlord shall have the right, but not the
obligation, to divide or subdivide the Demised Premises in any manner Landlord
may determine and to lease or let the same or portions thereof for such periods
of time and at such rentals and for such use and upon such covenants and
conditions as Landlord may elect, applying the net rentals from such letting
first to the payment of Landlord's expenses incurred in dispossessing Tenant and
the cost and expense of making such improvements, alterations and repairs in the
Demised Premises as may be necessary in order to enable Landlord to relet the
same, and to the payment of any brokerage commissions or other expenses of
Landlord in connection with such reletting. The balance, if any, shall be
applied by Landlord from time to time on account of the payments due or payable
by Tenant hereunder with the right reserved to Landlord to bring such action or
proceedings for the recovery of any deficits remaining unpaid as Landlord may
deem favorable from time to time without obligation to await the end of the term
hereof for the final determination of Tenant's obligations upon a default.
ARTICLE 24. HOLDING OVER.
<PAGE>
In the event Tenant remains in possession of all or any part of the Demised
Premises after the expiration of the term of this Lease, Tenant shall be deemed
to be occupying the Demised Premises as a tenant from month to month at a
monthly rental equal to 1.50 multiplied by the sum of (i) the monthly
installment of Minimum Rent payable during the last month of the term, and (ii)
one-twelfth (1/12) of all items of additional rent or other charges payable or
paid during the last Lease year.
<PAGE>
ARTICLE 25. ACCESS TO DEMISED PREMISES.
Tenant further agrees to permit the Landlord or the Landlord's agents to inspect
or examine the Demised Premises at any reasonable time without notice, and to
permit the Landlord to make such repairs or improvements to the Building that
the Landlord is obligated to make under this Lease, and Landlord shall not be
liable to Tenant for any damage, loss, costs or expenses resulting from such
repairs or alterations unless due to the gross negligence or willful misconduct
of Landlord.
Tenant further agrees that on and after one year next preceding the expiration
of the term of this Lease the Landlord or its agents shall have the right to
show the Demised Premises to potential tenants after notice to Tenant and
accompanied by a representative of Tenant, and to place notices offering the
Premises "For Rent" on any part of the Demised Premises or on the land adjacent
thereto.
ARTICLE 26. QUIET ENJOYMENT
Landlord covenants and agrees that if the Tenant shall perform all of the
covenants and agreements herein stipulated to be performed on the Tenant's part,
the Tenant shall, at all times during said term, have the peaceable and quiet
enjoyment and possession of the Demised Premises without any manner of hindrance
from the Landlord or any persons lawfully claiming through the Landlord.
Landlord shall comply with all laws, rules and regulations affecting the Demised
Premises but shall not be responsible for costs or expenses relating to the
repair or maintenance obligations of Tenant.
ARTICLE 27. WAIVER
No waiver of any covenant or condition or of the breach of any covenant or
condition of this Lease shall be taken to constitute a waiver of any subsequent
breach of such covenant or condition, nor to justify or authorize the
nonobservance on any other occasion of the same or any other covenant or
condition hereof; nor shall the acceptance by the Landlord of rent or other
payments at any time when the Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default or of the Landlord's
right to terminate this Lease on account of such default; nor shall any waiver
or indulgence granted by the Landlord to the Tenant be taken as an estoppel
against the Landlord, it being expressly understood that if at any time the
Tenant shall be in default in any of its covenants or conditions hereunder, an
acceptance by the Landlord of rental or other payments during the continuance of
such default or the failure on the part of the Landlord promptly to avail itself
of such other rights or remedies as the Landlord may have, shall not be
construed as a waiver of such default, but the Landlord may at any time
thereafter, if such default continues, terminate this Lease on account of such
default in the manner provided for in this Lease.
<PAGE>
ARTICLE 28. ACCORD AND SATISFACTION.
Any payments by Tenant or receipt by Landlord of a lesser amount than the
monthly Minimum Rent and all other charges herein provided may be applied in any
manner desired by Landlord notwithstanding any denotation made by Tenant, and no
endorsement or statement on any check or any letter accompanying any check or
payment shall prejudice Landlord's right to recover the balance of such rent or
pursue any other remedy provided in this Lease.
ARTICLE 29. NOTICES AND PAYMENTS.
Any bill, statement, notice, communication or payment which Landlord or Tenant
may desire or be required to give to the other party shall be in writing and
shall be sent to the other party by overnight courier, registered or certified
mail or hand delivered to the address specified in the opening paragraph of this
Lease or to such other address as either party shall have designated to the
other by like notice, and the time of the rendition of such shall be deemed when
same is deposited in a depository for such overnight courier or in an official
United States Post Office, charges and postage prepaid or received by hand
delivery.
All payments required under this Lease are to be paid in legal tender and lawful
money of the United States or the equivalent, at Landlord's above specified
address.
ARTICLE 30. RELATIONSHIP OF PARTIES.
Nothing contained in this Lease shall be deemed or construed by the parties
hereto or by any third party to create the relationship of principal and agent
or of partnership or of joint venture or of any association whatsoever between
Landlord and Tenant, it being expressly understood and agreed that neither the
computation of rent nor any other provisions contained in this Lease nor any act
or acts of the parties hereto shall be deemed to create any relationship between
Landlord and Tenant other than the relationship of landlord and tenant.
ARTICLE 31. LIMITATION OF LIABILITY.
Neither the Landlord nor any successor in interest that may be an individual,
legal entity, joint venture, tenancy in common, firm or partnership, general or
limited, nor any partners, officers, directors or members of Landlord, or such
successor in interest, shall be subject to any personal liability in respect to
any of the covenants or conditions of this Lease. The Tenant shall look solely
to the equity of the Landlord in the Building and the rents, issues and profits
derived therefrom for the satisfaction of the remedies of the Tenant in the
event of a breach by the Landlord. It is mutually agreed that this clause is and
shall be considered an integral part of the aforesaid Lease, and such
exculpation is absolute.
ARTICLE 32. TENANT DEFINED.
<PAGE>
The word "Tenant" shall be deemed and taken to mean each and every person or
party mentioned as the Tenant herein, be the same one or more; and, if there
shall be more than one Tenant, any notice required or permitted by the terms of
this Lease may be given by or to any one thereof, and shall have the same force
and effect as if given by or to all thereof. The use of the neuter singular
pronoun to refer to Tenant shall be deemed a proper reference even though Tenant
may be an individual, a partnership, a corporation, or a group of two or more of
any of the same. The necessary grammatical changes required to make the
provisions of this Lease apply in the plural sense where there is more than one
Tenant and to either corporations, partnership, or individuals, males or
females, shall in all instances be assumed as though in each case fully
expressed.
ARTICLE 33. CAPTIONS AND SECTION NUMBERS.
The captions, section numbers and article numbers appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit or describe
the scope or intent of such sections of this Lease nor in any way affect this
Lease.
The Tenant, for itself and for all persons claiming through or under it, hereby
expressly waives any and all rights which are or may be conferred upon the
Tenant by any present or future law to redeem the Demised Premises, or to any
new trial in any action of ejectment under any provision of law, after reentry
thereupon, or upon any part thereof, by the Landlord, or after any warrant to
dispossess or judgment in ejectment. If the Landlord shall acquire possession of
the Demised Premises by summary proceedings, or in any other lawful manner
without judicial proceedings, it shall be deemed a reentry within the meaning of
that word as used in this Lease. The Tenant and the Landlord both waive a trial
by jury and the right to a change of venue from the court where any action may
be filed by Landlord on any or all issues arising in any action or proceeding
between the parties hereto or their successors, under or connected with this
Lease, or any of its provisions.
ARTICLE 35. BROKER.
Tenant covenants, warrants and represents that there was no broker instrumental
in consummating this Lease and that no conversations or prior negotiations were
had with any other broker concerning the renting of the Demised Premises. Tenant
agrees to hold Landlord harmless against any claims for brokerage commission
arising out of any conversations or negotiations between Tenant and any broker.
ARTICLE 36. INTERPRETATION OF LEASE PROVISIONS.
This Lease shall be governed by and construed in accordance with the applicable
laws of the state of New York. If any term, covenant or condition of this Lease
is capable of two constructions, one of which would render the provision void
and the other of which would render the provision valid, then the provision
shall have the meaning which shall render it valid. If any term or provision of
this Lease, or the application thereof to any person or circumstances shall to
<PAGE>
any extent be invalid or unenforceable, the remainder of this Lease or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforceable to the fullest extent permitted by law.
ARTICLE 37. OPTION.
The submission of this Lease to Tenant does not constitute a reservation of or
option for the Demised Premises, nor does it constitute an offer by Landlord to
the Tenant. This Lease shall become effective as a lease only upon execution and
delivery thereof by Landlord and Tenant.
ARTICLE 38. NON-RECORDATION.
Neither Tenant nor Landlord shall record this Lease, or a Memorandum of this
Lease, without the prior written consent of the other party to this Lease.
ARTICLE 39. PROVISIONS BINDING.
Except as herein otherwise expressly provided, the provisions hereof shall be
binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of the Landlord
and the Tenant. Each term and each provision of this Lease to be performed by
the Tenant shall be construed to be both a covenant and a condition. Any
covenants contained in this Lease that contemplate performance after the term of
this Lease shall survive the term. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment by
Tenant but has reference only to those instances in which Landlord may have
given written consent to a particular assignment.
ARTICLE 40. ENTIRE AGREEMENT.
This Lease and the Exhibits, if any, attached hereto and forming a part hereof,
set forth all the covenants, promises, agreements, conditions and understandings
between Landlord and Tenant concerning the Demised Premises and there are no
covenants, promises, agreements, conditions or understandings, either oral or
written, between them other than are herein set forth. Except as herein
otherwise provided, no subsequent alteration, amendment, change or addition to
this Lease shall be binding upon Landlord or Tenant unless reduced to writing
and signed by them.
ARTICLE 41. ENVIRONMENTAL.
The Tenant covenants, represents and warrants to the Landlord, which covenants,
representations and warranties shall survive the Term:
(1) The Tenant shall, at its sole cost and expense, comply and
cause all Agents and any other persons occupying or present on
the Demised Premises to comply with
<PAGE>
all federal, state and local environmental laws, rules,
regulations, ordinances and orders concerning or relating to
the use, generation, handling or disposal of "Hazardous
Materials" as hereinafter defined, (collectively the
"Applicable Environmental Laws") and shall not cause or permit
any Hazardous Materials to be brought upon, kept or used in,
on, under or about, the Demised Premises. Tenant shall not
allow any Hazardous Materials to emanate from, or originate
at, the Demised Premises. Without limiting the foregoing, if
the presence of any Hazardous Materials brought upon, kept or
used on the Demised Premises results in any contamination of
any property or persons, the Tenant shall promptly take all
actions at its sole cost and expense as are necessary or
requested by Landlord or any governmental or
quasi-governmental authority having jurisdiction therefor to
comply with all Applicable Environmental Laws, including
removal of any Hazardous Materials;
(2) The Tenant shall immediately notify the Landlord of the
Tenant's receipt of any oral or written report, citation,
notice or other communication or writing regarding the Demised
Premises (and deliver a copy thereof to the Landlord) by, to,
or from any governmental or quasi- governmental authority
empowered to regulate or oversee any of the foregoing
activities or in any way related to or connected with
Hazardous Materials;
(3) The Tenant acknowledges and agrees that in the event (a) any
Hazardous Materials brought upon, kept or used in, on, under
or about the Demised Premises by Tenant or its Agents are
caused to be removed from the Demised Premises or the
Building, the EPA number or other governmental number assigned
to the Hazardous Materials so removed shall not be in the name
of the Landlord or any of Landlord's lenders, and the Tenant
shall assume all of the potential and actual liability of
Landlord and Landlord's mortgagees for such removed Hazardous
Materials and (b) any action, including, without limitation,
removal, is required to comply with Applicable Environmental
Laws, the Tenant shall notify the Landlord in writing at least
30 days prior to the taking of such action and shall use its
best efforts to minimize interference and disturbance of the
Landlord's and the other tenants' and occupants' use and
enjoyment of the Building, Land and buildings adjacent thereto
in the taking of such action.
If the Tenant breaches the obligations stated above or if the presence of
Hazardous Materials brought upon, kept or used on the Demised Premises or any
other part of the Building by the Tenant results in contamination of the Demised
Premises, the Land or any other property whether or not owned or controlled by
Landlord, then the Tenant at Tenant's expense, shall indemnify, protect, defend,
save and hold harmless the Landlord and Landlord's mortgagees from and against
any and all claims, demands, losses, expenses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind, and
all costs and expenses incurred in connection therewith, including, without
limitation, diminution in value of the Building, the Land and the residual
estate of the Demised Premises, damages for the loss or restriction on use of
rentable or usable space of the Demised Premises, damages arising from any
adverse impact on marketing of space in the Building or the Demised Premises or
the Land or other buildings of Landlord, costs incurred in
<PAGE>
connection with any investigation of work required by any federal, state or
local governmental agency or political subdivision because of Hazardous
Materials in, on, under, or about, emanating from or originating at, the Demised
Premises, and sums paid in settlement of claims, attorneys fees, consultant fees
and expert fees, damages for the interruption of the Landlord's business,
including, lost profits, incidental damages and consequential damages) which
arise (prior, during or after the Term) as a result of the Tenant's breach or
such contamination directly or indirectly, arising out of (i) the presence in,
on, about, under, emanating from or originating at the Demised Premises of any
Hazardous Materials brought upon, kept or used in, on, under or about the
Demised Premises or the Land by Tenant or its Agents or any releases or
discharges of any Hazardous Materials brought upon, kept or used in, on, under
or about the Demised Premises or the Land by Tenant or its Agents and (ii) any
activity carried on or undertaken on or off the Demised Premises in connection
with the handling, treatment, removal, storage, decontamination, cleanup,
transport or disposal of any Hazardous Materials brought upon, kept or used in,
on, under or about the Demised Premises or the Land by Tenant or its Agents and
(iii) the breach of any provision of this Article 41.
For purposes of this Article 41, Hazardous Materials means and includes (A)
radioactive materials, biological or medical waste or contaminants, and (B) any
hazardous or toxic waste, substance or material defined as such in: (i) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., as amended, (ii) any so-called "Superfund" or "Superlien"
law, or (iii) any other federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing standards
of conduct or liability concerning, any hazardous, toxic, dangerous, or unsafe
waste, substance or material, whether now or hereafter in effect.
ARTICLE 42. PRIME GROUND LEASE.
It is understood and agreed by Tenant that Landlord, as head tenant, is leasing
the Demised Premises and the Land under a lease (the "Prime Lease") with the
County of Monroe Industrial Development Agency and that all rights of Tenant
hereunder is subject to the Prime Lease. Landlord represents that nothing herein
is inconsistent with any provision of the Prime Lease.
ARTICLE 43. OPTION PERIOD.
Provided that Tenant is in possession and no default or breach hereunder by
Tenant has occurred, Tenant shall have the right and option to extend the Lease
term for one (1) additional term of three (3) years. Such renewal shall be upon
all of the same terms and conditions contained in this Lease for the lease term,
but subject to an adjustment of Minimum Rent as provided in Exhibit "C". Such
option to extend shall be exercised, if at all, by Tenant giving written notice
to
<PAGE>
Landlord of such extension at the later of (i) one year prior to the end of the
then existing term or (ii) thirty (30) days after notice from Landlord to Tenant
given no earlier than fourteen (14) months prior to the end of the then existing
term. This option is granted to Tenant only and shall not be exercised by Tenant
on behalf of any third party or by any assignee of this Lease.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Landlord and
Tenant have caused this Lease to be signed and sealed as of the day and year
first above written.
LANDLORD:
CARLSON PARK ASSOCIATES,
a New York general partnership
By:
-------------------------------------
TENANT:
GORDON S. BLACK CORPORATION,
a New York corporation
By:
-------------------------------------
ATTEST:
<PAGE>
EXHIBIT A
[Map of Carlson Park Building 10-1]
<PAGE>
EXHIBIT B
[Diagram of occupancy and Parking at
Carlson Park Building 10-1]
<PAGE>
EXHIBIT C
ARTICLE 2. TERM
Early termination under Article 2. Term.
Year Amount
---- ------
6 $117,000
7 90,000
8 65,250
9 33,750
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
EXHIBIT D
ARTICLE 3. MINIMUM RENT
Minimum rent, years 1-10, $150,000 annual, payable $12,500 monthly, fully net.
Option period: $165,000 annual, payable $13,750 monthly, fully net.
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
EXHIBIT E
ARTICLE 9. SIGNS
Tenant agrees to provide signage and canopy at its expense.
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
EXHIBIT F
ARTICLE 8. DELIVERY OF DEMISED PREMISES
Landlord will provide premises in accordance with specifications prepared by
Stuart Chait, Sr., Architect, and plans and specifications provided by David
Senise of Spectrum Design Group. The current draft budget for the space
improvements (attached) exceeds the original anticipated aggregate contribution
by both parties. Carlson Park will contribute on a shared equal basis with
Gordon S. Black up to $250,000 or a total shared aggregate of $500,000. Any
additional funding requirements to be Carlson Park's responsibility. During the
interim period of lease execution and award of contracts, value engineering and
specifications will be reviewed by Gordon S. Black, Carlson Park, Spectrum
Design, and Tyra Associates. All final specification decisions rest with Gordon
Black. Any change orders issued for additional work after award to be Gordon
Black's responsibility.
The time-frame required for construction is anticipated to 100 +/- 20 days.
Progress payments will be required and paid equally by both parties.
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
GORDON S. BLACK
CARLSON PARK - BUILDING 10-1
BUILD-OUT BUDGET
ATTACHMENT TO EXHIBIT F
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------- ------------------- ------------------
Tyra's 6/5/98 bid 321,824
- ----------------------------- ----------------------- ------------------- ------------------
Exclusions:
- ----------------------------- ----------------------- ------------------- ------------------
Window Treatment (allowance) 1,000
- ----------------------------- ----------------------- ------------------- ------------------
Millwork (allowance) 3,000
- ----------------------------- ----------------------- ------------------- ------------------
Life safety (allowance) 6,000
- ----------------------------- ----------------------- ------------------- ------------------
Data Tenant
- ----------------------------- ----------------------- ------------------- ------------------
UPS Tenant
- ----------------------------- ----------------------- ------------------- ------------------
Subtotal 10,000
- ----------------------------- ----------------------- ------------------- ------------------
- ----------------------------- ----------------------- ------------------- ------------------
Owner Allowances: 4,800
- ----------------------------- ----------------------- ------------------- ------------------
Utility separate 4,000
- ----------------------------- ----------------------- ------------------- ------------------
Dumpsters 4,000
- ----------------------------- ----------------------- ------------------- ------------------
Permit-arch 2,500
- ----------------------------- ----------------------- ------------------- ------------------
Permits 3,765
- ----------------------------- ----------------------- ------------------- ------------------
Remediation 4,000
- ----------------------------- ----------------------- ------------------- ------------------
Laborer 3,200
- ----------------------------- ----------------------- ------------------- ------------------
Subtotal 26,265
- ----------------------------- ----------------------- ------------------- ------------------
- ----------------------------- ----------------------- ------------------- ------------------
Site Work
- ----------------------------- ----------------------- ------------------- ------------------
Landscape (allowance) 1,000
- ----------------------------- ----------------------- ------------------- ------------------
Parking 20,250
- ----------------------------- ----------------------- ------------------- ------------------
Outside lighting (allowance) 1,000
- ----------------------------- ----------------------- ------------------- ------------------
Awning Tenant
- ----------------------------- ----------------------- ------------------- ------------------
Subtotal 22,250
- ----------------------------- ----------------------- ------------------- ------------------
- ----------------------------- ----------------------- ------------------- ------------------
A/C Heat Pump systems (est) 150,000
- ----------------------------- ----------------------- ------------------- ------------------
- ----------------------------- ----------------------- ------------------- ------------------
Contingency (7%) 33,624
- ----------------------------- ----------------------- ------------------- ------------------
- ----------------------------- ----------------------- ------------------- ------------------
Total: 563,963
- ----------------------------- ----------------------- ------------------- ------------------
</TABLE>
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
EXHIBIT G
ARTICLE 15. MAINTENANCE
Tenant shall pay proportionate share of taxes and CAM, with the exception that
Tenant shall be responsible for replacing light bulbs within its demised
premises. Tenant's proportionate share shall be 1.875%. The same percentage will
apply to taxes, which represents the proportionate share of the Tenant's Demised
Premises to the total area of the facility.
Gordon S. Black June 19, 1998
Carlson Park - Bldg 10-1
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
CARLSON PARK ASSOCIATES
100 Carlson Road
Rochester, New York 14610
and
HARRIS INTERACTIVE, INC.
135 Corporate Woods
Rochester, New York 14623
For the purposes of modifying the Lease Agreement dated July 1, 1998, with
respect to space located at 70 Carlson Road, Rochester, New York 14610, the
parties thereto hereby agree to the following:
1. BINDING EFFECT: IT IS NOTED AND AGREED THAT HARRIS INTERACTIVE, INC. IS
THE LEGAL SUCCESSOR TO GORDON S. BLACK CORPORATION AND HARRIS BLACK
INTERNATIONAL, LTD. AND AS SUCH INHERITS ALL RIGHTS AND DUTIES PREVIOUSLY
INCUMBENT UPON GORDON S. BLACK CORPORATION AND HARRIS BLACK INTERNATIONAL,
LTD. THIS FIRST AMENDMENT TO THE LEASE AGREEMENT AND THE AGREEMENT SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO, THEIR
SUCCESSORS AND ASSIGNS.
2. ENTIRE AGREEMENT: THIS FIRST AMENDMENT TO LEASE AGREEMENT, INCLUDING THE
OTHER DOCUMENTS REFERRED TO HEREIN WHICH FORM A PART HEREOF, CONTAINS THE
ENTIRE UNDERSTANDING OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF. THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS BETWEEN THE PARTIES WITH RESPECT TO SUCH SUBJECT MATTER.
THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT BY WRITTEN AGREEMENT
SIGNED BY ALL THE PARTIES HERETO.
3. ADDITIONAL SPACE: Approximately Ten Thousand Six Hundred (10,600) square
feet as shown by Exhibit "H" is added to Tenant's space. The additional
space is immediate and above the original space as shown in Exhibit "A" of
the Lease Agreement
4. COMMENCEMENT DATE: July 1,1999.
5. AMENDMENT TERM: The initial term shall be two (2) years through June 30,
2001.
6. ADDITIONAL MONTHLY RENT: Seven Thousand Sixty-Six dollars and 67/100
($7066.67) due and payable each month from the commencement date through
June 30, 2001.
7. RENEWAL OPTIONS: Tenant shall have renewal options for this additional
space. The renewal options are as follows:
<PAGE>
1st option period: July 1, 2001 through October 31, 2003 for
a 1st option term of two (2) years four (4) months.
2nd through 5th: Commencing on November 1, 2003, and option
periods: ending on October 31st of each year, Tenant
shall have four (4) successive renewal options.
The above renewal options are contingent with the Tenant being in possession of
the space described by Exhibit "A" of the Lease Agreement. All of the above
option renewals will be automatically in effect unless the Tenant renders a
minimum of six (6) months notice prior to the then current additional space
expiration of its intent to discontinue use of the space. Additional base
monthly rent for all of the option periods shall be the amount as contained in
paragraph four (4) above.
8. PARKING: Tenant shall have use of up to an additional 100 car parking
spaced in common with others as shown on attached Exhibit "I".
9. TERMS AND CONDITIONS: All other terms and conditions of the Lease
Agreement to remain the same except the pro rata share as contained in
Exhibit "G" shall be increased to 3.4%.
10. LANDLORD WORK: Tenant accepts the additional space on an "as is" basis
except that the landlord will accomplish the following work prior to the
commencement date:
A. Rework finishes in common ingress hallway and stairwell to the
additional space TO THE SATISFACTION OF TENANT.
B. Rework finishes in common hall to common rest rooms and replace
ceiling tile in men's rest room TO THE SATISFACTION OF TENANT.
C. Remove existing cafeteria serving line and trade passthroughs in
north demising wall.
11. TENANT WORK: Tenant, at Tenant's sole expense, shall award to William R.
Tyra & Associates, Inc., General Contractor, and ISAAC Heating & Air
Conditioning, Inc., Mechanical Contractor, contracts for work as shown by
Spectrum Design drawings dated XXXXX XX, XXXX. All required permits,
permit fees and permit requirements to be Tenant's responsibility. The
above contractors and any other direct subcontractors to provide insurance
certificates to Tenant and Landlord showing minimum liability coverage of
Two Million Dollars ($2,000,000) and Worker's Compensation coverage.
<PAGE>
Landlord may from time to time during construction phase make work related
rules, if necessary, as to project impact on other Tenants. All utility
separations for the space will be under direction of the Landlord and will
be scheduled as a priority for completion. At expiration of term, Landlord
will accept the space back in the then improved condition.
12. ADDITIONAL OPTION PERIOD: If Tenant is still in possession of this
additional space through all its option renewals and desires to continue
an additional option period as contained in ARTICLE 43 of the Lease
Agreement, then the rents as contained in Exhibit "D" shall be changed to
Two Hundred Fifty-Eight Thousand Two Hundred Dollars ($258,200) annually,
payable Twenty-One Thousand Five Hundred Sixteen Dollars and 67/100
($21,516.67) monthly, fully net.
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
CARLSON PARK ASSOCIATES
100 Carlson Road
Rochester, New York 14610
and
HARRIS INTERACTIVE, INC.
135 Corporate Woods
Rochester, New York 14623
For the purposes of modifying the Lease Agreement dated July 1, 1998, and lst
Amendment to Lease dated XXXX XX, XXXX with respect to space located at 70
Carlson Road, Rochester, New York 14610, the parties thereto hereby agree to the
following:
1. BINDING EFFECT: IT IS NOTED AND AGREED THAT HARRIS INTERACTIVE, INC. IS
THE LEGAL SUCCESSOR TO GORDON S. BLACK CORPORATION AND HARRIS BLACK
INTERNATIONAL. LTD. AND AS SUCH INHERITS ALL RIGHTS AND DUTIES PREVIOUSLY
INCUMBENT UPON GORDON S. BLACK CORPORATION AND HARRIS BLACK INTERNATIONAL.
LTD. THIS SECOND AMENDMENT TO THE LEASE AGREEMENT AND THE AGREEMENT SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO, THEIR
SUCCESSORS AND ASSIGNS.
2. ENTIRE AGREEMENT: THIS SECOND AMENDMENT TO LEASE AGREEMENT. INCLUDING THE
OTHER DOCUMENTS REFERRED TO HEREIN WHICH FORM A PART HEREOF, CONTAINS THE
ENTIRE UNDERSTANDING OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS BETWEEN THE PARTIES WITH RESPECT TO SUCH SUBJECT MATTER.
THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT BY WRITTEN AGREEMENT
SIGNED BY ALL THE PARTIES HERETO.
3. ADDITIONAL SPACE:
A. Approximately Five Thousand Two Hundred (5,220) square feet as shown
by Exhibit "J" is added to Tenant's space. The additional space is
immediate and above the original space as shown in Exhibit "A" of
the lease agreement and north of the space as shown in Exhibit "H"
of the lst Amendment to Lease.
B. APPROXIMATELY SEVEN THOUSAND (7,000) SQUARE FEET AS SHOWN BY EXHIBIT
"L" IS ADDED TO THE TENANT'S SPACE. THE ADDITIONAL SPACE IS
IMMEDIATELY SOUTH OF AND IS ON THE SAME LEVEL AS SHOWN IN EXHIBIT
"A" OF THE LEASE AGREEMENT.
4. COMMENCEMENT DATE: August 1, 1999
<PAGE>
5. AMENDMENT TERM: The initial term shall be twenty-three (23) months through
June 30, 2001.
6. ADDITIONAL MONTHLY RENT: Three Thousand Four Hundred and Eighty dollars
($3480.00) due and payable each month from the commencement date through
June 30, 2001.
7. RENEWAL OPTIONS: Tenant shall have renewal options for this additional
space. The renewal options are as follows:
1st option period: July 1, 2001 through October 31, 2003
for a 1st option term of two (2) years four
(4) months.
2nd through 5th Commencing with November 1, 2003,
option periods: and ending on October 31st of each
year, Tenant shall have four (4)
successive renewal options.
The above renewal options will automatically become effective if tenant
exercises it's renewal option(s) as contained in the 1st Amendment to Lease.
Additional base monthly rent for all of the option periods shall be the amount
as contained in paragraph four (4) above.
8. PARKING: Tenant shall have use of up to an additional 50 car parking
spaces in common with others as shown on attached Exhibit "K".
9. TERMS AND CONDITIONS: All other terms and conditions of the Lease
Agreement and 1st Amendment to THE Lease AGREEMENT to remain the same
except the pro rata share as contained in Exhibit "G" shall be increased
to 4.05%.
10. LANDLORD WORK: Tenant accepts the additional space on an "as is" basis
except that the landlord will provide for a TWENTY-FIVE Thousand Dollar
($25,000) contribution towards Tenant's make-ready BUILDOUT,
<PAGE>
11. Landlord hereby agrees to do any and all construction, facility changes or
any other type of alteration to the leased space and the common areas
required for ingress and egress thereto required for accessibility to the
leased space designated in this Amendment that is required for full and
complete compliance with the Americans with Disability Act signed into law
on July 26, 1990 and any and all current amendments thereto.
12. TENANT WORK: Tenant, at Tenant's sole expense, shall award to William R.
Tyra & Associates, Inc., General Contractor, and ISAAC Heating & Air
Conditioning, Inc., Mechanical Contractor, OR OTHER SUBSTITUTE OR
ADDITIONAL CONTRACTORS AT TENANT'S SOLE DISCRETION, contracts for work as
shown by Spectrum Design drawings dated XXXXX XX, XXXX. All required
permits, permit fees and permit requirements to be Tenant's
responsibility. The above contractors and any other direct subcontractors
to provide insurance certificates to Tenant and Landlord showing minimum
liability coverage of Two Million Dollars ($2,000,000) and Worker's
Compensation coverage. Landlord may from time to time during construction
phase make work related rules, if necessary, as to project impact on other
Tenants. All utility separations for the space will be under direction of
the Landlord and will be scheduled as a priority for completion. At
expiration of term, Landlord will accept the space back in the then
improved condition.
13. ADDITIONAL OPTION PERIOD: If Tenant is still in possession of this
additional space through all its option renewals and desires to continue
an additional option period as contained in ARTICLE 43 of the Lease
Agreement, then the rents as contained in Exhibit "D" shall be changed to
Three Hundred Four Thousand, One Hundred Dollars ($304,100) annually,
payable Twenty-Five Thousand Three Hundred Forty One Dollars and 67/100
($25,341.67) monthly, fully net.
<PAGE>
EXHIBIT 10.8
EXECUTION COPY
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of July 7, 1998, among Harris Black
International Ltd., a Delaware corporation (the "COMPANY"), Brinson Venture
Capital Fund 111, L.P., a Delaware limited partnership ("BRINSON VENTURE"),
Brinson MAP Venture Capital Fund III Trust, a group collective investment trust
("BRINSON MAP") and the Virginia Retirement System (together with Brinson
Venture and Brinson MAP, the "INVESTORS").
The Investors and the Company are parties to a Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"). In order to induce the Investors
to enter into the Purchase Agreement the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Purchase Agreement.
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in paragraph 8 hereof.
The parties hereto agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time the holders of a majority of
the Registrable Securities may request registration under the Securities Act of
all or any portion of their Registrable Securities on Form S-1 or any similar
long-form registration ("LONG-FORM REGISTRATIONS"), or, if available, on Form
S-2 or S-3 or any similar short-form registration ("SHORT-FORM REGISTRATIONS").
All registrations requested pursuant to this paragraph 1 (a) are referred to
herein as "DEMAND REGISTRATIONS." Each request for a Demand Registration shall
specify the approximate number of Registrable Securities requested to be
registered and the anticipated per share price range for such offering. Within
ten days after receipt of any such request, the Company shall give written
notice of such requested registration to all other holders of Registrable
Securities and shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 15 business days after the receipt of the Company's notice
(subject to paragraph I (d) below).
(b) LONG-FORM REGISTRATIONS. The holders of a majority of the
Registrable Securities shall be entitled to request (i) two Long-Form
Registrations in which the Company shall pay all Registration Expenses
("COMPANY-PAID LONG-FORM REGISTRATIONS"), and (ii) unlimited Long-Form
Registrations in which the holders of Registrable Securities shall pay the
Registration Expenses other than the Internal Expenses (as defined in paragraph
5 hereof). A registration shall not count as one of the permitted Long-Form
Registrations until it has become effective, and the last Company-paid Long Form
Registration shall not count as one of the permitted Company-paid Long- Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included in
such registration; provided that in any event the Company shall pay all
Registration Expenses in
<PAGE>
connection with any registration initiated as a Company-paid Long-Form
Registration whether or not it has become effective and whether or not such
registration has counted as one of the permitted Company-paid Long-Form
Registrations. All Long-Form Registrations shall be underwritten registrations.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to paragraph 1(b), the holders of a majority of
the Registrable Securities shall be entitled to request an unlimited number of
Short-Form Registrations in which the Company shall pay all Registration
Expenses. Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Securities Exchange Act, the
Company shall use its best efforts to qualify for Short-Form Registrations on
Form S-3.
(d) PRIORITY ON DEMAND REGISTRATIONS. At the Company's option, the
Company may include in any Demand Registration shares of Common Stock which are
not Registrable Securities to the extent the holders thereof request that such
Common Stock be included in such Demand Registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities initially
requesting registration, the Company shall include in such registration prior to
the inclusion of any securities which are not Registrable Securities the number
of Registrable Securities requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities owned by each such holder. Any Persons other
than holders of Registrable Securities who participate in Demand Registrations
which are not at the Company's expense must pay their share of the Registration
Expenses as provided in paragraph 5 hereof.
(e) RESTRICTIONS ON LONG-FORM REGISTRATIONS. The Company shall not be
obligated to effect any Long-Form Registration within 180 days after the
effective date of a previous Long-Form Registration. The Company may postpone
for up to 90 days the filing or the effectiveness of a registration statement
for a Demand Registration if the Company and the holders of a majority of the
Registrable Securities agree that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer, reorganization or similar transaction; provided that in such event, the
holders of Registrable Securities initially requesting such Demand Registration
shall be entitled to withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as one of the permitted Demand
Registrations hereunder and the Company shall pay all Registration Expenses in
connection with such registration. The Company may delay a Demand Registration
hereunder only once in any twelve-month period.
2
<PAGE>
(f) SELECTION OF UNDERWRITERS. The holders of a majority of the
Registrable Securities initially requesting registration hereunder shall have
the right to select the investment banker(s) and manager(s) to administer the
offering, subject to the consent of the Company which may not be unreasonably
withheld or delayed.
(g) OTHER REGISTRATION RIGHTS. Except as provided in this Agreement,
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Registrable Securities.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "PIGGYBACK REGISTRATION"), the Company
shall give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and shall include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 20 days after the receipt of the
Company's notice (subject to paragraphs 2(c) and (d) below).
(b) PIGGYBACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number or
dollar amount of securities requested to be included in such registration
exceeds the number or dollar amount which can be sold in such offering without
adversely affecting the marketability of the offering, the Company shall include
in such registration (i) first, the securities the Company proposes to sell,
(ii) second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the amount of Registrable Securities owned by each such holder, and
(iii) third, other securities requested to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number or dollar amount of securities requested to be included
in such registration exceeds the number or dollar amount which can be sold in
such offering without adversely affecting the marketability of the offering, the
Company shall include in such registration (i) first, the securities requested
to be included therein by the holders requesting such registration and the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such
3
<PAGE>
securities on the basis of the amount of securities owned by each such holder,
and (ii) second, all other securities requested to be included in such
registration.
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Registrable
Securities included in such Piggyback Registration. Such approval shall not be
unreasonably withheld.
(f) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration.
3. HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities shall not effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered, public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
4
<PAGE>
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed);
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any material fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a
5
<PAGE>
NASDAQ "national market system security" within the meaning of Rule 11Aa21 of
the Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and
6
<PAGE>
(n) obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the holders of a majority of the Registrable
Securities being sold reasonably request (provided that such Registrable
Securities constitute at least 10% of the securities covered by such
registration statement).
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding discounts and commissions)
and other Persons retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES"), shall be borne as provided in this Agreement, except
that the Company shall, in any event, pay its internal expenses ("INTERNAL
EXPENSES") (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.
(c) To the extent Registration Expenses are not required to be paid by
the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the
7
<PAGE>
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company shall
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the gross amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason. Such indemnification shall remain effective from
the date of this Agreement to and including the termination of the applicable
statute of limitations (plus 60 days).
8
<PAGE>
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. DEFINITIONS.
"REGISTRABLE SECURITIES" means (i) any Common Stock issued or issuable
upon conversion of the Preferred Stock issued pursuant to the Purchase
Agreement, (ii) any equity securities issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, and (iii) any other shares of Common
Stock held by persons holding securities described in clauses (i) or (ii) above.
As to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when they have been distributed to the public pursuant to
a offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 under the Securities
Act (or any similar rule then in force). For purposes of this Agreement, a
Person shall be deemed to be a holder of Registrable Securities whenever such
Person has the right to acquire such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
9. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company shall not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would adversely affect the marketability of
such Registrable Securities in any such registration (including, without
limitation, effecting a stock split or a combination of shares).
(c) REMEDIES. Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge
9
<PAGE>
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or other security) for specific performance and for other injunctive relief
in order to enforce or prevent violation of the provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the Registrable
Securities.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) GOVERNING LAW. Issues and questions concerning the construction,
validity, interpretation and enforcement of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
(j) NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the addresses indicated below:
10
<PAGE>
To the Investors:
c/o Brinson Partners Inc.
209 South LaSalle Street
Chicago, Illinois 60604
Attn: Tom Berman
with copies to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Stephen L. Ritchie
to the Company:
Harris Black International, Ltd.
135 Corporate Woods
Rochester, New York 14623
Attn: Gordon S. Black
with copies to:
Harris Beach & Wilcox
130 East Main Street
Rochester, N.Y. 14604-1687
Attn: Beth Ela Wilkens
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Agreement as of the date first written above.
HARRIS BLACK INTERNATIONAL, LTD.
By: /s/ Gordon S. Black
------------------------------
Gordon S. Black
Its: Chairman and CEO
BRINSON TRUST COMPANY AS TRUSTEE
OF THE BRINSON MAP VENTURE CAPITAL
FUND III
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Its: Assistant Trust Officer
BRINSON VENTURE CAPITAL FUND III, L.P.
by its general partner, Brinson Partners Inc.
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Its: Executive Director, Brinson
Partners, Inc.
VIRGINIA RETIREMENT SYSTEM
By: Brinson Partners, Inc. under power
of attorney
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Its: Executive Director, Brinson
Partners, Inc.
12
<PAGE>
Exhibit 21.1
List of Subsidiaries of
Harris Interactive Inc.
-----------------------
- Gordon S. Black Corporation, a New York Corporation
- GSBC Ohio Corporation, an Ohio Corporation
- Louis Harris & Associates, a New York Corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 1, 1999, except
as to Note 16, which is as of September 7, 1999, relating to the consolidated
financial statements of Harris Interactive Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 16, 1999
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