<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1999
REGISTRATION NO. 333-87311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT
NO. 2 TO
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>
------------------------
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 PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................. 6,670,000 $14.00 $93,380,000 $25,960
</TABLE>
(1) Includes 870,000 shares which the underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act.
(3) A registration fee of $23,978 was previously paid by registrant.
------------------------------
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 OCTOBER 26, 1999
PROSPECTUS
5,800,000 SHARES
[LOGO]
HARRIS INTERACTIVE INC.
COMMON STOCK
- ----------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 5,800,000 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 $12.00 to $14.00 per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 10.
<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 870,000
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>
The Harris Interactive Advantage:
- The largest Internet panel
- Proprietary technology infrastructure
- Strong brand name--the Harris Poll
- Long-standing client relationships
- Strategic relationships with Excite@Home, Market Facts and Young & Rubicam
[BAR CHART DEPICTING THE NUMBER OF ONLINE PANELISTS AT THREE MONTH INTERVALS
FROM DECEMBER 31, 1997 TO SEPTEMBER 30, 1999]
[INSIDE FRONT COVER]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 10
Forward-Looking Statements............. 21
Use of Proceeds........................ 22
Dividend Policy........................ 22
Capitalization......................... 23
Dilution............................... 25
Selected Consolidated Financial Data... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 28
Business............................... 36
</TABLE>
<TABLE>
Management............................. 50
<CAPTION>
PAGE
----
<S> <C>
Related Party Transactions............. 58
Principal Stockholders................. 61
Description of Capital Stock........... 63
Shares Eligible for Future Sale........ 66
Underwriting........................... 68
Legal Matters.......................... 71
Experts................................ 71
Change in Principal Accountants........ 71
Available Information.................. 72
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
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.
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 a leading market research and polling firm, using Internet-based and
traditional methodologies to provide our clients with information about the
views, experiences and attitudes of people worldwide. Known for our HARRIS POLL,
we have over 40 years experience in providing our clients with market research
and polling services using traditional methodologies, including direct mail,
telephone surveys, mall intercepts, focus groups and in-person interviews. In
September 1997, we began developing our Internet panel and our proprietary
technology infrastructure to provide our clients with online market research and
polling products and services. Today, our Internet panel consists of
approximately 4.2 million individuals who have voluntarily agreed to participate
in our various online market research and polling studies. Our Internet panel
has grown in large part through our strategic relationship with Excite@Home, a
leading Internet portal. We believe our Internet panel is larger than that of
any of our competitors and makes us the leading Internet-based market research
and polling firm in the world.
Our Internet-based and traditional market research and polling services
include:
- 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 custom research and customer relationship services using both
traditional and Internet-based methodologies. We conduct multi-client research
and service bureau research solely using Internet-based methodologies. We
provide market research and polling products and services to a broad range of
companies, non-profit organizations and governmental agencies. Our largest
clients, measured by our fiscal 1999 revenues, were Xerox Corporation,
Johnson & Johnson and Eastman Kodak Company.
Our clients are operating in an increasingly complex business environment,
which has escalated the need for accurate and timely information about the
preferences, needs, purchase behavior and brand recognition of potential and
existing customers. Our clients also need continuous tracking capabilities so
that they can ascertain product performance, competitive position and consumer
satisfaction. 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. 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.
4
<PAGE>
We possess several competitive strengths which we believe will enable us to
use the Internet to meet our clients' needs. These are:
- LARGE INTERNET PANEL. 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. We have expended substantial
financial and management resources in the development of our proprietary
technology infrastructure and data analysis techniques 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 the existing system
design.
- STRONG BRAND NAME AND 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 clients.
- STRATEGIC RELATIONSHIPS. We have entered into agreements with Excite@Home,
Market Facts, Inc. and Young & Rubicam Inc. to expand and replenish our
Internet panel and to develop and promote various market research products
and services.
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. Our strategies include:
- maximizing the revenue-generating capacity of our Internet panel by
increasing the size and scope of our business with existing and potential
clients;
- establishing new strategic relationships worldwide to expand our online
panel and to facilitate new product development;
- further enhancing our scalable, proprietary technology infrastructure;
- continuing to build brand awareness of our Internet-based market research
and polling products and services; and
- seeking strategic acquisitions of, or investments in, complementary
businesses, products, services or technologies.
RECENT DEVELOPMENTS
In September and October 1999, we sold an aggregate of 200,000 shares of
Class B preferred stock for an aggregate purchase price of $20.0 million to
Young & Rubicam, Excite, Inc., Sequel Limited Partnership II, Sequel
Entrepreneur's Fund II, L.P. and Riedman Corporation.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 5,800,000 shares
Common stock to be outstanding after the
offering................................... 31,414,811 shares
Excludes:
- 4,937,800 shares of common stock issuable
upon exercise of outstanding options at a
weighted average exercise price of $1.14
per share, of which options for 2,085,272
shares are exercisable,
- 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>
Unless otherwise specifically stated, all information contained in this
prospectus:
- reflects the conversion of all of our outstanding preferred stock,
including our Class B preferred stock issued in October 1999, assuming an
initial public offering price of $13.00 per share, into common stock upon
the closing of this offering, without any adjustment to the conversion
price of the Class B preferred stock resulting from this offering;
- reflects the filing of an amendment to our certificate of incorporation,
upon the closing of this offering, which authorizes 5.0 million shares of
undesignated preferred stock; and
- assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to our fiscal year refer to the 12-month
period ended June 30 of that year and references to our first quarter of a
fiscal year refer to the three-month period ended September 30 of that year.
CORPORATE INFORMATION
Our predecessor, Gordon S. Black Corporation, was incorporated in 1975. In
1996, we acquired substantially all of the assets, including the HARRIS name, of
Louis Harris and Associates, Inc., which was founded in 1959. In 1997, we
reorganized our company and Harris Black International Ltd. became the parent
company. In 1998, we changed our name to Harris Interactive Inc. Substantially
all of our operations are conducted through our subsidiaries.
6
<PAGE>
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.
HARRIS POLL is a registered mark of Harris Interactive. This prospectus also
includes other trademarks, trade names and service marks of Harris Interactive
and of other parties.
RISKS OF INVESTMENT
An investment in our common stock involves a high degree of risk. We operate
in a highly competitive market and have conducted our market research and
polling activities using the Internet for only two years. We incurred net losses
of $3.8 million in the first quarter of fiscal 2000, $8.8 million in fiscal 1999
and $1.9 million in fiscal 1998. We expect to continue to incur losses for the
foreseeable future as we continue to develop and build our Internet panel and
technology infrastructure.
Our executive officers, directors, members of their families and entities
affiliated with them will, in the aggregate, beneficially own approximately
69.3% of our common stock following the offering or approximately 67.6% of our
common stock in the event the underwriters' over-allotment option is exercised
in full. These stockholders collectively will be able to exercise control over
all matters requiring approval by our stockholders, including the election of
directors and the approval of mergers, consolidations, sales of assets,
recapitalizations, and amendments to our certificate of incorporation. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us, which could negatively affect our stock price.
You should carefully consider these risks and uncertainties as well as the
other risks and uncertainties described in the section of this prospectus
entitled "Risk Factors" before deciding whether to invest in shares of our
common stock.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the 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, Gordon S. Black Corporation. You should read this information
together with our 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>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues from services........... $10,865 $14,625 $23,327 $26,290 $ 28,965 $ 6,530 $ 9,364
Cost of services................. 7,558 10,209 15,629 16,618 19,086 4,133 6,307
----------- ----------- ----------- ----------- ---------- ----------- ----------
Gross profit..................... 3,307 4,416 7,698 9,672 9,879 2,397 3,057
Operating expenses:
Database development
expenses..................... -- -- -- 2,753 4,505 562 905
Selling, general and
administrative expenses...... 2,753 3,781 6,391 9,812 14,401 2,832 5,914
----------- ----------- ----------- ----------- ---------- ----------- ----------
Total operating expenses..... 2,753 3,781 6,391 12,565 18,906 3,394 6,819
----------- ----------- ----------- ----------- ---------- ----------- ----------
Operating income (loss).......... 554 635 1,307 (2,893) (9,027) (997) (3,762)
Other income (deductions)........ 33 13 (89) (160) 180 23 (71)
----------- ----------- ----------- ----------- ---------- ----------- ----------
Earnings (loss) before income
taxes.......................... 587 648 1,218 (3,053) (8,847) (974) (3,833)
Income tax expense (benefit)..... 250 260 490 (1,114) -- -- --
----------- ----------- ----------- ----------- ---------- ----------- ----------
Net earnings (loss).............. 337 388 728 (1,939) (8,847) (974) (3,833)
Accrued dividends on preferred
stock.......................... -- -- -- -- (1,176) (294) (294)
----------- ----------- ----------- ----------- ---------- ----------- ----------
Net earnings (loss) available to
the holders of common stock.... $ 337 $ 388 $ 728 $ (1,939) $(10,023) $ (1,268) $ (4,127)
=========== =========== =========== =========== ========== =========== ==========
Basic and diluted net earnings
(loss) per share............... $ .03 $ .03 $ .06 $ (.16) $ (1.01) $ (.13) $ (.38)
=========== =========== =========== =========== ========== =========== ==========
Basic weighted average shares
outstanding.................... 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261 9,898,177 10,911,850
Diluted weighted average shares
outstanding.................... 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261 9,898,177 10,911,850
Pro forma basic and diluted net
loss per share (unaudited)..... $ (.36) $ (.04) $ (.15)
========== =========== ==========
Pro forma basic and diluted
weighted average shares
outstanding (unaudited)........ 24,579,148 24,522,064 25,535,737
</TABLE>
The unaudited pro forma basic and diluted net loss per share is computed by
dividing the net loss by the sum of the weighted average number of shares of
common stock outstanding and the number of shares resulting from the automatic
conversion of all outstanding shares of preferred stock as a result of this
offering, assuming that the preferred stock was outstanding for all periods
presented. The assumed conversion of the preferred stock has an antidilutive
effect on the unaudited pro forma basic and diluted net loss per share.
The following table is a summary of our consolidated balance sheet data:
- on an actual basis;
8
<PAGE>
- 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 5,800,000 shares
of common stock at an assumed initial public offering price of $13.00 per
share, after deducting underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 313 $19,313 $ 88,685
Working capital............................................. (3,967) 15,033 84,405
Total assets................................................ 19,462 38,462 107,834
Mandatory redeemable preferred stock........................ 17,170 -- --
Total stockholders' equity (deficit)........................ (12,184) 23,986 93,357
</TABLE>
9
<PAGE>
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 ALL OF THE RISKS THAT WE CURRENTLY BELIEVE TO BE MATERIAL, BUT THEY 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
IF THE MARKETPLACE DOES NOT ACCEPT INTERNET-BASED MARKET RESEARCH AND POLLING,
OUR GROWTH WILL BE ADVERSELY AFFECTED
The success of our business will depend on our ability to develop and market
Internet-based 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.
Since the beginning of fiscal 1998, we have expended $17.6 million and
significant management resources in the development and growth of our
Internet-based market research and polling business. We have experienced
resistance from some of our clients regarding our Internet-based market research
and polling methodologies. If our current and potential clients do not accept
these methodologies, our revenues may not meet expectations or may decline, and
our business would likely suffer.
WE HAVE ONLY TWO YEARS OF INTERNET-RELATED OPERATING HISTORY UPON WHICH YOU MAY
EVALUATE US
Historically, we have collected data for market research and polling
utilizing traditional methodologies. Our business plan is to replace those
traditional methodologies with Internet-based methodologies. In September 1997,
we began developing our Internet panel and building the technology
infrastructure necessary to provide online market research and polling services.
In November 1997, we introduced our first Internet-based market research and
polling products and services. Accordingly, we have only two years of
Internet-related operating history from which you can evaluate our business and
prospects. In the first quarter of fiscal 2000, we recognized $2.7 million of
Internet-based revenues or 29% of our total revenues for that quarter and in
fiscal 1999, we recognized $2.9 million of Internet-based revenue, or 10% of our
total revenues for that year. In addition, we incurred net losses of $3.8
million in the first quarter of fiscal 2000, $8.8 million in fiscal 1999 and
$1.9 million in fiscal 1998. If we are unsuccessful in implementing our business
plan of providing Internet-based products and services, 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 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. Our past
difficulties in hiring and retaining highly skilled employees have resulted in
additional costs for recruitment, compensation and relocation or the provision
of remote access to our facilities. In addition, at certain times we have been
required to outsource software development for systems improvements, which has
resulted in delays in implementation and integration and increased costs. To
10
<PAGE>
the extent that we are unable to hire and retain skilled employees in the
future, our business would likely suffer.
WE DERIVED 19% OF OUR TOTAL REVENUES FROM TWO CLIENTS IN THE FIRST QUARTER OF
FISCAL 2000 AND 29% OF OUR TOTAL REVENUES FROM THESE TWO CLIENTS IN FISCAL 1999.
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.
For the first quarter of fiscal 2000:
- 15% of our total revenues was derived from Xerox Corporation; and
- 4% of our total revenues was derived from 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.
Our contracts with these clients are terminable upon notice of 90 days or
less, and either client may reduce its use of our services or products at any
time. 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
Since the beginning of fiscal 1998, we have expended approximately $17.6
million to develop and maintain our Internet capabilities, comprising
approximately $8.2 million to develop our Internet panel and approximately
$9.4 million to develop and maintain our technology infrastructure. As a result,
we incurred net losses of $3.8 million in the first quarter of fiscal 2000,
$8.8 million in fiscal 1999 and $1.9 million in fiscal 1998, and we have a
stockholders' deficit of $12.2 million as of September 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. Our present
quarterly fixed expenses, consisting of occupancy, payroll and other fixed
expenses, are approximately $6.2 million, and are expected to increase to
approximately $7.5 million by the end of fiscal 2000. 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 because we have operated in the Internet-based market research and
polling industry for only approximately two years. In 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.
11
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You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Factors that are outside of
our control, and that have caused our results to fluctuate in the past or that
may affect us in the future, include:
- demand for market research and polling products and services generally;
- seasonal fluctuations due to decreases in requests for market research and
polling services during the summer and year-end vacation and holiday
periods;
- development of products and services by our competitors;
- technical difficulties or system downtime affecting the Internet
generally; and
- fluctuations in general economic conditions or the budgets of our clients.
Factors that are within our control, and that have caused our results to
fluctuate in the past or that may affect us in the future, include:
- our relative mix of Internet-based and traditional market research and
polling businesses;
- technical difficulties or downtime of individual components of our
computer system affecting our operations;
- our ability to increase the size and scope of our Internet panel that we
will use to develop and sell new products and services to generate
revenues; and
- development of our products and services.
In the past, the technical difficulties and downtime described above have
had minimal impact on our operations and have usually been rectified within
several hours to 48 hours. We anticipate that all the remaining factors
described above may affect our business in the future, and we cannot assure that
their impact will not be severe.
OUR AGREEMENTS WITH EXCITE@HOME HAVE PRODUCED MORE THAN 90% OF OUR ONLINE
PANELISTS. A LOSS OF THAT SOURCE WOULD INHIBIT OUR ABILITY TO EXPAND OUR ONLINE
PANEL
We have obtained more than 90% of our online panelists through agreements
with Excite@Home. We have recently entered into a new agreement with Excite@Home
which will continue until October 1, 2002. This agreement will automatically
renew for successive one year terms after October 1, 2002, subject to either
party's right to terminate upon 120 days prior notice. If this agreement were
terminated by either party, we would need to develop another reliable source
with which to build and replenish our Internet panel. If we were unable to
develop an alternative source of online panelists, our business, financial
condition and results of operations would likely suffer.
IF WE ARE UNABLE TO MAINTAIN THE SIZE OR DEMOGRAPHIC COMPOSITION OF OUR INTERNET
PANEL, OR IF WE ARE REQUIRED TO SPEND SUBSTANTIAL FUNDS TO DO SO, OUR BUSINESS
WILL SUFFER
Our success is highly dependent on our ability to obtain and retain online
panelists and to increase the number of online panelists we have available in
our Internet panel. Our ability to increase the number of online panelists or
increase revenues through the use of our Internet panel may be harmed if:
- a significant number of our current online panelists decide that they are
no longer willing to participate in our surveys;
- we lose our online panelists due to numerous requests for participation--a
risk that may increase as our business, including the Harris Interactive
Service Bureau, expands--and we are required to rely on a limited number
of online panelists for numerous surveys on a variety of subjects; or
- our online panelists become frustrated with the layout and design of our
questionnaires and, as a result, reduce their participation in our
surveys.
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If the number of online panelists 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 not representative of the
general population.
We occasionally offer incentives to encourage participation in our surveys
and to increase the size of our Internet panel. Our incentives for participating
in a survey consist of either nominal cash payments, usually $5.00 or $10.00, or
the opportunity to enter into a cash sweepstakes with a chance to win up to
$1,000. To date, we have generally spent less than $3,000 on each incentive
campaign. If we were required to retain or replace our online panelists through
increased incentive campaigns, our operating expenses would increase.
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 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.
POTENTIAL ACQUISITIONS OF OR INVESTMENTS IN OTHER COMPANIES MAY NOT BE AVAILABLE
AND MAY HAVE A NEGATIVE IMPACT ON OUR BUSINESS
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. However, we may be unable to identify suitable
acquisition or investment candidates at reasonable prices or on reasonable
terms. The material risks involved with acquisitions are:
- 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.
Acquisitions may require the use of significant amounts of cash, resulting
in the inability to use those funds for other business purposes. Acquisitions
utilizing our capital stock could result in potentially dilutive issuances of
our capital stock, which could adversely impact the market price of our common
stock. Amortization of goodwill and other intangible assets would reduce our
earnings, which in turn could negatively impact the price of our common stock.
These difficulties could disrupt our ongoing business, distract our management
and employees and increase our expenses.
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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 who are listed in the
"Management" section of this prospectus. The loss of the services of any of
these persons 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 do not have "key person" life
insurance policies covering any of our employees other than Gordon S. Black.
WE ARE GROWING RAPIDLY AND IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE AND SUPPORT
OUR GROWTH OUR BUSINESS STRATEGY MIGHT NOT SUCCEED
We have grown rapidly and will need to continue to grow in all areas of our
operations 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.
IF WE DO NOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE
COMPETITION OF THE MARKET RESEARCH AND POLLING INDUSTRY, WE WILL NOT BE ABLE TO
SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN
The market research and polling industry is characterized by intense
competition, frequent new products 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 continually improving the performance features and
reliability of our products and services. We may experience difficulties that
could delay or prevent the successful development, 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.
ANY FAILURE IN THE PERFORMANCE OF OUR INTERNET-BASED TECHNOLOGY INFRASTRUCTURE
COULD HARM 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. We depend on Verio Collocation, an off-site data security facility, to
maintain approximately one-third of our servers at its facility in Rochester,
New York, and to protect our systems and operations from the events described
above. 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
increase in demands on our servers beyond that which we currently anticipate
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. While the impact of these outages in the
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past has been minimal, any future system delays or failures of service providers
to our Internet panel could adversely affect our access to our online panelists,
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 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. Our contingency plan for year 2000 compliance issues assumes that we
will rely on our third-party vendors for correction of year 2000 issues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT
OUR BUSINESS
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. 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 clients and members
of our Internet panel and reimplement our website. 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, we do
not have rights to use the HARRIS name in any form in those territories and we
will have to rely on a lesser known trademark for delivery of our services.
Moreover, we will not be able to establish and use the HARRIS name on a global
basis and we may incur additional costs in registering and utilizing additional
trademarks and establishing goodwill in those marks.
We have currently pending trademark applications for CONCEPTLOC, HARRIS
INTERACTIVE and HPOL. We also have patent applications currently pending for a
multi-location and multi-language registration and polling system and for our
CONCEPTLOC encryption system. In addition, we expect to apply for additional
trademarks or patents in the future. Our patent or trademark applications may
not be approved, or if approved, our patents or trademarks may be successfully
challenged by others or invalidated. If our trademark applications 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 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
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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 of 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.
ANY DIFFICULTY IN ACCESSING ADDITIONAL CAPITAL MAY PREVENT US FROM ACHIEVING 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 will experience dilution,
which may be significant, to 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.
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 grow, we may be unable to attract
additional online panelists 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
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- 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.
The International Data Corporation projects 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 will grow from
63 million at the end of 1998 to 177 million by the year 2003. If Internet usage
declines or grows at a significantly slower rate than projected, our ability to
maintain 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
The Internet Tax Freedom Act prohibits states or political subdivisions from
imposing taxes on Internet access, unless imposed and enforced prior to
October 1, 1998, and multiple or discriminatory taxes on electronic commerce
during the period beginning October 1, 1998 and ending October 21, 2001. The
Internet Tax Freedom Act also created the Advisory Commission on Electronic
Commerce to examine tax laws that impact electronic commerce. Any new laws
pertaining to the imposition of taxes on Internet access and electronic commerce
could adversely affect our business. In February 1999, the Federal
Communications Commission issued a declaratory ruling interpreting the
Telecommunications Act of 1996 to allow local exchange carriers to receive
reciprocal compensation for traffic delivered to information service providers,
particularly Internet service providers, on the basis that traffic bound for
Internet service providers is largely interstate. As a result of this ruling,
the costs of transmitting data over the Internet may increase and our business
could suffer.
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 and industry self-regulatory initiatives 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.
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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.
INTERNET SECURITY CONCERNS COULD HINDER INTERNET COMMUNICATIONS AND OUR ABILITY
TO OBTAIN SUFFICIENT AND RELIABLE RESPONSES FROM OUR ONLINE PANELISTS
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 online panelists to reduce their
participation levels, provide inaccurate responses or terminate their membership
in our Internet panel. This could harm our credibility 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 online panelists or a loss of clients would hurt our
efforts to generate increased revenues.
POTENTIAL LIABILITY FOR THE USE OF THE PERSONAL INFORMATION OF OUR INTERNET
PANEL COULD BE COSTLY
If third parties were able to penetrate our network security or otherwise
misappropriate our online panelists' 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.
IF WE ARE UNABLE TO ACHIEVE THE ANTICIPATED GLOBAL GROWTH OF OUR INTERNET PANEL,
OR IF WE ARE UNABLE TO OVERCOME OTHER RISKS OF GLOBAL OPERATIONS, WE WILL BE
UNABLE TO CONDUCT 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 online panelists 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;
- political instability; and
- Internet access restrictions.
We have little or no control over these risks. We have encountered more
restrictive privacy laws in connection with our business operations in Europe,
which have inhibited our ability to develop our European Internet panel. We have
also experienced currency exchange fluctuations, the impact of
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which has not been material. As we increase our global operations, we may
experience in the future some or all of these risks, which may have a material
adverse effect on our business, financial condition and results of operations.
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 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 in
the open market of
- the 406,056 shares of common stock that will be eligible for sale
immediately after the effective date of the public offering, excluding the
5,800,000 shares of common stock to be sold in this offering;
- the 183,512 shares of common stock that will be eligible for sale
beginning 91 days after the effective date of the public offering; and
- the 25,025,243 shares of common stock that will be eligible for sale
beginning 181 days after the effective date of this public offering.
This may also 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 $2.93 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
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substantial dilution of $10.07 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."
ANTI-TAKEOVER 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 or prevent third parties from seeking to obtain control of our
company, including transactions in which the holders of common stock might
receive a premium for their shares over prevailing market prices.
OUR EXECUTIVE OFFICERS, DIRECTORS, MEMBERS OF THEIR FAMILIES AND ENTITIES
AFFILIATED WITH THEM HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND AFFAIRS
We anticipate that our executive officers, directors, members of their
families and entities affiliated with them, together will beneficially own
approximately 69.3% of our common stock following the completion of this
offering, or approximately 67.6% of our 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 control over all matters requiring
approval by our stockholders, including the election of directors and approval
of mergers, consolidations, sales of assets, recapitalizations and amendments to
our certificate of incorporation. This concentration of ownership may also have
the effect of delaying or preventing a change in control of our company.
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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.
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USE OF PROCEEDS
Our net proceeds from the sale of 5,800,000 shares of common stock in this
offering at the assumed initial public offering price of $13.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $69.4 million. If the underwriters'
over-allotment option is exercised in full, we estimate that net proceeds will
be approximately $79.9 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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CAPITALIZATION
The following table sets forth our capitalization as of September 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
5,800,000 shares of common stock at the assumed initial public offering
price of $13.00 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 consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Mandatory redeemable Class A 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..... $ 16,170 $ -- $ --
Mandatory redeemable Class B preferred stock, par value
$.01 per share, 200,000 shares authorized, 10,000 shares
issued and outstanding, actual; no shares issued and
outstanding pro forma and pro forma as adjusted......... 1,000 -- --
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 $.001 per share, 100,000,000
shares authorized; 10,990,924 shares issued and
outstanding, actual; 25,614,811 shares issued and
outstanding pro forma; and 31,414,811 shares issued
and outstanding pro forma as adjusted................. 11 26 31
Additional paid-in capital................................ 5,806 40,491 109,857
Unamortized deferred compensation......................... (1,097) (1,097) (1,097)
Accumulated deficit....................................... (16,904) (15,434) (15,434)
-------- -------- ---------
Total stockholders' (deficit) equity.................... (12,184) 23,986 93,357
-------- -------- ---------
Total capitalization.................................. $ 4,986 $ 23,986 $ 93,357
======== ======== =========
</TABLE>
23
<PAGE>
In addition to the shares of common stock to be outstanding after the
offering, as of September 30, 1999, we may issue additional shares of common
stock under the following plans and arrangements:
- 4,937,800 shares underlying stock options issued and outstanding at a
weighted average exercise price of $1.14 per share, of which options for
2,085,272 shares are currently exerciseable;
- 1,250,000 shares reserved for issuance under our 1999 long-term incentive
plan;
- 500,000 shares reserved for issuance under our 1999 employee stock
purchase plan; and
- 216,608 shares issuable upon exercise of warrants outstanding at an
exercise price of $1.50 per share.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $22.8 million, or approximately $0.89 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 5,800,000 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
of September 30, 1999 would have been approximately $92.2 million, or $2.93 per
pro forma as adjusted share of common stock. This represents an immediate
increase in net tangible book value of $2.04 per share to our existing
stockholders and an immediate dilution in net tangible book value of $10.07 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............. $13.00
Pro forma net tangible book value per share as of September
30, 1999.................................................. $ 0.89
Increase per share attributable to this offering............ 2.04
------
Pro forma net tangible book value per share after this
offering.................................................. 2.93
Dilution per share to new investors......................... $10.07
======
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma net tangible book value as of September 30, 1999 would have been
approximately $3.18 per share, representing an immediate increase in net
tangible book value of $2.29 per share to existing stockholders and an immediate
dilution in net tangible book value of $9.82 per share to new investors.
The following table sets forth, on a pro forma basis as of September 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 $13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 25,614,811 81.5% $ 40,507 34.9% $ 1.58
New investors................................. 5,800,000 18.5 75,400 65.1 13.00
---------- ---- -------- ----
Totals........................................ 31,414,811 100% $115,907 100%
========== ==== ======== ====
</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.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the 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 consolidated
statement of operations data for the first quarter of fiscal 1999 and 2000, and
the balance sheet data as of September 30, 1999, are derived from our unaudited
interim financial statements included elsewhere in this prospectus. The
unaudited interim financial statements have been prepared on substantially the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues from services................. $10,865 $14,625 $23,327 $26,290 $ 28,965 $6,530 $9,364
Cost of services....................... 7,558 10,209 15,629 16,618 19,086 4,133 6,307
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit........................... 3,307 4,416 7,698 9,672 9,879 2,397 3,057
Operating expenses:
Database development expenses...... -- -- -- 2,753 4,505 562 905
Selling, general and administrative
expenses......................... 2,753 3,781 6,391 9,812 14,401 2,832 5,914
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses......... 2,753 3,781 6,391 12,565 18,906 3,394 6,819
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)................ 554 635 1,307 (2,893) (9,027) (997) (3,762)
Other income (deductions).............. 33 13 (89) (160) 180 23 (71)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes.... 587 648 1,218 (3,053) (8,847) (974) (3,833)
Income tax expense (benefit)........... 250 260 490 (1,114) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss).................... 337 388 728 (1,939) (8,847) (974) (3,833)
Accrued dividends on preferred stock... -- -- -- -- (1,176) (294) (294)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) available to
holders of common stock.............. $ 337 $ 388 $ 728 $(1,939) $(10,023) $(1,268) $(4,127)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net earnings (loss)
per share............................ $ .03 $ .03 $ .06 $ (.16) $ (1.01) $ (.13) $ (.38)
========== ========== ========== ========== ========== ========== ==========
Basic weighted average shares
outstanding.......................... 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261 9,898,177 10,911,850
Diluted weighted average shares
outstanding.......................... 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261 9,898,177 10,911,850
Pro forma basic and diluted net loss
per share (unaudited)................ $ (.36) $ (.04) $ (.15)
========== ========== ==========
Pro forma basic and diluted weighted
average shares outstanding
(unaudited).......................... 24,579,148 24,522,064 25,535,737
</TABLE>
26
<PAGE>
The unaudited pro forma basic and diluted net loss per share is computed by
dividing the net loss by the sum of the weighted average number of shares of
common stock outstanding and the number of shares resulting from the automatic
conversion of all outstanding shares of preferred stock as a result of this
offering, assuming that the preferred stock was outstanding for all periods
presented. The assumed conversion of the preferred stock has an antidilutive
effect on the unaudited pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $1,474 $1,073 $ 349 $ 4 $ 108 $ 313
Working capital..................................... 487 (246) (31) (2,196) 552 (3,967)
Total assets........................................ 3,504 6,628 9,721 9,798 14,785 19,462
Long-term debt, excluding current installment....... -- 1,100 700 400 -- --
Mandatory redeemable preferred stock................ -- -- -- -- 15,876 17,170
Total stockholders' equity (deficit)................ 1,325 1,663 2,392 947 (8,496) (12,184)
</TABLE>
27
<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 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. In the
first quarter of fiscal 2000, revenues from traditional market research and
polling methodologies represented 71% of total revenues, while revenues from
Internet-based products represented 29% 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 online panelists 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 from:
- our custom research services were $7.2 million, or 76.2% of our total
revenues, in the first quarter of fiscal 2000 and $28.3 million, or 97.7%
of our total revenues, in fiscal 1999;
- our multi-client research products were $0.5 million, or 5.7% of our total
revenues, in the first quarter of fiscal 2000 and $0.1 million, or 0.5% of
our total revenues, in fiscal 1999;
- our Harris Interactive Service Bureau services were $0.5 million, or 5.7%
of our total revenues, in the first quarter of fiscal 2000 and
$0.4 million, or 1.2% of our total revenues in fiscal 1999; and
- our customer relationship services were $1.2 million, or 12.4% of our
total revenues, in the first quarter of fiscal 2000 and $0.2 million, or
0.6% of our total revenues, in fiscal 1999.
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
28
<PAGE>
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, online panelist 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 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 $3.8 million in the first quarter of fiscal 2000,
$8.8 million in fiscal 1999 and $1.9 million in fiscal 1998, and net earnings of
$0.7 million in fiscal 1997. The net losses incurred in the first quarter of
fiscal 2000 and 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 September 30, 1999, we had a stockholders' deficit
of $12.2 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>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues from services......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of services............... 67.0 63.2 65.9 63.3 67.4
Gross profit................... 33.0 36.8 34.1 36.7 32.6
Database development
expenses..................... 0.0 10.5 15.6 8.6 9.7
Selling, general and
administrative expenses...... 27.4 37.3 49.7 43.4 63.2
Operating income (loss)........ 5.6 (11.0) (31.2) (15.3) (40.2)
Interest (expense) income,
net.......................... (0.4) (0.6) 0.6 0.4 (0.8)
Net earnings (loss)............ 3.1 (7.4) (30.5) (14.9) (40.9)
</TABLE>
29
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES FROM SERVICES. Total revenues increased 43.4% from $6.5 million in
the first quarter of fiscal 1999 to $9.4 million in the first quarter of fiscal
2000. This increase was primarily due to increased usage of our Internet-based
market research products and services, which contributed $2.7 million, or 29.0%
of total revenues, in the first quarter of fiscal 2000, as compared to
$0.3 million, or 4.8% of total revenues, in the first quarter of fiscal 1999.
GROSS MARGIN. Gross margin decreased to 32.6% in the first quarter of
fiscal 2000 from 36.7% in the first quarter of fiscal 1999 primarily due to
increased costs associated with new hires during the first quarter of fiscal
2000. The decrease in gross margins was partially offset by increased margins on
our Internet-based products and services.
DATABASE DEVELOPMENT EXPENSES. Database development expenses increased
61.0% to $0.9 million in the first quarter of fiscal 2000 from $0.5 million in
the first quarter of fiscal 1999. The increase in the first quarter of fiscal
2000 reflects expenses associated with the payments to Excite@Home for the
acquisition of additional names of panelists for our Internet panel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 108.8% to $5.9 million in the first quarter of
fiscal 2000 from $2.8 million in the first quarter of fiscal 1999. This increase
was primarily attributable to increased payroll expenses associated with new
hires, increased marketing expenses and higher costs associated with our
continuing development of new products, services and technologies for the
Internet.
NET INTEREST INCOME (EXPENSE). We had interest income of $981 in the first
quarter of fiscal 2000 as compared to interest income of $45,768 in the first
quarter of fiscal 1999. Interest expense increased to $71,509 from $23,064 for
the same period. The increase in interest expense was primarily due to higher
levels of indebtedness incurred principally to finance database development
expenses.
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. The decrease in
gross margins was partially offset by increased margins on our Internet-based
products and services.
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 for a full fiscal
year consisting of expenses associated with payments to Excite@Home for the
acquisition of additional names of panelists 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
30
<PAGE>
fiscal 1998. These increases were primarily due to higher costs associated with
the development of new products, services and technologies for the Internet.
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 million 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.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited consolidated quarterly statement of
operations data for each of our nine most recent quarters ended September 30,
1999. In management's opinion, this information has been prepared on the same
basis as the audited consolidated financial statements and
31
<PAGE>
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 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. The Selected
Panelist Data presented below are not derived from our financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1998 1998 1998 1998
------------- ------------ --------- -------- ------------- ------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from services....... $5,517 $6,410 $7,321 $ 7,043 $ 6,530 $ 6,935
Cost of services............. 3,814 4,046 4,241 4,517 4,133 4,637
------ ------ ------ ------- ------- -------
Gross profit................. 1,703 2,364 3,080 2,526 2,397 2,298
Operating expenses:
Database development
expenses................... -- 1,350 250 1,153 561 1,751
Selling, general and
administrative expenses.... 2,063 2,571 2,450 2,727 2,832 3,163
------ ------ ------ ------- ------- -------
Operating (loss) income...... (360) (1,557) 380 (1,354) (996) (2,616)
Other (deductions) income.... (29) (30) (50) (52) 23 96
------ ------ ------ ------- ------- -------
Earnings (loss) before income
taxes...................... (389) (1,587) 330 (1,406) (973) (2,520)
Income tax (benefit)
expense.................... (142) (579) 120 (513) -- --
------ ------ ------ ------- ------- -------
Net (loss) earnings.......... (247) (1,008) 210 (893) (973) (2,520)
Accrued dividends on
preferred stock............ -- -- -- -- (294) (294)
------ ------ ------ ------- ------- -------
Net (loss) earnings available
to common stock............ $ (247) $(1,008) $ 210 $ (893) $(1,267) $(2,814)
====== ====== ====== ======= ======= =======
SELECTED PANELIST DATA:
Number of online panelists at
end of quarter............. -- 254 484 626 1,060 1,503
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
1999 1999 1999
--------- -------- -------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Revenues from services....... $ 6,462 $ 9,038 $ 9,364
Cost of services............. 4,291 6,025 6,307
------- ------- -------
Gross profit................. 2,171 3,013 3,057
Operating expenses:
Database development
expenses................... 1,233 960 905
Selling, general and
administrative expenses.... 3,520 4,886 5,914
------- ------- -------
Operating (loss) income...... (2,582) (2,833) (3,762)
Other (deductions) income.... 31 30 (71)
------- ------- -------
Earnings (loss) before income
taxes...................... (2,551) (2,803) (3,833)
Income tax (benefit)
expense.................... -- -- --
------- ------- -------
Net (loss) earnings.......... (2,551) (2,803) (3,833)
Accrued dividends on
preferred stock............ (294) (294) (294)
------- ------- -------
Net (loss) earnings available
to common stock............ $(2,845) $(3,097) $(4,127)
======= ======= =======
SELECTED PANELIST DATA:
Number of online panelists at
end of quarter............. 3,208 3,664 4,194
</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 cash flow from operations,
bank financings and, more recently, private placements of our common and
preferred stock. As of September 30, 1999, our sources of liquidity consisted of
approximately $313,371 of cash and cash equivalents, and a $5.0 million line of
credit with a commercial bank. In October 1999, we raised $19.0 million through
the private placement of our Class B preferred stock.
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 is the prime rate. As of
September 30, 1999, the prime rate was 8.25%. 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,
$2.2 million as of June 30, 1998, $5.0 million as of September 30, 1999 and $0
as of September 30, 1998. In October 1999, we repaid all outstanding borrowings
under our line of credit with a portion of the proceeds from the sale of our
Class B preferred stock.
Net cash used in operating activities was $3.0 million for the first quarter
of fiscal 2000 and $2.3 million for the first quarter of fiscal 1999 and
$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 $2.9 million for the first quarter
of fiscal 2000 and $0.4 million for the first quarter of fiscal 1999 and
$4.3 million in fiscal 1999 and $1.0 million in fiscal
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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 $6.0 million for the first
quarter of fiscal 2000 and $8.2 million for the first quarter of fiscal 1999 and
$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 our Class
A 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 September 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 will be sufficient to meet our anticipated needs for at least the
next 12 months and, when combined with the net proceeds from this offering, will
be sufficient to meet our anticipated needs for at least 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 Internet panel 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 adopted the provisions of SOP 98-1 in fiscal
2000.
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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 September 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:
- approximately 10% have been tested and found to be year 2000 compliant;
- approximately 10% have been built or developed internally on platforms
certified by the manufacturer as being year 2000 compliant; and
- approximately 80% are purchased integrated hardware and software systems
certified by the manufacturer as being year 2000 compliant.
We estimate that our cost to become year 2000 compliant has been
approximately $100,000, and we believe that any additional costs related to
becoming year 2000 compliant will not exceed $50,000. These costs are not
separately tracked but represent our estimate of the operating costs associated
with time spent by our employees in the evaluation process and year 2000
compliance matters generally.
We have contacted all of our significant distributors, suppliers, service
providers and other third-party vendors. All have responded, either in direct
correspondence or through their web-based compliance statements, that their
systems are year 2000 compliant. Our contingency planning for year 2000 issues
relies on the efforts of our third-party vendors. In the event of any year 2000
disruptions related to third-party software, we expect to follow the individual
vendor's contingency directives.
We also engaged a third-party consultant to perform a year 2000 compliance
review of our computer systems. The consultant reviewed all of the procedures we
employ in our year 2000 compliance testing and found them to be consistent with
generally accepted year 2000 practices. These practices include:
- the identification and inventory of our computer systems;
- the assessment of the year 2000 risks associated with our computer
systems;
- corrective action planning, actual execution and testing of our computer
systems; and
- contingency planning.
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The consultant also examined our critical systems and confirmed that our
critical systems meet the criteria for critical systems outlined above. The
consultant did not force or simulate a year 2000 change-over, because to do so
would have caused an undue disruption to our business, and did not conduct
parallel testing of our computer systems. Subject to those limitations, however,
the consultant did not identify any threats from year 2000 compliance issues
other than those discussed above, none of which might reasonably be expected to
have a material adverse effect on our business, financial condition or results
of operations.
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 online panelists 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.
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BUSINESS
OVERVIEW
We are a leading market research and polling firm, using Internet-based and
traditional methodologies to provide information about the views, experiences
and attitudes of people worldwide to a broad range of companies, non-profit
organizations and governmental agencies. Known for our HARRIS POLL, we have over
40 years experience in providing our clients with market research and polling
services. Our Internet-based and traditional market research and polling
services include:
- research studies conducted on specific issues for specific
customers -- CUSTOM RESEARCH,
- research studies on issues of general interest developed and sold to
numerous clients -- MULTI-CLIENT RESEARCH,
- research conducted for other research firms -- SERVICE BUREAU RESEARCH,
and
- outsourced customer relationship services -- CUSTOMER RELATIONSHIP
SERVICES.
In September 1997, we began developing our Internet panel and our
proprietary technology infrastructure to provide our clients with online market
research and polling products and services. Today, our Internet panel consists
of approximately 4.2 million individuals who have voluntarily agreed to
participate in our various online market research and polling studies. Our
Internet panel has developed and expanded in large part through our strategic
relationship with Excite@Home, a leading Internet portal. We believe our
Internet panel is larger than those of any of our competitors and makes us the
leading Internet-based market research and polling firm in the world. Our
extensive Internet panel and proprietary technology infrastructure enable us to
offer Internet-based market research and polling products and services which
meet our clients' needs for fast, comprehensive and accurate information.
Historically, we have provided our market research services exclusively
through traditional methodologies, including direct mail, telephone surveys,
mall intercepts, focus groups and in-person interviews. 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 Internet 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
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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 will
grow 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 population.
We believe that, as Internet usage has increased, the demographic composition of
those using the Internet has shifted to better reflect the characteristics of
the overall population. As a result, with standard market research weighting
procedures, the Internet is now a viable medium 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 online panelists 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
online panelists 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. In our
experience, a mail survey typically takes approximately six weeks from
design to completion. In contrast, Internet surveys can generally be
completed in two to seven days.
THE HARRIS INTERACTIVE 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
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believe will enable us to maintain and expand our leading market position in
Internet-based research. 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 4.2 million online panelists, 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. Since the beginning of fiscal 1998, we have expended approximately
$9.4 million to develop and maintain our technology infrastructure. We intend to
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 AND 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
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awareness of and enhance brand recognition for the HARRIS POLL, HARRIS
INTERACTIVE and our Internet-based products and services.
OUR STRATEGIC RELATIONSHIPS. We have entered into agreements with
Excite@Home, Market Facts and Young & Rubicam that will enable us to expand and
replenish our Internet panel and to develop and promote our various market
research products and services.
- EXCITE@HOME. Our relationship with MatchLogic, Inc., a subsidiary of
Excite@Home, began in 1997 and we have obtained more than 90% of the
4.2 million names in our Internet panel from that relationship. We have
recently entered into a new agreement with Excite@Home which will continue
until October 1, 2002. Under this agreement, we have exclusive ownership
of the names of individuals who have voluntarily participated in a survey
and who have either affirmatively expressed a desire to participate in our
future surveys, or who have not affirmatively expressed a desire not to
participate in our future surveys. We own these names exclusively for
purposes of conducting research studies. Excite@Home has exclusive
ownership of the names for promotional and commercial marketing uses. The
agreement provides that Excite@Home will deliver a guaranteed number of
names each calendar quarter in consideration for a monthly fee paid by us.
The agreement provides us with a rapid and cost-efficient means of
building and replenishing our Internet panel. Our agreement with
Excite@Home will automatically renew for successive one-year terms after
October 1, 2002, subject to either party's right to terminate upon 120
days prior notice. We have also entered into agreements with Excite@Home
for the provision of research services, including custom research and
multi-client research products, and the use and distribution of our
ECOMMERCEPULSE multi-client research product. We have also entered into
discussions with Excite@Home related to the development and distribution
of co-branded Internet-based panels and 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. Under this agreement, Market Facts
agreed to use us exclusively for all of its Internet-based data collection
and not to enter into strategic online alliances with our direct
competitors. The initial term of the agreement is five years and
automatically renews for successive one-year terms, subject to either
party's right to terminate upon one year's notice. Under this agreement,
we have 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 the use and access, 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. The agreement also provides for the development of
multi-client studies, either jointly or by each of us individually.
- YOUNG & RUBICAM. In October 1999, we entered into an agreement with Young
& Rubicam, a global marketing and communications organization, under which
we agreed to provide market research products and services to Young &
Rubicam and its clients. The term of the agreement is five years. Under
this agreement, Young & Rubicam can purchase, or arrange for its clients
to purchase, any market research and polling products and services offered
by us on terms no less favorable than terms offered by us to similarly
situated clients.
The agreement also provides that we will make quarterly payments to
Young & Rubicam in the event our total revenues and Internet-related
revenues attributable to services we have performed for Young & Rubicam
and its clients during each quarter meet certain minimum levels. The
payments will be equal to 10% of non-Internet revenues and 30% of Internet
revenues generated by Young & Rubicam and its clients and will be payable
in cash or shares of
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our common stock. The number of shares of our common stock to be received
by Young & Rubicam will be based upon the daily average closing prices for
our common stock during the relevant quarter provided the price is not
less than the price paid for our common stock in this offering. If the
average closing price for the quarter is less than the price paid for our
common stock in this offering, Young & Rubicam will receive cash instead
of shares of our common stock. As part of the agreement, Young & Rubicam
and its clients will own the data received as part of our custom research
services and we will continue to own the data which comprises part of our
multi-client products.
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
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. As of
September 30, 1999, we have sold our multi-client products to
approximately 40 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, some of whom may be
competitors of ours, 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.
- 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 international companies to rapidly expand our
Internet panel worldwide and facilitate new product development. For example, we
are establishing an international research organization whose members will have
access to the names in the databases of the other members. Although we have not
yet reached agreement with any company, we are in discussions with several
international market research firms that we have identified as possible initial
members in this organization. In addition, we intend to seek arrangements with
international news organizations to provide online television programming
evaluations similar to those we are presently conducting in the United States.
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.
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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 Japan, Australia and Canada where we are expanding our
Internet panel development and Internet-based market research and polling
capabilities.
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. For
the first quarter of fiscal 2000, 71% of our total revenues were derived from
custom research utilizing traditional research methods, and 29% 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 Traditional and
issue specifically identified by a client Internet- based
Multi-Client Research Studies developed for and sold to a large Internet-based
number of clients who have a similar
interest in a particular subject area
Harris Interactive Market research and polling conducted for Internet-based
Service Bureau other market research organizations
Customer Relationship Outsourced customer service operations for Traditional and
Services corporations and organizations Internet- based
</TABLE>
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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. As a result of our long history in providing custom
research, we have particular expertise in the following markets:
- office equipment and technology;
- pharmaceuticals;
- healthcare;
- 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.
We rely upon the same basic methodologies as our competitors with respect to
traditional market research and polling services. However, we use our
proprietary sample design techniques and our questionnaire development process
to collect complete and accurate information responsive to the specific
inquiries of our clients. We have developed in-depth data collection techniques
that enhance the integrity and reliability of our sample database. We also 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.
We also conduct custom research using the Internet. For example, since
March 1999, we have been conducting studies of viewer opinions of NBC television
programming. To participate in these studies the viewers are invited to access
our designated website address that appears on their television screen. In
addition to evaluating the particular show, the respondent-viewers are given the
opportunity to participate in our future market research studies. More than
100,000 respondent-viewers have become online panelists.
In October 1999, we entered into an agreement with a marketing affiliate of
the US Olympic Committee whereby we have agreed to provide the US Olympic
Committee with $3.0 million of market research services over a term ending
December 31, 2004. In exchange for these services, we are granted a license to
use the Olympic emblem and we are designated as the Official Market Research
Supplier for the US Olympic Committee and the 2002 Salt Lake Winter Games. In
addition, we will host Olympic-related polls on the US Olympic Committee and
Salt Lake Olympic Committee home pages, providing us an opportunity to register
new online panelists for our Internet panel.
Revenues derived from custom research services in the first quarter of
fiscal 2000 were $7.2 million, representing 76.2% of our total revenues, and 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
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particular subject or market. Agreements for co-branded studies are negotiated
on a case-by-case basis, with revenues generally applied to specified categories
of expenses and any profits shared equally. These products enable our clients to
conduct research and collect useful data in their areas of expertise that they
could not conduct 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 are:
- 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.
- SKIER/SNOWBOARDER, a survey of individuals who have skied in the past two
years. This study is co-branded with a ski industry research firm.
- GOMEZ ONLINE TRADING STUDY, a study that tracks quarterly changes in the
online securities trading industry. This study is co-branded with a
financial service research and analysis firm.
- 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 joint creation 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 a wireless communications industry research organization.
- 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 the first quarter of
fiscal 2000 were $0.5 million, representing 5.7% of our total revenues, and in
fiscal 1999 were $0.1 million, representing 0.5% of our total revenues.
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<PAGE>
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 Internet-based market research
capabilities 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. 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 the first quarter
of fiscal 2000 were $0.5 million, representing 5.7% of our total revenues, and
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 collection
of customer-specific data and providing "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 market research telephone interviewing facilities and
personnel to Internet-based customer relationship services.
Revenues derived from customer relationship services in the first quarter of
fiscal 2000 were $1.2 million, representing 12.4% of our total revenues, and in
fiscal 1999 were $0.2 million, representing 0.6% of our total revenues.
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<PAGE>
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. The following is a list of our five largest clients,
based on fiscal 1999 revenues, in each industry category and listed
alphabetically.
<TABLE>
<S> <C>
MANUFACTURING SERVICES
The Dow Chemical Company ACNielsen Corporation
Eastman Kodak Company Danka Business Systems, PLC
General Motors Corporation Interim Personnel Services Inc.
Potlach Corporation 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 Commonwealth Fung
Excite@Home Educational Testing Service
International Business Machines
Corporation Harvard School of Public Health
Packard Bell NEC, Inc. Kaiser Family Foundation
</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
Genesis Eldercare Nationwide Insurance Enterprise
Johnson & Johnson NHK Enterprises America
</TABLE>
We derive a substantial portion of our total revenues from Xerox Corporation
and Johnson & Johnson. For the first quarter of fiscal 2000, 15% of our revenues
was derived from Xerox Corporation and 4% of our revenues was derived from
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.
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.
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<PAGE>
- SOPHISTICATED SURVEY ENGINE. Our survey engine constructs the page
necessary to ask the online panelist a single question or small group of
questions. After the online panelists submit their answers, the answers
are immediately checked for online panelist 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 interactive, 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 online
panelists to several different surveys at the same time. Our dispatcher
system observes the load on the survey engines and distributes incoming
online panelists appropriately. It checks that valid passwords have been
entered and it senses systems outages and routes around them. It also
allows survey online panelists 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.
- 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
online panelists 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 online panelists 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.
In the first quarter of fiscal 2000, we expended $0.2 million, for research
and development of technologies for data collection and communication. In fiscal
1999, 1998 and 1997, we expended $0.5 million, $0.2 million and $0.1 million,
respectively, for such research and development activities.
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.
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<PAGE>
Approximately one-third of our servers are maintained by Verio Collocation
at its facility in Rochester, New York, while the remainder of our servers are
maintained by us at our facilities. 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 national newswire services. Our offline advertising
and promotional efforts also include print advertising in industry
magazines, trade journals and other publications.
- ONLINE PROMOTION. We have agreements 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.
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,
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<PAGE>
- 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.
Under the terms of our acquisition of Louis Harris and Associates, we
purchased the HARRIS name, including the HARRIS POLL, for global use except for
use in Europe and the European portion of the former Soviet Union. The prior
owner of Louis Harris and Associates sold the HARRIS name for use in Europe and
the European portions of the former Soviet Union. Accordingly, we have adopted
and intend to promote HPOL in those territories as the trademark 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
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<PAGE>
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 30, 1999, we employed a total of 755 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.
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
(Corporate Woods) offices 5-year renewal option
Rochester, New York 29,600 Telephone interviewing 13,780 square foot lease expires
(Carlson Road) and customer July 1, 2008 with one 3-year
relationship services renewal option; 10,600 square foot
center 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 Expires December 31, 2004 with two
policy management, 5-year renewal options
project and data
processing staff
Vestal, New York 5,000 Telephone interviewing Expires December 31, 2001 with one
and customer 5-year renewal option
relationship services
center
Boardman, Ohio 5,500 Telephone interviewing 4,300 square foot lease is a
and customer month-to- month lease; 1200 square
relationship services foot lease expires March 31, 2000
center with one 6-month renewal option
San Francisco, 3,000 Corporate office Expires August 31, 2004 with one
California 5-year renewal option
</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 are not currently a defendant in any material 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.
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<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 September 30, 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.
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<PAGE>
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 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.
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<PAGE>
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.
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 finance committee and the compensation,
nominating and corporate governance committee 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 and a director of the Riedman
Corporation, 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. Since June 1996, Mr. Riedman has been the Chairman and the Chief
Executive Officer of the Daniel Green Company, a publicly-traded manufacturer of
women's footwear. Mr. Riedman is a member of the executive and compensation
committees, and an ex officio member of the audit committee of Daniel Green
Company.
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 holders of our Class A preferred stock 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 only current designee
of BVCF III under these arrangements;
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- 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 holders of our Class A
preferred stock 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.
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.
53
<PAGE>
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. The exercise price per share for these
options was equal to the fair market value of the common stock on the date of
grant as determined by our board of directors. See "Employee Benefit Plans--1999
Long Term Incentive Plan" for a description of options that may be granted to
directors.
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 $100,000 during fiscal 1999.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------
NAME AND PRINCIPAL POSITION SALARY ($)(1) BONUS ($)
- --------------------------- ------------- ---------
<S> <C> <C>
Gordon S. Black............................................. $313,448 $12,514
Chief Executive Officer
David H. Clemm.............................................. 297,697 11,884
President and Chief Operating Officer
Leonard R. Bayer............................................ 266,984 10,655
Executive Vice President and Chief Technology Officer
Arthur E. Coles............................................. 175,154 30,000
Executive Vice President, Marketing and Business
Development
Bruce A. Newman............................................. 122,654 5,242
Chief Financial Officer, Secretary and Treasurer
</TABLE>
- ------------------------
(1) Includes a 401(k) matching contribution of $600.
STOCK OPTION INFORMATION
We did not grant any stock options to our Chief Executive Officer or our
four other most highly compensated executive officers during fiscal 1999. We
have never granted any stock appreciation rights.
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................................ 1,264,676 373,324 $4,348,814 $1,209,036
Leonard R. Bayer.............................. -- -- -- --
Arthur E. Coles............................... 56,000 112,000 187,980 375,960
Bruce A. Newman............................... 224,000 112,000 773,560 362,720
</TABLE>
All of Mr. Clemm's, Mr. Coles's and Mr. Newman's unvested options will vest
immediately upon the closing of this offering.
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.
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<PAGE>
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 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.
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<PAGE>
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 a 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. We
incurred matching contribution expenses of $94,284 in fiscal 1999, $80,616 in
fiscal 1997, and $72,867 in fiscal 1996. 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>
RELATED PARTY TRANSACTIONS
PREFERRED STOCK PRIVATE PLACEMENTS
CLASS A PREFERRED STOCK. In July 1998, we sold an aggregate of 147,000
shares of our Class A preferred stock for an aggregate purchase price of
$14.7 million or $100 per share, to BVCF III, L.P., Brinson Map Venture Capital
Fund III Trust and the Virginia Retirement System.
The following table provides information with respect to the shares of
Class A preferred stock purchased by these investors:
<TABLE>
<CAPTION>
MARKET VALUE
NUMBER OF OF COMMON
TOTAL NUMBER OF SHARES OF STOCK
SHARES OF COMMON AT AN
CLASS A STOCK TO ASSUMED INITIAL
PREFERRED STOCK PURCHASE BE ISSUED UPON PUBLIC OFFERING
PURCHASED PRICE($) CONVERSION PRICE OF $13.00
INVESTOR --------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
BVCF III, L.P. ........................ 17,196 $ 1,719,600 1,379,468 $ 17,933,084
Brinson Map Venture Capital Funding III
Trust................................ 2,805 280,500 225,195 2,927,535
Virginia Retirement System............. 126,999 12,699,500 10,185,661 132,413,593
</TABLE>
The shares of Class A preferred stock will automatically convert into common
stock upon the closing of this offering.
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. Mr. Berman is a member of Brinson Venture Management LLC, which is a
special limited partner of BVCF, III L.P. Mr. Berman does not have a direct
ownership interest in BVCF III, L.P., Brinson Map Venture Capital Fund III Trust
or the Virginia Retirement System.
CLASS B PREFERRED STOCK. In September and October 1999, we sold an
aggregate of 200,000 shares of Class B preferred stock for an aggregate purchase
price of $20.0 million, or $100 per share, to Excite, Inc., Riedman Corporation,
Sequel Limited Partnership II, Sequel Entrepreneur's Fund II, L.P. and
Young & Rubicam Inc. James R. Riedman, one of our directors, is the President, a
director and a principal stockholder of Riedman Corporation.
Our Class B preferred stock is automatically convertible at an initial
conversion price of $7.05825 per share, which would result in the issuance of
2,833,563 shares of our common stock. The conversion price is subject to
adjustment depending upon the per share initial public offering price of our
common stock. The following table presents the effects on the conversion price
of our Class B preferred stock if the public offering price were equal to the
high, mid-point and low prices within the range shown on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
PUBLIC OFFERING CONVERSION TO BE ISSUED
PRICE PRICE UPON CONVERSION
- --------------------- ---------- ----------------
<S> <C> <C>
$12.00 $6.51531 3,069,693
13.00 7.05825 2,833,563
14.00 7.60119 2,631,167
</TABLE>
58
<PAGE>
The following table provides information with respect to the shares of
Class B preferred stock sold by us:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK TO BE MARKET VALUE OF
TOTAL NUMBER OF ISSUED UPON COMMON STOCK
SHARES OF CONVERSION, ASSUMING AT AN ASSUMED
CLASS B AN INITIAL PUBLIC INITIAL PUBLIC
PREFERRED STOCK PURCHASE OFFERING PRICE OF OFFERING PRICE OF
PURCHASED PRICE($) $13.00 $13.00
INVESTOR --------------- ---------- -------------------- -----------------
<S> <C> <C> <C> <C>
Excite, Inc........................ 30,000 $3,000,000 425,034 $ 5,525,442
Reidman Corporation................ 10,000 1,000,000 141,678 1,841,814
Sequel Limited Partnership II...... 48,374 4,837,400 685,354 8,909,602
Sequel Entrepreneur's Fund II,
L.P.............................. 1,626 162,600 23,037 299,481
Young & Rubicam Inc................ 110,000 11,000,000 1,558,460 20,259,980
</TABLE>
The holders of Class A and Class B of preferred stock have certain
registration rights. See "Description of Capital Stock--Registration Rights."
YOUNG & RUBICAM STRATEGIC ALLIANCE
In October 1999, we entered into an agreement with Young & Rubicam pursuant
to which we have agreed to provide market research products and services to
Young & Rubicam and its clients.
Under the agreement, Young & Rubicam can purchase, or arrange for its
clients to purchase, any market research and polling products and services
offered by us on terms no less favorable than terms offered by us to similarly
situated clients.
Young & Rubicam may receive additional shares of our common stock if we
realize certain minimum levels of total revenue and Internet-related revenue as
a result of work performed for Young & Rubicam and its clients during each
quarter. We agreed to issue shares of our common stock to Young & Rubicam with a
value equal to 10% of non-Internet revenues and 30% of Internet revenues
generated by Young & Rubicam and its clients. The number of shares of our common
stock to be received by Young & Rubicam will be based upon the daily average
closing prices for our common stock during the relevant quarter provided the
price is not less than the price paid for our common stock in this offering. If,
however, the average closing price for the quarter is less than the price paid
for our common stock in this offering, Young & Rubicam will receive cash instead
of shares of our common stock. Any shares of common stock issued by us to
Young & Rubicam will have registration rights. As part of the agreement, Young &
Rubicam and its clients own the data received as part of our custom research
services and we will continue to own the data which comprises part of our
multi-client products.
MARKET FACTS EQUITY INVESTMENT
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. If
Market Facts had purchased the shares of common stock at the assumed initial
public offering price of $13.00 per share, it would have paid an aggregate
purchase price of $14.2 million.
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
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<PAGE>
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.
OTHER TRANSACTIONS
REPURCHASE OF COMMON STOCK. In connection with the sale of our Class A
preferred stock on July 7, 1998 we repurchased an aggregate of 2,382,296 shares
of our common stock. We repurchased 1,530,592 shares of common stock from Gordon
S. Black, our Chief Executive Officer, for an aggregate redemption price of
$1,927,450 or $1.26 per share and 765,324 shares of common stock from Leonard R.
Bayer, our Executive Vice President, for an aggregate redemption price of
$963,761 or $1.26 per share.
LOAN TO OFFICER. In May 1993, we made a personal 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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock, as of September 30, 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 all outstanding preferred
stock and shares of common stock underlying options held by such person that are
exercisable within 60 days of September 30, 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 25,614,811
shares of common stock outstanding as of September 30, 1999, and 31,414,811
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>
PERCENTAGE OF SHARES
TOTAL NUMBER NUMBER OF SHARES BENEFICIALLY OWNED
OF SHARES BENEFICIALLY OWNED ---------------------
BENEFICIALLY INCLUDES SECURITIES BEFORE AFTER
OWNED UNDERLYING OPTIONS OFFERING OFFERING
------------ ------------------- --------- ---------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Brinson Partners Inc. (1)................... 11,790,324 -- 46.0% 37.5%
Young & Rubicam Inc. (2).................... 1,558,460 6.1% 5.0%
DIRECTORS AND EXECUTIVE OFFICERS:
Gordon S. Black (3)(8)...................... 3,287,900 -- 12.8% 10.5%
David H. Clemm (4)(8)....................... 1,081,332 1,638,000 10.0% 8.2%
Leonard R. Bayer (5)(8)..................... 3,133,060 -- 12.2% 10.0%
Bruce A. Newman............................. 79,156 336,000 1.6% 1.3%
Arthur E. Coles............................. 14,924 168,000 * *
Thomas D. Berman (6)(8)..................... -- -- --
G. Thomas Clark (8)......................... 28,000 * *
James R. Riedman (7)(8)..................... 141,678 28,000 * *
Directors and Executive Officers as a group
(ten persons)............................. 7,852,262 2,282,000 36.3% 30.1%
</TABLE>
- ------------------------
* Less than 1%
(1) Represents shares to be issued upon conversion of 147,000 shares of our
Class 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 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
61
<PAGE>
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.
(2) Represents shares of common stock to be issued upon conversion of 110,000
shares of our Class B preferred stock.
(3) Includes 364,000 shares held by Lonny H. Dolin, Dr. Black's wife.
(4) Includes 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) Mr. Riedman is the President, director and a principal stockholder of
Riedman Corporation. Riedman Corporation is the owner of 10,000 shares of
our Class B preferred stock, which will convert into 141,678 shares of our
common stock upon the closing of this offering.
(8) 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
describes the material provisions of each class, but does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
our 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, including Class B preferred stock issued in October 1999, into
shares of common stock, as of September 30, 1999, there were 25,614,811 shares
of common stock outstanding held of record by approximately 70 stockholders.
After giving effect to the sale of common stock in the offering, there will be
31,414,811 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 duly
authorized, fully paid and non-assessable, and the shares of common stock to be
issued in the offering will be duly authorized, fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering, the 147,000 shares of our Class A
preferred stock outstanding will automatically convert into a total of
11,790,324 shares of common stock and the 200,000 shares of our Class B
preferred stock outstanding will automatically convert into a total of 2,833,563
shares of our common stock.
After the closing of this offering and pursuant to our restated certificate
of incorporation, the board of directors will have 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
of directors, 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 plans to issue any of the
5,000,000 shares of preferred stock.
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<PAGE>
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,
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 14,623,887 shares of
common stock will be entitled to have their shares registered under the
Securities Act of 1933. In addition, Young & Rubicam has registration rights
with respect to shares of common stock that may be issued to it as commissions
for market research business generated by it or its clients. 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-TAKEOVER 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
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;
64
<PAGE>
- 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
- 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.
65
<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
31,414,811 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 5,800,000 shares sold in this offering will be
freely tradable without registration or further restriction under the Securities
Act, unless such shares are purchased by our officers, directors or principal
shareholders. The remaining 25,614,811 shares of common stock outstanding upon
completion of this offering and held by existing stockholders will be restricted
securities. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144
or 701, the limitations of which 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, and other stockholders who beneficially
owned more than one percent of our capital stock prior to this offering 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, 25,025,243 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, 406,056 will be eligible for sale
immediately upon the effective date of this offering pursuant to Rule 144(k),
and 183,512 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 314,148 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 by the stockholder,
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.
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<PAGE>
WARRANTS, STOCK OPTIONS AND EMPLOYEE COMMON STOCK PURCHASES
As of September 30, 1999, there were outstanding warrants to purchase
216,608 shares of common stock and options to purchase 4,937,800 shares of
common stock, of which 2,085,272 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 registration statements under
the Securities Act covering the shares of common stock reserved for issuance
under our 1997 and 1999 stock option plans and our 1999 employee stock purchase
plan. The registration statements are expected to be filed 90 days after 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 statements 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 14,623,887 shares of common stock issuable upon conversion of our
Class A and Class B 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.
67
<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..................................................... 5,800,000
==========
</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 public offering prices,
the underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. The underwriting discount in our offering is calculated
as seven percent of the initial price of the shares of common stock to be sold
in the offering. The underwriting discount was determined by reference to the
underwriters' experience with transactions of this type and companies in similar
industries and through discussions between the underwriters and our management.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase 870,000 additional shares.
<TABLE>
<CAPTION>
TOTAL
---------------------------
PER SHARE NO EXERCISE FULL EXERCISE
---------- ----------- -------------
<S> <C> <C> <C>
Public offering price.................... $ $ $
Underwriting discount....................
Underwriters expense reimbursement in
connection with the sale of our common
stock to our online panalists,
employees and business associates......
Proceeds before expenses to us...........
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts, commissions and expense reimbursements, will be approximately
$750,000.
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<PAGE>
The following table details these expenses. All amounts shown are estimates,
with the exception of the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 25,960
NASD filing fee............................................. 9,838
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 200,000
Printing and engraving fees................................. 150,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 10,000
Miscellaneous............................................... 4,202
--------
Total................................................... $750,000
========
</TABLE>
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.
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 870,000 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 shares of
common stock. All of our executive officers and directors and other stockholders
who beneficially own more than one percent of our capital stock prior to this
offering 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."
69
<PAGE>
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 primary factors considered in such negotiation are:
- the 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.
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 5% 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.
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.
70
<PAGE>
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 website 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 per 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
business associates are current and former clients, vendors, suppliers and other
individuals who, in the judgment of our management, have contributed to our
success. 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 250,000 shares for sale to some of our panelists 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.
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.
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.
71
<PAGE>
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 filed as an exhibit 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.
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.
72
<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................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... 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,
------------------------ SEPTEMBER 30, PRO FORMA
1998 1999 1999 (NOTE 2)
---------- ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,751 $ 108,161 $ 313,371 $19,313,371
Accounts receivable....................................... 3,918,278 5,989,164 7,245,834 7,245,834
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 1,249,129 1,705,943 2,404,949 2,404,949
Prepaid expenses.......................................... 64,432 82,728 154,235 154,235
Deferred income taxes..................................... 191,000 29,000 29,000 29,000
Income taxes receivable................................... 786,361 41,633 47,823 47,823
Loan to officer........................................... 42,500
Other current assets...................................... 313,599 313,599
---------- ----------- ----------- -----------
Total current assets.................................. 6,255,451 7,956,629 10,508,811 29,508,811
Property, plant and equipment, net.......................... 1,814,326 5,028,785 7,169,061 7,169,061
Goodwill, less accumulated amortization of $249,722 in 1998,
$353,055 in 1999, and $378,855 at September 30, 1999 which
is unaudited.............................................. 1,300,278 1,196,945 1,171,145 1,171,145
Deferred income taxes....................................... 289,000 451,000 451,000 451,000
Other assets................................................ 138,735 151,535 161,530 161,530
---------- ----------- ----------- -----------
$9,797,790 $14,784,894 $19,461,547 $38,461,547
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt..................... $ 300,000
Accounts payable.......................................... 177,712 $ 1,843,264 $ 3,719,331 $ 3,719,331
Accrued expenses.......................................... 2,648,379 1,799,980 2,505,389 2,505,389
Short-term borrowings..................................... 2,217,920 291,300 5,000,000 5,000,000
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 3,107,197 3,470,492 3,250,883 3,250,883
---------- ----------- ----------- -----------
Total current liabilities............................. 8,451,208 7,405,036 14,475,603 14,475,603
Long-term debt, excluding current installment............... 400,000
---------- ----------- ----------- -----------
Total liabilities..................................... 8,851,208 7,405,036 14,475,603 14,475,603
---------- ----------- ----------- -----------
Mandatory redeemable Class A Preferred Stock................ 15,876,000 16,170,000
Mandatory redeemable Class B Preferred Stock................ 1,000,000
---------- ----------- ----------- -----------
Stockholders' equity (deficit):
Common Stock, $.01 par value at June 30, 1998 and
1999 and $.001 par value at September 30, 1999
(unaudited)
Authorized--56,000,000 and 28,000,000 shares in 1998 and
1999 and 100,000,000 at September 30, 1999 (unaudited)
Issued and outstanding--12,062,960 shares in 1998,
10,870,692 shares in 1999, and 10,990,924 at September
30, 1999 (unaudited).................................... 120,629 108,706 10,991 25,615
Additional paid-in capital.................................. 492,120 4,812,824 5,805,772 40,491,148
Unamortized deferred compensation........................... (650,180) (1,096,600) (1,096,600)
Retained earnings (deficit)................................. 333,833 (12,767,492) (16,904,219) (15,434,219)
---------- ----------- ----------- -----------
Total stockholders' equity (deficit).................. 946,582 (8,496,142) (12,184,056) 23,985,944
---------- ----------- ----------- -----------
$9,797,790 $14,784,894 $19,461,547 $38,461,547
========== =========== =========== ===========
</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 THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
---------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from services........................... $23,326,862 $26,290,496 $ 28,965,299 $ 6,530,122 $ 9,363,949
Cost of services................................. 15,629,282 16,617,755 19,086,311 4,132,983 6,307,415
----------- ----------- ------------ ----------- -----------
Gross profit............................... 7,697,580 9,672,741 9,878,988 2,397,139 3,056,534
Database development expenses.................... 2,753,000 4,505,000 561,552 904,873
Selling, general and administrative expenses..... 6,390,753 9,811,788 14,400,996 2,832,012 5,913,860
----------- ----------- ------------ ----------- -----------
Operating income (loss).................... 1,306,827 (2,892,047) (9,027,008) (996,425) (3,762,199)
----------- ----------- ------------ ----------- -----------
Other income (deductions):
Interest income................................ 29,735 5,269 206,531 45,768 981
Interest expense............................... (118,583) (166,329) (26,202) (23,064) (71,509)
----------- ----------- ------------ ----------- -----------
(88,848) (161,060) 180,329 22,704 (70,528)
----------- ----------- ------------ ----------- -----------
Earnings (loss) before income taxes........ 1,217,979 (3,053,107) (8,846,679) (973,721) (3,832,727)
Income tax expense (benefit)..................... 490,000 (1,114,000)
----------- ----------- ------------ ----------- -----------
Net earnings (loss)........................ 727,979 (1,939,107) (8,846,679) (973,721) (3,832,727)
Accrued dividends on preferred stock............. (1,176,000) (294,000) (294,000)
----------- ----------- ------------ ----------- -----------
Net earnings (loss) available to holders of
common stock................................... $ 727,979 $(1,939,107) $(10,022,679) $(1,267,721) $(4,126,727)
=========== =========== ============ =========== ===========
Basic net earnings (loss) per share.............. $ .06 $ (.16) $ (1.01) $ (.13) $ (.38)
=========== =========== ============ =========== ===========
Weighted average shares outstanding--basic..... 11,741,935 11,903,256 9,955,261 9,898,177 10,911,850
=========== =========== ============ =========== ===========
Diluted net earnings (loss) per share............ $ .06 $ (.16) $ (1.01) $ (.13) $ (.38)
=========== =========== ============ =========== ===========
Weighted average shares outstanding--diluted... 12,371,865 11,903,256 9,955,261 9,898,177 10,911,850
=========== =========== ============ =========== ===========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (.36) $ (.04) $ (.15)
============ =========== ===========
Pro forma basic and diluted weighted average
shares outstanding (unaudited)................. 24,579,148 24,522,064 25,535,737
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S 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)
(UNAUDITED)
Issuance costs incurred on preferred stock..... (10,000) (10,000)
Exercise of stock warrants..................... 44,352 444 66,242 66,686
Conversion to $.001 par value stock............ (98,235) 98,235 --
Issuance of common stock....................... 75,880 76 280,951 281,027
Deferred compensation of stock options issued
(but not vested)............................. 547,520 (547,520) --
Amortization of deferred
compensation................................. 101,100 101,100
Accrued dividends on preferred stock........... (294,000) (294,000)
Net loss....................................... (3,832,727) (3,832,727)
---------- -------- ---------- ----------- ------------ ------------
Balance at September 30, 1999.................. 10,990,924 $ 10,991 $5,805,772 $(1,096,600) $(16,904,219) $(12,184,056)
========== ======== ========== =========== ============ ============
</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 THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................. $ 727,979 $(1,939,107) $(8,846,679) $ (973,721) $(3,832,727)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities--
Depreciation and amortization................. 639,924 782,649 1,261,141 286,500 763,200
Amortization of deferred compensation......... 15,684 101,100
Deferred income taxes......................... (29,000) (385,000)
(Increase) decrease in--
Accounts receivable......................... (1,521,032) 305,715 (2,070,886) (225,062) (1,256,670)
Costs and estimated earnings in excess of
billings on uncompleted contracts......... (1,260,673) 681,339 (456,814) (558,550) (699,006)
Prepaid expenses............................ 38,710 (6,002) (18,296) (14,047) (71,507)
Income taxes receivable..................... (786,361) 744,728 (9,950) (6,190)
Other current assets........................ (313,599)
Other assets................................ (12,009) (12,260) (12,800) (9,995)
Increase (decrease) in--
Accounts payable.......................... 192,404 (304,395) 1,665,552 421,265 1,876,067
Accrued expenses.......................... 505,086 1,076,374 (848,399) (1,416,225) 705,409
Income taxes payable...................... 206,952 (221,411)
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 559,527 (227,071) 363,295 195,388 (219,609)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. 47,868 (1,035,530) (8,203,474) (2,294,402) (2,963,527)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Repayment (borrowings) of loan to officer....... 17,500 (25,000) 42,500 42,500
Capital expenditures............................ (689,255) (976,971) (4,372,267) (448,165) (2,877,676)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (671,755) (1,001,971) (4,329,767) (405,665) (2,877,676)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments under long-term debt......... (720,783) (400,000) (700,000) (700,000)
Increase (decrease) in short-term borrowings.... 618,600 1,599,320 (1,926,620) (2,217,920) 4,708,700
Net proceeds from issuance of preferred stock... 14,105,402 14,105,402 990,000
Repurchase of common stock...................... (72,638) (6,679) (2,999,991) (2,999,991)
Issuance of common stock and stock options...... 74,205 499,930 4,158,860 347,713
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities.............................. (100,616) 1,692,571 12,637,651 8,187,491 6,046,413
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents..................................... (724,503) (344,930) 104,410 5,487,424 205,210
Cash and cash equivalents at beginning of year.... 1,073,184 348,681 3,751 3,751 108,161
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year.......... $ 348,681 $ 3,751 $ 108,161 $ 5,491,175 $ 313,371
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest........................................ $ 133,583 $ 171,329 $ 34,952 $ 31,814 $ 71,509
=========== =========== =========== =========== ===========
Income taxes.................................... $ 378,048 $ 255,574 $ (748,117) $ 9,950 $ 6,190
=========== =========== =========== =========== ===========
</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
panalist(s) 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 Class A and Class B 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.
INTERIM RESULTS (UNAUDITED)
The interim financial statements as of September 30, 1999 and for the three
months ended September 30, 1999 and 1998 are unaudited; however, in the opinion
of the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the financial
position and results of operations for the interim periods. The operating
results for the three months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year ending June 30, 2000.
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.
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)
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 or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In completing this
evaluation, the Company compares its best estimate of future cash flows with the
respective carrying value of goodwill. If undiscounted cash flows do not exceed
the recorded value of goodwill, an impairment is recognized to reduce the
carrying value based on the expected discounted cash flows of the business unit.
There were no impairment charges recorded during 1997, 1998 or 1999.
Amortization expense amounted to $103,333 in each of the fiscal years ended
1997, 1998 and 1999, respectively.
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
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)
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 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 adopted the provisions of
SOP 98-1 in fiscal 2000.
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>
F-9
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
3. CONTRACTS IN PROGRESS (CONTINUED)
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.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Furniture and fixtures............................. $ 832,088 $ 1,393,560
Equipment.......................................... 3,441,165 6,435,848
Leasehold 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>
F-10
<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 (CONTINUED)
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.
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
(see note 16).
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
CLASS A PREFERRED STOCK
In July 1998, the Company authorized and issued 147,000 shares of Class A
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 Class A Preferred Stock
is equal to $100 per share plus accrued and unpaid dividends. The total
redemption value of Class A Preferred Stock at June 30, 1999 in the amount of
$15,876,000 is classified on the Company's balance sheet as mandatory redeemable
Class A 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 Class A 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. Any dividends or other distributions declared with respect to Class B
Preferred Stock or Common Stock will be paid to holders of the Class A Preferred
Stock on an as-if converted basis.
The Class A 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 Class A Preferred Stock will be automatically
converted to Common Stock of the Company.
The holders of Class A 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)
CLASS B PREFERRED STOCK (UNAUDITED)
In September 1999, the Company authorized 200,000 shares of Class B
Preferred Stock having a par value of $.01 per share. The Company received
proceeds of $1,000,000 from the issuance of 10,000 shares of Class B Preferred
Stock on September 30, 1999.
In October 1999, the Company received proceeds of $19,000,000 from the
issuance of 190,000 shares of Class B Preferred Stock.
During the twenty day period beginning on each of November 1, 2002 and
November 1, 2003, the holders of two-thirds of the outstanding Class B Preferred
Stock may request the redemption of up to 66,667 Shares. During the twenty day
period beginning on November 1, 2004, the holders of a majority of the
outstanding Class B Preferred Stock may request the redemption of any Shares
then outstanding. The redemption value of Class B Preferred Stock is equal to
$100 per share plus all accrued and unpaid dividends on or prior to December 31
of the year in which the redemption request has been made. 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.
Dividends are cumulative from the date of issuance at an annual rate of 8%.
Any dividends or other distributions declared with respect to Class A Preferred
Stock (except dividends payable with respect to a Non-Compliance Event) or
Common Stock will be paid to holders of Class B Preferred Stock on an as-if
converted basis.
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 Class B
Preferred Stock will be automatically converted to Common Stock of the Company
at an initial conversion price of $7.06 per share. In the event that an initial
public offering of Common Stock is not completed on or before June 30, 2000, the
conversion price will be $5.29 per share. If the initial public offering of
Common Stock is completed on or before June 30, 2000, the conversion price will
be calculated by multiplying the initial conversion price prior to the Public
Offering by a fraction the numerator of which is fifty percent (50%) of the
valuation of the Company established by the underwriters at pricing of the
Public Offering (the "50% Valuation"), and the denominator of which is
$200,000,000; provided, however, that in the event such 50% Valuation exceeds
$250,000,000, the 50% Valuation shall be deemed to be $250,000,000 and in the
event that such 50% Valuation is less than $150,000,000, the 50% Valuation shall
be deemed to be $150,000,000.
The holders of Class B Preferred Stock are entitled to vote upon all matters
upon which holders of shares of Class A Preferred Stock and 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
the Class B Preferred Stock are then convertible.
COMMON STOCK
In 1999, the Company amended the Certificate of Incorporation to decrease
the number of authorized Common Stock to 28,000,000 shares.
F-14
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
11. STOCKHOLDERS' EQUITY (CONTINUED)
At June 30, 1999 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 (loss) earnings
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 (loss)
earnings per share..... $727,979 12,371,865 $.06 $(1,939,107) 11,903,256 $(.16) $(10,022,679)
======== ========== ==== =========== ========== ===== ============
<CAPTION>
1999
----------------------
WEIGHTED
AVERAGE
OUTSTANDING PER
SHARES SHARE
----------- --------
<S> <C> <C>
Basic net (loss) earnings
per share.............. 9,955,261 $(1.01)
Effect of dilutive stock
options................
---------
Diluted net (loss)
earnings 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 Warrants excluded was 255,948 in fiscal
1999.
(UNAUDITED)
The pro forma basic and diluted net loss per share is computed by dividing
the net loss by the sum of the number of shares of Common Stock outstanding and
the number of shares resulting from the automatic conversion of all outstanding
shares of Preferred Stock, assuming that the Preferred Stock was outstanding for
all periods for which pro forma basic and diluted net loss per share is
presented, upon consummation of a public offering pursuant to an effective
registration statement with the Securities and Exchange Commission. The assumed
conversion of the Preferred Stock has an antidilutive effect on pro forma loss
per share.
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
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, 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 Opinion No. 25. Had
compensation cost for the Company's stock option plan been determined
F-16
<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)
consistent with the provisions of SFAS No. 123, the Company's net (loss)
earnings and net (loss) earnings per share would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
BASIC NET EARNINGS DILUTED NET EARNINGS
(LOSS) PER SHARE (LOSS) PER SHARE
NET EARNINGS (LOSS) AVAILABLE TO AVAILABLE TO
AVAILABLE TO HOLDERS HOLDERS OF HOLDERS OF
OF COMMON STOCK COMMON STOCK 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 AVERAGE
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
VALUE PRICE VALUE PRICE VALUE PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Options whose exercise price equaled
the grant date fair value..................... $.06 $.35 $.06 $.47 $ .15 $1.26
Options whose exercise price was less
than the grant date fair value................ $.28 $.24 $2.63 $1.26
</TABLE>
The following represents additional information about stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------------------------------
WEIGHTED
RANGE OF AVERAGE WEIGHTED
EXERCISE REMAINING AVERAGE
PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE
PER SHARE OUTSTANDING (YEARS) (PER SHARE)
--------- ----------- ---------------- --------------
<S> <C> <C> <C>
$.18-$.24 1,204,000 8 $ .20
.35-.47 2,013,200 8 .44
1.26 560,000 10 1.26
<CAPTION>
OPTIONS EXERCISABLE
- --------------------- -------------------------------------
RANGE OF WEIGHTED
EXERCISE AVERAGE
PRICES NUMBER EXERCISE PRICE
PER SHARE EXERCISABLE (PER SHARE)
--------- ----------- --------------
<S> <C> <C>
$.18-$.24 1,204,000 $ .20
.35-.47 929,712 .43
1.26 7,000 1.26
</TABLE>
F-17
<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
-------------------- -------------------- --------------------
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
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 on borrowings is
prime.
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
F-18
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
16. SUBSEQUENT EVENTS (CONTINUED)
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-19
<PAGE>
[Depiction of Harris Interactive's logo surrounded by the following industries
in which it sells its products and services: Consumer Package Goods, Financial
Services, Manufacturing, Education, Technology, Telecommunications, Market
Research, Healthcare Foundations, Health Insurance, Medical Equipment,
Pharmaceutical, Advertising, Entertainment/Media and Sports]
[INSIDE BACK COVER]
<PAGE>
5,800,000 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........................................ $ 25,960
NASD Filing Fee............................................. 9,838
Nasdaq National Market Listing Fee.......................... 95,000
Legal Fees and Expenses..................................... 250,000
Accountants Fees and Expenses............................... 200,000
Printing and Engraving Fees................................. 150,000
Blue Sky fees and expenses.................................. 5,000
Transfer Agent and Registrar Fee and Expenses............... 10,000
Miscellaneous............................................... 4,202
Total....................................................... $750,000
========
</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 30, 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. 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 under 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) From September 1996 to September 1999, 447,216 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 under 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).
(c) In July 1998, the Registrant issued and sold an aggregate of 147,000
shares of Class A preferred stock at a price per share of $100.00, to BVCF III,
L.P., Brinson Map Venture Capital Funding III Trust and the Virginia Retirement
System, each of which is an accredited investor, as that term is defined in
Rule 501 of the Securities Act of 1933. The preferred stock is convertible into
11,790,324 shares of common stock and was sold 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.
(d) 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 (c) above. The warrant was issued pursuant
to an engagement letter. Since the exercise price of the warrant was in excess
of the fair market value of the underlying common stock, the Company estimated
the value of the consideration to be nomial at the time of grant. 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.
(e) 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 Market Facts, Inc., 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.
(f) In August 1999, the Registrant issued 44,352 shares of common stock to
Marshall F. Wallach, 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 these shares.
(g) In September and October 1999, the Registrant issued and sold an
aggregate of 200,000 shares of Class B preferred stock, which are convertible
into 2,833,565 shares of common stock (based upon
II-2
<PAGE>
the estimated public offering price of $13.00). Class B preferred stock was sold
to five investors, as follows:
<TABLE>
<CAPTION>
NUMBER OF
CLASS B AGGREGATE
NAME PREFERRED STOCK SHARES PURCHASE PRICE
- ---- ---------------------- --------------
<S> <C> <C>
Riedman Corporation 10,000 $1,000,000
Excite, Inc. 30,000 3,000,000
Young & Rubicam Inc. 110,000 11,000,000
Sequel Limited Partnership II 48,374 4,837,400
Sequel Entrepreneur's Fund II, LP 1,626 162,600
</TABLE>
Three of the investors are qualified institutional buyers, as that term is
defined in Rule 144A under the Securities Act of 1933 and the remaining two
investors are accredited investors, as that term is defined in Rule 501 under
the Securities Act of 1933. The Registrant relied upon Section 4(2) of the
Securities Act of 1933 in connection with the issuance of these 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 affixed 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.
Except as expressly described above, there were no underwriters employed in
connection with any of the transactions set forth in Item 15.
II-3
<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
3.4 Restated Certificate of Incorporation of the Registrant
filed with the State of Delaware October 15, 1999
3.5 Bylaws of the Registrant, as amended
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*+ Unique Name Agreement between At Home Corporation and the
Registrant dated October 1, 1999
10.4*+ Strategic Alliance Agreement between Market Facts, Inc. and
the Registrant dated April 23, 1999
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
thereto
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 among the Registrant, Brinson Venture
Capital Fund III, L.P., Brinson MAP Venture Capital Fund III
Trust and the Virginia Retirement System dated July 7, 1998
10.9 Revolving Credit Facility between Gordon S. Black
Corporation and Manufacturers and Traders Trust Company
dated August 18, 1999
10.10* Form of Lock-up Agreement
10.11 Investment Agreement between Market Facts, Inc. and the
Registrant dated April, 1999
10.12 Amended and Restated Investment Agreement between Riedman
Corporation and the Registrant dated October 15, 1991
10.13 Investment Agreement among SEQUEL Limited Partnership II and
Sequel Entrepreneur's Fund II, L.P. and the Registrant dated
as of October 15, 1995
10.14 Investment Agreement between Young & Rubicam Inc. and the
Registrant dated as of October 15, 1999
10.15 Investment Agreement between Excite, Inc. and the Registrant
dated as of October 15, 1999
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.16 Amendment No. 1 to Registration Agreement between the
Registrant and Brinson Map Venture Capital Fund III, Brinson
MAP Venture Capital Fund III Trust, BVCF III, L.P., and
Virginia Retirement System dated as of October 15, 1999
10.17 Registration Agreement between the Registrant and Riedman
Corporation dated as of October 15, 1999
10.18 Registration Agreement among the Registrant and Sequel
Limited Partnership II and Sequel Entrepreneur's Fund II,
L.P. dated as of October 15, 1999
10.19 Registration Agreement between the Registrant and Young &
Rubicam Inc. dated as of October 15, 1999
10.20 Registration Agreement between the Registrant and Excite,
Inc. dated as of October 15, 1999
10.21 Stockholders Agreement by and among the Registrant, Brinson
MAP Venture Capital Fund III, BVCF III, L.P., Virginia
Retirement System, Gordon S. Black, Leonard R. Bayer,
David M. Clemm, Excite, Inc., Young & Rubicam Inc., Riedman
Corporation, Sequel Limited Partnerhip II, and Sequel
Entrepreneur's Fund II, L.P. dated as of October 15, 1999
10.22 Research Agreement between the Registrant and Young &
Rubicam Inc. dated October 22, 1999
10.23 First Amendment to Unique Name Agreement between At Home
Corporation and the Registrant dated October 14, 1999
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 Data Schedule
</TABLE>
- ------------------------
<TABLE>
<S> <C>
* Previously filed.
+ Confidential treatment has been requested pursuant to
Rule 406 of the Securities Act for portions of this exhibit.
Omitted portions have been filed separately with the
Securities and Exchange Commission.
++ To be filed by amendment.
</TABLE>
II-5
<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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Rochester, State of New York on October 25, 1999.
<TABLE>
<S> <C> <C>
HARRIS INTERACTIVE INC.
By: /s/ GORDON S. BLACK
-----------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
Dated: October 25, 1999 /s/ GORDON S. BLACK
------------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board (Principal
Executive Officer)
Dated: October 25, 1999 *
------------------------------------------
David H. Clemm, President, Chief Operating
Officer and Director
Dated: October 25, 1999 /s/ BRUCE A. NEWMAN
------------------------------------------
Bruce A. Newman, Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: October 25, 1999 *
------------------------------------------
Leonard R. Bayer, Director
Dated: October 25, 1999 *
------------------------------------------
Thomas D. Berman, Director
Dated: October 25, 1999 *
------------------------------------------
G. Thomas Clark, Director
Dated: October 25, 1999 *
------------------------------------------
James R. Riedman, Director
</TABLE>
<TABLE>
<S> <C> <C>
Dated: October 25, 1999 *By: /s/ BRUCE A. NEWMAN
----------------------------------------
Bruce A. Newman, as Attorney-in-Fact
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------------------- ---------------------- --------
<S> <C> <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
3.4 Restated Certificate of Incorporation of the Registrant
filed with the State of Delaware October 15, 1999
3.5 Bylaws of the Registrant, as amended
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*+ Unique Name Agreement between At Home Corporation and the
Registrant dated October 1, 1999
10.4*+ Strategic Alliance Agreement between Market Facts, Inc. and
the Registrant dated April 23, 1999
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
thereto
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 among the Registrant, Brinson Venture
Capital Fund III, L.P., Brinson MAP Venture Capital Fund III
Trust and the Virginia Retirement System dated July 7, 1998
10.9 Revolving Credit Facility between Gordon S. Black
Corporation and Manufacturers and Traders Trust Company
dated August 18, 1999
10.10* Form of Lock-up Agreement
10.11 Investment Agreement between Market Facts, Inc. and the
Registrant dated April, 1999
10.12 Amended and Restated Investment Agreement between Riedman
Corporation and the Registrant dated October 15, 1991
10.13 Investment Agreement among SEQUEL Limited Partnership II and
Sequel Entrepreneur's Fund II, L.P. and the Registrant dated
as of October 15, 1995
10.14 Investment Agreement between Young & Rubicam Inc. and the
Registrant dated as of October 15, 1999
10.15 Investment Agreement between Excite, Inc. and the Registrant
dated as of October 15, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------------------- ---------------------- --------
<S> <C> <C>
10.16 Amendment No. 1 to Registration Agreement between the
Registrant and Brinson Map Venture Capital Fund III, Brinson
MAP Venture Capital Fund III Trust, BVCF III, L.P., and
Virginia Retirement System dated as of October 15, 1999
10.17 Registration Agreement between the Registrant and Riedman
Corporation dated as of October 15, 1999
10.18 Registration Agreement among the Registrant and Sequel
Limited Partnership II and Sequel Entrepreneur's Fund II,
L.P. dated as of October 15, 1999
10.19 Registration Agreement between the Registrant and Young &
Rubicam Inc. dated as of October 15, 1999
10.20 Registration Agreement between the Registrant and Excite,
Inc. dated as of October 15, 1999
10.21 Stockholders Agreement by and among the Registrant, Brinson
MAP Venture Capital Fund III, BVCF III, L.P., Virginia
Retirement System, Gordon S. Black, Leonard R. Bayer,
David M. Clemm, Excite, Inc., Young & Rubicam Inc., Riedman
Corporation, Sequel Limited Partnerhip II, and Sequel
Entrepreneur's Fund II, L.P. dated as of October 15, 1999
10.22 Research Agreement between the Registrant and Young &
Rubicam Inc. dated October 22, 1999
10.23 First Amendment to Unique Name Agreement between At Home
Corporation and the Registrant dated October 14, 1999
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 Data Schedule
</TABLE>
- ------------------------
<TABLE>
<S> <C>
* Previously filed.
+ Confidential treatment has been requested pursuant to
Rule 406 of the Securities Act for portions of this exhibit.
Omitted portions have been filed separately with the
Securities and Exchange Commission.
++ To be filed by amendment.
</TABLE>
<PAGE>
Exhibit 3.4
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 restated in its entirety to
read as follows:
- --------------------------------------------------------------------------------
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.
<PAGE>
ARTICLE IV
The total number of shares which the Corporation is authorized to issue
is One-Hundred Million Three Hundred Forty Seven Thousand (100,347,000) shares,
of which One Hundred Million (100,000,000) shares shall be Common Stock, with a
par value of $.001 per share, One Hundred Forty-Seven Thousand shares shall be
Class A Preferred Stock, with a par value of $.01 per share, and Two Hundred
Thousand (200,000) shares shall be Class B 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 Class A
Preferred Stock is attached hereto as EXHIBIT A and a statement of the
designations and powers, preferences and rights, and the qualifications,
limitations or restrictions of the Class B Preferred Stock is attached hereto as
EXHIBIT B.
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 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.
2
<PAGE>
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 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
3
<PAGE>
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.
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 15th day of October, 1999.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
Gordon S. Black, Chief Executive Officer
Attest:
By: /s/ Bruce A. Newman
4
<PAGE>
EXHIBIT A
CONVERTIBLE CLASS A 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 Class A 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 cumulatively 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 (in which case all accrued and unpaid dividends shall be payable) is
paid or the date on which such Share is convened into shares of Conversion Stock
hereunder (in which case no accrued dividends shall be payable). 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 Class A Preferred Stock, such
payment shall be distributed ratably among the holders of such Shares and the
holders of the Class B Preferred Stock, pari passu, based upon the aggregate
Liquidation Value of such Shares (plus all accrued and unpaid dividends thereon)
held by each such holder.
1D. PARTICIPATING COMMON 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
5
<PAGE>
shall also declare and pay to the holders of the Class A 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 Class A Preferred Stock had all of
the outstanding Class A 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.
1E. PARTICIPATING CLASS B DIVIDENDS. In the event that the Corporation
declares or pays any dividends upon the Series B Preferred Stock (whether
payable in cash, securities, or other property) except dividends payable with
respect to a Non-Compliance Event, the Corporation also shall declare and pay an
equal dividend (in form and amount) to the holders of the Class A Preferred
Stock at the same time it declares and pays such dividends to the holders of the
Class B Preferred Stock.
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 Class A Preferred Stock shall be entitled to be
paid, pari passu with payments to any holders of Class B Preferred Shares,
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 Class
A 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 Class A 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 and
the holders of the Class B Preferred Stock based upon the aggregate Liquidation
Value (plus accrued and unpaid dividends) of the Class A Preferred Stock and the
Class B 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 Class A 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 Class A
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 CLASS A PREFERRED STOCK ON DIVIDENDS AND
REDEMPTIONS.
So long as any Class A Preferred Stock remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Class A Preferred Stock,
6
<PAGE>
the Corporation shall not, nor shall it permit any Subsidiary to, (i) redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities,
except the Class B Preferred Stock to the extent redeemed, purchased, or
otherwise acquired on a basis pari passu with the Class A Preferred Stock, (ii)
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Securities except (as required under Section 1E hereof) the Class B
Preferred Stock paid or declared on a pari passu basis with the Class A
Preferred Stock, if, in the case of subsection (i) at the time of or immediately
after any such dividend or distribution the Corporation has failed to pay the
full amount of dividends accrued on the Class A Preferred Stock, or , in the
case of subsection (i) the Corporation has failed to make any redemption of the
Class A 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 Class A 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 Class A Preferred Stock) and (ii) the twenty-day period beginning on
November 1, 2004, the holders of a majority of the outstanding Class A 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 the 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 (i) 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) and (ii) the holders of Class B Preferred
Stock who are entitled to and have requested redemption of their shares on the
same date. 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, pari passu based upon the aggregate respective Liquidation Value
thereof, the balance of the Shares and the Class B Preferred Stock which the
Corporation has become obligated to redeem on the Redemption Date but which it
has not redeemed. Prior to any redemption of Class A Preferred Stock, the
Corporation shall declare
7
<PAGE>
for payment all accrued and unpaid dividends with respect to the Shares 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 Class A
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 Class A 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
Class A Preferred Stock, except as expressly authorized herein or pursuant to a
purchase offer made pro rata to all holders of Class A Preferred Stock on the
basis of the number of Shares owned by each such holder.
Section 5. VOTING RIGHTS.
The holders of the Class A Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
the holders of the Class A 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 entitled to one vote for
each share of Common Stock issuable upon conversion of the Class A Preferred
Stock as of the record date for such vote or, if no record date is specified, as
of the date of such vote.
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Section 6. CONVERSION.
6A. CONVERSION PROCEDURE.
(i) At any time and from time to time, any holder of Class A Preferred
Stock may convert all or any portion of the Class A 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 Class A
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
Class A 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
Class A 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
Class A 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 Class A 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:
(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 Class A Preferred Stock
which were represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not converted.
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(vi) The issuance of certificates for shares of Conversion Stock upon
conversion of Class A Preferred Stock shall be made without charge to the
holders of such Class A 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 Class A 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
Class A Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Class A Preferred Stock in any manner which interferes with the
timely conversion of Class A 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 Class A Preferred Stock, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Class A 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 Class A Preferred Stock.
6B. CONVERSION PRICE.
(i) The initial Conversion Price shall be $1.24679 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
Class A 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
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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 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
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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 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
Class A 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 Class A 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 Class A Preferred Stock. For purposes of paragraph 6C, the
expiration or termination of any Option or Convertible Security which was
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outstanding as of the date of issuance of the Class A 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 Class A
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 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
Class A 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 Class A 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.
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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 (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 Class A Preferred Stock then outstanding) to insure that each of the holders
of Class A 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 Class A 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 Class A 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 Class A 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 Class A 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 Class A 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 Class A 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 Class A Preferred
Stock; provided that no such adjustment shall increase the Conversion Price as
otherwise determined
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pursuant to this Section 6 or decrease the number of shares of Conversion Stock
issuable upon conversion of each Share of Class A Preferred Stock.
6E. NOTICES.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Class A
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 Class
A 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
Class A 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 Class A 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 Class A 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 Class A 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 Class A 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 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 Class A Preferred Stock then outstanding,
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be increased by one member, and the holders of Class A 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 Class A 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 Class A 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 Class
A Preferred Stock, a proper officer of the Corporation shall, upon the written
request of the holder of at least 10% of the Class A Preferred Stock then
outstanding, addressed to the secretary of the Corporation, call a special
meeting of the holders of Class A 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 Class A
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 Class A 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 Class A Preferred Stock then outstanding. Any
holder of Class A Preferred Stock so designated shall be given access to the
stock record books of the 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
Class A Preferred Stock have the special right to elect directors, the presence,
in person or by proxy, of the holders of a majority of the Class A Preferred
Stock then outstanding shall be required to constitute a quorum for the election
or removal of any director by the holders of the Class A 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 Class A Preferred Stock shall
continue to serve as a director until the expiration of the lesser of (a) a
period of three months
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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 Class A
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 Class A Preferred Stock. Upon the surrender of any certificate
representing Class A 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 Class A Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Class A Preferred Stock represented by the surrendered
certificate.
Section 9. REPLACEMENT.
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 Class A 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 Class A 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.
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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 Class A 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 Class A 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 Class A 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 of the "Class A 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
(whether voluntarily or involuntarily) 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.
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"JUNIOR SECURITIES" means any capital stock or other equity securities
of the Corporation, except for the Class A 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 Class A 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 Class A 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.
"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 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.
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"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 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 Class A 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 Class A Preferred
Stock accrue or the times at which such dividends become payable or the amount
payable on redemption of the Class A Preferred Stock or the times at which
redemption of Class A Preferred Stock is to occur, without the prior written
consent of the holders of at least 75% of the Class A Preferred Stock then
outstanding, (b) the Conversion Price of the Class A Preferred Stock or the
number of shares or class of stock into which the Class A Preferred Stock is
convertible, without the prior written consent of the holder of at least 75% of
the Class A 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 Class A 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 Class A Preferred
Stock then outstanding.
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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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EXHIBIT B
CONVERTIBLE CLASS B 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 Class B Preferred Stock as provided in this Section 1. Except as
otherwise provided herein, dividends on each Share shall accrue cumulatively 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 is paid (in which case all accrued
and unpaid dividends shall be payable) is paid or the date on which such Share
is converted into shares of Conversion Stock hereunder (in which case no accrued
and unpaid dividends shall be payable). 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, 1999 (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.
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 Class B Preferred Stock, such
payment shall be distributed ratably among the holders of such Shares and the
holders of Class A Preferred Stock, pari passu, based upon the aggregate
Liquidation Value of such Shares (plus all accrued and unpaid dividends thereon)
held by such holder.
1D. PARTICIPATING COMMON STOCK 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 Class B 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 Class B Preferred Stock had all of the outstanding Class B
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.
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1E. PARTICIPATING CLASS A DIVIDENDS. In the event that the
Corporation declares or pays any dividends upon the Series A Preferred Stock
(whether payable in cash, securities, or other property) except dividends
payable with respect to a Non-Compliance Event, the Corporation also shall
declare and pay an equal dividend (in form and amount) to the holders of the
Class B Preferred Stock at the same time it declares and pays such dividends to
the holders of the Class A Preferred Stock.
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 Class B Preferred Stock shall be entitled to be
paid, pari passu with payments to any holders of Class A Preferred Shares, and
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 Class
B 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 Class B 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 and
the holders of the Class A Preferred Stock based upon the aggregate Liquidation
Value (plus accrued and unpaid dividends) of the Class A Preferred Stock and the
Class B 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 Class B Preferred Stock, but only to the extent of
the 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 Class B
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 CLASS B PREFERRED STOCK ON DIVIDENDS AND
REDEMPTIONS.
So long as any Class B Preferred Stock remains outstanding, without the
prior written consent of the holders of two-thirds of the outstanding shares of
Class B Preferred Stock, the Corporation shall not, nor shall it permit any
Subsidiary (i) to, redeem, purchase or otherwise acquire directly or indirectly
any Class A Preferred Stock except to the extent redeemed, purchased, or
otherwise acquired on a basis pari passu with the Class B Preferred Stock, nor
any Junior Securities, (ii) directly or indirectly pay or declare any dividend
or make any distribution upon any Class A Preferred Stock except to the extent
paid or declared on a basis pari passu with the Class B Preferred Stock, nor any
Junior Securities, if, in the case of subsection (i), at the time
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of or immediately after any such dividend or distribution the Corporation has
failed to pay the full amount of dividends accrued on the Class B Preferred
Stock or, in the case of subsection (i), the Corporation has failed to make any
redemption of the Class B Preferred Stock required hereunder.
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
two-thirds of the outstanding Class B Preferred Stock may request the redemption
of up to 66,667 Shares (as such number of shares is proportionately adjusted for
subsequent stock splits, stock dividends, combinations and similar changes in
the Class B Preferred Stock) and (ii) the twenty-day period beginning on
November 1, 2004, the holders of a majority of the outstanding Class B 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 the 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 (i) 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) and (ii) the holders of Class A Preferred
Stock who have requested redemption of their shares on the same date. 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,
pari passu based upon the aggregate respective Liquidation Value thereof, the
balance of the Shares and the Class A Preferred Stock which the Corporation has
become obligated to redeem on the Redemption Date but which it has not redeemed.
Prior to any redemption of Class B Preferred Stock, the Corporation shall
declare for payment all accrued and unpaid dividends with respect to the Shares
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 Class B
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.
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4D. DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE REDEEMED.
Except as otherwise provided herein, the number of Shares of Class B 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
Class B Preferred Stock, except as expressly authorized herein or pursuant to a
purchase offer made pro rata to all holders of Class B Preferred Stock on the
basis of the number of Shares owned by each such holder.
Section 5. VOTING RIGHTS.
The holders of the Class B Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
the holders of the Class B Preferred Stock shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Class A Preferred Stock and the Common Stock voting together as a single
class, with each share of Common Stock entitled to one vote per share and each
Share entitled to one vote for each share of Common Stock issuable upon
conversion of the Class B 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 Class B Preferred
Stock may convert all or any portion of the Class B 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 and (b) dividing the
result by the Conversion Price then in effect.
(ii) Except as otherwise provided herein, each conversion of Class B
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which the
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certificate or certificates representing the Class B 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 Class B 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
Class B 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 Class B 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:
(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 Class B 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 Class B Preferred Stock shall be made without charge to the
holders of such Class B 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 Class B 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
Class B Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Class B Preferred Stock in any manner which interferes with the
timely conversion of Class B Preferred Stock. The Corporation shall assist and
cooperate with any holder of Shares required to make any
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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 Class B Preferred Stock, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Class B 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 Class B Preferred Stock.
6B. CONVERSION PRICE; ADJUSTMENT UPON PUBLIC OFFERING.
(i) The initial Conversion Price shall be $7.05825. 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 Section
6.
(ii) In the event that an initial Public Offering of Common Stock of
the Corporation is not completed on or before June 30, 2000, the Conversion
Price shall be adjusted to $5.29368, as adjusted by any other adjustments
contemplated by this Section 6.
(iii) In the event that an initial Public Offering of the Common Stock
of the Corporation is completed on or before June 30, 2000, the Conversion Price
shall be adjusted (prior to Mandatory Conversion of the Common Stock) to the new
Conversion Price calculated by multiplying the Conversion Price prior to the
Public Offering by a fraction the numerator of which is fifty percent (50%) of
the valuation of the Corporation established by the underwriters at pricing of
the Public Offering (the "50% Valuation"), and the denominator of which is
$200,000,000; provided, however, that in the event such 50% Valuation exceeds
$250,000,000, the 50% Valuation shall be deemed to be $250,000,000 and in the
event that such 50% Valuation is less than $150,000,000, the 50% Valuation shall
be deemed to be $150,000,000.
6C. 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
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Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6D. 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 (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 two thirds of
the Class B Preferred Stock then outstanding) to insure that each of the holders
of Class B 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 Class B 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 Class B 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 two-thirds of the Class B Preferred Stock then outstanding) to
insure that the provisions of Sections 4 and 6 hereof shall thereafter be
applicable to the Class B 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 Class B
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 two-thirds of the Class B 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.
6E. NOTICES.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Class B
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 Class
B 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.
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(iii) The Corporation shall also give written notice to the holders of
Class B 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 Class B 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 Class A Preferred Stock 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 Class B Preferred Stock at
least seven days prior to such closing.
Section 7. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for the
registration of Class B Preferred Stock. Upon the surrender of any certificate
representing Class B 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.
Section 8. REPLACEMENT.
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 Class B 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 Class B 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 9. 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
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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
Class A or Class B 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.
"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 Class B 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 of the Class B 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.
"FUNDAMENTAL CHANGE" means (a) any sale, lease, or other transfer
(whether voluntarily or involuntarily) 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 Class A Preferred Stock and Class B Preferred
Stock.
"LIQUIDATION VALUE" of any Share as of any particular date shall be
equal to $100.
"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.
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"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 ) 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.
"SHARE" means each share of Class B Convertible Preferred Stock of the
Corporation.
"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 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 10. AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or effective with
respect to (i) any provision of Sections 1 to 9 hereof, or (ii) any provisions
of this Certificate of Incorporation to the extent any such amendment,
modification, or waiver alters the powers, rights, privileges or preferences of
the Series B Preferred Stock, without the prior written consent of the holders
of two-thirds of the Class B Preferred Stock outstanding at the time such action
is taken; provided that no such action shall change (a) the Conversion Stock or
the Conversion Price of the Class B Preferred Stock or the number of shares or
class of stock into which the Class B Preferred Stock is convertible, without
the prior written consent of the holder of at least 96% of the Class B Preferred
Stock then outstanding or (b) the percentage required to approve any change
described in clause (a) above, without the prior written consent of the holders
of at least 96% of the Class B 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 Class B Preferred Stock then outstanding.
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Section 11. 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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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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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
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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
compensated for services performed as members 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 10.5.1
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)
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/ Gordon S Black
---------------------------------------
By: /s/ David H. Clemm Executive
----------------------
Address: 135 Corporate Woods
Rochester, New York 14623
Title: President
----------------------
5
<PAGE>
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: 135 Corporate Woods
Title: Chief Executive Officer Rochester, New York 14623
------------------------
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: 135 Corporate Woods
Rochester, New York 14623
Title: Chief Executive Officer
------------------------
5
<PAGE>
EXECUTION DOCUMENT
LEASE
B.J.W. ASSOCIATES
TO
LOUIS HARRIS AND ASSOCIATES, INC.
111 FIFTH AVENUE
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
LEASE
Article Page
<S> <C>
1. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
2. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
3. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . i
4. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
5. Window Cleaning . . . . . . . . . . . . . . . . . . . . . . . . . i
6. Requirements of Law, Fire Insurance, Floor Loads. . . . . . . . . i
7. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . ii
8. Property-Loss, Damage, Reimbursement, Indemnity . . . . . . . . . ii
9. Destruction, Fire and Other Casualty. . . . . . . . . . . . . . . ii
10. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . ii
11. Assignment, Mortgage, Etc.. . . . . . . . . . . . . . . . . . . . ii
12. Electric Current. . . . . . . . . . . . . . . . . . . . . . . . . ii
13. Access to Premises. . . . . . . . . . . . . . . . . . . . . . . . ii
14. Vault, Vault Space, Area. . . . . . . . . . . . . . . . . . . . . iii
15. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
16. Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
17. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
18. Remedies of Landlord and Waiver of Redemption . . . . . . . . . . iii
19. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . iii
20. No Representations by Landlord. . . . . . . . . . . . . . . . . . iv
21. End of Term . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
22. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . iv
23. Failure to Give Possession. . . . . . . . . . . . . . . . . . . . iv
24. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
25. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . iv
26. Inability to Perform. . . . . . . . . . . . . . . . . . . . . . . iv
27. Bills and Notices . . . . . . . . . . . . . . . . . . . . . . . . iv
28. Services Provided by Landlord--Water, Elevators, Heat, Cleaning,
Air Conditioning . . . . . . . . . . . . . . . . . . . . . . iv
29. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
30. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
31. Adjacent Excavation-Shoring . . . . . . . . . . . . . . . . . . . v
32. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . v
33. Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
34. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . v
RIDER
Article Page
35. Fixed Rent and Proration of Fixed Rent. . . . . . . . . . . . . . 1
36. Late Payment Charge . . . . . . . . . . . . . . . . . . . . . . . 2
37. Rent Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 2
38. Escalation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
39. HVAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
40. Cleaning/Miscellaneous Services . . . . . . . . . . . . . . . . . 11
41. Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
42. Designated Suppliers. . . . . . . . . . . . . . . . . . . . . . . 13
43. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
44. Subletting and Assignment . . . . . . . . . . . . . . . . . . . . 14
45. Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . . . 20
46. Subordination and Attornment. . . . . . . . . . . . . . . . . . . 21
47. Non-liability and Indemnification . . . . . . . . . . . . . . . . 22
48. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
49. Repeated Defaults . . . . . . . . . . . . . . . . . . . . . . . . 25
50. Transfer After Bankruptcy . . . . . . . . . . . . . . . . . . . . 25
51. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
52. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
53. Landlord's Work . . . . . . . . . . . . . . . . . . . . . . . . . 28
54. Landlord's Contribution . . . . . . . . . . . . . . . . . . . . . 28
55. Renewal Options . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE>
AGREEMENT OF LEASE, made as of this 9th day of June, 1994, between B.J.W.
ASSOCIATES, having an address c/o Winter Management Corp., 641 Lexington Avenue,
New York, New York 10022
party of the first part, hereinafter referred to as LANDLORD, and LOUIS HARRIS
AND ASSOCIATES, INC., a Delaware corporation, having an address at 630 Fifth
Avenue, New York, New York
party of the second part, hereinafter referred to as TENANT.
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the premises (hereinafter hereby called "premises," "demised premises"
or "Premises") consisting of the entire eighth (8th) floor and a portion of the
ninth (9th) floor, substantially as cross hatched on the floor plan annexed
hereto as Exhibit A and made a part hereof in the Building known as 111 Fifth
Avenue, New York, New York (hereinafter called "building," or "Building"), for
the term (hereinafter called "term" or "Term") to commence on the Commencement
Date (as hereinafter defined), and to end on December 31, 2004 (hereinafter
called "Expiration Date") or until such term shall sooner cease and expire as
hereinafter provided, both dates inclusive at an annual rental rate as set forth
in Article 35 hereof (hereinafter called "Rent" or "Fixed Rent"), together with
all other sums of money as shall become due and payable by Tenant under this
Lease (hereinafter called "additional rent" or "Additional Rent").
which Tenant agrees to pay in lawful money of the United States(1), in equal
monthly installments in advance on the first day of each month during said term,
at the office of Landlord or such other place as Landlord may designate, without
any set off or deduction whatsoever(2), except that Tenant shall pay the first
monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this Lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with the Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice to
Tenant add the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT 1. Tenant shall pay the rent as above and as hereinafter
provided.
OCCUPANCY 2. Tenant shall use and occupy demised premises for the
general and executive offices of Tenant commensurate with the character and
dignity of the Building and for no other purpose.
ALTERATIONS 3. Tenant shall make no changes in or to the demised premises
of any nature without Landlord's prior written consent. Subject to the prior
written consent of Landlord, and to the provisions of this article.(3) Tenant
at Tenant's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility
services or plumbing and electrical lines, in or to the interior of the
demised premised by using contractors or mechanics first approved by
Landlord.(4) All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Landlord in Tenant's behalf, shall, upon installation, become the property of
Landlord and shall remain upon and be surrendered with the demised premises
unless Landlord, by notice to Tenant no later than twenty days prior to the
date fixed as the termination of this lease, elects to relinquish Landlord's
right thereto and to have them removed by Tenant, in which event, the same
shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense.(5) Nothing in this article shall be construed to
give Landlord title to or prevent Tenant's removal of trade fixtures,
moveable office furniture and equipment, but upon removal of any such from
the premises or upon removal of other installations as may be required by
Landlord, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any
damage to the demised premises or the building due to such removal. All
property required to be removed by Tenant at the end of the term remaining in
the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Landlord, either be retained as Landlord's property or may be
removed from the premises by Landlord at Tenant's expense. Tenant shall,
before making any alterations, additions, installations or improvements, at
its expenses, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates
of final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Landlord and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Landlord may(6) require. If any mechanic's lien is filed against
the demised premises, or the building of which the same forms a part, for
work claimed to have been done for, or materials furnished to, Tenant,
whether or not done pursuant to this article, the same shall be discharged by
Tenant within ____(7) days thereafter, at Tenant's expense, by filing the bond
required by law.(8)
REPAIRS 4. Landlord shall maintain and repair the public portions of
the building, both exterior and interior.(9) Tenant shall, throughout the
term of this lease, take good care of the demised premises and the fixtures
and appurtenances therein and at Tenant's sole cost and expense, make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, reasonable wear and tear, obsolescence and
damage from the elements, fire or other casualty, excepted. Notwithstanding
the foregoing, all damage or injury to thedemised premises or to any other
part of the building, or to its fixtures, equipment and appurtenances,
whether requiring structural or non-structural repairs, caused by or
resulting from carelessness, omissions, neglect or improper conduct of
Tenant, Tenant's servants, employees, invitees or licensees(10) shall be
repaired promptly by Tenant at its sole cost and expense, to the satisfaction
of Landlord reasonably exercised. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or
class equal to the original work or construction. If Tenant fails after ten
days notice to proceed with due diligence to make repairs required to be made
by Tenant, the same may be made by the Landlord at the expense of Tenant and
the expenses thereof incurred by Landlord shall be collectible as additional
rent after rendition of a bill or statement therefor.(11) Tenant shall give
Landlord prompt notice of any defective condition in any plumbing, heating
system or electrical lines located in, servicing or passing through the
demised premises and following such notice, Landlord shall remedy the
condition with due diligence but at the expense of Tenant if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as
specifically provided in Article 9 or elsewhere in this lease, there shall be
no allowance to Tenant for a diminution of rental value and no liability on
the part of Landlord by reason of inconvenience, annoyance or injury to
business arising Landlord, Tenant or others making or failing to make any
repairs, alterations, additions or improvements in or to any portion of the
building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof.(12) The provisions of this Article 4 with respect to the
making of repairs shall not apply in the case of fire or other casualty which
are dealt with in Article 9 hereof.
WINDOW
CLEANING 5. Tenant will not clean, nor require, permit, suffer
or allow any window in the demised premises to be cleaned, from the outside
in violation of Section 202 of the Labor Law or any other applicable law or
of the rules of the Board of Standards and Appeals, or of any other board or
body having or asserting jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term, if Tenant is
OF LAW, FIRE then in possession, and at all times thereafter, Tenant, at
INSURANCE
FLOOR LOADS
Tenant's sole, cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions
Footnotes to preprinted page (i)
of Lease
1. by check drawn on a bank or trust company which is a member of the New
York Clearinghouse Association.
2. except as otherwise expressly set forth herein, and
3. which consent shall not be (A) required with respect to painting and
decorative changes or to any changes costing less than $50,000, or (B)
unreasonably withheld or delayed with respect to any other changes or
alterations, provided that, in both instances, such changes do not
affect the structure of the Building or Building systems and Tenant
shall first notify Landlord of such alteration or changes
4. , which approval shall not be unreasonably withheld or delayed, except
with respect to contractors performing work in or to the Building
electrical or life safety systems.
5. , it being agreed however that any alterations which are deemed by
Landlord to be generally usable by other office tenants may remain upon
the expiration or other termination of this Lease. Landlord agrees, upon
request made by Tenant at the time Tenant requests approval of any
alteration, to identify whether any particular proposed alteration
appearing on such plans is deemed to be generally usable in Landlord's
judgment so that Tenant would not be required to remove the same. In
addition, Landlord hereby agrees that Tenant shall not be required to
remove any alterations which comprise Tenant's Work (hereinafter
defined) as shown on Tenant's preliminary plans prepared by Paul Segal
Associates dated May 18, 1994, and labeled drawings A-1, A-2, A-3, A-10,
A-11, and A-12 (the "Plans"), other than to remove the air conditioning
duct between the eighth (8th) and ninth (9th) floors and to repair any
damage caused thereby and restore the ceiling to its original condition,
6. reasonably
7. 60
8. , payment or otherwise
9. including the structural portions of the Building and of the demised
premises and the Building plumbing, electrical, heating, ventilating,
air conditioning and sprinkler systems. Landlord agrees to repair any
damage in the Premises caused by any willful or negligent act or
omission of Landlord or Landlord's Agents (hereinafter defined) or
arising out of any service performed by Landlord to the Premises.
Landlord covenants that it shall maintain and operate the Building as a
first class non-institutional office building located in midtown-south
Manhattan.
10. (collectively, "Tenant's Agents")
11. and Tenant shall reimburse Landlord for its actual, reasonable costs
therefor.
12. provided, however, that Landlord shall perform any repairs required
pursuant to this Article 4 with reasonable diligence under the
circumstances and shall use reasonable efforts to minimize interference
with Tenant's business, but without the obligation to employ overtime
labor.
and boards and any direction of any public officer pursuant to law, and all
orders, rules and regulations of the New York Board of Fire Underwriters or
any similar body(1) which shall impose any violation, order or duty upon
Landlord or Tenant with respect to the demised premises arising out of
Tenant's(2) use or manner of use thereof(3) or with respect to the building
if arising out of Tenant's use or manner of
use of the premises or the building (including the use permitted under the
lease).(4) Nothing herein shall require Tenant to make structural repairs or
alterations unless Tenant has by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Landlord to Landlord's(5) satisfaction against all damages, interest, penalties
and expenses including, but not limited to reasonable attorney's fees, by cash
deposit(6) or by surety bond in an amount and in a company(7) satisfactory to
Landlord, contest and appeal any such laws, ordinances,
i
<PAGE>
orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject
Landlord to prosecution for a criminal offense or constitute a default under
any lease or mortgage under which Landlord may be obligated, or cause the
demised premises or any part thereof to be condemned or vacated. Tenant
shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other polices of insurance at any time carried
by or for the benefit of Landlord with respect to the demised premises or the
building of which he demised premises form a part, or which shall or might
subject Landlord to any liability or responsibility to any person or for
property damage, nor shall Tenant keep anything in the demised premises
except as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building
or any property located therein over that in effect prior to the commencement
of Tenant's occupancy.(8) Tenant shall pay all costs, expenses, fines,
penalties, or damages, which may be imposed upon Landlord by reason of
Tenant's failure to comply with the provisions of this article and if by
reason of such failure the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be,
then Tenant shall reimburse Landlord, as additional rent hereunder, for that
portion of all fire insurance premiums thereafter paid by Landlord which
shall have been charged because of such failure by Tenant, and shall make
such reimbursement upon the first day of the month following such outlay by
Landlord. In any action or proceeding wherein Landlord and Tenant are
parties a schedule or "make-up" of rate for the building or demised premises
issued by the New York Fire Insurance Exchange, or other body making fire
insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rate then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per
square foot area which it was designed to carry and which is allowed by law.
Landlord reserves the right to(9) prescribe the weight and position of all
safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings
sufficient, in Landlord's(10) judgment, to absorb and prevent vibration, noise
and annoyance.
SUBORDINATION
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or
the real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any lease or the real
property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord
may request.
SEE ARTICLE 47 PROPERTY - LOSS,
DAMAGE, REIMBURSEMENT, INDEMNITY
8. Landlord(11) shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury
or damage to persons or property resulting from any cause of whatsoever
nature, unless caused by or due to the negligence(12) of Landlord, its agents,
servants or employees; nor shall Landlord or its agents be liable for any
such damage caused by other tenants or persons in, upon or about said
building or caused by operations in construction of any private, public or
quasi public work. If at any time any windows of the demised premises are
temporarily closed, darkened or bricked up (or permanently closed, darkened
or bricked up, if required by law).(13) Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from it obligations hereunder nor constitute an eviction.
Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Landlord's prior
written consent. If such safe, machinery, equipment, bulky matter or
fixtures requires special handling, all work in connection therewith shall
comply with the Administrative Code of the City of New York and all other
laws and regulations applicable thereto and shall be done during such hours
as Landlord may(14) designate. Tenant shall indemnify and save harmless
Landlord against and from all liabilities, obligations, damages, penalties,
claims, costs and expenses for which Landlord shall not be reimbursed by
insurance,(15) including reasonable attorneys fees, paid, suffered or incurred
as a result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant, upon written notice from Landlord, will, at Tenant's expense, resist
or defend such action or proceeding by counsel.(16)
DESTRUCTION, FIRE AND OTHER CASUALTY
9. (a) If the demised premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give immediate notice thereof
to Landlord and this lease shall continue in full force and effect except as
hereinafter set forth. (b) If the demised premise are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto
shall be repaired by and at the expense of Landlord and the rent, until such
repair shall be substantially completed,(17) shall be apportioned from the day
following the casualty according to the part of the premises which is
usuable(18), (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately
paid up to the time of the casualty and thenceforth shall cease until the
date when the premises shall have been repaired and restored by Landlord,
subject to Landlord's right to elect not to restore the same as hereinafter
provided.(19) (d) If the demised premises are rendered wholly unusable or
(whether or not the demised premises are damaged in whole or in part) if the
building shall be so damaged that Landlord shall decide to demolish it or to
rebuild it, then, in any such events, Landlord may elect to terminate this
lease by written notice to Tenant given with 90 days after such fire or
casualty specifying a date for the expiration of the lease, which date shall
not be more than 60 days after giving such notice, and upon the date
specified in such notice the term of the lease shall expire as fully and
completely as if such date were the date set forth above for the termination
of this lease and Tenant shall forthwith quit, surrender and vacate the
premises without prejudice however to Landlord's rights and remedies against
Tenant under the lease provisions in effect prior to such termination, and
any rent owing shall be paid up to such date and any payments of rent made by
Tenant which were on account of any period subsequent to such date shall
be(20) returned to Tenant. Unless(21) shall serve a termination notice as
provided for herein, Landlord shall make the repairs and restorations under the
conditions of (b) and (c) hereof, with all reasonable expedition subject to
delays due to adjustment of insurance claims, labor troubles and causes
beyond Landlord's control. After any such casualty, Tenant shall cooperate
with Landlord's restoration by removing from the premises as promptly as
reasonably possible, all of Tenant's salvageable inventory and movable
equipment, furniture, and other property. Tenant's liability for rent shall
resume five (5) days after written notice from Landlord that the premises are
substantially ready for Tenants occupancy(22), (23)(e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from fire or other casualty. Notwithstanding the foregoing, each
party shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire
or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Landlord and Tenant each
hereby releases and waives all right of recovery against the other or anyone
claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance and also provided that such a policy can
be obtained without additional premiums Tenant acknowledges that Landlord
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Landlord will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
EMINENT DOMAIN
10. If the whole or any part of the demised premises
shall be acquired or condemned by Eminent Domain for any public or quasi
public use or purpose, then and in that event, the term of this lease shall
cease and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of said
lease.(24)
ASSIGNMENT, MORTGAGE, ETC.
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Landlord in each
instance. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but
no such assignment, underletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, under-tenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by
Landlord to an assignment or underletting shall not in any wise be construed
to relieve Tenant from obtaining the express consent in writing of Landlord
to any further assignment or underletting.
SEE ARTICLE 44
ELECTRIC CURRENT
12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto.
ii
<PAGE>
ACCESS TO PREMISES
13. Landlord or Landlord's agents shall have the right (but shall not
be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times,(25) to examine the same and to make such
repairs, replacements and improvements as Landlord may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which landlord may elect to perform following Tenant's failure to
make repairs or perform any work which Tenant is obligated to perform under
this lease, or for the purpose of complying with laws, regulations and other
directors of governmental authorities.(26) Tenant shall permit Landlord to use
and maintain and replace pipes and conduits in and through the demised
premises and to erect new pipes and conduits therein. Landlord may, during
the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same
Footnotes to preprinted page (ii)
of Lease
1. (the "Legal Requirements")
2. particular
3. , as opposed to the mere use thereof for the purposes set forth in
Article 2
4. Landlord shall, at its own expense, comply with or cause compliance with
all other Legal Requirements as shall affect the Premises, buy may defer
compliance so long as Landlord shall be contesting the validity or
applicability thereof by appropriate proceedings, provided the same is
done with reasonable promptness and provided such appeal shall not
subject Tenant to prosecution or a criminal offense or interfere with
the use of the Premises by Tenant for the uses set forth in Article 2
herein. Notwithstanding anything to the contrary in this Article 6, it
is specifically understood that Tenant shall in making or as a result of
any, alterations or installations to the Premises be responsible for the
compliance of all Legal Requirements, including, without limitation, the
Americans with Disability Act, New York Local Law No. 58 of 1987, Local
Law No. 5 of 1973 and Local Law No. 16 of 1984 or any successor law of
like import.
5. reasonable
6. , indemnity
7. reasonably
8. Landlord represents that Tenant's use of the Premises for the uses set
forth in Article 2 herein shall not affect an increase in Landlord's
insurance rates for the Building.
9. reasonably
10. reasonable
11. , its agents, contractors or employees ("Landlord's Agents")
12. or willful acts
13. if required by Legal Requirements, insurance requirements, or due to
repairs being performed to the Building
14. reasonably
15. provided Landlord shall maintain the insurance provided herein,
16. selected by Tenant or Tenant's insurance carrier.
17. or on such earlier date on which such repairs would have been completed but
for delays, (including, without limitation, delays in submitting plans to
Landlord for the restoration of its Premises) caused by Tenant
18. and the demised premises are reasonably usable by Tenant for the uses set
forth in Article 2.
To the extent not prevented by any hazardous condition, Tenant's
contractors shall have reasonable access to the demised premises following
such damage or destruction, to repair any damage to the Premises not
required to be repaired by Landlord. Landlord or Tenant, and their
respective contractors and mechanics, shall reasonably cooperate to
coordinate the performance of their respective repair obligations at the
Premises.
19. and Tenant's right to cancel this Lease as hereinafter provided
20. promptly
21. either party
22. and the Premises are so ready
23. Notwithstanding anything to the contrary set forth herein, if the Premises
are totally damaged or rendered wholly unusable by fire or other casualty
and Landlord has not theretofore canceled this Lease pursuant to the
provisions of this Article 9, Tenant may promptly request the opinion
hereinafter described. Within sixty (60) days of receipt
of Tenant's request, Landlord shall furnish Tenant with the opinion of
an independent architect selected by Landlord and reasonably
satisfactory to Tenant, specifying whether the Premises can be
substantially restored within one year from the date of such casualty.
If the architect's opinion states that the Premises cannot be so
restored in such one year period, then Tenant shall have the right to
terminate this Lease by notice given to Landlord within thirty (30) days
of the date of such architect's opinion (time being of the essence), in
which case the term of this Lease shall expire on the thirtieth (30th)
day after notice of such election is given to Landlord and Tenant shall
vacate the Premises and surrender that same to Landlord by such date in
accordance with the provisions of this Lease as if such date with the
Expiration Date. If Tenant shall not have elected to terminate this
Lease as set forth above (or is not otherwise entitled to terminate this
Lease pursuant to the provisions hereof), then such damage shall
promptly be repaired by and at the expense of Landlord. In addition, if
such repair work is not substantially completed within said one year
period or such damage or casualty shall occur during the last year of
the term hereof, Tenant shall have the right to terminate this Lease by
notice given to Landlord within fifteen (15) days following the
expiration of such one year period or the casualty, as the case may be,
(time being of the essence) in which case the term of this Lease shall
expire upon receipt of such notice by Landlord as if such date with the
Expiration Date.
24. Notwithstanding the foregoing, Tenant shall have the right to make a
separate claim for moving expenses, leasehold improvements installed by
Tenant at Tenant's expense and Tenant's personal property, provided that
such award shall be made by the condemnation court in addition to and not
in reduction of the award made by such court in favor of Landlord and shall
hot otherwise impair the ability of Landlord to make its claim.
25. upon prior reasonable notice
26. Landlord agrees that at any time Landlord is permitted or required
hereunder to enter the Premises, Landlord shall use all reasonable efforts
to minimize interference with Tenant's business at the Premises in so doing
(but without the obligation to employ overtime labor).
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof, Landlord
shall have the right to enter the demised premises at reasonable hours(1) for
the purpose of showing the same to prospective purchasers or mortgagees of
the building, and during the last(2) ____ of the term for the purpose of
showing the same to prospective tenants. If Tenant is not present to open
and permit an entry into the premises, Landlord or Landlord's agents may
enter the same whenever such entry may be necessary or permissible by master
key or forcibly(3) and provided reasonable care is exercised to safeguard
Tenant's property and such entry shall not render Landlord or its agents
liable therefor, nor in any event shall the obligations of Tenant hereunder
be affected. Landlord shall have the right at any time, without the same
constituting an eviction and without incurring liability to Tenant therefor
to change the arrangement and/or location of public entrances, passageways,
doors, doorways, corridors, elevators, stairs, toilets, or other public parts
of the building and to change the name, number or designation by which the
building may be known.(4)
VAULT, VAULT SPACE AREA
14. No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan or
anything contained elsewhere in this lease to the contrary notwithstanding.(5)
Landlord makes no representation as to the location of the property line of
the building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and/or
occupy, is to be used and/or occupied under a revocable license, and if any
such license be revoked, or if the amount of such space or area be diminished
or required by any federal, state or municipal authority or public utility,
Landlord shall not be subject to any liability nor shall Tenant be entitled
to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax fee or charge of municipal authorities for such vault or
area shall be paid by Tenant.(6)
OCCUPANCY
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy(7) issued for the building of which
the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to
Landlord's work, if any. In any event, Landlord makes no representation as
to the condition of the premises and Tenant agrees to accept the same subject
to violations whether or not of record.(8)
BANKRUPTCY
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any
one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor(9), or
(2) the making by Tenant of an assignment or any other arrangement for the
benefit of creditors under any state statue. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises demised but
shall forthwith quit and surrender the premises. If this lease shall be
assigned in accordance with its terms, the provisions of this Article 16
shall be applicable only to the party then owning Tenant's interest in this
lease.
(b) It is stipulated and agreed that in the event of the termination of this
lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference
between the rent reserved hereunder for the unexpired portion of the term
demised and the fair and reasonable rental value of the demised premises for
the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the
period for which such installment was payable shall be discounted to the date
of termination at the rate of four per cent (4%) per annum. If such premises
or any part thereof be relet by the owner for unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages
to any court, commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and unreasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of
the Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
DEFAULT
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or
if the demised premises are damaged by reason of negligence or carelessness
of Tenant, its agents, employees or invitees; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other
than Tenant or if Tenant shall make default with respect to any other lease
between Landlord and Tenant; then, any one or more of such events, upon
Landlord serving a written said ____ (10) days notice upon Tenant specifying
the nature of said default and upon the expiration of said ____ (10) days, if
Tenant shall have failed to comply with or remedy such default, or if the
said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said ____ (10) day period, and if
Tenant shall not have diligently commenced curing such default within such
(10) day period, and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such default, then Landlord may serve a
written three (3) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said three (3) days, this lease and the term
thereunder shall end and expire as fully and completely as if the expiration
of such three (3) day period were the day herein definitely fixed for the end
and expiration of this lease and the term thereof and Tenant shall then quit
and surrender the demised premises to Landlord but Tenant shall remain liable
as hereinafter provided. (2) If the notice provided for in (1) hereof shall
have been given, and the term shall expire as aforesaid; or if Tenant shall
make default in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making any other
payment herein required(11), then and in any of such events Landlord may
without notice(12), re-enter the demised premises either by force or otherwise,
and dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Landlord may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF LANDLORD AND WAIVE OF REDEMPTION
18. In case of any such default(13) re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, together with such expenses as Landlord may incur for legal
expenses, attorneys' fees, brokerage, and/or putting the demised premises in
good order, or for preparing the same for re-rental; (b) Landlord may re-let
the premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms, which may at Landlord's option be less than
or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a
higher rental than that in this lease, and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord as liquidated damages for
the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted
to be paid and the net amount, if any, of the rents collected on account of
the lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Landlord to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing
such liquidated damages there shall be added to the said deficiency such(14)
expenses as Landlord may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount
of the deficiency for any month shall not prejudice in any way the rights of
Landlord to collect the deficiency for any subsequent month by a similar
proceeding. Landlord, in putting the demised premises in good order or
preparing the same for re-rental may, at Landlord's option, make such
alterations, repairs, replacements, and/or decorations in the demised
premises as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess,
if any, of such net rent collected over the sums payable by Tenant to
Landlord hereunder. In the event of a breach or
iii
<PAGE>
threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and
other remedies were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Landlord from any other remedy, in law
or in equity. 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
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of demised premises, by reason of the violation by Tenant of any
of the covenants and conditions of this lease, or otherwise.
FEES AND EXPENSES:
19. If Tenant shall default(15) in the observance or performance of any
term or covenant on tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Landlord may immediately
or at any time thereafter and without notice perform the obligation of Tenant
thereunder, and if Landlord, in connection therewith or in connection with
any default by tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including
but not limited to attorneys' fees, in instituting, prosecuting or defending
any action or proceeding, such sums so paid or obligations incurred with
interest and costs shall be deemed to be additional rent hereunder and shall
be paid by Tenant to Landlord within ____ (16) days of rendition of any bill or
statement to tenant therefore, and if tenant's lease term shall have expired
at the time of making of such expenditures or incurring of such obligations,
such sums shall be recoverable by landlord as damages.
Footnotes to Rider Page (iii)
of Lease
1. upon reasonable notice
2. one year
3. (in the event of an emergency or where required by law only),
4. provided that in so doing the use of, or access to, the Premises or the
Building is not adversely affected thereby, except to a de minimus extent
5. Landlord represents that the Premises do not include any vault space.
6. if used by Tenant.
7. hereafter
8. Landlord represents that, to the best of its knowledge, there are
presently no violations of Legal Requirements filed against the
Premises. Notwithstanding the foregoing, Landlord agrees to be
responsible at its sole cost and expense, and shall use its best
efforts, to cure any violations of Legal Requirements against the
Premises existing on the Commencement Date. In addition, if there exists
any violation of a Legal Requirement against the Building which
prohibits Tenant from obtaining required Building Department permits or
notices for Tenant's Work (hereinafter defined), the Abatement Period
(hereinafter defined) shall be extended by one (1) day for each day
Tenant is actually delayed in the performance of Tenant's Work (of which
fact Tenant shall provide Landlord with reasonable proof) solely as a
result of Tenant's inability to obtain said permits or notices due to a
violation of a Legal Requirement against the Building.
9. which in the case of an involuntary case, is not dismissed within sixty
days
10. fifteen (15)
11. which default remains uncured for a period of three (3) business days after
notice from Landlord
12. except as may be required by law
13. beyond the expiration of any applicable notice and/or grace period
14. reasonable
15. after the expiration of any applicable notice and/or grace period
16. fifteen (15)
NO REPRESENTATIONS BY LANDLORD
20. (1) Landlord nor Landlord's agents have made any representations or
promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, expenses
of operation or any other matter or thing affecting or related to the
premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as
expressly set forth in the provisions of this lease. Tenant has inspected
the building and the demised premisses and is thoroughly acquainted with
their condition, and (2) agrees to take the same "as is" and acknowledges that
the taking of possession of the demised premises by Tenant shall be conclusive
evidence that the said premises and the building of which the same form a part
were in good and satisfactory condition at the time such possession was so
taken, except as to latent defects. All understandings and agreements
heretofore made between the parties hereto are merged in this contract, which
alone fully and completely expresses the agreement between Landlord and Tenant
and any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part, unless
such executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
END OF TERM
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear excepted, and Tenant shall
remove all its property.(3) Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT
22. Landlord covenants and agrees with Tenant that upon Tenant paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 30 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION
23. If Landlord is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over
or retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building being constructed, because such building
has not been sufficiently completed to make the premises ready for occupancy
or because of the fact that a certificate of occupancy has not been procured
or for any other reason, Landlord shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in
any wise to extend the term of this lease, but the rent payable hereunder
shall be abated (provided Tenant is not responsible for the inability to
obtain possession) until after Landlord shall have given Tenant written
notice that the premises are substantially ready for Tenant's occupancy. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this Lease, except as to the
covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Property Law.
NO WAIVER
24. The failure of Landlord(4) to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease
or of any of the Rules or Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Landlord(5) of rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Landlord(6)
unless such waiver be in writing signed by Landlord.(7) No payment by Tenant
or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this lease provided. No act or thing done by Landlord or
Landlord's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee
of Landlord or Landlord's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys
to any such agent or employee shall not operate as a termination of the lease
or a surrender of the premises.
WAIVER OF TRIAL BY JURY
25. 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 (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this lease,
the relationship of Landlord and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding.(8)
INABILITY TO PERFORM
26. ___ (9) lease and the obligation of Tenant to pay rent hereunder and
(10)perform all of the other covenants and agreements hereunder on part of(11)
to be performed shall in no wise be affected, impaired or excused because(12) is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if(13) is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including but not limited to,
government preemption in connection with a National Emergency or by reason of
any rule, order or regulation of a department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which
have been or are affected by war or other emergency.(14)
27. DELETED
SERVICES PROVIDED BY LANDLORD - WATER, ELEVATORS, HEAT, CLEANING, AIR
CONDITIONING
28. Landlord shall provide: (a) necessary elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.
and have one elevator subject to call at all other times(15) (b) heat to the
demised premises when and as required by law, on business days from 8 a.m. to
6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (c)(16)water for ordinary
lavatory(17) purposes, but if Tenant uses or consumes water for any other
purposes or in unusual quantities (of which fact Landlord shall be the sole
judge), Landlord may install a water meter at Tenant's expense which Tenant
shall thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for water
consumed as shown on said meter as additional rent as and when bills are
rendered, and on Tenant's default in making such payment, Landlord may pay
such charges and collect the same from Tenant. Such a meter shall also be
installed and maintained at Tenant's expense if required by Law or
Governmental Order. Tenant, if a water meter is so installed, covenants and
agrees to pay its proportionate share of the sewer rent and all other rents
and charges which are now or hereafter assessed, imposed or may become a lien
on the demised premises or the realty of which they are a part. If
applicable, air conditioning/cooling will be furnished from May 15th through
September 30th on business days (Mondays through Fridays, holidays excepted)
from 8:00 a.m. to 6:00 p.m. and ventilation will be furnished on business
days during the aforesaid hours except when air conditioning/cooling is being
furnished as aforesaid. If Tenant requires air conditioning/cooling or
ventilation for more extended hours or on Saturdays, Sundays or on holidays,
as defined under Landlord's contract with Operating Engineers Local 94-94A,
Landlord will furnish the same at Tenant's expense. (f) (18)Landlord shall
have no responsibility or liability for failure to supply the services agreed
to herein. Landlord reserves the right
<PAGE>
to stop services of the heating, elevators, plumbing, air-conditioning, power
systems or cleaning or other services, if any, when necessary by reason of
accident or for repairs, alterations, replacements or improvements necessary
or desirable in the judgment of Landlord for as long as may be reasonably
required by reason thereof or by reason of strikes, accidents, laws, order or
regulations or any other reason beyond the control of Landlord.(19) If the
building of which the demised premises are a part supplies manually-operated
elevator service, Landlord at any time may substitute automatic-control
elevator service and upon ten days' written notice to Tenant, proceed with
alterations necessary therefor without in any wise affecting this lease or
the obligations of Tenant hereunder. The same shall be done with a minimum
of inconvenience to Tenant and Landlord shall pursue the alteration with due
diligence.(20)
SEE ARTICLE 40
CAPTIONS
29. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS
30. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Landlord" as used in this
lease means only the owner, or the mortgagee in possession, for the time being
of the land and building (or the owner of a lease of the building or, of the
land and building) of which the demised premises form a part, so that in the
event of any sale or sales of said land and building or of said lease, or in the
event of a lease of said building, or of the land and building, the said
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder(21) and it shall be deemed and construed
without further agreement between the parties or their successors in interest,
or between the parties and the purchaser, at any such sale, or the said lessee
of the building, or of the land and building, that the purchaser or the lessee
of the building has assumed and agreed to carry out any and all covenants and
obligations of Landlord, hereunder. The words "re-enter" and "re-entry" as used
in this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall
Footnotes to Rider Page (iv)
of Lease
1. Except as expressly set forth in this Lease, neither
2. subject to the terms hereof,
3. which Tenant is required to remove pursuant to the terms hereof
4. or Tenant
5. or payment by Tenant
6. or Tenant, as the case may be
7. or Tenant, as the case may be, or their respective legal representatives
8. unless Tenant's failure to interpose such a counterclaim will result in a
waiver of Tenant's rights.
9. Except as otherwise provided herein, this
10. the obligation of either Landlord or Tenant
11. their
12. the other party
13. such party
14. it being understood that either party's inability to pay a sum of money
shall not be deemed to be beyond such party's reasonable control
15. and freight elevator service on business days (excluding Saturdays) from
8:00 a.m. to 6:00 p.m.
16. hot and cold
17. , cleaning and drinking
18. Subject to the following provisions,
19. Landlord agrees to restore any such discontinued service as promptly as is
reasonably possible under the circumstances and to perform all repairs,
alterations, replacements and improvements pursuant to this subdivision (f)
upon prior notice to Tenant (except in an emergency) and at times and in a
manner that will minimize interference with Tenant's business at the
Premises, but without the obligation to employ overtime labor.
20. Notwithstanding anything herein to the contrary, if there shall be an
interruption of Landlord's services required hereunder or Landlord shall
fail to make repairs required of Landlord hereunder, in each case other
than due to an Unavoidable Delay (as hereinafter defined) and such
interruption or failure shall continue for a period in excess of fifteen
(15) consecutive days following notice of such condition from Tenant to
Landlord, and such interruption of failure, as the case may be, results in
a denial or otherwise renders impossible or impractical the intended use of
substantially the entire Premises for the uses set forth in Article 2
herein and Tenant shall actually vacate the entire Premises as a result
thereof, then Tenant shall be entitled to an abatement of Fixed Rent and
Additional Rent for the period beginning on the later to occur of (i) the
date Tenant ceased its operations in the entire Premises and vacated the
Premises, or (ii) the date of delivery of Tenant's notice of such condition
to Landlord and ending on the date which is the earlier to occur of (a) the
date on which the Premises are rendered tenantable, or (b) the date on
which Tenant resumes its business at the Premises. For purposes of the
foregoing, "Unavoidable Delays" shall mean any causes whatsoever beyond
Landlord's reasonable control which shall prevent Landlord from performing
obligations expressly or implicitly imposed upon Landlord pursuant to this
Lease, including without limitation, strikes, riots, labor troubles,
accidents, Legal Requirements, governmental preemption in connection with a
national emergency, or matters of supply which have been or are affected by
war or other emergencies. The foregoing provision shall not apply in the
event the Premises are damaged in whole or in part as a result of fire or
other casualty and in such event that provisions of Article 9 of this Lease
shall govern.
21. arising from and after the date thereof,
exclude Saturdays (except such portion thereof as is covered by specific
hours in Article 28 hereof), Sundays and all days observed by the State or
Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION - SHORINGS
31. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made(1) Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purpose of doing such work as said person shall
deem necessary to preserve the wall or the building of which demised premises
form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Landlord, or
diminution or abatement of rent.
RULES AND REGULATIONS
32. Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as Landlord may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional
Rule or Regulation upon Tenant's part shall be deemed waived unless the same
shall be asserted by service of a notice, in writing upon Landlord within ten
(10) days after the giving of notice thereof. Nothing in this lease
contained shall be construed to impose upon Landlord any duty or obligation
to enforce the Rules and Regulations or terms, covenants or conditions in any
other lease, as against any other tenant and Landlord shall not be liable to
Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licenses.(2)
SECURITY
33. Tenant has deposited with Landlord the sum of $950,000.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Landlord may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord.(3) In the event that Tenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the land and building or leasing of the
building which the demised premises form a part, Landlord shall have the right
to transfer the security to the vendee or lessee and Landlord shall thereupon
be released by Tenant from all liability for the return of such security and
Tenant agrees to look to the new Landlord solely for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
SEE SECTION 58M
SUCCESSORS AND ASSIGNS
34. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
See Rider attached hereto and made part hereof.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
B.J.W. ASSOCIATES
Witness for Landlord: By: /s/
----------------------------------------
- ---------------------------------
LOUIS HARRIS AND ASSOCIATES, INC.
Witness for Tenant: By: /s/ Humphrey J. F. Taylor
----------------------------------------
/s/ David Krane Title:
- ---------------------------------
ACKNOWLEDGMENTS
CORPORATE LANDLORD
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this 27 day of May, 1999, before me personally came Humphrey J.F.
Taylor, to me known, who being by me duly sworn, did depose and say that he
resides in 17 E. 89th Street, NY, NY 10128, that he is the President of Louis
Harris and Associates, Inc., the corporation described in and which executed
the foregoing instrument, as LANDLORD; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
/s/ Linden C. Frazer
--------------------------------------
CORPORATE TENANT
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this______ day of ____________________, 19____, before me personally
came _______________________, to me known, who being by me duly sworn, did
depose and say that he resides in__________________________________________,
that he is the_______________________ of _____________________, the
corporation described in and which executed the foregoing instrument, as TENANT,
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
--------------------------------------
INDIVIDUAL LANDLORD
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this ______ day of _________________, 19____, before me personally came
___________________________, to me known and known to me to be the individual
described in and who, as LANDLORD, executed the foregoing instrument and
acknowledged to me that he executed the same.
--------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this _______ day of __________________, 19____, before me personally
came ____________________________, to me known and known to me to be the
individual described in and who, as TENANT, executed the foregoing instrument
and acknowledged to me that he executed the same.
--------------------------------------
Footnotes to Rider Page (v)
of Lease
1. upon reasonable prior notice to Tenant, except in the event of an emergency
2. Landlord agrees that it shall enforce the rules and regulations against
Tenant in a nondiscriminatory manner. Additionally, Landlord agrees that no
rules or regulations shall materially reduce Tenant's rights under this
Lease nor shall Tenant be required to comply with any rules and regulations
which prevent Tenant's use of the demised premises for the uses permitted
by Article 2 herein.
3. Landlord shall deposit such cash security in an interest bearing account
and unless paid or applied for the use or rental for the demised premises
upon a default of Tenant as herein provided, Landlord will deliver or cause
to be delivered to Tenant interest annually and at the end of the Term,
less a one percent (1%) per annum administrative charge as permitted by
law.
v
<PAGE>
[GUARANTY]
Deleted
vi
<PAGE>
RIDER ANNEXED TO AGREEMENT OF LEASE
BETWEEN B.J.W. ASSOCIATES (LANDLORD),
AND LOUIS HARRIS AND ASSOCIATES, INC. (TENANT)
FIXED RENT AND
PRORATION OF
FIXED RENT:
35. A. The Fixed Rent shall be payable as follows:
(i) THREE HUNDRED EIGHTY-NINE THOUSAND FIVE HUNDRED and 00/100
DOLLARS ($389,500.00) per annum for the period from the Rent Commencement
Date through December 31, 1999, payable in advance in equal monthly
installments of $32,458.33; and
(ii) FOUR HUNDRED THIRTY THOUSAND FIVE HUNDRED and 00/100 DOLLARS
($430,500.00) per annum for the period from January 1, 2000 through the
Expiration Date, payable in advance in equal monthly installments of
$35,875.00,
B. Provided that Tenant shall not then be in default
hereunder beyond the expiration of any applicable notice and/or grace period,
the Fixed Rent hereunder shall be abated for the period from the Rent
Commencement Date through December 31, 1994 (the "Abatement Period"); it
being agreed that if the Rent Commencement Date shall not occur by June 20,
1994, the Abatement Period shall be extended by two (2) days for each one (1)
day of delay thereafter. If at any time during the Term Tenant shall default
hereunder and this Lease shall be terminated as a result of such default, the
Fixed Rent otherwise abated pursuant to this Section 35B shall immediately be
due and payable.
C. If the Rent Commencement Date shall not be the first
day of a month, Fixed Rent shall be prorated on a per diem basis, and any
excess amount paid on the execution of this Lease shall be credited to the
Fixed Rent for the next calendar month.
D. When the Rent Commencement Date and Abatement Period
have been determined by Landlord and Tenant, Landlord and Tenant shall, upon
the request of either of them, execute and deliver a statement prepared by
Landlord setting forth such dates and periods. Any failure of Tenant to
execute such statement shall not affect Landlord's determination of such
dates and periods.
E. The "Rent Commencement Date" it shall be the earlier
of (a) the date the Premises are "available for occupancy" as determined
pursuant to this Section, or (b) the date on which Tenant takes occupancy of
the Premises.
F. (i) For the purpose of Section E hereof, the
Premises shall be conclusively deemed available for occupancy as soon as
Landlord's Work (as hereinafter defined), excluding the obligation to install
the Air-cooled A/C Unit(s) (hereinafter defined) and missing radiators (which
radiators Landlord agrees to deliver and install within three (3) weeks from
the Rent Commencement Date), shall be deemed substantially completed
notwithstanding the fact that (a) minor or insubstantial details of
construction, mechanical adjustment or decoration remain to be performed or
(b) portions have not been completed because under good construction
scheduling practice such work should be done after still incompleted
finishing or other work to be done by or on behalf of Tenant is completed.
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(ii) If Landlord's failure to timely deliver and
install the Air-cooled A/C Unit(s) and/or the missing radiators shall cause a
delay in the performance by Tenant of Tenant's Work, then the Abatement
Period shall be extended one (1) day for each day Tenant is actually delayed
in such performance solely as a result of Landlord's failure to timely
deliver and install the Air-cooled A/C Unit(s) and/or install the missing
radiators and Landlord shall reimburse Tenant for any actual out-of-pocket
costs which Tenant incurs as a result of such delay. Landlord and Tenant and
their respective contractors and mechanics shall reasonably cooperate to
coordinate the performance of their respective work obligations at the
Premises.
(iii) Landlord agrees to provide Tenant with
notice of the commencement of Landlord's demolition work at the Premises
which notice shall state the date estimated by Landlord to be the Rent
Commencement Date.
G. Notwithstanding anything herein to the contrary, in
the event Landlord is unable to deliver possession to Tenant of the Premises
in accordance with the terms hereof by August 1, 1994, then Tenant shall have
the right to terminate this Lease upon notice given to Landlord within five
(5) business days after such date, time being of the essence. If, in such
event, Tenant elects to terminate the Lease, then this Lease shall terminate
on the date of such notice as if such date were the Expiration Date.
LATE PAYMENT CHARGE:
36. A. If Tenant shall fail to pay any Fixed Rent or
Additional Rent within ten (10) days after its due date, Tenant shall pay a
late charge of $.05 for each $1.00 which remains unpaid after such period to
compensate Landlord for additional expense in processing such late payment.
B. If any check of Tenant shall be returned for
insufficient funds more than two times in any twelve month period, then
Tenant shall make all payments hereunder for the next twelve (12) calendar
months by certified check or official bank check, If any payment made by
Tenant to Landlord shall be returned for insufficient funds, there shall be
an additional charge to Tenant of fifty dollars ($50.00).
RENT
RESTRICTIONS:
37. In the event the Fixed Rent or any Additional Rent shall
become uncollectible by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant
to law, Tenant shall enter into such agreement or agreements and take such
other action (without additional expense to Tenant) as Landlord may request,
as may be legally permissible, to permit Landlord to collect the maximum
Fixed Rent and Additional Rent which may, from time to time during the
continuance of such legal rent restriction, be legally permissible, but not
in excess of the amounts of Fixed Rent or Additional Rent payable under this
Lease. Upon the termination of such legal rent restriction, (a) the Fixed
Rent and Additional Rent, after such termination, shall become payable under
this Lease in the amount of the Fixed Rent and Additional Rent set forth in
this Lease for the period following such termination and (b) Tenant shall pay
to Landlord, if legally permissible, an amount equal to (i) the Fixed Rent
and Additional Rent which would have been paid pursuant to this Lease, but
for such rent restriction, less (ii) the Fixed Rent and Additional Rent paid
by
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<PAGE>
Tenant to Landlord during the period that such rent restriction was in effect.
ESCALATION:
38. A. Definitions as used herein:
(a) "Escalation Year" shall mean each calendar year which
shall include any part of the Term,
(b) "Taxes" shall mean all real estate taxes, assessments
(special or otherwise), business improvement district charges or assessments,
or any other governmental charge, which may be levied, assessed or imposed on
or with respect to all or any part of the Building or the parcel of land on
which the Building is located (hereinafter collectively called "Real
Property") by any taxing authority, without reduction for any Tax Exemption
(as hereinafter defined). If the methods of taxation prevailing at the date
hereof shall be altered so that in lieu of, as an addition to or as a
substitute for the whole or any part of the Taxes now levied, assessed or
imposed on all or any part of the Real Property, there shall be levied,
assessed or imposed a tax or assessment, measured by or based on rents or the
Real Property and imposed on Landlord, then all such taxes or assessments
shall be deemed to be Taxes. Notwithstanding the foregoing, the term "Taxes"
shall not include any federal income tax, New York State Franchise or income
tax, New York City General Corporation or Unincorporated Business Tax, or any
franchise, excise, estate, inheritance, succession, capital stock, transfer,
capital gains or sales tax levied upon Landlord or any income, profits or
revenue taxed upon the income of Landlord, or any other tax, assessment,
levy, imposition or charge on the rent under this Lease, unless otherwise
provided herein and penalties or interest for late payment or non-payment of
Taxes, unless such penalty or late payment results from Tenant's failure to
timely make Tenant's Tax Payment. As to assessments which are payable over a
period of time extending beyond the term of the Lease, only a pro-rata
portion thereof covering the unexpired portion of the Term at the time of the
imposition of such assessment shall be included in Taxes. For purposes of
computing Taxes hereunder Landlord shall be deemed to be taxed as if Landlord
owned only the Building and Real Property and no other property.
(c) "Landlord's Basic Tax Liability" shall mean the
liability of Landlord, without reduction for Tax Exemption, if any, for the
fiscal year commencing July 1, 1994 and ending June 30, 1995 for Taxes, "Tax
Year" shall mean the twelve (12) month period commencing July 1, 1995 and
each twelve (12) month period thereafter.
(d) "Tenant's Proportionate Share" shall mean 10.46%.
(e) "Tax Exemption" shall mean a tax exemption or abatement
relating to all or part of the Real Property granted as a result of, or in
connection with, a capital improvement or capital replacement, all or part of
the cost of which shall not have been specifically borne by Tenant pursuant
to the terms of this Lease
(f) "Landlord's Statement" shall mean an instrument
containing a computation of any Additional Rent due pursuant to the
provisions of this Article. Landlord may issue Landlord's Statements any time
that there is an increase in Taxes or Operating Expenses. Upon request of
Tenant, Landlord shall provide Tenant with a copy of the relevant tax bills.
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<PAGE>
(g) "Landlord's Base Operating Year" shall mean the twelve
month period commencing October 1, 1994 and ending September 30, 1995.
(h) "Operating Expenses" shall mean all costs and expenses (and
taxes thereon, if any) paid or incurred by Landlord or on behalf of Landlord
with respect to the operation, repair, safety, management, security and
maintenance of the Real Property, Building equipment, sidewalks, curbs and other
areas adjacent to the Building, and with respect to the services provided
tenants, including without limitation: (i) salaries, wages and bonuses paid to,
and the cost of any hospitalization, medical, surgical, union and general
welfare benefits (including group life insurance), any pension, retirement or
life insurance plan and other benefit or similar expense relating to, employees
of Landlord engaged in the operation, repair, safety, management, security or
maintenance of the Real Property and the Building equipment or in providing
services to tenants; (ii) social security, unemployment and other payroll taxes,
the cost of providing disability and workmen's compensation coverage imposed by
any legal requirements, union contract or otherwise with respect to said
employees; (iii) the cost of electricity and air-conditioning (furnished to
public areas of the Building only), gas, oil, steam, water and other fuel and
utilities; (iv) the cost of casualty, rent, liability, fidelity, plate glass and
any other insurance; (v) the cost of painting public areas of the Building and
of all repairs and maintenance (other than for repairs and maintenance performed
at the expense of any other tenant, including Tenant); (vi) the cost or rental
of all building supplies, tools, materials and equipment; (vii) the cost of
uniforms, work clothes and dry cleaning; (viii) guard, watchman or other
security personnel, service or system, if any; (ix) management fees or if no
managing agent is employed by Landlord, a sum in lieu thereof which is
competitive with and not in excess of then prevailing rates for management fees,
payable in the County of New York for similar office buildings; (x) charges of
independent contractors performing work included within this definition of
Operating Expenses; (xi) telephone and stationery; (xii) legal, accounting and
other professional fees and disbursements incurred in connection with the
operation and management of the Building; (xiii) association fees and dues;
(xiv) decorations in common areas; (xv) depreciation of hand tools and other
movable equipment used in the operation, repair, safety, management, security or
maintenance of the Building; and (xvi) exterior and interior landscaping in
common areas. Provided, however, that the foregoing costs and expenses shall
exclude or have deducted from them, as the case may be:
1. salaries, payroll taxes and all fringe benefits above the grade
of building manager;
2. expenditures for capital improvements, other than those which
under generally applied real estate practice are expenses or regarded as
deferred expenses and other than capital expenditures made by reason of Legal
Requirements enacted or promulgated following the date hereof or mandatory
insurance requirements (i.e. the failure to comply with any such requirement
will result in the refusal of a reputable insurer to issue any policy which
Landlord is obligated to carry pursuant to this Lease or to issue such
policies at other than commercially reasonable rates, in any of which cases
the cost thereof shall be included in Operating Expenses for the calendar
year in which the costs are incurred and subsequent calendar years, on a
straight-line basis, to the extent that such items are amortized over an
appropriate period, but not more than fifteen (15) years, with an interest
factor equal to two (2) percentage points above the rate then most recently
announced by Citibank,
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N.A., New York, New York, or its successor as its corporate base lending
rate, which rate may change from time to time;
3. amounts received by Landlord through proceeds of insurance or any
other source to the extent they are compensation for sums previously included in
Operating Expenses hereunder;
4. cost of repairs or replacements incurred by reason of fire or
other casualty or condemnation to the extent Landlord is compensated therefor
(provided Landlord maintains the insurance required of Landlord hereunder);
5. advertising and promotional expenditures;
6. costs incurred in performing work or furnishing services for any
tenant (including Tenant), whether at such tenant's or Landlord's expense, to
the extent that such work or service is in excess of any work or service that
Landlord is obligated to furnish to Tenant at Landlord's expense;
7. depreciation and amortization of the Building or any fixtures or
improvements thereon, except as provided above;
8. brokerage commissions;
9. Taxes;
10. the cost of electricity furnished to the Premises or any other
space leased to tenants, as reasonably estimated by Landlord;
11. refinancing costs, and mortgage interest and amortization
payments; and
12. ground rents
13. any costs incurred in the renovation, improvement or refurbishing
of the Building which are capital in nature, and any costs of a capital nature
including capital improvements, capital repairs, and capital tools as determined
under generally accepted accounting principles consistently applied;
14. expenses of Landlord in curing its defaults or performing work
expressly provided for in the Lease to be borne at Landlord's expense (including
work for other tenant(s) in the Building);
15. the costs of marketing and leasing the Building including leasing
commissions, advertising and other marketing costs, and legal, accounting and
other professional services relating to leasing in the Building; costs to
prepare space for occupancy by any tenants of the Building and for renovating,
planning, designing space for any tenants (including Tenant) pursuant to the
terms of a lease with such tenants or if otherwise at such tenants' expense.
16. Landlord's cost of electricity and other services sold to
tenants, including retail tenants, which services are not standard for the
Building or are not available to Tenant without the necessity of paying a
separate additional charge;
17. costs incurred by Landlord in exercising remedies against tenants
of the Building who violate terms of their leases;
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18. sums paid by Landlord for any indemnity, damages, late charges,
penalties or interest for late payments;
19. any costs incurred to remedy defects in the Building structure or
systems;
20. any employee salaries and other compensation and/or health
benefits or other such benefits for the personnel of Landlord or allocable to
other buildings;
21. costs of goods or services furnished by entities affiliated with
Landlord to the extent such costs exceed commercially reasonable standards;
22. costs of Landlord's general overhead and general administrative
expenses (individual, partnership or corporate, as the case may be), which costs
would not be chargeable to operating expenses of the Building under generally
accepted accounting principles consistently applied;
23. payments of principal, interest, ground rent or any other
financing or refinancing costs on any mortgages, deeds of trust, ground leases
or other encumbrances, whether secured or unsecured on the Building, or any
penalties or late charges relating thereto;
24. costs incurred by Landlord for compliance with Legal Requirements
relating to asbestos and other hazardous substances in the Building; and
25. except as otherwise specifically set forth herein, any other
expenses that in accordance with generally accepted accounting principles
consistently applied would not be considered maintenance, repair, safety,
management, security or operation expenses.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure which Landlord reasonably estimates has the effect of
reducing the expenses which would otherwise be included in Operating Expenses,
then the costs of such capital equipment or capital expenditure are to be
included in Operating Expenses for the calendar year in which the costs are
incurred and subsequent calendar years, on a straight-line basis, to the extent
that such items are amortized over such period of time as Landlord reasonably
estimates such savings or reductions in Operating Expenses are expected to equal
Landlord's costs for such capital equipment or capital expenditure, with an
interest factor equal to the Interest Rate at the time of Landlord's having made
said expenditure. If Landlord shall lease any items of capital equipment
designed to result in savings or reductions in expenses which would otherwise be
included in Operating Expenses, then the rentals and other costs paid pursuant
to such leasing shall be included in Operating Expenses for the calendar year in
which they were incurred.
If during all or part of any Escalation Year, including Landlord's
Base Operating Year, Landlord shall not furnish any particular item(s) of work
or service (which would otherwise constitute an Operating Expense hereunder) to
portions of the Building due to the fact that (i) such portions are not occupied
or leased, (ii) such item of work or service is not required or desired by the
tenant of such portion, (iii) such tenant is itself obtaining and providing such
item of work or service or (iv) for other reasons, then, for the purposes of
computing Operating Expenses, the amount for such item and for such period shall
be deemed to be increased by an amount equal to the additional costs and
expenses which would reasonably have been incurred during such period by
Landlord if it had at its own
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expense furnished such item of work or services to the greater of (i) 95% of
the rentable area in the Building or (ii) the number of square feet of
rentable area occupied by tenants in the Building during such period.
B. PAYMENTS - TAX ESCALATION (a) If Taxes payable in any
Tax Year shall exceed Landlord's Basic Tax Liability, Tenant shall pay as
Additional Rent an aggregate sum ("Tenant's Tax Payment") equal to Tenant's
Proportionate Share of the amount by which Taxes payable in such Tax Year
exceed Landlord's Basic Tax Liability. Tenant's Tax Payment shall be payable
in the same number of installments as Taxes are payable by Landlord and shall
be paid within twenty (20) days following rendition of a Landlord's Statement
which may not be issued more than thirty (30) days prior to the date upon
which the corresponding installment is due to the taxing authorities. If
there shall be any increase or decrease in Taxes for any Tax Year, whether
during or after such Tax Year, Landlord shall furnish a revised Landlord's
Statement(s) for such Tax Year and any payment thereunder shall be due and
payable within ten (10) days thereafter. Upon request of Tenant, Landlord
shall provide Tenant with a copy of the tax bill relating to the Landlord
Statement in question.
(b) If there shall be a decrease in Taxes in any Tax Year
(including any Tax Year falling wholly or partially within Landlord's Basic
Tax Liability), Landlord's Statement next following such decrease shall
include an adjustment for such Tax Year reflecting such decrease in Taxes
(less all costs and expenses, including counsel fees, incurred by Landlord in
connection with any application or proceeding to reduce such Taxes).
C. PAYMENTS - OPERATING ESCALATION. (a) During each
Escalation Year, Tenant shall pay a sum equal to Tenant's Proportionate Share
of the amount by which Operating Expenses for such Escalation Year exceed the
Operating Expenses for Landlord's Base Operating Year ("Tenant's Operating
Payment").
(b) Landlord may furnish to Tenant, prior to the
commencement of each Escalation Year, a written statement setting forth
Landlord's estimate of Tenant's Operating Payment for such calendar year, and
the method of calculation of Tenant's Operating Payment for such calendar
year, Tenant shall pay to Landlord on the first day of each month during such
calendar year an amount equal to one-twelfth (1/12th) of Landlord's estimate
of Tenant's Operating Payment for such calendar year, which estimate shall
not exceed 105% of Tenant's Operating Payment for the prior twelve month
period, unless Landlord shall provide reasonable evidence to support a higher
estimate. If, however, Landlord shall furnish any such estimate for a
calendar year subsequent to the commencement thereof, then (x) until the
first day of the month following the month in which such estimate is
furnished to Tenant, Tenant shall pay to Landlord on the first day of each
month an amount equal to the monthly sum payable by Tenant to Landlord under
this Section in respect of the last month of the preceding calendar year; (y)
promptly after such estimate is furnished to Tenant or together therewith,
Landlord shall give notice to Tenant stating whether the installments of
Tenant's Operating Payment previously made for such calendar year were
greater or less than the installments of the Tenant's Operating Payment to be
made for such calendar year in accordance with such estimate, and (i) if
there shall be a deficiency, Tenant shall pay the amount thereof within ten
(10) days after demand therefor, or (ii) if there shall have been an
overpayment, Landlord shall provide a credit to Tenant equal to the amount of
such excess against subsequent payments of Fixed Rent under this Lease; and
(z) on the first day of the month following the month in which such estimate
is furnished to Tenant, and monthly thereafter throughout the remainder of
such calendar year, Tenant
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shall pay to Landlord an amount equal to one-twelfth (1/12th) of Tenant's
Operating Payment shown on such estimate. Landlord may at any time or from
time to time furnish to Tenant a revised statement of Landlord's estimate of
Tenant's Operating Payment for such calendar year, based upon either of the
methods set forth in this Section for computing Tenant's Operating Payment;
and in such case, Tenant's Operating Payment for such calendar year shall be
adjusted and paid or refunded, as the case may be, substantially in the same
manner as provided in the preceding sentence.
(c) After the end of each calendar year Landlord shall
furnish to Tenant a Landlord's Statement for such calendar year, prepared in
accordance with generally accepted accounting principles consistently
applied, of Tenant's Operating Payment then in effect. The first Landlord's
Statement to be rendered hereunder shall also contain the method of
calculation for Landlord's Base Operating Year. Each such year end Landlord's
Statement for any calendar year in which Tenant's Operating Payment is due
shall be accompanied by a computation of Operating Expenses for the Building
prepared by an independent certified public accountant designated by Landlord
from which Landlord shall make the computation of Operating Expenses
hereunder. If the Landlord's Statement shall show that the sums paid by
Tenant under this Section exceeded Tenant's Operating Payment paid by Tenant
for such calendar year, Landlord shall provide a credit to Tenant equal to
the amount of such excess against subsequent payments of Fixed Rent under
this Lease; and if the Landlord's Statement for such calendar year shall show
that the sums so paid by Tenant were less than Tenant's Operating Payment
paid by Tenant for such calendar year, Tenant shall pay the amount of such
deficiency within ten (10) days after demand therefor.
(d) Upon reasonable notice to Landlord and not more often
than once per annum, Tenant's chief financial officer or other officers or
certified public accountants may audit the books and records of Landlord
pertaining to Operating Expenses then being disputed at such time and place
in the City of New York as Landlord may designate, provided that Tenant shall
keep in confidence all information obtained from such audit. Any such audit
shall be conducted by Tenant at its sole cost and expense.
D. Any Additional Rent under this Article for the calendar
year in which the Commencement Date or Expiration Date shall occur shall be
justly apportioned. In no event shall Fixed Rent ever be reduced by operation
of this Article.
E. Landlord's Statement shall be rendered to Tenant in
accordance with the provisions of Article 51 of this Lease. Landlord's
failure to render Landlord's Statements with respect to any such increase in
Taxes or Operating Expenses during any Tax Year or Operating Year shall not
prejudice Landlord's right to render a Landlord's Statement with respect
thereto or subsequently. The obligations of Landlord and Tenant under the
provisions of this Article shall survive for a period of two years following
the expiration of the applicable Tax Year or Escalation Year, as the case may
be.
F. Each Landlord's Statement shall be conclusive and
binding upon Tenant unless within one hundred eighty (180) days after receipt
of such Landlord's Statement Tenant shall notify Landlord that it disputes
the correctness of Landlord's Statement. Pending the determination of any
such dispute by agreement or otherwise, Tenant shall pay Additional Rent in
accordance with the applicable Landlord's Statement, and such payment shall
be without prejudice to Tenant's position. If Landlord and Tenant cannot
resolve such dispute within a reasonable period of time, then either party
may submit such dispute to arbitration in New York City in accordance with the
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then prevailing rules and regulations of the American Arbitration Association
(or successor thereto) and the ruling of the arbitrator appointed shall be
final and binding upon the parties hereto and shall be enforceable by a court
of competent jurisdiction. Landlord shall pay the fees of any arbitrator
appointed by Landlord, and Tenant shall pay the fees of any arbitrator
appointed by Tenant. The fees of the third arbitrator (if any) shall be paid
in equal shares by Landlord and Tenant. Landlord and Tenant shall each have
the right to appear and be represented by counsel before said arbitrators and
to submit such data and memoranda in support of their respective positions in
the matter in dispute as may be reasonably necessary or appropriate in the
circumstances; it being agreed that if a dispute as to whether such data or
memoranda are reasonable arises, a majority of the Arbitrators are hereby
authorized to resolve same.
HVAC:
39. A. AIR CONDITIONING OF PREMISES. 1. Landlord shall furnish
and distribute to that portion of the ninth floor comprising the Premises,
through the air conditioning unit presently existing therein (the "AC Unit"),
conditioned air on a seasonal basis from 8:00 A.M. to 6:00 P.M. on business
days and from 8:00 A.M. to 1:00 P.M. on Saturdays (collectively, "business
hours"), and shall furnish and install on the eighth floor comprising the
Premises, as part of Landlord's Work, air-cooled air conditioning units (the
"Air-cooled A/C Unit") (the Air-cooled A/C Units together with the A/C Unit
are collectively referred to as the "AC Units"), provided that the cost of
electricity consumed by the AC Units shall be borne by Tenant and,
accordingly, shall be measured by the electric meter serving the Premises,
and paid for pursuant to Article 41 hereof. Tenant acknowledges that Landlord
shall install a separate meter on the ninth floor solely to measure the
electricity consumed by the AC Unit (which AC Unit Tenant acknowledges serves
the entire ninth floor). Accordingly, Tenant shall pay to Landlord its pro
rata share of such electric charges as measured by such meter, which charges
shall be due within twenty (20) days following rendition of a bill therefor,
as Additional Rent. Landlord agrees to read the meter prior to usage of the
AC Unit by any tenant (including Tenant) on the ninth floor requesting
overtime airconditioning service. Tenant shall not be responsible for any
portion of such overtime air-conditioning charges relating to other tenants.
Tenant, at its sole cost and expense, shall have the right to install a
heating coil within any of the Air-cooled A/C Units. Tenant further agrees to
operate the AC Units in accordance with their design criteria unless a
recognized energy conservation law promulgated by any Federal, State, City or
other governmental or quasi-governmental bureau, board, department, agency,
office, commission or other subdivision thereof shall provide for any
reduction in operations below said design criteria in which case such
equipment shall be operated so as to provide reduced service in accordance
with such law.
2. Tenant shall promptly notify Landlord of any damage to,
or malfunction of, the AC Units. Tenant shall be responsible for the repair,
replacement and maintenance of the Air-cooled A/C Unit and Landlord shall be
responsible for the repair, replacement and maintenance of the AC Unit,
except that if the need therefor arises as a result of the negligence or
misuse by Tenant or Tenant's Agents, the same shall be repaired or replaced
by Landlord at Tenant's expense and Tenant shall pay the same to Landlord,
within twenty (20) days, as Additional Rent. Tenant agrees to keep in force
during the Term, a maintenance contract for the Air-cooled A/C Unit, using a
maintenance company first approved by Landlord, which approval shall not be
unreasonably withheld or delayed.
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3. The air conditioning and heating system shall provide
inside temperature of 75 degrees dry bulb, when outside temperature is 95
degrees dry bulb and 75 degrees wet bulb, and inside temperature of 72
degrees dry bulb when outside temperature is 5 degrees dry bulb
Notwithstanding the foregoing provisions of this Section, Landlord shall not
be responsible if the normal operation of the AC Units shall fail to provide
conditioned air in accordance with such specifications in any portion of the
Premises (a) which shall have an average demand load exceeding 6.0 watts per
square foot of rentable area for all purposes (including lighting and power
in the Premises but excluding that required for standard air conditioning) or
which shall have a human occupancy factor in excess of one (1) person per one
hundred (100) square feet of usable area, or (b) because of any rearrangement
of partitioning or other improvement made or performed by or on behalf of
Tenant or any person claiming through or under Tenant. Whenever the AC Unit
is in operation, Tenant agrees to cause all windows in the Premises to be
kept closed. Tenant shall cooperate fully with Landlord at all times and
abide by all regulations and requirements which Landlord may reasonably
prescribe for the proper functioning and protection of the AC Units.
4. If Tenant shall require conditioned air for the AC Unit
other than during 8:00 A.M. to 6:00 P.M. on business days and 8:00 A.M. to
1:00 P.M. on Saturdays ("after hours"), Landlord shall furnish conditioned
air upon advance notice from Tenant, given before 1:00 P.M. on any business
day, or by 1:00 P.M. on the Friday preceding any requested after hours
weekend service and Tenant shall pay Landlord's then established charges
therefor on Landlord's demand, as Additional Rent.
5. Subject to the provisions of Articles 3 and 52 hereof,
Tenant shall have the right to install, at Tenant's sole cost and expense, a
supplemental air-cooled air-conditioning unit (the "Supplemental Unit"), to
be located within the ninth (9th) floor portion of the Premises, which
Supplemental Unit may be vented from the most easterly window of the Premises
on the 18th Street side of the Building. Landlord hereby agrees that Tenant
shall not be required to remove the Supplemental Unit upon the expiration of
this Lease.
B. HEATING. 1. Landlord shall furnish and distribute to the
Premises through the Building heating system, which shall include, as part of
Landlord's Work, a cast iron radiator at each perimeter window, in accordance
with the foregoing specifications on a seasonal basis, from 8:00 A.M. to 6:00
P.M. on business days and from 8:00 A.M. to 1:00 P.M. on Saturdays. Landlord
and Tenant further agree to operate the heating equipment in accordance with
their design criteria unless otherwise required by any Legal Requirements.
2. If Tenant shall require heating services other than
during 8:00 A.M. to 6:00 P.M. on business days and 8:00 A.M. to 1:00 P.M. on
Saturdays ("after hours"), Landlord shall furnish after hours heating service
upon advance notice from Tenant, given before 1:00 P.M. on any business day,
or by 1:00 P.M. on the Friday preceding any requested after hours weekend
service and Tenant shall pay Landlord's then established charges therefor
upon Landlord's demand, as Additional Rent.
3. Notwithstanding the foregoing, Landlord shall not be
responsible if the normal operation of the Building heating system shall fail
to provide heat in accordance with the foregoing specifications in any
portion of the Premises because of any rearrangement of partitioning or other
improvements made or performed by or on behalf of Tenant or any person
claiming through or under Tenant.
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CLEANING/MISCELLANEOUS SERVICES:
40. A. CLEANING. Landlord shall furnish, at Landlord's
expense, the services of a licensed cleaning service to provide
Building-standard cleaning services to Tenant, in accordance with the
cleaning specifications set forth on Exhibit D hereto. Landlord reserves the
right to change cleaning contractors and to change or substitute such
service. If Tenant desires additional or other cleaning or janitorial
services in excess of those set forth on Exhibit D, Tenant agrees to use the
contractors approved by Landlord to provide cleaning or exterminating
services in the Building or contractor or contractors approved in advance for
any waxing, polishing, window cleaning and other maintenance work in the
Premises and/or with respect to Tenant's personal property therein.
Notwithstanding the foregoing, if the fees of the cleaning contractor
selected by Tenant (which cleaning contractor shall be comparable in size and
type to Landlord's contractor) shall be at least five (5%) percent less than
those of Landlord's cleaning contractor, then Landlord's consent to the
selection of Tenant's contractor shall not be unreasonably withheld or
delayed. Subject to the provisions of the previous sentence, Landlord
approves the use by Tenant, as of the date hereof, of Pritchard Industries,
Collins Building Services, and Initial Cleaning Services. Tenant agrees that
it shall not employ any other cleaning or other maintenance contractor nor
any individual, firm, or organization for such purpose without Landlord's
prior written consent. The foregoing shall not preclude Tenant or its
employees from performing any of the foregoing work.
2. If Tenant is permitted hereunder to and does have a
separate area for the storage, preparation, service or consumption of food or
beverages in the Premises, Tenant, at Tenant's expense, shall cause all
portions of the Premises so used to be cleaned daily in a manner satisfactory
to Landlord, and to be exterminated against infestation by vermin, roaches or
rodents regularly and, in addition, whenever there shall be evidence of any
infestation.
3. Tenant shall pay to Landlord on demand Landlord's
Building standard charges for removal from the Premises and the Building of
(i) so much of any refuse and rubbish of Tenant as shall exceed that normally
accumulated daily in the routine of ordinary business office occupancy and
(ii) all of the refuse and rubbish of Tenant's machines and of any eating
facilities requiring special handling.
B. ELEVATORS. 1. Landlord shall provide, at no cost to
Tenant, passenger elevator service in accordance with Article 28(a) hereof.
2. Tenant shall have access to the freight elevators
servicing the Premises on a first come, first served basis during business
hours on Monday through Friday at no charge.
3. In connection with the performance by Tenant of Tenant's
Work (hereinafter defined) to prepare the Premises for Tenant's initial
occupancy, Landlord shall provide Tenant, at no charge, with ten hours per
week of dedicated freight elevator use on Mondays through Fridays during
business hours only.
C. BUILDING SECURITY. Landlord shall cause there to be an
attendant in the Building twenty-four (24) hours a day, seven days per week.
D. ACCESS. Tenant shall have access to the Premises
twenty-four (24) hours a day, seven (7) days a week, subject to
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the reasonable security procedures of Landlord and the rules and regulations
for the Building.
E. LIFE SAFETY. Landlord shall comply with Legal
Requirements with respect to life safety requirements.
F. DIRECTORY LISTINGS. Tenant shall be entitled to receive
not less than fifteen (15) listings on the Building Directory. The initial
listings to be made hereunder shall be free of charge.
a. WINDOW CLEANING Landlord shall cause the interior and
exterior windows of the Premises to be cleaned at least three (3) times per
annum, at such times as Landlord shall elect.
ELECTRICITY:
41. (a) Electric energy shall be supplied to the Premises
on a submetering basis. If and so long as Landlord provides electricity to
the Premises on such basis, Tenant covenants and agrees to purchase the same
from Landlord or Landlord's designated agent at a base rate consisting of the
charges, terms and rates for like quantities and character of service in the
Consolidated Edison service classification in effect at the time said service
is used and under which the Landlord purchases service, plus a four and
one-half (4 1/2%) percent surcharge relating to administrative and overhead
expenses of Landlord in connection therewith. Landlord shall install and
maintain the meters in good working order, at Landlord's expense, except that
the cost of any repair, replacement or maintenance of the meters shall be
borne by Tenant if the need therefor arises as a result of the negligence of
Tenant or Tenant's Agents and shall be paid to Landlord, upon demand, as
Additional Rent. Where more than one meter measures the service of Tenant in
the Building, the service rendered through each meter may be computed and
billed separately in accordance with the rates herein. Bills therefor shall
be rendered at such times as Landlord may elect and the amount, as computed
from a meter, shall be deemed to be paid, and be paid as Additional Rent. If
any tax is imposed upon Landlord's receipt from the sale or resale of
electric energy or gas or telephone service to Tenant by any Federal, State
or municipal authority, Tenant covenants and agrees that, where permitted by
law, Tenant's Proportionate Share of such taxes shall be passed on to, and
included in the bill of, and paid by Tenant to Landlord.
(b) Subject to the representation in the succeeding
sentence, Tenant's use of electric current in the Premises shall not at any
time exceed the capacity of any of the electrical conductors, feeders or
risers and equipment in the Building or otherwise serving the Premises.
Landlord represents that the electrical risers serving the Premises shall be
capable of accommodating six (6.0) watts per rentable square foot demand
load, exclusive of that required for a 45 ton air-conditioning unit and
ventilation, with respect to the eighth floor comprising the Premises, and
exclusive of that required for standard air-conditioning, with respect to the
ninth floor comprising the Premises. In order to insure that such capacity is
not exceeded and to avert possible adverse effect upon the Building electric
service, Tenant shall not, without Landlord's prior written consent in each
instance, which consent shall not be unreasonably withheld or delayed,
connect any additional fixtures, appliances or equipment (other than lamps,
typewriters, personal computers, data terminals and similar office machines)
to the Building electric distribution system or make any alteration or
addition to the electric system of the Premises existing upon the
Commencement Date. Should Landlord grant such consent, Tenant shall pay for
all additional risers, or other equipment required
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therefor, which shall be installed by Landlord, as well as for the cost to
bring additional power to the Building electric distribution system, if
necessary, and of any additional switches to such Building electric
distribution system or other equipment necessary for the distribution of such
additional power, which costs shall be paid by Tenant upon Landlord's demand.
Landlord shall not be liable in any way to Tenant for any failure or defect
in the supply or character of electric current distributed to the Premises or
for any loss or damage or expense which Tenant may sustain or incur if either
the said supply or character of electric current either fails or changes or
is no longer available for Tenant's requirements, unless such failure is due
to the gross negligence or willful misconduct of Landlord. Tenant shall
purchase and install all lighting tubes, lamps, and bulbs used in the
Premises.
(c) If required by reason of law, Landlord shall have
the right to discontinue the distribution of electric current to Tenant in
the Premises at any time upon not less than thirty (30) days' written notice
to Tenant, provided contemporaneously therewith Landlord also discontinues
distributing electric current to at least eighty (80%) percent of the tenants
in the Building to whom Landlord shall then be providing such service. If
Landlord exercises such right of termination, this Lease shall continue in
full force and effect and shall be unaffected thereby except that Tenant's
liability for the portion of Fixed Rent for Landlord's supplying of
electricity as an additional service shall terminate as of the date of
discontinuance of the supplying of electric current. If Landlord so
discontinues distributing electric current to Tenant, Tenant shall make
application directly to the public utility corporation serving the area in
which the Building is located and Landlord shall permit its wires and
conduits, to the extent available and safely capable, to be used for such
purpose without charge, but any additional equipment or connections required
by said utility company shall be installed at Tenant's sole cost and expense.
Landlord hereby agrees that it shall not discontinue furnishing electricity
as provided above until Tenant shall have made its own arrangements with the
public utility to continue to supply electricity to the Premises, provided
Tenant shall diligently pursue obtaining said direct electricity.
(d) In the event that the electrical usage of Tenant
results in a surcharge in the payment of electric current for the area
occupied by Tenant pursuant to the schedules and rates of the public utility
supplying same, Tenant shall pay the amount of said surcharge to Landlord as
Additional Rent within twenty (20) days after bills for same are rendered to
Tenant.
DESIGNATED SUPPLIERS:
42. A. Only persons or firms authorized in writing by
Landlord shall be permitted to furnish bootblacking, plant care, food and
beverages, ice and other similar supplies and maintenance and other services
to tenants and occupants of the Building. Landlord may fix, in its absolute
discretion, at any time and from time to time, the hours during which and the
regulations under which such supplies and services are to be furnished.
Landlord expressly reserves the right to act as or to designate, at any time
and from time to time, an exclusive supplier of all or any one or more of
such supplies and services, provided that the quality thereof and the charges
therefor are reasonably comparable to that of other suppliers, and Landlord
expressly reserves the right to exclude from the Building any person, firm or
corporation attempting to furnish any of such supplies or services, but not
so designated by Landlord. However, Tenant and its regular office employees
may personally bring food
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or beverages into the Building for consumption within the Premises solely by
Tenant, its regular office employees and invitees. In all events, all food and
beverages shall be carried in closed containers.
B. Only persons or firms approved in writing by Landlord,
which consent shall not be unreasonably withheld or delayed, shall be permitted
to act as contractor or subcontractor for any work to be performed in accordance
with Article 3 of this Lease; provided, however, that only Landlord or any one
or more persons, firms or corporations approved in writing by Landlord, which
approval may be withheld in Landlord's sole discretion, shall be permitted to
perform such work in or on the electrical and life safety systems of the
Building. Upon request of Tenant, Landlord shall provide a list of at least
three (3) approved reputable independent contractors for each of such trades,
except for life safety for which Landlord will provide one independent reputable
contractor. In the event Tenant shall employ any contractor permitted by this
Section, such contractor and any subcontractor shall agree to employ only such
materials and such labor as will not result in labor disputes, strikes or
jurisdictional disputes with other contractors, mechanics, or laborers engaged
by Tenant, Landlord or others. Tenant, upon demand of Landlord, shall cause all
materials, contractors, mechanics or laborers causing such difficulty, strike or
dispute to leave or be removed from the Building immediately. Tenant will inform
Landlord in writing of the names of any contractor or subcontractor Tenant
proposes to use in the Premises at least ten (10) days prior to the beginning of
work by such contractor or subcontractor. During the performance by Tenant of
any Alterations, and subject to the rules and regulations of the Building
relating thereto, Tenant's contractors shall have unimpeded access to the
Premises.
BROKERAGE:
43. Landlord and Tenant represent to each other that in the
negotiation of this Lease neither has dealt with any broker or brokers other
than Cushman & Wakefield, Inc. and Newmark & Company Real Estate, Inc. Tenant
and Landlord hereby agree to indemnify and hold the other harmless from and
against any and all claims, liabilities, suits, costs and expenses including
reasonable attorneys' fees and disbursements arising out of any inaccuracy or
alleged inaccuracy of the above representation. Landlord shall have no liability
for any brokerage commissions arising out of a sublease or assignment by Tenant.
The provisions of this Article shall survive the expiration or sooner
termination of this Lease. Landlord shall pay to said brokers any commission
which may be due to them pursuant to the terms of separate agreements.
SUBLETTING AND ASSIGNMENT:
44. A. If Tenant desires to assign this Lease or sublet the
demised premises in whole or in part, Tenant shall submit to Landlord a written
request for Landlord's consent to such assignment or subletting, which request
shall contain or be accompanied by the following information: (i) the name and
address of the proposed assignee or subtenant; (ii) the terms and conditions of
the proposed assignment or subletting; (iii) the nature and character of the
business of the proposed assignee or subtenant and of its proposed use of the
demised premises; (iv) current financial information; (v) a description of the
proposed sublet space; and (vi) any other information as Landlord may reasonably
request with respect to the proposed assignee or subtenant, which request shall
be made within ten (10) days following Landlords receipt of the initial
information. If the
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proposed transaction is an assignment of the Lease (other than an assignment or
sublease pursuant to section 44G hereof) or a sublease for all or substantially
all of the Premises for all or substantially all of the Term, Landlord shall
have the option, to be exercised by notice given to Tenant within thirty (30)
days after the later of (a) receipt of Tenant's request for consent or (b)
receipt of such further information as Landlord may reasonably request pursuant
to clause (v) above either (x) to require a surrender of the Premises as of a
date to be specified in said notice (the "Termination Date") which shall be not
earlier than one (1) day before the effective date of the proposed assignment or
subletting or later than thirty-one (31) days after said effective date, in
which event Tenant shall vacate and surrender the demised premises on or before
the Termination Date and the term of this Lease shall end on the Termination
Date as if that were the Expiration Date, or (y) if the proposed transaction
(the "Transaction") is a sublease, to obtain a sublet from Tenant of the
Premises, including Tenant's leasehold improvements therein, upon the terms and
conditions hereinafter set forth as of a date to be specified in said notice
(the "Leaseback Date") which shall be not earlier than one (1) day before the
effective date of the proposed subletting or later than thirty-one (31) days
after said effective date, in which event Tenant shall deliver possession of the
Premises to Landlord on or before the Leaseback Date.
B. (a) If Landlord shall exercise its option, pursuant to
Section A above to lease back the demised premises, together with all leasehold
improvements made by Tenant therein (herein collectively called the "Leaseback
Area"), Tenant shall be deemed automatically to have subleased the Leaseback
Area to Landlord (herein sometimes called "Backleasing" or "Backlease") for the
remaining balance of the term (the "Backlease Term") at a rental rate equal to
the lesser of the Fixed Rent and Additional Rent under this Lease or the rate
under the Transaction, and otherwise on the same terms, covenants and conditions
as are provided in this Lease, except such as by their nature or purport are
inapplicable or inappropriate to such Backleasing or are inconsistent with the
further provisions of the following subsections, which shall be deemed to be
part of the terms, covenants and conditions of such Backleasing. In addition,
provided Tenant shall not be in default hereunder beyond the expiration of any
applicable grace periods, Landlord shall pay to Tenant, as and when the same
would have become due under the Transaction, fifty (50%) percent of any fixed
rent and additional rent to be paid pursuant to the Transaction in excess of the
Fixed Rent and Additional Rent payable by Tenant hereunder, after first
deducting therefrom the Sublet Expenses (hereinafter defined) which would have
been incurred by Tenant in connection with the Transaction, which Sublet
Expenses shall be deducted from the first monies which would have been collected
by Tenant pursuant to the Transaction.
(b) Landlord may, without Tenant's permission or consent,
underlet the Leaseback Area in whole or in part to any person or entity,
including Tenant's proposed subtenant, for any period or periods of time on such
terms and conditions as Landlord shall determine. The Backlease may be assigned
by Landlord without Tenant's consent. Tenant shall not be responsible for
furnishing to the Leaseback Area or the occupants thereof any services, but
shall only make available that which it receives from Landlord. Tenant shall
furnish to Landlord or its assignee or sub-subtenant under the Backlease any
consents or approvals requested under the Backlease so long as (a) Landlord
furnishes such consents or approvals to Tenant and (b) Tenant incurs no expense
by reason of any such consent or approval. Landlord shall indemnify and hold
Tenant harmless from and against all loss, cost and expense (including
reasonable attorneys' fees) which Tenant actually incurs arising from such
Backleasing. In
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addition, Landlord hereby agrees that a default by the tenant under the
Backlease shall in no event be deemed a default by Tenant hereunder. Landlord
and Tenant expressly negate any intention that any estate created by or under
the Backlease shall be merged with any other estate held by either of them. At
the request of either party, Landlord and Tenant shall mutually execute,
acknowledge and deliver an instrument or instruments of sublease and/or
assignment to confirm the demise, terms, conditions and other provisions of the
Backleasing.
C. If Landlord shall not exercise any of its options under
Section A above, or if the proposed sublease shall be for less than all or
substantially all of the Premises for less than all or substantially all of the
Term, then Landlord shall not unreasonably withhold or delay its consent to the
proposed assignment or subletting referred to in Tenant's notice given pursuant
to Section A above, provided that the following further conditions shall be
fulfilled:
(a) there shall be no advertisement or public communication
of any kind whatever relating to the proposed assignment or subletting which
mentions or refers to a rental rate (but Tenant may negotiate or consummate a
sublease at a lesser rate of rent) or to any other matter which directly or
indirectly might adversely reflect on the dignity or prestige of the Building,
it being agreed that listing the Premises with a broker shall not be deemed an
advertisement or public communication;
(b) the Lease shall not be assigned, and no space shall be
sublet to another tenant, or to a related corporation of any other tenant or to
any other occupant of the Building, if Landlord shall then have comparable space
in the Building available for rent;
(c) in the case of a subletting, the subletting shall be
expressly subject to all of the provisions of this Lease and the obligations of
Tenant hereunder and, without limiting the generality of the foregoing, the
sublease shall impose at least the same restrictions and conditions with respect
to use as are contained in Article 2 and shall include the following language:
"To induce Landlord to consent to this Sublease, Sublessee agrees that
if Landlord shall recover or come into possession of the Premises before the
expiration of the Master Lease, Landlord shall have the right to take over this
Sublease and to have it become a direct lease with Landlord in which case
Landlord shall succeed to all the rights of Sublessor hereunder. This Sublease
shall be subject to the condition that, notwithstanding anything to the contrary
in this Sublease, from and after the termination of the Master Lease, Sublessee
shall waive any right to surrender possession or to terminate this Sublease and,
at Landlord's election, Sublessee shall be bound to Landlord for the balance of
the term hereof and shall attorn to and recognize Landlord, as its landlord,
under all of the then executory terms of this Sublease, except that Landlord
shall not (i) be liable for any previous act, omission or negligence of
Sublessor, (ii) be subject to any counterclaim, defense or offset not expressly
provided for in this Sublease, which theretofore accrued to Sublessee, (iii) be
bound by any modification or amendment of this Sublease or by any prepayment of
more than one month's rent and additional rent which shall be payable as
provided in this Sublease, unless such modification or prepayment shall have
been approved in writing by Landlord, or (iv) be obligated to perform any
repairs or other work in the Premises beyond Landlord's obligations under the
Master Lease. Sublessee shall execute and deliver to Landlord any
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instruments Landlord may reasonably request to evidence and confirm such
attornment. Sublessee shall be deemed to have given a waiver of subrogation of
the type provided for in the Master Lease."
(d) any subletting will result in there being no more than
two (2) occupants on the eighth (8th) floor of the Premises and one (l) occupant
on the ninth (9th) floor of the Premises;
(e) the proposed assignee or subtenant shall not be a
person then negotiating with Landlord for the rental of any similar space in the
Building;
(f) Landlord shall be furnished with a duplicate original
of the sublease or assignment within ten (10) days after the date of its
execution;
(g) except with respect to an assignment or sublease
pursuant to Section 44G herein, Tenant shall pay to Landlord as Additional Rent
when received by Tenant, a sum equal to 50% of (x) any fixed rent and additional
rent or other consideration paid to Tenant by any assignee or subtenant which is
in excess of the Fixed Rent and Additional Rent then being paid by Tenant to
Landlord pursuant to the terms hereof, after first deducting therefrom the
reasonable and customary costs for brokerage, attorney, and advertising fees,
the cost of work to prepare the Premises for such sublessee, and any taxes
contemplated by Section 44H hereof (collectively, the "Sublet Expenses"), which
Sublet Expenses may be deducted from the first monies collected by Tenant prior
to paying Landlord its share of the net profits; and (y) any other profit or
gain realized by Tenant from any such assignment or subletting;
(h) there shall be no default by Tenant under this Lease
beyond the expiration of any applicable notice and/or grace period when
Landlord's consent to any such assignment or subletting is requested or upon the
commencement of the term of any such proposed assignment or sublease;
(i) the proposed assignee or sublessee is engaged in a
business, and shall use the Premises, in a manner which is in keeping with the
standards of the Building and its other tenancies;
(j) the proposed assignee or sublessee is a reputable
person or entity of good character and with sufficient financial worth as
reasonably determined by Landlord and Landlord has been furnished with
reasonable proof thereof;
(k) Tenant shall pay all of Landlord's reasonable
out-of-pocket costs and expenses in connection with such assignment or
subletting, including without limitation, costs of making investigations as
to the acceptability of a proposed subtenant or assignee; and
(l) Tenant shall confirm that Tenant's surrender
obligations under this Lease shall include restoring the eighth floor of the
Premises to a single tenanted floor, in substantially the same condition and
design existing prior to its conversion to a multitenanted floor.
D. No assignment of this Lease shall be binding upon
Landlord unless Tenant shall deliver to Landlord (a) a duplicate original
instrument of assignment in form and substance satisfactory to Landlord, duly
executed by Tenant, and (b) an agreement, in form and substance satisfactory to
Landlord, duly executed by the assignee, whereby the assignee shall
unconditionally assume observance and performance of all of the terms and
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conditions of this Lease on Tenant's part to be observed or performed.
E. If this Lease be assigned, whether or not in violation
of the terms of this Lease, Landlord may collect rent from the assignee. If the
demised premises or any part thereof be sublet or be used or occupied by anybody
other than Tenant, whether or not in violation of this Lease, Landlord may,
after default by Tenant and expiration of Tenant's time to cure such default, if
any, collect rent from the subtenant or occupant. In either event, Landlord may
apply the net amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of any
of the provisions of Article 11 or this Article, or the acceptance of the
assignee, subtenant or occupant as a tenant, or a release of Tenant from the
further performance by Tenant of Tenant's obligations under this Lease. The
consent by Landlord to an assignment, transfer, encumbering or subletting
pursuant to any provision of this Lease shall not in any way be considered to
relieve Tenant from obtaining the express prior consent of Landlord to any other
or further assignment, transfer, encumbering or subletting. The listing of any
name other than that of Tenant on any door of the demised premises or on any
directory or in any elevator in the Building, or otherwise, shall not operate to
vest in the person so named any right or interest in this Lease or the demised
premises. Tenant agrees to pay Landlord's reasonable attorneys' fees and
disbursements in connection with any proposed assignment of this Lease or any
proposed subletting of the demised premises or any part thereof, not to exceed
the sum of $1,000.00 in each instance. Neither any assignment of this Lease nor
any subletting, occupancy or use of the demised premises or any part thereof by
any person other than Tenant, nor any collection of rent by Landlord from any
person other than Tenant nor any application of any such rent as provided in
this Article shall, under any circumstances, relieve, impair, release or
discharge Tenant of its obligations fully to perform the terms of this Lease on
Tenant's part to be performed.
F. Subject to the provisions of Paragraph G hereof, (i) a
transfer (however accomplished, whether in a single transaction or in a series
of unrelated transactions) of stock (or any other mechanism such as the issuance
of additional stock, a stock voting agreement, or changes in class or classes of
stock) which results in a change of control of Tenant (or any subtenant), and
(ii) a transfer (by one or more transfers) of an interest in the distributions
of profits and losses of any partnership or joint venture (or any other
mechanism such as the creation of additional general partnership or limited
partnership interests) which results in a change of control of Tenant (or any
subtenant) shall be deemed an assignment of this Lease. For purposes of this
Article 44, the term "control" shall mean, (l) ownership or voting control,
directly or indirectly, of more than fifty (50%) percent of the outstanding
voting stock of a corporation or other majority equity interest if Tenant is not
a corporation, or (2) an interest which includes the ability to control the
management of the applicable entity, including without limitation, a general
partner interest.
G. Provided Tenant is not in default hereunder beyond the
expiration of any applicable notice and/or grace period, Tenant may, without
obtaining Landlord's consent:
(a) assign or transfer this Lease to a corporation or other
entity into which Tenant shall be merged or consolidated (a "successor entity"),
an entity which acquires all or substantially all of the assets, stock, or other
equity interest of Tenant (an "acquiring entity"), or an entity which controls,
is controlled by, or is under common control with Tenant (a "related entity"),
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(b) sublet the Premises of portion thereof to a related
entity; or
(c) permit a related entity to occupy any portion of the
Premises; provided that in all such cases: (i) Tenant shall not be in default
hereunder at the time of such sublet or assignment; (ii) the principal purpose
of such transfer or acquisition is not the acquisition of Tenant's interest in
this Lease and is not made to circumvent the provisions of this Article; (iii)
in the case of an assignment to a successor entity or acquiring entity, such
successor entity or acquiring entity has a net worth immediately following such
merger or acquisition computed in accordance with generally accepted accounting
principles at least equal to $5,000,000, it being agreed that if the net worth
of such successor or acquiring entity shall be less than $5,000,000, such
assignment or transfer shall be permitted provided Landlord shall have as
security hereunder, an amount equal to nine (9) months of the Fixed Rent payable
hereunder at the time of such assignment or transfer; (iv) in the case of an
assignment or subletting to a related entity, the rights granted to Tenant
pursuant to this Section G shall be for only so long as such assignee or
sublessee shall remain a related entity and at such time as such assignee or
sublessee shall no longer be a related entity the rights accorded to Tenant by
this Section G shall not apply and Tenant shall promptly comply with all of the
terms and conditions of this Article 44 with respect to such assignment or
subletting; (v) Landlord shall have been delivered, at least ten (10) days prior
to the effective date of such assignment or subletting, (l) in the case of an
assignment to a successor entity or acquiring entity, proof reasonably
satisfactory to Landlord of the net worth of such assignee or sublessee, or (2)
in the case of an assignment or subletting to a related entity, proof reasonably
satisfactory to Landlord that such assignee or sublessee is a related entity;
(vi) Landlord shall have been delivered, at least ten (10) days prior to the
effective date of such assignment or subletting, a duplicate original of the
assignment or sublease instrument; (vii) in the event of an assignment, Landlord
shall have been delivered, at least ten (10) days prior to the effective date of
such assignment, an instrument in form and substance satisfactory to Landlord,
duly execued by the assignee, in which such assignee assumes (as of the date of
such assignment) observance of and performance of, and agrees to be personally
bound by, all of the terms, covenants and conditions of this Lease on Tenant's
part to be performed; (viii) in the event of a subletting, Landlord shall have
received, at least ten (10) days prior to the effective date of such subletting,
an instrument in form and substance satisfactory to Landlord, duly executed by
the sublessee, in which such sublessee agrees that in the event of a termination
of this Lease, such sublessee shall, at Landlord's election, attorn to Landlord
upon all of the terms and conditions of this Lease or, at Landlord's election,
enter into a new lease with Landlord upon all of the then executory terms and
conditions of this Lease with respect to the premises so subleased; and (ix)
Landlord shall have received, at least ten (10) days prior to the effective date
of such assignment or subletting, an instrument in form and substance acceptable
to Landlord, duly executed by such assignee or sublessee, in which such assignee
or sublessee consents to the exclusive jurisdiction of the courts of New York
State and the Federal courts located in the County of New York, State of New
York.
H. If required by applicable law, Tenant shall complete,
swear to and file any questionnaires, tax returns, affidavits or other
documentation which may be required to be filed (a) with the New York State
Department of Taxation and Finance in connection with Article 31-B of the Tax
Law of the
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State of New York, (b) with the Commissioner of Finance of the City of New York
in connection with the New York City Real Property Transfer Tax and (c) with the
appropriate governmental agency in connection with any other tax which may now
or hereafter be in effect. Tenant further agrees to pay any amounts which may be
assessed in connection with any of such taxes and to indemnify Landlord against
and to hold Landlord harmless from any claims for payment of such taxes. The
provisions of this paragraph shall survive the expiration or sooner termination
of this Lease.
I. The provisions of this Article 44 (other than Section
44G) shall apply to permitted subtenants and assignees hereunder.
J. In connection with a sublease for the entire Premises
or for all of the eighth (8th) floor comprising the Premises, in either case for
the balance of the Term, which is consented to by Landlord, Landlord, upon
Tenant's request, shall, at Tenant's expense, furnish the sublessee under such
sublease with a recognition and non-disturbance agreement, in form and substance
reasonably acceptable to Landlord, pursuant to which Landlord, upon a
termination of this Lease, shall recognize the tenancy of such sublessee upon
all the terms and provisions of this Lease and not such sublease and at the
greater of (i) the fixed rent and additional rent under such sublease and (ii)
the Fixed Rent and Additional Rent payable hereunder; PROVIDED, HOWEVER, that
such subtenant shall deposit with Landlord as security an amount to be
reasonably determined by Landlord based upon the net worth of such subtenant at
the time of the attornment, and provided such sublessee then attorns to
Landlord.
ESTOPPEL
CERTIFICATE:
45. (a) Tenant shall at any time and from time to time upon not
less than ten (10) days' prior notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing setting forth the Rent Commencement
Date, the Expiration Date and the Fixed Rent and certifying (i) that this Lease
is unmodified and in full force and effect (or if there has been any
modification, that the same is in full force and effect as modified and stating
the modification), (ii) the dates to which the Fixed Rent and Additional Rent
have been paid in advance, if any, (iii) whether or not to the knowledge of
Tenant, Landlord is in default in performance of any of its obligations under
this Lease and, if so, specifying each such default of which Tenant may have
knowledge, (iv) whether there exist any offsets or defenses against enforcement
of any of the terms of this Lease upon the part of Tenant to be performed, and,
if so, specifying the same, and (v) such further information as Landlord may
reasonably request. Any such statement shall be binding upon Tenant and may be
relied upon by Landlord and by any prospective purchaser of the Real Property
and/or the Building or any part thereof or of the interest of Landlord in any
part thereof, by any mortgagee or prospective mortgagee thereof, by any lessor
or prospective lessor thereof, by any lessee or prospective lessee thereof, or
by any prospective assignee of any mortgage thereof.
(b) Landlord shall at any time and from time to time, upon
not less than ten (10) days' prior written notice from Tenant, execute,
acknowledge and deliver to Tenant a statement in writing setting forth the Rent
Commencement Date, the Expiration Date and the Fixed Rent, and certifying (i)
that this Lease is unmodified and in full force and effect (or if there has been
any modification that the same is in full force and effect as modified and
stating the modification), (ii) the dates to which the Fixed Rent and Additional
Rent have been paid in advance, if
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any (subject however to Landlord's right to (x) furnish a Landlord's Statement
for a prior period, or (y) bill Tenant for Additional Rent not theretofore
billed, and Tenant's obligation to pay the same in accordance with this Lease)
and (iii) whether or not to the knowledge of Landlord, Tenant is in default in
the performance of any of its obligations under this Lease, and if so,
specifying each default of which Landlord may have knowledge.
SUBORDINATION AND
ATTORNMENT:
46. A. This lease and all rights of Tenant hereunder are and
shall be subject and subordinate to (a) all present and future ground leases,
superior leases, and grants of term of the land on which the Building stands
("Land") and the Building or any portion thereof (collectively, the "Superior
Lease"), (b) all mortgages and building loan agreements, including leasehold
mortgages and spreader and consolidation agreements, which may now or hereafter
affect the Land, the Building or the Superior Lease and all advances made
thereunder (collectively the "Superior Mortgage"), and (c) all amendments,
modifications, supplements, renewals, substitutions, refinancings and extensions
of the Superior Lease and the Superior Mortgage and all spreaders and
consolidations of the Superior Mortgage. The subordination set forth in the
preceding sentence shall only be effective if the holder of any future Superior
Mortgage (a "Superior Mortgagee") or future Superior Lease (a "Superior Lessor")
shall grant to the named Tenant herein a so-called nondisturbance agreement or
recognition agreement, as the case may be, which shall be on such Superior
Mortgagee's or Superior Lessor's standard form which shall be in form reasonably
acceptable to Tenant and such Superior Mortgagee or Superior Lessor; subject,
however, to the provisions of subparagraph D below. Notwithstanding the
foregoing, Landlord shall have no obligation to deliver such nondisturbance or
recognition agreement for the benefit of the named Tenant herein if Tenant shall
be in default of any monetary obligation or material non-monetary obligation
hereunder beyond the expiration of any applicable notice and/or grace period.
The provisions of this Section shall be self-operative and no further instrument
of subordination shall be required. Tenant shall promptly execute and deliver,
at its own expense, any instrument, in recordable form if requested, that
Landlord, the Superior Lessor or the Superior Mortgagee may reasonably request
to evidence such subordination. The Superior Mortgagee may elect that this Lease
shall have priority over its Superior Mortgage and, upon notification by the
Superior Mortgagee to Tenant, this Lease shall be deemed to have priority over
such Superior Mortgage. If, in connection with the obtaining, continuing or
renewing of any Superior Mortgage, the Superior Mortgagee shall request
reasonable modifications of this Lease as a condition of such financing, Tenant
will not unreasonably withhold its consent thereto, provided such modifications
do not increase Tenant's obligations hereunder or adversely affect Tenant's
rights hereunder.
B. Landlord hereby notifies Tenant that this Lease may not be
voluntarily canceled or surrendered, or modified or amended so as to reduce the
rent, shorten the Term or adversely affect in any other respect to any material
extent the rights of Landlord hereunder nor may Landlord accept prepayments of
any installments of rent except for prepayments in the nature of security for
the performance of Tenant's obligations hereunder without the consent of each
Superior Mortgagee and Superior Lessor in each instance.
C. If any Superior Mortgagee or Superior Lessor or its
successors or assigns of the foregoing (collectively referred to as "Successor
Landlord") shall succeed to the rights
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of Landlord under this Lease, Tenant agrees, at the election and upon request of
any such Successor Landlord, to fully and completely attorn to and recognize any
such Successor Landlord, as Tenant's landlord under this Lease upon the then
executory terms of this Lease provided such Successor Landlord shall agree in
writing to accept Tenant's attornment. The foregoing provisions of this Section
shall inure to the benefit of any such Successor Landlord, shall apply
notwithstanding that, as a matter of law, this Lease may terminate upon the
termination of the Superior Lease, shall be self-operative upon any such demand,
and no further instrument shall be required to give effect to said provisions.
Nothing contained in this Section shall be construed to impair any right
otherwise exercisable by any such owner, holder or lessee.
D. In connection with the delivery of a non-disturbance
agreement as set forth above, Tenant must (a) provide to any such Superior
Lessor or Superior Mortgagee all such information as such Superior Lessor or
Superior Mortgagee may reasonably require within twenty (20) days following
request by Landlord, including without limitation, financial statements
certified by Tenant's certified public accountant, (b) execute, acknowledge and
return within twenty (20) days the form of non-disturbance or recognition
agreement provided by such Superior Lessor or Superior Mortgagee, and (c) pay
all of such Superior Mortgagee's or Superior Lessor's costs and such Superior
Mortgagee's or Superior Lessor's counsels' fees in connection with Tenant's
negotiation of such standard form of non-disturbance or recognition agreement
provided by any Superior Mortgagee or Superior Lessor. If Tenant does not
deliver any such requested financial information or execute the form of such
agreement provided by any Superior Mortgagee or Superior Lessor as described in
Section 46A above, Tenant acknowledges that Landlord shall have satisfied its
obligation pursuant to this Paragraph and the Lease shall be subordinate to such
Superior Mortgage or Superior Lease, notwithstanding anything herein to the
contrary.
NON-LIABILITY AND
INDEMNIFICATION:
47. A. Neither Landlord nor Landlord's agents, officers,
directors, shareholders, partners or principals (disclosed or undisclosed) shall
be liable to Tenant or Tenant's agents, employees, contractors, invitees or
licensees or any other occupant of the Premises for any injury to Tenant or to
any other person or for any damage to, or theft or other loss of, any of
Tenant's property or of the property of any other person, unless due to the
negligence of Landlord or Landlord's agents provided, however, that even if due
to any such negligence of Landlord or Landlord's agents, Tenant waives, to the
full extent permitted by law, any claim for consequential damages in connection
therewith and Landlord and Landlord's agents shall not be liable, to the extent
of Tenant's insurance coverage, for any loss or damage to any person or property
even if due to the negligence of Landlord or Landlord's agents. Any Building
employee to whom any property shall be entrusted by or on behalf of Tenant shall
be deemed to be acting as Tenant's agent with respect to such property and
neither Landlord nor Landlord's agents shall be liable for any loss of or damage
to any such property by theft or otherwise.
B. (a) Except to the extent due to the negligence of
Landlord or Landlord's Agents and subject to the provisions of Section 48B
hereof, Tenant hereby indemnifies and agrees to hold Landlord harmless from and
against any and all loss, cost, liability, claim, damage, fine, penalty and
expense including reasonable attorneys' fees and disbursements in connection
with or arising from (a) any default by Tenant in the
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performance or observance of any of the terms of this Lease, or (b) the use or
occupancy of the Premises by Tenant or any person claiming under Tenant (other
than for general office use), or (c) any acts, omissions or negligence of Tenant
or any such person, or the contractors, agents, employees, invitees or licensees
of Tenant or any such person, in or about the Premises or the Real Property.
Tenant shall pay to Landlord as Additional Rent, within ten (10) days following
rendition by Landlord to Tenant of bills or statements therefor, sums equal to
all losses, costs, liabilities, claims, damages, fines, penalties and expenses
referred to this Section.
(b) Except to the extent due to the negligence of
Tenant or Tenant's Agents and subject to the provisions of Section 48B hereof,
Landlord hereby indemnifies and agrees to hold Tenant harmless from and against
any and all loss, cost, liability, claim, damage, fine, penalty and expense,
including reasonable attorney's fees and disbursements, in connection with, or
arising from, any willful acts, omissions or negligence of Landlord or
Landlord's Agents in and about the Premises or the Real Property.
C. Notwithstanding anything to the contrary contained
herein, Tenant shall look only to Landlord's estate in the Real Property (or the
proceeds thereof) for the satisfaction of Tenant's remedies for the collection
of a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default by Landlord hereunder, and no other
property or assets of Landlord or its agents, directors, officers, shareholders,
partners or principals (disclosed or undisclosed) shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder or under law or Tenant's use or occupancy of the Premises or
any other liability of Landlord to Tenant.
D. The provisions of this Article shall survive the
expiration or sooner termination of this Lease.
INSURANCE:
48. A. Tenant, at its expense, shall maintain at all times
during the Term (a) "all risk" property insurance covering Tenant's property and
improvements and betterments to a limit of not less than the full replacement
cost thereof and (b) comprehensive general liability insurance covering personal
injury and property damage, with such limits as may reasonably be requested by
Landlord from time to time, but not less than $3,000,000 in respect to bodily
injury or death arising out of any one occurrence and $1,000,000 for property
damage. The policy or policies evidencing such insurance shall include Landlord
and such parties as Landlord shall designate as a named additional insured. The
limits of such insurance shall not limit the liability of Tenant. All policies
required to be maintained pursuant to the provisions of this Lease shall be
issued by an insurance company or companies having a Best's rating (or any
successor publication of comparable standing) of at least A/XIV and authorized
to do business in the State of New York. All policies required to be maintained
pursuant to the provisions of this Lease shall have a written undertaking from
the insurer to notify all insureds thereunder at least thirty (30) days prior to
cancellation thereof. Upon the execution of this Lease, Tenant shall deliver to
Landlord such fully paid for policies or certificates of insurance evidencing
any such policy. Such certificate or certificates of insurance shall
specifically have the indemnity clause referred to in Article 48 (B) typed
hereon evidencing that said "hold harmless" clause has been insured. Tenant
shall procure, maintain and place such insurance and pay all premiums and
charges therefor
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and upon failure to do so Landlord may, upon fifteen days' prior written notice
to Tenant, but shall not be obligated to, procure, maintain and place such
insurance or make such payments, and in such event the Tenant agrees to pay the
amount thereof, plus interest at the Interest Rate, to Landlord on demand and
said sum shall be in each instance collectible as Additional Rent on the first
day of the month following the date of payment by Landlord. During such times as
Tenant shall be performing any Alteration, Tenant shall carry or cause to be
carried (and shall provide Landlord with evidence thereof) (i) worker's
compensation insurance covering all persons employed in connection with the
Alteration in statutory limits, (ii) broad form comprehensive general liability
insurance including a completed operations endorsement with limits of liability
of not less than $1,000,000 combined single limit bodily injury and property
damage, (iii) builder's risk insurance, completed value non-reporting form,
covering all physical loss, in an amount reasonably satisfactory to Landlord,
(iv) an umbrella policy in amounts required by Landlord, which amounts shall be
commercially reasonable, and (v) such other insurance, and in such amounts as
shall become commercially reasonable for landlords of similar buildings to
require to protect Landlord's interest in the Premises and the Building from any
act or omission of Tenant's contractors and subcontractors. Tenant shall be
entitled to maintain all or any portion of the required insurance coverage under
a so-called "blanket policy", provided such policy shall in all respects comply
with this Article 48 and shall specify that the portion of the total coverage of
such policy allocable to the Premises is in the amounts required pursuant to
this Article 48. Tenant's failure to provide and keep in force the
aforementioned insurance shall be regarded as a material default hereunder
entitling Landlord to exercise any or all of the remedies provided in this Lease
in the event of Tenant's default.
B. Each party agrees to have included in each of its
insurance policies a waiver of the insurer's right of subrogation against the
other party during the term of this Lease or, if such waiver should be
unobtainable or unenforceable, (i) an express agreement that such policy shall
not be invalidated if the assured waives the right of recovery against any party
responsible for a casualty covered by the policy before the casualty or (ii) any
other form of permission for the release of the other party. If such waiver,
agreement or permission shall not be, or shall cease to be, obtainable from
either party's then current insurance company, the insured party shall so notify
the other party promptly after learning thereof, and shall use its best efforts
to obtain the same from another insurance company described herein. If such
policy shall be obtainable only at a premium over that chargeable without such
waiver, the party seeking such policy shall notify the other thereof, and the
party in whose favor the waiver is desired shall pay the additional premium.
Each party shall look first to any insurance in its favor before making any
claim against the other party, and each party hereby releases the other party,
with respect to any claim (including a claim for negligence) which it might
otherwise have against the other party, for loss, damage or destruction with
respect to its property occurring during the term of this Lease to the extent to
which it is, or is required to be, insured under a policy or policies containing
a waiver of subrogation or permission to release liability, as provided n the
preceding subdivision so this Section. Nothing contained in this Section shall
be deemed to relieve either party of any duty imposed elsewhere in this Lease to
repair, restore or rebuild.
C. During the Term, Landlord agrees to maintain in full
force and effect (a) all-risk property insurance for the Building with a
replacement cost endorsement and agreed value endorsement and (b) public
liability insurance with limits
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generally maintained by prudent owners of comparable buildings to the
Building located in Manhattan.
REPEATED DEFAULTS:
49. Intentionally Deleted.
TRANSFER AFTER BANKRUPTCY:
50. A. To the extent permitted by applicable law, if this
Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 ET SEQ. (the "Bankruptcy Code"), any
and all consideration payable or otherwise to be delivered in connection with
such assignment shall be paid or delivered to Landlord, shall be and remain
the exclusive property of Landlord and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.
B. If Tenant assumes this Lease and proposes to assign
the same pursuant to the provisions of the Bankruptcy Code to any person or
entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to Tenant then notice of such proposed assignment,
setting forth (i) the name and address of such person, (ii) all of the terms
and conditions of such offer, and (iii) the adequate assurance to be provided
Landlord to assure such person's future performance under this Lease,
including, without limitation, the assurance referred to in Section 365(b)(3)
of the Bankruptcy Code, shall be given to Landlord by Tenant no later than
twenty (20) days after receipt by Tenant but in any event no later than ten
(10) days prior to the date that Tenant shall make application to a court of
competent jurisdiction for authority and approval to enter into such
assignment and assumption, and Landlord shall thereupon have the prior right
and option, to be exercised by notice to Tenant given at any time prior to
the effective date of such proposed assignment, to accept an assignment of
this Lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such person, less any brokerage
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease.
NOTICES:
51. Every notice (other than rent bills), demand, consent,
approval, request or other communication (collectively, "notices") which may
be or is required to be given under this Lease or by law shall be in writing
and shall be sent either (a) by United States certified or registered mail,
postage prepaid, return receipt requested, or (b) by overnight courier or
hand delivery (against confirmation of delivery or rejection of delivery),
and shall be addressed:
A. if to Landlord, to:
B.J.W. Associates
c/o Winter Management Corp.
641 Lexington Avenue
New York, New York 10022
Attention: General Partner
B. if to Tenant, prior to the Rent Commencement Date to:
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Louis Harris and Associates, Inc.
630 Fifth Avenue
New York, New York
Attention: President
and following the Rent Commencement Date notices to Tenant shall be sent to
the Premises, Attention: President and the same shall be deemed delivered (A)
on three (3) business days after deposited in the United States mail, (B) the
day following delivery to an overnight courier or (C) when delivered by hand.
A copy of any notice to Landlord shall also be delivered to Landlord's
counsel, Richards & O'Neil, 885 Third Avenue, New York, New York 10022,
Attention: Kenneth L. Sankin, Esq. and a copy of any default notice to Tenant
shall be sent to Thomas L. Chapple, Esq., General Counsel, Gannett Co., Inc,
1100 Wilson Blvd., Arlington, VA 22334. A notice given by counsel for
Landlord or Tenant shall be deemed a valid notice if addressed and sent in
accordance with the provisions of this Article. Either party may designate,
by similar written notice to the other party, any other address for such
purposes Each of the parties hereto waives personal or any other service
other than as provided for in this Article. Notwithstanding the foregoing,
either party hereto may give the other party facsimile notice of the need of
emergency repairs. Notices requesting after hours services pursuant to
Article 39 may be given by delivery to the Building Manager or any other
person in the Building designated by Landlord to receive such notices.
ALTERATIONS:
52. A. (a) Supplementing the provisions of Article 3,
Tenant shall make no improvements, changes or alterations in or to the
Premises ("Alterations" or "Alteration") without Landlord's prior written
approval, which consent shall not be (A) required with respect to painting
and decorative changes or to any changes costing less than $50,000, or (B)
unreasonably withheld or delayed with respect to any other changes or
Alterations, provided that, in both instances, such alterations do not affect
the structure of the Building or Building Systems and Tenant shall first
notify Landlord of such Alterations or changes. Before proceeding with any
Alteration (other than painting, decorating, wall covering or carpeting,
provided Tenant shall otherwise be in compliance with this Article and
provided further that Tenant shall provide Landlord with notice thereof),
Tenant shall obtain Landlord's approval of the plans and specifications for
the work to be done, which shall include a scheduled completion date, and
Tenant shall not proceed with such work until it obtains Landlord's written
approval of such work, plans and specifications, which approval shall be
given or withheld within fifteen (15) days following Tenant's request
therefor. Landlord's failure to respond within said fifteen (15) day period
shall be deemed to constitute Landlord's approval thereof. Landlord's
approval of the plans and specifications shall not be deemed a representation
that the Alteration is in compliance with Legal Requirements. If any Superior
Mortgagee or Superior Lessor shall not approve such Alteration, Landlord
shall have the right to withhold its consent to such Alteration.
(b) Tenant shall pay to Landlord within thirty (30)
days following request therefor, as Additional Rent, Landlord's reasonable,
actual out-of-pocket costs and expenses (including, without limitation, the
fees of any architect or engineer employed by Landlord or any Superior Lessor
or Superior Mortgagee for such purpose) for (i) reviewing said plans and
specifications and (ii) inspecting the Alterations.
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B. (a) Before proceeding with any Alteration (other
than Tenant's Work) estimated to cost in excess of $100,00000, Tenant shall
furnish to Landlord one of the following (as selected by Tenant): (i) a cash
deposit or (ii) a performance bond and a labor and materials payment bond
(issued by a corporate surety licensed to do business in New York reasonably
satisfactory to Landlord), or (iii) an irrevocable, unconditional, negotiable
letter of credit, issued by and drawn on a bank or trust company which is
reasonably acceptable to Landlord in a form reasonably satisfactory to
Landlord; each in an amount equal to one hundred twenty-five (125%) percent
of the estimated cost of the Alteration.
(b) Upon (i) the completion of the Alteration in
accordance with the terms of this Article and (ii) the submission to Landlord
of reasonable proof evidencing the payment in full for said Alteration
including, but not limited to, delivery of Waivers of Mechanic Liens (as
defined below), the security deposited with Landlord (or the balance of the
proceeds thereof, if Tenant has furnished cash or a letter of credit and if
Landlord has drawn on the same) shall be returned to Tenant.
(c) Upon the Tenant's failure to properly perform,
complete and fully pay for the said Alteration, as reasonably determined by
Landlord, Landlord, upon prior notice to Tenant, shall be entitled to draw on
the security deposited under this Article and Article 33 to the extent it
reasonably deems necessary to complete any incomplete or otherwise hazardous
Alteration, to effect any necessary restoration and/or protection of the
Premises or the Real Property and to apply such funds to the payment or
satisfaction of any costs, damages or expenses in connection with the
foregoing and/or Tenant's obligations under this Article and the Lease
relating to Alterations and repairs, including the satisfaction of any
mechanic's lien.
C. Tenant may, at its sole cost and expense, and
subject to the provisions hereof, install an internal staircase between the
floors comprising the Premises, provided such alteration shall be performed
in accordance with all applicable provisions of this Lease. Tenant shall
provide Landlord with complete approved plans and specifications for such
staircase, it being agreed that the location (with respect solely to
structural and Building system issues, Landlord hereby agreeing in concept to
the location shown on the Plans), design, engineering and demolition work
relating to the installation thereof shall be subject to review and approval
by Landlord and its engineers. Landlord hereby agrees that Tenant shall not
be required to remove such staircase upon the expiration of this Lease,
except that if Tenant shall ever sublet all or any portion of the ninth (9th)
floor comprising the Premises or all or substantially all of the eighth (8th)
floor comprising the Premises, Tenant shall be obligated, at its sole cost
and expense, to remove the staircase and restore the damage caused thereby,
which shall include, but not be limited to, closing the slab between the 8th
and 9th floors to its original condition.
D. If in connection with any Alterations Tenant shall
hire the services of any contractor or construction manager, Tenant shall
enter into an agreement with such party which shall provide that such
contractor or construction manager, as well as all subcontractors,
materialmen and suppliers hired in connection therewith (all of the foregoing
known collectively as the "Contractors"), shall upon receiving any payment
respecting such Alterations deliver to Tenant a duly executed Waiver of
Mechanic's Lien evidencing payment in full for the cost of work, labor and/or
services theretofore furnished. Said Waivers of Mechanic's Lien shall name
the Landlord and Tenant as the beneficiaries of such Waivers and shall be in
a form reasonably acceptable to Landlord. Prior to the commencement of any
Alter-
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actions, a form of the Waiver of Mechanic's Lien to be given by each such
Contractor must be approved by Landlord, which approval shall not be
unreasonably withheld or delayed.
E. All Alterations shall be performed by Tenant in
compliance with the Rules and Regulations, all applicable requirements of
insurance bodies, and with Legal Requirements and the same shall be
diligently performed in a good and workmanlike manner.
LANDLORD'S WORK:
53. Landlord shall not be required to perform any work to
the Premises other than as set forth in Exhibit C annexed hereto ("Landlord's
Work"), which shall be performed in a good and workmanlike manner and in
accordance with all Legal Requirements.
LANDLORD'S CONTRIBUTION:
54. A. Landlord shall make a contribution ("Landlord's
Contribution") in the amount of sums expended by Tenant on Tenant's initial
permanent leasehold improvements in the Premises ("Tenant's Work"), but in no
event greater than $727,500.00. Tenant represents that a portion of
Landlord's Contribution shall be used by Tenant to install a bathroom within
the Premises, which shall be in compliance with Legal Requirements. No more
than twenty percent (20%) of Landlord's Contribution may be used for Soft
Costs (as hereinafter defined). Such Landlord's Contribution shall be made in
Pro Rata Installments (hereinafter defined) within ten (10) days following
Tenant's request for payment, but in no event more than once per month, and
shall be given to Tenant upon satisfaction of the following conditions with
respect to each such request for payment:
(i) Tenant shall have delivered to Landlord a completed
requisition for payment, signed and certified as true by Tenant and by
Tenant's architect, stating the amount requested for payment, which shall
include an itemized breakdown of the costs and expenses for which payment is
requested by Tenant, stating the percentage of Tenant's Work that has been
completed, and shall indicate a minimum of ten (10%) percent retainage of
payments by Tenant to its contractors (it being understood that any request
for payment hereunder shall not be on account of such required retainage,
unless such retainage is payable as hereinafter set forth), accompanied by
copies of invoices, bills or receipts (or other evidence reasonably
satisfactory to Landlord) for the costs with respect to which such request
for payment is being made;
(ii) such Tenant's Work shall have been completed in
accordance with plans and specifications approved by Landlord and otherwise
in accordance with the Lease and such completion shall be certified by Tenant
and Tenant's architect;
(iii) Tenant shall not be in default under the Lease beyond
the expiration of any applicable notice and or grace period; and
(iv) Tenant shall have fully paid all bills (other than those
for which payment is then being requested) for labor, materials and services
in connection with Tenant's Work performed through such request for payment,
and Tenant shall provide Landlord with (i) satisfactory evidence of payment
thereof, including paid bills and canceled checks, and (ii) executed lien
waivers from all contractors and subcontractors respecting work
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performed (other than those for which payment is then being requested).
B. One half of the final Pro Rata Installment, which shall
not be less than 5% of Landlord's Contribution, shall not be paid until
satisfaction of the provisions above, and the remaining 5% of Landlord's
Contribution shall not be paid until Tenant provides Landlord with evidence
that the applicable municipal department has issued the appropriate sign-offs
relating to Tenant's Work, it being agreed that if Tenant cannot then deliver
the sign-offs relating to sprinkler and fire alarm systems, Landlord may
withhold $10,000 from the last 5% of Landlord's Contribution until such
sign-offs are obtained and delivered to Landlord.
C. "Pro Rata Installments" shall mean the cost of the
portion of Tenant's Work performed multiplied by a fraction, the numerator of
which is Landlord's Contribution and the denominator of which is the total
cost of Tenant's Work, as reasonably estimated by Landlord based upon
information, plans and construction contracts given by Tenant to Landlord.
D. The term "Soft Costs" shall mean any amounts paid by
Tenant in connection with Tenant's Work attributable to architect, attorney,
engineering, permit and filing fees, the cost of Tenant's telephone system
for the Premises and moving expenses relating to the initial occupancy of the
Premises.
E. During the performance of Tenant's Work, Tenant shall
not be responsible for the costs of any services supplied to the Premises
other than electricity, as measured by the submeter(s), and any overtime
services requested by Tenant.
RENEWAL OPTIONS:
55. A. Provided Tenant is not in default under any of the
terms of this Lease beyond the expiration of any applicable notice and/or
grace period at the time of the exercise of this option or at the time of the
commencement of the First Renewal Term or the Second Renewal Term, as the
case may be (as hereinafter defined), Tenant shall have the right to renew
the original term of this Lease ("Original Term") with respect to the entire
Premises demised hereunder or with respect to all of the space on the eighth
floor comprising the Premises, provided the named Tenant herein (or any
entity identified in Section 44G hereof) shall be in occupancy of not less
than all of the eighth floor, for two (2) periods of five (5) years each, the
first such Renewal Term (the "First Renewal Term") to commence on the day
following the expiration of the Original Term (the "First Renewal Term
Commencement Date") and expiring on the day immediately prior to the fifth
anniversary of the First Renewal Term Commencement Date and the second such
Renewal Term (the "Second Renewal Term") commencing on the fifth anniversary
of the First Renewal Term Commencement Date and expiring on the day
immediately preceding the tenth (10th) anniversary of the First Renewal Term
Commencement Date. Each such Renewal Term shall be upon the same terms as in
this Lease (including the provisions of Articles 38 and 41), except that (i)
the Fixed Rent during the each Renewal Term shall be determined as provided
in Paragraph C of this Article, (ii) Tenant shall have no right to renew the
term of this Lease for any period beyond the Second Renewal Term, (iii)
Landlord's Basic Tax Liability and Landlord's Base Operating Year shall be
modified to reflect the then current fiscal or calendar year, as the case may
be, and (iv) the terms of this Lease relating to the Abatement Period,
Landlord's Work and Landlord's Contribution shall not be applicable to either
Renewal Term. If Tenant so elects to renew the Term of this Lease for either
Renewal Term, Tenant shall give written notice
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("Tenant's Notice") to Landlord of such election no later than twelve months
prior to the commencement of the respective Renewal Term. Upon Landlord's
receipt of Tenant's Notice, this Lease, subject to the provisions of this
Article shall be automatically extended for the Renewal Term then applicable
(it being understood that Tenant shall only be entitled to exercise the
option for the Second Renewal Term if Tenant has effectively exercised the
option for the First Renewal Term), with the same force and effect as if such
Renewal Term had been originally included in the Term.
B. As used herein:
(a) the term "FMV" shall mean the annual fair market
rental value of the Premises in its condition on the Rent Appraisal Date.
(b) the term "Rent Appraisal Date" shall mean the
commencement date of the First Renewal Term or the Second Renewal Term, as
the case may be.
C. If Tenant elects to renew the Term of this Lease for
either Renewal Term, the Fixed Rent for such Renewal Term shall be 95% of the
FMV.
D. The FMV shall be determined by the mutual written
agreement of Landlord and Tenant. In the event that Landlord and Tenant shall
not have reached mutual agreement as to the FMV no later than twelve months
prior to the applicable Rent Appraisal Date, then Landlord and Tenant each
shall, no later than two months thereafter select a Real Estate Appraiser, as
hereinafter defined. If either party shall fail to so appoint a Real Estate
Appraiser, the one Real Estate Appraiser so appointed shall proceed to
determine the FMV. In the event that the Real Estate Appraisers selected by
Landlord and Tenant agree as to the FMV, said determination shall be binding
on Landlord and Tenant. In the event that the Real Estate Appraisers selected
by Landlord and Tenant cannot agree as to the FMV no later than eight months
prior to the applicable Rent Appraisal Date, then said Real Estate Appraisers
shall jointly select a third Real Estate Appraiser, provided that if they
cannot agree on the third Real Estate Appraiser no later than seven months
prior to the applicable Rent Appraisal Date, then said third Real Estate
Appraiser shall be selected in accordance with the rules prescribed by the
American Arbitration Association in New York, New York (or any successor
thereto). The FMV shall then be determined by the third Real Estate Appraiser
no later than six months prior to the applicable Rent Appraisal Date, and
said determination shall be binding on Landlord and Tenant. The term "Real
Estate Appraiser" shall mean a fit and impartial person having not less than
ten (10) years' experience as an appraiser of leasehold estates relating to
first class mid-town south Manhattan office buildings and in addition, shall
have had experience appraising leasehold estates in the vicinity of the
Building. The appraisal shall be conducted in accordance with the provisions
of this Section and, to the extent not inconsistent herewith, in accordance
with the prevailing rules of the American Arbitration Association in New York
(or any successor thereto). The final determination of the Real Estate
Appraiser(s) shall be in writing and shall be binding and conclusive upon the
parties, each of which shall receive counterpart copies thereof. In rendering
such decision the Real Estate Appraiser(s) shall not add to, subtract from or
otherwise modify the provisions of this Lease. The reasonable fees and
expenses of the third Real Estate Appraiser shall be borne equally by
Landlord and Tenant, and each party shall be responsible for the fees and
expenses pf the Real Estate Appraiser selected by such party. Tenant's share
of the fees and expenses of the third Real Estate Appraiser shall be
considered
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Additional Rent hereunder and shall be payable by Tenant within thirty (30)
days of Landlord's written request thereafter. In determining the FMV, the
Real Estate Appraiser(s) shall consider the effect of the other terms and
conditions of this Lease and the fact that the Premises will be leased in
their then "as-is" condition. Instructions to such effect shall be given to
the Real Estate Appraisers. If by the commencement of a Renewal Term the
Fixed Rent pursuant to this Section shall not have been determined by the
Real Estate Appraiser(s), Tenant shall pay Fixed Rent hereunder until such
determination is made at the rate then paid by Tenant for the Premises for
such period, subject to adjustment upon determination of such Fixed Rent
whether by appraisal by the Real Estate Appraiser(s) as hereinabove provided
or by agreement of Landlord and Tenant. Upon such determination, Tenant shall
promptly pay to Landlord any underpayment of Fixed Rent and, in the event of
any overpayment of Fixed Rent during such period, Landlord shall credit the
amount of such overpayment of Fixed Rent against the payments of Fixed Rent
next coming due until such time as the overpayment has been fully credited to
Tenant.
E. The Fixed Rent to be paid during each Renewal Term
shall be the Fixed Rent for such Renewal Term, as determined pursuant to
Paragraph C hereof.
F. Nothing in this Article shall affect Tenant's
obligations to pay Additional Rent under this Lease except that during each
Renewal Term the terms "Landlord's Basic Tax Liability" and "Landlord's Base
Operating Year" shall be modified to reflect the current fiscal or calendar
year, as the case may be, on the commencement date of such Renewal Term.
G. In the event that Tenant exercises its option in
respect of a Renewal Term in accordance with this Article, the term "Term"
shall mean the Original Term as extended for the Renewal Term, and the term
"Expiration Date" shall mean the date of expiration of such Renewal Term.
H. Any termination, cancellation or surrender of this
Lease shall terminate any right of renewal for the Renewal Terms.
I. Upon the determination of the Fixed Rent for a
Renewal Term, Landlord and Tenant, upon the demand of either of them, shall
enter into a supplementary agreement, to set forth such Fixed Rent.
J. Time shall be of the essence with respect to the
exercise by Tenant of its options under this Article.
RIGHT OF FIRST OFFER FOR ADDITIONAL SPACE:
56. A. If at any time during the Original Term any space on
the ninth (9th) floor of the Building shall become available for leasing (the
"Additional Space"), then Landlord shall deliver to Tenant a notice
indicating the principal business terms on which Landlord is willing to so
lease such Additional Space, which offer shall also indicate the date on
which the Additional Space shall be available for occupancy by Tenant (the
"Additional Space Commencement Date"). For a period of fifteen (15) days
following delivery of such notice to Tenant, Landlord agrees to negotiate in
good faith with Tenant for the lease of such Additional Space, unless Tenant
waives such requirement in writing.
B. In the event Landlord and Tenant shall have failed
to enter into a written agreement (or amendment to this
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Lease) to lease the Additional Space within such fifteen (15) day period for
any reason whatsoever, then (i) Tenant shall be deemed to have rejected
Landlord's offer to lease such Additional Space, and (ii) Landlord shall have
no further obligations to Tenant under this Article with respect to such
Additional Space, until such Additional Space shall again be made available
for leasing, in which case the provisions of this Article shall again apply.
Tenant agrees to keep all information regarding Landlord's intentions
relating to the Additional Space in strict confidence.
C. In the event Landlord and Tenant shall have entered into a
written agreement (or amendment to this Lease) for the lease of any
Additional Space in accordance with the terms of this Article, then effective
for a period from the Additional Space Commencement Date until the Expiration
Date, such Additional Space shall automatically be added to and from a part
of the Premises with the same force and effect as if originally demised
hereunder.
D. If Landlord is unable to give possession of any Additional
Space on the Additional Space Commencement Date, for any reason whatsoever,
Landlord shall have no liability to Tenant therefor and the validity of this
Lease shall not be impaired under such circumstances, nor shall the same be
construed in any way to extend the Term, but the rent payable for the
Additional Space shall be abated (provided Tenant is not responsible for the
inability to obtain possession) until Landlord shall have delivered
possession of such Additional Space to Tenant. The provisions of this Article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
E. The termination, cancellation or surrender of this Lease shall
terminate any rights of Tenant pursuant to this Article.
F. The rights of Tenant under this Article are expressly subject
to any and all rights of existing tenants of the Building under their
respective leases with Landlord to lease any Additional Space
G. Time shall be of the essence with respect to the exercise by
Tenant of its rights set forth in this Article.
TENANT'S ROOF RIGHTS
57. A. Landlord agrees that, subject to all Legal Requirements,
and further subject to the conditions and limitations hereinafter stipulated,
during the term of this Lease, Tenant, at Tenant's sole cost and expense, but
at no charge to Landlord, may install on a portion of the rooftop, the
location of which shall be determined by Landlord, a satellite dish, together
with such other communication equipment as Tenant shall deem necessary
(collectively, the "Equipment"), provided and on condition that: (i) the
Equipment shall be confined to a square portion of the rooftop, the location
of which to be mutually agreed to by Landlord and Tenant, not exceeding ten
feet by ten feet and shall not disturb the architectural and structural
integrity of the Building and roof; (ii) the installation and position of
such satellite dish and reasonably required support structures shall comply
with all applicable Legal Requirements; (iii) the installation of any
electrical or communications lines ("Wiring") and related equipment in
connection with the installation and operation of the Equipment, as well as
the manner and location (i.e., routing) of all Wiring and related equipment
in connection therewith shall (A) be at Tenant's sole cost and expense, (B)
be subject to Landlord's prior consent which shall not be unreasonably
withheld or delayed, and (C) comply with all applicable Legal Requirements;
and (iv) the Equipment, reasonably required support structures, Wiring and
related equipment shall be maintained and kept in good repair by Tenant, at
Tenant's sole cost and expense. The parties agree that Tenant's use of the
rooftop of the Building is a nonexclusive use and Landlord may permit the use
of any other portion of the roof to any other person, firm or corporation,
including Landlord, for any use including the installation of other satellite
dishes and support equipment.
B. For the purpose of installing, servicing or repairing the
Equipment and related equipment, Tenant shall have access to the rooftop of
the Building upon prior reasonable request of Landlord. All access by Tenant
to the roof of the Building shall be subject to the supervision
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and control of Landlord and to Landlord's reasonable safeguards for the
security and protection of the Building, the Building equipment and
installations and equipment of other tenants of the Building as may be
located on the roof of the Building. Landlord shall have the right to assign
a Building representative to be present during the duration of Tenant's
access to the rooftop.
C. Tenant, at Tenant's sole cost and expense, shall secure and
thereafter maintain all permits and licenses required for the installation
and operation of the Equipment and any support structures and related
equipment erected or installed by Tenant pursuant to the provisions of this
Article 57, including, without limitation, any approval, license or permit
required from the Federal Communications Commission. Tenant also agrees to
advise its insurance carrier of the existence of the Equipment and cause said
satellite dish to be properly insured hereunder.
D. Tenant agrees that Landlord shall not be required to provide
any services whatsoever to the rooftop of the Building, it being understood
that Tenant shall be responsible for connecting the Equipment to an
electrical source.. Tenant agrees that Tenant will pay for all electrical
service required for Tenant's use of the Equipment, including without
limitation, the installation and maintenance of electric meters, and related
equipment erected or installed by Tenant pursuant to the provisions of this
Article 57 in accordance with Article 41 of this Lease.
E. The Equipment, support structures and related equipment
installed by Tenant, pursuant to the provisions of this Article 57 shall be
Tenant's personal property, and, upon the expiration of the term of this
Lease, or upon its earlier termination in any manner, shall be removed by
Tenant at Tenant's sole cost and expense. All Wiring and related electrical
equipment installed by Tenant in connection with the installation and
operation of the Equipment shall be Tenant's personal property. Tenant, at
Tenant's sole cost and expense, shall promptly repair any and all damage to
the rooftop of the Building and to any other part of the Building caused by
or resulting from the installation, maintenance and repair, operation or
removal of the Equipment, support structures, Wiring and related equipment
erected or installed by Tenant pursuant to the provisions of this Article 57
and restore said affected areas to their condition as existed prior to the
installation of the Equipment and related equipment, reasonable wear and tear.
F. Tenant covenants and agrees that all installations made by
Tenant on the rooftop of the Building or in any other part of the Building
pursuant to the provisions of this Article 57 shall be at the sole risk of
Tenant, and neither Landlord nor Landlord's agent or employees shall be
liable for any damage or injury thereto caused in any manner, except to the
extent caused by the negligence or willful misconduct of Landlord, its agents
and employees. Tenant acknowledges that the indemnity provisions set forth in
this Lease shall apply in connection with any damage, claim or injury
relating to the Equipment.
G. If any installation referred to in this Article 57 shall cause
any damage to the roof or shall revoke, negate or in any manner impair or
limit any roof warranty or guaranty obtained by Landlord, then Tenant shall
promptly reimburse Landlord for any loss or damage sustained or costs or
expenses incurred by Landlord as a result thereof.
H. All plans and specifications for the installations to be done
and made by Tenant pursuant to the provisions of this Article 57 shall be
subject to the prior approval of Landlord, which shall not be unreasonably
withheld or delayed in accordance with the provisions of Article 52 hereof
and shall be subject to all other applicable provisions of Article 52.
I. Tenant covenants and agrees that the Equipment, support
structures, Wiring and related electrical equipment to be installed by Tenant
shall not interfere with or adversely affect any equipment, installations,
lines or machinery of the Building or any other tenant of the Building,
including, without limitation, any other communications equipment in, on top
of or otherwise outside the Building or access thereto for maintenance,
repair or removal.
J. Tenant acknowledges being advised by Landlord that Landlord
may grant to third parties, various rights and licenses to utilize various
portions of the Building and rooftop thereof for the installation of
microwave dishes, satellite communications equipment, whip antennae and
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other communications equipment and related equipment (hereinafter all of the
foregoing are collectively referred to as "Other Communications Equipment")
and that, inasmuch as Landlord's ability to facilitate the installation and
operation of such Other Communications Equipment will be of paramount
importance to Landlord, Landlord shall have the right at its sole cost and
expense, at any time and from time to time, during the Term of this Lease,
upon thirty (30) days' prior written notice to Tenant, to relocate Tenant's
Equipment, support structures and related equipment to other areas of the
Building and rooftop thereof, as Landlord may determine so as to accommodate
such Other Communications Equipment on the roof of the Building and so as to
eliminate, or not to create, problems of interference with respect to or
between Other Communications Equipment now, or in the future, installed on
the roof. Tenant shall cooperate with Landlord to effectuate the relocation
of Tenant's satellite dish, support structures and related equipment, as
shall be required by Landlord. All costs involved in such relocation shall be
borne by Landlord. In the event that any Other Communications Equipment shall
interfere with the proper operation of the Equipment, Landlord shall cause
such Other Communications Equipment to cease operating until such
interference is corrected.
MISCELLANEOUS PROVISIONS:
58. A. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as
to whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to
the fullest extent permitted by law. In the event of any conflict between the
terms of this rider and the preprinted form of this Lease, the terms of this
rider shall prevail.
B. Notwithstanding anything to the contrary contained in Article
21 or elsewhere in this Lease, any wall-to-wall carpeting installed in the
Premises shall upon installation become the property of Landlord and shall
remain in and be surrendered with the Premises upon the expiration or earlier
termination of this Lease.
C. In the event that during the Term Landlord shall be required
to modify, retrofit, alter or replace any Building system or structural
element of the Building in order to comply with any future applicable Legal
Requirements or current legal requirement not currently requiring compliance
(including, but not limited to, the Americans with Disabilities Act and any
law or regulation pertaining to chlorofluorocarbons and
hydrochlorofluorocarbons), Tenant shall upon thirty (30) days' notice pay
Landlord an amount equal to Tenant's Proportionate Share of the amortized
cost of such work falling with each year, or part thereof, of the Term,
provided such costs are not otherwise included in Operating Expenses,
commencing with the year in which such cost is incurred and amortized on a
straight line basis over the useful life of such item (not to exceed fifteen
(15) years) with an interest factor equal to the Interest Rate, provided,
however that to the extent it is Tenant's obligation to comply with such
legal requirement in accordance with Paragraph 6, such cost shall be solely
borne by Tenant.
D. (a) Tenant hereby indemnifies and agrees to hold Landlord
harmless from and against any loss, cost, liability, claim, damage and
expense (including reasonable attorneys' fees and disbursements) resulting
from delay by Tenant in surrendering the Premises upon the termination of
this Lease as provided in Article 21, including any claims made by any
succeeding tenant or prospective tenant founded upon such delay.
(b) In the event Tenant remains in possession of the Premises
after the termination of this Lease without the execution of a new lease,
Landlord shall be entitled to immediately reenter the Premises and dispossess
Tenant. In the event of any holding over by Tenant, Tenant shall pay as
holdover rental for each month of the holdover tenancy an amount equal to two
(2) times the Fixed Rent and Additional Rent payable during the last month of
the Term, subject to all of the other terms of this Lease insofar as the same
are applicable to such holdover tenancy. The acceptance of any rent paid by
Tenant pursuant to this Section shall in no event preclude Landlord from
commencing and prosecuting a holdover or summary eviction proceeding and the
provisions of this Section shall be deemed to be an "agreement expressly
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providing otherwise" within the meaning of Section 232-c of the Real Property
Law of the State of New York and any successor or similar law of like import.
Nothing contained in this Section shall (i) imply any right of Tenant to
remain in the Premises after the termination of this lease without the
execution of a new lease, (ii) imply any obligation of Landlord to grant a
new lease or (iii) be construed to limit any right or remedy that Landlord
has against Tenant as holdover tenant or trespasser.
E. The submission by Landlord to Tenant of this Lease in draft form
shall be deemed submitted solely for Tenant's consideration and not for
acceptance and execution. The submission by Landlord of this Lease for execution
by Tenant and the actual execution and delivery thereof by Tenant to Landlord
shall have no binding force and effect unless and until Landlord shall have
executed this Lease and a counterpart thereof shall have been delivered to
Tenant. Tenant's submission to Landlord of this Lease, duly executed by Tenant,
shall constitute Tenant's irrevocable offer for the leasing of the Demised
Premises, to continue for fifteen (15) days after receipt by Landlord of this
Lease duly executed by Tenant or until Landlord shall deliver to Tenant written
notice of rejection of Tenant's offer, whichever shall first occur. This Lease
may be executed in one or more counterparts, each of which shall constitute an
original and all of which when taken together shall constitute one and the same
instrument.
F. In the event this Lease is terminated pursuant to the provisions
of Article 17 herein, then in addition to the remedies Landlord may have
pursuant to Article 18 herein, Landlord may elect, at its option, to recover
from Tenant, all damages it may incur by reason of such breach, including the
cost of recovering the Premises and reasonable attorneys' fees and expenses and
shall be entitled to recover as and for liquidated damages, and not as a
penalty, an amount equal to the difference between (l) the Fixed Rent,
Additional Rent and charges equivalent to rent payable hereunder for the
remainder of the stated term and (2) the reasonable rental value of the Premises
for the remainder of the stated term, all of which shall be immediately due and
payable by Tenant. In determining the rental value of the Premises for such
period, the rental realized by any reletting, if such reletting be accomplished
by Landlord within a reasonable period of time after the termination of this
Lease, shall be deemed PRIMA FACIE to be the rental value. Landlord shall not be
liable in any way whatsoever for its failure or refusal to relet the Premises or
any part thereof, or if the Premises are so relet, for its failure to collect
the rent under such reletting, and no refusal or failure to relet or failure to
collect rent shall affect Tenant's liability for damages or otherwise hereunder.
Nothing herein contained shall limit or prejudice the right of Landlord to prove
and obtain as liquidated damages by reason of such termination an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amounts referred to
herein.
G. Landlord shall have the right to erect any gate, chain or other
obstruction or to close off any portion of the Real Property to the public at
any time to the extent reasonably necessary to prevent a dedication thereof for
public use.
H. The persons executing this Lease on behalf of Tenant hereby
represent and warrant that they have been duly authorized to execute this Lease
for and on behalf of Tenant.
I. In the event that Landlord or Tenant places the enforcement of
this Lease, or any part thereof, or the collection of any Fixed Rent or
Additional Rent due, or to become due hereunder, or recovery of the possession
of the Premises, in the hands of an attorney, or files suit upon the same, the
prevailing party shall recover its attorneys' fees, disbursements and court
costs from the other in connection with such matter. The provisions of this
paragraph shall survive the termination or expiration of this Lease.
J. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually, or as joint venturers or as copartners of a partnership)
or if Tenant's interest in this Lease shall be assigned to a partnership (or to
two (2) or more persons, individually, or as joint venturers or as copartners of
a partnership) (any such partnership and such persons are referred to in this
Section as "Partnership Tenant"), the following provisions shall apply to such
Partnership Tenant:
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(a) the liability of each of the parties comprising Partnership
Tenant shall be joint and several, and
(b) each of the parties comprising Partnership Tenant hereby
consents in advance to and agrees to be bound by, any modifications,
termination, discharge or surrender of this Lease which may hereafter be made
and by any notices, demands, requests or other communications which may
hereafter be given, by Partnership Tenant or by any of the parties comprising
Partnership Tenant, and (c) any bills, statements, notices, demands, requests or
other communications given or rendered to Partnership Tenant or to any of the
parties comprising Partnership Tenant shall be deemed given or rendered to
partnership Tenant or to any of the parties comprising Partnership Tenant and
shall be binding upon Partnership Tenant and all parties, and (d) if Partnership
Tenant shall admit new partners, all such new partners shall, by their admission
to Partnership Tenant, be deemed to have assumed performance of all of the
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed and (e) Partnership Tenant shall give prompt notice to Landlord of
the admission of any such new partners.
K. All exhibits to this Lease and any and all rider provisions
attached to this Lease are hereby incorporated into this Lease. If any provision
contained in any rider hereto is inconsistent or in conflict with any printed
provision of this Lease, the provision contained in such rider shall supersede
said printed provision and shall control.
L. Wherever it is specifically provided in this Lease that a party's
consent is not to be unreasonably withheld, a response to a request for such
consent shall also not be unreasonably delayed. Tenant hereby waives any claim
against Landlord which it may have based upon any assertion that Landlord has
unreasonably withheld or unreasonably delayed any such consent, and Tenant
agrees that its sole remedy shall be an action or proceeding to enforce any such
provision or for specific performance, injunction or declaratory judgment. In
the event of such a determination, the requested consent shall be deemed to have
been granted; however, Landlord shall have no liability to Tenant for its
refusal or failure to give such consent, unless it shall be determined that
Landlord acted in a malicious manner or in bad faith. The sole remedy for
Landlord's unreasonably withholding or delaying of consent shall be as provided
in this Section.
M. (a) Tenant shall have the right, either (i) in lieu of the
funds required to be deposited with Landlord pursuant to Article 33 of this
Lease or (ii) at any time thereafter in substitution for such funds, to deposit
and maintain with Landlord as the security deposit referred to in Article 33 of
this Lease, an irrevocable commercial letter of credit in the aggregate amount
of $950,000.00 (the "Security Deposit") in form and substance satisfactory to
Landlord, and issued by a member bank of the New York Clearing House
Association, acceptable to Landlord or Credit Lyonnais, payable upon the
presentation by Landlord to such bank in New York City of a sight draft, without
presentation of any other documents, statements or authorizations, other than a
statement that a default has occurred under this Lease beyond the expiration of
any applicable notice and cure periods (a "Letter of Credit"), which Letter of
Credit shall provide (a) for the continuance of such credit for the period of at
least one (1) year from the date hereof, (b) for the automatic extension of such
Letter of Credit for additional periods of one (1) year from the initial and
each future expiration date thereof (the last such extension to provide for the
continuance of such Letter of Credit for at least three (3) months beyond the
Expiration Date) unless such bank gives Landlord notice (x) of its intention not
to renew such Letter of Credit or (y) that it intends to close its office in New
York City, not less than sixty (60) days prior to the initial or any future
expiration date of such Letter of Credit and (c) that in the event such notice
is given by such bank and Tenant does not provide Landlord with a replacement
Letter of Credit meeting the requirements of this provision on or prior to the
date which is twenty (20) days prior to the current expiration date of the
Letter of Credit, Landlord shall have the right to draw on such bank at sight
for the balance remaining in such Letter of Credit and hold and apply the
proceeds thereof in accordance with the provisions of Article 33. Each Letter of
Credit to be deposited and maintained with Landlord (or the proceeds thereof)
shall be held by Landlord as security for the faithful performance and
observance by Tenant of the terms, provisions and
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<PAGE>
conditions of this Lease, and in the event that (x) any default occurs under
this Lease, or (y) Landlord transfers its right, title and interest under
this Lease to a third party and the bank issuing such Letter of Credit does
not consent to the transfer of such Letter of Credit to such. third party, or
(z) notice is given by the bank issuing such Letter of Credit that it does
not intend to renew the same, as above provided, then, in any such event,
Landlord may draw on such Letter of Credit, and the proceeds of such Letter
of Credit shall then be held and applied as security (and be replenished, if
necessary) as provided in Article 33 and herin. In the event Landlord shall
use, apply or retain the whole or any part of the security deposited
hereunder, Tenant shall immediately deliver to Landlord an amount equal to
the sum used, applied or retained by Landlord in accordance therewith so that
at all times during the term hereof, Landlord shall have as security
hereunder an amount equal to $950,000.00. Tenant shall pay Landlord's
reasonable attorneys' fees in connection with the replacement, substitution
or amendment of the Letter of Credit described herein.
(b) Provided that Tenant shall not be in default beyond any
applicable grace period and/or notice period under any of its obligations under
this Lease on each Reduction Date (as hereafter defined), then commencing on the
twelve month anniversary of the expiration of the Abatement Period (the "Rent
Paying Date") and on each subsequent anniversary of the Rent Paying Date (each
such date being referred to herein as a "Reduction Date"), Landlord shall return
to Tenant the amount of $95,000, constituting a portion of the security
deposited with Landlord hereunder, or if Tenant shall have delivered a Letter of
Credit to Landlord, then on each such Reduction Date Tenant shall be permitted
to deliver a new Letter of Credit to Landlord in lieu of the Letter of Credit
then being held by Landlord in an amount equal to (x) the amount of the then
current Letter of Credit MINUS (y) $95,000 and Landlord shall simultaneously
with such delivery return the prior Letter of Credit to Tenant, or the Letter of
Credit may automatically reduce by said amount on each Reduction Date, provided
however that in such case, if Landlord shall notify the issuing bank that Tenant
is in default hereunder, the Letter of Credit shall not automatically reduce on
the Reduction Date until Landlord shall notify said bank that the default is
cured (a copy of which notice Landlord shall also send to Tenant), it being
agreed that if Landlord shall fail to notify the bank within fifteen (15) days
from the date of Landlord's original notice to the bank, such default shall be
deemed cured. In no event shall the security deposited with Landlord hereunder
be reduced below $95,000. Landlord's and Tenant's rights with respect to the
reduced security deposit, each new Letter of Credit to be provided in accordance
with this Section (b) or a reduced Letter of Credit, shall be the same as if
such reduced security deposit or such Letter of Credit or reduced Letter of
Credit had in each instance been provided for as the original security deposit
or Letter of Credit hereunder.
N. Landlord hereby waives any lien rights against Tenant's
furniture, fixtures, equipment or personal property that it might otherwise
have under applicable law.
0. Throughout the term of the Lease, Tenant shall have the
right, at Tenant's expense, to install and maintain risers and conduits not to
exceed 16 square inches in size in the east stairway of the Building. Subject to
Landlord's prior consent, such risers and conduits may run between the floors on
which the Premises are located and other parts of the Building, including
without limitation, the roof and basement and may contain cables, ducts, flues,
pipes and other devices which Tenant shall deem necessary for the
communications, data processing, supplemented HYAC and other facilities
servicing the Premises.
P. Subject to availability at the time of Tenant's request,
Tenant, upon request of Landlord, shall be entitled to lease storage space in
the Building or at 115 Fifth Avenue at Landlord's then standard rates
therefor.
Q. Landlord, at its sole cost and expense, shall install and
maintain such life safety systems for the Building as shall be required by
Legal Requirements. Any spare points and/or excess capacity in the Building's
class "E" system shall be provided to Tenant at no additional cost or
expense, in connection with Tenant's Work.
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EXHIBIT A
[FLOORPLAN]
<PAGE>
[FLOORPLAN]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, driveways, entrances, passages, courts, lobbies,
esplanade areas, atrium, plazas, elevators, escalators, stairways,
vestibules, corridors, halls and other public portions of the Building
("Public Areas") shall not be obstructed or encumbered by any tenant or used
for any purpose other than ingress and egress to and from the Premises, and
no tenant shall permit any of its employees, agents, licensees or invitees to
congregate or loiter in any of the Public Areas. No tenant shall invite to,
or permit to visit, its premises persons in such numbers or under such
conditions as may interfere with the use and enjoyment by others of the
Public Areas. Fire exits and stairways are for emergency use only, and they
shall not be used for any other purposes by any tenant, or the employees,
agents, licensees or invitees of any tenant. Landlord reserves the right to
control and operate, and to restrict and regulate the use of, the Public
Areas and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally, including the right to allocate certain elevators for
delivery service, and the right to designate which Building entrances shall
be used by persons making deliveries in the Building. No doormat of any kind
whatsoever shall be placed or left in any public hall or outside any entry
door of the Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building.
3. No sign, insignia, advertisement, lettering, notice or other object
shall be exhibited, inscribed, painted or affixed by any tenant on any part
of the outside or inside of the Premises or the Building or on corridor walls
without the prior consent of Landlord. Signs on each entrance door of the
Premises shall conform to building standard signs, samples of which are on
display in Landlord s rental office. Such signs shall, at the expense of
Tenant, be inscribed, painted or affixed by signmakers approved by Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred in
such removal to the tenant or tenants violating this rule. Interior signs,
elevator cab designations, if any, and lettering on doors and the Building
directory shall, if and when approved by Landlord, be inscribed, painted or
affixed for each tenant by Landlord, at the expense of such tenant, and shall
be of a size, color and style acceptable to Landlord. Only Tenant and its
permitted assignees and subtenants named in the lease shall be entitled to
appear on the directory tablet. Additional names may be added in Landlord s
sole discretion under such terms and conditions as the Landlord may
reasonably approve.
4. Neither the sashes, sash doors, skylights or windows that reflect
or admit light and air into the halls, passageways or other public places in
the Building nor the heating, ventilating and air conditioning vents and
doors shall be covered or obstructed by any tenant, nor shall any bottles,
parcels or other articles be placed on the window sills or on the peripheral
heating enclosures. Tenant shall have no right to remove or change shades,
blinds or other window coverings within the Premises without Landlord's
consent.
5. No showcases or other articles shall be put by Tenant in front of
or affixed to any part of the exterior of the Building, nor placed in the
Public Areas.
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6. No acids, vapors or other harmful materials shall be discharged, or
permitted to be discharged, into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other foreign
substances shall be thrown or deposited therein. Nothing shall be swept or
thrown into the Public Areas or other areas of the Building, or into or upon
any heating or ventilating vents or registers or plumbing apparatus in the
Building, or upon adjoining buildings or land or the street. The cost of
repairing any damage resulting from any misuse of such fixtures, vents,
registers and apparatus and the cost of repairing any damage to the Building,
or to any facilities of the Building, or to any adjoining building or
property, caused by any tenant, or the employees, agents, licensees or
invitees of such tenant, shall be paid by such tenant. Any cuspidors or
similar containers or receptacles shall be emptied, cared for and cleaned by
and at the expense of such tenant.
7. No tenant shall mark, paint, drill into, or in any way deface, any
part of the Premises of the Building, except in connection with the
performance of permitted Alterations. No boring, cutting or stringing of
wires shall be permitted, except with the prior written consent of, and as
directed by, Landlord. No telephone, telegraph or other wires or instruments
shall be introduced into the Building by any tenant except in a manner
approved by Landlord. No tenant shall lay linoleum, or other similar floor
covering, so that the same shall come in direct contact with the floor of its
premises, and, if linoleum or other similar floor covering is desired to be
used, an interlining of builder's deadening felt shall be first affixed to
the floor, by a paste or other material, soluble in water, the use of cement
or other similar adhesive material being expressly prohibited.
Notwithstanding the foregoing, Landlord agrees that the "gluedown" carpet
proposed to be used by Tenant shall be permitted.
8. No bicycles, vehicles, animals (except seeing eye dogs), fish or
birds of any kind shall be brought into, or kept in or about, the Premises.
9. No noise, including, but not limited to music, the playing of
musical instruments, recordings, radio or television, which, in the
reasonable judgment of Landlord, might disturb other tenants in the Building,
shall be made or permitted by any tenant. Nothing shall be done or permitted
by any tenant which would unreasonably impair or interfere with the use or
enjoyment by any other tenant of any other space in the Building.
10. Nothing shall be done or permitted in the Premises, and nothing
shall be brought into, or kept in or about the Premises, which would impair
or interfere with any of the Building Equipment or the services of the
Building or the proper and economic heating, ventilating, air conditioning,
cleaning or other services of the Building or the Premises, nor shall there
be installed by any tenant any ventilating, air conditioning, electrical or
other equipment of any kind which, in the reasonable judgment of Landlord,
might cause any such impairment or interference. No tenant, nor the
employees, agents, licensees or invitees of any tenant, shall at any time
bring or keep upon its premises any inflammable, combustible or explosive
fluid, chemical or substance, other than ordinary cleaning supplies.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall any changes be made in locks
or the mechanism thereof. Duplicate keys for the Premises and toilet rooms
shall be procured only from Landlord, and Landlord may make a reasonable
charge
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therefor. Each tenant shall, upon the expiration or sooner termination
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<PAGE>
of the lease of which these Rules and Regulations are a part, turn over to
Landlord all keys to stores, offices and toilet rooms, either furnished to,
or otherwise procured by, such tenant, and in the event of the loss of any
keys furnished by Landlord, such tenant shall pay to Landlord the cost of
replacement locks. Notwithstanding the foregoing, Tenant may, with Landlord's
prior consent, install a security system in the Premises which uses master
codes or cards instead of keys provided that Tenant shall provide Landlord
with the master code or card for such system.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description shall take place only during such hours and in such elevators as
Landlord may from time to time reasonably determine, which may involve
overtime work for Landlord's employees. Tenant shall reimburse Landlord for
extra costs incurred by Landlord including but not limited to the cost of
such overtime work. Landlord reserves the right to inspect all objects and
matter to be brought into the Building and to exclude from the Building all
objects and matter which violate any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part. Landlord may require
any person leaving the Building with any package or other object or matter to
submit a pass, listing such package or object or matter, from the tenant from
whose premises the package or object or matter is being removed, but the
establishment or enforcement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the
removal of property from the premises of such tenant. Landlord shall in no
way be liable to any tenant for damages or loss arising from the admission,
exclusion or rejection of any person to or from the Premises or the Building
under the provisions of Rule 12 or of Rule 15 hereof.
13. No tenant shall use or occupy, or permit any portion of its
premises to be used or occupied, as an office for a public stenographer or
public typist, or for the possession, storage, manufacture or sale of
narcotics or dope or as a barber, beauty or manicure shop, telephone or
telegraph agency, telephone or secretarial service, messenger service, travel
or tourist agency, retail, wholesale or discount shop for sale of
merchandise, retail service shop, labor union, classroom, company engaged in
the business of renting office or desk space, or for a public finance
(personal loan) business, or has a hiring employment agency, or as a stock
brokerage board room. No tenant shall engage or pay any employee in its
premises, except those actually working for such tenant on its premises, nor
advertise for laborers giving an address at the Building. No tenant shall use
its premises or any part thereof, or permit the Premises or any part thereof
to be used, as a restaurant, shop, booth or other stand, or for the conduct
of any business or occupation which predominantly involves direct patronage
of the general public, or for manufacturing, or for the sale at retail or
auction of merchandise, goods or property of any kind.
14. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in the reasonable judgment of Landlord,
tends to impair the appearance or reputation of the Building or the
desirability of the Building as a building for offices, and upon written
notice from Landlord, such tenant shall refrain from and discontinue such
advertising or identifying sign.
15. Landlord reserves the right to exclude from the Building all
employees of any tenant who do not present a pass to the Building signed by
such tenant. Landlord or its' agent will furnish passes to persons for whom
any
B-4
<PAGE>
tenant requests same in writing. Landlord reserves the right to require all
other persons
B-5
<PAGE>
entering the Building to sign a register, to be announced to the tenant such
person is visiting, and to be accepted as a visitor by such tenant or to be
otherwise properly identified (and, if not so accepted or identified,
reserves the right to exclude such persons from the Building) and to require
persons leaving the Building to sign a register or to surrender a pass given
to such person by the tenant visited. Each tenant shall be responsible for
all persons for whom it requests any such pass or any person whom such tenant
so accepts, and such tenant shall be liable to Landlord for all acts or
omissions of such persons. Any person whose presence in the Building at any
time shall, in the judgment of Landlord, be prejudicial to the safety,
character, security, reputation or interests of the Building or the tenants
of the Building may be denied access to the Building or may be ejected from
the Building. In the event of invasion, riot, public excitement or other
commotion, Landlord may prevent all access to the Building during the
continuance of the same by closing the doors or otherwise, for the safety of
tenants and the protection of property in the Building.
16. All entrance doors in the Premises shall be kept locked by each
tenant when its premises are not in use. Entrance doors shall not be left
open at any time.
17. Each tenant shall, at the expense of such tenant, provide light,
power and water for the employees of Landlord, and the agents, contractors
and employees of Landlord, while doing janitor service or other cleaning in
the premises demised to such tenant and while making repairs or alterations
in its premises.
18. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
19. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
20. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
21. The employees, agents, licensees and invitees of any tenant shall
not loiter around the Public Areas or the front, roof or any part of the
Building used in common by other occupants of the Building.
22. There shall not be used in any space, or in the Public Areas,
either by any tenant or by others, in the moving or delivery or receipt of
safes, freight, furniture, packages, boxes, crates, paper, office material or
any other matter or thing, any hand trucks except those equipped with rubber
tires, side guards and such other safeguards as Landlord shall require. No
hand trucks shall be used in passenger elevators.
23. No tenant shall cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its
premises which would unreasonably annoy other tenants or create a public or
private nuisance. No cooking shall be done in the Premises except as is
expressly permitted in the lease of which these Rules and Regulations are a
part.
24. All paneling, doors, trim or other wood products not considered
furniture shall be of fire-retardant materials. Before installation of any
such
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<PAGE>
materials, certification of the materials' fire-retardant characteristics
shall be submitted to
B-7
<PAGE>
and approved by Landlord, and installed in a manner approved by Landlord.
25. Whenever any tenant shall submit to Landlord any plan, agreement or
other document for the consent or approval of Landlord, such tenant shall pay
to Landlord, on demand, a processing fee in the amount of the reasonable
out-of-pocket fees for the review thereof, including the services of any
architect, engineer or attorney employed by Landlord to review such plan,
agreement or document.
26. Landlord reserves the right to rescind, alter, waive or add, as to
one or more or all tenants, any rule or regulation at any time prescribed for
the Building when, in the judgment of Landlord, Landlord deems it necessary
or desirable for the reputation, safety, character, security, care,
appearance or interests of the Building, or the preservation of good order
therein, or the operation or maintenance of the Building, or the equipment
thereof, or the comfort of tenants or others in the Building. No rescission,
alteration, waiver or addition of any rule or regulation in respect of one
tenant shall operate as a rescission, alteration or waiver in respect of any
other tenant.
27. Tenant shall cooperate fully with Landlord at all times and abide
by all regulations and requirements which Landlord may reasonably prescribe
for the proper functioning and protection of the heating, air conditioning
and ventilation system.
28. Tenant, as an inducement to Landlord to enter into this Lease, has
and does represent, covenant and agree that Tenant will take all necessary
measures and institute all procedures as may be necessary to insure that
Tenant's clients, invitees, and personnel do not loiter or congregate in the
public areas of the Building (including but not limited to the corridors,
elevators, lobbies, lavatories, etc.) and that such clients, invitees and
personnel will at all times conduct themselves in a proper businesslike
manner when passing through such public areas of the Building for purposes of
access and egress to and from the demised premises. Tenant further
acknowledges and agrees that any breach by Tenant of its foregoing agreements
and representations will materially injure Landlord who has intentions to
rent space in the Building to major tenants and who does not wish to have
other tenants of the Building disturbed, annoyed or inconvenienced.
Accordingly, it is expressly agreed that any violation by Tenant of its
agreements, representations and obligations pursuant to this paragraph shall
constitute a material default by Tenant under the terms of this Lease
entitling Landlord to exercise any and all rights granted Landlord pursuant
to Articles 17 and 18 of this Lease including, without limitation, the right
to terminate this Lease and recover possession of the demised premises by
reason of Tenant's default.
29. Tenant shall at no time leave any merchandise, supplies, materials
or refuse in the hallways or other common portions of the Building or in any
other area of the Building other than the demised premises. Tenant covenants
that all garbage and refuse shall be kept in proper containers, securely
covered, until removed from the Building so as to prevent the escape of
objectionable fumes and odors and the spread of vermin, and Tenant further
covenants that no refuse and/or garbage shall be permitted to remain on the
sidewalks adjacent to the Building.
30. Tenant shall not store or keep any equipment, furniture, supplies,
materials, refuse, or merchandise on any terrace which forms a part of the
Premises. Tenant covenants that any such terrace shall be used by Tenant only
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in a safe and sanitary manner and in a manner which does not disturb the
quiet enjoyment of the other tenants in the Building. Tenant shall
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<PAGE>
indemnify and hold Landlord harmless from and against any and all claims,
actions, damages, liability, cost and expenses (including attorneys' fees and
disbursements) which arise in connection with Tenant's use of the terrace.
This Paragraph 30 may from time to time be supplemented by such additional
rules and regulations as may be promulgated by Landlord.
31. Landlord agrees that the Rules and Regulations will be enforced
against Tenant in a nondiscriminatory manner.
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<PAGE>
EXHIBIT C
LANDLORD'S WORK
1. Cause the Premises to be delivered with electrical capacity of 6
watts per rentable square foot demand load, exclusive of that necessary for
ventilating and air conditioning systems.
2. Furnish and install three new 15 ton Building standard air-cooled
air conditioning units, including all necessary compressor fans (the
"Air-cooled A/C Units") on the eighth floor of the Premises, to be located in
the mechanical room shown on Tenant's Plans, on vibration isolation pads,
fixed in place, for a first class installation. The Air-cooled A/C Units
shall be vented from windows on the north side of the Building facing the
courtyard. Landlord shall furnish and install louvers on the exterior of such
windows as required for intake and exhaust, shall furnish and install air
intake ductwork connections between the louvers and the Air-cooled A/C Units,
and air discharge ductwork connections between the mechanical room and
louvers, all in a first class manner. Landlord shall also furnish and install
the electrical power to the Air-cooled A/C Units including all necessary
electrical wiring, transformers, shut-off switches and subpanels for the
operation of the equipment to be installed by Landlord, but such obligations
shall not include the control wiring. In connection with such installation,
Landlord shall have no obligation to provide an air economizer cycle. The
make and model of the Air-cooled A/C Units shall be selected by Landlord from
the list attached hereto as Exhibit C-1. It shall be the responsibility of
the Tenant to perform all engineering and design work in connection with the
installation of the ductwork, to provide and install all ductwork (and
insulation as necessary) and to procure all Building Department approvals,
including inspections and Equipment Use permits. Landlord agrees to assign to
Tenant all assignable warranties obtained by Landlord relating to the
Air-cooled A/C Unit.
3. Make available to Tenant input points at the Building command
station located in the lobby in order for Tenant to hook-up its Class E life
safety system to the Building system, which hook-up shall be performed by
Tenant at Tenant's sole cost and expense.
4. Demolish all existing installations, including, but not limited to,
all existing carpeting, all partitions, suspended ceilings, wiring, column
enclosures (down to original plaster), light fixtures, all duct work in the
Premises (excluding the two main air ducts passing through the 9th floor
portion of the Premises and serving the balance of the 9th floor),
supplemental units, and electrical and communication receptacles on both
floors comprising the Premises, and remove all debris and stored materials
thereon.
5. Deliver the Premises broom-clean and vacant, together with an ACP-5
Certificate.
6. Furnish and install a cast iron radiator at each perimeter window,
unless same presently exists.
7. Demise the ninth floor of the Premises substantially as shown on
Exhibit A-1 hereto.
<PAGE>
EXHIBIT C-I
AIR-COOLED A/C UNITS TYPE AND MODEL
1. Cold Wave AVT-180-532
2. York #DISK 18025A
3. Skymark BAC180D32A-A
4. Carrier #50 BD-018
<PAGE>
EXHIBIT D
CLEANING SPECIFICATIONS
TENANT OFFICE AREAS
NIGHTLY:
1. Sweep all uncarpeted flooring using chemically treated dust mop
to prevent dust dispersion.
2. Sweep all private stairway structures.
3. All carpeting and rugs to be carpet swept four (4) nights per
week and vacuum cleaned once each week.
4. Empty and clean all ashtrays and screen all sand urns.
5. Empty wastebaskets and other trash receptacles; remove rubbish to
designated areas within the building. Plastic and/or burlap bags
used for the removal of rubbish to be furnished by Landlord and
shall be adequate to hold contents without breaking.
6. Hand dust and wipe clean with chemically treated cloth all
furniture, file cabinets, fixtures, window sills and convector
enclosed tops within arm's reach.
7. Move and dust under all desk equipment and phones, replacing and
dusting said equipment.
8. Dust metal doors of all elevator cabs.
9. Remove all gum and foreign matter on sight.
10. Wash clean all water coolers and fountains.
11. All slop sink and storage areas to be kept neat and clean.
12. During cleaning operation, a minimum number of lights are to be
left on. Upon completion of said operation, all lights must be
turned off.
LAVATORIES (CORE LAVATORIES ONLY)
NIGHTLY:
1. Scour, wash and disinfect all basins, bowls and urinals with
approved germicidal detergent solution.
2. Wash and disinfect both sides of all toilet seats with approved
germicidal detergent solution.
3. Wash and polish with a non-acid polish all mirrors, powder
<PAGE>
shelves, bright work and enamel surfaces in all lavatories.
4. Hand dust and clean, washing where necessary.
5. Sweep and wash all lavatory flooring with an approved
disinfectant.
<PAGE>
6. Empty and clean all paper towel and sanitary disposal
receptacles, transporting waste to the designed location.
7. Fill toilet tissue holders, soap dispensers and paper towel
dispensers. Supplies to be furnished by Tenant.
8. Report all mechanical deficiencies, dripping faucets, etc., to
the Building Manager.
<PAGE>
Exhibit 10.7
EXECUTION DOCUMENT
LEASE
B.J.W. ASSOCIATES
TO
LOUIS HARRIS AND ASSOCIATES, INC.
111 FIFTH AVENUE
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
LEASE
Article Page
<S> <C>
1. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
2. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
3. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . i
4. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
5. Window Cleaning . . . . . . . . . . . . . . . . . . . . . . . . . i
6. Requirements of Law, Fire Insurance, Floor Loads. . . . . . . . . i
7. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . ii
8. Property-Loss, Damage, Reimbursement, Indemnity . . . . . . . . . ii
9. Destruction, Fire and Other Casualty. . . . . . . . . . . . . . . ii
10. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . ii
11. Assignment, Mortgage, Etc.. . . . . . . . . . . . . . . . . . . . ii
12. Electric Current. . . . . . . . . . . . . . . . . . . . . . . . . ii
13. Access to Premises. . . . . . . . . . . . . . . . . . . . . . . . ii
14. Vault, Vault Space, Area. . . . . . . . . . . . . . . . . . . . . iii
15. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
16. Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
17. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
18. Remedies of Landlord and Waiver of Redemption . . . . . . . . . . iii
19. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . iii
20. No Representations by Landlord. . . . . . . . . . . . . . . . . . iv
21. End of Term . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
22. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . iv
23. Failure to Give Possession. . . . . . . . . . . . . . . . . . . . iv
24. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
25. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . iv
26. Inability to Perform. . . . . . . . . . . . . . . . . . . . . . . iv
27. Bills and Notices . . . . . . . . . . . . . . . . . . . . . . . . iv
28. Services Provided by Landlord--Water, Elevators, Heat, Cleaning,
Air Conditioning . . . . . . . . . . . . . . . . . . . . . . iv
29. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
30. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
31. Adjacent Excavation-Shoring . . . . . . . . . . . . . . . . . . . v
32. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . v
33. Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
34. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . v
RIDER
Article Page
35. Fixed Rent and Proration of Fixed Rent. . . . . . . . . . . . . . 1
36. Late Payment Charge . . . . . . . . . . . . . . . . . . . . . . . 2
37. Rent Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 2
38. Escalation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
39. HVAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
40. Cleaning/Miscellaneous Services . . . . . . . . . . . . . . . . . 11
41. Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
42. Designated Suppliers. . . . . . . . . . . . . . . . . . . . . . . 13
43. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
44. Subletting and Assignment . . . . . . . . . . . . . . . . . . . . 14
45. Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . . . 20
46. Subordination and Attornment. . . . . . . . . . . . . . . . . . . 21
47. Non-liability and Indemnification . . . . . . . . . . . . . . . . 22
48. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
49. Repeated Defaults . . . . . . . . . . . . . . . . . . . . . . . . 25
50. Transfer After Bankruptcy . . . . . . . . . . . . . . . . . . . . 25
51. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
52. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
53. Landlord's Work . . . . . . . . . . . . . . . . . . . . . . . . . 28
54. Landlord's Contribution . . . . . . . . . . . . . . . . . . . . . 28
55. Renewal Options . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE>
AGREEMENT OF LEASE, made as of this 9th day of June, 1994, between B.J.W.
ASSOCIATES, having an address c/o Winter Management Corp., 641 Lexington Avenue,
New York, New York 10022
party of the first part, hereinafter referred to as LANDLORD, and LOUIS HARRIS
AND ASSOCIATES, INC., a Delaware corporation, having an address at 630 Fifth
Avenue, New York, New York
party of the second part, hereinafter referred to as TENANT.
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the premises (hereinafter hereby called "premises," "demised premises"
or "Premises") consisting of the entire eighth (8th) floor and a portion of the
ninth (9th) floor, substantially as cross hatched on the floor plan annexed
hereto as Exhibit A and made a part hereof in the Building known as 111 Fifth
Avenue, New York, New York (hereinafter called "building," or "Building"), for
the term (hereinafter called "term" or "Term") to commence on the Commencement
Date (as hereinafter defined), and to end on December 31, 2004 (hereinafter
called "Expiration Date") or until such term shall sooner cease and expire as
hereinafter provided, both dates inclusive at an annual rental rate as set forth
in Article 35 hereof (hereinafter called "Rent" or "Fixed Rent"), together with
all other sums of money as shall become due and payable by Tenant under this
Lease (hereinafter called "additional rent" or "Additional Rent").
which Tenant agrees to pay in lawful money of the United States(1), in equal
monthly installments in advance on the first day of each month during said term,
at the office of Landlord or such other place as Landlord may designate, without
any set off or deduction whatsoever(2), except that Tenant shall pay the first
monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this Lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with the Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice to
Tenant add the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT 1. Tenant shall pay the rent as above and as hereinafter
provided.
OCCUPANCY 2. Tenant shall use and occupy demised premises for the
general and executive offices of Tenant commensurate with the character and
dignity of the Building and for no other purpose.
ALTERATIONS 3. Tenant shall make no changes in or to the demised premises
of any nature without Landlord's prior written consent. Subject to the prior
written consent of Landlord, and to the provisions of this article.(3) Tenant
at Tenant's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility
services or plumbing and electrical lines, in or to the interior of the
demised premised by using contractors or mechanics first approved by
Landlord.(4) All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Landlord in Tenant's behalf, shall, upon installation, become the property of
Landlord and shall remain upon and be surrendered with the demised premises
unless Landlord, by notice to Tenant no later than twenty days prior to the
date fixed as the termination of this lease, elects to relinquish Landlord's
right thereto and to have them removed by Tenant, in which event, the same
shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense.(5) Nothing in this article shall be construed to
give Landlord title to or prevent Tenant's removal of trade fixtures,
moveable office furniture and equipment, but upon removal of any such from
the premises or upon removal of other installations as may be required by
Landlord, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any
damage to the demised premises or the building due to such removal. All
property required to be removed by Tenant at the end of the term remaining in
the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Landlord, either be retained as Landlord's property or may be
removed from the premises by Landlord at Tenant's expense. Tenant shall,
before making any alterations, additions, installations or improvements, at
its expenses, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates
of final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Landlord and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Landlord may(6) require. If any mechanic's lien is filed against
the demised premises, or the building of which the same forms a part, for
work claimed to have been done for, or materials furnished to, Tenant,
whether or not done pursuant to this article, the same shall be discharged by
Tenant within ____(7) days thereafter, at Tenant's expense, by filing the bond
required by law.(8)
REPAIRS 4. Landlord shall maintain and repair the public portions of
the building, both exterior and interior.(9) Tenant shall, throughout the
term of this lease, take good care of the demised premises and the fixtures
and appurtenances therein and at Tenant's sole cost and expense, make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, reasonable wear and tear, obsolescence and
damage from the elements, fire or other casualty, excepted. Notwithstanding
the foregoing, all damage or injury to thedemised premises or to any other
part of the building, or to its fixtures, equipment and appurtenances,
whether requiring structural or non-structural repairs, caused by or
resulting from carelessness, omissions, neglect or improper conduct of
Tenant, Tenant's servants, employees, invitees or licensees(10) shall be
repaired promptly by Tenant at its sole cost and expense, to the satisfaction
of Landlord reasonably exercised. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or
class equal to the original work or construction. If Tenant fails after ten
days notice to proceed with due diligence to make repairs required to be made
by Tenant, the same may be made by the Landlord at the expense of Tenant and
the expenses thereof incurred by Landlord shall be collectible as additional
rent after rendition of a bill or statement therefor.(11) Tenant shall give
Landlord prompt notice of any defective condition in any plumbing, heating
system or electrical lines located in, servicing or passing through the
demised premises and following such notice, Landlord shall remedy the
condition with due diligence but at the expense of Tenant if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as
specifically provided in Article 9 or elsewhere in this lease, there shall be
no allowance to Tenant for a diminution of rental value and no liability on
the part of Landlord by reason of inconvenience, annoyance or injury to
business arising Landlord, Tenant or others making or failing to make any
repairs, alterations, additions or improvements in or to any portion of the
building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof.(12) The provisions of this Article 4 with respect to the
making of repairs shall not apply in the case of fire or other casualty which
are dealt with in Article 9 hereof.
INSURANCE FLOOR LOADS
Tenant's sole, cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters or any similar body(13)
which shall impose any violation, order or duty upon Landlord or Tenant with
respect to the demised premises arising out of Tenant's(14) use or manner of use
thereof(15) or with respect to the building if arising out of Tenant's use or
manner of
WINDOW
CLEANING 5. Tenant will not clean, nor require, permit, suffer
or allow any window in the demised premises to be cleaned, from the outside
in violation of Section 202 of the Labor Law or any other applicable law or
of the rules of the Board of Standards and Appeals, or of any other board or
body having or asserting jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term, if Tenant is
OF LAW, FIRE then in possession, and at all times thereafter, Tenant, at
use of the premises or the building (including the use permitted under the
lease).(1) Nothing herein shall require Tenant to make structural repairs or
alterations unless Tenant has by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Landlord to Landlord's(2) satisfaction against all damages, interest, penalties
and expenses including, but not limited to reasonable attorney's fees, by cash
deposit(3) or by surety bond in an amount and in a company(4) satisfactory to
Landlord, contest and appeal any such laws, ordinances,
<PAGE>
orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject
Landlord to prosecution for a criminal offense or constitute a default under
any lease or mortgage under which Landlord may be obligated, or cause the
demised premises or any part thereof to be condemned or vacated. Tenant
shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other polices of insurance at any time carried
by or for the benefit of Landlord with respect to the demised premises or the
building of which he demised premises form a part, or which shall or might
subject Landlord to any liability or responsibility to any person or for
property damage, nor shall Tenant keep anything in the demised premises
except as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building
or any property located therein over that in effect prior to the commencement
of Tenant's occupancy.(5) Tenant shall pay all costs, expenses, fines,
penalties, or damages, which may be imposed upon Landlord by reason of
Tenant's failure to comply with the provisions of this article and if by
reason of such failure the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be,
then Tenant shall reimburse Landlord, as additional rent hereunder, for that
portion of all fire insurance premiums thereafter paid by Landlord which
shall have been charged because of such failure by Tenant, and shall make
such reimbursement upon the first day of the month following such outlay by
Landlord. In any action or proceeding wherein Landlord and Tenant are
parties a schedule or "make-up" of rate for the building or demised premises
issued by the New York Fire Insurance Exchange, or other body making fire
insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rate then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per
square foot area which it was designed to carry and which is allowed by law.
Landlord reserves the right to(6) prescribe the weight and position of all
safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings
sufficient, in Landlord's(7) judgment, to absorb and prevent vibration, noise
and annoyance.
SUBORDINATION
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or
the real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any lease or the real
property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord
may request.
SEE ARTICLE 47 PROPERTY - LOSS,
DAMAGE, REIMBURSEMENT, INDEMNITY
8. Landlord(8) shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury
or damage to persons or property resulting from any cause of whatsoever
nature, unless caused by or due to the negligence(9) of Landlord, its agents,
servants or employees; nor shall Landlord or its agents be liable for any
such damage caused by other tenants or persons in, upon or about said
building or caused by operations in construction of any private, public or
quasi public work. If at any time any windows of the demised premises are
temporarily closed, darkened or bricked up (or permanently closed, darkened
or bricked up, if required by law).(10) Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from it obligations hereunder nor constitute an eviction.
Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Landlord's prior
written consent. If such safe, machinery, equipment, bulky matter or
fixtures requires special handling, all work in connection therewith shall
comply with the Administrative Code of the City of New York and all other
laws and regulations applicable thereto and shall be done during such hours
as Landlord may(11) designate. Tenant shall indemnify and save harmless
Landlord against and from all liabilities, obligations, damages, penalties,
claims, costs and expenses for which Landlord shall not be reimbursed by
insurance,(12) including reasonable attorneys fees, paid, suffered or incurred
as a result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant, upon written notice from Landlord, will, at Tenant's expense, resist
or defend such action or proceeding by counsel.(13)
DESTRUCTION, FIRE AND OTHER CASUALTY
9. (a) If the demised premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give immediate notice thereof
to Landlord and this lease shall continue in full force and effect except as
hereinafter set forth. (b) If the demised premise are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto
shall be repaired by and at the expense of Landlord and the rent, until such
repair shall be substantially completed,(14) shall be apportioned from the day
following the casualty according to the part of the premises which is
usuable(15), (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately
paid up to the time of the casualty and thenceforth shall cease until the
date when the premises shall have been repaired and restored by Landlord,
subject to Landlord's right to elect not to restore the same as hereinafter
provided.(16) (d) If the demised premises are rendered wholly unusable or
(whether or not the demised premises are damaged in whole or in part) if the
building shall be so damaged that Landlord shall decide to demolish it or to
rebuild it, then, in any such events, Landlord may elect to terminate this
lease by written notice to Tenant given with 90 days after such fire or
casualty specifying a date for the expiration of the lease, which date shall
not be more than 60 days after giving such notice, and upon the date
specified in such notice the term of the lease shall expire as fully and
completely as if such date were the date set forth above for the termination
of this lease and Tenant shall forthwith quit, surrender and vacate the
premises without prejudice however to Landlord's rights and remedies against
Tenant under the lease provisions in effect prior to such termination, and
any rent owing shall be paid up to such date and any payments of rent made by
Tenant which were on account of any period subsequent to such date shall
be(17) returned to Tenant. Unless(18) shall serve a termination notice as
provided for herein, Landlord shall make the repairs and restorations under the
conditions of (b) and (c) hereof, with all reasonable expedition subject to
delays due to adjustment of insurance claims, labor troubles and causes
beyond Landlord's control. After any such casualty, Tenant shall cooperate
with Landlord's restoration by removing from the premises as promptly as
reasonably possible, all of Tenant's salvageable inventory and movable
equipment, furniture, and other property. Tenant's liability for rent shall
resume five (5) days after written notice from Landlord that the premises are
substantially ready for Tenants occupancy(19), (20)(e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from fire or other casualty. Notwithstanding the foregoing, each
party shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire
or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Landlord and Tenant each
hereby releases and waives all right of recovery against the other or anyone
claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance and also provided that such a policy can
be obtained without additional premiums Tenant acknowledges that Landlord
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Landlord will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
EMINENT DOMAIN
10. If the whole or any part of the demised premises
shall be acquired or condemned by Eminent Domain for any public or quasi
public use or purpose, then and in that event, the term of this lease shall
cease and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of said
lease.(21)
ASSIGNMENT, MORTGAGE, ETC.
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Landlord in each
instance. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but
no such assignment, underletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, under-tenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by
Landlord to an assignment or underletting shall not in any wise be construed
to relieve Tenant from obtaining the express consent in writing of Landlord
to any further assignment or underletting. SEE ARTICLE 44
ELECTRIC CURRENT
12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto.
ii
<PAGE>
ACCESS TO PREMISES
13. Landlord or Landlord's agents shall have the right (but shall not
be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times,(1) to examine the same and to make such
repairs, replacements and improvements as Landlord may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which landlord may elect to perform following Tenant's failure to
make repairs or perform any work which Tenant is obligated to perform under
this lease, or for the purpose of complying with laws, regulations and other
directors of governmental authorities.(1) Tenant shall permit Landlord to use
and maintain and replace pipes and conduits in and through the demised
premises and to erect new pipes and conduits therein. Landlord may, during
the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof, Landlord shall have the
right to enter the demised premises at reasonable hours(3) for the purpose of
showing the same to prospective purchasers or mortgagees of the building, and
during the last(4) ____ of the term for the purpose of showing the same to
prospective tenants. If Tenant is not present to open and permit an entry
into the premises, Landlord or Landlord's agents may enter the same whenever
such entry may be necessary or permissible by master key or forcibly(5) and
provided reasonable care is exercised to safeguard Tenant's property and such
entry shall not render Landlord or its agents liable therefor, nor in any
event shall the obligations of Tenant hereunder be affected. Landlord shall
have the right at any time, without the same constituting an eviction and
without incurring liability to Tenant therefor to change the arrangement
and/or location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets, or other public parts of the building and to
change the name, number or designation by which the building may be known.(6)
VAULT, VAULT SPACE AREA
14. No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan or
anything contained elsewhere in this lease to the contrary notwithstanding.(7)
Landlord makes no representation as to the location of the property line of
the building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and/or
occupy, is to be used and/or occupied under a revocable license, and if any
such license be revoked, or if the amount of such space or area be diminished
or required by any federal, state or municipal authority or public utility,
Landlord shall not be subject to any liability nor shall Tenant be entitled
to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax fee or charge of municipal authorities for such vault or
area shall be paid by Tenant.(8)
OCCUPANCY
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy(9) issued for the building of which
the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to
Landlord's work, if any. In any event, Landlord makes no representation as
to the condition of the premises and Tenant agrees to accept the same subject
to violations whether or not of record.(10)
BANKRUPTCY
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any
one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor(11), or
(2) the making by Tenant of an assignment or any other arrangement for the
benefit of creditors under any state statue. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises demised but
shall forthwith quit and surrender the premises. If this lease shall be
assigned in accordance with its terms, the provisions of this Article 16
shall be applicable only to the party then owning Tenant's interest in this
lease.
(b) It is stipulated and agreed that in the event of the termination of this
lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference
between the rent reserved hereunder for the unexpired portion of the term
demised and the fair and reasonable rental value of the demised premises for
the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the
period for which such installment was payable shall be discounted to the date
of termination at the rate of four per cent (4%) per annum. If such premises
or any part thereof be relet by the owner for unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages
to any court, commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and unreasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of
the Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
DEFAULT
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or
if the demised premises are damaged by reason of negligence or carelessness
of Tenant, its agents, employees or invitees; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other
than Tenant or if Tenant shall make default with respect to any other lease
between Landlord and Tenant; then, any one or more of such events, upon
Landlord serving a written said ____ (12) days notice upon Tenant specifying
the nature of said default and upon the expiration of said ____ (12) days, if
Tenant shall have failed to comply with or remedy such default, or if the
said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said ____ (12) day period, and if
Tenant shall not have diligently commenced curing such default within such
(10) day period, and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such default, then Landlord may serve a
written three (3) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said three (3) days, this lease and the term
thereunder shall end and expire as fully and completely as if the expiration
of such three (3) day period were the day herein definitely fixed for the end
and expiration of this lease and the term thereof and Tenant shall then quit
and surrender the demised premises to Landlord but Tenant shall remain liable
as hereinafter provided. (2) If the notice provided for in (1) hereof shall
have been given, and the term shall expire as aforesaid; or if Tenant shall
make default in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making any other
payment herein required(13), then and in any of such events Landlord may
without notice(14), re-enter the demised premises either by force or otherwise,
and dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Landlord may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF LANDLORD AND WAIVE OF REDEMPTION
18. In case of any such default(15) re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, together with such expenses as Landlord may incur for legal
expenses, attorneys' fees, brokerage, and/or putting the demised premises in
good order, or for preparing the same for re-rental; (b) Landlord may re-let
the premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms, which may at Landlord's option be less than
or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a
higher rental than that in this lease, and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord as liquidated damages for
the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted
to be paid and the net amount, if any, of the rents collected on account of
the lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Landlord to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing
such liquidated damages there shall be added to the said deficiency such(16)
expenses as Landlord may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount
of the deficiency for any month shall not prejudice in any way the rights of
Landlord to collect the deficiency for any subsequent month by a similar
proceeding. Landlord, in putting the demised premises in good order or
preparing the same for re-rental may, at Landlord's option, make such
alterations, repairs, replacements, and/or decorations in the demised
premises as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess,
if any, of such net rent collected over the sums payable by Tenant to
Landlord hereunder. In the event of a breach or
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threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and
other remedies were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Landlord from any other remedy, in law
or in equity. 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
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of demised premises, by reason of the violation by Tenant of any
of the covenants and conditions of this lease, or otherwise.
FEES AND EXPENSES:
19. If Tenant shall default(1) in the observance or performance of any
term or covenant on tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Landlord may immediately
or at any time thereafter and without notice perform the obligation of Tenant
thereunder, and if Landlord, in connection therewith or in connection with
any default by tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including
but not limited to attorneys' fees, in instituting, prosecuting or defending
any action or proceeding, such sums so paid or obligations incurred with
interest and costs shall be deemed to be additional rent hereunder and shall
be paid by Tenant to Landlord within ____ (2) days of rendition of any bill or
statement to tenant therefore, and if tenant's lease term shall have expired
at the time of making of such expenditures or incurring of such obligations,
such sums shall be recoverable by landlord as damages.
NO REPRESENTATIONS BY LANDLORD
20. (3) Landlord nor Landlord's agents have made any representations or
promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, expenses
of operation or any other matter or thing affecting or related to the
premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as
expressly set forth in the provisions of this lease. Tenant has inspected
the building and the demised premisses and is thoroughly acquainted with
their condition, and (4) agrees to take the same "as is" and acknowledges that
the taking of possession of the demised premises by Tenant shall be conclusive
evidence that the said premises and the building of which the same form a part
were in good and satisfactory condition at the time such possession was so
taken, except as to latent defects. All understandings and agreements
heretofore made between the parties hereto are merged in this contract, which
alone fully and completely expresses the agreement between Landlord and Tenant
and any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part, unless
such executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
END OF TERM
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear excepted, and Tenant shall
remove all its property.(5) Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT
22. Landlord covenants and agrees with Tenant that upon Tenant paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 30 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION
23. If Landlord is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over
or retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building being constructed, because such building
has not been sufficiently completed to make the premises ready for occupancy
or because of the fact that a certificate of occupancy has not been procured
or for any other reason, Landlord shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in
any wise to extend the term of this lease, but the rent payable hereunder
shall be abated (provided Tenant is not responsible for the inability to
obtain possession) until after Landlord shall have given Tenant written
notice that the premises are substantially ready for Tenant's occupancy. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this Lease, except as to the
covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Property Law.
NO WAIVER
24. The failure of Landlord(6) to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease
or of any of the Rules or Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Landlord(7) of rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Landlord(8)
unless such waiver be in writing signed by Landlord.(9) No payment by Tenant
or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this lease provided. No act or thing done by Landlord or
Landlord's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee
of Landlord or Landlord's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys
to any such agent or employee shall not operate as a termination of the lease
or a surrender of the premises.
WAIVER OF TRIAL BY JURY
25. 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 (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this lease,
the relationship of Landlord and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding.(10)
INABILITY TO PERFORM
26. ___ (11) lease and the obligation of Tenant to pay rent hereunder and
(12)perform all of the other covenants and agreements hereunder on part of(13)
to be performed shall in no wise be affected, impaired or excused because(14) is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if(15) is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including but not limited to,
government preemption in connection with a National Emergency or by reason of
any rule, order or regulation of a department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which
have been or are affected by war or other emergency.(16)
27. DELETED
SERVICES PROVIDED BY LANDLORD - WATER, ELEVATORS, HEAT, CLEANING, AIR
CONDITIONING
28. Landlord shall provide: (a) necessary elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.
and have one elevator subject to call at all other times(17) (b) heat to the
demised premises when and as required by law, on business days from 8 a.m. to
6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (c)(18)water for ordinary
lavatory(19) purposes, but if Tenant uses or consumes water for any other
purposes or in unusual quantities (of which fact Landlord shall be the sole
judge), Landlord may install a water meter at Tenant's expense which Tenant
shall thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for water
consumed as shown on said meter as additional rent as and when bills are
rendered, and on Tenant's default in making such payment, Landlord may pay
such charges and collect the same from Tenant. Such a meter shall also be
installed and maintained at Tenant's expense if required by Law or
Governmental Order. Tenant, if a water meter is so installed, covenants and
agrees to pay its proportionate share of the sewer rent and all other rents
and charges which are now or hereafter assessed, imposed or may become a lien
on the demised premises or the realty of which they are a part. If
applicable, air conditioning/cooling will be furnished from May 15th through
September 30th on business days (Mondays through Fridays, holidays excepted)
from 8:00 a.m. to 6:00 p.m. and ventilation will be furnished on business
days during the aforesaid hours except when air conditioning/cooling is being
furnished as aforesaid. If Tenant requires air conditioning/cooling or
ventilation for more extended hours or on Saturdays, Sundays or on holidays,
as defined under Landlord's contract with Operating Engineers Local 94-94A,
Landlord will furnish the same at Tenant's expense. (f) (20)Landlord shall
have no responsibility or liability for failure to supply the services agreed
to herein. Landlord reserves the right
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to stop services of the heating, elevators, plumbing, air-conditioning, power
systems or cleaning or other services, if any, when necessary by reason of
accident or for repairs, alterations, replacements or improvements necessary
or desirable in the judgment of Landlord for as long as may be reasonably
required by reason thereof or by reason of strikes, accidents, laws, order or
regulations or any other reason beyond the control of Landlord.(1) If the
building of which the demised premises are a part supplies manually-operated
elevator service, Landlord at any time may substitute automatic-control
elevator service and upon ten days' written notice to Tenant, proceed with
alterations necessary therefor without in any wise affecting this lease or
the obligations of Tenant hereunder. The same shall be done with a minimum
of inconvenience to Tenant and Landlord shall pursue the alteration with due
diligence.(2)
SEE ARTICLE 40
CAPTIONS
29. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS
30. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Landlord" as used in this
lease means only the owner, or the mortgagee in possession, for the time being
of the land and building (or the owner of a lease of the building or, of the
land and building) of which the demised premises form a part, so that in the
event of any sale or sales of said land and building or of said lease, or in the
event of a lease of said building, or of the land and building, the said
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder(3) and it shall be deemed and construed
without further agreement between the parties or their successors in interest,
or between the parties and the purchaser, at any such sale, or the said lessee
of the building, or of the land and building, that the purchaser or the lessee
of the building has assumed and agreed to carry out any and all covenants and
obligations of Landlord, hereunder. The words "re-enter" and "re-entry" as used
in this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall exclude Saturdays (except such
portion thereof as is covered by specific hours in Article 28 hereof), Sundays
and all days observed by the State or Federal Government as legal holidays and
those designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service.
ADJACENT EXCAVATION - SHORINGS
31. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made(4) Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purpose of doing such work as said person shall
deem necessary to preserve the wall or the building of which demised premises
form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Landlord, or
diminution or abatement of rent.
RULES AND REGULATIONS
32. Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as Landlord may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional
Rule or Regulation upon Tenant's part shall be deemed waived unless the same
shall be asserted by service of a notice, in writing upon Landlord within ten
(10) days after the giving of notice thereof. Nothing in this lease
contained shall be construed to impose upon Landlord any duty or obligation
to enforce the Rules and Regulations or terms, covenants or conditions in any
other lease, as against any other tenant and Landlord shall not be liable to
Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licenses.(5)
SECURITY
33. Tenant has deposited with Landlord the sum of $950,000.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Landlord may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord.(6) In the event that Tenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the land and building or leasing of the
building which the demised premises form a part, Landlord shall have the right
to transfer the security to the vendee or lessee and Landlord shall thereupon
be released by Tenant from all liability for the return of such security and
Tenant agrees to look to the new Landlord solely for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
SEE SECTION 58M
SUCCESSORS AND ASSIGNS
34. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
See Rider attached hereto and made part hereof.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
B.J.W. ASSOCIATES
Witness for Landlord: By:
----------------------------------------
- ---------------------------------
LOUIS HARRIS AND ASSOCIATES, INC.
Witness for Tenant: By:
----------------------------------------
- --------------------------------- Title:
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ACKNOWLEDGMENTS
CORPORATE LANDLORD
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this______ day of ___________________, 19____, before me personally
came __________________________, to me known, who being by me duly sworn, did
depose and say that he resides in_________________________ ______________,
that he is the_______________ of_________________, the corporation described in
and which executed the foregoing instrument, as LANDLORD; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
--------------------------------------
CORPORATE TENANT
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this______ day of ____________________, 19____, before me personally
came _______________________, to me known, who being by me duly sworn, did
depose and say that he resides in__________________________________________,
that he is the_______________________ of _____________________, the
corporation described in and which executed the foregoing instrument, as TENANT,
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
--------------------------------------
INDIVIDUAL LANDLORD
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this ______ day of _________________, 19____, before me personally came
___________________________, to me known and known to me to be the individual
described in and who, as LANDLORD, executed the foregoing instrument and
acknowledged to me that he executed the same.
--------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK )
COUNTY OF ) ss:
-----------
On this _______ day of __________________, 19____, before me personally
came ____________________________, to me known and known to me to be the
individual described in and who, as TENANT, executed the foregoing instrument
and acknowledged to me that he executed the same.
--------------------------------------
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Exhibit 10.9
LOAN AGREEMENT
(Corporation, LLC or Partnership)
[LOGO] M&T Bank
Manufacturers and Traders Trust Company
Rochester, New York August, 1999 $5,000,000.00
BORROWER: GORDON S. BLACK CORPORATION
a(n) |X| corporation |_| general partnership |_| limited partnership |_| _______
organized under the laws of New York State having its chief executive office at
135 Corporate Woods, Rochester, New York 14623.
BANK: MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation
with its chief executive office at One M & T Plaza, Buffalo, NY 14240.
Attention: Office of General Counsel
The Bank and Borrower agree as follows:
1. THE LOAN. See Addendum
a.
b. Repayment. Payment of principal, interest and all other amounts
pursuant to this Agreement and under the Notes shall be made in lawful money of
the United States in immediately available funds at the Bank's banking office at
One M&T Plaza, Buffalo, New York, or at such other office as may be specified by
the Bank.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower for itself and,
unless expressly waived by the Bank, for each subsidiary, parent and other
entity under common control with or at least 50% owned by Borrower (a
"Subsidiary"; collectively, Borrower and each Subsidiary are the "Borrower")
represents, warrants and covenants with the Bank that now and continuing
throughout the term of this Agreement:
a. Use of Proceeds. The Loan proceeds will be used only for the purpose
specified to the Bank in the Addendum.
b. Good Standing; Authority. The Borrower (i) is an entity duly organized,
validity existing and in good standing under the laws of the jurisdiction in
which it was formed, (ii) is duly authorized to do business in each jurisdiction
in which failure to be so qualified might have a material adverse effect on its
business or assets and (iii) has the power and authority to own each of its
assets and to use them as contemplated now and in the future.
c. Compliance. The Borrower conducts its business and operations and the
ownership of its assets in compliance with each applicable statute, regulation
and other law, including without limitation environmental laws. All approvals,
including without limitation authorizations, permits, consents, franchises,
licenses, registrations, filings, declarations, reports and notices (the
"Approvals") necessary for the conduct of Borrower's business and for the Loan
have been duly obtained and are in full force and effect. The Borrower is in
compliance with the Approvals, with its articles of incorporation and bylaws or
other organizational documents and with each agreement to which it is a party or
by which it or any of its assets is bound.
d. Legality. The execution, delivery and performance by Borrower of this
Agreement and all related documents (i) are in furtherance of Borrower's
purposes and within its power and authority; (ii) do not (A) violate any
statute, regulation or other law or any judgment, order or award of any court,
agency or other governmental authority or of any arbitrator or (B) violate
Borrower's certificate of incorporation or other governing instrument,
constitute a default under any agreement binding on Borrower or result in a lien
or encumbrance on any assets of Borrower: and (iii) have been duly authorized by
all necessary corporate or partnership actions.
e. Fiscal Year. The fiscal year of Borrower is the calendar year unless
the following blank states otherwise: year ending _________________, 199_/20__.
f. Accounting; Tax Returns and Payment of Claims. The Borrower will
maintain a system of accounting and reserves in accordance with generally
accepted accounting principles, has filed and will file each tax return required
of it and, except as disclosed in an attached Schedule, has paid and will pay
when due each tax, assessment, fee, charge, fine and penalty imposed by any
taxing authority upon it or any of its assets, income or franchises, as well as
all amounts owed to mechanics, materialmen, landlords, suppliers and the like in
the normal course of business.
g. Title to Assets; Insurance. Borrower has good and marketable title to
each of its assets free of security interests, mortgages or other liens or
encumbrances, except as set forth on an attached Schedule titled "Permitted
Liens" or pursuant to the Bank's prior written consent Borrower will maintain
its property in good repair and will on request provide the Bank with evidence
of insurance coverage satisfactory to Bank, including without limitation fire
and hazard, liability, workers' compensation and business interruption insurance
and flood hazard insurance as required.
h. Judgments and Litigation. There is no pending or threatened claim,
audit, investigation, action or other legal proceeding or judgment, order or
award of any court, agency or other governmental authority or arbitrator which
involves Borrower or its assets and might have a material adverse effect upon
Borrower or threaten the validity of this Agreement or any related document or
action. Borrower will immediately notify Bank upon acquiring knowledge of any
such action.
i. Full Disclosure. Neither this Agreement nor any certificate, financial
statement or other writing provided to the Bank by or on behalf of Borrower
contains any statement of fact that is incorrect or misleading in any material
respect or omits to state any fact necessary to make any such statement not
incorrect or misleading. The Borrower has not failed to disclose to the Bank any
fact that might have a material adverse effect on Borrower or on the Bank's
decision to lend.
j. Financial and Other Information; Certificates of No Default. During the
term of this Agreement, Borrower shall promptly deliver to Bank copies of all
annual reports, proxy statements and similar information distributed to
shareholders or partners and of all filings with the Securities and Exchange
Commission and the Pension Benefit Guaranty Corporation and shall provide, in
form satisfactory to the Bank: (i) within sixty days after the end of each of
its first three fiscal quarters, consolidating and consolidated statements of
income and cash flows for the quarter, for the corresponding quarter in the
previous fiscal year and for the period from the end of the previous fiscal
year, with a consolidating and consolidated balance sheet as of the quarter end;
(ii) within ninety days after the end of each fiscal year, consolidating and
consolidated statements of Borrower's income and cash flows and its
consolidating and consolidated balance sheet as of the end of such fiscal year,
setting forth comparative figures for the preceding fiscal year and to be:
|X| audited |_| reviewed |_| compiled
by an independent certified public accountant acceptable to the Bank; all such
statements shall be certified by Borrower's chief financial officer or partner
to be correct and in accordance with Borrower's records and to present fairly
the results of Borrower's operations and cash flows and its financial position
at year end in conformity with generally accepted accounting principles: and
(iii) with each statement of income, a certificate executed
1
<PAGE>
by Borrower's chief executive and chief financial officers or managing partners
(A) setting forth the computations required to establish Borrower's compliance
with each financial covenant during the statement period, (B) stating that the
signers of the certificate have reviewed this Agreement and the operations and
condition (financial or other) of Borrower and each of its Subsidiaries during
the relevant period and (C) stating that no Event of Default occurred during the
period, or if an Event of Default did occur, describing its nature, the date(s)
of its occurrence or period of existence and what action Borrower has taken with
respect thereto. If no box is checked above, Borrower shall supply financial
reports in the form and number of copies satisfactory to the Bank.
k. Inspections. Promptly upon the Bank's request, Borrower will permit the
Bank's officers, attorneys or other agents to inspect its premises, examine and
copy its records and discuss its business, operations and financial or other
condition with its responsible officers and independent accountants.
l. Changes in Management and Control. Immediately upon any change in the
identity of Borrower's chief executive officers or in its beneficial ownership,
Borrower will provide to the Bank a certificate executed by its President or
managing partner specifying such change.
m. Notice of Defaults and Material Adverse Changes. Immediately upon
acquiring reason to know of (i) any Event of Default or (ii) any event or
condition that might have a material adverse effect upon Borrower, Borrower will
provide to the Bank a certificate executed by Borrower's chief executive and
financial officers or partners specifying the date(s) and nature of the event
and what action Borrower has taken or proposes to take with respect to it.
n. Further Assurances. Promptly upon the request of the Bank, Borrower
will execute and deliver each writing and take each other action that the Bank
deems necessary or desirable in connection with any transaction contemplated by
this Agreement.
o. Systems. That (i) Borrower has assessed its equipment (including
embedded systems), software, firmware and computer systems (including equipment
or systems supplied by others or with which Borrower's equipment and systems
exchange date data) that are material to Borrower conducting its business and/or
performing operations (collectively, the "Systems") to determine whether such
Systems accurately process date data from, into, and between the twentieth and
twenty-first centuries, including leap year calculations ("Y2K Compliant"); (ii)
in sufficient time before December 31, 1999, Borrower will have corrected and
redeployed any non-Y2K Compliant Systems so that all its Systems are Y2K
Compliant and all Systems will have been tested to confirm that they are Y2K
Compliant and (iii) the expense of correcting and redeploying any non-Y2K
Compliant Systems and all System testing, and/or the reasonably foreseeable
consequence of any System failing to be Y2K Compliant will not have a material
adverse effect on Borrower. Upon the Bank's request, Borrower shall provide the
Bank with updates on the status of its Systems' Year 2000 readiness.
3. FINANCIAL COVENANTS. During the term of this Agreement, Borrower shall not,
and shall not suffer or permit any of its Subsidiaries to, without the prior
written consent of the Bank, violate any of the following covenants or any
"Additional Covenants" on any attached Schedule;
a.
b.
c. Fiscal Year. Change its fiscal year;
d. Indebtedness. Permit any indebtedness (including direct and contingent
liabilities) not described on an attached Schedule titled "Permitted
Indebtedness" except for trade indebtedness or current liabilities for salary
and wages incurred in the ordinary course of business and not substantially
overdue;
e. Liens. Permit any of its assets to be subject to any security interest,
mortgage or other lien or encumbrance, except as set forth on an attached
Schedule titled "Permitted Liens" and except for liens for property taxes not
yet due; pledges and deposits to secure obligations or performance for workers'
compensation, bids, tenders, contracts other than notes, appeal bonds or public
or statutory obligations; and materialmen's, mechanics', carriers' and similar
liens arising in the normal course of business;
f.
g.
h.
i. Investments. Make any investment other than in FDIC insured deposits or
United States Treasury obligations of less than one year, or in money market or
mutual funds administering such investments, except as set forth on an attached
Schedule titled "Permitted Investments";
j. Loans. Make any loan, advance or other extension of credit except as
disclosed in an attached Schedule titled "Permitted Loans", except for
endorsements of negotiable instruments deposited to Borrower's deposit account
for collection, trade credit in the normal course of business and intercompany
loans approved in writing by the Bank;
k. Distributions. Declare or pay any distribution, except for (i)
dividends payable solely in stock and (ii) cash dividends paid to Borrower by
its Subsidiary; or
l. Changes In Form. (i) Transfer or dispose of substantially all of Its
assets, (ii) participate in any merger, consolidation or other absorption, (iii)
acquire substantially all of the assets of any other entity, (iv) do business
under or otherwise use any name other than its true name, (v) make, terminate or
permit to be revoked any election pursuant to Subchapter S of the Internal
Revenue Code or (vi) make any material change in its business, structure,
purposes or operations that might have a material adverse effect on Borrower.
4. EVENTS OF DEFAULT; ACCELERATION. The following constitute an event of default
("Event of Default"): (i) failure by Borrower to make any payment when due
(whether at the stated maturity, by acceleration or otherwise) of the amounts
due under this Agreement or the Note within ten days of the date when due, or
any part thereof, or there occurs any event or condition which after notice,
lapse of time or both will permit such acceleration; (ii) Borrower defaults in
the performance of any covenant or other provision with respect to this
Agreement or the Note or any other agreement between Borrower and the Bank or
any of its affiliates or subsidiaries (collectively, "Affiliates"); (iii)
Borrower fails to pay when due (whether at the stated maturity, by acceleration
or otherwise) any indebtedness for borrowed money owing to any third party or
any Affiliate, the occurrence of any event which could result in acceleration of
payment of any such indebtedness or the failure to perform any agreement with
any third party; (iv) the reorganization, merger, consolidation or dissolution
of Borrower (or the making of any agreement therefor); the sale, assignment,
transfer or delivery of all or substantially all of the assets of Borrower to a
third party; or the cessation by Borrower as a going business concern; (v) the
death or judicial declaration of
2
<PAGE>
incompetency of Borrower, if an individual; (vi) failure to pay, withhold or
collect any tax as required by law; the service or filing against Borrower or
any of its assets of any lien (other than a lien permitted in writing by the
Bank), judgment, garnishment, order or award; (vii) if Borrower becomes
insolvent or is generally not paying its debts as such debts become due; (viii)
the making of any general assignment by Borrower for the benefit of creditors;
the appointment of a receiver or similar trustee for Borrower or its assets; or
the making of any, or sending notice of any intended, bulk sale; (ix) Borrower
commences, or has commenced against it, any proceeding or request for relief
under any bankruptcy, insolvency or similar laws now or hereafter in effect in
the United States of America or any state or territory thereof or any foreign
jurisdiction or any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against or winding up of affairs of
Borrower; (x) any representation or warranty made in this Agreement or the Note,
any related document, any agreement between Borrower and the Bank or any
Affiliate or in any financial statement of Borrower proves to have been
misleading in any material respect when made; Borrower omits to state a material
fact necessary to make the statements made in this Agreement or the Note, any
related document, any agreement between Borrower and the Bank or any Affiliate
or any financial statement of Borrower not misleading in light of the
circumstances in which they were made; or, if upon the date of execution of this
Agreement, there shall have been any materially adverse change in any of the
facts disclosed in any financial statement, representation or warranty that was
not disclosed in writing to the Bank at or prior to the time of execution
hereof; (xi) any pension plan of Borrower fails to comply with applicable law or
has vested unfunded liabilities that, in the opinion of the Bank, might have a
material adverse effect on Borrower's ability to repay its debts; (xii) the
occurrence of any event described in sub-paragraph 4(i) through and including
4(xi) hereof with respect to any endorser, guarantor or any other party liable
for, or whose assets or any interest therein secures, payment of any of the
amounts due under this Note ("Guarantor"); (xiii) there occurs any change in the
management or ownership of Borrower or any Guarantor which is, in the opinion of
the Bank, materially adverse to its interest and which remains uncorrected for
thirty days after the Bank notifies Borrower of its opinion; or (xiv) any
Additional Event of Default specified in the Addendum occurs. All amounts
hereunder and under the Note shall become immediately due and payable upon the
occurrence of 4(ix) above, or at the Bank's option, upon the occurrence of any
other Event of Default. Nothing contained in this Agreement or otherwise shall
preclude Bank from demanding, at any time, payment of any demand note executed
by Borrower in favor of Bank, whether or not an Event of Default has occurred.
5. EXPENSES. The Borrower shall pay to the Bank on demand all costs and expenses
(including but not limited to attorneys' fees and disbursements whether for
internal or outside counsel) incurred by the Bank in connection with the Loan,
whether or not the Loan is made and including without limitation costs of
collection, of preserving or exercising any right or remedy of the Bank under
this or any related security agreement or guaranty, of workout or bankruptcy
proceedings by or against Borrower, and of defending against any claim asserted
as a direct or indirect result of the Loan. Expenses shall accrue interest at
the Default Rate set forth in the Note from the date of demand until payment is
received by the Bank.
6. NONWAIVER BY BANK. All rights and remedies of the Bank are cumulative, and no
right or remedy shall be exclusive of any other right or remedy. No single,
partial or delayed exercise by the Bank of any right or remedy, shall preclude
full and timely exercise by the Bank at any time of any right or remedy of the
Bank without notice or demand, at the Bank's sole option. No course of dealing
or other conduct, no oral agreement or representation made by the Bank or usage
of trade shall operate as a waiver of any right or remedy of the Bank. No waiver
of any right or remedy of the Bank shall be effective unless made specifically
in writing by the Bank.
7. RIGHT OF SETOFF. If an Event of Default occurs, the Bank shall have the right
to set off against the amounts owing under this Agreement and the Note any
property held in a deposit or other account or otherwise with the Bank or its
Affiliates or otherwise owing by the Bank or its Affiliates in any capacity to
Borrower or any guarantor or endorser of the Note. Such set-off shall be deemed
to have been exercised immediately at the time the Bank or such Affiliate elect
to do so.
8. NOTICES. Any notice or demand hereunder shall be duly given if delivered or
mailed to Borrower (at its address on the Bank's records) or to the Bank (at the
address on page one and separately to the Bank officer responsible for
Borrower's relationship with the Bank). Such notice or demand shall be deemed
effective if delivered, upon personal delivery or if mailed, 3 business days
after deposit in an official depository maintained by the United States Post
Office for the collection of mail or 1 business day after delivery to a
nationally recognized overnight delivery service. Notice by e-mail is not valid
notice under this or any other agreement between Borrower and the Bank.
9. TERM; SURVIVAL. See Addendum.
10. MISCELLANEOUS. This Agreement with the Note and all collateral documents
including without limitation security agreements and guarantees contains the
entire agreement between the Bank and Borrower with respect to the Loan, and
supersedes every course of dealing, other conduct, oral agreement and
representation previously made by the Bank. No change in this Agreement shall be
effective unless made in a writing duly executed by the Bank. Borrower agrees
that in any legal proceeding, a copy of this Note kept in the Bank's course of
business may be admitted into evidence as an original. This Agreement is a
binding obligation enforceable against Borrower and its successors and assigns
and shall inure to the benefit of the Bank and its successors and assigns. Each
provision of this Agreement shall be Interpreted as consistent with existing law
and shall be deemed amended to the extent necessary to comply with any
conflicting law. If a court deems any provision invalid, the remainder of the
Agreement shall remain in effect. Section headings are for convenience only.
11. JOINT AND SEVERAL. If there is more than one Borrower, each of them shall be
jointly and severally liable for all amounts and obligations which become due
under this Agreement and the term "Borrower" shall include each as well as all
of them.
12. GOVERNING LAW; JURISDICTION. This Agreement has been delivered to and
accepted by the Bank and will be deemed to be made in the State of New York.
This Agreement will be interpreted in accordance with the laws of the State of
New York excluding its conflict of laws rules. BORROWER HEREBY IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK
STATE IN A COUNTY OR JUDICIAL DISTRICT WHERE THE BANK MAINTAINS A BRANCH AND
CONSENTS THAT THE BANK MAY SERVE ANY SERVICE OF PROCESS BY NATIONALLY RECOGNIZED
OVERNIGHT COURIER SERVICE DIRECTED TO BORROWER AT BORROWER'S ADDRESS SET FORTH
HEREIN AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED ON THE BUSINESS DAY
AFTER DEPOSIT WITH SUCH COURIER; PROVIDED THAT NOTHING CONTAINED IN THIS
AGREEMENT WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR
JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER INDIVIDUALLY, AGAINST ANY
SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY OTHER COUNTY, STATE OR
OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees that
the venue provided above is the most convenient forum for both the Bank and
Borrower. Borrower waives (i) any objection to venue and any objection based on
a more convenient forum in any action instituted under this Agreement: (ii) any
right to assert any counterclaim or setoff or any defense based upon a statute
of limitations, a claim of laches or any other legal theory; and (iii) its right
to attack a final judgment that is obtained as a direct or indirect result of
any such action.
13. WAIVER OF JURY TRIAL. BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY,
AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE BANK MAY
HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS
NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS AND WARRANTS THAT
NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY
TRIAL WAIVER. BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO
THIS NOTE BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.
14. ADDENDUM. The attached Addendum is an integral part of this Agreement.
3
<PAGE>
SCHEDULE
Schedule of Permitted Liens (for use with Section 2g of this Agreement)
Schedule of Additional Covenants (for use with Section 3 of this Agreement)
1. Borrower shall also comply with all covenants contained in a General
Security Agreement executed and delivered to Bank by Borrower on or about
February 9, 1996 ("Existing S/A"), including but not limited to covenants
contained in Section 4 of the Existing S/A.
Schedule of Permitted Investments (for use with Section 3i of this Agreement)
Schedule of Permitted Indebtedness (for use with Section 3d of this Agreement)
Schedule of Permitted Loans (for use with Section 3j of this Agreement)
<PAGE>
GORDON S. BLACK CORPORATION
Witness: By: /s/ Bruce A. Newman
-------------------------- ----------------------------------
(Signature) Bruce A. Newman
Title: CEO - Secretary
-------------------------- Date: 8/18/99
(Typed Name)
TIN # 16-1046123
MANUFACTURERS AND TRADERS TRUST COMPANY
By _______________________________
J. Theodore Smith
Title: Vice President
Date: ____________________________
ACKNOWLEDGMENT
STATE OF NEW YORK )
: SS.
COUNTY OF MONROE )
On the ______ day of August in the year 1999, before me personally came BRUCE A.
NEWMAN
|_| Partnership to me known and known to me to be a general partner of the
partnership described in and which executed the above
instrument, and __he duly acknowledged to me that __he
executed the above instrument for and on the behalf of said
partnership.
|X| Corporation to me known, who, being by me duly sworn, did depose and say
that __he resides in ________________________________________;
that __he is the ______________________ of GORDON S. BLACK
CORPORATION, the corporation described in and which executed
the above instrument; and that __he signed his (her) name
thereto by order of the board of directors or said
corporation.
|_| LCC to me known, who, being duly sworn, did depose and say that
__he resides at _________________________________________;
that __he is the ____________________________________________
of the limited liability company described in and which
executed the above instrument; and that __he signed his (her)
name thereto by order of the members/managers of said limited
liability company.
/s/ Valerie P. Ciufo
--------------------------------------
Notary Public
Valerie P. Ciufo #4844856
Notary Public
State of NY, Monroe County
My Commission Expires 3/30/01
- --------------------------------------------------------------------------------
BANK USE ONLY
Authorization Confirmed: _______________________________________________________
<PAGE>
ADDENDUM TO A LOAN AGREEMENT
This Addendum to a Loan Agreement is made August ____, 1999, by and
between GORDON S. BLACK CORPORATION ("Borrower"), a domestic corporation with an
office and principal place of business located at 135 Corporate Woods,
Rochester, New York 14623 and MANUFACTURERS AND TRADERS TRUST COMPANY ("Bank"),
a domestic corporation with an office and principal place of business located at
One M&T Plaza, Buffalo, New York 14240. This Addendum is an integral part of the
Loan Agreement.
1. Section 1a of the preprinted Loan Agreement is deemed deleted and
replaced with the following:
"1. LOAN LIMIT. Heretofore, Bank provided Borrower with a
$1,500,000.00 line of credit ("Existing Line"). Loans made to Borrower by
Bank under the Existing Line are discretionary with Bank and are evidenced
by Borrower's $1,500,000.00 Grid Note dated October 1, 1997 ("Grid Note
1"). A true copy of the Grid Note 1 is attached hereto as Exhibit A.
Borrower has requested Bank to provide Borrower with a $5,000,000.00
Demand Loan to replace the Existing Line, which Bank is willing to provide
to Borrower on the terms and conditions specified below.
Bank hereby establishes for Borrower a demand loan account ("Loan
Limit"), the unpaid principal balance of which shall not at any time
exceed the Maximum Credit. Pursuant to which, provided that no Event of
Default has occurred and/or no condition exists, which with notice, lapse
of time or both would constitute an Event of Default, Borrower may make
requests for approval of a loan under this Loan Limit at any time from the
Closing Date until the earlier of the following:
a. The date Bank demands payment of the Grid Note.
b. The date Bank terminates Borrower's right to make loan
requests under this Loan Limit by giving Borrower written notice of
termination, as further specified in the last paragraph in this Section 1.
c. The Termination Date.
Loans under this Loan Limit are discretionary with Bank and
conditioned upon prior approval by Bank. Borrower acknowledges to Bank
that Bank may refuse to make a loan under this Loan Limit for any reason
or for no reason whatsoever. A loan request approved by Bank is referred
to below as an "Approved Loan". Proceeds of Approved Loans
<PAGE>
may be used by Borrower for working capital purposes and to provide bridge
financing.
The fact that a particular loan request is disapproved by Bank
shall have no effect on this Loan Limit, nor on Borrower's rights to make
future requests for loans under this Loan Limit, nor on Borrower's
obligation to pay the Grid Note and the other Indebtedness in full. Once
Bank has made a total of $5,000,000.00 in Loans under this Loan Limit,
which shall include all amounts currently due and owing under the Existing
Line, no additional requests to borrow may be made, even if Borrower has
repaid prior Loans made under this Loan Limit prior to the Termination
Date.
The Approved Loan shall be deemed made immediately upon the
crediting of the Approved Loan proceeds to Borrower's checking account
with Bank or forwarding or applying the Approved Loan proceeds as
otherwise agreed by Bank and Borrower. Each Approved Loan, together with
the unpaid principal balance of all previous Approved Loans, shall be
automatically refinanced and consolidated into one loan, referred to below
as the "Consolidated Loan".
The Consolidated Loan is payable on demand and shall be
evidenced by Borrower's $5,000,000.00 Grid Note with attached Addendum
("Grid Note"), which shall be in the form of Exhibit B, with blanks
appropriately completed. Interest shall accrue on the Grid Note in the
amount specified in the Grid Note, and be payable to Bank by Borrower as
indicated in the Grid Note.
Bank may terminate Borrower's rights to make loan requests
under this Loan Limit at any time by giving Borrower written notice of
termination. The giving of such notice by Bank shall not effect Bank's
rights under this Agreement or under the Grid Note or under any other Loan
Document, nor on Borrower's obligation to pay the Grid Note in full on
demand."
2. Section 9 of the preprinted Loan Agreement is deemed deleted and
replaced with the following:
"9. TERM; SURVIVAL. This Agreement shall remain in full force and
effect until the Termination Date. Borrower's obligation to pay
Bank's expenses shall survive the Termination Date. Each of
Borrower's representations, warranties, covenants and agreements
shall survive during the term of this Agreement and shall be
presumed to have been relied upon by Bank."
-2-
<PAGE>
3. Bank's obligation to provide the Loan Limit referred to in Section 1 of
this Addendum to a Loan Agreement is contingent upon there being no material
adverse change in the financial condition of Borrower prior to the Closing Date,
to the other terms and conditions set forth in this Agreement and to the
following additional conditions precedent:
On the Closing Date, Borrower shall pay to the Bank a
commitment fee of $20,000.00, which shall be fully earned and non-refundable.
Harris Interactive, Inc., ("Harris") and GSBC Ohio
Corporation, ("GSBC") shall each execute and deliver to Bank a Reaffirmation of
Guaranty of payment of the Indebtedness ("Reaffirmation Guaranties"). Each of
the Reaffirmation Guaranties shall be in the form of Exhibit "C", with blanks
appropriately completed.
Louis Harris & Associates, ("LHA") shall execute and deliver
to Bank a Continuing of Guaranty of payment of the Indebtedness ("LHA
Guaranty"). The LHA Guaranty shall be in the form of Exhibit "D", with blanks
appropriately completed.
To secure payment of the Indebtedness and performance of their
obligations under their respective Reaffirmation Guaranties, Harris and GSBC
shall continue to grant to Bank a first, perfected security interest in all
their respective presently owned and after-acquired personal property and
fixtures, pursuant to the terms of an Amended and Restated General Security
Agreement ("Amended G/S/A"). Each of the Amended G/S/A shall be in the form of
Exhibit "E", with blanks appropriately completed.
To secure payment of the Indebtedness and performance of its
obligations under the LHA Guaranty, LHA shall grant to Bank a first, perfected
security interest in all of its presently owned and after-acquired personal
property and fixtures, pursuant to the terms of a General Security Agreement
("LHA G/S/A"). The LHA G/S/A shall be in the form of Exhibit "F", with blanks
appropriately completed.
Borrower's Secretary shall execute and deliver to Bank a
Secretary's Certificate of Borrowing Resolutions, which shall be in the form of
Exhibit "G" with blanks appropriately completed.
Borrower shall cause its attorneys (and the attorneys for
Harris, LHA and GSBC) to provide Bank with an opinion letter, containing such
opinions as Bank and its attorneys shall deem appropriate.
Bank, at its sole option, may extend the time in which
Borrower is required to provide any of the Loan Documents required to be
delivered under this Agreement. Such extension may be written or oral, express
or implied. Such extension shall not operate as a waiver of the requirement that
such Loan Document be provided, and Borrower's failure to provide such Loan
Document or Loan Documents to Bank after the required date shall, at Bank's
option, constitute a default under Section 4(c) of the preprinted Loan
Agreement. The requirement that Borrower deliver to Bank any Loan Document
called for under the Agreement may only be waived in a writing signed by an
authorized representative of Bank.
-3-
<PAGE>
Borrower and all Guarantors shall execute and/or deliver to
Bank such additional Loan Documents and other items as Bank and its attorneys
shall deem appropriate and/or required in connection with the transactions
contemplated by this Agreement and the other Loan Documents.
Borrower shall pay all Bank's attorneys' fees and
disbursements incurred and to be incurred in connection with the preparation,
negotiation and execution of this Agreement and related Loan Documents.
4. Borrower further represents and warrants to Bank as follows:
GSBC and LHA are each wholly owned subsidiaries of Borrower.
Borrower has no other subsidiaries.
Borrower is a wholly owned subsidiary of Harris.
Harris is a Delaware corporation, authorized to do business in
New York State, with its principal place of business at 135 Corporate Woods,
Rochester, New York 14623 ("Premises"). GSBC is an Ohio corporation, with its
principal place of business located in Boardman, Ohio. LHA is a New York
corporation with its principal place of business at the Premises.
On or about June 9, 1999, Harris changed its corporate name
from Harris Black International, Ltd to its present name.
Exhibit "H" contains a list of the address of all locations
where Borrower and/or HBI and/or GSBC and/or LHA has an office or other place of
business or is otherwise transacting business or where any personal property
owned by them or any of them is or will be located (collectively "Business
Locations"). Borrower will notify Bank in writing at anytime that any other
Business Location is acquired, leased, created or occupied.
Bank and Borrower acknowledge that the Existing Line is deemed
replaced by the Loan Limit, and that all loans made by Borrower under the
Existing Line, evidenced by Grid Note 1, shall be aggregated into the Loan
Limit. Borrower further acknowledges to Bank that on August __, 1999, Grid Note
1 had an unpaid principal balance of $__________, that amounts due pursuant to
Grid Note 1 are payable on demand and constitute Borrower's valid and binding
obligation, enforceable by Bank against Borrower according to its terms, without
offset against or defense thereto of any nature or kind.
Borrower acknowledges to Bank that the General Security
Agreement executed by Borrower in favor of Bank on or about February 9, 1996
("Existing S/A."), remains in full force and effect, and constitutes Borrower's
valid and binding obligation, enforceable by Bank against Borrower according to
its terms, without offset against or defenses thereto of any nature or kind.
Borrower represents and warrants to Bank that all representations and warranties
contained in the Existing S/A are true and correct as of the Closing Date, that
Borrower has not violated any term or provision of the Existing S/A, that
Borrower is not in default under the
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<PAGE>
Existing S/A, and that Exhibits "A" and "B" to the Existing S/A are and remain
accurate in all respects. Neither the execution of this Agreement, nor any other
matter, modifies limits or terminates Borrower's obligations to Bank under the
Existing S/A.
5. The Agreement is governed by New York law and may not be amended or
terminated orally. BORROWER WAIVES THE RIGHT TO A JURY TRIAL IN AN ACTION IN
WHICH BANK AND BORROWER ARE BOTH PARTIES. No Entity is a third party beneficiary
of this jury trial waiver. Borrower also waives the right to require Bank to
post an undertaking in any action commenced by Bank against Borrower or in any
action in which Borrower and Bank are parties, including but not limited to any
action under Article 71 of the CPLR. Any litigation involving this Agreement
and/or any Loan Document and/or any Collateral shall, at Bank's sole option, be
triable only in a court located in Monroe County, New York.
6. Unless otherwise defined in the Agreement, the following terms shall
have the indicated definitions. Certain capitalized terms may be defined
elsewhere in this Agreement or in one or more of the Loan Documents.
a. "Agreement" shall mean this Loan Agreement, together with the
Exhibits, as extended, supplemented, replaced and/or amended from time to time.
b. "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday that is not a legal holiday in New York State.
c. "Closing Date" shall mean the date that Bank and Borrower execute
this Agreement.
d. "Collateral" shall mean all Borrower's presently owned and
after-acquired personal property and fixtures, and all presently owned and
after-acquired personal property and fixtures in which Borrower now or hereafter
has any interest.
e. "Entity" shall mean any person, partnership, corporation, limited
liability company, limited liability partnership, joint venture, governmental
agency, governmental entity of any kind or any business association of any
nature or kind.
f. "Eligible Accounts Receivable" shall mean any account receivable
aged less than 90 days.
g. "Generally Accepted Accounting Principals" or "GAAP" shall mean
those principles, methods and practices set forth in Opinions and Pronouncements
of the Accounting Principles Board and the Financial Accounting Standards Board
of the American of Certified Public Accountants or which have other substantial
authoritative support and are applicable in the circumstances as to the date of
Borrower's financial report.
h. "Indebtedness" shall mean any and all monetary obligations of
Borrower to Bank, of any nature or kind, whenever arising, whether direct or
contingent, and whether
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arising under this Agreement and/or under any Note (including but not limited to
the Grid Note and Grid Note 1), or under any other note or agreement (including
but not limited to obligations of Borrower to Bank arising under guaranties of
the obligations of another Entity to Bank), entered into at any time by Borrower
in favor of Bank.
i. "Loan Documents" shall mean any and all Notes and other
agreements executed at any time by Borrower and/or by any other Entity in
connection with this Agreement.
j. "Maximum Credit" shall mean the lesser of $5,000,000.00 or
$2,000,000.00 plus 80% of eligible accounts receivable. Any amounts due and
owing under the Existing Line shall be aggregated into the Loan Limit and
deducted from the Maximum Credit.
k. "Note" shall mean the Grid Note and any other note or other
instrument executed at any time by Borrower in favor of Bank pursuant to the
terms of this Agreement, and all extensions, renewals, modifications and
replacements of all or any of the above instruments.
l. "Termination Date" shall mean the date that the Indebtedness is
paid in full, and Borrower no longer has any rights to borrow or to request to
borrow under any agreement entered into at any time by Borrower in favor of
Bank, including but not limited to this Agreement.
m. Unless otherwise defined herein, all accounting definitions shall
have the definitions given to them under GAAP.
IN WITNESS WHEREOF, Borrower and Bank have executed and unconditionally
delivered this Addendum to a Loan Agreement to the other on August ____, 1999.
GORDON S. BLACK CORPORATION
By: /s/ Bruce A Newman
---------------------------------------
Bruce A Newman, Chief Financial Officer
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
---------------------------------------
J. Theodore Smith, Vice President
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<PAGE>
STATE OF NEW YORK)
COUNTY OF MONROE ) ss.:
On the 18th day of August, in the year 1999, before me, the undersigned,
a Notary Public in and for said State, personally appeared BRUCE A. NEWMAN,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.
/s/ Valerie P. Ciufo
--------------------------------
Notary Public
Valerie P. Ciufo #4844856
Notary Public
State of NY, Monroe County
My Commission Expires 3/30/01
STATE OF NEW YORK)
COUNTY OF MONROE ) ss.:
On the ____ day of August, in the year 1999, before me, the undersigned,
a Notary Public in and for said State, personally appeared J. THEODORE SMITH,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.
--------------------------------
Notary Public
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Exhibit 10.11
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of April ___, 1999 between HARRIS BLACK
INTERNATIONAL, LTD., a Delaware corporation with offices at 135 Corporate Woods,
Rochester, New York 14623 ("HBI") and MARKET FACTS, INC., a Delaware corporation
with offices at 3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
("MFI").
The parties agree as follows:
ARTICLE 1 -DEFINITIONS
1.1 Definitions. The following capitalized terms shall have the following
meanings:
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract, or otherwise.
"Common Shares" shall mean the common stock, $0.01 par value per share, of
HBI.
"Holder" shall have the meaning given in Section 5.4 of this Agreement.
"Offered Shares" shall have the meaning given in Section 5.4 of this
Agreement.
"Person" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, or other entity of any kind or
nature.
"Preferred Stock" shall mean the preferred stock, $0.01 per share, of HBI.
"Public Offering" means the sale of an underwritten public offering
registered under the Securities Act of Common Shares.
"Restricted Securities" means (i) the Shares, and (ii) any securities
issued with respect to the Shares by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. As to any Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act, or (c) otherwise transferred and new certificates for them not
bearing the Securities Act legend set forth in Section 5.5 hereof have been
delivered by HBI in accordance with Section 5.2.
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"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
"Shares" shall have the meaning given in Section 2.1 of this Agreement.
"Strategic Agreement" shall mean the Strategic Alliance Agreement dated on
even date herewith between HBI and MFI, together with all extensions,
modifications, and replacements thereto.
"Transfer" shall have the meaning given in Section 5.3 of this Agreement.
"Transfer Notice" shall have the meaning given in Section 5.4 of this
Agreement.
ARTICLE 2 - PURCHASE OF SHARES
2.1 Share Purchase. On the date of this Agreement, HBI shall sell to MFI,
and MFI shall purchase, 38,611 Common Shares, being four (4%) of the Common
Shares on a fully diluted basis after the purchase (the "Shares"). The aggregate
purchase price for the Shares shall be Four Million One Hundred Twenty-Three
Thousand Dollars ($4,123,000). On the date of this Agreement MFI shall pay such
purchase price by wire transfer or in other immediately available funds to HBI,
and HBI shall deliver certificates evidencing the Shares to MFI.
ARTICLE 3 - REPRESENTATIONS OF MFI
As a material inducement to HBI to enter into this Agreement and sell the
Shares hereunder, MFI represents and warrants to HBI as follows:
3.1 Organization, Corporate Power. MFI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware. MFI possesses
all requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
3.2 Authorization. The execution and delivery of this Agreement, and
performance of the transactions contemplated hereby, by MFI has been duly
authorized by MFI. This Agreement constitutes a valid and binding obligation of
MFI, enforceable in accordance with its terms, subject to limitations imposed by
bankruptcy, insolvency, reorganization, or other laws or judicial decisions or
principles of equity relating to or affecting the enforcement of creditor's
rights generally. The execution and delivery by MFI of this Agreement, and the
compliance with its terms by MFI, do not (a) conflict with or result in a
violation of, (b) constitute a default under, or (c) require any authorization,
consent, approval, exemption, or other action by or notice to, or filing with,
any court or administrative or governmental body or agency pursuant to, (i) the
certificate of incorporation or
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bylaws of MFI, (ii) any law, statute, rule, or regulation to which MFI is
subject, or (iii) any material agreement, instrument, order, judgment, or decree
to which MFI is subject.
3.3 Disclosure. The Shares are being acquired for the MFI's own account,
for investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act or the securities
laws of any other state applicable to MFI. MFI understands that the Shares have
not been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4 (2) thereof, which exemption depends
upon, among other things, the bona fide nature of MFI's investment intent
expressed herein, that HBI has no present intention of registering the Shares,
and that the Shares must be held by MFI indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
registration.
3.4 Access to Information. During the negotiation of the transactions
contemplated by this Agreement, MFI and its representatives have been afforded
full and free access to corporate books, documents, and other information
concerning HBI and to its offices and facilities, have been afforded an
opportunity to ask such questions of HBI and its officers, employees, agents,
accountants, and representatives concerning HBI's business, operations,
financial condition, assets, liabilities, and other relevant matters as they
have deemed necessary or desirable, and have been given all such information as
has been requested, in order to evaluate the merits and risks of the prospective
investments contemplated herein.
3.5 Due Diligence. MFI and its representatives have been solely
responsible for MFI's own "due diligence" investigation of HBI and its
management and business, for its own analysis of the merits and risks of this
investment, and for its own analysis of the fairness and desirability of the
terms of the investment. In taking any action or performing any role relative to
the arranging of the proposed investment, MFI has acted solely in its own
interest, and neither MFI (nor any of MFI's agents or employees) has acted as an
agent of HBI. MFI has such knowledge and experience in financial and business
matters that MFI is capable of evaluating the merits and risks of the purchase
of the Shares pursuant to the terms of this Agreement and of protecting MFI's
interests in connection therewith. Nothing in this Section 3.5, however, shall
affect HBI's obligations to MFI under the representations and warranties
contained in Article 4 hereof.
3.6 Economic Risk. MFI is able to bear the economic risk of the purchase
of the Shares pursuant to the terms of this Agreement, including a complete loss
of MFI's investment in the Shares.
ARTICLE 4 - REPRESENTATIONS OF HBI
As a material inducement to MFI to enter into this Agreement and purchase
the Shares hereunder, HBI represents and warrants to MFI as follows:
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4.1 Organization, Corporate Power. HBI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware. HBI possesses
all requisite corporate power and authority to carry out its business as now
conducted and to carry out the transactions contemplated by this Agreement. The
copies of HBI's charter documents and bylaws which have been previously
furnished to MFI reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
4.2 Authorization. The execution and delivery of this Agreement, and
performance of the transactions contemplated hereby, by HBI has been duly
authorized by HBI. This Agreement constitutes a valid and binding obligation of
HBI, enforceable in accordance with its terms, subject to limitations imposed by
bankruptcy, insolvency, reorganization, or other laws or judicial decisions or
principles of equity relating to or affecting the enforcement of creditor's
rights generally. The execution and delivery by HBI of this Agreement, and the
compliance with its terms by HBI, do not (a) conflict with or result in a
violation of, (b) constitute a default under, or (c) require any authorization,
consent, approval, exemption, or other action by or notice to, or filing with,
any court or administrative or governmental body or agency pursuant to, (i) the
certificate of incorporation or bylaws of HBI, (ii) any law, statute, rule, or
regulation to which HBI is subject, or (iii) any material agreement, instrument,
order, judgment, or decree to which HBI is subject.
4.3 Capital Stock and Related Matters. As of the date of this Agreement
and immediately thereafter, the authorized capital stock of HBI shall consist of
(a) 147,000 shares of Preferred Stock, all of which is issued and outstanding,
and (b) 1,000,000 shares of Common Stock, 339,738 of which shall be issued and
outstanding (before giving effect to the purchase of the Shares), 416,903 of
which shall be reserved for issuance upon conversion of the Preferred Stock,
140,520 of which shall be reserved for issuance upon exercise of outstanding
options and warrants, and 29,500 of which shall be reserved for future options
to be issued. Except as aforesaid, as of the date of this Agreement, HBI shall
not have outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock or containing any profit participation features, nor
shall it have outstanding any rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or exchangeable
for its capital stock. As of the date of this Agreement, all of the outstanding
shares of HBI's capital stock shall be validly issued, fully paid, and
nonassessable. There are no statutory or contractual stockholder's preemptive
rights or rights of first refusal, in either case granted by HBI, with respect
to issuance of the Shares which have not been effectively waived in writing. HBI
has not violated any applicable federal or state securities laws in connection
with the offer, sale, or issuance of the Shares, and assuming the accuracy of
the representations and warranties of MFI set forth in Article 3 hereof, the
offer, sale, and issuance of the Shares hereunder do not require registration
under the Securities Act or any applicable state securities laws.
4.4 Financial Statements. HBI has delivered to MFI true and correct copies
of the following financial statements: (i) the audited consolidated balance
sheet of HBI and its subsidiaries as of June 30, 1998, and the related
statements of income and cash flows for the twelve-month period then ended, and
(ii) the unaudited consolidated balance sheet of HBI and its subsidiaries as of
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February 28, 1999 and the related statement of income for the eight (8) month
period then ended (the "Interim Statements").
Each of such financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of HBI, and presents fairly the
consolidated financial condition, results or operations, and cash flows of HBI
and its subsidiaries in accordance with generally accepted accounting principles
(except that the Interim Statements are subject to year end adjustments and
addition of footnotes), applied on a consistent basis as of the dates and for
the periods set forth therein.
4.5 Validity of Shares. The Shares issued to MFI pursuant to Section 2.1
of this Agreement, when issued in accordance with this Agreement, shall be
validly issued, fully paid, and nonassessable.
ARTICLE 5 - RESTRICTIONS ON TRANSFERS
5.1 Restricted Securities. The Restricted Securities are transferable only
pursuant to (a) a Public Offering, (b) Rule 144 or Rule 144A of the SEC (or any
similar rule or rules then in force) if any such rule is available, or (c)
subject to the conditions specified in Section 5.2 below, any other legally
available means of transfer.
5.2 Opinion Delivery. In connection with the transfer of any of the
Restricted Securities (other than a transfer described in Section 5.1(a) or (b)
above), MFI shall deliver written notice to HBI describing in reasonable detail
the transfer or proposed transfer, together with an opinion of legal counsel
which (to HBI's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such transfer of the Restricted Securities may be
effected without registration of such Restricted Securities under the Securities
Act. In addition, if the holder of the Restricted Securities delivers to HBI an
opinion of such counsel that no subsequent transfer of such Restricted
Securities shall require registration under the Securities Act, HBI shall
promptly upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
Section 5.5. If HBI is not required to deliver new certificates for such
Restricted Securities not bearing such legend, MFI, or if applicable a
subsequent transferee thereof, shall not transfer the same until the prospective
transferee has confirmed to HBI in writing its agreement to be bound by the
conditions contained in this Article 5.
5.3 Restrictions on Transfer. MFI shall not sell, transfer, assign,
pledge, or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) the Shares or any
interest therein to any Person (a "Transfer"):
(a) for a period of three (3) years after the date of this
Agreement, or, if earlier, for a period ending on the date of termination
of the Strategic Alliance Agreement by MFI due to a breach thereof by HBI
or the date of termination of the Strategic Alliance Agreement by mutual
agreement of the parties,
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(b) after a period of three (3) years, except in compliance with
Section 5.4 of this Agreement, and
(c) at any time to any Person who is a direct competitor of HBI
and/or its Affiliates anywhere in the world.
Notwithstanding the foregoing, MFI may make a Transfer at any time:
(d) to any Person who is an Affiliate of MFI,
(e) as part of a sale of shares to the public pursuant to an
offering registered under the Securities Act, or
(f) to any Person who is simultaneously purchasing substantially all
of the Common Shares.
5.4 Right of First Offer. If MFI proposes to Transfer all or part of the
Shares pursuant to Section 5.3(b) of this Agreement, MFI shall deliver a written
notice ("Transfer Notice") to HBI. HBI promptly shall provide a copy of such
notice to any holder of at least ten percent (10)%) of the outstanding shares of
HBI on a fully diluted basis ("Holder"). The Transfer Notice shall describe the
number of Shares proposed to be transferred (the "Offered Shares") and the
proposed price per share. HBI first, or if HBI fails to do so the Holders, may
elect to purchase all, but not less than all, of the Offered Shares at the price
described in the Transfer Notice. If HBI elects to purchase all of the Offered
Shares, HBI shall give MFI and the Holders written notice of such election no
later than twenty-one (21) days after delivery of the Transfer Notice. If HBI
has not given such an election notice, any Holder may give MFI written notice of
its election to do so no later than thirty-five (35) days after delivery of the
Transfer Notice to HBI. If more than one Holder has given such an election
notice, the electing Holders' rights to purchase shall be proportionate with
their respective ownership of HBI Common Shares on a fully diluted basis. If an
election to purchase all of the Offered Shares has been made, the Offered Shares
shall be transferred to HBI (or, if applicable, the Holder) at the price stated
in the Transfer Notice no later than fourteen (14) days after notice of the
election to purchase has been given. If neither HBI nor any Holder collectively
has elected to purchase all of the Offered Shares, MFI may conclude a Transfer
at the price per share stated in the Transfer Notice, or at a higher price per
share, at any time within a one hundred twenty (120) day period after expiration
of such election periods provided that the transferee has agreed in writing to
be bound by the terms of this Article 5 as if it was an original signatory to
this Agreement.
5.5 Legend.
(a) Each certificate or instrument representing the Shares shall be
imprinted with a legend in substantially the following form:
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"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Investment Agreement, dated as of April
___, 1999, as amended and modified from time to time, between the
issuer (the "Company") and Market Facts, Inc., as amended and
modified from time to time. A copy of such Agreement will be
furnished by the Company to the holder hereof upon written request
and without charge."
(b) Upon the later of (i) the termination of this Agreement pursuant
to Section 7.1 hereof, and (ii) such time as the Shares are no longer Restricted
Securities, at MFI's request, HBI shall remove the legend set forth in Section
5.5(a) above from the certificates for the Shares.
5.6 Lock-Up Agreement. In connection with an initial Public Offering of
Common Shares, at the request of the underwriters for such offering, MFI agrees
to enter into an agreement in customary form not to effect any sale or other
transfer of any of the Shares then owned by it for a period of up to ninety (90)
days after the date of the prospectus relating to such initial Public Offering.
ARTICLE 6 -FINANCIAL INFORMATION
6.1 Delivery of Financial Information. HBI shall make such financial and
other information, as it makes available to the holders of all of its common
shares, available to MFI. In addition, HBI shall provide MFI with copies of its
annual audited consolidated financial statements within ninety (90) days after
the end of its fiscal year and its unaudited quarterly financial statements
within forty-five (45) days after the end of each calendar quarter.
6.2 Confidentiality. Except as otherwise required by law, or provided that
HBI is given prior notice, as required by judicial order or decree or by any
governmental agency or authority, MFI and its Affiliates shall maintain the
confidentiality of the financial statements and other information provided to it
pursuant to Section 6.1 above, provided that MFI may disclose such information
in connection with a sale or transfer of the Shares if such Person agrees to
maintain the confidentiality of such financial statements and other information
as provided in this Section 6.2.
ARTICLE 7 - TERMINATION
7.1 Termination. This Agreement, including, without limitation, the
provisions of Sections 5.3, 5.4, and Article 6 hereof, shall terminate as of the
consummation of a Public Offering of Common Shares, provided that any such
termination shall not affect the rights of the parties with respect to the
period prior to termination of this Agreement. Notwithstanding the above, the
provisions of Sections 5.1, 5.2, and 5.5 shall survive the termination of this
Agreement in accordance with their terms.
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ARTICLE 8 - MISCELLANEOUS
8.1 Successor/Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors, legal representatives, and
assigns of the parties, provided, however, that this Section 8.1 is not intended
to supersede any restrictions on transfer of any interest expressly provided
elsewhere in this Agreement.
8.2. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws.
8.3 Arbitration.
(a) The parties agree to this Section 8.3 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
8.4 Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
8.5 Notices. Any notice or demand upon any party hereto shall be deemed to
have been sufficiently given or served for all purposes hereof when delivered in
person or by nationally recognized overnight courier with receipt requested, or
three business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed to the address shown in the preamble to this
Agreement or to such other address as may be designated by any party by notice
given to the other in the manner described in this Section 8.5.
8.6 Severability/Construction. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated. The parties
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agree to replace any invalid provision with a valid provision which most closely
approximates the intent and economic effect of the invalid provision. The
parties agree that this Agreement has been prepared in cooperation, and that it
shall not be construed as against any particular party as drafter.
8.7 Expenses. Except as otherwise expressly provided herein, both parties
shall be responsible for their own costs and expenses in connection herewith.
8.8 No Brokers. Each party represents and warrants to the other that it
has not involved any brokers or finders in connection with this Agreement or the
transactions contemplated hereby, and agrees to indemnify the other for any
breach of this Section 8.8 by it.
8.9 Waiver. The waiver by either party of a breach of any provision of the
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS BLACK INTERNATIONAL, LTD.
By: /s/ Gordon S. Black
-----------------------------
Gordon S. Black
Chief Executive Officer
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MARKET FACTS, INC.
By: /s/ Sanford M. Schwartz
-----------------------------
Sanford M. Schwartz
Executive Vice President
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INVESTMENT AGREEMENT ADDENDUM
THIS INVESTMENT AGREEMENT ADDENDUM is made as of September 10, 1999
between HARRIS INTERACTIVE, INC. (formerly known as Harris Black International,
Ltd., a Delaware corporation with offices at 135 Corporate Woods, Rochester, New
York 14623 ("HI") and MARKET FACTS, INC., a Delaware corporation with offices at
3040 West Salt Creek Lane, rlington Heights, Illinois 60005 ("MFI").
WHEREAS, HI and MFI are parties to an Investment Agreement dated April 23,
1999 (the Agreement"), and
WHEREAS, HI has discovered an error in the representations as to
capitalization made in Section 4.3 of the Agreement, which resulted in MFI
receiving 424 fewer common shares than it should have received under the
Agreement, and
WHEREAS, the parties desire to correct the error and cause MFI to receive
the full benefit of its original bargain,
NOW THEREFORE, the parties agree as follows:
1. The first sentence of Section 4.3 of the Agreement should have read,
and is deemed revised to read, as follows:
As of the date of this Agreement and immediately thereafter, the
authorized capital stock of HBI shall consist of (a) 147,000 shares
of Preferred Stock, all of which is issued and outstanding, and (b)
1,000,000 shares of Common Stock, 345,738 of which shall be issued
and outstanding (before giving effect to the purchase of the
Shares), 421,083 of which shall be reserved for issuance upon
conversion of the Preferred Stock, 140,520 of which shall be
reserved for issuance upon exercise of outstanding options and
warrants, and 29,500 of which shall be reserved for future options
to be issued.
2. The first sentence of Section 2.1 of the Agreement should have provided
for MFI to eceive 424 additional common shares (the "Additional Shares") as part
of its purchase, and is deemed revised to read, as follows:
On the date of this Agreement, HBI shall sell to MFI, and MFI shall
purchase, 39,035 Common Shares, being four (4%) of the Common Shares
on a fully diluted basis after the purchase (the "Shares").
1
<PAGE>
3. All representations, warranties, restrictions, and other terms and
conditions of the Agreement remain in full force and effect and shall apply to
the Additional Shares in the same manner as they apply to the Shares referenced
in the Agreement.
4. Promptly after the execution of this Agreement, HI shall issue the
Additional Shares to MFI effective as of April 23, 1999 and deliver a
certificate for such shares to MFI.
5. This Addendum may be executed in one or more counterparts, each of
which shall be deemed to be an original and all of which shall be taken together
and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS INTERACTIVE, INC.
By: /s/ Gordon S. Black
-----------------------------
Title: Chief Executive Officer
2
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MARKET FACTS, INC.
By: /s/ Sanford M. Schwartz
-----------------------------
Title: Executive Vice President
3
<PAGE>
Exhibit 10.12
AMENDED AND RESTATED INVESTMENT AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made as of October 15, 1999 between
HARRIS INTERACTIVE INC., a Delaware corporation with offices at 135 Corporate
Woods, Rochester, New York 14623 ("HI") and RIEDMAN CORPORATION, a corporation
with offices at 45 East Avenue, Rochester, New York 14607 ("Investor").
HI and Investor entered into an Investment Agreement dated as of September
30, 1999 (the "Original Agreement"). The parties have agreed to amend such
Agreement.
The parties therefore, hereby agree to amend and restated the Original
Agreement to read in its entirety as follows:
WITNESSETH
WHEREAS, HI desires to sell to the investor and the Investor desires to
purchase from HI shares of the Class B Convertible Preferred Stock, par value
$.01 per share, of HI, all upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt an
sufficiency of which are hereby acknowledged, the parties agree as follows:
The parties agree as follows:
ARTICLE 1 -DEFINITIONS
1.1 Definitions. The following capitalized terms shall have the following
meanings:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract, or otherwise, partners
or former partners, and members or former members.
"Affiliated Group" means any affiliated group as defined in IRC ss.1504
that has filed a consolidated return for federal income tax purposes (or any
similar group under state, local, or foreign law) for a period during which any
of HI or any of its Subsidiaries was a member.
"Class A Preferred Stock" shall mean the Class A Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Class B Preferred Stock" shall mean the Class B Convertible Preferred
Stock, par value
<PAGE>
$0.01 per share, of HI.
"Common Shares" shall mean the common stock, $0.001 par value per share,
of HI.
"Environmental and Safety Requirements" means all federal, state, local,
and foreign statutes, regulations, ordinances and other provisions having the
force and effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety, and pollution or
protection of the environment.
"Fully Diluted Basis" shall mean the number of common shares actually
outstanding, the number of Common Shares into which the then outstanding shares
of Class A Preferred Stock and Class B Preferred Stock could be fully converted
if fully converted on the given date, and the number of Common Shares which
could be obtained through the exercise, exchange, or conversion of all other
rights, warrants, options and convertible securities or other securities
convertible, exchangeable, or exercisable for Common Stock (or any of the
foregoing) outstanding or reserved for issuance on the given date.
"GAAP" means generally accepted accounting principles.
"Investment" means, with respect to any Person, (i) any capital
contribution by such Person to any other Person, (ii) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities, or ownership interest (including partnership,
membership, and joint venture interests) of any other Person, (iii) any loan,
advance or extension of credit by such Person to any other Person (other than
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale of goods or services in the ordinary course of
business, and (b) extensions of credit by HI to any of its wholly-owned
Subsidiaries or by any of its wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries), (iv) any guaranty of obligations of such Person, (v)
any transfer or sale of property of such Person to any other Person other than
upon full payment, in cash, of not less than the agreed sale price or the fair
value of such property, whichever is higher (other than transfers of property in
the ordinary course of business of the Person in exchange for fair value), (vi)
any acquisition by such Person of all or an integral part of the business of any
other Person or the assets comprising such business or such part thereof, and
(vii) any commitment or option to do any of the following. Any of the foregoing
under clauses (i) through (vi) shall be considered an Investment whether such
Investment is acquired by purchase, exchange, merger or any other method.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section number shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien, preference in the nature of
security, or charge
<PAGE>
of any kind (including, without limitation, any conditional sale or other title
retention agreement or lease in the nature thereof), any sale of receivables
with recourse against the seller or any Affiliate, any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute other than to reflect ownership by a third Person of property
leased to a party under a lease which is not in the nature of a conditional sale
or title retention agreement or any subordination arrangement, and any agreement
to give or make any of the foregoing.
"Lockup Agreement" shall mean the Lockup Agreement in the form attached
hereto and made a part hereof as Exhibit B.
"Material Adverse Effect" means any event, matter, condition or
circumstance which (i) has a material adverse effect on the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise), employee relations, customer or supplier relations, or business
prospects of HI, (ii) has an adverse effect on the ability of HI to perform its
obligations under any material contract, the Share Purchase Agreements, the
Transaction Documents or any of the Shares to be issued by it or (iii)
materially or adversely affects the legality, validity, binding effect or
enforceability of the Share Purchase Agreements, the Transaction Documents or
the Shares.
"Offered Shares" shall have the meaning given in Section 6.3 of this
Agreement.
"Other Purchasers" shall have the meaning given in Section 2.1 of this
Agreement.
"Person" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, government, governmental body,
agency, political subdivision, or other entity of any kind or nature.
"Proprietary Rights" shall mean all patents; all trademarks, service
marks, domain names, trade dress, trade names, and corporate names and all of
the goodwill associated therewith; all copyrights; all registrations,
applications and renewals for any of the foregoing; all inventions; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
manufacturing and production processes and techniques, research information,
drawings, specifications, designs, plans, improvements, technical and computer
data, documentation and software, and all other proprietary rights and processes
of similar nature ; and all computer programs (including source codes) and
related documentation.
"Public Offering" means any offering by HI (or any other holder) of HI
Common Stock to the public pursuant to an effective registration statement under
the Securities Act, as then in effect, or any comparable statement under any
similar federal statute then in force.
"Purchase Price" shall have the meaning given to it in Section 2.2 of this
Agreement.
"Registration Agreement" shall mean the Registration Agreement described
in Section
<PAGE>
3.6 of this Agreement.
"Research Agreement" shall mean the Research Agreement described in
Section 3.11 of this Agreement.
"Restricted Securities" means (i) the Shares hereunder, (ii) the
Underlying Common Stock, and (iii) any securities issued with respect to the
Shares or Underlying Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. As to any Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act; provided that the Company has completed a Public Offering and is
subject to the provisions of the 1934 Act and as to any particular holder of
Restricted Securities, such holder (together with its Affiliates) holds less
than 1% of the Company's common stock on a Fully Diluted Basis, or (c) otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in Section 6.5 hereof have been delivered by HI in accordance with
Section 6.2. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from HI, without
expense, new securities of like tenor not bearing a Securities Act legend of the
character set forth in Section 6.5.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date hereof and as hereafter amended.
"Share Purchase Agreements" shall meaning given in Section 2.1 of this
Agreement.
"Shares" shall have the meaning given in Section 2.2 of this Agreement.
"Stockholders' Agreement" shall mean the Stockholders' Agreement described
in Section 3.10 of this Agreement.
"Subsidiary" means any Person of which, at the time of determination made
under this Agreement, at least a majority of capital stock having ordinary
voting power for the election of directors or other governing body of such
Person is owned by the applicable other Person, directly or through one or more
Subsidiaries.
"Tax" or "Taxes" means federal, state, county, local, foreign or other
income, gross
<PAGE>
receipts, ad valorem, franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
"Transaction Documents" shall mean the documents and agreements executed
and delivered in connection with this Agreement, including without limitation
the amendment to HI's Certificate of Incorporation, Registration Agreement, the
Lockup Agreement, the Research Agreement, the Shares, and the Stockholders
Agreement.
"Transfer" shall have the meaning given in Section 6.3 of this Agreement.
"Transfer Notice" shall have the meaning given in Section 6.3 of this
Agreement.
"Underlying Common Stock" shall mean (i) the Common Stock issued or
issuable upon conversion of the Class B Preferred Stock, and any (ii) Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Class B
Preferred Stock shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of such Class B Preferred Stock in connection with
the transfer thereof or otherwise regardless of any restriction or limitation on
the conversion of the Class B Preferred Stock, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by HI.
ARTICLE 2 - PURCHASE OF SHARES
2.1 Authorization of Class B Preferred Stock. HI has authorized the
issuance of 200,000 shares of Class B Preferred Stock having the rights and
preferences set forth in Exhibit A attached hereto (the "Class B Shares"). The
Class B Shares are being sold by HI to the Investor and the other purchasers
listed on Schedule 2.1 hereto (the "Other Purchasers") pursuant to this
Agreement and other substantially identical agreements (this agreement together
with such other agreements collectively, the "Share Purchase Agreements"). Set
forth opposite each Other Purchaser's name on Schedule 2.1 is the number of
Class B Shares being acquired by
<PAGE>
such Other Purchasers and the purchase price paid, or to be paid, therefore.
2.2 Share Purchase. HI has previously sold to Investor, and Investor,
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of HI contained herein or made pursuant hereto,
purchased from HI, 10,000 Class B Shares (together with the Underlying Common
Stock, the "Shares"), being .46% of the Common Shares on a Fully Diluted Basis
after the purchases under the Share Purchase Agreements. The aggregate purchase
price for the Shares acquired by the Investor pursuant to this Agreement was One
Million Dollars ($1,000,000) (the "Purchase Price").
2.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing")
took place in Rochester, New York on September 30, 1999.
(b) In connection with the Closing (i) Investor and HI shall execute and
deliver this Agreement, the Registration Agreement, the Stockholders Agreement,
and the Research Agreement, (ii) Investor shall execute and deliver the Lockup
Agreement and the Consent of Shareholders in the form attached as Exhibit D, and
(iii) HI shall deliver a certificate registered in the Investor's name
evidencing the Shares to Investor.
ARTICLE 3 - CONDITIONS OF INVESTOR'S OBLIGATION AT CLOSING
The obligation of the Investor to purchase and pay for the Shares at the
Closing is subject to the satisfaction as of the Closing of the following
conditions (any of which may be waived by the Investor):
3.1 Representations, Warranties, and Covenants. The representations and
warranties contained in Article 5 hereof or in any certificate or document
delivered pursuant hereto, shall be true and correct at and as of the Closing as
though then made and HI shall have performed and complied with all of the
covenants and agreements required to be performed or complied with by it
hereunder on or prior to the Closing.
3.2 Amendment of Certificate of Incorporation. HI's Certificate of
Incorporation shall have been amended and shall be in the form set forth in
Exhibit A hereto, shall be in full force and effect under the laws of the State
of Delaware as of the Closing as so amended, and shall not have been further
amended or modified; provided, however, that Investor acknowledges that certain
modifications to the Certificate of Incorporation have been or will be approved
by the directors and shareholders (including the Investor after its investment)
of HI contingent upon completion of a Public Offering, a copy of which
shareholder approval (which describes and approves such modifications) is
attached as Exhibit D hereto.
3.3 Securities Law Compliance. HI shall have made all filings under all
applicable
<PAGE>
federal and state securities laws necessary to consummate the issuance of the
Shares pursuant to this Agreement in compliance with such laws and HI shall be
in compliance with all such laws.
3.4 Compliance with Applicable Laws/Authorizations. The purchase of the
Shares by the Investor hereunder shall not be prohibited by any applicable law
or governmental order, rule or regulation and shall not subject the Investor to
any penalty, tax, liability, or, in the Investor's reasonable judgment, other
onerous condition, and the purchase of the Shares by the Investor hereunder
shall be permitted by laws, rules, and regulations of the jurisdictions and
governmental authorities and agencies to which the Investor is subject. Any
necessary consents, waivers, approvals, licenses, permits, orders and
authorizations of, and any filings, registrations or qualifications with, any
governmental authority of other Person (including any consents or waivers by the
holders of the Class A Preferred Stock), with respect to the transactions
contemplated by this Agreement, the Share Purchase Agreements and the
Transaction Documents shall have been obtained or made and shall be in full
force and effect.
3.5 No Change in Law etc.. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted, or made by or on behalf of any
governmental authority, and no legislation shall have been introduced, and no
investigation by an governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental
authority or arbitrator, which, in any such case, in the Investor's reasonable
judgment could adversely affect, restrain, prevent, or change the transactions
contemplated by the Share Purchase Agreements or the Transaction Documents
(including without limitation, the issuance of the Shares) or have a Material
Adverse Effect.
3.6 Registration Agreement. HI and Brinson MAP Venture Capital Fund III as
successor to Brinson MAP Venture Capital Fund III Trust, BVCF III, L.P. as
successor to Brinson Venture Capital Fund III, L.P., and Virginia Retirement
System (the "Brinson Holders") shall have entered into a Registration Agreement
Amendment Number 1 (the "Amendment") to the Registration Agreement made among HI
and the Brinson Holders, in substantially the form attached to this Agreement as
Exhibit C , and HI and Investor shall have entered into a Registration Agreement
in substantially the form attached to the Amendment as Exhibit A thereto (the
"Registration Agreement").
3.7 Opinion of HI's Counsel. Investor shall have received from Harris
Beach & Wilcox, LLP, counsel for HI, an opinion addressed to Investor dated the
date of Closing in substantially the form attached to this Agreement as Exhibit
G.
3.8 Compliance Certificate of Officer. HI shall have delivered to Investor
an officer's certificate dated the date of closing stating that the conditions
specified in Section 2 to be performed by HI, and the conditions specified in
Sections 3.1-3.12, inclusive, of this Agreement, have been fully satisfied.
<PAGE>
3.9 Corporate Proceedings. HI shall have delivered to Investor copies
certified by the Secretary of HI, of (a) resolutions adopted by the Board of
Directors of HI authorizing the execution, delivery, and performance of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, the
amendment to the Certificate of Incorporation attached hereto as Exhibit A, the
issuance and sale of the Shares, the reservation for issuance of the Underlying
Common Stock, and the consummation of all of the transactions contemplated by
this Agreement and the Share Purchase Agreements, and (b) resolutions duly
adopted by HI's stockholders adopting the amendment to the Certificate of
Incorporation attached hereto as Exhibit A.
3.10 Stockholders Agreement. HI and the Investor shall have entered into a
Stockholders' Agreement in substantially the form attached hereto as Exhibit E
(the "Stockholders' Agreement").
3.11 Research Agreement. HI and the Investor shall have entered into a
Research Agreement in substantially the form attached to this Agreement as
Exhibit F (the "Research Agreement").
3.12 Other Documents and Opinions. The Investor shall have received such
other documents and opinions, in form and substance satisfactory to the Investor
and its counsel, relating to matters incident to the transactions contemplated
hereby as the Investor may reasonably request.
ARTICLE 4 - REPRESENTATIONS OF INVESTOR
As a material inducement to HI to enter into this Agreement and sell the
Shares hereunder, Investor represents and warrants to HI as follows:
4.1 Formation. Investor is validly formed or organized, and existing,
under the laws of the jurisdiction of its formation, and has all requisite power
and authority to carry out the transactions contemplated by this Agreement.
4.2 Authorization. The execution and delivery of this Agreement and the
Transaction Documents, and performance of the transactions contemplated hereby,
by Investor have been duly authorized by Investor. This Agreement and the
Transaction Documents constitute valid and binding obligations of Investor,
enforceable in accordance with their terms, subject to limitations imposed by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization, or
other laws or judicial decisions or principles of equity relating to or
affecting the enforcement of creditors' rights generally. Except to the extent
that any of the following would not reasonably be expected to have a material
adverse effect on the ability of Investor to consummate the transactions
contemplated by this Agreement, the execution and delivery by Investor of this
Agreement and the Transaction Documents, and the compliance with their terms by
Investor, do not (a) conflict with or result in a violation of, (b) constitute a
default under, or (c) require any authorization, consent, approval, exemption,
or other action by or notice to, or filing with, any court or administrative or
governmental body or agency pursuant to, (i) the
<PAGE>
charter documents or bylaws of Investor, (ii) any law, statute, rule, or
regulation to which Investor is subject, or (iii) any material agreement,
instrument, order, judgment, or decree to which Investor is subject.
4.3 Investment Intent. The Shares are being acquired for the Investor's
own account, for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act or the
securities laws of any other state applicable to Investor. Investor understands
that the Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4 (2) thereof,
which exemption depends upon, among other things, the bona fide nature of
Investor's investment intent expressed herein, that HI has no present intention
of registering the Shares, and that the Shares must be held by the Investor
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.
4.4 Access to Information. During the negotiation of the transactions
contemplated by this Agreement, the Investor and its representatives have been
afforded access to corporate books, documents, and other information concerning
HI and to its offices and facilities, have been afforded an opportunity to ask
such questions of HI and its officers, employees, agents, accountants, and
representatives concerning HI's business, operations, financial condition,
assets, liabilities, and other relevant matters as they have deemed necessary or
desirable, and have been given all such information as has been requested, in
order to evaluate the merits and risks of the prospective investments
contemplated herein.
4.5 Due Diligence. The Investor and its representatives have been solely
responsible for Investor's own "due diligence" investigation of HI and its
management and business, for Investor's own analysis of the merits and risks of
this investment, and for its own analysis of the fairness and desirability of
the terms of the investment. In taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has acted
solely in its own interest, and neither Investor nor any of Investor's agents or
employees has acted as an agent of HI. The Investor has such knowledge and
experience in financial and business matters that Investor is capable of
evaluating the merits and risks of the purchase of the Shares pursuant to the
terms of this Agreement and of protecting Investor's interests in connection
therewith. Nothing in this Section 4.5, however, shall affect HI's obligations
to the Investor under the representations and warranties contained in Article 4
hereof.
4.6 Economic Risk; Accredited Investor. The Investor is able to bear the
economic risk of the purchase of the Shares pursuant to the terms of this
Agreement, including a complete loss of Investor's investment in the Shares. The
Investor is an Accredited Investor as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
4.7 Brokers. The Investor has not involved any brokers or finders in
connection with this Agreement or the transactions contemplated hereby, and
agrees to indemnify HI for any breach of this Section 4.7 by it.
<PAGE>
ARTICLE 5 - REPRESENTATIONS OF HI
As a material inducement to the Investor to enter into this Agreement and
purchase the Shares hereunder, HI represents and warrants to the Investor as
follows:
5.1 Organization, Corporate Power. HI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, and is
qualified (and in good standing) to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify. HI
possesses all requisite corporate power and authority and legal right to own and
operate its assets, to carry out its business as now conducted and presently
proposed to be conducted, to execute, deliver, and carry out the transactions
contemplated by this Agreement, the Share Purchase Agreements, and each of the
Transaction Documents. The copies of HI's charter documents and bylaws which
have been previously furnished to Investor reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
Each Subsidiary of HI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, possesses all requisite
corporate power and authority and the legal right to own and operate its assets,
to carry out its business as now conducted and presently proposed to be
conducted and is qualified (and in good standing) to do business in every
jurisdiction in which its ownership of property or conduct of its business
requires it to qualify. All the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable and all such shares
are owned by HI or another one of its Subsidiaries free and clear of any Lien
and not subject to any right or option to purchase such shares. Neither HI nor
any Subsidiary is in violation in any respect of its certificate or articles of
incorporation or by-laws.
5.2 Authorization; No Breach. The execution and delivery of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, and
performance of the transactions contemplated hereby (including the amendment to
HI's Certificate of Incorporation) and thereby, by HI has been duly authorized
by HI. This Agreement, the Share Purchase Agreements, and the Transaction
Documents constitute legal, valid and binding obligations of HI, enforceable in
accordance with their terms, subject to limitations imposed by bankruptcy,
insolvency, reorganization, or other laws or judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights generally.
The Shares, when issued at Closing, will constitute the legal, valid, and
binding obligations of HI enforceable in accordance with their respective terms.
The execution and delivery by HI of this Agreement, the Share Purchase
Agreements, and the Transaction Documents, the fulfillment and compliance with
their terms by HI (including the amendment to HI's Certificate of
Incorporation), the sale and issuance of the Shares, and the issuance of the
Underlying Common Shares, do not and will not (a) conflict with or result in a
breach or violation of (with or without the giving of notice or the passage of
time or both), (b) constitute a default under, (c) result in the creation of any
Lien, security interest charge or encumbrance upon any of the capital stock,
properties or assets of HI or its Subsidiaries, or (d) require any
authorization, consent, waiver, approval, order, exemption, or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency or any other
<PAGE>
Person pursuant to, or give any third party the right to modify, terminate, or
accelerate any obligation under, (i) the certificate of incorporation or bylaws
of HI or any of its Subsidiaries, (ii) any law, statute, rule, or regulation to
which HI or any of its Subsidiaries is subject, or (iii) any agreement,
instrument, order, judgment, writ, injunction, or decree to which HI or any of
its Subsidiaries is subject. The execution and delivery by HI of this Agreement,
the Share Purchase Agreements, and the Transaction Documents and the performance
of the transactions contemplated hereby and thereby (including the issuance of
Shares and the Underlying Common Shares) will not cause anti-dilution clauses of
any outstanding securities to become operative or give rise to any preemptive
rights.
5.3 Capital Stock and Related Matters. As of the date of this Agreement
and immediately thereafter, the authorized capital stock of HI shall consist of
(a) 147,000 shares of Class A Preferred Stock, all of which is duly authorized
and validly issued and outstanding, (b) 200,000 shares of Class B Preferred
Stock of which none will be outstanding, and (b) 100,000,000 shares of Common
Stock, of which 10,990,924 shall be duly authorized and validly issued and
outstanding (before giving effect to the purchase of the Shares and the
remainder of the Class B Preferred Stock), 11,790,324 of which shall be reserved
for issuance upon conversion of the Class A Preferred Stock, 2,833,565 of which
shall be reserved for issuance upon conversion of all of the Class B Preferred
Stock, and 5,154,408 of which shall be reserved for issuance upon exercise of
outstanding options and warrants. Except as aforesaid, as of the date of this
Agreement, HI shall not have outstanding any stock, investment rights, options,
or securities convertible, exercisable, or exchangeable for (or any agreements
under which HI is or may become obligated to issue, sell, or transfer) any
shares of its capital stock or containing any profit participation features, nor
shall it have outstanding any rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or exchangeable
for its capital stock. As of the date of this Agreement, all of the outstanding
shares of HI's capital stock shall be validly issued, fully paid, and
nonassessable and were issued in compliance with all applicable state and
federal securities laws. There are no statutory or contractual stockholder's
preemptive rights or rights of first refusal, with respect to the Shares or
Underlying Common Stock which have not been effectively waived in writing. HI
has not violated any applicable federal or state securities laws in connection
with the offer, sale, or issuance of the Shares, and assuming the accuracy of
the representations and warranties of the Investor set forth in Article 4
hereof, the offer, sale, and issuance of the Shares hereunder do not require
registration under the Securities Act or any applicable state securities laws.
All the rights, preferences, privileges and restrictions of the Shares are set
forth in the Transaction Documents. No equity securities or rights to purchase
equity securities provides for acceleration or other changes in vesting
provisions or other terms governing such securities as a result of a Public
Offering, merger, consolidation, change of control or sale of assets except as
described on Schedule 5.3.
5.4 Validity of Shares. The Shares issued to Investor pursuant to Section
2.1 of this Agreement, when issued in accordance with this Agreement, shall be
duly authorized, validly issued, fully paid, and nonassessable and will be free
of any Liens.
5.5 Financial Statements. HI has delivered to Investor true and correct
copies of the
<PAGE>
audited consolidated balance sheet of HI and its Subsidiaries as of June 30,
1997, June 30, 1998, and June 30, 1999, and the related statements of income and
cash flows for the twelve-month periods then ended (with such balance sheet for
the fiscal year ending June 30, 1999 called the "Latest Balance Sheet", and
collectively, the "Financial Statements").
Each of such Financial Statements (including in all cases the notes
thereto, if any) has been prepared in accordance with GAAP, is accurate and
complete in all material respects, is consistent with the books and records of
HI (which are accurate and complete in all material respects), and presents
fairly the consolidated financial condition, results or operations, and cash
flows of HI and its Subsidiaries in accordance with GAAP, applied on a
consistent basis as of the dates and for the periods set forth therein.
5.6 Absence of Undisclosed Liabilities. Except as set forth on the
attached Schedule 5.6, HI and its Subsidiaries do not have any obligation or
liability (whether accrued, absolute, contingent, unliquidated, or otherwise,
whether or not known to HI or any Subsidiary, whether due or to become due and
regardless of when asserted) arising out of transactions entered into at or
prior to the date of the Closing, or any action or inaction at or prior to the
date of the Closing, or any state of facts or any circumstances existing at or
prior to the date of the Closing other than: (i) liabilities set forth on the
Latest Balance Sheet (including any notes thereto), and (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business, none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit and none
of which, either individually or collectively, is likely to have a Material
Adverse Effect.
5.7 Absence of Certain Developments. Except as expressly contemplated by
this Agreement or as set forth on the attached Schedule 5.7, since June 30,
1999, neither HI nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any capital stock
or other equity securities or any securities convertible, exchangeable or
exercisable into any capital stock or other equity securities, except as
reflected in Section 5.3 of this Agreement;
(b) borrowed any amount or incurred or become subject to any liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any obligation or liability,
other than current liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants, options or other rights
to acquire its capital stock or other equity securities);
<PAGE>
(e) mortgaged or pledged any of its properties or assets or subjected them
to any Lien, except Liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible assets, except in
the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent applications,
trademarks, service marks, trade names, corporate names, copyrights or copyright
registrations, trade secrets, or other intangible assets, except in each case
for non-exclusive license agreements made in the ordinary course of business;
(h) suffered any Material Adverse Effect or suffered any extraordinary
losses (other than operating losses incurred in the ordinary course of business)
or suffered any damage, destruction or casualty loss exceeding in the aggregate
$10,000, whether or not covered by insurance;
(i) made any Investment in or taken steps to incorporate any Subsidiary,
or made any Investment in any other Person; or
(j) entered into any other material transaction other than in the ordinary
course of business.
(k) knowledge of any change in the assets, liabilities, financial
condition or operations of HI from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries;
(l) knowledge of any resignation or termination of any officer or key
employee of HI or its Subsidiaries; and HI or its Subsidiaries, to the best of
its knowledge, does not know of the impending resignation or termination of
employment of any such officer or key employee;
(m) knowledge of any material change, except in the ordinary course of
business, in the contingent obligations of HI or its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(n) knowledge of any waiver by HI or its Subsidiaries of a valuable right
or of a material debt owed to it;
(o) knowledge of any direct or indirect loans made by HI or its
Subsidiaries to any shareholder, employee, officer or director of HI or its
Subsidiaries, other than immaterial advances made in the ordinary course of
business;
(p) knowledge of any material change in any compensation arrangement or
agreement
<PAGE>
with any employee, officer, director or shareholder other than entry into the
non-compete and confidentiality agreements with the Chief Executive Officer,
President, and Executive Vice President and Chief Technology Officer in the form
delivered to Investor;
(q) knowledge of any labor organization activity;
(r) knowledge of any change in material agreement to which HI or its
Subsidiaries is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries; or
(s) knowledge of any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
HI or its Subsidiaries.
(t) made any arrangement or commitment by HI or its Subsidiaries to do any
of the acts described in subsection (a) through (s) above.
5.8 Absence of Illegal Payments. Neither HI nor any Subsidiary has at any
time made any illegal payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5.9 Assets. Except as set forth on the attached Schedule 5.9, HI and each
Subsidiary have good and marketable title to, or a valid leasehold interest in,
the properties and assets used by them, located on their premises or shown on
the Latest Balance Sheet or acquired thereafter, free and clear of all Liens,
except for properties and assets disposed of in the ordinary course of business
since the date of the Latest Balance Sheet and except for Liens disclosed on the
Latest Balance Sheet (including any notes thereto) and Liens for current
property taxes not yet due and payable. Except as described on Schedule 5.9,
HI's and each Subsidiary's equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. HI and each Subsidiary own, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
5.10 Tax Matters.
(a) Except as set forth on the attached Schedule 5.10, HI, each
Subsidiary, and each Affiliated Group have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations in all material respects;
HI, each Subsidiary and each Affiliated Group in all material respects have paid
all Taxes due and owing by them (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authority all Taxes which they are required to
<PAGE>
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party; neither HI, any Subsidiary nor any Affiliated Group has
waived any statute of limitations with respect to any material Taxes or agreed
to any extension of time with respect to any material Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of HI and its Subsidiaries if their current tax year
were treated as ending on the date of the Latest Balance Sheet (excluding any
amount recorded which is attributable solely to timing differences between book
and Tax income); since the date of the Latest Balance Sheet, HI and its
Subsidiaries have not incurred any material liability for Taxes other than in
the ordinary course of business; the assessment of any additional Taxes for
periods for which Tax Returns have been filed by HI, each Subsidiary and each
Affiliated Group shall not exceed the recorded liability therefor on the Latest
Balance Sheet (excluding any amount recorded which is attributable solely to
timing differences between book and Tax income); the federal income Tax Returns
of HI and its Subsidiaries have been audited and closed for all tax years
through June 30, 1995; no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to HI, any Subsidiary or any Affiliated Group, no information related to
Tax matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by HI from any foreign, federal, state or local taxing
authority; and there are no material unresolved questions of, claims concerning
HI's, any Subsidiary's or any Affiliated Group Tax liability.
(b) Neither HI nor any of its Subsidiaries has made an election under
ss.341(f) of the Internal Revenue Code of 1986, as amended. Neither HI nor any
Subsidiary is liable for the Taxes of another Person that is not a Subsidiary in
a material amount under (a) Treas. Reg. ss. 1. 1 502-6 (or comparable provisions
of state, local or foreign law), (b) as a transferee or successor, (c) by
contract or indemnity or (d) otherwise. Neither HI nor any Subsidiary is a party
to any tax sharing agreement. HI, each Subsidiary and each Affiliated Group have
disclosed on their federal income Tax Returns any position taken for which
substantial authority (within the meaning of IRC ss.6662(d)(2)(B)(i)) did not
exist at the time the return was filed. Neither HI nor any Subsidiary has made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under IRC
ss.280G.
5.11 Contracts and Commitments.
(a) Except as specifically contemplated by this Agreement and except as
set forth on the attached Schedule 5.11, HI is not a party to or bound by,
whether written or oral, any: (i) collective bargaining agreement or contract
with any labor union, whether formal or informal; (ii) contract for the
employment of any officer, individual employee or group of employees or other
person on a full-time, part-time or consulting basis or any severance
agreements; (iii) agreement or indenture relating to the borrowing of money or
to placing a Lien on any of the assets of HI; (iv) agreements with respects to
the lending or investing of funds; (v) guaranty of any obligation for borrowed
money or otherwise, other than endorsements made for collection;
<PAGE>
(vi) license or royalty agreements except those entered into in the ordinary
course of business; (vii) lease or agreement under which HI is lessee of, or
holds or operates, any personal property owned by any other party for which
annual rental exceeds $50,000; (viii) lease or agreement under which HI is
lessor of or permits any third party to hold or operate any property, real or
personal, owned or controlled by it for which annual rental exceeds $50,000;
(ix) contract or group of related contracts with the same party for the purchase
or sale of raw materials, commodities, supplies, products or other personal
property or for the furnishing or receipt of services which either calls for
performance over a period of more than one year and involves a sum in excess of
$50,000 per year; (x) contract relating to the distribution, marketing or sales
of its products or services (including contracts to provide advertising
allowances or promotional services) involving more than $50,000 per year; (xi)
franchise agreements, (xii) contract which prohibits it from freely engaging in
business anywhere in the world; or (xiii) any other agreement material to HI not
entered into in the ordinary course of business.
(b) Except as specifically contemplated by this Agreement, or disclosed on
Schedule 5.11, (i) no contract or commitment required to be disclosed on
Schedule 5.11 has been breached or canceled by the other party since June 30,
1999, (ii) HI has performed in all material respects all of the obligations
required to be performed by HI in connection with the contracts or commitments
required to be disclosed on the Schedule 5.11, and is not in receipt of any
claim of default under any contract or commitment required to be disclosed on
the Schedule 5.11, (iii) HI has no present expectation or intention of not fully
performing any obligation pursuant to any contract set forth on Schedule 5.11,
and (iv) HI has no knowledge of any material breach or anticipated material
breach by any party to any contract specific on Schedule 5.11.
(c) HI has provided the Investor with a true and correct copy of all
written contracts which are referred to on Schedule 5.11 which have been
requested by Investors, together with all amendments, waivers or other changes
thereto.
5.12 Proprietary Rights.
(a) Schedule 5.12 attached hereto contains a complete and accurate list of
all patented and registered Proprietary Rights owned by HI, all pending patent
applications and applications for the registration of other Proprietary Rights
owned by HI and all licenses, options or agreements with respect to the
Proprietary Rights of HI or any of its Subsidiaries and all licenses, options or
agreements to which HI or any of its Subsidiaries is bound with respect to the
Proprietary Rights of any other person other than in the ordinary course of
business. Except as set forth on Schedule 5.12, HI owns and possesses all right,
title and interest in and to, or has a valid and enforceable written license to
use, all of the Proprietary Rights necessary for the operation of its business
as presently conducted and as currently proposed to be conducted; no claim by
any third party contesting the validity, enforceability, use or ownership of any
Proprietary Rights owned or used by HI has been made or is currently
outstanding; HI has not received any information as to any infringement or
misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights of HI, nor has HI received any claims alleging
<PAGE>
infringement or misappropriation, or other conflict with, any Proprietary Rights
of any third party; and HI has not infringed, misappropriated or otherwise
conflicted with any Proprietary Rights of any third party.
(b) To the knowledge of HI or its Subsidiaries, no employee of HI or its
Subsidiaries, nor any consultant with whom HI or its Subsidiaries has
contracted, is in violation of any term of any employment contract, proprietary
information agreement, or any other agreement relating to the right of any such
individual to be employed by, or to contract with, HI or its Subsidiaries
because of the nature of the business to be conducted by HI or its Subsidiaries
or presently proposed to be conducted; and to the knowledge of HI or its
Subsidiaries, the continued employment by HI or its Subsidiaries of its present
employees, and the performance of contracts with their independent contractors,
will not result in any such violation. HI or its Subsidiaries has not received
any notice alleging that any such violation has occurred.
(c) The Chief Executive Officer, President, and Executive Vice President
and Chief Technology Officer of HI have executed confidentiality and non-compete
agreements in the form delivered to Investor, and holders of certain stock
options have agreed to non-compete provisions as part of their option
agreements.
(d) None of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
HI or by any of its Subsidiaries in the conduct of their respective businesses
will malfunction, will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing, and/or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries including leap days, in each case in any
manner that would have a material adverse effect on HI or its Subsidiaries or
their respective operations or businesses.
5.13 Litigation. Except as set forth on the attached Schedule 5.13, there
are no actions, suits, proceedings, orders, investigations or claims pending or,
to the best of HI's knowledge, threatened against or affecting the HI or any
Subsidiary (or to the best of HI's knowledge, pending or threatened against or
affecting any of the officers, directors, or employees of HI and its
Subsidiaries with respect to their businesses or proposed business activities),
or pending or threatened by HI or any Subsidiary against any third party, at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement and the Transaction Documents); neither HI nor
any Subsidiary is subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of HI's knowledge, any
governmental investigations or inquiries; and, to the best of HI's knowledge,
there is no basis for any of the foregoing. Neither HI nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency, and neither HI nor any Subsidiary has received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability
<PAGE>
or disadvantage which may be material to its business.
5.14 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon HI or any
Subsidiary. HI shall pay, and hold Investor harmless against, any liability,
1oss or expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
5.15 Insurance. HI and its Subsidiaries maintain insurance coverage of
types and amounts reasonable and customary for corporations of similar size
engaged in similar lines of business. Neither HI nor any Subsidiary is in
default with respect to its obligations under any insurance policy maintained by
it, and neither HI nor any Subsidiary has been denied insurance coverage.
5.16 Employees. HI is not aware that any executive or key employee of HI
or any Subsidiary or any group of employees of HI or any Subsidiary has any
plans to terminate employment with HI or any Subsidiary. HI and each Subsidiary
have complied in all material respects with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes), and HI is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither HI, its Subsidiaries nor, to the best of HI's
knowledge, any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of HI
and its Subsidiaries, except for agreements between HI and its present and
former employees. No employee of HI or any Subsidiary is represented by any
labor union, nor are such employees covered under any collective bargaining
agreement.
5.17 ERISA. For purposes of this Section 5.17, the term "HI" includes all
organizations under common control with HI pursuant to Section 414(b) or (c) of
the IRC.
(a) Multiemployer Plans. HI does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
(b) Retiree Welfare Plans. HI does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(c) Defined Benefit Plans. HI does not maintain, contribute to or have any
liability
<PAGE>
under (or with respect to) any employee plan which is a tax-qualified "defined
benefit plan" (as defined in Section 3(35) of ERISA), whether or not terminated.
(d) Defined Contribution Plans. HI does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined contribution plan" (as defined in Section 3(34) of
ERISA), whether or not terminated.
(e) Other Plans. Except as set forth in Schedule 5.17, HI does not
maintain, contribute to or have any liability under (or with respect to) any
plan or arrangement providing benefits to current or former employees, including
any parachute, severance, or bonus plan or plan for deferred compensation,
except employee health, welfare, and similar benefit plans in the ordinary
course of business, whether or not terminated.
(f) Party in Interest. HI is not a party in interest (as defined under
Section 3(14) of ERISA) or a disqualified person (as defined in Section
4975(e)(2) of the IRC) with respect to any Investor.
(g) No Parachute Payment. No benefit under any Benefit Plan, including
without limitation, any severance or parachute payment plan or agreement, will
be established or become accelerated, vested, or payable by reason of any
transaction contemplated under this Agreement.
5.18 Compliance With Laws. Neither HI nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of HI and its Subsidiaries taken as a whole, and neither HI nor any Subsidiary
has received notice of any such violation. Neither HI nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or material corrective or remedial
obligation arising under any federal, state, local or foreign law, rule or
regulation (including the common law) relating to or regulating health, safety,
pollution or the protection of the environment.
No governmental orders, permissions, consents, approval or authorizations
are required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Underlying Common Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. HI and each of its
Subsidiaries have all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted and as
presently proposed to be conducted, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
HI or its Subsidiaries.
Assuming the accuracy of the representations and warranties of the
Investor contained herein, the offer, sale and issuance of the Shares and the
Underlying Common Shares will be exempt from the registration requirements of
the Securities Act, and will have been registered or
<PAGE>
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither HI nor any agent on its behalf has solicited or will
solicit any offers to sell or has offered to sell or will sell all or any part
of the Shares to any person or persons so as to bring the sale of such Shares by
HI within the registration provisions of the Securities Act or any state
securities laws.
5.19 Environmental and Safety Matters. HI has complied and is in
compliance with all Environmental and Safety Requirements in all material
respects (including without limitation all permits and licenses required
thereunder). HI has received no oral or written notice of any violation of, or
any liability (contingent or otherwise) or corrective or remedial obligations
under, any Environmental and Safety Requirements. No facts or circumstances with
respect to the past or current operations or facilities (whether currently or
previously owned, leased, or operated) of HI or any predecessor or Affiliate
thereof or entities previously owned by HI (including without limitation any
onsite or offsite disposal or release of hazardous materials, substances or
wastes) would give rise to any liability or corrective or remedial obligation
under any Environmental and Safety Requirement.
5.20 Affiliated Transactions. Except as set forth on the attached Schedule
5.20, (i) no officer, director, stockholder or Affiliate of HI or any
Subsidiary, (ii) to HI's knowledge, any employee of HI or any Subsidiary or
(iii) to HI's knowledge, any individual related by blood, marriage or adoption
to any individual described in clauses (i) or (ii) above or any entity in which
any such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with HI or any Subsidiary or has
any material interest in any material property used by HI or any Subsidiary.
5.21 Disclosure. Neither this Agreement, the Transaction Documents, nor
any of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to Investor by or on behalf of
HI with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading. There is no fact which HI
has not disclosed to Investor in writing and of which any of its officers,
directors or executive employees is aware and which has had or would reasonably
be expected to have a Material Adverse Effect.
5.22 Brokers. HI has not involved any brokers or finders in connection
with this Agreement or the transactions contemplated hereby, and agrees to
indemnify the Investor for any breach of this Section 5.22 by it.
5.23 Closing Date. The representations and warranties of HI contained in
this Article 5 and elsewhere in this Agreement and the Transaction Documents and
all information contained in any exhibit, schedule or attachment hereto or in
any certificate or other writing delivered by, or on behalf of, HI to Investor
shall be true and correct in all material respects on the date of this Agreement
as though then made.
<PAGE>
5.24 Subsidiaries.
(a) The only Subsidiaries of HI on the date of Closing are Gordon S. Black
Corporation which is a wholly owned Subsidiary of HI, Louis Harris & Associates,
Inc. which is a wholly owned Subsidiary of Gordon S. Black Corporation, and GSBC
Ohio Corporation which is a wholly owned Subsidiary of Gordon S. Black
Corporation.
(b) All outstanding capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable and is owned
beneficially and of record as described in Section 5.24(a) free and clean of all
Lines, options, or claims of any kind. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell, or
transfer shares of its capital stock.
ARTICLE 6 - RESTRICTIONS ON TRANSFERS
6.1 Restricted Securities. The Restricted Securities are transferable only
pursuant to (a) a Public Offering, (b) Rule 144 or Rule 144A under the
Securities Act (or any similar or successor rule, regulation, or law then in
force) if any such rule is available, or (c) subject to the conditions specified
in Section 6.2 below, any other legally available means of transfer.
6.2 Opinion Delivery. In connection with the transfer of any of the
Restricted Securities (other than a transfer described in Section 6.1(a) or (b)
above) and subject to Section 6.3 below, the Investor shall deliver written
notice to HI describing in reasonable detail the transfer or proposed transfer,
together with an opinion of legal counsel which (to HI's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of the Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to HI an opinion of such counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, HI shall promptly deliver to the Investor new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in Section 6.5. If HI is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
Investor, or if applicable a subsequent transferee thereof, shall not transfer
the same until the prospective transferee has confirmed to HI in writing its
agreement to be bound by the conditions contained in this Article 6.
6.3 Restrictions on Transfer. The Investor shall not sell, transfer,
assign, pledge, or otherwise dispose of (whether with or without consideration)
the Shares or any interest therein (a "Transfer") to any Person who, in the
reasonable judgment of HI based upon information made available by HI to
Investor, is a direct competitor of HI, or otherwise absent compliance with this
Section 6.3; provided that this Section 6.3 shall be of no further force and
effect at such time as HI consummates a Public Offering. Notwithstanding the
foregoing, this Section 6.3 shall not apply to a transfer to an Affiliate of
Investor, provided that such Affiliate becomes subject to the
<PAGE>
terms of this Section 6.3. If Investor proposes to Transfer all or part of the
Shares, Investor shall deliver a written notice ("Transfer Notice") to HI. The
Transfer Notice shall describe the number of Shares proposed to be transferred
(the "Offered Shares") and the proposed transferee and price per share. HI may
elect to purchase all, but not less than all, of the Offered Shares at the price
described in the Transfer Notice. If HI elects to purchase all of the Offered
Shares, HI shall give the Investor written notice of such election no later than
ten (10) days after delivery of the Transfer Notice. If an election to purchase
all of the Offered Shares has been made, the Offered Shares shall be transferred
to HI at the price stated in the Transfer Notice no later than fourteen (14)
days after notice of the election to purchase has been given. If HI has elected
not to purchase all of the Offered Shares (or has failed to exercise its rights
under this Section 6.3), the Investor may conclude a Transfer at the price per
share stated in the Transfer Notice, or at a higher price per share, at any time
within a one hundred thirty (130) day period after the delivery of the Transfer
Notice provided that the transferee has agreed in writing to be bound by the
terms of this Article 6 as if it was an original signatory to this Agreement.
6.4 Legend.
(a) Each certificate or instrument representing the Shares shall be
imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Investment Agreement, dated as of
October 15, 1999, as amended and modified from time to time, between
the issuer (the "Company") and Riedman Corporation, as amended and
modified from time to time. A copy of such Agreement will be
furnished by the Company to the holder hereof upon written request
and without charge."
(b) Upon the later of (i) the termination of this Agreement pursuant to
Article 9 hereof, and (ii) such time as the Shares are no longer Restricted
Securities, at Investor's request, HI shall remove the legend set forth in
Section 6.4(a) above from the certificates for the Shares.
6.5 Lock-Up Agreement. To the extent Investor has been released from the
Lockup Agreement, in connection with an initial Public Offering of Common
Shares, at the request of the underwriters for such offering, Investor agrees to
enter into a reasonable and customary negotiated holdback agreement providing
for a holdback not exceeding 180 days.
ARTICLE 7 -FINANCIAL INFORMATION
7.1 Delivery of Financial Information. HI shall make such financial and
other information, as it makes available to the holders of all of its Common
Shares, available to
<PAGE>
Investor. In addition, HI shall provide Investor with (a) copies of its annual
audited consolidated financial statements within ninety (90) days after the end
of its fiscal year; (b) copies of its unaudited quarterly financial statements
within forty-five (45) days after the end of each calendar quarter; (c) without
duplication of any other items furnished under this Section 7.1, copies of any
annual, special or interim audit reports or management or comment letters
submitted to HI by independent public accountants as soon as practicable
following such submission; (d) as soon as practicable, copies of all financial
statements, proxy material or reports sent to all holders of any class of
capital stock of HI; and (e) copies of all reports or registration statements
filed by or on behalf of HI with the SEC pursuant to the Securities Act or the
Securities Exchange Act. All such financial statements shall be prepared in
accordance with GAAP (except that any interim financial statements may omit
notes and may be subject to normal year-end adjustments). HI will make good
faith efforts to provide Investor with copies of any public or press releases
issued by or on behalf of HI, but shall have no liability for inadvertent
omissions in the delivery of same.
7.2 Confidentiality. Investor and its Affiliates shall maintain the
confidentiality of the financial statements and other information provided to it
pursuant to Section 7.1 above, provided that Investor may disclose such
information (a) in connection with a Transfer of the Shares if such Person
agrees to maintain the confidentiality of such financial statements and other
information as provided in this Section 7.2, (b) previously known on a
non-confidential basis by Investor, (ii) in the public domain through no fault
of Investor, (c) lawfully acquired by Investor from sources other than HI who,
to the knowledge of Investor, had such documents, reports or other information
without any breach of any obligation of confidentiality, (d) to officers,
directors, employees, accountants, counsel, consultants, advisors and agents of
Investor in connection with Investor's review of such documents, reports or
other information so long as such Persons are informed by Investor to treat such
information confidentially and not to use any of such documents, reports or
other information for any reason or purpose other than in connection with
Investor's review, or (e) if Investor is required to disclose by judicial,
regulatory or administrative process or by other requirements of law.
ARTICLE 8 - COVENANTS OF HI
8.1 Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office.
(a) So long as any of the Shares or Underlying Shares are outstanding, HI
agrees to maintain an office or agency where Shares may be presented for
payment, exchange, conversion, exercise or registration of transfer as provided
in this Agreement. Such office or agency initially shall be the office of HI set
forth in the preamble to this Agreement.
(b) HI agrees to give Investor at least twenty (20) days' prior written
notice of any change in HI the location of the office of HI required to be
maintained under this Section 8.2.
8.2 Reservation of Shares. HI agrees that there have been reserved, and HI
shall at all
<PAGE>
times keep reserved, free from preemptive rights, out of its authorized Common
Stock a number of shares of Common Stock sufficient to provide for the exercise
of the conversion rights related to the Underlying Shares.
8.3 Listing of Shares. HI agrees that if any shares of HI's Common Stock
are listed on any national securities exchange or on Nasdaq, then HI will take
such action as may be necessary, from time to time, to list all outstanding
Common Shares on such exchange or on Nasdaq.
8.4 Securities Exchange Act Registration. HI agrees that as soon as HI is
either required to or does file a registration statement with respect to Common
Stock of HI under Section 6 of the Securities Act or Section 12(b) or Section
12(g), whichever is applicable, of the Securities Exchange Act, then thereafter:
(a) HI will maintain effective a registration statement (containing such
information and documents as the SEC shall specify and otherwise complying with
the Securities Exchange Act), under Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act, with respect to the Common Stock of
HI, and HI will file on time such information, documents and reports as the
Commission may require or prescribe for companies whose stock has been
registered pursuant to Section 12(b) or Section 12(g), whichever is applicable.
(b) HI will make whatever filings with the SEC, or otherwise take such
other action as may be necessary to comply with the current reporting provisions
of Rule 144(c) under the Securities Act in order to facilitate resales of HI
Common Stock.
8.5 Delivery of Information for Rule 144A Transactions. If Investor
proposes to transfer any Shares or Underlying Shares pursuant to Rule 144A under
the Securities Act (as in effect from time to time), HI agrees to provide (upon
the request of Investor or the prospective transferee) to Investor and (if
requested) to the prospective transferee any financial or other information
concerning HI which is required to be delivered by such holder to any transferee
of such Shares or Underlying Shares pursuant to such Rule 144A.
8.6 Registration Statement . HI shall provide to Investor and its counsel,
promptly after they are prepared, drafts of any registration statements covering
securities of HI. HI shall provide Investor with a reasonable time to review and
comment upon any such registration statement (and documents to be filed with the
SEC in connection therewith) prior to filing any such registration statement or
other related document with the SEC).
8.7 Private Placement Status. Neither HI, any Subsidiary, nor any agent
nor other Person acting on HI's behalf will do or cause to be done (or will omit
to do or to cause to be done) any act which act (or which omission) would result
in bringing the issuance or sale of the Shares within the provisions of Section
5 of the Securities Act or the filing, notification, or reporting requirements
of any state securities law.
<PAGE>
8.8 No Impairment. HI will not, and will not permit any Subsidiary to take
action to avoid the observance or performance of any of the terms of the Share
Purchase Agreements, the Transaction Documents, or the Shares.
ARTICLE 9 - TERMINATION
9.1 Termination. All agreements, representations and warranties,
covenants, and obligations of the Investor and any Subsidiary contained in this
Agreement, the Transaction Documents, the Shares or any document or certificate
delivered pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution, delivery of this Agreement, the Transaction Documents,
the closings hereunder and thereunder, any investigation at any time made by or
on behalf of the Purchasers or by any other Person, the issuance, sale and
delivery of the Shares, any disposition thereof and any payment, exercise
conversion or cancellation of the Shares; provided that the provisions of
Section 6.3, Article 7, and Section 8.2 shall terminate following the conversion
of all Shares held by the Investor into Common Shares. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of HI pursuant thereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by HI
as to such factual matters hereunder solely as of the date of such certificate
or instrument.
ARTICLE 10 - REMEDIES
10.1 Indemnification. HI agrees to indemnify and hold Investor and its
Affiliates harmless from and against and will pay to Investor and each Affiliate
the full amount of any loss, damage, liability or expense (including amounts
paid in settlement and reasonable attorneys' fees and expenses) to Investor and
any Affiliate resulting either directly or indirectly from any breach of the
representations or warranties, or failure to perform any of the covenants or
agreements of the Investor or any Subsidiary contained in this Agreement, the
Transaction Documents or the Shares.
10.2 Remedies. In the case of a breach of any representation or warranty,
or failure to perform any of the agreements or covenants of HI or any Subsidiary
contained in this Agreement, the Transaction Documents or any Shares, the holder
of any Shares then outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement or covenant contained
herein or therein or in such Share or for an injunction against a violation of
any of the terms hereof or thereof or of such Share, or in aid of the exercise
of any power granted hereby or thereby or by such Share or by law or for any
other remedy (including without limitation damages).
Holders of all Shares shall, in addition to other remedies provided by
law, have the right to have the provisions of this Agreement, the Transaction
Documents or other such Shares specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any breach or threatened
breach of the provisions of this Agreement, the Transaction
<PAGE>
Documents or any Shares will cause irreparable injury to holders of Shares and
that money damages will not provide an adequate remedy. Nothing contained herein
shall be construed as prohibiting a holder of Shares from pursuing any other
remedies available to such holder for such breach or threatened breach,
including without limitation the recovery of damages from the HI.
10.3 No Counterclaim. All amounts payable by HI in connection with the
Shares shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
<PAGE>
ARTICLE 11 - MISCELLANEOUS
11.1 Successor/Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors, legal representatives, and
assigns of the parties, provided, however, that this Section 10.1 is not
intended to supersede any restrictions on transfer of any interest expressly
provided elsewhere in this Agreement.
11.2. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws; provided, however, that the matters contained
herein that are specifically within the purview of the General Corporation Law
of the State of Delaware shall be governed by such law.
11..3 Arbitration.
(a) The parties agree to this Section 11.3 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
11.4 Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
11.5 Notices. Any notice or demand upon any party hereto shall be deemed
to have been sufficiently given or served for all purposes hereof when delivered
in person or by nationally recognized overnight courier with receipt requested,
or three business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed to the address shown in the preamble to this
Agreement or to such other address as may be designated by any party by notice
given to the other in the manner described in this Section 10.5.
11.6 Severability/Construction. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force
<PAGE>
without being impaired or invalidated. The parties agree to replace any invalid
provision with a valid provision which most closely approximates the intent and
economic effect of the invalid provision. The parties agree that this Agreement
has been prepared in cooperation, and that it shall not be construed as against
any particular party as drafter.
11.7 Expenses. Except as otherwise expressly provided herein, both parties
shall be responsible for their own costs and expenses in connection herewith.
11.8 Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach. No waiver or amendment hereof shall be effective unless in
writing signed by both HI and Investor. No course of dealing and no delay on the
part of any holder of any Shares or any party to this Agreement in exercising
any rights or remedies shall operate as a waiver thereof or otherwise prejudice
such holder's or party's rights. No right or remedy conferred hereby or by the
Transaction Documents or by any Share shall be exclusive of any other right or
remedy referred to herein or therein in such Share or available at law, in
equity, by statute or otherwise.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
-----------------------------
Gordon S. Black
Chief Executive Officer
<PAGE>
RIEDMAN CORPORATION
By: /s/ James R. Riedman
------------------------------
Title: President
<PAGE>
Exhibit 10.13
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of October 15, 1999 between HARRIS INTERACTIVE
INC., a Delaware corporation with offices at 135 Corporate Woods, Rochester, New
York 14623 ("HI") and SEQUEL LIMITED PARTNERSHIP II and SEQUEL ENTREPRENEUR'S
FUND II, LP, both with offices at 4430 Arapahoe Avenue, Suite 220, Boulder,
Colorado 80303 (collectively, "Investor").
WITNESSETH
WHEREAS, HI desires to sell to the investor and the Investor desires to
purchase from HI shares of the Class B Convertible Preferred Stock, par value
$.01 per share, of HI, all upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt an
sufficiency of which are hereby acknowledged, the parties agree as follows:
The parties agree as follows:
ARTICLE 1 -DEFINITIONS
1.1 Definitions. The following capitalized terms shall have the following
meanings:
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract, or otherwise, partners
or former partners, and members or former members.
"Affiliated Group" means any affiliated group as defined in IRC ss.1504
that has filed a consolidated return for federal income tax purposes (or any
similar group under state, local, or foreign law) for a period during which any
of HI or any of its Subsidiaries was a member.
"Class A Preferred Stock" shall mean the Class A Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Class B Preferred Stock" shall mean the Class B Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Common Shares" shall mean the common stock, $0.001 par value per share,
of HI.
<PAGE>
"Environmental and Safety Requirements" means all federal, state, local,
and foreign statutes, regulations, ordinances and other provisions having the
force and effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety, and pollution or
protection of the environment.
"Fully Diluted Basis" shall mean the number of common shares actually
outstanding, the number of Common Shares into which the then outstanding shares
of Class A Preferred Stock and Class B Preferred Stock could be fully converted
if fully converted on the given date, and the number of Common Shares which
could be obtained through the exercise, exchange, or conversion of all other
rights, warrants, options and convertible securities or other securities
convertible, exchangeable, or exercisable for Common Stock (or any of the
foregoing) outstanding or reserved for issuance on the given date.
"GAAP" means generally accepted accounting principles.
"Investment" means, with respect to any Person, (i) any capital
contribution by such Person to any other Person, (ii) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities, or ownership interest (including partnership,
membership, and joint venture interests) of any other Person, (iii) any loan,
advance or extension of credit by such Person to any other Person (other than
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale of goods or services in the ordinary course of
business, and (b) extensions of credit by HI to any of its wholly-owned
Subsidiaries or by any of its wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries), (iv) any guaranty of obligations of such Person, (v)
any transfer or sale of property of such Person to any other Person other than
upon full payment, in cash, of not less than the agreed sale price or the fair
value of such property, whichever is higher (other than transfers of property in
the ordinary course of business of the Person in exchange for fair value), (vi)
any acquisition by such Person of all or an integral part of the business of any
other Person or the assets comprising such business or such part thereof, and
(vii) any commitment or option to do any of the following. Any of the foregoing
under clauses (i) through (vi) shall be considered an Investment whether such
Investment is acquired by purchase, exchange, merger or any other method.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section number shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien, preference in the nature of
security, or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement
<PAGE>
or lease in the nature thereof), any sale of receivables with recourse against
the seller or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third Person of property leased to a party
under a lease which is not in the nature of a conditional sale or title
retention agreement or any subordination arrangement, and any agreement to give
or make any of the foregoing.
"Lockup Agreement" shall mean the Lockup Agreement in the form attached
hereto and made a part hereof as Exhibit B.
"Material Adverse Effect" means any event, matter, condition or
circumstance which (i) has a material adverse effect on the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise), employee relations, customer or supplier relations, or business
prospects of HI, (ii) has an adverse effect on the ability of HI to perform its
obligations under any material contract, the Share Purchase Agreements, the
Transaction Documents or any of the Shares to be issued by it or (iii)
materially or adversely affects the legality, validity, binding effect or
enforceability of the Share Purchase Agreements, the Transaction Documents or
the Shares.
"Offered Shares" shall have the meaning given in Section 6.3 of this
Agreement.
"Other Purchasers" shall have the meaning given in Section 2.1 of this
Agreement.
"Person" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, government, governmental body,
agency, political subdivision, or other entity of any kind or nature.
"Proprietary Rights" shall mean all patents; all trademarks, service
marks, domain names, trade dress, trade names, and corporate names and all of
the goodwill associated therewith; all copyrights; all registrations,
applications and renewals for any of the foregoing; all inventions; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
manufacturing and production processes and techniques, research information,
drawings, specifications, designs, plans, improvements, technical and computer
data, documentation and software, and all other proprietary rights and processes
of similar nature ; and all computer programs (including source codes) and
related documentation.
"Public Offering" means any offering by HI (or any other holder) of HI
Common Stock to the public pursuant to an effective registration statement under
the Securities Act, as then in effect, or any comparable statement under any
similar federal statute then in force.
"Purchase Price" shall have the meaning given to it in Section 2.2 of this
Agreement.
<PAGE>
"Registration Agreement" shall mean the Registration Agreement described
in Section 3.6 of this Agreement.
"Research Agreement" shall mean the Research Agreement described in
Section 3.11 of this Agreement.
"Restricted Securities" means (i) the Shares hereunder, (ii) the
Underlying Common Stock, and (iii) any securities issued with respect to the
Shares or Underlying Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. As to any Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act; provided that the Company has completed a Public Offering and is
subject to the provisions of the 1934 Act and as to any particular holder of
Restricted Securities, such holder (together with its Affiliates) holds less
than 1% of the Company's common stock on a Fully Diluted Basis, or (c) otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in Section 6.5 hereof have been delivered by HI in accordance with
Section 6.2. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from HI, without
expense, new securities of like tenor not bearing a Securities Act legend of the
character set forth in Section 6.5.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date hereof and as hereafter amended.
"Share Purchase Agreements" shall meaning given in Section 2.1 of this
Agreement.
"Shares" shall have the meaning given in Section 2.2 of this Agreement.
"Stockholders' Agreement" shall mean the Stockholders' Agreement described
in Section 3.10 of this Agreement.
"Subsidiary" means any Person of which, at the time of determination made
under this Agreement, at least a majority of capital stock having ordinary
voting power for the election of directors or other governing body of such
Person is owned by the applicable other Person,
<PAGE>
directly or through one or more Subsidiaries.
"Tax" or "Taxes" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
"Transaction Documents" shall mean the documents and agreements executed
and delivered in connection with this Agreement, including without limitation
the amendment to HI's Certificate of Incorporation, Registration Agreement, the
Lockup Agreement, the Research Agreement, the Shares, and the Stockholders
Agreement.
"Transfer" shall have the meaning given in Section 6.3 of this Agreement.
"Transfer Notice" shall have the meaning given in Section 6.3 of this
Agreement.
"Underlying Common Stock" shall mean (i) the Common Stock issued or
issuable upon conversion of the Class B Preferred Stock, and any (ii) Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Class B
Preferred Stock shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of such Class B Preferred Stock in connection with
the transfer thereof or otherwise regardless of any restriction or limitation on
the conversion of the Class B Preferred Stock, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by HI.
ARTICLE 2 - PURCHASE OF SHARES
2.1 Authorization of Class B Preferred Stock. HI has authorized the
issuance of 200,000 shares of Class B Preferred Stock having the rights and
preferences set forth in Exhibit
<PAGE>
A attached hereto (the "Class B Shares"). The Class B Shares are being sold by
HI to the Investor and the other purchasers listed on Schedule 2.1 hereto (the
"Other Purchasers") pursuant to this Agreement and other substantially identical
agreements (this agreement together with such other agreements collectively, the
"Share Purchase Agreements"). Set forth opposite each Other Purchaser's name on
Schedule 2.1 is the number of Class B Shares being acquired by such Other
Purchasers and the purchase price paid, or to be paid, therefore.
2.2 Share Purchase. On the date of the Closing, HI shall sell to Investor,
and Investor, subject to the terms and conditions hereof and in reliance upon
the representations and warranties of HI contained herein or made pursuant
hereto, shall purchase from HI, 50,000 Class B Shares (together with the
Underlying Common Stock, the "Shares"), being 2.302% of the Common Shares on a
Fully Diluted Basis after the purchases under the Share Purchase Agreements. The
aggregate purchase price for the Shares to be acquired by the Investor pursuant
to this Agreement shall be Five Million Dollars ($5,000,000) (the "Purchase
Price").
2.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing")
shall take place at the offices of Harris Beach & Wilcox LLP located at 130 E.
Main Street, Rochester, New York at 10:00 a.m. , eastern daylight time, on
October 15, 1999 or such other time and place as are mutually agreeable to the
parties.
(b) On the date of the Closing and upon receipt of the items set forth in
Section 2.3(c) hereof, Investor shall pay the Purchase Price by wire transfer or
in other immediately available funds to HI addressed as follows:
Manufacturers and Traders Trust Company
Rochester, NY 14604
Account #015215148
ABA#02200004-6
For: Harris Interactive Inc.
Re: Mezzanine Investment
(c) At the Closing (i) Investor and HI shall execute and deliver this
Agreement, the Registration Agreement, the Stockholders Agreement, and the
Research Agreement, (ii) Investor shall execute and deliver the Lockup Agreement
and the Consent of Shareholders in the form attached as Exhibit D, and (iii) HI
shall deliver a certificate registered in the Investor's name evidencing the
Shares to Investor.
ARTICLE 3 - CONDITIONS OF INVESTOR'S OBLIGATION AT CLOSING
The obligation of the Investor to purchase and pay for the Shares at the
Closing is subject
<PAGE>
to the satisfaction as of the Closing of the following conditions (any of which
may be waived by the Investor):
3.1 Representations, Warranties, and Covenants. The representations and
warranties contained in Article 5 hereof or in any certificate or document
delivered pursuant hereto, shall be true and correct at and as of the Closing as
though then made and HI shall have performed and complied with all of the
covenants and agreements required to be performed or complied with by it
hereunder on or prior to the Closing.
3.2 Amendment of Certificate of Incorporation. HI's Certificate of
Incorporation shall have been amended and shall be in the form set forth in
Exhibit A hereto, shall be in full force and effect under the laws of the State
of Delaware as of the Closing as so amended, and shall not have been further
amended or modified; provided, however, that Investor acknowledges that certain
modifications to the Certificate of Incorporation have been or will be approved
by the directors and shareholders (including the Investor after its investment)
of HI contingent upon completion of a Public Offering, a copy of which
shareholder approval (which describes and approves such modifications) is
attached as Exhibit D hereto.
3.3 Securities Law Compliance. HI shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Shares pursuant to this Agreement in compliance with such laws
and HI shall be in compliance with all such laws.
3.4 Compliance with Applicable Laws/Authorizations. The purchase of the
Shares by the Investor hereunder shall not be prohibited by any applicable law
or governmental order, rule or regulation and shall not subject the Investor to
any penalty, tax, liability, or, in the Investor's reasonable judgment, other
onerous condition, and the purchase of the Shares by the Investor hereunder
shall be permitted by laws, rules, and regulations of the jurisdictions and
governmental authorities and agencies to which the Investor is subject. Any
necessary consents, waivers, approvals, licenses, permits, orders and
authorizations of, and any filings, registrations or qualifications with, any
governmental authority of other Person (including any consents or waivers by the
holders of the Class A Preferred Stock), with respect to the transactions
contemplated by this Agreement, the Share Purchase Agreements and the
Transaction Documents shall have been obtained or made and shall be in full
force and effect.
3.5 No Change in Law etc.. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted, or made by or on behalf of any
governmental authority, and no legislation shall have been introduced, and no
investigation by an governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental
authority or arbitrator, which, in any such case, in the Investor's reasonable
judgment could adversely affect, restrain, prevent, or change the transactions
contemplated by the Share Purchase Agreements or the Transaction Documents
(including without limitation, the issuance of the
<PAGE>
Shares) or have a Material Adverse Effect.
3.6 Registration Agreement. HI and Brinson MAP Venture Capital Fund III as
successor to Brinson MAP Venture Capital Fund III Trust, BVCF III, L.P. as
successor to Brinson Venture Capital Fund III, L.P., and Virginia Retirement
System (the "Brinson Holders") shall have entered into a Registration Agreement
Amendment Number 1 (the "Amendment") to the Registration Agreement made among HI
and the Brinson Holders, in substantially the form attached to this Agreement as
Exhibit C , and HI and Investor shall have entered into a Registration Agreement
in substantially the form attached to the Amendment as Exhibit A thereto (the
"Registration Agreement").
3.7 Opinion of HI's Counsel. Investor shall have received from Harris
Beach & Wilcox, LLP, counsel for HI, an opinion addressed to Investor dated the
date of Closing in substantially the form attached to this Agreement as Exhibit
G.
3.8 Compliance Certificate of Officer. HI shall have delivered to Investor
an officer's certificate dated the date of closing stating that the conditions
specified in Section 2 to be performed by HI, and the conditions specified in
Sections 3.1-3.11, inclusive, of this Agreement, have been fully satisfied.
3.9 Corporate Proceedings. HI shall have delivered to Investor copies
certified by the Secretary of HI, of (a) resolutions adopted by the Board of
Directors of HI authorizing the execution, delivery, and performance of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, the
amendment to the Certificate of Incorporation attached hereto as Exhibit A, the
issuance and sale of the Shares, the reservation for issuance of the Underlying
Common Stock, and the consummation of all of the transactions contemplated by
this Agreement and the Share Purchase Agreements, and (b) resolutions duly
adopted by HI's stockholders adopting the amendment to the Certificate of
Incorporation attached hereto as Exhibit A.
3.10 Stockholders Agreement. HI and the Investor shall have entered into a
Stockholders' Agreement in substantially the form attached hereto as Exhibit E
(the "Stockholders' Agreement").
3.11 Other Documents and Opinions. The Investor shall have received such
other documents and opinions, in form and substance satisfactory to the Investor
and its counsel, relating to matters incident to the transactions contemplated
hereby as the Investor may reasonably request.
ARTICLE 4 - REPRESENTATIONS OF INVESTOR
As a material inducement to HI to enter into this Agreement and sell the
Shares hereunder, Investor represents and warrants to HI as follows:
<PAGE>
4.1 Formation. Investor is validly formed or organized, and existing,
under the laws of the jurisdiction of its formation, and has all requisite power
and authority to carry out the transactions contemplated by this Agreement.
4.2 Authorization. The execution and delivery of this Agreement and the
Transaction Documents, and performance of the transactions contemplated hereby,
by Investor have been duly authorized by Investor. This Agreement and the
Transaction Documents constitute valid and binding obligations of Investor,
enforceable in accordance with their terms, subject to limitations imposed by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization, or
other laws or judicial decisions or principles of equity relating to or
affecting the enforcement of creditors' rights generally. Except to the extent
that any of the following would not reasonably be expected to have a material
adverse effect on the ability of Investor to consummate the transactions
contemplated by this Agreement, the execution and delivery by Investor of this
Agreement and the Transaction Documents, and the compliance with their terms by
Investor, do not (a) conflict with or result in a violation of, (b) constitute a
default under, or (c) require any authorization, consent, approval, exemption,
or other action by or notice to, or filing with, any court or administrative or
governmental body or agency pursuant to, (i) the charter documents or bylaws of
Investor, (ii) any law, statute, rule, or regulation to which Investor is
subject, or (iii) any material agreement, instrument, order, judgment, or decree
to which Investor is subject.
4.3 Investment Intent. The Shares are being acquired for the Investor's
own account, for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act or the
securities laws of any other state applicable to Investor. Investor understands
that the Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4 (2) thereof,
which exemption depends upon, among other things, the bona fide nature of
Investor's investment intent expressed herein, that HI has no present intention
of registering the Shares, and that the Shares must be held by the Investor
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.
4.4 Access to Information. During the negotiation of the transactions
contemplated by this Agreement, the Investor and its representatives have been
afforded access to corporate books, documents, and other information concerning
HI and to its offices and facilities, have been afforded an opportunity to ask
such questions of HI and its officers, employees, agents, accountants, and
representatives concerning HI's business, operations, financial condition,
assets, liabilities, and other relevant matters as they have deemed necessary or
desirable, and have been given all such information as has been requested, in
order to evaluate the merits and risks of the prospective investments
contemplated herein.
<PAGE>
4.5 Due Diligence. The Investor and its representatives have been solely
responsible for Investor's own "due diligence" investigation of HI and its
management and business, for Investor's own analysis of the merits and risks of
this investment, and for its own analysis of the fairness and desirability of
the terms of the investment. In taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has acted
solely in its own interest, and neither Investor nor any of Investor's agents or
employees has acted as an agent of HI. The Investor has such knowledge and
experience in financial and business matters that Investor is capable of
evaluating the merits and risks of the purchase of the Shares pursuant to the
terms of this Agreement and of protecting Investor's interests in connection
therewith. Nothing in this Section 4.5, however, shall affect HI's obligations
to the Investor under the representations and warranties contained in Article 4
hereof.
4.6 Economic Risk; Accredited Investor. The Investor is able to bear the
economic risk of the purchase of the Shares pursuant to the terms of this
Agreement, including a complete loss of Investor's investment in the Shares. The
Investor is an Accredited Investor as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
4.7 Brokers. The Investor has not involved any brokers or finders in
connection with this Agreement or the transactions contemplated hereby, and
agrees to indemnify HI for any breach of this Section 4.7 by it.
ARTICLE 5 - REPRESENTATIONS OF HI
As a material inducement to the Investor to enter into this Agreement and
purchase the Shares hereunder, HI represents and warrants to the Investor as
follows:
5.1 Organization, Corporate Power. HI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, and is
qualified (and in good standing) to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify. HI
possesses all requisite corporate power and authority and legal right to own and
operate its assets, to carry out its business as now conducted and presently
proposed to be conducted, to execute, deliver, and carry out the transactions
contemplated by this Agreement, the Share Purchase Agreements, and each of the
Transaction Documents. The copies of HI's charter documents and bylaws which
have been previously furnished to Investor reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
Each Subsidiary of HI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, possesses all requisite
corporate power and authority and the legal right to own and operate its assets,
to carry out its business as now conducted and presently proposed to be
conducted and is qualified (and in good standing) to do business in every
jurisdiction in which its ownership of property or conduct of its business
requires it to qualify. All the outstanding shares of capital stock of each
Subsidiary are validly
<PAGE>
issued, fully paid and nonassessable and all such shares are owned by HI or
another one of its Subsidiaries free and clear of any Lien and not subject to
any right or option to purchase such shares. Neither HI nor any Subsidiary is in
violation in any respect of its certificate or articles of incorporation or
by-laws.
5.2 Authorization; No Breach. The execution and delivery of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, and
performance of the transactions contemplated hereby (including the amendment to
HI's Certificate of Incorporation) and thereby, by HI has been duly authorized
by HI. This Agreement, the Share Purchase Agreements, and the Transaction
Documents constitute legal, valid and binding obligations of HI, enforceable in
accordance with their terms, subject to limitations imposed by bankruptcy,
insolvency, reorganization, or other laws or judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights generally.
The Shares, when issued at Closing, will constitute the legal, valid, and
binding obligations of HI enforceable in accordance with their respective terms.
The execution and delivery by HI of this Agreement, the Share Purchase
Agreements, and the Transaction Documents, the fulfillment and compliance with
their terms by HI (including the amendment to HI's Certificate of
Incorporation), the sale and issuance of the Shares, and the issuance of the
Underlying Common Shares, do not and will not (a) conflict with or result in a
breach or violation of (with or without the giving of notice or the passage of
time or both), (b) constitute a default under, (c) result in the creation of any
Lien, security interest charge or encumbrance upon any of the capital stock,
properties or assets of HI or its Subsidiaries, or (d) require any
authorization, consent, waiver, approval, order, exemption, or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency or any other Person pursuant to, or give any third party the right to
modify, terminate, or accelerate any obligation under, (i) the certificate of
incorporation or bylaws of HI or any of its Subsidiaries, (ii) any law, statute,
rule, or regulation to which HI or any of its Subsidiaries is subject, or (iii)
any agreement, instrument, order, judgment, writ, injunction, or decree to which
HI or any of its Subsidiaries is subject. The execution and delivery by HI of
this Agreement, the Share Purchase Agreements, and the Transaction Documents and
the performance of the transactions contemplated hereby and thereby (including
the issuance of Shares and the Underlying Common Shares) will not cause
anti-dilution clauses of any outstanding securities to become operative or give
rise to any preemptive rights.
5.3 Capital Stock and Related Matters. As of the date of this Agreement
and immediately thereafter, the authorized capital stock of HI shall consist of
(a) 147,000 shares of Class A Preferred Stock, all of which is duly authorized
and validly issued and outstanding, (b) 200,000 shares of Class B Preferred
Stock of which none will be outstanding, and (b) 100,000,000 shares of Common
Stock, of which 10,990,924 shall be duly authorized and validly issued and
outstanding (before giving effect to the purchase of the Shares and the
remainder of the Class B Preferred Stock), 11,790,324 of which shall be reserved
for issuance upon conversion of the Class A Preferred Stock, 2,833,565 of which
shall be reserved
<PAGE>
for issuance upon conversion of all of the Class B Preferred Stock, and
5,154,408 of which shall be reserved for issuance upon exercise of outstanding
options and warrants. Except as aforesaid, as of the date of this Agreement, HI
shall not have outstanding any stock, investment rights, options, or securities
convertible, exercisable, or exchangeable for (or any agreements under which HI
is or may become obligated to issue, sell, or transfer) any shares of its
capital stock or containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable for its
capital stock. As of the date of this Agreement, all of the outstanding shares
of HI's capital stock shall be validly issued, fully paid, and nonassessable and
were issued in compliance with all applicable state and federal securities laws.
There are no statutory or contractual stockholder's preemptive rights or rights
of first refusal, with respect to the Shares or Underlying Common Stock which
have not been effectively waived in writing. HI has not violated any applicable
federal or state securities laws in connection with the offer, sale, or issuance
of the Shares, and assuming the accuracy of the representations and warranties
of the Investor set forth in Article 4 hereof, the offer, sale, and issuance of
the Shares hereunder do not require registration under the Securities Act or any
applicable state securities laws. All the rights, preferences, privileges and
restrictions of the Shares are set forth in the Transaction Documents. No equity
securities or rights to purchase equity securities provides for acceleration or
other changes in vesting provisions or other terms governing such securities as
a result of a Public Offering, merger, consolidation, change of control or sale
of assets except as described on Schedule 5.3.
5.4 Validity of Shares. The Shares issued to Investor pursuant to Section
2.1 of this Agreement, when issued in accordance with this Agreement, shall be
duly authorized, validly issued, fully paid, and nonassessable and will be free
of any Liens.
5.5 Financial Statements. HI has delivered to Investor true and correct
copies of the audited consolidated balance sheet of HI and its Subsidiaries as
of June 30, 1997, June 30, 1998, and June 30, 1999, and the related statements
of income and cash flows for the twelve-month periods then ended (with such
balance sheet for the fiscal year ending June 30, 1999 called the "Latest
Balance Sheet", and collectively, the "Financial Statements").
Each of such Financial Statements (including in all cases the notes
thereto, if any) has been prepared in accordance with GAAP, is accurate and
complete in all material respects, is consistent with the books and records of
HI (which are accurate and complete in all material respects), and presents
fairly the consolidated financial condition, results or operations, and cash
flows of HI and its Subsidiaries in accordance with GAAP, applied on a
consistent basis as of the dates and for the periods set forth therein.
5.6 Absence of Undisclosed Liabilities. Except as set forth on the
attached Schedule 5.6, HI and its Subsidiaries do not have any obligation or
liability (whether accrued, absolute, contingent, unliquidated, or otherwise,
whether or not known to HI or any Subsidiary, whether due or to become due and
regardless of when asserted) arising out of transactions entered into at or
prior to the date of the Closing, or any action or inaction at or prior to the
date of the Closing,
<PAGE>
or any state of facts or any circumstances existing at or prior to the date of
the Closing other than: (i) liabilities set forth on the Latest Balance Sheet
(including any notes thereto) and (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business, none of which is a liability resulting from breach of contract, breach
of warranty, tort, infringement, claim or lawsuit, and none of which, either
individually or collectively, is likely to have a Material Adverse Effect.
5.7 Absence of Certain Developments. Except as expressly contemplated by
this Agreement or as set forth on the attached Schedule 5.7, since June 30,
1999, neither HI nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any capital stock
or other equity securities or any securities convertible, exchangeable or
exercisable into any capital stock or other equity securities, except as
reflected in Section 5.3 of this Agreement;
(b) borrowed any amount or incurred or become subject to any liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any obligation or liability,
other than current liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants, options or other rights
to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or subjected them
to any Lien, except Liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible assets, except in
the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent applications,
trademarks, service marks, trade names, corporate names, copyrights or copyright
registrations, trade secrets, or other intangible assets, except in each case
for non-exclusive license agreements made in the ordinary course of business;
(h) suffered any Material Adverse Effect or suffered any extraordinary
losses (other than operating losses incurred in the ordinary course of business)
or suffered any damage, destruction or casualty loss exceeding in the aggregate
$10,000, whether or not covered by insurance;
<PAGE>
(i) made any Investment in or taken steps to incorporate any Subsidiary,
or made any Investment in any other Person; or
(j) entered into any other material transaction other than in the ordinary
course of business.
(k) knowledge of any change in the assets, liabilities, financial
condition or operations of HI from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries;
(l) knowledge of any resignation or termination of any officer or key
employee of HI or its Subsidiaries; and HI or its Subsidiaries, to the best of
its knowledge, does not know of the impending resignation or termination of
employment of any such officer or key employee;
(m) knowledge of any material change, except in the ordinary course of
business, in the contingent obligations of HI or its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(n) knowledge of any waiver by HI or its Subsidiaries of a valuable right
or of a material debt owed to it;
(o) knowledge of any direct or indirect loans made by HI or its
Subsidiaries to any shareholder, employee, officer or director of HI or its
Subsidiaries, other than immaterial advances made in the ordinary course of
business;
(p) knowledge of any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than entry
into the non-compete and confidentiality agreements with the Chief Executive
Officer, President, and Executive Vice President and Chief Technology Officer in
the form delivered to Investor;
(q) knowledge of any labor organization activity;
(r) knowledge of any change in material agreement to which HI or its
Subsidiaries is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries; or
(s) knowledge of any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
HI or its Subsidiaries.
<PAGE>
(t) made any arrangement or commitment by HI or its Subsidiaries to do any
of the acts described in subsection (a) through (s) above.
5.8 Absence of Illegal Payments. Neither HI nor any Subsidiary has at any
time made any illegal payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5.9 Assets. Except as set forth on the attached Schedule 5.9, HI and each
Subsidiary have good and marketable title to, or a valid leasehold interest in,
the properties and assets used by them, located on their premises or shown on
the Latest Balance Sheet or acquired thereafter, free and clear of all Liens,
except for properties and assets disposed of in the ordinary course of business
since the date of the Latest Balance Sheet and except for Liens disclosed on the
Latest Balance Sheet (including any notes thereto) and Liens for current
property taxes not yet due and payable. Except as described on Schedule 5.9,
HI's and each Subsidiary's equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. HI and each Subsidiary own, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
5.10 Tax Matters.
(a) Except as set forth on the attached Schedule 5.10, HI, each
Subsidiary, and each Affiliated Group have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations in all material respects;
HI, each Subsidiary and each Affiliated Group in all material respects have paid
all Taxes due and owing by them (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authority all Taxes which they are required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third party; neither HI,
any Subsidiary nor any Affiliated Group has waived any statute of limitations
with respect to any material Taxes or agreed to any extension of time with
respect to any material Tax assessment or deficiency; the accrual for Taxes on
the Latest Balance Sheet would be adequate to pay all Tax liabilities of HI and
its Subsidiaries if their current tax year were treated as ending on the date of
the Latest Balance Sheet (excluding any amount recorded which is attributable
solely to timing differences between book and Tax income); since the date of the
Latest Balance Sheet, HI and its Subsidiaries have not incurred any material
liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by HI, each Subsidiary and each Affiliated Group shall not exceed the
recorded liability therefor on the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between book and Tax
income); the federal income Tax Returns of HI and its Subsidiaries have been
audited and closed for all tax years through June 30, 1995; no foreign, federal,
state or local tax audits or administrative or judicial proceedings are
<PAGE>
pending or being conducted with respect to HI, any Subsidiary or any Affiliated
Group, no information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority and no written notice indicating an
intent to open an audit or other review has been received by HI from any
foreign, federal, state or local taxing authority; and there are no material
unresolved questions of, claims concerning HI's, any Subsidiary's or any
Affiliated Group Tax liability.
(b) Neither HI nor any of its Subsidiaries has made an election under
ss.341(f) of the Internal Revenue Code of 1986, as amended. Neither HI nor any
Subsidiary is liable for the Taxes of another Person that is not a Subsidiary in
a material amount under (a) Treas. Reg. ss. 1. 1 502-6 (or comparable provisions
of state, local or foreign law), (b) as a transferee or successor, (c) by
contract or indemnity or (d) otherwise. Neither HI nor any Subsidiary is a party
to any tax sharing agreement. HI, each Subsidiary and each Affiliated Group have
disclosed on their federal income Tax Returns any position taken for which
substantial authority (within the meaning of IRC ss.6662(d)(2)(B)(i)) did not
exist at the time the return was filed. Neither HI nor any Subsidiary has made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under IRC
ss.280G.
5.11 Contracts and Commitments.
(a) Except as specifically contemplated by this Agreement and except as
set forth on the attached Schedule 5.11, HI is not a party to or bound by,
whether written or oral, any: (i) collective bargaining agreement or contract
with any labor union, whether formal or informal; (ii) contract for the
employment of any officer, individual employee or group of employees or other
person on a full-time, part-time or consulting basis or any severance
agreements; (iii) agreement or indenture relating to the borrowing of money or
to placing a Lien on any of the assets of HI; (iv) agreements with respects to
the lending or investing of funds; (v) guaranty of any obligation for borrowed
money or otherwise, other than endorsements made for collection; (vi) license or
royalty agreements except those entered into in the ordinary course of business;
(vii) lease or agreement under which HI is lessee of, or holds or operates, any
personal property owned by any other party for which annual rental exceeds
$50,000; (viii) lease or agreement under which HI is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it for which annual rental exceeds $50,000; (ix) contract or group
of related contracts with the same party for the purchase or sale of raw
materials, commodities, supplies, products or other personal property or for the
furnishing or receipt of services which either calls for performance over a
period of more than one year and involves a sum in excess of $50,000 per year;
(x) contract relating to the distribution, marketing or sales of its products or
services (including contracts to provide advertising allowances or promotional
services) involving more than $50,000 per year; (xi) franchise agreements, (xii)
contract which prohibits it from freely engaging in business anywhere in the
world; or (xiii) any other agreement material to HI not entered into in the
ordinary course of business.
<PAGE>
(b) Except as specifically contemplated by this Agreement, or disclosed on
Schedule 5.11, (i) no contract or commitment required to be disclosed on
Schedule 5.11 has been breached or canceled by the other party since June 30,
1999, (ii) HI has performed in all material respects all of the obligations
required to be performed by HI in connection with the contracts or commitments
required to be disclosed on the Schedule 5.11, and is not in receipt of any
claim of default under any contract or commitment required to be disclosed on
the Schedule 5.11, (iii) HI has no present expectation or intention of not fully
performing any obligation pursuant to any contract set forth on Schedule 5.11,
and (iv) HI has no knowledge of any material breach or anticipated material
breach by any party to any contract specific on Schedule 5.11.
(c) HI has provided the Investor with a true and correct copy of all
written contracts which are referred to on Schedule 5.11 which have been
requested by Investors, together with all amendments, waivers or other changes
thereto.
5.12 Proprietary Rights.
(a) Schedule 5.12 attached hereto contains a complete and accurate list of
all patented and registered Proprietary Rights owned by HI, all pending patent
applications and applications for the registration of other Proprietary Rights
owned by HI and all licenses, options or agreements with respect to the
Proprietary Rights of HI or any of its Subsidiaries and all licenses, options or
agreements to which HI or any of its Subsidiaries is bound with respect to the
Proprietary Rights of any other person other than in the ordinary course of
business. Except as set forth on Schedule 5.12, HI owns and possesses all right,
title and interest in and to, or has a valid and enforceable written license to
use, all of the Proprietary Rights necessary for the operation of its business
as presently conducted and as currently proposed to be conducted; no claim by
any third party contesting the validity, enforceability, use or ownership of any
Proprietary Rights owned or used by HI has been made or is currently
outstanding; HI has not received any information as to any infringement or
misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights of HI, nor has HI received any claims alleging infringement
or misappropriation, or other conflict with, any Proprietary Rights of any third
party; and HI has not infringed, misappropriated or otherwise conflicted with
any Proprietary Rights of any third party.
(b) To the knowledge of HI or its Subsidiaries, no employee of HI or its
Subsidiaries, nor any consultant with whom HI or its Subsidiaries has
contracted, is in violation of any term of any employment contract, proprietary
information agreement, or any other agreement relating to the right of any such
individual to be employed by, or to contract with, HI or its Subsidiaries
because of the nature of the business to be conducted by HI or its Subsidiaries
or presently proposed to be conducted; and to the knowledge of HI or its
Subsidiaries, the continued employment by HI or its Subsidiaries of its present
employees, and the performance of contracts with their independent contractors,
will not result in any such violation. HI or its Subsidiaries
<PAGE>
has not received any notice alleging that any such violation has occurred.
(c) The Chief Executive Officer, President, and Executive Vice President
and Chief Technology Officer of HI have executed confidentiality and non-compete
agreements in the form delivered to Investor, and holders of certain stock
options have agreed to non-compete provisions as part of their option
agreements.
(d) None of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
HI or by any of its Subsidiaries in the conduct of their respective businesses
will malfunction, will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing, and/or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries including leap days, in each case in any
manner that would have a material adverse effect on HI or its Subsidiaries or
their respective operations or businesses.
5.13 Litigation. Except as set forth on the attached Schedule 5.13, there
are no actions, suits, proceedings, orders, investigations or claims pending or,
to the best of HI's knowledge, threatened against or affecting the HI or any
Subsidiary (or to the best of HI's knowledge, pending or threatened against or
affecting any of the officers, directors, or employees of HI and its
Subsidiaries with respect to their businesses or proposed business activities),
or pending or threatened by HI or any Subsidiary against any third party, at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement and the Transaction Documents); neither HI nor
any Subsidiary is subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of HI's knowledge, any
governmental investigations or inquiries; and, to the best of HI's knowledge,
there is no basis for any of the foregoing. Neither HI nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency, and neither HI nor any Subsidiary has received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to its
business.
5.14 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon HI or any
Subsidiary. HI shall pay, and hold Investor harmless against, any liability,
1oss or expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
5.15 Insurance. HI and its Subsidiaries maintain insurance coverage of
types and amounts reasonable and customary for corporations of similar size
engaged in similar lines of
<PAGE>
business. Neither HI nor any Subsidiary is in default with respect to its
obligations under any insurance policy maintained by it, and neither HI nor any
Subsidiary has been denied insurance coverage.
5.16 Employees. HI is not aware that any executive or key employee of HI
or any Subsidiary or any group of employees of HI or any Subsidiary has any
plans to terminate employment with HI or any Subsidiary. HI and each Subsidiary
have complied in all material respects with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes), and HI is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither HI, its Subsidiaries nor, to the best of HI's
knowledge, any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of HI
and its Subsidiaries, except for agreements between HI and its present and
former employees. No employee of HI or any Subsidiary is represented by any
labor union, nor are such employees covered under any collective bargaining
agreement.
5.17 ERISA. For purposes of this Section 5.17, the term "HI" includes all
organizations under common control with HI pursuant to Section 414(b) or (c) of
the IRC.
(a) Multiemployer Plans. HI does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
(b) Retiree Welfare Plans. HI does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(c) Defined Benefit Plans. HI does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated.
(d) Defined Contribution Plans. HI does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined contribution plan" (as defined in Section 3(34) of
ERISA), whether or not terminated.
(e) Other Plans. Except as set forth in Schedule 5.17, HI does not
maintain,
<PAGE>
contribute to or have any liability under (or with respect to) any plan or
arrangement providing benefits to current or former employees, including any
parachute, severance, or bonus plan or plan for deferred compensation, except
employee health, welfare, and similar benefit plans in the ordinary course of
business, whether or not terminated.
(f) Party in Interest. HI is not a party in interest (as defined under
Section 3(14) of ERISA) or a disqualified person (as defined in Section
4975(e)(2) of the IRC) with respect to any Investor.
(g) No Parachute Payment. No benefit under any Benefit Plan, including
without limitation, any severance or parachute payment plan or agreement, will
be established or become accelerated, vested, or payable by reason of any
transaction contemplated under this Agreement.
5.18 Compliance With Laws. Neither HI nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of HI and its Subsidiaries taken as a whole, and neither HI nor any Subsidiary
has received notice of any such violation. Neither HI nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or material corrective or remedial
obligation arising under any federal, state, local or foreign law, rule or
regulation (including the common law) relating to or regulating health, safety,
pollution or the protection of the environment.
No governmental orders, permissions, consents, approval or authorizations
are required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Underlying Common Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. HI and each of its
Subsidiaries have all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted and as
presently proposed to be conducted, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
HI or its Subsidiaries.
Assuming the accuracy of the representations and warranties of the
Investor contained herein, the offer, sale and issuance of the Shares and the
Underlying Common Shares will be exempt from the registration requirements of
the Securities Act, and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither HI
nor any agent on its behalf has solicited or will solicit any offers to sell or
has offered to sell or will sell all or any part of the Shares to any person or
persons so as to bring the sale of such Shares by HI within the registration
provisions of the Securities Act or any state securities laws.
<PAGE>
5.19 Environmental and Safety Matters. HI has complied and is in
compliance with all Environmental and Safety Requirements in all material
respects (including without limitation all permits and licenses required
thereunder). HI has received no oral or written notice of any violation of, or
any liability (contingent or otherwise) or corrective or remedial obligations
under, any Environmental and Safety Requirements. No facts or circumstances with
respect to the past or current operations or facilities (whether currently or
previously owned, leased, or operated) of HI or any predecessor or Affiliate
thereof or entities previously owned by HI (including without limitation any
onsite or offsite disposal or release of hazardous materials, substances or
wastes) would give rise to any liability or corrective or remedial obligation
under any Environmental and Safety Requirement.
5.20 Affiliated Transactions. Except as set forth on the attached Schedule
5.20, (i) no officer, director, stockholder or Affiliate of HI or any
Subsidiary, (ii) to HI's knowledge, any employee of HI or any Subsidiary or
(iii) to HI's knowledge, any individual related by blood, marriage or adoption
to any individual described in clauses (i) or (ii) above or any entity in which
any such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with HI or any Subsidiary or has
any material interest in any material property used by HI or any Subsidiary.
5.21 Disclosure. Neither this Agreement, the Transaction Documents, nor
any of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to Investor by or on behalf of
HI with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading. There is no fact which HI
has not disclosed to Investor in writing and of which any of its officers,
directors or executive employees is aware and which has had or would reasonably
be expected to have a Material Adverse Effect.
5.22 Brokers. HI has not involved any brokers or finders in connection
with this Agreement or the transactions contemplated hereby, and agrees to
indemnify the Investor for any breach of this Section 5.22 by it.
5.23 Closing Date. The representations and warranties of HI contained in
this Article 5 and elsewhere in this Agreement and the Transaction Documents and
all information contained in any exhibit, schedule or attachment hereto or in
any certificate or other writing delivered by, or on behalf of, HI to Investor
shall be true and correct in all material respects on the date of this Agreement
as though then made.
5.24 Subsidiaries.
(a) The only Subsidiaries of HI on the date of Closing are Gordon S. Black
Corporation which is
<PAGE>
a wholly owned Subsidiary of HI, Louis Harris & Associates, Inc. which is a
wholly owned Subsidiary of Gordon S. Black Corporation, and GSBC Ohio
Corporation which is a wholly owned Subsidiary of Gordon S. Black Corporation.
(b) All outstanding capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable and is owned
beneficially and of record as described in Section 5.24(a) free and clean of all
Lines, options, or claims of any kind. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell, or
transfer shares of its capital stock.
ARTICLE 6 - RESTRICTIONS ON TRANSFERS
6.1 Restricted Securities. The Restricted Securities are transferable only
pursuant to (a) a Public Offering, (b) Rule 144 or Rule 144A under the
Securities Act (or any similar or successor rule, regulation, or law then in
force) if any such rule is available, or (c) subject to the conditions specified
in Section 6.2 below, any other legally available means of transfer.
6.2 Opinion Delivery. In connection with the transfer of any of the
Restricted Securities (other than a transfer described in Section 6.1(a) or (b)
above) and subject to Section 6.3 below, the Investor shall deliver written
notice to HI describing in reasonable detail the transfer or proposed transfer,
together with an opinion of legal counsel which (to HI's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of the Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to HI an opinion of such counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, HI shall promptly deliver to the Investor new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in Section 6.5. If HI is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
Investor, or if applicable a subsequent transferee thereof, shall not transfer
the same until the prospective transferee has confirmed to HI in writing its
agreement to be bound by the conditions contained in this Article 6.
6.3 Restrictions on Transfer. The Investor shall not sell, transfer,
assign, pledge, or otherwise dispose of (whether with or without consideration)
the Shares or any interest therein (a "Transfer") to any Person who, in the
reasonable judgment of HI based upon information made available by HI to
Investor, is a direct competitor of HI, or otherwise absent compliance with this
Section 6.3; provided that this Section 6.3 shall be of no further force and
effect at such time as HI consummates a Public Offering. Notwithstanding the
foregoing, this Section 6.3 shall not apply to a transfer to an Affiliate of
Investor, provided that such Affiliate becomes subject to the terms of this
Section 6.3. If Investor proposes to Transfer all or part of the Shares,
Investor shall deliver a written notice ("Transfer Notice") to HI. The Transfer
Notice shall describe the number of Shares proposed to be transferred (the
"Offered Shares") and the proposed transferee and price
<PAGE>
per share. HI may elect to purchase all, but not less than all, of the Offered
Shares at the price described in the Transfer Notice. If HI elects to purchase
all of the Offered Shares, HI shall give the Investor written notice of such
election no later than ten (10) days after delivery of the Transfer Notice. If
an election to purchase all of the Offered Shares has been made, the Offered
Shares shall be transferred to HI at the price stated in the Transfer Notice no
later than fourteen (14) days after notice of the election to purchase has been
given. If HI has elected not to purchase all of the Offered Shares (or has
failed to exercise its rights under this Section 6.3), the Investor may conclude
a Transfer at the price per share stated in the Transfer Notice, or at a higher
price per share, at any time within a one hundred thirty (130) day period after
the delivery of the Transfer Notice provided that the transferee has agreed in
writing to be bound by the terms of this Article 6 as if it was an original
signatory to this Agreement.
<PAGE>
6.4 Legend.
(a) Each certificate or instrument representing the Shares shall be
imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Investment Agreement, dated as of
October 15, 1999, as amended and modified from time to time, between
the issuer (the "Company") and Sequel Limited Partnership II and
Sequel Entrepreneur's Fund II, LP, as amended and modified from time
to time. A copy of such Agreement will be furnished by the Company
to the holder hereof upon written request and without charge."
(b) Upon the later of (i) the termination of this Agreement pursuant to
Article 9 hereof, and (ii) such time as the Shares are no longer Restricted
Securities, at Investor's request, HI shall remove the legend set forth in
Section 6.4(a) above from the certificates for the Shares.
6.5 Lock-Up Agreement. To the extent Investor has been released from the
Lockup Agreement in connection with the initial Public Offering of Common
Shares, at the request of the underwriters for such offering, Investor agrees to
enter into a reasonable and customary negotiated holdback agreement providing
for a holdback not exceeding 180 days.
ARTICLE 7 -FINANCIAL INFORMATION
7.1 Delivery of Financial Information. HI shall make such financial and
other information, as it makes available to the holders of all of its Common
Shares, available to Investor. In addition, HI shall provide Investor with (a)
copies of its annual audited consolidated financial statements within ninety
(90) days after the end of its fiscal year; (b) copies of its unaudited
quarterly financial statements within forty-five (45) days after the end of each
calendar quarter; (c) without duplication of any other items furnished under
this Section 7.1, copies of any annual, special or interim audit reports or
management or comment letters submitted to HI by independent public accountants
as soon as practicable following such submission; (d) as soon as practicable,
copies of all financial statements, proxy material or reports sent to all
holders of any class of capital stock of HI; and (e) copies of all reports or
registration statements filed by or on behalf of HI with the SEC pursuant to the
Securities Act or the Securities Exchange Act. All such financial statements
shall be prepared in accordance with GAAP (except that any interim financial
statements may omit notes and may be subject to normal year-end adjustments). HI
will make good faith efforts to provide Investor with copies of any public or
press releases issued by
<PAGE>
or on behalf of HI, but shall have no liability for inadvertent omissions in the
delivery of same.
7.2 Confidentiality. Investor and its Affiliates shall maintain the
confidentiality of the financial statements and other information provided to it
pursuant to Section 7.1 above, provided that Investor may disclose such
information (a) in connection with a Transfer of the Shares if such Person
agrees to maintain the confidentiality of such financial statements and other
information as provided in this Section7.2, (b) previously known on a
non-confidential basis by Investor, (ii) in the public domain through no fault
of Investor, (c) lawfully acquired by Investor from sources other than HI who,
to the knowledge of Investor, had such documents, reports or other information
without any breach of any obligation of confidentiality, (d) to officers,
directors, employees, accountants, counsel, consultants, advisors and agents of
Investor in connection with Investor's review of such documents, reports or
other information so long as such Persons are informed by Investor to treat such
information confidentially and not to use any of such documents, reports or
other information for any reason or purpose other than in connection with
Investor's review, or (e) if Investor is required to disclose by judicial,
regulatory or administrative process or by other requirements of law.
ARTICLE 8 - COVENANTS OF HI
8.1 Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office.
(a) So long as any of the Shares or Underlying Shares are outstanding, HI
agrees to maintain an office or agency where Shares may be presented for
payment, exchange, conversion, exercise or registration of transfer as provided
in this Agreement. Such office or agency initially shall be the office of HI set
forth in the preamble to this Agreement.
(b) HI agrees to give Investor at least twenty (20) days' prior written
notice of any change in HI the location of the office of HI required to be
maintained under this Section 8.2.
8.2 Reservation of Shares. HI agrees that there have been reserved, and HI
shall at all times keep reserved, free from preemptive rights, out of its
authorized Common Stock a number of shares of Common Stock sufficient to provide
for the exercise of the conversion rights related to the Underlying Shares.
8.3 Listing of Shares. HI agrees that if any shares of HI's Common Stock
are listed on any national securities exchange or on Nasdaq, then HI will take
such action as may be necessary, from time to time, to list all outstanding
Common Shares on such exchange or on Nasdaq.
8.4 Securities Exchange Act Registration. HI agrees that as soon as HI is
either required to or does file a registration statement with respect to Common
Stock of HI under
<PAGE>
Section 6 of the Securities Act or Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act, then thereafter:
(a) HI will maintain effective a registration statement (containing such
information and documents as the SEC shall specify and otherwise complying with
the Securities Exchange Act), under Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act, with respect to the Common Stock of
HI, and HI will file on time such information, documents and reports as the
Commission may require or prescribe for companies whose stock has been
registered pursuant to Section 12(b) or Section 12(g), whichever is applicable.
(b) HI will make whatever filings with the SEC, or otherwise take such
other action as may be necessary to comply with the current reporting provisions
of Rule 144(c) under the Securities Act in order to facilitate resales of HI
Common Stock.
8.5 Delivery of Information for Rule 144A Transactions. If Investor
proposes to transfer any Shares or Underlying Shares pursuant to Rule 144A under
the Securities Act (as in effect from time to time), HI agrees to provide (upon
the request of Investor or the prospective transferee) to Investor and (if
requested) to the prospective transferee any financial or other information
concerning HI which is required to be delivered by such holder to any transferee
of such Shares or Underlying Shares pursuant to such Rule 144A.
8.6 Registration Statement . HI shall provide to Investor and its counsel,
promptly after they are prepared, drafts of any registration statements covering
securities of HI. HI shall provide Investor with a reasonable time to review and
comment upon any such registration statement (and documents to be filed with the
SEC in connection therewith) prior to filing any such registration statement or
other related document with the SEC).
8.7 Private Placement Status. Neither HI, any Subsidiary, nor any agent
nor other Person acting on HI's behalf will do or cause to be done (or will omit
to do or to cause to be done) any act which act (or which omission) would result
in bringing the issuance or sale of the Shares within the provisions of Section
5 of the Securities Act or the filing, notification, or reporting requirements
of any state securities law.
8.8 No Impairment. HI will not, and will not permit any Subsidiary to take
action to avoid the observance or performance of any of the terms of the Share
Purchase Agreements, the Transaction Documents, or the Shares.
ARTICLE 9 - TERMINATION
9.1 Termination. All agreements, representations and warranties,
covenants, and obligations of the Investor and any Subsidiary contained in this
Agreement, the Transaction Documents, the Shares or any document or certificate
delivered pursuant hereto or thereto shall
<PAGE>
survive, and shall continue in effect following, the execution, delivery of this
Agreement, the Transaction Documents, the closings hereunder and thereunder, any
investigation at any time made by or on behalf of the Purchasers or by any other
Person, the issuance, sale and delivery of the Shares, any disposition thereof
and any payment, exercise conversion or cancellation of the Shares; provided
that the provisions of Section 6.3, Article 7, and Section 8.2 shall terminate
following the conversion of all Shares held by the Investor into Common Shares.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of HI pursuant thereto in connection with
the transactions contemplated hereby shall be deemed to be representations and
warranties by HI as to such factual matters hereunder solely as of the date of
such certificate or instrument.
ARTICLE 10 - REMEDIES
10.1 Indemnification. HI agrees to indemnify and hold Investor and its
Affiliates harmless from and against and will pay to Investor and each Affiliate
the full amount of any loss, damage, liability or expense (including amounts
paid in settlement and reasonable attorneys' fees and expenses) to Investor and
any Affiliate resulting either directly or indirectly from any breach of the
representations or warranties, or failure to perform any of the covenants or
agreements of the Investor or any Subsidiary contained in this Agreement, the
Transaction Documents or the Shares.
10.2 Remedies. In the case of a breach of any representation or warranty,
or failure to perform any of the agreements or covenants of HI or any Subsidiary
contained in this Agreement, the Transaction Documents or any Shares, the holder
of any Shares then outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement or covenant contained
herein or therein or in such Share or for an injunction against a violation of
any of the terms hereof or thereof or of such Share, or in aid of the exercise
of any power granted hereby or thereby or by such Share or by law or for any
other remedy (including without limitation damages).
Holders of all Shares shall, in addition to other remedies provided by
law, have the right to have the provisions of this Agreement, the Transaction
Documents or other such Shares specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any breach or threatened
breach of the provisions of this Agreement, the Transaction Documents or any
Shares will cause irreparable injury to holders of Shares and that money damages
will not provide an adequate remedy. Nothing contained herein shall be construed
as prohibiting a holder of Shares from pursuing any other remedies available to
such holder for such breach or threatened breach, including without limitation
the recovery of damages from the HI.
10.3 No Counterclaim. All amounts payable by HI in connection with the
Shares shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension,
<PAGE>
deferment, diminution or reduction.
ARTICLE 11 - MISCELLANEOUS
11.1 Successor/Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors, legal representatives, and
assigns of the parties, provided, however, that this Section 10.1 is not
intended to supersede any restrictions on transfer of any interest expressly
provided elsewhere in this Agreement.
11.2. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws; provided, however, that the matters contained
herein that are specifically within the purview of the General Corporation Law
of the State of Delaware shall be governed by such law.
11..3 Arbitration.
(a) The parties agree to this Section 11.3 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
11.4 Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
11.5 Notices. Any notice or demand upon any party hereto shall be deemed
to have been sufficiently given or served for all purposes hereof when delivered
in person or by nationally recognized overnight courier with receipt requested,
or three business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed to the address shown in the preamble to this
Agreement or to such other address as may be designated by any party by notice
given to the other in the manner described in this Section 10.5.
<PAGE>
11.6 Severability/Construction. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated. The parties agree
to replace any invalid provision with a valid provision which most closely
approximates the intent and economic effect of the invalid provision. The
parties agree that this Agreement has been prepared in cooperation, and that it
shall not be construed as against any particular party as drafter.
11.7 Expenses. Except as otherwise expressly provided herein, both parties
shall be responsible for their own costs and expenses in connection herewith.
11.8 Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach. No waiver or amendment hereof shall be effective unless in
writing signed by both HI and Investor. No course of dealing and no delay on the
part of any holder of any Shares or any party to this Agreement in exercising
any rights or remedies shall operate as a waiver thereof or otherwise prejudice
such holder's or party's rights. No right or remedy conferred hereby or by the
Transaction Documents or by any Share shall be exclusive of any other right or
remedy referred to herein or therein in such Share or available at law, in
equity, by statute or otherwise.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------
Gordon S. Black
Chief Executive Officer
<PAGE>
SEQUEL LIMITED PARTNERSHIP II 48,374 Shares
$4,837,400
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-------------------------
Its: Manager
SEQUEL ENTREPRENEUR'S FUND II, LP 1,626 Shares
$162,600
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-------------------------
Its: Manager
<PAGE>
Exhibit 10.14
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of October 22, 1999 between HARRIS INTERACTIVE
INC., a Delaware corporation with offices at 135 Corporate Woods, Rochester, New
York 14623 ("HI") and YOUNG & RUBICAM INC., a Delaware corporation with offices
at 285 Madison Avenue, New York, New York 10017 ("Investor").
WITNESSETH
WHEREAS, HI desires to sell to the investor and the Investor desires to
purchase from HI shares of the Class B Convertible Preferred Stock, par value
$.01 per share, of HI, all upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt an
sufficiency of which are hereby acknowledged, the parties agree as follows:
The parties agree as follows:
ARTICLE 1 -DEFINITIONS
1.1 Definitions. The following capitalized terms shall have the following
meanings:
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract, or otherwise, partners
or former partners, and members or former members.
"Affiliated Group" means any affiliated group as defined in IRC ss.1504
that has filed a consolidated return for federal income tax purposes (or any
similar group under state, local, or foreign law) for a period during which any
of HI or any of its Subsidiaries was a member.
"Class A Preferred Stock" shall mean the Class A Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Class B Preferred Stock" shall mean the Class B Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Common Shares" shall mean the common stock, $0.001 par value per share,
of HI.
<PAGE>
"Environmental and Safety Requirements" means all federal, state, local,
and foreign statutes, regulations, ordinances and other provisions having the
force and effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety, and pollution or
protection of the environment.
"Fully Diluted Basis" shall mean the number of common shares actually
outstanding, the number of Common Shares into which the then outstanding shares
of Class A Preferred Stock and Class B Preferred Stock could be fully converted
if fully converted on the given date, and the number of Common Shares which
could be obtained through the exercise, exchange, or conversion of all other
rights, warrants, options and convertible securities or other securities
convertible, exchangeable, or exercisable for Common Stock (or any of the
foregoing) outstanding or reserved for issuance on the given date.
"GAAP" means generally accepted accounting principles.
"Investment" means, with respect to any Person, (i) any capital
contribution by such Person to any other Person, (ii) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities, or ownership interest (including partnership,
membership, and joint venture interests) of any other Person, (iii) any loan,
advance or extension of credit by such Person to any other Person (other than
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale of goods or services in the ordinary course of
business, and (b) extensions of credit by HI to any of its wholly-owned
Subsidiaries or by any of its wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries), (iv) any guaranty of obligations of such Person, (v)
any transfer or sale of property of such Person to any other Person other than
upon full payment, in cash, of not less than the agreed sale price or the fair
value of such property, whichever is higher (other than transfers of property in
the ordinary course of business of the Person in exchange for fair value), (vi)
any acquisition by such Person of all or an integral part of the business of any
other Person or the assets comprising such business or such part thereof, and
(vii) any commitment or option to do any of the following. Any of the foregoing
under clauses (i) through (vi) shall be considered an Investment whether such
Investment is acquired by purchase, exchange, merger or any other method.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section number shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien, preference in the nature of
security, or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof), any
sale of receivables with recourse against the seller or any
<PAGE>
Affiliate, any filing or agreement to file a financing statement as debtor under
the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third Person of property leased to a party under a lease which is
not in the nature of a conditional sale or title retention agreement or any
subordination arrangement, and any agreement to give or make any of the
foregoing.
"Lockup Agreement" shall mean the Lockup Agreement in the form attached
hereto and made a part hereof as Exhibit B.
"Material Adverse Effect" means any event, matter, condition or
circumstance which (i) has a material adverse effect on the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise), employee relations, customer or supplier relations, or business
prospects of HI, (ii) has an adverse effect on the ability of HI to perform its
obligations under any material contract, the Share Purchase Agreements, the
Transaction Documents or any of the Shares to be issued by it or (iii)
materially or adversely affects the legality, validity, binding effect or
enforceability of the Share Purchase Agreements, the Transaction Documents or
the Shares.
"Offered Shares" shall have the meaning given in Section 6.3 of this
Agreement.
"Other Purchasers" shall have the meaning given in Section 2.1 of this
Agreement.
"Person" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, government, governmental body,
agency, political subdivision, or other entity of any kind or nature.
"Proprietary Rights" shall mean all patents; all trademarks, service
marks, domain names, trade dress, trade names, and corporate names and all of
the goodwill associated therewith; all copyrights; all registrations,
applications and renewals for any of the foregoing; all inventions; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
manufacturing and production processes and techniques, research information,
drawings, specifications, designs, plans, improvements, technical and computer
data, documentation and software, and all other proprietary rights and processes
of similar nature ; and all computer programs (including source codes) and
related documentation.
"Public Offering" means any offering by HI (or any other holder) of HI
Common Stock to the public pursuant to an effective registration statement under
the Securities Act, as then in effect, or any comparable statement under any
similar federal statute then in force.
"Purchase Price" shall have the meaning given to it in Section 2.2 of this
Agreement.
"Registration Agreement" shall mean the Registration Agreement described
in Section
<PAGE>
3.6 of this Agreement.
"Research Agreement" shall mean the Research Agreement described in
Section 3.11 of this Agreement.
"Restricted Securities" means (i) the Shares hereunder, (ii) the
Underlying Common Stock, and (iii) any securities issued with respect to the
Shares or Underlying Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. As to any Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act; provided that the Company has completed a Public Offering and is
subject to the provisions of the 1934 Act and as to any particular holder of
Restricted Securities, such holder (together with its Affiliates) holds less
than 1% of the Company's common stock on a Fully Diluted Basis, or (c) otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in Section 6.5 hereof have been delivered by HI in accordance with
Section 6.2. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from HI, without
expense, new securities of like tenor not bearing a Securities Act legend of the
character set forth in Section 6.5.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date hereof and as hereafter amended.
"Share Purchase Agreements" shall meaning given in Section 2.1 of this
Agreement.
"Shares" shall have the meaning given in Section 2.2 of this Agreement.
"Stockholders' Agreement" shall mean the Stockholders' Agreement described
in Section 3.10 of this Agreement.
"Subsidiary" means any Person of which, at the time of determination made
under this Agreement, at least a majority of capital stock having ordinary
voting power for the election of directors or other governing body of such
Person is owned by the applicable other Person, directly or through one or more
Subsidiaries.
<PAGE>
"Tax" or "Taxes" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
"Transaction Documents" shall mean the documents and agreements executed
and delivered in connection with this Agreement, including without limitation
the amendment to HI's Certificate of Incorporation, Registration Agreement, the
Lockup Agreement, the Research Agreement, the Shares, and the Stockholders
Agreement.
"Transfer" shall have the meaning given in Section 6.3 of this Agreement.
"Transfer Notice" shall have the meaning given in Section 6.3 of this
Agreement.
"Underlying Common Stock" shall mean (i) the Common Stock issued or
issuable upon conversion of the Class B Preferred Stock, and any (ii) Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Class B
Preferred Stock shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of such Class B Preferred Stock in connection with
the transfer thereof or otherwise regardless of any restriction or limitation on
the conversion of the Class B Preferred Stock, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by HI.
ARTICLE 2 - PURCHASE OF SHARES
2.1 Authorization of Class B Preferred Stock. HI has authorized the
issuance of 200,000 shares of Class B Preferred Stock having the rights and
preferences set forth in Exhibit A attached hereto (the "Class B Shares"). The
Class B Shares are being sold by HI to the
<PAGE>
Investor and the other purchasers listed on Schedule 2.1 hereto (the "Other
Purchasers") pursuant to this Agreement and other substantially identical
agreements (this agreement together with such other agreements collectively, the
"Share Purchase Agreements"). Set forth opposite each Other Purchaser's name on
Schedule 2.1 is the number of Class B Shares being acquired by such Other
Purchasers and the purchase price paid, or to be paid, therefore.
2.2 Share Purchase. On the date of the Closing, HI shall sell to Investor,
and Investor, subject to the terms and conditions hereof and in reliance upon
the representations and warranties of HI contained herein or made pursuant
hereto, shall purchase from HI, 110,000 Class B Shares (together with the
Underlying Common Stock, the "Shares"), being 5.065% of the Common Shares on a
Fully Diluted Basis after the purchases under the Share Purchase Agreements. The
aggregate purchase price for the Shares to be acquired by the Investor pursuant
to this Agreement shall be Eleven Million Dollars ($11,000,000) (the "Purchase
Price").
2.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing")
shall take place at the offices of Harris Beach & Wilcox LLP located at 130 E.
Main Street, Rochester, New York at 10:00 a.m. , eastern daylight time, on
October 22, 1999 or such other time and place as are mutually agreeable to the
parties.
(b) On the date of the Closing and upon receipt of the items set forth in
Section 2.3(c) hereof, Investor shall pay the Purchase Price by wire transfer or
in other immediately available funds to HI addressed as follows:
Manufacturers and Traders Trust Company
Rochester, NY 14604
Account #015215148
ABA#02200004-6
For: Harris Interactive Inc.
Re: Mezzanine Investment
(c) At the Closing (i) Investor and HI shall execute and deliver this
Agreement, the Registration Agreement, the Stockholders Agreement, and the
Research Agreement, (ii) Investor shall execute and deliver the Lockup Agreement
and the Consent of Shareholders in the form attached as Exhibit D, and (iii) HI
shall deliver a certificate registered in the Investor's name evidencing the
Shares to Investor.
ARTICLE 3 - CONDITIONS OF INVESTOR'S OBLIGATION AT CLOSING
The obligation of the Investor to purchase and pay for the Shares at the
Closing is subject to the satisfaction as of the Closing of the following
conditions (any of which may be waived by
<PAGE>
the Investor):
3.1 Representations, Warranties, and Covenants. The representations and
warranties contained in Article 5 hereof or in any certificate or document
delivered pursuant hereto, shall be true and correct at and as of the Closing as
though then made and HI shall have performed and complied with all of the
covenants and agreements required to be performed or complied with by it
hereunder on or prior to the Closing.
3.2 Amendment of Certificate of Incorporation. HI's Certificate of
Incorporation shall have been amended and shall be in the form set forth in
Exhibit A hereto, shall be in full force and effect under the laws of the State
of Delaware as of the Closing as so amended, and shall not have been further
amended or modified; provided, however, that Investor acknowledges that certain
modifications to the Certificate of Incorporation have been or will be approved
by the directors and shareholders (including the Investor after its investment)
of HI contingent upon completion of a Public Offering, a copy of which
shareholder approval (which describes and approves such modifications) is
attached as Exhibit D hereto.
3.3 Securities Law Compliance. HI shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Shares pursuant to this Agreement in compliance with such laws
and HI shall be in compliance with all such laws.
3.4 Compliance with Applicable Laws/Authorizations. The purchase of the
Shares by the Investor hereunder shall not be prohibited by any applicable law
or governmental order, rule or regulation and shall not subject the Investor to
any penalty, tax, liability, or, in the Investor's reasonable judgment, other
onerous condition, and the purchase of the Shares by the Investor hereunder
shall be permitted by laws, rules, and regulations of the jurisdictions and
governmental authorities and agencies to which the Investor is subject. Any
necessary consents, waivers, approvals, licenses, permits, orders and
authorizations of, and any filings, registrations or qualifications with, any
governmental authority of other Person (including any consents or waivers by the
holders of the Class A Preferred Stock), with respect to the transactions
contemplated by this Agreement, the Share Purchase Agreements and the
Transaction Documents shall have been obtained or made and shall be in full
force and effect.
3.5 No Change in Law etc.. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted, or made by or on behalf of any
governmental authority, and no legislation shall have been introduced, and no
investigation by an governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental
authority or arbitrator, which, in any such case, in the Investor's reasonable
judgment could adversely affect, restrain, prevent, or change the transactions
contemplated by the Share Purchase Agreements or the Transaction Documents
(including without limitation, the issuance of the Shares) or have a Material
Adverse Effect.
<PAGE>
3.6 Registration Agreement. HI and Brinson MAP Venture Capital Fund III as
successor to Brinson MAP Venture Capital Fund III Trust, BVCF III, L.P. as
successor to Brinson Venture Capital Fund III, L.P., and Virginia Retirement
System (the "Brinson Holders") shall have entered into a Registration Agreement
Amendment Number 1 (the "Amendment") to the Registration Agreement made among HI
and the Brinson Holders, in substantially the form attached to this Agreement as
Exhibit C , and HI and Investor shall have entered into a Registration Agreement
in substantially the form attached to the Amendment as Exhibit A thereto (the
"Registration Agreement").
3.7 Opinion of HI's Counsel. Investor shall have received from Harris
Beach & Wilcox, LLP, counsel for HI, an opinion addressed to Investor dated the
date of Closing in substantially the form attached to this Agreement as Exhibit
G.
3.8 Compliance Certificate of Officer. HI shall have delivered to Investor
an officer's certificate dated the date of closing stating that the conditions
specified in Section 2 to be performed by HI, and the conditions specified in
Sections 3.1-3.12, inclusive, of this Agreement, have been fully satisfied.
3.9 Corporate Proceedings. HI shall have delivered to Investor copies
certified by the Secretary of HI, of (a) resolutions adopted by the Board of
Directors of HI authorizing the execution, delivery, and performance of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, the
amendment to the Certificate of Incorporation attached hereto as Exhibit A, the
issuance and sale of the Shares, the reservation for issuance of the Underlying
Common Stock, and the consummation of all of the transactions contemplated by
this Agreement and the Share Purchase Agreements, and (b) resolutions duly
adopted by HI's stockholders adopting the amendment to the Certificate of
Incorporation attached hereto as Exhibit A.
3.10 Stockholders Agreement. HI and the Investor shall have entered into a
Stockholders' Agreement in substantially the form attached hereto as Exhibit E
(the "Stockholders' Agreement").
3.11 Research Agreement. HI and the Investor shall have entered into a
Research Agreement in substantially the form attached to this Agreement as
Exhibit F (the "Research Agreement").
3.12 Other Documents and Opinions. The Investor shall have received such
other documents and opinions, in form and substance satisfactory to the Investor
and its counsel, relating to matters incident to the transactions contemplated
hereby as the Investor may reasonably request.
ARTICLE 4 - REPRESENTATIONS OF INVESTOR
<PAGE>
As a material inducement to HI to enter into this Agreement and sell the
Shares hereunder, Investor represents and warrants to HI as follows:
4.1 Formation. Investor is validly formed or organized, and existing,
under the laws of the jurisdiction of its formation, and has all requisite power
and authority to carry out the transactions contemplated by this Agreement.
4.2 Authorization. The execution and delivery of this Agreement and the
Transaction Documents, and performance of the transactions contemplated hereby,
by Investor have been duly authorized by Investor. This Agreement and the
Transaction Documents constitute valid and binding obligations of Investor,
enforceable in accordance with their terms, subject to limitations imposed by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization, or
other laws or judicial decisions or principles of equity relating to or
affecting the enforcement of creditors' rights generally. Except to the extent
that any of the following would not reasonably be expected to have a material
adverse effect on the ability of Investor to consummate the transactions
contemplated by this Agreement, the execution and delivery by Investor of this
Agreement and the Transaction Documents, and the compliance with their terms by
Investor, do not (a) conflict with or result in a violation of, (b) constitute a
default under, or (c) require any authorization, consent, approval, exemption,
or other action by or notice to, or filing with, any court or administrative or
governmental body or agency pursuant to, (i) the charter documents or bylaws of
Investor, (ii) any law, statute, rule, or regulation to which Investor is
subject, or (iii) any material agreement, instrument, order, judgment, or decree
to which Investor is subject.
4.3 Investment Intent. The Shares are being acquired for the Investor's
own account, for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act or the
securities laws of any other state applicable to Investor. Investor understands
that the Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4 (2) thereof,
which exemption depends upon, among other things, the bona fide nature of
Investor's investment intent expressed herein, that HI has no present intention
of registering the Shares, and that the Shares must be held by the Investor
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.
4.4 Access to Information. During the negotiation of the transactions
contemplated by this Agreement, the Investor and its representatives have been
afforded access to corporate books, documents, and other information concerning
HI and to its offices and facilities, have been afforded an opportunity to ask
such questions of HI and its officers, employees, agents, accountants, and
representatives concerning HI's business, operations, financial condition,
assets, liabilities, and other relevant matters as they have deemed necessary or
desirable, and have been
<PAGE>
given all such information as has been requested, in order to evaluate the
merits and risks of the prospective investments contemplated herein.
4.5 Due Diligence. The Investor and its representatives have been solely
responsible for Investor's own "due diligence" investigation of HI and its
management and business, for Investor's own analysis of the merits and risks of
this investment, and for its own analysis of the fairness and desirability of
the terms of the investment. In taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has acted
solely in its own interest, and neither Investor nor any of Investor's agents or
employees has acted as an agent of HI. The Investor has such knowledge and
experience in financial and business matters that Investor is capable of
evaluating the merits and risks of the purchase of the Shares pursuant to the
terms of this Agreement and of protecting Investor's interests in connection
therewith. Nothing in this Section 4.5, however, shall affect HI's obligations
to the Investor under the representations and warranties contained in Article 4
hereof.
4.6 Economic Risk; Accredited Investor. The Investor is able to bear the
economic risk of the purchase of the Shares pursuant to the terms of this
Agreement, including a complete loss of Investor's investment in the Shares. The
Investor is an Accredited Investor as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
4.7 Brokers. The Investor has not involved any brokers or finders in
connection with this Agreement or the transactions contemplated hereby, and
agrees to indemnify HI for any breach of this Section 4.7 by it.
ARTICLE 5 - REPRESENTATIONS OF HI
As a material inducement to the Investor to enter into this Agreement and
purchase the Shares hereunder, HI represents and warrants to the Investor as
follows:
5.1 Organization, Corporate Power. HI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, and is
qualified (and in good standing) to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify. HI
possesses all requisite corporate power and authority and legal right to own and
operate its assets, to carry out its business as now conducted and presently
proposed to be conducted, to execute, deliver, and carry out the transactions
contemplated by this Agreement, the Share Purchase Agreements, and each of the
Transaction Documents. The copies of HI's charter documents and bylaws which
have been previously furnished to Investor reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
Each Subsidiary of HI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, possesses all requisite
corporate power and authority and the legal right to own and operate its assets,
to carry out its business as now conducted and presently proposed to be
conducted and is qualified (and in good standing) to
<PAGE>
do business in every jurisdiction in which its ownership of property or conduct
of its business requires it to qualify. All the outstanding shares of capital
stock of each Subsidiary are validly issued, fully paid and nonassessable and
all such shares are owned by HI or another one of its Subsidiaries free and
clear of any Lien and not subject to any right or option to purchase such
shares. Neither HI nor any Subsidiary is in violation in any respect of its
certificate or articles of incorporation or by-laws.
5.2 Authorization; No Breach. The execution and delivery of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, and
performance of the transactions contemplated hereby (including the amendment to
HI's Certificate of Incorporation) and thereby, by HI has been duly authorized
by HI. This Agreement, the Share Purchase Agreements, and the Transaction
Documents constitute legal, valid and binding obligations of HI, enforceable in
accordance with their terms, subject to limitations imposed by bankruptcy,
insolvency, reorganization, or other laws or judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights generally.
The Shares, when issued at Closing, will constitute the legal, valid, and
binding obligations of HI enforceable in accordance with their respective terms.
The execution and delivery by HI of this Agreement, the Share Purchase
Agreements, and the Transaction Documents, the fulfillment and compliance with
their terms by HI (including the amendment to HI's Certificate of
Incorporation), the sale and issuance of the Shares, and the issuance of the
Underlying Common Shares, do not and will not (a) conflict with or result in a
breach or violation of (with or without the giving of notice or the passage of
time or both), (b) constitute a default under, (c) result in the creation of any
Lien, security interest charge or encumbrance upon any of the capital stock,
properties or assets of HI or its Subsidiaries, or (d) require any
authorization, consent, waiver, approval, order, exemption, or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency or any other Person pursuant to, or give any third party the right to
modify, terminate, or accelerate any obligation under, (i) the certificate of
incorporation or bylaws of HI or any of its Subsidiaries, (ii) any law, statute,
rule, or regulation to which HI or any of its Subsidiaries is subject, or (iii)
any agreement, instrument, order, judgment, writ, injunction, or decree to which
HI or any of its Subsidiaries is subject. The execution and delivery by HI of
this Agreement, the Share Purchase Agreements, and the Transaction Documents and
the performance of the transactions contemplated hereby and thereby (including
the issuance of Shares and the Underlying Common Shares) will not cause
anti-dilution clauses of any outstanding securities to become operative or give
rise to any preemptive rights.
5.3 Capital Stock and Related Matters. As of the date of this Agreement
and immediately thereafter, (before giving effect to the purchase of the Shares)
the authorized capital stock of HI shall consist of (a) 147,000 shares of Class
A Preferred Stock, all of which is duly authorized and validly issued and
outstanding, (b) 200,000 shares of Class B Preferred Stock of which 90,000
shares are outstanding, and (c) 100,000,000 shares of Common Stock, of which
10,990,924 shall be duly authorized and validly issued and outstanding,
11,790,324 of which shall be reserved for issuance upon conversion of the Class
A Preferred Stock, 2,833,565 of
<PAGE>
which shall be reserved for issuance upon conversion of all of the Class B
Preferred Stock, and 5,154,408 of which shall be reserved for issuance upon
exercise of outstanding options and warrants. Except as aforesaid and except as
shown on Schedule 5.3, as of the date of this Agreement, HI shall not have
outstanding any stock, investment rights, options, or securities convertible,
exercisable, or exchangeable for (or any agreements under which HI is or may
become obligated to issue, sell, or transfer) any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding any
rights or options to subscribe for or to purchase its capital stock or any stock
or securities convertible into or exchangeable for its capital stock. As of the
date of this Agreement, all of the outstanding shares of HI's capital stock
shall be validly issued, fully paid, and nonassessable and were issued in
compliance with all applicable state and federal securities laws. There are no
statutory or contractual stockholder's preemptive rights or rights of first
refusal, with respect to the Shares or Underlying Common Stock which have not
been effectively waived in writing. HI has not violated any applicable federal
or state securities laws in connection with the offer, sale, or issuance of the
Shares, and assuming the accuracy of the representations and warranties of the
Investor set forth in Article 4 hereof, the offer, sale, and issuance of the
Shares hereunder do not require registration under the Securities Act or any
applicable state securities laws. All the rights, preferences, privileges and
restrictions of the Shares are set forth in the Transaction Documents. No equity
securities or rights to purchase equity securities provides for acceleration or
other changes in vesting provisions or other terms governing such securities as
a result of a Public Offering, merger, consolidation, change of control or sale
of assets except as described on Schedule 5.3.
5.4 Validity of Shares. The Shares issued to Investor pursuant to Section
2.1 of this Agreement, when issued in accordance with this Agreement, shall be
duly authorized, validly issued, fully paid, and nonassessable and will be free
of any Liens.
5.5 Financial Statements. HI has delivered to Investor true and correct
copies of the audited consolidated balance sheet of HI and its Subsidiaries as
of June 30, 1997, June 30, 1998, and June 30, 1999, and the related statements
of income and cash flows for the twelve-month periods then ended (with such
balance sheet for the fiscal year ending June 30, 1999 called the "Latest
Balance Sheet", and collectively, the "Financial Statements").
Each of such Financial Statements (including in all cases the notes
thereto, if any) has been prepared in accordance with GAAP, is accurate and
complete in all material respects, is consistent with the books and records of
HI (which are accurate and complete in all material respects), and presents
fairly the consolidated financial condition, results or operations, and cash
flows of HI and its Subsidiaries in accordance with GAAP, applied on a
consistent basis as of the dates and for the periods set forth therein.
5.6 Absence of Undisclosed Liabilities. Except as set forth on the
attached Schedule 5.6, HI and its Subsidiaries do not have any obligation or
liability (whether accrued, absolute, contingent, unliquidated, or otherwise,
whether or not known to HI or any Subsidiary, whether
<PAGE>
due or to become due and regardless of when asserted) arising out of
transactions entered into at or prior to the date of the Closing, or any action
or inaction at or prior to the date of the Closing, or any state of facts or any
circumstances existing at or prior to the date of the Closing other than: (i)
liabilities set forth on the Latest Balance Sheet (including any notes thereto),
and (ii) liabilities and obligations which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business, none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit and none of which, either individually or
collectively, is likely to have a Material Adverse Effect.
5.7 Absence of Certain Developments. Except as expressly contemplated by
this Agreement or as set forth on the attached Schedule 5.7, since June 30,
1999, neither HI nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any capital stock
or other equity securities or any securities convertible, exchangeable or
exercisable into any capital stock or other equity securities, except as
reflected in Section 5.3 of this Agreement;
(b) borrowed any amount or incurred or become subject to any liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any obligation or liability,
other than current liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants, options or other rights
to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or subjected them
to any Lien, except Liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible assets, except in
the ordinary course of business, or canceled any debts or claims;
(g) suffered any Material Adverse Effect or sold, assigned or transferred
any patents or patent applications, trademarks, service marks, trade names,
corporate names, copyrights or copyright registrations, trade secrets, or other
intangible assets, except in each case for non-exclusive license agreements made
in the ordinary course of business;
(h) suffered any extraordinary losses (other than operating losses
incurred in the ordinary course of business) or suffered any damage, destruction
or casualty loss exceeding in the
<PAGE>
aggregate $10,000, whether or not covered by insurance;
(i) made any Investment in or taken steps to incorporate any Subsidiary,
or made any Investment in any other Person; or
(j) entered into any other material transaction other than in the ordinary
course of business.
(k) knowledge of any change in the assets, liabilities, financial
condition or operations of HI from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries;
(l) knowledge of any resignation or termination of any officer or key
employee of HI or its Subsidiaries; and HI or its Subsidiaries, to the best of
its knowledge, does not know of the impending resignation or termination of
employment of any such officer or key employee;
(m) knowledge of any material change, except in the ordinary course of
business, in the contingent obligations of HI or its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(n) knowledge of any waiver by HI or its Subsidiaries of a valuable right
or of a material debt owed to it;
(o) knowledge of any direct or indirect loans made by HI or its
Subsidiaries to any shareholder, employee, officer or director of HI or its
Subsidiaries, other than immaterial advances made in the ordinary course of
business;
(p) knowledge of any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than entry
into the non-compete and confidentiality agreements with the Chief Executive
Officer, President, and Executive Vice President and Chief Technology Officer in
the form delivered to Investor;
(q) knowledge of any labor organization activity;
(r) knowledge of any change in material agreement to which HI or its
Subsidiaries is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries; or
(s) knowledge of any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial
<PAGE>
condition, operations or prospects of HI or its Subsidiaries.
(t) made any arrangement or commitment by HI or its Subsidiaries to do any
of the acts described in subsection (a) through (s) above.
5.8 Absence of Illegal Payments. Neither HI nor any Subsidiary has at any
time made any illegal payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5.9 Assets. Except as set forth on the attached Schedule 5.9, HI and each
Subsidiary have good and marketable title to, or a valid leasehold interest in,
the properties and assets used by them, located on their premises or shown on
the Latest Balance Sheet or acquired thereafter, free and clear of all Liens,
except for properties and assets disposed of in the ordinary course of business
since the date of the Latest Balance Sheet and except for Liens disclosed on the
Latest Balance Sheet (including any notes thereto) and Liens for current
property taxes not yet due and payable. Except as described on Schedule 5.9,
HI's and each Subsidiary's equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. HI and each Subsidiary own, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
5.10 Tax Matters.
(a) Except as set forth on the attached Schedule 5.10, HI, each
Subsidiary, and each Affiliated Group have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations in all material respects;
HI, each Subsidiary and each Affiliated Group in all material respects have paid
all Taxes due and owing by them (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authority all Taxes which they are required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third party; neither HI,
any Subsidiary nor any Affiliated Group has waived any statute of limitations
with respect to any material Taxes or agreed to any extension of time with
respect to any material Tax assessment or deficiency; the accrual for Taxes on
the Latest Balance Sheet would be adequate to pay all Tax liabilities of HI and
its Subsidiaries if their current tax year were treated as ending on the date of
the Latest Balance Sheet (excluding any amount recorded which is attributable
solely to timing differences between book and Tax income); since the date of the
Latest Balance Sheet, HI and its Subsidiaries have not incurred any material
liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by HI, each Subsidiary and each Affiliated Group shall not exceed the
recorded liability therefor on the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between book and Tax
income); the federal income Tax
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Returns of HI and its Subsidiaries have been audited and closed for all tax
years through June 30, 1995; no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to HI, any Subsidiary or any Affiliated Group, no information related to
Tax matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by HI from any foreign, federal, state or local taxing
authority; and there are no material unresolved questions of, claims concerning
HI's, any Subsidiary's or any Affiliated Group Tax liability.
(b) Neither HI nor any of its Subsidiaries has made an election under
ss.341(f) of the Internal Revenue Code of 1986, as amended. Neither HI nor any
Subsidiary is liable for the Taxes of another Person that is not a Subsidiary in
a material amount under (a) Treas. Reg. ss. 1. 1 502-6 (or comparable provisions
of state, local or foreign law), (b) as a transferee or successor, (c) by
contract or indemnity or (d) otherwise. Neither HI nor any Subsidiary is a party
to any tax sharing agreement. HI, each Subsidiary and each Affiliated Group have
disclosed on their federal income Tax Returns any position taken for which
substantial authority (within the meaning of IRC ss.6662(d)(2)(B)(i)) did not
exist at the time the return was filed. Neither HI nor any Subsidiary has made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under IRC
ss.280G.
5.11 Contracts and Commitments.
(a) Except as specifically contemplated by this Agreement and except as
set forth on the attached Schedule 5.11, HI is not a party to or bound by,
whether written or oral, any: (i) collective bargaining agreement or contract
with any labor union, whether formal or informal; (ii) contract for the
employment of any officer, individual employee or group of employees or other
person on a full-time, part-time or consulting basis or any severance
agreements; (iii) agreement or indenture relating to the borrowing of money or
to placing a Lien on any of the assets of HI; (iv) agreements with respects to
the lending or investing of funds; (v) guaranty of any obligation for borrowed
money or otherwise, other than endorsements made for collection; (vi) license or
royalty agreements except those entered into in the ordinary course of business;
(vii) lease or agreement under which HI is lessee of, or holds or operates, any
personal property owned by any other party for which annual rental exceeds
$50,000; (viii) lease or agreement under which HI is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it for which annual rental exceeds $50,000; (ix) contract or group
of related contracts with the same party for the purchase or sale of raw
materials, commodities, supplies, products or other personal property or for the
furnishing or receipt of services which either calls for performance over a
period of more than one year and involves a sum in excess of $50,000 per year;
(x) contract relating to the distribution, marketing or sales of its products or
services (including contracts to provide advertising allowances or promotional
services) involving more than $50,000 per year; (xi) franchise agreements, (xii)
contract which
<PAGE>
prohibits it from freely engaging in business anywhere in the world; or (xiii)
any other agreement material to HI not entered into in the ordinary course of
business.
(b) Except as specifically contemplated by this Agreement, or disclosed on
Schedule 5.11, (i) no contract or commitment required to be disclosed on
Schedule 5.11 has been breached or canceled by the other party since June 30,
1999, (ii) HI has performed in all material respects all of the obligations
required to be performed by HI in connection with the contracts or commitments
required to be disclosed on the Schedule 5.11, and is not in receipt of any
claim of default under any contract or commitment required to be disclosed on
the Schedule 5.11, (iii) HI has no present expectation or intention of not fully
performing any obligation pursuant to any contract set forth on Schedule 5.11,
and (iv) HI has no knowledge of any material breach or anticipated material
breach by any party to any contract specific on Schedule 5.11.
(c) HI has provided the Investor with a true and correct copy of all
written contracts which are referred to on Schedule 5.11 which have been
requested by Investors, together with all amendments, waivers or other changes
thereto.
5.12 Proprietary Rights.
(a) Schedule 5.12 attached hereto contains a complete and accurate list of
all patented and registered Proprietary Rights owned by HI, all pending patent
applications and applications for the registration of other Proprietary Rights
owned by HI and all licenses, options or agreements with respect to the
Proprietary Rights of HI or any of its Subsidiaries and all licenses, options or
agreements to which HI or any of its Subsidiaries is bound with respect to the
Proprietary Rights of any other person other than in the ordinary course of
business. Except as set forth on Schedule 5.12, HI owns and possesses all right,
title and interest in and to, or has a valid and enforceable written license to
use, all of the Proprietary Rights necessary for the operation of its business
as presently conducted and as currently proposed to be conducted; no claim by
any third party contesting the validity, enforceability, use or ownership of any
Proprietary Rights owned or used by HI has been made or is currently
outstanding; HI has not received any information as to any infringement or
misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights of HI, nor has HI received any claims alleging infringement
or misappropriation, or other conflict with, any Proprietary Rights of any third
party; and HI has not infringed, misappropriated or otherwise conflicted with
any Proprietary Rights of any third party.
(b) To the knowledge of HI or its Subsidiaries, no employee of HI or its
Subsidiaries, nor any consultant with whom HI or its Subsidiaries has
contracted, is in violation of any term of any employment contract, proprietary
information agreement, or any other agreement relating to the right of any such
individual to be employed by, or to contract with, HI or its Subsidiaries
because of the nature of the business to be conducted by HI or its Subsidiaries
or presently proposed to be conducted; and to the knowledge of HI or its
Subsidiaries, the continued
<PAGE>
employment by HI or its Subsidiaries of its present employees, and the
performance of contracts with their independent contractors, will not result in
any such violation. HI or its Subsidiaries has not received any notice alleging
that any such violation has occurred.
(c) The Chief Executive Officer, President, and Executive Vice President
and Chief Technology Officer of HI have executed confidentiality and non-compete
agreements in the form delivered to Investor, and holders of certain stock
options have agreed to non-compete provisions as part of their option
agreements.
(d) None of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
HI or by any of its Subsidiaries in the conduct of their respective businesses
will malfunction, will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing, and/or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries including leap days, in each case in any
manner that would have a material adverse effect on HI or its Subsidiaries or
their respective operations or businesses.
5.13 Litigation. Except as set forth on the attached Schedule 5.13, there
are no actions, suits, proceedings, orders, investigations or claims pending or,
to the best of HI's knowledge, threatened against or affecting the HI or any
Subsidiary (or to the best of HI's knowledge, pending or threatened against or
affecting any of the officers, directors, or employees of HI and its
Subsidiaries with respect to their businesses or proposed business activities),
or pending or threatened by HI or any Subsidiary against any third party, at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement and the Transaction Documents); neither HI nor
any Subsidiary is subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of HI's knowledge, any
governmental investigations or inquiries; and, to the best of HI's knowledge,
there is no basis for any of the foregoing. Neither HI nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency, and neither HI nor any Subsidiary has received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to its
business.
5.14 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon HI or any
Subsidiary. HI shall pay, and hold Investor harmless against, any liability,
1oss or expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
<PAGE>
5.15 Insurance. HI and its Subsidiaries maintain insurance coverage of
types and amounts reasonable and customary for corporations of similar size
engaged in similar lines of business. Neither HI nor any Subsidiary is in
default with respect to its obligations under any insurance policy maintained by
it, and neither HI nor any Subsidiary has been denied insurance coverage.
5.16 Employees. HI is not aware that any executive or key employee of HI
or any Subsidiary or any group of employees of HI or any Subsidiary has any
plans to terminate employment with HI or any Subsidiary. HI and each Subsidiary
have complied in all material respects with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes), and HI is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither HI, its Subsidiaries nor, to the best of HI's
knowledge, any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of HI
and its Subsidiaries, except for agreements between HI and its present and
former employees. No employee of HI or any Subsidiary is represented by any
labor union, nor are such employees covered under any collective bargaining
agreement.
5.17 ERISA. For purposes of this Section 5.17, the term "HI" includes all
organizations under common control with HI pursuant to Section 414(b) or (c) of
the IRC.
(a) Multiemployer Plans. HI does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
(b) Retiree Welfare Plans. HI does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(c) Defined Benefit Plans. HI does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated.
(d) Defined Contribution Plans. HI does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined contribution plan" (as defined in Section 3(34) of
ERISA), whether or not terminated.
<PAGE>
(e) Other Plans. Except as set forth in Schedule 5.17, HI does not
maintain, contribute to or have any liability under (or with respect to) any
plan or arrangement providing benefits to current or former employees, including
any parachute, severance, or bonus plan or plan for deferred compensation,
except employee health, welfare, and similar benefit plans in the ordinary
course of business, whether or not terminated.
(f) Party in Interest. HI is not a party in interest (as defined under
Section 3(14) of ERISA) or a disqualified person (as defined in Section
4975(e)(2) of the IRC) with respect to any Investor.
(g) No Parachute Payment. No benefit under any Benefit Plan, including
without limitation, any severance or parachute payment plan or agreement, will
be established or become accelerated, vested, or payable by reason of any
transaction contemplated under this Agreement.
5.18 Compliance With Laws. Neither HI nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of HI and its Subsidiaries taken as a whole, and neither HI nor any Subsidiary
has received notice of any such violation. Neither HI nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or material corrective or remedial
obligation arising under any federal, state, local or foreign law, rule or
regulation (including the common law) relating to or regulating health, safety,
pollution or the protection of the environment.
No governmental orders, permissions, consents, approval or authorizations
are required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Underlying Common Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. HI and each of its
Subsidiaries have all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted and as
presently proposed to be conducted, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
HI or its Subsidiaries.
Assuming the accuracy of the representations and warranties of the
Investor contained herein, the offer, sale and issuance of the Shares and the
Underlying Common Shares will be exempt from the registration requirements of
the Securities Act, and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither HI
nor any agent on its behalf has solicited or will solicit any offers to sell or
has offered to sell or will sell all or any part of the Shares to any person or
persons so as to bring the sale of such Shares by HI within the
<PAGE>
registration provisions of the Securities Act or any state securities laws.
5.19 Environmental and Safety Matters. HI has complied and is in
compliance with all Environmental and Safety Requirements in all material
respects (including without limitation all permits and licenses required
thereunder). HI has received no oral or written notice of any violation of, or
any liability (contingent or otherwise) or corrective or remedial obligations
under, any Environmental and Safety Requirements. No facts or circumstances with
respect to the past or current operations or facilities (whether currently or
previously owned, leased, or operated) of HI or any predecessor or Affiliate
thereof or entities previously owned by HI (including without limitation any
onsite or offsite disposal or release of hazardous materials, substances or
wastes) would give rise to any liability or corrective or remedial obligation
under any Environmental and Safety Requirement.
5.20 Affiliated Transactions. Except as set forth on the attached Schedule
5.20, (i) no officer, director, stockholder or Affiliate of HI or any
Subsidiary, (ii) to HI's knowledge, any employee of HI or any Subsidiary or
(iii) to HI's knowledge, any individual related by blood, marriage or adoption
to any individual described in clauses (i) or (ii) above or any entity in which
any such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with HI or any Subsidiary or has
any material interest in any material property used by HI or any Subsidiary.
5.21 Disclosure. Neither this Agreement, the Transaction Documents, nor
any of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to Investor by or on behalf of
HI with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading. There is no fact which HI
has not disclosed to Investor in writing and of which any of its officers,
directors or executive employees is aware and which has had or would reasonably
be expected to have a Material Adverse Effect.
5.22 Brokers. HI has not involved any brokers or finders in connection
with this Agreement or the transactions contemplated hereby, and agrees to
indemnify the Investor for any breach of this Section 5.22 by it.
5.23 Closing Date. The representations and warranties of HI contained in
this Article 5 and elsewhere in this Agreement and the Transaction Documents and
all information contained in any exhibit, schedule or attachment hereto or in
any certificate or other writing delivered by, or on behalf of, HI to Investor
shall be true and correct in all material respects on the date of this Agreement
as though then made.
5.24 Subsidiaries.
<PAGE>
(a) The only Subsidiaries of HI on the date of Closing are Gordon S. Black
Corporation which is a wholly owned Subsidiary of HI, Louis Harris & Associates,
Inc. which is a wholly owned Subsidiary of Gordon S. Black Corporation, and GSBC
Ohio Corporation which is a wholly owned Subsidiary of Gordon S. Black
Corporation.
(b) All outstanding capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable and is owned
beneficially and of record as described in Section 5.24(a) free and clean of all
Lines, options, or claims of any kind. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell, or
transfer shares of its capital stock.
ARTICLE 6 - RESTRICTIONS ON TRANSFERS
6.1 Restricted Securities. The Restricted Securities are transferable only
pursuant to (a) a Public Offering, (b) Rule 144 or Rule 144A under the
Securities Act (or any similar or successor rule, regulation, or law then in
force) if any such rule is available, or (c) subject to the conditions specified
in Section 6.2 below, any other legally available means of transfer.
6.2 Opinion Delivery. In connection with the transfer of any of the
Restricted Securities (other than a transfer described in Section 6.1(a) or (b)
above) and subject to Section 6.3 below, the Investor shall deliver written
notice to HI describing in reasonable detail the transfer or proposed transfer,
together with an opinion of legal counsel which (to HI's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of the Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to HI an opinion of such counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, HI shall promptly deliver to the Investor new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in Section 6.5. If HI is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
Investor, or if applicable a subsequent transferee thereof, shall not transfer
the same until the prospective transferee has confirmed to HI in writing its
agreement to be bound by the conditions contained in this Article 6.
6.3 Restrictions on Transfer. The Investor shall not sell, transfer,
assign, pledge, or otherwise dispose of (whether with or without consideration)
the Shares or any interest therein (a "Transfer") to any Person who, in the
reasonable judgment of HI based upon information made available by HI to
Investor, is a direct competitor of HI, or otherwise absent compliance with this
Section 6.3; provided that this Section 6.3 shall be of no further force and
effect at such time as HI consummates a Public Offering. Notwithstanding the
foregoing, this Section 6.3 shall not apply to a transfer to an Affiliate of
Investor, provided that such Affiliate becomes subject to the terms of this
Section 6.3. If Investor proposes to Transfer all or part of the Shares,
Investor shall
<PAGE>
deliver a written notice ("Transfer Notice") to HI. The Transfer Notice shall
describe the number of Shares proposed to be transferred (the "Offered Shares")
and the proposed transferee and price per share. HI may elect to purchase all,
but not less than all, of the Offered Shares at the price described in the
Transfer Notice. If HI elects to purchase all of the Offered Shares, HI shall
give the Investor written notice of such election no later than ten (10) days
after delivery of the Transfer Notice. If an election to purchase all of the
Offered Shares has been made, the Offered Shares shall be transferred to HI at
the price stated in the Transfer Notice no later than fourteen (14) days after
notice of the election to purchase has been given. If HI has elected not to
purchase all of the Offered Shares (or has failed to exercise its rights under
this Section 6.3), the Investor may conclude a Transfer at the price per share
stated in the Transfer Notice, or at a higher price per share, at any time
within a one hundred thirty (130) day period after the delivery of the Transfer
Notice provided that the transferee has agreed in writing to be bound by the
terms of this Article 6 as if it was an original signatory to this Agreement.
6.4 Legend.
(a) Each certificate or instrument representing the Shares shall be
imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Investment Agreement, dated as of
October 22, 1999, as amended and modified from time to time, between
the issuer (the "Company") and Young & Rubicam Inc., as amended and
modified from time to time. A copy of such Agreement will be
furnished by the Company to the holder hereof upon written request
and without charge."
(b) Upon the later of (i) the termination of this Agreement pursuant to
Article 9 hereof, and (ii) such time as the Shares are no longer Restricted
Securities, at Investor's request, HI shall remove the legend set forth in
Section 6.4(a) above from the certificates for the Shares.
6.5 Lock-Up Agreement. To the extent Investor has been released from the
Lockup Agreement, in connection with the initial Public Offering of Common
Shares, at the request of the underwriters for such offering, Investor agrees to
enter into a reasonable and customary negotiated holdback agreement providing
for a holdback not exceeding 180 days.
ARTICLE 7 -FINANCIAL INFORMATION
7.1 Delivery of Financial Information. HI shall make such financial and
other information, as it makes available to the holders of all of its Common
Shares, available to
<PAGE>
Investor. In addition, HI shall provide Investor with (a) copies of its annual
audited consolidated financial statements within ninety (90) days after the end
of its fiscal year; (b) copies of its unaudited quarterly financial statements
within forty-five (45) days after the end of each calendar quarter; (c) without
duplication of any other items furnished under this Section 7.1, copies of any
annual, special or interim audit reports or management or comment letters
submitted to HI by independent public accountants as soon as practicable
following such submission; (d) as soon as practicable, copies of all financial
statements, proxy material or reports sent to all holders of any class of
capital stock of HI; and (e) copies of all reports or registration statements
filed by or on behalf of HI with the SEC pursuant to the Securities Act or the
Securities Exchange Act. All such financial statements shall be prepared in
accordance with GAAP (except that any interim financial statements may omit
notes and may be subject to normal year-end adjustments). HI will make good
faith efforts to provide Investor with copies of any public or press releases
issued by or on behalf of HI, but shall have no liability for inadvertent
omissions in the delivery of same.
7.2 Confidentiality. Investor and its Affiliates shall maintain the
confidentiality of the financial statements and other information provided to it
pursuant to Section 7.1 above, provided that Investor may disclose such
information (a) in connection with a Transfer of the Shares if such Person
agrees to maintain the confidentiality of such financial statements and other
information as provided in this Section7.2, (b) previously known on a
non-confidential basis by Investor, (ii) in the public domain through no fault
of Investor, (c) lawfully acquired by Investor from sources other than HI who,
to the knowledge of Investor, had such documents, reports or other information
without any breach of any obligation of confidentiality, (d) to officers,
directors, employees, accountants, counsel, consultants, advisors and agents of
Investor in connection with Investor's review of such documents, reports or
other information so long as such Persons are informed by Investor to treat such
information confidentially and not to use any of such documents, reports or
other information for any reason or purpose other than in connection with
Investor's review, or (e) if Investor is required to disclose by judicial,
regulatory or administrative process or by other requirements of law.
<PAGE>
ARTICLE 8 - COVENANTS OF HI
8.1 Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office.
(a) So long as any of the Shares or Underlying Shares are outstanding, HI
agrees to maintain an office or agency where Shares may be presented for
payment, exchange, conversion, exercise or registration of transfer as provided
in this Agreement. Such office or agency initially shall be the office of HI set
forth in the preamble to this Agreement.
(b) HI agrees to give Investor at least twenty (20) days' prior written
notice of any change in HI the location of the office of HI required to be
maintained under this Section 8.2.
8.2 Reservation of Shares. HI agrees that there have been reserved, and HI
shall at all times keep reserved, free from preemptive rights, out of its
authorized Common Stock a number of shares of Common Stock sufficient to provide
for the exercise of the conversion rights related to the Underlying Shares.
8.3 Listing of Shares. HI agrees that if any shares of HI's Common Stock
are listed on any national securities exchange or on Nasdaq, then HI will take
such action as may be necessary, from time to time, to list all outstanding
Common Shares on such exchange or on Nasdaq.
8.4 Securities Exchange Act Registration. HI agrees that as soon as HI is
either required to or does file a registration statement with respect to Common
Stock of HI under Section 6 of the Securities Act or Section 12(b) or Section
12(g), whichever is applicable, of the Securities Exchange Act, then thereafter:
(a) HI will maintain effective a registration statement (containing such
information and documents as the SEC shall specify and otherwise complying with
the Securities Exchange Act), under Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act, with respect to the Common Stock of
HI, and HI will file on time such information, documents and reports as the
Commission may require or prescribe for companies whose stock has been
registered pursuant to Section 12(b) or Section 12(g), whichever is applicable.
(b) HI will make whatever filings with the SEC, or otherwise take such
other action as may be necessary to comply with the current reporting provisions
of Rule 144(c) under the Securities Act in order to facilitate resales of HI
Common Stock.
8.5 Delivery of Information for Rule 144A Transactions. If Investor
proposes to transfer any Shares or Underlying Shares pursuant to Rule 144A under
the Securities Act (as in
<PAGE>
effect from time to time), HI agrees to provide (upon the request of Investor or
the prospective transferee) to Investor and (if requested) to the prospective
transferee any financial or other information concerning HI which is required to
be delivered by such holder to any transferee of such Shares or Underlying
Shares pursuant to such Rule 144A.
8.6 Registration Statement . HI shall provide to Investor and its counsel,
promptly after they are prepared, drafts of any registration statements covering
securities of HI. HI shall provide Investor with a reasonable time to review and
comment upon any such registration statement (and documents to be filed with the
SEC in connection therewith) prior to filing any such registration statement or
other related document with the SEC).
8.7 Private Placement Status. Neither HI, any Subsidiary, nor any agent
nor other Person acting on HI's behalf will do or cause to be done (or will omit
to do or to cause to be done) any act which act (or which omission) would result
in bringing the issuance or sale of the Shares within the provisions of Section
5 of the Securities Act or the filing, notification, or reporting requirements
of any state securities law.
8.8 No Impairment. HI will not, and will not permit any Subsidiary to take
action to avoid the observance or performance of any of the terms of the Share
Purchase Agreements, the Transaction Documents, or the Shares.
ARTICLE 9 - TERMINATION
9.1 Termination. All agreements, representations and warranties,
covenants, and obligations of the Investor and any Subsidiary contained in this
Agreement, the Transaction Documents, the Shares or any document or certificate
delivered pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution, delivery of this Agreement, the Transaction Documents,
the closings hereunder and thereunder, any investigation at any time made by or
on behalf of the Purchasers or by any other Person, the issuance, sale and
delivery of the Shares, any disposition thereof and any payment, exercise
conversion or cancellation of the Shares; provided that the provisions of
Section 6.3, Article 7, and Section 8.2 shall terminate following the conversion
of all Shares held by the Investor into Common Shares. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of HI pursuant thereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by HI
as to such factual matters hereunder solely as of the date of such certificate
or instrument.
ARTICLE 10 - REMEDIES
10.1 Indemnification. HI agrees to indemnify and hold Investor and its
Affiliates harmless from and against and will pay to Investor and each Affiliate
the full amount of any loss, damage, liability or expense (including amounts
paid in settlement and reasonable attorneys' fees
<PAGE>
and expenses) to Investor and any Affiliate resulting either directly or
indirectly from any breach of the representations or warranties, or failure to
perform any of the covenants or agreements of the Investor or any Subsidiary
contained in this Agreement, the Transaction Documents or the Shares.
10.2 Remedies. In the case of a breach of any representation or warranty,
or failure to perform any of the agreements or covenants of HI or any Subsidiary
contained in this Agreement, the Transaction Documents or any Shares, the holder
of any Shares then outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement or covenant contained
herein or therein or in such Share or for an injunction against a violation of
any of the terms hereof or thereof or of such Share, or in aid of the exercise
of any power granted hereby or thereby or by such Share or by law or for any
other remedy (including without limitation damages).
Holders of all Shares shall, in addition to other remedies provided by
law, have the right to have the provisions of this Agreement, the Transaction
Documents or other such Shares specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any breach or threatened
breach of the provisions of this Agreement, the Transaction Documents or any
Shares will cause irreparable injury to holders of Shares and that money damages
will not provide an adequate remedy. Nothing contained herein shall be construed
as prohibiting a holder of Shares from pursuing any other remedies available to
such holder for such breach or threatened breach, including without limitation
the recovery of damages from the HI.
10.3 No Counterclaim. All amounts payable by HI in connection with the
Shares shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
ARTICLE 11 - MISCELLANEOUS
11.1 Successor/Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors, legal representatives, and
assigns of the parties, provided, however, that this Section 10.1 is not
intended to supersede any restrictions on transfer of any interest expressly
provided elsewhere in this Agreement.
11.2. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws; provided, however, that the matters contained
herein that are specifically within the purview of the General Corporation Law
of the State of Delaware shall be governed by such law.
11..3 Arbitration.
<PAGE>
(a) The parties agree to this Section 11.3 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
11.4 Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
11.5 Notices. Any notice or demand upon any party hereto shall be deemed
to have been sufficiently given or served for all purposes hereof when delivered
in person or by nationally recognized overnight courier with receipt requested,
or three business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed to the address shown in the preamble to this
Agreement or to such other address as may be designated by any party by notice
given to the other in the manner described in this Section 10.5.
11.6 Severability/Construction. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated. The parties agree
to replace any invalid provision with a valid provision which most closely
approximates the intent and economic effect of the invalid provision. The
parties agree that this Agreement has been prepared in cooperation, and that it
shall not be construed as against any particular party as drafter.
11.7 Expenses. Except as otherwise expressly provided herein, both parties
shall be responsible for their own costs and expenses in connection herewith.
11.8 Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach. No waiver or amendment hereof shall be effective unless in
writing signed by both HI and Investor. No course of dealing and no delay on the
part of any holder of any Shares or any party to this Agreement in exercising
any rights or remedies shall operate as a waiver thereof or otherwise
<PAGE>
prejudice such holder's or party's rights. No right or remedy conferred hereby
or by the Transaction Documents or by any Share shall be exclusive of any other
right or remedy referred to herein or therein in such Share or available at law,
in equity, by statute or otherwise.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
---------------------------
Gordon S. Black
Chief Executive Officer
<PAGE>
YOUNG & RUBICAM INC.
By: /s/ Steven Blondy
--------------------------
Title: Senior Vice President
<PAGE>
Exhibit 10.15
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of October 15, 1999 between HARRIS INTERACTIVE
INC., a Delaware corporation with offices at 135 Corporate Woods, Rochester, New
York 14623 ("HI") and EXCITE, INC. with offices at 450 Broadway, Redwood City,
California 94063 ("Investor").
WITNESSETH
WHEREAS, HI desires to sell to the investor and the Investor desires to
purchase from HI shares of the Class B Convertible Preferred Stock, par value
$.01 per share, of HI, all upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt an
sufficiency of which are hereby acknowledged, the parties agree as follows:
The parties agree as follows:
ARTICLE 1 -DEFINITIONS
1.1 Definitions. The following capitalized terms shall have the following
meanings:
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract, or otherwise, partners
or former partners, and members or former members.
"Affiliated Group" means any affiliated group as defined in IRC ss.1504
that has filed a consolidated return for federal income tax purposes (or any
similar group under state, local, or foreign law) for a period during which any
of HI or any of its Subsidiaries was a member.
"Class A Preferred Stock" shall mean the Class A Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Class B Preferred Stock" shall mean the Class B Convertible Preferred
Stock, par value $0.01 per share, of HI.
"Common Shares" shall mean the common stock, $0.001 par value per share,
of HI.
<PAGE>
"Environmental and Safety Requirements" means all federal, state, local,
and foreign statutes, regulations, ordinances and other provisions having the
force and effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety, and pollution or
protection of the environment.
"Fully Diluted Basis" shall mean the number of common shares actually
outstanding, the number of Common Shares into which the then outstanding shares
of Class A Preferred Stock and Class B Preferred Stock could be fully converted
if fully converted on the given date, and the number of Common Shares which
could be obtained through the exercise, exchange, or conversion of all other
rights, warrants, options and convertible securities or other securities
convertible, exchangeable, or exercisable for Common Stock (or any of the
foregoing) outstanding or reserved for issuance on the given date.
"GAAP" means generally accepted accounting principles.
"Investment" means, with respect to any Person, (i) any capital
contribution by such Person to any other Person, (ii) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities, or ownership interest (including partnership,
membership, and joint venture interests) of any other Person, (iii) any loan,
advance or extension of credit by such Person to any other Person (other than
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale of goods or services in the ordinary course of
business, and (b) extensions of credit by HI to any of its wholly-owned
Subsidiaries or by any of its wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries), (iv) any guaranty of obligations of such Person, (v)
any transfer or sale of property of such Person to any other Person other than
upon full payment, in cash, of not less than the agreed sale price or the fair
value of such property, whichever is higher (other than transfers of property in
the ordinary course of business of the Person in exchange for fair value), (vi)
any acquisition by such Person of all or an integral part of the business of any
other Person or the assets comprising such business or such part thereof, and
(vii) any commitment or option to do any of the following. Any of the foregoing
under clauses (i) through (vi) shall be considered an Investment whether such
Investment is acquired by purchase, exchange, merger or any other method.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section number shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien, preference in the nature of
security, or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof), any
sale of receivables with recourse against the seller or any
<PAGE>
Affiliate, any filing or agreement to file a financing statement as debtor under
the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third Person of property leased to a party under a lease which is
not in the nature of a conditional sale or title retention agreement or any
subordination arrangement, and any agreement to give or make any of the
foregoing.
"Lockup Agreement" shall mean the Lockup Agreement in the form attached
hereto and made a part hereof as Exhibit B.
"Material Adverse Effect" means any event, matter, condition or
circumstance which (i) has a material adverse effect on the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise), employee relations, customer or supplier relations, or business
prospects of HI, (ii) has an adverse effect on the ability of HI to perform its
obligations under any material contract, the Share Purchase Agreements, the
Transaction Documents or any of the Shares to be issued by it or (iii)
materially or adversely affects the legality, validity, binding effect or
enforceability of the Share Purchase Agreements, the Transaction Documents or
the Shares.
"Offered Shares" shall have the meaning given in Section 6.3 of this
Agreement.
"Other Purchasers" shall have the meaning given in Section 2.1 of this
Agreement.
"Person" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, government, governmental body,
agency, political subdivision, or other entity of any kind or nature.
"Proprietary Rights" shall mean all patents; all trademarks, service
marks, domain names, trade dress, trade names, and corporate names and all of
the goodwill associated therewith; all copyrights; all registrations,
applications and renewals for any of the foregoing; all inventions; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
manufacturing and production processes and techniques, research information,
drawings, specifications, designs, plans, improvements, technical and computer
data, documentation and software, and all other proprietary rights and processes
of similar nature ; and all computer programs (including source codes) and
related documentation.
"Public Offering" means any offering by HI (or any other holder) of HI
Common Stock to the public pursuant to an effective registration statement under
the Securities Act, as then in effect, or any comparable statement under any
similar federal statute then in force.
"Purchase Price" shall have the meaning given to it in Section 2.2 of this
Agreement.
"Registration Agreement" shall mean the Registration Agreement described
in Section
<PAGE>
3.6 of this Agreement.
"Research Agreement" shall mean the Research Agreement described in
Section 3.11 of this Agreement.
"Restricted Securities" means (i) the Shares hereunder, (ii) the
Underlying Common Stock, and (iii) any securities issued with respect to the
Shares or Underlying Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. As to any Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act; provided that the Company has completed a Public Offering and is
subject to the provisions of the 1934 Act and as to any particular holder of
Restricted Securities, such holder (together with its Affiliates) holds less
than 1% of the Company's common stock on a Fully Diluted Basis, or (c) otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in Section 6.5 hereof have been delivered by HI in accordance with
Section 6.2. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from HI, without
expense, new securities of like tenor not bearing a Securities Act legend of the
character set forth in Section 6.5.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date hereof and as hereafter amended.
"Share Purchase Agreements" shall meaning given in Section 2.1 of this
Agreement.
"Shares" shall have the meaning given in Section 2.2 of this Agreement.
"Stockholders' Agreement" shall mean the Stockholders' Agreement described
in Section 3.10 of this Agreement.
"Subsidiary" means any Person of which, at the time of determination made
under this Agreement, at least a majority of capital stock having ordinary
voting power for the election of directors or other governing body of such
Person is owned by the applicable other Person, directly or through one or more
Subsidiaries.
<PAGE>
"Tax" or "Taxes" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
"Transaction Documents" shall mean the documents and agreements executed
and delivered in connection with this Agreement, including without limitation
the amendment to HI's Certificate of Incorporation, Registration Agreement, the
Lockup Agreement, the Research Agreement, the Shares, and the Stockholders
Agreement.
"Transfer" shall have the meaning given in Section 6.3 of this Agreement.
"Transfer Notice" shall have the meaning given in Section 6.3 of this
Agreement.
"Underlying Common Stock" shall mean (i) the Common Stock issued or
issuable upon conversion of the Class B Preferred Stock, and any (ii) Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Class B
Preferred Stock shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of such Class B Preferred Stock in connection with
the transfer thereof or otherwise regardless of any restriction or limitation on
the conversion of the Class B Preferred Stock, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by HI.
ARTICLE 2 - PURCHASE OF SHARES
2.1 Authorization of Class B Preferred Stock. HI has authorized the
issuance of 200,000 shares of Class B Preferred Stock having the rights and
preferences set forth in Exhibit A attached hereto (the "Class B Shares"). The
Class B Shares are being sold by HI to the
<PAGE>
Investor and the other purchasers listed on Schedule 2.1 hereto (the "Other
Purchasers") pursuant to this Agreement and other substantially identical
agreements (this agreement together with such other agreements collectively, the
"Share Purchase Agreements"). Set forth opposite each Other Purchaser's name on
Schedule 2.1 is the number of Class B Shares being acquired by such Other
Purchasers and the purchase price paid, or to be paid, therefore.
2.2 Share Purchase. On the date of the Closing, HI shall sell to Investor,
and Investor, subject to the terms and conditions hereof and in reliance upon
the representations and warranties of HI contained herein or made pursuant
hereto, shall purchase from HI, 30,000 Class B Shares (together with the
Underlying Common Stock, the "Shares"), being 1.381% of the Common Shares on a
Fully Diluted Basis after the purchases under the Share Purchase Agreements. The
aggregate purchase price for the Shares to be acquired by the Investor pursuant
to this Agreement shall be Three Million Dollars ($3,000,000) (the "Purchase
Price").
2.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing")
shall take place at the offices of Harris Beach & Wilcox LLP located at 130 E.
Main Street, Rochester, New York at 10:00 a.m. , eastern daylight time, on
October 15, 1999 or such other time and place as are mutually agreeable to the
parties.
(b) On the date of the Closing and upon receipt of the items set forth in
Section 2.3(c) hereof, Investor shall pay the Purchase Price by wire transfer or
in other immediately available funds to HI addressed as follows:
Manufacturers and Traders Trust Company
Rochester, NY 14604
Account #015215148
ABA#02200004-6
For: Harris Interactive Inc.
Re: Mezzanine Investment
(c) At the Closing (i) Investor and HI shall execute and deliver this
Agreement, the Registration Agreement, the Stockholders Agreement, and the
Research Agreement, (ii) Investor shall execute and deliver the Lockup Agreement
and the Consent of Shareholders in the form attached as Exhibit D, and (iii) HI
shall deliver a certificate registered in the Investor's name evidencing the
Shares to Investor.
ARTICLE 3 - CONDITIONS OF INVESTOR'S OBLIGATION AT CLOSING
The obligation of the Investor to purchase and pay for the Shares at the
Closing is subject to the satisfaction as of the Closing of the following
conditions (any of which may be waived by the Investor):
<PAGE>
3.1 Representations, Warranties, and Covenants. The representations and
warranties contained in Article 5 hereof or in any certificate or document
delivered pursuant hereto, shall be true and correct at and as of the Closing as
though then made and HI shall have performed and complied with all of the
covenants and agreements required to be performed or complied with by it
hereunder on or prior to the Closing.
3.2 Amendment of Certificate of Incorporation. HI's Certificate of
Incorporation shall have been amended and shall be in the form set forth in
Exhibit A hereto, shall be in full force and effect under the laws of the State
of Delaware as of the Closing as so amended, and shall not have been further
amended or modified; provided, however, that Investor acknowledges that certain
modifications to the Certificate of Incorporation have been or will be approved
by the directors and shareholders (including the Investor after its investment)
of HI contingent upon completion of a Public Offering, a copy of which
shareholder approval (which describes and approves such modifications) is
attached as Exhibit D hereto.
3.3 Securities Law Compliance. HI shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Shares pursuant to this Agreement in compliance with such laws
and HI shall be in compliance with all such laws.
3.4 Compliance with Applicable Laws/Authorizations. The purchase of the
Shares by the Investor hereunder shall not be prohibited by any applicable law
or governmental order, rule or regulation and shall not subject the Investor to
any penalty, tax, liability, or, in the Investor's reasonable judgment, other
onerous condition, and the purchase of the Shares by the Investor hereunder
shall be permitted by laws, rules, and regulations of the jurisdictions and
governmental authorities and agencies to which the Investor is subject. Any
necessary consents, waivers, approvals, licenses, permits, orders and
authorizations of, and any filings, registrations or qualifications with, any
governmental authority of other Person (including any consents or waivers by the
holders of the Class A Preferred Stock), with respect to the transactions
contemplated by this Agreement, the Share Purchase Agreements and the
Transaction Documents shall have been obtained or made and shall be in full
force and effect.
3.5 No Change in Law etc.. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted, or made by or on behalf of any
governmental authority, and no legislation shall have been introduced, and no
investigation by an governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental
authority or arbitrator, which, in any such case, in the Investor's reasonable
judgment could adversely affect, restrain, prevent, or change the transactions
contemplated by the Share Purchase Agreements or the Transaction Documents
(including without limitation, the issuance of the Shares) or have a Material
Adverse Effect.
<PAGE>
3.6 Registration Agreement. HI and Brinson MAP Venture Capital Fund III as
successor to Brinson MAP Venture Capital Fund III Trust, BVCF III, L.P. as
successor to Brinson Venture Capital Fund III, L.P., and Virginia Retirement
System (the "Brinson Holders") shall have entered into a Registration Agreement
Amendment Number 1 (the "Amendment") to the Registration Agreement made among HI
and the Brinson Holders, in substantially the form attached to this Agreement as
Exhibit C , and HI and Investor shall have entered into a Registration Agreement
in substantially the form attached to the Amendment as Exhibit A thereto (the
"Registration Agreement").
3.7 Opinion of HI's Counsel. Investor shall have received from Harris
Beach & Wilcox, LLP, counsel for HI, an opinion addressed to Investor dated the
date of Closing in substantially the form attached to this Agreement as Exhibit
G.
3.8 Compliance Certificate of Officer. HI shall have delivered to Investor
an officer's certificate dated the date of closing stating that the conditions
specified in Section 2 to be performed by HI, and the conditions specified in
Sections 3.1-3.12, inclusive, of this Agreement, have been fully satisfied.
3.9 Corporate Proceedings. HI shall have delivered to Investor copies
certified by the Secretary of HI, of (a) resolutions adopted by the Board of
Directors of HI authorizing the execution, delivery, and performance of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, the
amendment to the Certificate of Incorporation attached hereto as Exhibit A, the
issuance and sale of the Shares, the reservation for issuance of the Underlying
Common Stock, and the consummation of all of the transactions contemplated by
this Agreement and the Share Purchase Agreements, and (b) resolutions duly
adopted by HI's stockholders adopting the amendment to the Certificate of
Incorporation attached hereto as Exhibit A.
3.10 Stockholders Agreement. HI and the Investor shall have entered into a
Stockholders' Agreement in substantially the form attached hereto as Exhibit E
(the "Stockholders' Agreement").
3.11 Research Agreement. HI and the Investor shall have entered into a
Research Agreement in substantially the form attached to this Agreement as
Exhibit F (the "Research Agreement").
3.12 Other Documents and Opinions. The Investor shall have received such
other documents and opinions, in form and substance satisfactory to the Investor
and its counsel, relating to matters incident to the transactions contemplated
hereby as the Investor may reasonably request.
<PAGE>
ARTICLE 4 - REPRESENTATIONS OF INVESTOR
As a material inducement to HI to enter into this Agreement and sell the
Shares hereunder, Investor represents and warrants to HI as follows:
4.1 Formation. Investor is validly formed or organized, and existing,
under the laws of the jurisdiction of its formation, and has all requisite power
and authority to carry out the transactions contemplated by this Agreement.
4.2 Authorization. The execution and delivery of this Agreement and the
Transaction Documents, and performance of the transactions contemplated hereby,
by Investor have been duly authorized by Investor. This Agreement and the
Transaction Documents constitute valid and binding obligations of Investor,
enforceable in accordance with their terms, subject to limitations imposed by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization, or
other laws or judicial decisions or principles of equity relating to or
affecting the enforcement of creditors' rights generally. Except to the extent
that any of the following would not reasonably be expected to have a material
adverse effect on the ability of Investor to consummate the transactions
contemplated by this Agreement, the execution and delivery by Investor of this
Agreement and the Transaction Documents, and the compliance with their terms by
Investor, do not (a) conflict with or result in a violation of, (b) constitute a
default under, or (c) require any authorization, consent, approval, exemption,
or other action by or notice to, or filing with, any court or administrative or
governmental body or agency pursuant to, (i) the charter documents or bylaws of
Investor, (ii) any law, statute, rule, or regulation to which Investor is
subject, or (iii) any material agreement, instrument, order, judgment, or decree
to which Investor is subject.
4.3 Investment Intent. The Shares are being acquired for the Investor's
own account, for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act or the
securities laws of any other state applicable to Investor. Investor understands
that the Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4 (2) thereof,
which exemption depends upon, among other things, the bona fide nature of
Investor's investment intent expressed herein, that HI has no present intention
of registering the Shares, and that the Shares must be held by the Investor
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.
4.4 Access to Information. During the negotiation of the transactions
contemplated by this Agreement, the Investor and its representatives have been
afforded access to corporate books, documents, and other information concerning
HI and to its offices and facilities, have been afforded an opportunity to ask
such questions of HI and its officers, employees, agents,
<PAGE>
accountants, and representatives concerning HI's business, operations, financial
condition, assets, liabilities, and other relevant matters as they have deemed
necessary or desirable, and have been given all such information as has been
requested, in order to evaluate the merits and risks of the prospective
investments contemplated herein.
4.5 Due Diligence. The Investor and its representatives have been solely
responsible for Investor's own "due diligence" investigation of HI and its
management and business, for Investor's own analysis of the merits and risks of
this investment, and for its own analysis of the fairness and desirability of
the terms of the investment. In taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has acted
solely in its own interest, and neither Investor nor any of Investor's agents or
employees has acted as an agent of HI. The Investor has such knowledge and
experience in financial and business matters that Investor is capable of
evaluating the merits and risks of the purchase of the Shares pursuant to the
terms of this Agreement and of protecting Investor's interests in connection
therewith. Nothing in this Section 4.5, however, shall affect HI's obligations
to the Investor under the representations and warranties contained in Article 4
hereof.
4.6 Economic Risk; Accredited Investor. The Investor is able to bear the
economic risk of the purchase of the Shares pursuant to the terms of this
Agreement, including a complete loss of Investor's investment in the Shares. The
Investor is an Accredited Investor as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
4.7 Brokers. The Investor has not involved any brokers or finders in
connection with this Agreement or the transactions contemplated hereby, and
agrees to indemnify HI for any breach of this Section 4.7 by it.
ARTICLE 5 - REPRESENTATIONS OF HI
As a material inducement to the Investor to enter into this Agreement and
purchase the Shares hereunder, HI represents and warrants to the Investor as
follows:
5.1 Organization, Corporate Power. HI is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, and is
qualified (and in good standing) to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify. HI
possesses all requisite corporate power and authority and legal right to own and
operate its assets, to carry out its business as now conducted and presently
proposed to be conducted, to execute, deliver, and carry out the transactions
contemplated by this Agreement, the Share Purchase Agreements, and each of the
Transaction Documents. The copies of HI's charter documents and bylaws which
have been previously furnished to Investor reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
Each Subsidiary of HI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, possesses all requisite
corporate
<PAGE>
power and authority and the legal right to own and operate its assets, to carry
out its business as now conducted and presently proposed to be conducted and is
qualified (and in good standing) to do business in every jurisdiction in which
its ownership of property or conduct of its business requires it to qualify. All
the outstanding shares of capital stock of each Subsidiary are validly issued,
fully paid and nonassessable and all such shares are owned by HI or another one
of its Subsidiaries free and clear of any Lien and not subject to any right or
option to purchase such shares. Neither HI nor any Subsidiary is in violation in
any respect of its certificate or articles of incorporation or by-laws.
5.2 Authorization; No Breach. The execution and delivery of this
Agreement, the Share Purchase Agreements, and the Transaction Documents, and
performance of the transactions contemplated hereby (including the amendment to
HI's Certificate of Incorporation) and thereby, by HI has been duly authorized
by HI. This Agreement, the Share Purchase Agreements, and the Transaction
Documents constitute legal, valid and binding obligations of HI, enforceable in
accordance with their terms, subject to limitations imposed by bankruptcy,
insolvency, reorganization, or other laws or judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights generally.
The Shares, when issued at Closing, will constitute the legal, valid, and
binding obligations of HI enforceable in accordance with their respective terms.
The execution and delivery by HI of this Agreement, the Share Purchase
Agreements, and the Transaction Documents, the fulfillment and compliance with
their terms by HI (including the amendment to HI's Certificate of
Incorporation), the sale and issuance of the Shares, and the issuance of the
Underlying Common Shares, do not and will not (a) conflict with or result in a
breach or violation of (with or without the giving of notice or the passage of
time or both), (b) constitute a default under, (c) result in the creation of any
Lien, security interest charge or encumbrance upon any of the capital stock,
properties or assets of HI or its Subsidiaries, or (d) require any
authorization, consent, waiver, approval, order, exemption, or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency or any other Person pursuant to, or give any third party the right to
modify, terminate, or accelerate any obligation under, (i) the certificate of
incorporation or bylaws of HI or any of its Subsidiaries, (ii) any law, statute,
rule, or regulation to which HI or any of its Subsidiaries is subject, or (iii)
any agreement, instrument, order, judgment, writ, injunction, or decree to which
HI or any of its Subsidiaries is subject. The execution and delivery by HI of
this Agreement, the Share Purchase Agreements, and the Transaction Documents and
the performance of the transactions contemplated hereby and thereby (including
the issuance of Shares and the Underlying Common Shares) will not cause
anti-dilution clauses of any outstanding securities to become operative or give
rise to any preemptive rights.
5.3 Capital Stock and Related Matters. As of the date of this Agreement
and immediately thereafter, the authorized capital stock of HI shall consist of
(a) 147,000 shares of Class A Preferred Stock, all of which is duly authorized
and validly issued and outstanding, (b) 200,000 shares of Class B Preferred
Stock of which none will be outstanding, and (b) 100,000,000 shares of Common
Stock, of which 10,990,924 shall be duly authorized and validly
<PAGE>
issued and outstanding (before giving effect to the purchase of the Shares and
the remainder of the Class B Preferred Stock), 11,790,324 of which shall be
reserved for issuance upon conversion of the Class A Preferred Stock, 2,833,565
of which shall be reserved for issuance upon conversion of all of the Class B
Preferred Stock, and 5,154,408 of which shall be reserved for issuance upon
exercise of outstanding options and warrants. Except as aforesaid, as of the
date of this Agreement, HI shall not have outstanding any stock, investment
rights, options, or securities convertible, exercisable, or exchangeable for (or
any agreements under which HI is or may become obligated to issue, sell, or
transfer) any shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to subscribe for
or to purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock. As of the date of this Agreement, all of the
outstanding shares of HI's capital stock shall be validly issued, fully paid,
and nonassessable and were issued in compliance with all applicable state and
federal securities laws. There are no statutory or contractual stockholder's
preemptive rights or rights of first refusal, with respect to the Shares or
Underlying Common Stock which have not been effectively waived in writing. HI
has not violated any applicable federal or state securities laws in connection
with the offer, sale, or issuance of the Shares, and assuming the accuracy of
the representations and warranties of the Investor set forth in Article 4
hereof, the offer, sale, and issuance of the Shares hereunder do not require
registration under the Securities Act or any applicable state securities laws.
All the rights, preferences, privileges and restrictions of the Shares are set
forth in the Transaction Documents. No equity securities or rights to purchase
equity securities provides for acceleration or other changes in vesting
provisions or other terms governing such securities as a result of a Public
Offering, merger, consolidation, change of control or sale of assets except as
described on Schedule 5.3.
5.4 Validity of Shares. The Shares issued to Investor pursuant to Section
2.1 of this Agreement, when issued in accordance with this Agreement, shall be
duly authorized, validly issued, fully paid, and nonassessable and will be free
of any Liens.
5.5 Financial Statements. HI has delivered to Investor true and correct
copies of the audited consolidated balance sheet of HI and its Subsidiaries as
of June 30, 1997, June 30, 1998, and June 30, 1999, and the related statements
of income and cash flows for the twelve-month periods then ended (with such
balance sheet for the fiscal year ending June 30, 1999 called the "Latest
Balance Sheet", and collectively, the "Financial Statements").
Each of such Financial Statements (including in all cases the notes
thereto, if any) has been prepared in accordance with GAAP, is accurate and
complete in all material respects, is consistent with the books and records of
HI (which are accurate and complete in all material respects), and presents
fairly the consolidated financial condition, results or operations, and cash
flows of HI and its Subsidiaries in accordance with GAAP, applied on a
consistent basis as of the dates and for the periods set forth therein.
5.6 Absence of Undisclosed Liabilities. Except as set forth on the
attached Schedule
<PAGE>
5.6, HI and its Subsidiaries do not have any obligation or liability (whether
accrued, absolute, contingent, unliquidated, or otherwise, whether or not known
to HI or any Subsidiary, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the date of
the Closing, or any action or inaction at or prior to the date of the Closing,
or any state of facts or any circumstances existing at or prior to the date of
the Closing other than: (i) liabilities set forth on the Latest Balance Sheet
(including any notes thereto), and (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business, none of which is a liability resulting from breach of contract, breach
of warranty, tort, infringement, claim or lawsuit and none of which, either
individually or collectively, is likely to have a Material Adverse Effect.
5.7 Absence of Certain Developments. Except as expressly contemplated by
this Agreement or as set forth on the attached Schedule 5.7, since June 30,
1999, neither HI nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any capital stock
or other equity securities or any securities convertible, exchangeable or
exercisable into any capital stock or other equity securities, except as
reflected in Section 5.3 of this Agreement;
(b) borrowed any amount or incurred or become subject to any liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any obligation or liability,
other than current liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants, options or other rights
to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or subjected them
to any Lien, except Liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible assets, except in
the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent applications,
trademarks, service marks, trade names, corporate names, copyrights or copyright
registrations, trade secrets, or other intangible assets, except in each case
for non-exclusive license agreements made in the ordinary course of business;
<PAGE>
(h) suffered any Material Adverse Effect, or suffered any extraordinary
losses (other than operating losses incurred in the ordinary course of business)
or suffered any damage, destruction or casualty loss exceeding in the aggregate
$10,000, whether or not covered by insurance;
(i) made any Investment in or taken steps to incorporate any Subsidiary,
or made any Investment in any other Person; or
(j) entered into any other material transaction other than in the ordinary
course of business.
(k) knowledge of any change in the assets, liabilities, financial
condition or operations of HI from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries;
(l) knowledge of any resignation or termination of any officer or key
employee of HI or its Subsidiaries; and HI or its Subsidiaries, to the best of
its knowledge, does not know of the impending resignation or termination of
employment of any such officer or key employee;
(m) knowledge of any material change, except in the ordinary course of
business, in the contingent obligations of HI or its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(n) knowledge of any waiver by HI or its Subsidiaries of a valuable right
or of a material debt owed to it;
(o) knowledge of any direct or indirect loans made by HI or its
Subsidiaries to any shareholder, employee, officer or director of HI or its
Subsidiaries, other than immaterial advances made in the ordinary course of
business;
(p) knowledge of any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than entry
into the non-compete and confidentiality agreements with the Chief Executive
Officer, President, and Executive Vice President and Chief Technology Officer in
the form delivered to Investor;
(q) knowledge of any labor organization activity;
(r) knowledge of any change in material agreement to which HI or its
Subsidiaries is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of HI or its Subsidiaries; or
<PAGE>
(s) knowledge of any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
HI or its Subsidiaries.
(t) made any arrangement or commitment by HI or its Subsidiaries to do any
of the acts described in subsection (a) through (s) above.
5.8 Absence of Illegal Payments. Neither HI nor any Subsidiary has at any
time made any illegal payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5.9 Assets. Except as set forth on the attached Schedule 5.9, HI and each
Subsidiary have good and marketable title to, or a valid leasehold interest in,
the properties and assets used by them, located on their premises or shown on
the Latest Balance Sheet or acquired thereafter, free and clear of all Liens,
except for properties and assets disposed of in the ordinary course of business
since the date of the Latest Balance Sheet and except for Liens disclosed on the
Latest Balance Sheet (including any notes thereto) and Liens for current
property taxes not yet due and payable. Except as described on Schedule 5.9,
HI's and each Subsidiary's equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. HI and each Subsidiary own, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
5.10 Tax Matters.
(a) Except as set forth on the attached Schedule 5.10, HI, each
Subsidiary, and each Affiliated Group have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations in all material respects;
HI, each Subsidiary and each Affiliated Group in all material respects have paid
all Taxes due and owing by them (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authority all Taxes which they are required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third party; neither HI,
any Subsidiary nor any Affiliated Group has waived any statute of limitations
with respect to any material Taxes or agreed to any extension of time with
respect to any material Tax assessment or deficiency; the accrual for Taxes on
the Latest Balance Sheet would be adequate to pay all Tax liabilities of HI and
its Subsidiaries if their current tax year were treated as ending on the date of
the Latest Balance Sheet (excluding any amount recorded which is attributable
solely to timing differences between book and Tax income); since the date of the
Latest Balance Sheet, HI and its Subsidiaries have not incurred any material
liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by HI, each Subsidiary and each Affiliated Group shall not exceed the
<PAGE>
recorded liability therefor on the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between book and Tax
income); the federal income Tax Returns of HI and its Subsidiaries have been
audited and closed for all tax years through June 30, 1995; no foreign, federal,
state or local tax audits or administrative or judicial proceedings are
pending or being conducted with respect to HI, any Subsidiary or any Affiliated
Group, no information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority and no written notice indicating an
intent to open an audit or other review has been received by HI from any
foreign, federal, state or local taxing authority; and there are no material
unresolved questions of, claims concerning HI's, any Subsidiary's or any
Affiliated Group Tax liability.
(b) Neither HI nor any of its Subsidiaries has made an election under
ss.341(f) of the Internal Revenue Code of 1986, as amended. Neither HI nor any
Subsidiary is liable for the Taxes of another Person that is not a Subsidiary in
a material amount under (a) Treas. Reg. ss. 1.1 502-6 (or comparable provisions
of state, local or foreign law), (b) as a transferee or successor, (c) by
contract or indemnity or (d) otherwise. Neither HI nor any Subsidiary is a party
to any tax sharing agreement. HI, each Subsidiary and each Affiliated Group have
disclosed on their federal income Tax Returns any position taken for which
substantial authority (within the meaning of IRC ss.6662(d)(2)(B)(i)) did not
exist at the time the return was filed. Neither HI nor any Subsidiary has made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under IRC
ss.280G.
5.11 Contracts and Commitments.
(a) Except as specifically contemplated by this Agreement and except as
set forth on the attached Schedule 5.11, HI is not a party to or bound by,
whether written or oral, any: (i) collective bargaining agreement or contract
with any labor union, whether formal or informal; (ii) contract for the
employment of any officer, individual employee or group of employees or other
person on a full-time, part-time or consulting basis or any severance
agreements; (iii) agreement or indenture relating to the borrowing of money or
to placing a Lien on any of the assets of HI; (iv) agreements with respects to
the lending or investing of funds; (v) guaranty of any obligation for borrowed
money or otherwise, other than endorsements made for collection; (vi) license or
royalty agreements except those entered into in the ordinary course of business;
(vii) lease or agreement under which HI is lessee of, or holds or operates, any
personal property owned by any other party for which annual rental exceeds
$50,000; (viii) lease or agreement under which HI is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it for which annual rental exceeds $50,000; (ix) contract or group
of related contracts with the same party for the purchase or sale of raw
materials, commodities, supplies, products or other personal property or for the
furnishing or receipt of services which either calls for performance over a
period of more than one year and involves a sum in excess of $50,000 per year;
(x) contract relating to the distribution, marketing or sales of
<PAGE>
its products or services (including contracts to provide advertising allowances
or promotional services) involving more than $50,000 per year; (xi) franchise
agreements, (xii) contract which prohibits it from freely engaging in business
anywhere in the world; or (xiii) any other agreement material to HI not entered
into in the ordinary course of business.
(b) Except as specifically contemplated by this Agreement, or disclosed on
Schedule 5.11, (i) no contract or commitment required to be disclosed on
Schedule 5.11 has been breached or canceled by the other party since June 30,
1999, (ii) HI has performed in all material respects all of the obligations
required to be performed by HI in connection with the contracts or commitments
required to be disclosed on the Schedule 5.11, and is not in receipt of any
claim of default under any contract or commitment required to be disclosed on
the Schedule 5.11, (iii) HI has no present expectation or intention of not fully
performing any obligation pursuant to any contract set forth on Schedule 5.11,
and (iv) HI has no knowledge of any material breach or anticipated material
breach by any party to any contract specific on Schedule 5.11.
(c) HI has provided the Investor with a true and correct copy of all
written contracts which are referred to on Schedule 5.11 which have been
requested by Investors, together with all amendments, waivers or other changes
thereto.
5.12 Proprietary Rights.
(a) Schedule 5.12 attached hereto contains a complete and accurate list of
all patented and registered Proprietary Rights owned by HI, all pending patent
applications and applications for the registration of other Proprietary Rights
owned by HI and all licenses, options or agreements with respect to the
Proprietary Rights of HI or any of its Subsidiaries and all licenses, options or
agreements to which HI or any of its Subsidiaries is bound with respect to the
Proprietary Rights of any other person other than in the ordinary course of
business. Except as set forth on Schedule 5.12, HI owns and possesses all right,
title and interest in and to, or has a valid and enforceable written license to
use, all of the Proprietary Rights necessary for the operation of its business
as presently conducted and as currently proposed to be conducted; no claim by
any third party contesting the validity, enforceability, use or ownership of any
Proprietary Rights owned or used by HI has been made or is currently
outstanding; HI has not received any information as to any infringement or
misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights of HI, nor has HI received any claims alleging infringement
or misappropriation, or other conflict with, any Proprietary Rights of any third
party; and HI has not infringed, misappropriated or otherwise conflicted with
any Proprietary Rights of any third party.
(b) To the knowledge of HI or its Subsidiaries, no employee of HI or its
Subsidiaries, nor any consultant with whom HI or its Subsidiaries has
contracted, is in violation of any term of any employment contract, proprietary
information agreement, or any other agreement relating to the right of any such
individual to be employed by, or to contract with, HI or its Subsidiaries
<PAGE>
because of the nature of the business to be conducted by HI or its Subsidiaries
or presently proposed to be conducted; and to the knowledge of HI or its
Subsidiaries, the continued employment by HI or its Subsidiaries of its present
employees, and the performance of contracts with their independent contractors,
will not result in any such violation. HI or its Subsidiaries has not received
any notice alleging that any such violation has occurred.
(c) The Chief Executive Officer, President, and Executive Vice President
and Chief Technology Officer of HI have executed confidentiality and non-compete
agreements in the form delivered to Investor, and holders of certain stock
options have agreed to non-compete provisions as part of their option
agreements.
(d) None of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
HI or by any of its Subsidiaries in the conduct of their respective businesses
will malfunction, will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing, and/or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries including leap days, in each case in any
manner that would have a material adverse effect on HI or its Subsidiaries or
their respective operations or businesses.
5.13 Litigation. Except as set forth on the attached Schedule 5.13, there
are no actions, suits, proceedings, orders, investigations or claims pending or,
to the best of HI's knowledge, threatened against or affecting the HI or any
Subsidiary (or to the best of HI's knowledge, pending or threatened against or
affecting any of the officers, directors, or employees of HI and its
Subsidiaries with respect to their businesses or proposed business activities),
or pending or threatened by HI or any Subsidiary against any third party, at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement and the Transaction Documents); neither HI nor
any Subsidiary is subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of HI's knowledge, any
governmental investigations or inquiries; and, to the best of HI's knowledge,
there is no basis for any of the foregoing. Neither HI nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency, and neither HI nor any Subsidiary has received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to its
business.
5.14 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon HI or any
Subsidiary. HI shall pay, and hold Investor harmless against, any liability,
1oss or expense (including, without limitation,
<PAGE>
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim.
5.15 Insurance. HI and its Subsidiaries maintain insurance coverage of
types and amounts reasonable and customary for corporations of similar size
engaged in similar lines of business. Neither HI nor any Subsidiary is in
default with respect to its obligations under any insurance policy maintained by
it, and neither HI nor any Subsidiary has been denied insurance coverage.
5.16 Employees. HI is not aware that any executive or key employee of HI
or any Subsidiary or any group of employees of HI or any Subsidiary has any
plans to terminate employment with HI or any Subsidiary. HI and each Subsidiary
have complied in all material respects with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes), and HI is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither HI, its Subsidiaries nor, to the best of HI's
knowledge, any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of HI
and its Subsidiaries, except for agreements between HI and its present and
former employees. No employee of HI or any Subsidiary is represented by any
labor union, nor are such employees covered under any collective bargaining
agreement.
5.17 ERISA. For purposes of this Section 5.17, the term "HI" includes all
organizations under common control with HI pursuant to Section 414(b) or (c) of
the IRC.
(a) Multiemployer Plans. HI does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
(b) Retiree Welfare Plans. HI does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(c) Defined Benefit Plans. HI does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated.
(d) Defined Contribution Plans. HI does not maintain, contribute to or
have any
<PAGE>
liability under (or with respect to) any employee plan which is a tax-qualified
"defined contribution plan" (as defined in Section 3(34) of ERISA), whether or
not terminated.
(e) Other Plans. Except as set forth in Schedule 5.17, HI does not
maintain, contribute to or have any liability under (or with respect to) any
plan or arrangement providing benefits to current or former employees, including
any parachute, severance, or bonus plan or plan for deferred compensation,
except employee health, welfare, and similar benefit plans in the ordinary
course of business, whether or not terminated.
(f) Party in Interest. HI is not a party in interest (as defined under
Section 3(14) of ERISA) or a disqualified person (as defined in Section
4975(e)(2) of the IRC) with respect to any Investor.
(g) No Parachute Payment. No benefit under any Benefit Plan, including
without limitation, any severance or parachute payment plan or agreement, will
be established or become accelerated, vested, or payable by reason of any
transaction contemplated under this Agreement.
5.18 Compliance With Laws. Neither HI nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of HI and its Subsidiaries taken as a whole, and neither HI nor any Subsidiary
has received notice of any such violation. Neither HI nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or material corrective or remedial
obligation arising under any federal, state, local or foreign law, rule or
regulation (including the common law) relating to or regulating health, safety,
pollution or the protection of the environment.
No governmental orders, permissions, consents, approval or authorizations
are required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Underlying Common Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. HI and each of its
Subsidiaries have all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted and as
presently proposed to be conducted, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
HI or its Subsidiaries.
Assuming the accuracy of the representations and warranties of the
Investor contained herein, the offer, sale and issuance of the Shares and the
Underlying Common Shares will be exempt from the registration requirements of
the Securities Act, and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither HI
nor any agent on its
<PAGE>
behalf has solicited or will solicit any offers to sell or has offered to sell
or will sell all or any part of the Shares to any person or persons so as to
bring the sale of such Shares by HI within the registration provisions of the
Securities Act or any state securities laws.
5.19 Environmental and Safety Matters. HI has complied and is in
compliance with all Environmental and Safety Requirements in all material
respects (including without limitation all permits and licenses required
thereunder). HI has received no oral or written notice of any violation of, or
any liability (contingent or otherwise) or corrective or remedial obligations
under, any Environmental and Safety Requirements. No facts or circumstances with
respect to the past or current operations or facilities (whether currently or
previously owned, leased, or operated) of HI or any predecessor or Affiliate
thereof or entities previously owned by HI (including without limitation any
onsite or offsite disposal or release of hazardous materials, substances or
wastes) would give rise to any liability or corrective or remedial obligation
under any Environmental and Safety Requirement.
5.20 Affiliated Transactions. Except as set forth on the attached Schedule
5.20, (i) no officer, director, stockholder or Affiliate of HI or any
Subsidiary, (ii) to HI's knowledge, any employee of HI or any Subsidiary or
(iii) to HI's knowledge, any individual related by blood, marriage or adoption
to any individual described in clauses (i) or (ii) above or any entity in which
any such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with HI or any Subsidiary or has
any material interest in any material property used by HI or any Subsidiary.
5.21 Disclosure. Neither this Agreement, the Transaction Documents, nor
any of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to Investor by or on behalf of
HI with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading. There is no fact which HI
has not disclosed to Investor in writing and of which any of its officers,
directors or executive employees is aware and which has had or would reasonably
be expected to have a Material Adverse Effect.
5.22 Brokers. HI has not involved any brokers or finders in connection
with this Agreement or the transactions contemplated hereby, and agrees to
indemnify the Investor for any breach of this Section 5.22 by it.
5.23 Closing Date. The representations and warranties of HI contained in
this Article 5 and elsewhere in this Agreement and the Transaction Documents and
all information contained in any exhibit, schedule or attachment hereto or in
any certificate or other writing delivered by, or on behalf of, HI to Investor
shall be true and correct in all material respects on the date of this Agreement
as though then made.
<PAGE>
5.24 Subsidiaries.
(a) The only Subsidiaries of HI on the date of Closing are Gordon S. Black
Corporation which is a wholly owned Subsidiary of HI, Louis Harris & Associates,
Inc. which is a wholly owned Subsidiary of Gordon S. Black Corporation, and GSBC
Ohio Corporation which is a wholly owned Subsidiary of Gordon S. Black
Corporation.
(b) All outstanding capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable and is owned
beneficially and of record as described in Section 5.24(a) free and clean of all
Lines, options, or claims of any kind. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell, or
transfer shares of its capital stock.
ARTICLE 6 - RESTRICTIONS ON TRANSFERS
6.1 Restricted Securities. The Restricted Securities are transferable only
pursuant to (a) a Public Offering, (b) Rule 144 or Rule 144A under the
Securities Act (or any similar or successor rule, regulation, or law then in
force) if any such rule is available, or (c) subject to the conditions specified
in Section 6.2 below, any other legally available means of transfer.
6.2 Opinion Delivery. In connection with the transfer of any of the
Restricted Securities (other than a transfer described in Section 6.1(a) or (b)
above) and subject to Section 6.3 below, the Investor shall deliver written
notice to HI describing in reasonable detail the transfer or proposed transfer,
together with an opinion of legal counsel which (to HI's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of the Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to HI an opinion of such counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, HI shall promptly deliver to the Investor new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in Section 6.5. If HI is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
Investor, or if applicable a subsequent transferee thereof, shall not transfer
the same until the prospective transferee has confirmed to HI in writing its
agreement to be bound by the conditions contained in this Article 6.
6.3 Restrictions on Transfer. The Investor shall not sell, transfer,
assign, pledge, or otherwise dispose of (whether with or without consideration)
the Shares or any interest therein (a "Transfer") to any Person who, in the
reasonable judgment of HI based upon information made available by HI to
Investor, is a direct competitor of HI, or otherwise absent compliance with this
Section 6.3; provided that this Section 6.3 shall be of no further force and
effect at such time as HI consummates a Public Offering. Notwithstanding the
foregoing, this Section 6.3 shall not
<PAGE>
apply to a transfer to an Affiliate of Investor, provided that such Affiliate
becomes subject to the terms of this Section 6.3. If Investor proposes to
Transfer all or part of the Shares, Investor shall deliver a written notice
("Transfer Notice") to HI. The Transfer Notice shall describe the number of
Shares proposed to be transferred (the "Offered Shares") and the proposed
transferee and price per share. HI may elect to purchase all, but not less than
all, of the Offered Shares at the price described in the Transfer Notice. If HI
elects to purchase all of the Offered Shares, HI shall give the Investor written
notice of such election no later than ten (10) days after delivery of the
Transfer Notice. If an election to purchase all of the Offered Shares has been
made, the Offered Shares shall be transferred to HI at the price stated in the
Transfer Notice no later than fourteen (14) days after notice of the election to
purchase has been given. If HI has elected not to purchase all of the Offered
Shares (or has failed to exercise its rights under this Section 6.3), the
Investor may conclude a Transfer at the price per share stated in the Transfer
Notice, or at a higher price per share, at any time within a one hundred thirty
(130) day period after the delivery of the Transfer Notice provided that the
transferee has agreed in writing to be bound by the terms of this Article 6 as
if it was an original signatory to this Agreement.
6.4 Legend.
(a) Each certificate or instrument representing the Shares shall be
imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Investment Agreement, dated as of
October 15, 1999, as amended and modified from time to time, between
the issuer (the "Company") and Excite, Inc., as amended and modified
from time to time. A copy of such Agreement will be furnished by the
Company to the holder hereof upon written request and without
charge."
(b) Upon the later of (i) the termination of this Agreement pursuant to
Article 9 hereof, and (ii) such time as the Shares are no longer Restricted
Securities, at Investor's request, HI shall remove the legend set forth in
Section 6.4(a) above from the certificates for the Shares.
6.5 Lock-Up Agreement. To the extent that Investor has been released from
the Lockup Agreement, in connection with an initial Public Offering of Common
Shares, at the request of the underwriters for such offering, Investor agrees to
enter into a reasonable and customary negotiated holdback agreement providing
for a holdback not exceeding 180 days.
ARTICLE 7 -FINANCIAL INFORMATION
<PAGE>
7.1 Delivery of Financial Information. HI shall make such financial and
other information, as it makes available to the holders of all of its Common
Shares, available to Investor. In addition, HI shall provide Investor with (a)
copies of its annual audited consolidated financial statements within ninety
(90) days after the end of its fiscal year; (b) copies of its unaudited
quarterly financial statements within forty-five (45) days after the end of each
calendar quarter; (c) without duplication of any other items furnished under
this Section 7.1, copies of any annual, special or interim audit reports or
management or comment letters submitted to HI by independent public accountants
as soon as practicable following such submission; (d) as soon as practicable,
copies of all financial statements, proxy material or reports sent to all
holders of any class of capital stock of HI; and (e) copies of all reports or
registration statements filed by or on behalf of HI with the SEC pursuant to the
Securities Act or the Securities Exchange Act. All such financial statements
shall be prepared in accordance with GAAP (except that any interim financial
statements may omit notes and may be subject to normal year-end adjustments). HI
will make good faith efforts to provide Investor with copies of any public or
press releases issued by or on behalf of HI, but shall have no liability for
inadvertent omissions in the delivery of same.
7.2 Confidentiality. Investor and its Affiliates shall maintain the
confidentiality of the financial statements and other information provided to it
pursuant to Section 7.1 above, provided that Investor may disclose such
information (a) in connection with a Transfer of the Shares if such Person
agrees to maintain the confidentiality of such financial statements and other
information as provided in this Section7.2, (b) previously known on a
non-confidential basis by Investor, (ii) in the public domain through no fault
of Investor, (c) lawfully acquired by Investor from sources other than HI who,
to the knowledge of Investor, had such documents, reports or other information
without any breach of any obligation of confidentiality, (d) to officers,
directors, employees, accountants, counsel, consultants, advisors and agents of
Investor in connection with Investor's review of such documents, reports or
other information so long as such Persons are informed by Investor to treat such
information confidentially and not to use any of such documents, reports or
other information for any reason or purpose other than in connection with
Investor's review, or (e) if Investor is required to disclose by judicial,
regulatory or administrative process or by other requirements of law.
<PAGE>
ARTICLE 8 - COVENANTS OF HI
8.1 Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office.
(a) So long as any of the Shares or Underlying Shares are outstanding, HI
agrees to maintain an office or agency where Shares may be presented for
payment, exchange, conversion, exercise or registration of transfer as provided
in this Agreement. Such office or agency initially shall be the office of HI set
forth in the preamble to this Agreement.
(b) HI agrees to give Investor at least twenty (20) days' prior written
notice of any change in HI the location of the office of HI required to be
maintained under this Section 8.2.
8.2 Reservation of Shares. HI agrees that there have been reserved, and HI
shall at all times keep reserved, free from preemptive rights, out of its
authorized Common Stock a number of shares of Common Stock sufficient to provide
for the exercise of the conversion rights related to the Underlying Shares.
8.3 Listing of Shares. HI agrees that if any shares of HI's Common Stock
are listed on any national securities exchange or on Nasdaq, then HI will take
such action as may be necessary, from time to time, to list all outstanding
Common Shares on such exchange or on Nasdaq.
8.4 Securities Exchange Act Registration. HI agrees that as soon as HI is
either required to or does file a registration statement with respect to Common
Stock of HI under Section 6 of the Securities Act or Section 12(b) or Section
12(g), whichever is applicable, of the Securities Exchange Act, then thereafter:
(a) HI will maintain effective a registration statement (containing such
information and documents as the SEC shall specify and otherwise complying with
the Securities Exchange Act), under Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act, with respect to the Common Stock of
HI, and HI will file on time such information, documents and reports as the
Commission may require or prescribe for companies whose stock has been
registered pursuant to Section 12(b) or Section 12(g), whichever is applicable.
(b) HI will make whatever filings with the SEC, or otherwise take such
other action as may be necessary to comply with the current reporting provisions
of Rule 144(c) under the Securities Act in order to facilitate resales of HI
Common Stock.
8.5 Delivery of Information for Rule 144A Transactions. If Investor
proposes to transfer any Shares or Underlying Shares pursuant to Rule 144A under
the Securities Act (as in
<PAGE>
effect from time to time), HI agrees to provide (upon the request of Investor or
the prospective transferee) to Investor and (if requested) to the prospective
transferee any financial or other information concerning HI which is required to
be delivered by such holder to any transferee of such Shares or Underlying
Shares pursuant to such Rule 144A.
8.6 Registration Statement . HI shall provide to Investor and its counsel,
promptly after they are prepared, drafts of any registration statements covering
securities of HI. HI shall provide Investor with a reasonable time to review and
comment upon any such registration statement (and documents to be filed with the
SEC in connection therewith) prior to filing any such registration statement or
other related document with the SEC).
8.7 Private Placement Status. Neither HI, any Subsidiary, nor any agent
nor other Person acting on HI's behalf will do or cause to be done (or will omit
to do or to cause to be done) any act which act (or which omission) would result
in bringing the issuance or sale of the Shares within the provisions of Section
5 of the Securities Act or the filing, notification, or reporting requirements
of any state securities law.
8.8 No Impairment. HI will not, and will not permit any Subsidiary to take
action to avoid the observance or performance of any of the terms of the Share
Purchase Agreements, the Transaction Documents, or the Shares.
ARTICLE 9 - TERMINATION
9.1 Termination. All agreements, representations and warranties,
covenants, and obligations of the Investor and any Subsidiary contained in this
Agreement, the Transaction Documents, the Shares or any document or certificate
delivered pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution, delivery of this Agreement, the Transaction Documents,
the closings hereunder and thereunder, any investigation at any time made by or
on behalf of the Purchasers or by any other Person, the issuance, sale and
delivery of the Shares, any disposition thereof and any payment, exercise
conversion or cancellation of the Shares; provided that the provisions of
Section 6.3, Article 7, and Section 8.2 shall terminate following the conversion
of all Shares held by the Investor into Common Shares. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of HI pursuant thereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by HI
as to such factual matters hereunder solely as of the date of such certificate
or instrument.
ARTICLE 10 - REMEDIES
10.1 Indemnification. HI agrees to indemnify and hold Investor and its
Affiliates harmless from and against and will pay to Investor and each Affiliate
the full amount of any loss, damage, liability or expense (including amounts
paid in settlement and reasonable attorneys' fees
<PAGE>
and expenses) to Investor and any Affiliate resulting either directly or
indirectly from any breach of the representations or warranties, or failure to
perform any of the covenants or agreements of the Investor or any Subsidiary
contained in this Agreement, the Transaction Documents or the Shares.
10.2 Remedies. In the case of a breach of any representation or warranty,
or failure to perform any of the agreements or covenants of HI or any Subsidiary
contained in this Agreement, the Transaction Documents or any Shares, the holder
of any Shares then outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement or covenant contained
herein or therein or in such Share or for an injunction against a violation of
any of the terms hereof or thereof or of such Share, or in aid of the exercise
of any power granted hereby or thereby or by such Share or by law or for any
other remedy (including without limitation damages).
Holders of all Shares shall, in addition to other remedies provided by
law, have the right to have the provisions of this Agreement, the Transaction
Documents or other such Shares specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any breach or threatened
breach of the provisions of this Agreement, the Transaction Documents or any
Shares will cause irreparable injury to holders of Shares and that money damages
will not provide an adequate remedy. Nothing contained herein shall be construed
as prohibiting a holder of Shares from pursuing any other remedies available to
such holder for such breach or threatened breach, including without limitation
the recovery of damages from the HI.
10.3 No Counterclaim. All amounts payable by HI in connection with the
Shares shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
ARTICLE 11 - MISCELLANEOUS
11.1 Successor/Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors, legal representatives, and
assigns of the parties, provided, however, that this Section 10.1 is not
intended to supersede any restrictions on transfer of any interest expressly
provided elsewhere in this Agreement.
11.2. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws; provided, however, that the matters contained
herein that are specifically within the purview of the General Corporation Law
of the State of Delaware shall be governed by such law.
11..3 Arbitration.
<PAGE>
(a) The parties agree to this Section 11.3 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
11.4 Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
11.5 Notices. Any notice or demand upon any party hereto shall be deemed
to have been sufficiently given or served for all purposes hereof when delivered
in person or by nationally recognized overnight courier with receipt requested,
or three business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed to the address shown in the preamble to this
Agreement or to such other address as may be designated by any party by notice
given to the other in the manner described in this Section 10.5.
11.6 Severability/Construction. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated. The parties agree
to replace any invalid provision with a valid provision which most closely
approximates the intent and economic effect of the invalid provision. The
parties agree that this Agreement has been prepared in cooperation, and that it
shall not be construed as against any particular party as drafter.
11.7 Expenses. Except as otherwise expressly provided herein, both parties
shall be responsible for their own costs and expenses in connection herewith.
11.8 Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach. No waiver or amendment hereof shall be effective unless in
writing signed by both HI and Investor. No course of dealing and no delay on the
part of any holder of any Shares or any party to this Agreement in exercising
any rights or remedies shall operate as a waiver thereof or otherwise
<PAGE>
prejudice such holder's or party's rights. No right or remedy conferred hereby
or by the Transaction Documents or by any Share shall be exclusive of any other
right or remedy referred to herein or therein in such Share or available at law,
in equity, by statute or otherwise.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
--------------------------
Gordon S. Black
Chief Executive Officer
<PAGE>
EXCITE, INC.
By: /s/ Mark Stevens
------------------------------
Title: Executive Vice President
<PAGE>
Exhibit 10.16
REGISTRATION AGREEMENT
AMENDMENT NUMBER 1
THIS AMENDMENT 1 is made as of October 15, 1999 to the Registration
Agreement (the "Agreement") made as of July 7, 1998 among HARRIS INTERACTIVE
INC., successor to Harris Black International, Ltd. ("Company"), BRINSON MAP
VENTURE CAPITAL FUND III, successor to Brinson MAP Venture Capital Fund III
Trust ("Brinson MAP"), BVCF III, L.P., successor to Brinson Venture Capital Fund
III, L.P. ("Brinson Venture"), and VIRGINIA RETIREMENT SYSTEM (together with
Brinson MAP and Brinson Venture, the "Investors").
The Company, with the consent of the Investors, is creating and
issuing shares of a new class of Class B Convertible Preferred Stock (the "Class
B Preferred Stock"). The purchasers of the Class B Preferred Stock have made a
Registration Agreement between themselves and the Company, and amendment of the
Agreement, a condition of their investment. The Investors are willing to enter
into this Amendment in order to facilitate the investment in Class B Preferred
Stock.
In connection with creation of the Class B Preferred Stock the
Company renamed the existing Preferred Stock "Class A Convertible Preferred
Stock".
The parties hereto agree as follows:
1. All references to "Preferred Stock" in the Agreement shall be deemed to
be references to the Company's Class A Convertible Preferred Stock and the
underlying common stock into which it is convertible.
For purposes of this Amendment, the "Class B Stock" means (i) any Common
Stock issued or issuable upon conversion of the Class B Preferred Stock, (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 an 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.
2. With reference to Sections 1(g) and 9(a) of the Agreement, the
Investors hereby consent to the grant of registration rights under the
Registration Agreement to be executed among the Company and the holders of the
Class B Preferred Stock in the form attached hereto as Exhibit A.
<PAGE>
3. The last sentence of Section 1(a) is hereby amended to read as follows:
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 Class B Stock and shall
include in such registration all Registrable Securities and Class B
Stock 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 1(d) below).
4. Section 1(d) of the Agreement is hereby amended to read as follows:
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 and Class B Stock,
the number of Registrable Securities and Class B Stock 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 and Class B Stock owned by each such holder;
provided, however, that the number of shares of Registrable
Securities and Class B Stock to be included in such registration
shall not be reduced unless all other securities of the Company are
first entirely excluded. 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.
5. Section 1(f) of the Agreement is hereby amended to read as follows:
(f) Selection of Underwriters. The Company shall have the
right to select the investment banker(s) and manager(s) to
administer the offering, subject to the consent of the holders of a
majority of the Registrable Securities initially requesting
registration hereunder and Class B Stock requesting inclusion in
such registration, taken collectively, which consent may not be
unreasonably withheld or delayed.
2
<PAGE>
6. Subsection (ii) of Section 2(c) of the Agreement is hereby amended to
read as follows:
(ii) second, the Registrable Securities and shares of Class B Stock
requested to be included in such registration, pro rata among the
holders of such Registrable Securities and shares of Class B Stock
on the basis of the amount of Registrable Securities and shares of
Class B Stock respectively owned by each such holder,
7. Section 2(d) of the Agreement is hereby amended to read as follows:
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 (if not the
holders of the Class B Stock or Registrable Securities), the Class B
Stock and the Registrable Securities requested to be included in
such registration, pro rata among the holders of such 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.
8. Section 2(e) of the Agreement is hereby amended to read as follows:
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 and Class B Stock, taken collectively, included in such
Piggyback Registration. Such approval shall not be unreasonably
withheld or delayed.
9. Section 3(a) of the Agreement is hereby amended to read as follows:
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 120-day period beginning on the effective date
of any underwritten Demand Registration in which Registrable
Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered
public offering otherwise agree.
10. All other terms of the Agreement shall remain unchanged and in full
force and effect.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered by their duly authorized representatives as of the date first
above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------------
Title: Chief Executive Officer
<PAGE>
BRINSON TRUST COMPANY, as Trustee for the
BRINSON MAP VENTURE CAPITAL FUND III
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Assistant Trust Officer
Brinson Trust Company
BVCF III, L.P.
By: J.W. Puth Associates, LLC, its General Partner
By: Brinson Venture Management, LLC, its
Attorney-in-fact
By: By: Brinson Partners, Inc., its Managing
Member
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Executive Director
VIRGINIA RETIREMENT SYSTEM
By: Brinson Partners, Inc. under Power of Attorney
By: /s/ Thomas D. Berman
------------------------------
Thomas D. Berman
Executive Director
Brinson Partners, Inc.
6
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EXHIBIT A
FORM OF REGISTRATION AGREEMENT
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of October __, 1999, among HARRIS INTERACTIVE
INC., a Delaware corporation (the "Company") and ______________ (collectively,
the "Investors").
The Investors and the Company are parties to an Investment Agreement of
even date herewith (the "Investment Agreement") pursuant to which the Investors
have purchased or contemporaneously herewith are purchasing Class B Stock of the
Company. In order to induce the Investors to enter into the Investment 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 Investment Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 8 hereof.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) Requests for Registration. The Requisite Holders 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 Conversion Shares and shall
include in such registration all Registrable Securities and Conversion Shares
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 1(d) and 2(d) below).
(b) Long Form Registrations. The Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) one Long-Form
Registration in which the Company shall pay all Registration Expenses ("Company
Paid Long Form Registration"), 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 Section 5 hereof). A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective, and a 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
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registration; provided that in any event the Company shall pay all Registration
Expenses in 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 Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) two Short-Form
Registrations in which the Company shall pay all Registration Expenses, and (ii)
unlimited short-form registrations in which the Requisite Holders shall pay the
Registration Expenses other than the Internal Expenses (as defined in Section 5
hereof). Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. In the event that both
Company-paid Short-Form Registrations have been used and the Company-paid
Long-Form Registration has not been used, the Company shall (upon a request for
a Demand Registration by the Requisite Holders) have the option of paying all
Registration Expenses in connection with a third Short-Form Registration or of
affecting the Company-paid Long-Form Registration. 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 (including the
Conversion Shares) 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 Requisite Holders
initially requesting registration, the Company shall include in such
registration, prior to the inclusion of any securities which are not Registrable
Securities and Conversion Shares, the number of Registrable Securities and
Conversion Shares 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 and Conversion Shares owned by each such
holder; provided, however, that the number of shares of Registrable Securities
to be included in such registration shall not be reduced unless all other
securities of the Company except the Conversion Shares are first entirely
excluded. 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 before the earlier to occur of
(i) the date twelve months after the date of this Agreement, or (ii) 180 days
after the effective date of the
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earlier of a previous Long-Form Registration or Initial Public Offering. 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 and Conversion Shares, taken
collectively, 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 the permitted Demand Registration 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.
(f) Selection of Underwriters. The Requisite Holders 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 consent may not be unreasonably
withheld or delayed.
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 Sections 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 and Conversion Shares requested to be
included in such registration, pro rata among the holders of such Registrable
Securities and Conversion Shares on the basis of the amount of Registrable
Securities and Conversions Shares respectively 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
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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, if such registration is
requested by the holders of Registrable Securities or Conversion Shares, the
Registrable Securities and Conversion Shares requested to be included therein,
pro rata among the holders of such securities on the basis of the amount of
securities owned by each such holder, and (ii) second, the securities requested
to be included therein by the holders requesting such registration (if not the
holders of the Conversion Shares or Registrable Securities), the Conversion
Shares, and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
amount of securities owned by each such holder, and (ii) third, 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 and Conversion Shares, taken collectively, included in such Piggyback
Registration. Such approval shall not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 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) Holdback by Holders. 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 120-day period beginning on the effective date of any underwritten
Demand 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) Company Limitation. The Company 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
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pursuant to registrations on Form S-8 or any successor form), 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:
(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);
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(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 NASDAQ "national market system security" within the meaning of
Rule 11Aa21of 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 the Securities Act, the
Securities Exchange Act, 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
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(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
(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) Company Expenses. 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.
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(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 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 and executed 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 net 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
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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).
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.
"Class A Stock" means the outstanding Class A Preferred Stock of the
Company, par value $.001.
"Class B Stock" means the outstanding Class B Preferred Stock of the
Company, par value $.001.
"Conversion Shares" means shares of the Common Stock of the Company
resulting from conversion of the Class A Stock.
"Initial Public Offering" means any offering by the Company (or any other
holder) of common stock of the Company to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or any
comparable statement under any similar federal statute then in force.
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"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of the Class B Stock, (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 (including without limitation any shares of Common
Stock issued to the Investor under the research Agreement between the Company
and the Investor dated the date hereof. 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. For purposes of any consent or approval required
hereunder, only the Registrable Securities falling within clauses (i) and (ii)
above shall be counted.
"Requisite Holders" means the holders of forty percent (40%) or more of
the outstanding Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Investment 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 which would have
such an adverse effect).
(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 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
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(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 seventy-five percent (75%) 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 one 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; provided, however, that the
matters contained herein that fall specifically within the purview of the
General Corporation Law of the State of Delaware shall be governed thereby.
(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:
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To the Investors:
with copies to:
to the Company:
Harris Interactive, Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
with copies to:
Harris Beach & Wilcox LLP
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.
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
HARRIS INTERACTIVE INC.
By:
------------------------------------
Title:
----------------------------------
[Signature of Investor]
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Exhibit 10.17
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of October 15, 1999, among HARRIS INTERACTIVE
INC., a Delaware corporation (the "Company") and RIEDMAN CORPORATION (the
"Investor").
The Investor and the Company are parties to an Investment Agreement of
even date herewith (the "Investment Agreement") pursuant to which the Investor
has purchased or contemporaneously herewith is purchasing Class B Stock of the
Company. In order to induce the Investor to enter into the Investment 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 Investment Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 8 hereof.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) Requests for Registration. The Requisite Holders 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 Conversion Shares and shall
include in such registration all Registrable Securities and Conversion Shares
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 1(d) and 2(d) below).
(b) Long Form Registrations. The Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) one Long-Form
Registration in which the Company shall pay all Registration Expenses ("Company
Paid Long Form Registration"), 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 Section 5 hereof). A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective, and a 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
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
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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 Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) two Short-Form
Registrations in which the Company shall pay all Registration Expenses, and (ii)
unlimited short-form registrations in which the Requisite Holders shall pay the
Registration Expenses other than the Internal Expenses (as defined in Section 5
hereof). Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. In the event that both
Company-paid Short-Form Registrations have been used and the Company-paid
Long-Form Registration has not been used, the Company shall (upon a request for
a Demand Registration by the Requisite Holders) have the option of paying all
Registration Expenses in connection with a third Short-Form Registration or of
affecting the Company-paid Long-Form Registration. 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 (including the
Conversion Shares) 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 Requisite Holders
initially requesting registration, the Company shall include in such
registration, prior to the inclusion of any securities which are not Registrable
Securities and Conversion Shares, the number of Registrable Securities and
Conversion Shares 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 and Conversion Shares owned by each such
holder; provided, however, that the number of shares of Registrable Securities
to be included in such registration shall not be reduced unless all other
securities of the Company except the Conversion Shares are first entirely
excluded. 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 before the earlier to occur of
(i) the date twelve months after the date of this Agreement, or (ii) 180 days
after the effective date of the earlier of a previous Long-Form Registration or
Initial Public Offering. 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
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Registrable Securities and Conversion Shares, taken collectively, 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 the permitted Demand Registration 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.
(f) Selection of Underwriters. The Requisite Holders 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 consent may not be unreasonably
withheld or delayed.
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 Sections 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 and Conversion Shares requested to be
included in such registration, pro rata among the holders of such Registrable
Securities and Conversion Shares on the basis of the amount of Registrable
Securities and Conversions Shares respectively 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
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adversely affecting the marketability of the offering, the Company shall include
in such registration: (i) first, if such registration is requested by the
holders of Registrable Securities or Conversion Shares, the Registrable
Securities and Conversion Shares requested to be included therein, pro rata
among the holders of such securities on the basis of the amount of securities
owned by each such holder, and (ii) second, the securities requested to be
included therein by the holders requesting such registration (if not the holders
of the Conversion Shares or Registrable Securities), the Conversion Shares, and
the Registrable Securities requested to be included in such registration, pro
rata among the holders of such securities on the basis of the amount of
securities owned by each such holder, and (ii) third, 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 and Conversion Shares, taken collectively, included in such Piggyback
Registration. Such approval shall not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 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) Holdback by Holders. 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 120-day period beginning on the effective date of any underwritten
Demand 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) Company Limitation. The Company 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.
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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:
(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
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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 NASDAQ "national market system security" within the meaning of
Rule 11Aa21of 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 the Securities Act, the
Securities Exchange Act, 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;
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(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
(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) Company Expenses. 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.
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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 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 and executed 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 net 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
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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).
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.
"Class A Stock" means the outstanding Class A Preferred Stock of the
Company, par value $.001.
"Class B Stock" means the outstanding Class B Preferred Stock of the
Company, par value $.001.
"Conversion Shares" means shares of the Common Stock of the Company
resulting from conversion of the Class A Stock.
"Initial Public Offering" means any offering by the Company (or any other
holder) of common stock of the Company to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or any
comparable statement under any similar federal statute then in force.
"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of the Class B Stock, (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
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securities described in clauses (i) or (ii) above (including without limitation
any shares of Common Stock issued to the Investor under the research Agreement
between the Company and the Investor dated the date hereof. 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. For purposes of any consent or
approval required hereunder, only the Registrable Securities falling within
clauses (i) and (ii) above shall be counted.
"Requisite Holders" means the holders of forty percent (40%) or more of
the outstanding Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Investment 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 which would have
such an adverse effect).
(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 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.
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(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 seventy-five percent (75%) 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 one 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; provided, however, that the
matters contained herein that fall specifically within the purview of the
General Corporation Law of the State of Delaware shall be governed thereby.
(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:
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To the Investors:
Riedman Corporation
45 East Avenue
Rochester, New York 14607
Attn: James R. Riedman, President
with copies to:
Woods Oviatt Gilman Sturman & Clark
Two State Street
Rochester, New York 14614
Attn: Harry Messina, Esq.
to the Company:
Harris Interactive, Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
with copies to:
Harris Beach & Wilcox LLP
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.
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------------
Title: Chief Executive Officer
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RIEDMAN CORPORATION
By: /s/ James R. Riedman
------------------------------------
Title: President
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Exhibit 10.18
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of October 15, 1999, among HARRIS INTERACTIVE
INC., a Delaware corporation (the "Company") and SEQUEL LIMITED PARTNERSHIP II
and SEQUEL ENTREPRENEUR'S FUND, II, LP (collectively, the "Investors").
The Investors and the Company are parties to an Investment Agreement of
even date herewith (the "Investment Agreement") pursuant to which the Investors
have purchased or contemporaneously herewith are purchasing Class B Stock of the
Company. In order to induce the Investors to enter into the Investment 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 Investment Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 8 hereof.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) Requests for Registration. The Requisite Holders 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 Conversion Shares and shall
include in such registration all Registrable Securities and Conversion Shares
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 1(d) and 2(d) below).
(b) Long Form Registrations. The Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) one Long-Form
Registration in which the Company shall pay all Registration Expenses ("Company
Paid Long Form Registration"), 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 Section 5 hereof). A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective, and a 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
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
<PAGE>
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 Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) two Short-Form
Registrations in which the Company shall pay all Registration Expenses, and (ii)
unlimited short-form registrations in which the Requisite Holders shall pay the
Registration Expenses other than the Internal Expenses (as defined in Section 5
hereof). Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. In the event that both
Company-paid Short-Form Registrations have been used and the Company-paid
Long-Form Registration has not been used, the Company shall (upon a request for
a Demand Registration by the Requisite Holders) have the option of paying all
Registration Expenses in connection with a third Short-Form Registration or of
affecting the Company-paid Long-Form Registration. 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 (including the
Conversion Shares) 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 Requisite Holders
initially requesting registration, the Company shall include in such
registration, prior to the inclusion of any securities which are not Registrable
Securities and Conversion Shares, the number of Registrable Securities and
Conversion Shares 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 and Conversion Shares owned by each such
holder; provided, however, that the number of shares of Registrable Securities
to be included in such registration shall not be reduced unless all other
securities of the Company except the Conversion Shares are first entirely
excluded. 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 before the earlier to occur of
(i) the date twelve months after the date of this Agreement, or (ii) 180 days
after the effective date of the earlier of a previous Long-Form Registration or
Initial Public Offering. 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 and
Conversion Shares, taken collectively, agree that such Demand Registration would
reasonably be expected to have a material adverse effect on any
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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
the permitted Demand Registration 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.
(f) Selection of Underwriters. The Requisite Holders 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 consent may not be unreasonably
withheld or delayed.
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 Sections 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 and Conversion Shares requested to be
included in such registration, pro rata among the holders of such Registrable
Securities and Conversion Shares on the basis of the amount of Registrable
Securities and Conversions Shares respectively 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, if such registration is
requested by the holders of Registrable Securities or Conversion Shares, the
Registrable Securities and Conversion Shares requested to be included therein,
pro rata among the holders of such securities on the
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basis of the amount of securities owned by each such holder, and (ii) second,
the securities requested to be included therein by the holders requesting such
registration (if not the holders of the Conversion Shares or Registrable
Securities), the Conversion Shares, and the Registrable Securities requested to
be included in such registration, pro rata among the holders of such securities
on the basis of the amount of securities owned by each such holder, and (ii)
third, 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 and Conversion Shares, taken collectively, included in such Piggyback
Registration. Such approval shall not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 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) Holdback by Holders. 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 120-day period beginning on the effective date of any underwritten
Demand 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) Company Limitation. The Company 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.
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
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accordance with the intended method of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(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
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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 NASDAQ
"national market system security" within the meaning of Rule 11Aa21of 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 the Securities Act, the
Securities Exchange Act, 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
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agencies or authorities as may be necessary to enable the sellers thereof to
consummate the disposition of such Registrable Securities; and
(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) Company Expenses. 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
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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 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 and executed 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 net 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
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shall remain effective from the date of this Agreement to and including the
termination of the applicable statute of limitations (plus 60 days).
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.
"Class A Stock" means the outstanding Class A Preferred Stock of the
Company, par value $.001.
"Class B Stock" means the outstanding Class B Preferred Stock of the
Company, par value $.001.
"Conversion Shares" means shares of the Common Stock of the Company
resulting from conversion of the Class A Stock.
"Initial Public Offering" means any offering by the Company (or any other
holder) of common stock of the Company to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or any
comparable statement under any similar federal statute then in force.
"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of the Class B Stock, (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 (including without limitation any shares of Common
Stock issued to the Investor under the research Agreement between the Company
and the Investor dated the date hereof. 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. For purposes of any consent or approval required
hereunder, only the Registrable Securities falling within clauses (i) and (ii)
above shall be counted.
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"Requisite Holders" means the holders of forty percent (40%) or more of
the outstanding Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Investment 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 which would have
such an adverse effect).
(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 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 seventy-five percent (75%) 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.
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(g) Counterparts. This Agreement may be executed in one 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; provided, however, that the
matters contained herein that fall specifically within the purview of the
General Corporation Law of the State of Delaware shall be governed thereby.
(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:
To the Investors:
Sequel Limited Partnership II
Sequel Entrepreneur's Fund II, LP
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Attn: John T. Graff
with copies to:
Cooley Godward LLP
2595 Canyon Boulevard
Boulder, Colorado 80302-6737
Attn: Stephanie Anagnostou, Esq.
to the Company:
Harris Interactive, Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
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with copies to:
Harris Beach & Wilcox LLP
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.
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------------
Title: Chief Executive Officer
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SEQUEL LIMITED PARTNERSHIP II
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-----------------------------
Its: Manager
SEQUEL ENTREPRENEUR'S FUND II, LP
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-----------------------------
Its: Manager
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Exhibit 10.19
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of October 22, 1999, among HARRIS INTERACTIVE
INC., a Delaware corporation (the "Company") and YOUNG & RUBICAM INC. (the
"Investor").
The Investor and the Company are parties to an Investment Agreement of
even date herewith (the "Investment Agreement") pursuant to which the Investor
has purchased or contemporaneously herewith is purchasing Class B Stock of the
Company. In order to induce the Investor to enter into the Investment 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 Investment Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 8 hereof.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) Requests for Registration. The Requisite Holders 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 Conversion Shares and shall
include in such registration all Registrable Securities and Conversion Shares
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 1(d) and 2(d) below).
(b) Long Form Registrations. The Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) one Long-Form
Registration in which the Company shall pay all Registration Expenses ("Company
Paid Long Form Registration"), 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 Section 5 hereof). A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective, and a 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
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
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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 Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) two Short-Form
Registrations in which the Company shall pay all Registration Expenses, and (ii)
unlimited short-form registrations in which the Requisite Holders shall pay the
Registration Expenses other than the Internal Expenses (as defined in Section 5
hereof). Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. In the event that both
Company-paid Short-Form Registrations have been used and the Company-paid
Long-Form Registration has not been used, the Company shall (upon a request for
a Demand Registration by the Requisite Holders) have the option of paying all
Registration Expenses in connection with a third Short-Form Registration or of
affecting the Company-paid Long-Form Registration. 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 (including the
Conversion Shares) 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 Requisite Holders
initially requesting registration, the Company shall include in such
registration, prior to the inclusion of any securities which are not Registrable
Securities and Conversion Shares, the number of Registrable Securities and
Conversion Shares 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 and Conversion Shares owned by each such
holder; provided, however, that the number of shares of Registrable Securities
to be included in such registration shall not be reduced unless all other
securities of the Company except the Conversion Shares are first entirely
excluded. 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 before the earlier to occur of
(i) the date twelve months after the date of this Agreement, or (ii) 180 days
after the effective date of the earlier of a previous Long-Form Registration or
Initial Public Offering. 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
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Registrable Securities and Conversion Shares, taken collectively, 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 the permitted Demand Registration 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.
(f) Selection of Underwriters. The Requisite Holders 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 consent may not be unreasonably
withheld or delayed.
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 Sections 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 and Conversion Shares requested to be
included in such registration, pro rata among the holders of such Registrable
Securities and Conversion Shares on the basis of the amount of Registrable
Securities and Conversions Shares respectively 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
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adversely affecting the marketability of the offering, the Company shall include
in such registration: (i) first, if such registration is requested by the
holders of Registrable Securities or Conversion Shares, the Registrable
Securities and Conversion Shares requested to be included therein, pro rata
among the holders of such securities on the basis of the amount of securities
owned by each such holder, and (ii) second, the securities requested to be
included therein by the holders requesting such registration (if not the holders
of the Conversion Shares or Registrable Securities), the Conversion Shares, and
the Registrable Securities requested to be included in such registration, pro
rata among the holders of such securities on the basis of the amount of
securities owned by each such holder, and (ii) third, 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 and Conversion Shares, taken collectively, included in such Piggyback
Registration. Such approval shall not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 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) Holdback by Holders. 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 120-day period beginning on the effective date of any underwritten
Demand 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) Company Limitation. The Company 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.
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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:
(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
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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 NASDAQ "national market system security" within the meaning of
Rule 11Aa21of 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 the Securities Act, the
Securities Exchange Act, 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;
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(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
(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) Company Expenses. 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.
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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 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 and executed 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 net 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
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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).
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.
"Class A Stock" means the outstanding Class A Preferred Stock of the
Company, par value $.001.
"Class B Stock" means the outstanding Class B Preferred Stock of the
Company, par value $.001.
"Conversion Shares" means shares of the Common Stock of the Company
resulting from conversion of the Class A Stock.
"Initial Public Offering" means any offering by the Company (or any other
holder) of common stock of the Company to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or any
comparable statement under any similar federal statute then in force.
"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of the Class B Stock, (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 (including without limitation any shares of Common
Stock issued to the Investor under the research Agreement between the Company
and the Investor dated the date hereof. 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
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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. For purposes of any consent or approval required hereunder, only the
Registrable Securities falling within clauses (i) and (ii) above shall be
counted.
"Requisite Holders" means the holders of forty percent (40%) or more of
the outstanding Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Investment 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 which would have
such an adverse effect).
(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 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 seventy-five percent (75%) 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
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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 one 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; provided, however, that the
matters contained herein that fall specifically within the purview of the
General Corporation Law of the State of Delaware shall be governed thereby.
(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:
To the Investors:
Young & Rubicam, Inc.
285 Madison Avenue
New York, New York 10017
Attn: Stephanie Abramson
with copies to:
Morgan Lewis & Bockius LLP
101 Park Avenue
New York, New York 10176-0060
Attn: Christopher T. Jensen
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to the Company:
Harris Interactive, Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
with copies to:
Harris Beach & Wilcox LLP
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.
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------------
Title: Chief Executive Officer
YOUNG & RUBICAM INC.
By: /s/ Steven Blondy
------------------------------------
Title: Senior Vice President
---------------------------------
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Exhibit 10.20
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of October 15, 1999, among HARRIS INTERACTIVE
INC., a Delaware corporation (the "Company") and EXCITE, INC. (the "Investor").
The Investor and the Company are parties to an Investment Agreement of
even date herewith (the "Investment Agreement") pursuant to which the Investor
has purchased or contemporaneously herewith is purchasing Class B Stock of the
Company. In order to induce the Investor to enter into the Investment 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 Investment Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 8 hereof.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) Requests for Registration. The Requisite Holders 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 Conversion Shares and shall
include in such registration all Registrable Securities and Conversion Shares
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 1(d) and 2(d) below).
(b) Long Form Registrations. The Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) one Long-Form
Registration in which the Company shall pay all Registration Expenses ("Company
Paid Long Form Registration"), 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 Section 5 hereof). A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective, and a 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
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
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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 Requisite Holders shall be entitled to
request, and the Company shall be obligated to effect, (i) two Short-Form
Registrations in which the Company shall pay all Registration Expenses, and (ii)
unlimited short-form registrations in which the Requisite Holders shall pay the
Registration Expenses other than the Internal Expenses (as defined in Section 5
hereof). Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. In the event that both
Company-paid Short-Form Registrations have been used and the Company-paid
Long-Form Registration has not been used, the Company shall (upon a request for
a Demand Registration by the Requisite Holders) have the option of paying all
Registration Expenses in connection with a third Short-Form Registration or of
affecting the Company-paid Long-Form Registration. 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 (including the
Conversion Shares) 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 Requisite Holders
initially requesting registration, the Company shall include in such
registration, prior to the inclusion of any securities which are not Registrable
Securities and Conversion Shares, the number of Registrable Securities and
Conversion Shares 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 and Conversion Shares owned by each such
holder; provided, however, that the number of shares of Registrable Securities
to be included in such registration shall not be reduced unless all other
securities of the Company except the Conversion Shares are first entirely
excluded. 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 before the earlier to occur of
(i) the date twelve months after the date of this Agreement, or (ii) 180 days
after the effective date of the earlier of a previous Long-Form Registration or
Initial Public Offering. 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
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Registrable Securities and Conversion Shares, taken collectively, 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 the permitted Demand Registration 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.
(f) Selection of Underwriters. The Requisite Holders 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 consent may not be unreasonably
withheld or delayed.
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 Sections 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 and Conversion Shares requested to be
included in such registration, pro rata among the holders of such Registrable
Securities and Conversion Shares on the basis of the amount of Registrable
Securities and Conversions Shares respectively 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
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adversely affecting the marketability of the offering, the Company shall include
in such registration: (i) first, if such registration is requested by the
holders of Registrable Securities or Conversion Shares, the Registrable
Securities and Conversion Shares requested to be included therein, pro rata
among the holders of such securities on the basis of the amount of securities
owned by each such holder, and (ii) second, the securities requested to be
included therein by the holders requesting such registration (if not the holders
of the Conversion Shares or Registrable Securities), the Conversion Shares, and
the Registrable Securities requested to be included in such registration, pro
rata among the holders of such securities on the basis of the amount of
securities owned by each such holder, and (ii) third, 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 and Conversion Shares, taken collectively, included in such Piggyback
Registration. Such approval shall not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 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) Holdback by Holders. 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 120-day period beginning on the effective date of any underwritten
Demand 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) Company Limitation. The Company 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.
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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:
(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
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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 NASDAQ "national market system security" within the meaning of
Rule 11Aa21of 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 the Securities Act, the
Securities Exchange Act, 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;
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(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
(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) Company Expenses. 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.
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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 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 and executed 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 net 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
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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).
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.
"Class A Stock" means the outstanding Class A Preferred Stock of the
Company, par value $.001.
"Class B Stock" means the outstanding Class B Preferred Stock of the
Company, par value $.001.
"Conversion Shares" means shares of the Common Stock of the Company
resulting from conversion of the Class A Stock.
"Initial Public Offering" means any offering by the Company (or any other
holder) of common stock of the Company to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or any
comparable statement under any similar federal statute then in force.
"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of the Class B Stock, (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
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securities described in clauses (i) or (ii) above (including without limitation
any shares of Common Stock issued to the Investor under the research Agreement
between the Company and the Investor dated the date hereof. 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. For purposes of any consent or
approval required hereunder, only the Registrable Securities falling within
clauses (i) and (ii) above shall be counted.
"Requisite Holders" means the holders of forty percent (40%) or more of
the outstanding Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Investment 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 which would have
such an adverse effect).
(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 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.
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(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 seventy-five percent (75%) 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 one 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; provided, however, that the
matters contained herein that fall specifically within the purview of the
General Corporation Law of the State of Delaware shall be governed thereby.
(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:
11
<PAGE>
To the Investors:
Excite, Inc.
450 Broadway
Redwood City, California 94063
Attn: Mark Stevens
with copies to:
Cooley Godward LLP
2595 Canyon Boulevard
Boulder, Colorado 80302-6737
Attn: Stephanie Anagnostou, Esq.
to the Company:
Harris Interactive, Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
with copies to:
Harris Beach & Wilcox LLP
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.
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
------------------------------------
Title: Chief Executive Officer
<PAGE>
EXCITE, INC.
By: /s/ Mark Stevens
------------------------------------
Title: Executive Vice President
12
<PAGE>
Exhibit 10.21
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is dated as of October 15, 1999, between Harris Interactive
Inc., a Delaware corporation (the "Company"), each of the investors listed on
the Schedule of Investors attached hereto (the "Investors"), and the existing
principal shareholders of the Company listed on the Schedule of Principal
Shareholders attached hereto (the "Principal Holders"). The Investors and the
Principal Holders are collectively referred to as the "Stockholders" and
individually as a "Stockholder." Capitalized terms used herein are defined in
Section 6 hereof.
WHEREAS, the Investors are purchasing shares of the Company's Class B
Convertible Preferred Stock pursuant to Investment Agreements between each of
the Investors, respectively, and the Company dated as of the date hereof, and in
the case of Young & Rubicam Inc., dated October 22, 1999 (collectively, the
"Investment Agreements"), and
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purpose, among others, of limiting the manner and terms by
which the Stockholders' Shares may be transferred. The execution and delivery of
this Agreement is a condition to the Investors' purchase of the Company's stock
pursuant to the Investment Agreements.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Representations and Warranties. Each Stockholder represents and
warrants that (i) such Stockholder is (or will be following the issuance of
capital stock pursuant to the Investment Agreements) the record owner of the
number of Stockholder Shares set forth opposite its name on the relevant
Schedule attached hereto and (ii) this Agreement has been duly authorized,
executed and delivered by such Stockholder and constitutes the valid and binding
obligation of such Stockholder, enforceable in accordance with its terms,
subject to limitations imposed by bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or other laws or judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights generally.
No holder of Stockholder Shares shall become party to any agreement which is
inconsistent with, conflicts with, or violates any provision of this Agreement.
2. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. No Principal Holder shall sell,
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
any interest in its Stockholder Shares (a "Transfer"), except pursuant to (i)
the provisions of this Section 2 or (ii) a Public Sale. No Principal Holder
shall consummate any Transfer (other than a Public Sale) until 31 days after the
Company and the Investors have received such Stockholder's Sale Notice (if any),
unless the procedures provided for in Section 2(b) have been
<PAGE>
consummated and the parties to the Transfer have been finally determined prior
to the expiration of such 31-day period (the "Election Period").
(b) Participation Rights. At least 30 days prior to any Transfer of
Stockholder Shares (other than a Public Sale or Transfer under Section 2(d)
hereof) the transferring Principal Holder (the "Transferring Principal Holder")
shall deliver a written notice (the "Sale Notice") to the Company and holders of
Underlying Common Stock, and pursuant to the Class A Agreement to the Class A
Holders, specifying in reasonable detail the identity of the prospective
transferees, the number of shares to be transferred, and the terms and
conditions of the Transfer. The holders of Underlying Common Stock, and the
Class A Holders pursuant to the Class A Agreement, may elect to participate in
the contemplated Transfer at the same price per share and on the same terms by
delivering written notice to the Transferring Principal Holder within 30 days
after delivery of the Sale Notice. If any holders of Underlying Common Stock
have elected to participate in such Transfer, the Transferring Principal Holder,
any participating Class A Holders, and such holders of Underlying Common Stock
shall be entitled to sell in the contemplated Transfer, at the same price and on
the same terms, a number of Stockholder Shares equal to the product of (i) the
quotient determined by dividing the percentage of Stockholder Shares owned by
such Person by the aggregate percentage of Stockholder Shares owned by the
Transferring Principal Holder, Class A Holders, and holders of Underlying Common
Stock participating in such sale and (ii) the number of Stockholder Shares to be
sold in the contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Stockholder
Shares by the Transferring Principal Holder, and if the Transferring
Principal Holder at such time owns 30% of all Stockholder Shares and if
one holder of Underlying Common Stock and one Class B Holder elect to
participate and each owns 10% of all Stockholder Shares, the Transferring
Principal Holder would be entitled to sell 60 shares (30% / 50% x 100
shares) and the holder of Underlying Common Stock would be entitled to
sell 20 shares (10% / 50% x 100 shares).
Each Transferring Principal Holder shall use best efforts to obtain the
agreement of the prospective transferees to the participation of the holders of
Underlying Common Stock in any contemplated Transfer and no Transferring
Principal Holder shall transfer any of its Stockholder Shares to any prospective
transferee if such prospective transferee declines to allow the participation of
the holders of Underlying Common Stock unless the Transferring Principal Holder
agrees to purchase from the holders of Underlying Common Stock the number of
Stockholder Shares each such holder would otherwise be entitled to sell in the
contemplated Transfer pursuant to this Section 2(b).
(c) Permitted Transfers. The restrictions set forth in this Section 2
shall not apply with respect to any Transfer of Stockholder Shares by any
Principal Holder pursuant to applicable laws of descent and distribution or
among such Principal Holder's Family Group (collectively referred to herein as
"Permitted Transferees"); provided that the restrictions contained in this
Section 2 shall continue to be applicable to the Stockholder Shares after any
such Transfer and provided further that the transferees of such Stockholder
Shares shall have agreed in writing to be bound by the provisions of
<PAGE>
this Agreement affecting the Stockholder Shares so transferred. For purposes of
this Agreement, "Family Group" means a Principal Holder's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of the
Principal Holder and/or the Principal Holder's spouse and/or descendants,
spouse's descendants, siblings, spouse's siblings, siblings offspring, and
spouse's siblings offspring.
(d) Termination of Restrictions. The restrictions set forth in this
Section 2 shall continue with respect to each Stockholder Share until the
earlier of (i) the date on which such Stockholder Share has been transferred in
a Public Sale, (ii) the date on which such Stockholder Share has been
transferred pursuant to this Section 2 (other than subparagraph 2(c)), (iii) the
consummation of a Sale of the Company or (iv) the consummation of a Qualified
Public Offering.
3. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares after such transfer) shall have
stamped thereon or otherwise affixed thereto a legend in substantially the
following form:
"The securities represented by this certificate are subject to a
Stockholders Agreement dated as of October 15, 1999, among the
issuer of such securities (the "Company") and certain of the
Company's stockholders, as amended and modified from time to time. A
copy of such Stockholders Agreement shall be furnished without
charge by the Company to the holder hereof upon written request."
The Company shall stamp or otherwise affix such legend on certificates
evidencing Stockholder Shares outstanding as of the date hereof. The legend set
forth above shall be removed from the certificates evidencing any shares that
are no longer subject to the restrictions hereunder in accordance with Section
2(d) hereof.
4. Transfer. Prior to transferring any Stockholder Shares (other than in a
Public Sale or a Sale of the Company) to any Person, the transferring
Stockholder shall cause the prospective transferee to be bound by this Agreement
and to execute and deliver to the Company and the other Stockholders a
counterpart of this Agreement.
5. Transfers in Violation of Agreement. Any Transfer or attempted Transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be void, and the Company shall not record such Transfer on its books or treat
any purported transferee of such Stockholder Shares as the owner of such shares
for any purpose.
<PAGE>
6. Definitions.
"Class A Agreement" means the Stockholders Agreement among the Company and
the Class A Holders listed on the Schedule attached thereto dated July 7, 1998.
"Class A Holders" means the holders of the Class A Stock.
"Class A Stock" means the Company's Class A Convertible Preferred Stock,
par value $.01 per share.
"Class B Stock" means the Company's Class B Convertible Preferred Stock,
par value $.01 per share.
"Common Stock" means the Company's Common Stock, par value $.001 per
share.
"Company" has the meaning set forth in the preamble.
"Independent Third Party" means any Person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company's Common
Stock on a fully-diluted basis (a "5% Owner"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other Persons.
"Investment Agreements" has the meaning set forth in the preamble.
"Investors" has the meaning set forth in the preamble.
"Permitted Transferee" has the meaning set forth in paragraph 2(c) hereof.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Principal Holders" has the meaning set forth in the preamble.
"Public Sale" means any sale of Stockholder Shares to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 adopted
under the Securities Act (other than Rule 144(k)).
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Company's Common
Stock having an aggregate offering value of at least $25 million.
<PAGE>
"Sale of the Company" means the sale of the capital stock of the Company
to an Independent Third Party or group of Independent Third Parties pursuant to
which such party or parties acquire (i) capital stock of the Company possessing
the voting power to elect a majority of the Company's board of directors
(whether by merger, consolidation or sale or transfer of the Company's capital
stock) or (ii) 50% or more of the Company's assets determined on a consolidated
basis.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Stockholder Shares" means (i) any Common Stock or Underlying Common Stock
purchased or otherwise acquired by any Stockholder and (ii) any capital stock or
other equity securities issued or issuable directly or indirectly with respect
to the Common Stock referred to in clause (i) above by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares
constituting Stockholder Shares, such shares shall cease to be Stockholder
Shares when they have been (x) effectively registered under the Securities Act
and disposed of in accordance with the registration statement covering them or
(y) sold to the public through a broker, dealer or market maker pursuant to Rule
144 (or any similar provision then in force) under the Securities Act.
"Stockholders" has the meaning set forth in the preamble.
"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 limited liability company, 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 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 director or general partner
of such limited liability company, partnership, association or other business
entity.
"Transfer" has the meaning set forth in paragraph 2(a).
"Underlying Common Stock" means (i) the Common Stock issued or issuable
upon conversion of the Class B Stock purchased by the Investors under their
respective Investment Agreement and (ii) any Common Stock issued or issuable
with respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
<PAGE>
reorganization. For purposes of this Agreement, any Person who holds Class B
Stock shall be deemed to be the holder of the Underlying Common Stock obtainable
upon conversion of the Class B Stock in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Class B Stock, such Underlying Common Stock shall be deemed to be in existence,
and such Person shall be entitled to exercise the rights of a holder of
Underlying Common Stock hereunder. As to any particular shares of Underlying
Common Stock, such shares shall cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company.
7. Additional Shareholder. Upon the execution of the signature page
attached hereto, Y&R shall become a party to this Agreement. As of the date of
such execution, Y&R shall be bound by this Agreement and shall hold such Shares
with all rights conferred, and subject to the obligations and restrictions
imposed, hereunder.
8. Amendment and Waiver. Except as otherwise provided herein, this
Agreement may only be amended, waived or modified with the written consent of
the Company and the holders of a majority of all Stockholder Shares and the
holders of a majority of Underlying Common Shares. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
9. 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 invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
10. Entire Agreement. Except as otherwise expressly set forth herein, this
Agreement embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
11. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
<PAGE>
12. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
13. Remedies. The Company, the Investors and any of the Principal Holders
shall be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages would not be an adequate remedy for any
breach of the provisions of this Agreement and that the Company, any Investor
and Principal Holder may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.
14. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any other recipient at the address
indicated on the schedules hereto and to any subsequent holder of Stockholder
Shares subject to this Agreement at such address as indicated by the Company's
records, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices shall be deemed to have been given hereunder when delivered personally,
three days after deposit in the U.S. mail and one day after deposit with a
reputable overnight courier service. The Company's address is:
Harris Interactive Inc.
135 Corporate Woods
Rochester, New York 14623
Attn: Chief Financial Officer
15. Governing Law. The corporate law of the State of Delaware shall govern
all issues and questions concerning the relative rights of the Company and its
stockholders. All other issues and questions concerning the construction,
validity, interpretation and enforceability 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.
16. Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
State of New York, the time period shall automatically be extended to the
business day immediately following such Saturday, Sunday or legal holiday.
<PAGE>
17. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
--------------------------------
Its: Chief Executive Officer
--------------------------------
<PAGE>
BRINSON TRUST COMPANY, as Trustee for the
BRINSON MAP VENTURE CAPITAL FUND III
By: /s/ Thomas D. Berman
-----------------------------------------
Thomas D. Berman
Assistant Trust Officer
Brinson Trust Company
BVCF III, L.P.
By: J.W. Puth Associates, LLC, its General Partner
By: Brinson Venture Management, LLC, its
Attorney-in-fact
By: By: Brinson Partners, Inc., its Managing
Member
By: /s/ Thomas D. Berman
-----------------------------------------
Thomas D. Berman
Executive Director
VIRGINIA RETIREMENT SYSTEM
By: Brinson Partners, Inc. under Power of Attorney
By: /s/ Thomas D. Berman
-----------------------------------------
Thomas D. Berman
Executive Director
Brinson Partners, Inc.
<PAGE>
/s/ Gordon S. Black
----------------------------------------------
Gordon S. Black
/s/ Leonard R. Bayer
----------------------------------------------
Leonard R. Bayer
/s/ David H. Clemm
----------------------------------------------
David H. Clemm
<PAGE>
Excite, Inc.
By: /s/ Mark Stevens
-----------------------------------------
Title: Executive Vice President
--------------------------------------
<PAGE>
Young & Rubicam Inc.
By: /s/ Steven Blondy
-----------------------------------------
Title: Senior Vice President
--------------------------------------
<PAGE>
Riedman Corporation
By: /s/ James R. Reidman
-----------------------------------------
Title: President
--------------------------------------
<PAGE>
SEQUEL LIMITED PARTNERSHIP II
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-----------------------------------------
Its: Manager
SEQUEL ENTREPRENEUR'S FUND II, LP
By: Sequel Venture Partners II, LLC
Its: General Partner
By: /s/ Thomas G. Washing
-----------------------------------------
Its: Manager
<PAGE>
SCHEDULE OF INVESTORS
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
Excite, Inc. 30,000 shares of Class A Stock
450 Broadway
Redwood City, California 94063
Attn: Mark Stevens
Riedman Corporation 10,000 shares of Class A Stock
45 East Avenue
Rochester, New York 14604
Attn: James R. Riedman
Sequel Limited Partnership II 48,374 shares of Class A Stock
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Attn: John T. Graff
Sequel Entrepreneur's Fund II, LP 1,626 Shares of Class A Stock
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Attn: John T. Graff
Young & Rubicam Inc. 110,000 shares of Class A Stock
285 Madison Avenue
New York, New York 10017
Attn: Stephanie Abramson
<PAGE>
SCHEDULE OF PRINCIPAL HOLDERS
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
Gordon S. Black 2,923,900 shares of Common Stock
Harris Black International, Ltd.
135 Corporate Woods
Rochester, New York 14623
Leonard R. Bayer 3,116,260 shares of Common Stock
Harris Black International, Ltd.
135 Corporate Woods
Rochester, New York 14623
David H. Clemm 1,039,332 shares of Common Stock
Harris Black International, Ltd. 1,638,000 options for shares of Common Stock
135 Corporate Woods
Rochester, New York 14623
BVCF III, L.P. 17,195.5968 shares of Class A Stock
209 South LaSalle Street
Chicago, IL 60604
Attn: Tom Berman
Brinson MAP Venture 2,804.5804 shares of Class A Stock
Capital Fund III
209 South LaSalle Street
Chicago, IL 60604
Attn: Tom Berman
Virginia Retirement System 126,999.8206 shares of Class A Stock
<PAGE>
Exhibit 10.22
RESEARCH AGREEMENT
THIS AGREEMENT is made as of October 22, 1999 between HARRIS INTERACTIVE
INC., a Delaware corporation with offices at 135 Corporate Woods, Rochester, New
York 14623 ("HI"), and YOUNG & RUBICAM INC., a Delaware corporation with offices
at 285 Madison Avenue, New York, New York 10017 ("Y&R").
WHEREAS, HI conducts market research and polling, using among other
methods Internet based data collection, and
WHEREAS, Y&R desires to assure continued access to HI research services,
NOW THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, HI and Y&R hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following capitalized
terms shall have the following meanings:
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract, or otherwise, partners
or former partners, and members or former members.
"Confidential Information" shall have the meaning given to it in Section
14 of this Agreement.
"Confirmation" shall have the meaning given to it in Section 2(b) of this
Agreement.
"Custom Research" shall have the meaning given to it in Section 2(a) of
this Agreement.
"Fully Diluted Basis" shall mean the number of common shares actually
outstanding, the number of common shares into which the then outstanding shares
of all classes of preferred stock could be fully converted if fully converted on
the given date, and the number of common shares which could be obtained through
the exercise or conversion of all other rights, options and convertible
securities outstanding or reserved for issuance on the given date (whether or
not vested).
"Internet Revenue" shall mean Revenue earned as a result of Services by HI
in which (i) a majority of the research or other information gathering
activities in connection with such Services were conducted by means of the
Internet or (ii) fifty percent (50%) or more of surveys completed in connection
with such Services were collected over the Internet.
1
<PAGE>
"IPO" means the initial completed, underwritten offering by HI of HI
common stock to the public pursuant to an effective registration statement under
the Securities Act, as then in effect, or any comparable statement under any
similar federal statute then in force.
"IPO Price" shall mean the initial price per share of HI common stock
established by the underwriters at the time of closing of the IPO.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien, preference in the nature of
security, or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof), any
sale of receivables with recourse against the seller or any Affiliate, any
filing or agreement to file a financing statement as debtor under the Uniform
Commercial Code or any similar statute other than to reflect ownership by a
third Person of property leased to a party under a lease which is not in the
nature of a conditional sale or title retention agreement or any subordination
arrangement, and any agreement to give or make any of the foregoing.
"Minimum Internet Revenue" shall mean Internet Revenue within the periods
and in the amounts shown on Exhibit A attached to this Agreement.
"Minimum Total Revenue" shall mean total Revenue within the periods and in
the amounts shown on Exhibit A attached to this Agreement.
"Multi-Client Product(s)" shall have the meaning given to it in Section
2(a) of this Agreement.
"Non-Internet Revenue" shall mean Revenue which is not Internet Revenue.
"Pre-IPO Price" shall mean $200,000,000 (or $150,000,000 if an IPO is not
closed on or before June 30, 2000) divided by the number of outstanding common
shares of HI on a Fully Diluted Basis at the applicable time.
"Public Offering" shall mean any offering by HI (or any other holder) of
HI Common Stock to the public pursuant to an effective registration statement
under the Securities Act, as then in effect, or any comparable statement under
any similar federal statute then in force.
"Quarter" shall mean a calendar quarter, provided, however, that the first
quarter shall be deemed to include the period commencing the date of this
Agreement and ending March 31, 2000.
"Revenue" shall mean revenue earned by HI resulting from the performance
of Services for Y&R (and its subsidiaries and divisions) and Y&R Clients not
including pass-through charges for respondent incentives and project travel
specifically approved by Y&R and Y&R Clients.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date hereof and as hereafter amended.
2
<PAGE>
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date hereof and as hereafter amended.
"Service Request" shall have the meaning given to it in Section 2(b) of
this Agreement.
"Services" shall have the meaning given to it in Section 2(a) of this
Agreement.
"Shares" shall mean the common shares of HI issued from time to time to
Y&R pursuant to Section 6(a) of this Agreement.
"Standard Terms" shall have the meaning given to it in Section 3(c) of
this Agreement.
"Y&R Client" shall mean all current and future clients of Y&R or its
subsidiaries and divisions and clients which become former clients after the
date hereof. Notwithstanding the foregoing or anything else to the contrary
contained in this Agreement, Revenue earned by HI as a result of Services
provided for clients set forth on Exhibit C hereto (each of which generated in
excess of $500,000 in revenue for HI in the twelve months ending June 30, 1999)
(the "Primary Joint Clients") shall not be included as Revenue for purposes of
the Commission calculations under Section 6 hereof unless in the reasonable
judgment of HI such Revenues have been generated principally as a result of Y&R
(or a Y&R subsidiary or division) referring such Primary Joint Client to HI or
were generated as a result of the Y&R relationship and further, all Revenue
earned by HI as a result of Services provided for clients of both Y&R (or its
subsidiaries or divisions) and HI, other than those which are Primary Joint
Clients (such other clients, the "Secondary Joint Clients"), shall be included
for purposes of the Commission calculations under Section 6 hereof unless HI can
clearly demonstrate in a manner reasonably satisfactory to Y&R that such
Revenues have been generated principally as a result of the internal activities
of HI or an HI Affiliate (other than Y&R or its subsidiaries or divisions to the
extent that Y&R or its subsidiaries or divisions could be deemed an Affiliate)
referring such Secondary Joint Client to HI. Clients of HI may be added to
Exhibit C on each July 1 during the term of this Agreement, upon the mutual
agreement of HI and Y&R, which agreement shall not be unreasonably withheld,
provided that, (i) no client which has generated Revenue which has been included
for purposes of Commission calculations under Section 6 may be added to Exhibit
C, and (ii) no client may be added to Exhibit C unless such client has generated
in excess of the greater of two percent (2%) of HI gross revenue, or $1,000,000,
in Revenue for HI in the preceding fiscal year of HI.
2. Services.
(a) Subject to the terms and conditions of this Agreement, Y&R (and its
subsidiaries and divisions) may request, or arrange for Y&R Clients to request,
any services currently or in the future offered by HI ("Services") including
among others (i) custom research, including any research products and Services
tailored to meet the needs of a particular client ("Custom Research"), and (ii)
subscriptions for or purchases of multi-client research products, including any
product produced or offered as part of HI's regular offerings to multiple
clients on a subscription basis ("Multi-Client Products").
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(b) HI agrees to perform, and cause each of its subsidiaries to perform,
Services requested pursuant to Section 2(a) hereof. All such Services shall be
performed in a manner consistent with, and which will not violate the terms of,
any contract or agreement between Y&R and Y&R Clients provided that the
applicable terms of such contract or agreement have been made known to HI by Y&R
(or any Y&R subsidiary or division) in writing in advance of or at the time Y&R
(or any Y&R subsidiary or division) arranges for the applicable Services.
Notwithstanding the foregoing, in the event that HI, in its reasonable good
faith judgment, determines that its performance of Services hereunder would
violate or conflict with the terms of any Y&R Client contract, HI shall promptly
notify Y&R in writing (which notice shall specify the potential violation or
conflict and the reason therefor) and Y&R shall have the opportunity to withdraw
the request for the applicable Services. HI agrees to perform (and cause its
subsidiaries to perform) all Services in a workmanlike and professional manner
by employees of HI (or its subsidiaries), and in the case of Custom Research, in
accordance with the specifications contained in the request for Services (the
"Service Request") as confirmed by HI ("Confirmation") or contained in any
document executed in connection with Section 2(e) hereof as any such Service
Request, document, or Confirmation may be subsequently amended by mutual
agreement of the parties thereto. With respect to requests for Multi-Client
Products, HI shall provide the Services (including subscription deliveries)
related to such Multi-Client Products at the times, and on the terms customarily
offered by HI to its clients including the terms of the HI standard subscription
agreement related to the particular study. HI shall provide the same pricing to
each respective Y&R Client as HI would provide to such Y&R Client if such Y&R
Client contracted with HI for Services absent the Y&R relationship, but in no
case higher than similarly situated clients including providing the benefit of
volume based or other discounts, refunds, or rebates received by similarly
situated clients.
(c) Y&R and Y&R Clients shall have the right to terminate any particular
request for Services, in whole or in part, if (i) HI or its subsidiaries fail to
satisfactorily perform their obligations under this Section and as provided
elsewhere in this Agreement with respect to such Services which failure
continues after five (5) business days notice of same from Y&R (or any Y&R
subsidiary or division) or respective Y&R Client, or (ii) any Y&R Client cancels
or terminates, in whole or in part, its request for Services covered by any
Service Request delivered to HI, (iii) in the reasonable and good faith judgment
of Y&R, the continued performance of any Services by HI or its subsidiaries is
not in the best interest of any Y&R Client, or (iv) as provided in Section 3(a).
Any such termination shall be effective immediately upon delivery of notice to
HI, but in the case of termination due to subsections (ii), (iii), and (iv) HI
shall be entitled to recover from Y&R costs previously agreed or incurred and
which are not otherwise cancelable or refundable and payment for Services
performed to the date of termination, as well as any reasonable expenses of
winding up or termination of the project; provided that the aggregate of all of
the foregoing costs, fees and expenses shall not exceed the agreed upon amount
of fees payable to HI had the particular request for Services not been
terminated early. HI shall provide receipts or other written documentation of
any costs, fees and/or expenses to be paid in connection with any such
termination.
(d) HI will designate an account representative reasonably acceptable to
Y&R to oversee and manage the performance and delivery of Services requested by
Y&R, its subsidiaries and divisions, or any Y&R Client as the case may be,
hereunder. Among other responsibilities, the
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account representative will make every reasonable effort to assure that Services
requested by Y&R, Y&R subsidiaries and divisions, and Y&R Clients are delivered
in a timely manner and that requests for Services by Y&R, Y&R subsidiaries and
divisions, and Y&R Clients receive a priority commensurate with the volume of
Services purchased hereunder.
(e) HI's Standard Terms of Engagement ("Standard Terms") as currently in
effect are attached to this Agreement as Exhibit B. HI will provide Y&R copies
of any updates to such Standard Terms promptly after they are adopted. HI shall
provide a copy of the Standard Terms to Y&R, Y&R's subsidiaries and divisions,
and Y&R Clients each time a request for Services is made and such Standard Terms
shall be taken into account in preparation of the applicable Service Request and
Confirmation or other document executed pursuant to this Section 2(e), but may
be revised by agreement of the parties. Y&R, Y&R's divisions and subsidiaries,
and Y&R Clients, as the case may be, and HI shall each execute and deliver or
cause to be executed and delivered to the other at such times and places as
shall reasonably be agreed to, such Service Requests, Confirmations, customer
subscription agreements, or other instruments or agreements which such parties
reasonably deem advisable for the purpose of memorializing the provision of
Services hereunder. All Services provided hereunder shall be charged and paid
for in accordance with Sections 2 and 3 hereof.
(f) Y&R may release to third parties data or analysis produced as part of
Custom Research performed by HI pursuant to this Agreement but only if it (i) is
accompanied by the HI trademark or other HI product identifier included with the
data or analysis provided under this Agreement, and (ii) is accompanied by the
HI disclaimers substantially similar to the disclaimers originally delivered by
HI with such data or analysis.
(g) Y&R and Y&R's subsidiaries and divisions may release to Y&R, its
divisions and subsidiaries, and Y&R Clients, as the case may be, but not to
other third parties (unless HI consents to such release), data or analysis
produced as part of a Multi-Client Product provided that (i) the material is
accompanied by the HI trademark or HI branding in a manner reasonably
satisfactory to HI, (ii) the release is accompanied by HI disclaimers contained
in the subscription agreement executed in connection with the study, (iii) the
release is not a public distribution or release unless expressly permitted by
this Agreement or another agreement signed by HI, and (iv) the applicable
subscription fee is paid for each additional Y&R Client use of the Multi-Client
Product and the Y&R Client agrees to be bound by the subscription agreement
related to the particular study. Notwithstanding the foregoing, on a
Multi-Client Product by Multi-Client Product basis, HI will arrange to provide
limited ("top line") results to Y&R at no additional charge for unrestricted use
in sales presentations to Y&R Clients and potential Y&R Clients. Such results,
when shared with Y&R Clients or potential clients shall be attributed to HI or
otherwise bear the HI trademark or branding.
3. Cost Estimates/Payment for Services.
(a) At the time Y&R, any Y&R subsidiary or division, or any Y&R Client
requests Custom Services from HI, HI shall provide a cost estimate for the
Services, based upon the best HI pricing that would be charged to similarly
situated clients including in all cases providing the benefit of volume based
or other discounts, refunds, or rebates received by similarly situated clients.
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If Y&R, the applicable subsidiary or division, or the Y&R Client elects to
proceed with the project at the quoted price, HI will perform the Services and
will invoice Y&R, its applicable subsidiary or division, or the Y&R Client as
applicable for the Services as performed, but not exceeding the cost estimate.
If the scope (including among others incidence rates and questionnaire length)
of any particular project is changed by Y&R, any Y&R subsidiary or division, or
Y&R Client, and such change increases the cost of performing such Services, HI
will immediately notify Y&R, its subsidiary or division, or the Y&R Client and
discuss the cost implications. HI reserves the right to change the total quoted
amount (but not the rate) to the extent that the change in the scope of the
project increases the cost, but in such case Y&R, its subsidiaries and
divisions, or the Y&R Client, as applicable, may elect to proceed with the
original project scope or terminate the project under Section 2(c). If the scope
(including among others incidence rates and questionnaire length) of any
particular project is changed by Y&R, any Y&R subsidiary or division, or Y&R
Client, and such change decreases the cost of performing such Services, HI will
immediately notify Y&R, its subsidiary or division, or the Y&R Client and will
decrease the project cost accordingly unless HI in good faith determines that
such decreased scope makes completion of the project impractical or uneconomical
and immediately advises Y&R of the same, in which case Y&R may choose to
terminate the project under Section 2(c). Purchase and use of Multi-Client
Products by Y&R, Y&R subsidiaries and divisions, and Y&R Clients shall be
subject to the same pricing that HI would charge other similarly situated
clients including in all cases providing the benefit of volume based or other
discounts, refunds, or rebates received by similarly situated clients.
(b) In full consideration of Services performed by HI hereunder and
subject to Section 3(a), (i) to the extent such Services were requested by Y&R
on its own behalf, Y&R shall pay HI the invoiced amount for such Services, and
(ii) to the extent the Services were requested by Y&R acting as agent for a
disclosed Y&R Client, or were requested by a Y&R Client, HI shall invoice the
Y&R Client for the Services, provided that, upon request of HI, Y&R shall
provide reasonable cooperation to HI in the collection of delinquent invoices
from Y&R Clients for whom, Y&R, acting as agent, arranged for Services. Invoices
shall be due thirty (30) days after receipt.
4. Privacy. Per legal requirements and Y&R and HI privacy policies,
transfer of demographic data will be restricted except as clearly disclosed in
advance to survey respondents. In the performance of its duties hereunder, HI
shall, at its own expense, comply with all laws, regulations, orders, standards,
and requirements (including any promulgated by any recognized self-regulatory
bodies) relating to privacy rights.
5. Ownership. Y&R or the Y&R Client, as the case may be, shall own all
data collected as part of Custom Research performed pursuant to this Agreement,
subject to the restrictions outlined in Section 2(f). HI shall own all data
contained in Multi-Client Products subject to the rights granted to Y&R, its
subsidiaries and divisions, and Y&R Clients (i) in the Y&R and Y&R Client
subscription agreements applicable to the respective Multi-Client Products and
(ii) in Section 2(g) of this Agreement. In the case of Custom Research for Y&R's
use and the use of its subsidiaries and divisions and Y&R Clients, Y&R shall
have the right to create derivative works, including works containing data,
elements, or analysis contained in Custom Research, and no additional revenue
from the use of such derivative works shall accrue to (or be due to) HI. HI has
all proprietary rights and interest (without conflicting encumbrance) necessary
to perform its obligations under this Agreement without infringement upon the
rights of third parties.
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6. Y&R Ability to Earn Commissions.
(a) In connection with the Services performed hereunder, HI shall pay a
quarterly commission to Y&R in the form of fully paid and non-assessable shares
of common stock of HI provided that the conditions set forth in Section 6(b) are
satisfied (the "Commission"). Commissions shall be payable to Y&R (by delivery
of certificates issued to Y&R representing the appropriate number of shares of
HI common stock) as soon as HI has completed accounting for such Commissions but
in no event later than thirty (30) days after the end of the applicable Quarter
in which such Commission was earned.
(b) For each Quarter in which HI has earned both the Minimum Total Revenue
and the Minimum Internet Revenue (in each case subject to Section 6(c) hereof),
HI shall pay to Y&R within the time period set forth in Section 6(a) hereof, a
commission equal to the quotient of (i) the sum of thirty percent (30%) of total
Internet Revenue earned by HI in such Quarter plus ten percent (10%) of
Non-Internet Revenue earned by HI during such Quarter divided by (ii) prior to
an IPO, the Pre-IPO Price, and commencing with the Quarter immediately following
an IPO and thereafter, the greater of (x) the IPO Price or (y) the average of
the daily closing prices of HI common stock during such Quarter. If, following
the end of a Quarter, an adjustment occurs which results in a decrease in the
Revenue earned for a particular Quarter, for purposes of calculation of
Commissions hereunder, the amount of such decrease in earned Revenue shall be
deemed to be a decrease in Revenue earned during the Quarter in which the
adjustment is made.
(c) Notwithstanding Section 6(b) hereof, if after an IPO the daily average
of the closing prices of HI common stock during any Quarter are less than the
IPO Price, Y&R shall receive a cash commission instead of HI common shares
earned for such Quarter, which Commission shall equal the sum of thirty percent
(30%) of total Internet Revenue earned by HI in such Quarter plus ten percent
(10%) of Non-Internet Revenue earned by HI during such Quarter.
(d) Notwithstanding anything to the contrary contained in Section 6(b) or
elsewhere herein, to the extent that Commissions are not earned by Y&R for any
Quarter (the "Applicable Quarter") because the actual Revenues for such
Applicable Quarter did not satisfy the Minimum Total Revenue and Minimum
Internet Revenue conditions set forth in Section 6(b) hereof, then for purposes
of the Applicable Quarter, (i) any Revenue received during the immediately
preceding Quarter in excess of the Minimum Total Revenue and Minimum Internet
Revenue applicable to such Quarter shall be deemed to have been received by HI
in the Applicable Quarter, and (ii) any Revenue received in the immediately
following Quarter in excess of the Minimum Total Revenue and Minimum Internet
Revenue applicable to such Quarter shall be deemed to have been received by HI
in the Applicable Quarter, provided however that Y&R shall be entitled to a
Commission only on actual revenues earned during the Applicable Quarter and
provided further that any Revenues earned during a Quarter which are credited to
an Applicable Quarter shall not be available for credit to any other Applicable
Quarter. To the extent Y&R is entitled to a Commission for an Applicable Quarter
as a result of the application of subsection (ii) hereof, such Commission shall
be delivered to Y&R together with the Commission payable with respect to the
Quarter immediately following the Applicable Quarter.
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(e) HI will provide an accounting to Y&R as soon as practical but no later
than 30 days after the end of each Quarter, commencing with the Quarter ending
March 31, 2000, as to Internet Revenue, Non-Internet Revenue, and Total Revenue.
Earned shares will be issued within thirty (30) days after the end of the
applicable Quarter. At Y&R's request, HI will make its books and records
available to Y&R on a reasonable basis for purposes of auditing HI accountings
provided under this Section 6(e). In connection therewith, HI shall permit Y&R
and its authorized representatives access during regular business hours upon
reasonable prior notice to all books and records (including but not limited to
work papers) of HI containing information (statistical, financial and otherwise)
relating to the matters covered by this Agreement, including all information
relating to the calculations described in Section 6, and Y&R shall have the
right to make copies thereof. All such information disclosed to or obtained by
Y&R and its authorized representatives will be treated as strictly confidential
and used solely for the purposes stated in this Agreement. If Y&R disagrees with
any calculations or accounting made by HI in connection with this Agreement, Y&R
may deliver a notice to HI disagreeing with such accounting or calculation which
notice shall set forth Y&R's accounting or calculation. If Y&R and HI are unable
to resolve any such disagreement within ten (10) days thereafter, such
disagreement shall be resolved by independent accountants of nationally
recognized standing reasonably satisfactory to Y&R and HI. In any such case, the
findings of such independent accountants shall be final.
(f) Y&R shall not purchase or otherwise acquire, directly or indirectly
and whether itself or through an Affiliate or otherwise, shares of HI common
stock except (i) shares earned under this Section 6, (ii) shares resulting from
conversion of Class B Convertible Preferred Stock purchased by Y&R from HI
pursuant to an Investment Agreement between HI and Y&R dated on even date with
this Agreement, (iii) shares purchased for an aggregate purchase price not
exceeding the aggregate amount of cash commissions paid by HI to Y&R pursuant to
Section 6(c) and purchased in each case within one hundred eighty (180) days of
receipt of any such commission, and (iv) shares purchased with prior written
consent of HI. If Y&R has made purchases as permitted by subsection (iii), upon
the request of HI, Y&R will provide HI with reasonable evidence (such as a copy
of trade confirmations) substantiating the amount, price, and time of the
purchase.
7. Y&R Representations and Agreements Related to Shares.
(a) The Shares are being acquired for Y&R's own account, for investment
and not with a present view to any distribution thereof within the meaning of
the Securities Act or the securities laws of any other state applicable to Y&R.
Y&R understands that the Shares have not been registered under the Securities
Act, and that if Y&R should in the future decide to dispose of such Shares, it
may do so but only in compliance with the Securities Act and applicable
securities laws.
(b) During the negotiation of the transactions contemplated by this
Agreement, Y&R and its representatives have been afforded access to corporate
books, documents, and other information concerning HI and to its offices and
facilities, have been afforded an opportunity to ask such questions of HI and
its officers, employees, agents, accountants, and representatives concerning
HI's business, operations, financial condition, assets, liabilities, and other
relevant matters as they have deemed necessary or desirable, and have been given
all such information as has been requested, in order to evaluate the merits and
risks of the transactions and the resulting prospective investments contemplated
herein. Y&R and its representatives have been solely
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responsible for Y&R's own "due diligence" investigation of HI and its management
and business, for Y&R's own analysis of the merits and risks of this investment,
and for its own analysis of the fairness and desirability of the terms of the
investment. In taking any action or performing any role relative to the
arranging of the proposed investment, Y&R has acted solely in its own interest,
and neither Y&R nor any of Y&R's agents or employees has acted as an agent of
HI. Y&R has such knowledge and experience in financial and business matters that
Y&R is capable of evaluating the merits and risks of the purchase of the Shares
pursuant to the terms of this Agreement and of protecting Y&R's interests in
connection therewith.
(c) Y&R is able to bear the economic risk of the purchase of the Shares
pursuant to the terms of this Agreement, including a complete loss of Y&R's
investment in the Shares. Y&R is an Accredited Investor as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act.
(d) The Shares are transferable only pursuant to (i) a Public Offering,
(ii) Rule 144 or Rule 144A under the Securities Act (or any similar or successor
rule, regulation, or law then in force) if any such rule is available, or (iii)
subject to the conditions specified in Section 7(e) below, any other legally
available means of transfer.
(e) In connection with the transfer of any of the Shares (other than a
transfer described in Section 7(d)(i) or (ii) above) and subject to Section 7(f)
below, Y&R shall deliver written notice to HI describing in reasonable detail
the transfer or proposed transfer, together with an opinion of legal counsel
which (to HI's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such transfer of the Shares may be effected without
registration of such Shares under the Securities Act. In addition, if the holder
of the Shares delivers to HI an opinion of such counsel that no subsequent
transfer of such Shares shall require registration under the Securities Act, HI
shall promptly deliver to the holder new certificates for such Shares which do
not bear the Securities Act legend set forth in Section 7(f). If HI is not
required to deliver new certificates for such Shares not bearing such legend,
Y&R, or if applicable a subsequent transferee thereof, shall not transfer the
same until the prospective transferee has confirmed to HI in writing its
agreement to be bound by the conditions contained in this Article 7.
(f) Prior to an IPO, Y&R shall not sell, transfer, assign, pledge, or
otherwise dispose of (whether with or without consideration) the Shares or any
interest therein to any Person who, in the reasonable judgment of HI based upon
information made available by HI to Y&R, is a direct competitor of HI. From time
to time after Y&R has earned Shares under the terms of this Agreement, at the
request of Y&R from time to time, HI shall provide Y&R with a list of such
competitors then existing.
8. HI's Representations and Agreements Related to the Shares.
(a) The Shares, when issued in accordance with this Agreement, shall be
validly issued, fully paid, and nonassessable and will be free of any Liens.
(b) So long as any of the Shares are outstanding, HI agrees to maintain an
office or agency where Shares may be presented for payment, exchange,
conversion, exercise or registration of
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transfer. Such office or agency initially shall be the office of HI set forth in
the preamble to this Agreement. HI agrees to give Y&R at least twenty (20) days'
prior written notice of any change in HI the location of the office of HI
required to be maintained under this Section 8(b).
(c) HI agrees that if any shares of HI's Common Stock are listed on any
national securities exchange or on Nasdaq, then HI will take such action as may
be necessary, from time to time, to list all outstanding common shares on such
exchange or on Nasdaq.
(d) HI agrees that as soon as HI is either required to or does file a
registration statement with respect to common stock of HI under Section 6 of the
Securities Act or Section 12(b) or Section 12(g), whichever is applicable, of
the Securities Exchange Act, then thereafter:
(i) HI will maintain effective a registration statement (containing
such information and documents as the SEC shall specify and otherwise
complying with the Securities Exchange Act), under Section 12(b) or
Section 12(g), whichever is applicable, of the Securities Exchange Act,
with respect to the common stock of HI, and HI will file on time such
information, documents and reports as the Commission may require or
prescribe for companies whose stock has been registered pursuant to
Section 12(b) or Section 12(g), whichever is applicable.
(ii) HI will make whatever filings with the SEC, or otherwise take
such other action as may be necessary to comply with the current reporting
provisions of Rule 144(c) under the Securities Act in order to facilitate
resales of HI common stock.
(e) If Y&R proposes to transfer any Shares pursuant to Rule 144A under the
Securities Act (as in effect from time to time), HI agrees to provide (upon the
request of Y&R or the prospective transferee) to Y&R and (if requested) to the
prospective transferee any financial or other information concerning HI which is
required to be delivered by such holder to any transferee of such Shares
pursuant to such Rule 144A.
(f) Neither HI, any subsidiary, nor any agent nor other Person acting on
HI's behalf will do or cause to be done (or will omit to do or to cause to be
done) any act which act (or which omission) would result in bringing the
issuance or sale of the Shares within the provisions of Section 5 of the
Securities Act or the filing, notification, or reporting requirements of any
state securities law.
(g) Neither this Agreement, nor any of the exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to Y&R by or on behalf of HI with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein not
misleading; provided, however, that this Section 8(g) shall not apply to
exhibits, schedules, attachments, written statements, documents, certificates or
other items prepared or supplied to Y&R by or on behalf of HI as part of the
Services.
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9. Proprietary Rights. Except as specifically provided herein or in any
agreement made pursuant to 2(e) hereof, neither party grants to the other any
rights in any of its or its client's names, trademarks, proprietary information,
or other property.
10. Compliance With Laws. Each party shall, at its own expense, comply
with all laws, regulations, orders, and other governmental requirements or
directives of any kind relating to its rights, duties, obligations, and
performance under this Agreement.
11. Indemnity. Notwithstanding any other provision contained in this
Agreement, each party shall defend the other party hereto, and shall pay all
reasonable costs, expenses and damages that a court finally awards, or
settlements approved by the indemnifying party, based upon a third party claim
arising from (i) any intentional misrepresentation, fraud, or unlawful activity
of the indemnifying party related to this Agreement, or (ii) the breach of any
of the indemnifying party's representations, warranties, agreements, or
obligations hereunder; provided that the party to be indemnified under this
Section promptly notifies the indemnifying party in writing of the claim and
cooperates with the indemnifying party in such defense or settlement
negotiations, but further provided that any failure to give any such notice
shall not waive any right to indemnification on the part of any party which
failed to give notice, except only to the extent of any damage or loss actually
suffered by the indemnifying party by reason of the delay in giving notice.
12. Confidentiality. During the course of this Agreement, the parties may
exchange certain confidential, non-public and proprietary information (whether
or not explicitly designated as such) including information, materials, and
knowledge about their respective businesses, products, programming and other
techniques, methods, pricing, ideas, experiments and other work, plans, systems,
customers, clients and suppliers. The parties agree that all such knowledge,
information, and materials (except for information and materials delivered as
part of Services and covered by Sections 2(e), 2(f), 2(g), and 5 hereof)
acquired are and will be the trade secrets and confidential and proprietary
information of the party (collectively, the "Confidential Information").
Confidential Information does not include information that (i) is in or enters
the public domain without breach of this Agreement, (ii) either party receives
from a third party on a non-confidential basis from a source which, to the best
knowledge of the receiving party is not subject to any confidentiality
obligation (whether contractual, legal, or otherwise), (iii) either party knew
or had possession of from a third party on a non-confidential basis from a
source which, to the best knowledge of the receiving party is not subject to any
confidentiality obligation (whether contractual, legal, or otherwise) prior to
receiving the information from the other, or (iv) either party develops or
discovers independent of any information received from the other. Each party
agrees that it will maintain strictly confidential, and without the prior
written consent of the other party, it will not disclose to any third party or
use, any Confidential Information except as expressly permitted by this
Agreement. Notwithstanding the foregoing, each party may disclose Confidential
Information (i) to the extent required by a court, government agency, or other
legal authority or as otherwise required by law, or (ii) under an obligation of
confidentiality to its legal counsel, accountants, and advisors who need to know
such Confidential Information for the purpose of assisting each party perform
its duties hereunder.
13. Right to Review. HI will provide Y&R and its counsel copies of drafts
of any registration statement promptly as such registration statements are
prepared prior to the filing with
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the United States Securities and Exchange Commission, including without
limitation those parts of such statement relating to Y&R's relationship with,
interest in, and agreements with HI, and will make every reasonable and good
faith effort to incorporate Y&R's comments related thereto provided that such
comments are timely received.
14. Termination. This Agreement shall continue for a term of five (5)
years. Either party may terminate this Agreement upon (i) the material breach of
the other party, if such breach remains uncured for thirty (30) days following
written notice to the breaching party, (ii) dissolution or liquidation of the
other party, or (iii) bankruptcy or other proceeding for the relief of debts by
the other party that is not dismissed within thirty (30) days. In addition to
termination under this paragraph, the terminating party shall be entitled to any
other remedy available at law and equity, but subject to Sections 6(e) and 18
hereof.
All sections of this Agreement which by their nature should survive
termination of this Agreement shall survive, including without limitation
Section 1 as applicable, Section 2 (as it applies to use of research), Sections
4-5 inclusive, Section 6 as it relates to Commissions earned during the term of
this Agreement, Sections 7-13 inclusive, and Section 15-23 inclusive.
Upon any termination of this Agreement, each party shall upon the request
of the other party promptly return to the other party any Confidential
Information (and all copies thereof) of such other party in its possession or
control.
15. Successor and Assigns. The Agreement, and the rights and obligations
herein, may not be assigned without the other party's prior written consent;
except that either party may assign this Agreement, (i) without consent of but
with prior notice to the other party, to any entity that is merged or
consolidated with a party or acquires all or substantially all of the assigning
party's assets or (ii) with notice to and consent of the other party, such
consent not to be unreasonably withheld, to any entity that is a wholly owned
subsidiary or division of the assigning party; provided, however, that neither
party may assign this Agreement, or the rights and obligations herein, without
the prior consent of the other, to any direct competitor of the non-assigning
party. The parties' rights and obligations will bind and inure to the benefit of
their respective successors, heirs, executors and administrators and permitted
assigns. Either party may subcontract all or a portion of its performance
obligations relating directly to providing Services hereunder to any Affiliate
of the party, provided that the subcontracting party remains responsible for its
obligations under this Agreement and any subcontractor shall be bound by the
confidentiality and other provisions of this Agreement.
16. Third Party Beneficiaries. Y&R subsidiaries and divisions, and Y&R
Clients shall be deemed to be third party beneficiaries of the rights and
remedies granted to Y&R, its subsidiaries and divisions, and Y&R Clients
hereunder, subject to the terms hereof, and may enforce such rights and remedies
in their own right in the same manner and to the same, but no greater, extent as
Y&R is entitled to enforce such rights and remedies. Notwithstanding the
foregoing, the provisions of Section 6 of this Agreement shall inure solely to
the benefit of Y&R.
17. Governing Law. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws.
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18. Disputes. Subject to Section 6(d), the parties agree to this Section
18 as the exclusive manner and means for resolution of all disputes in all
matters of any kind or nature related to this Agreement. Any dispute shall be
settled by final and binding arbitration by a panel of three arbitrators sitting
in New York, New York, in accordance with the rules of the American Arbitration
Association. The arbitrators shall be selected from a list, prepared by the AAA,
of persons having expertise in the subject matter of this Agreement. One
arbitrator shall be selected by Y&R, one by HI and a third by the arbitrators
selected by the parties. The arbitrators shall promptly obtain such information
regarding the matter as they deem necessary and shall decide the matter and
render a written decision which shall be delivered to the parties. Each party
shall pay the party's own fees and expenses in connection with any arbitration
proceedings, except that the parties shall equally bear the fees and
out-of-pocket expenses of the arbitrators. Any decision shall be a final and
non-appealable determination of the matter, shall be binding upon each of the
parties, and shall be enforceable by the courts of the State of New York
(Seventh Judicial District) and the courts of the United States (Western
District of New York).
19. Injunctive Relief. Notwithstanding anything in this Agreement to the
contrary, the parties hereto acknowledge that a breach of any of its obligations
relating to each party's intellectual property or Confidential Information will
cause the non-breaching party irreparable harm, and therefore the non-breaching
party will be entitled to equitable relief in addition to all other remedies
provided in this Agreement or available at law or in equity.
20. Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior communications and agreements related to the
subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
21. Notices. Any notice or demand upon any party hereto shall be deemed to
have been sufficiently given or served for all purposes hereof when delivered in
person or by nationally recognized overnight courier with receipt requested; if
sent by telephone facsimile, upon confirmation of receipt; or five days after it
is mailed certified mail postage prepaid, return receipt requested, in each case
addressed to the address shown in the preamble to this Agreement (or in the case
of telephone facsimile, delivered to a facsimile number provided by the
receiving party) or to such other address as may be designated by any party by
notice given to the other in the manner described in this Section 21.
22. Severability. If any provision of this Agreement is held to be invalid
or unenforceable for any reason, the remaining provisions will continue in full
force without being impaired or invalidated. The parties agree to replace any
invalid provision with a valid provision which most closely approximates the
intent and economic effect of the invalid provision.
23. Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach. No waiver or amendment hereof shall be effective unless in
writing signed by both HI and Y&R. No course of dealing and no delay on the part
of any party to this Agreement in exercising any rights or remedies shall
operate as a waiver thereof or otherwise prejudice such party's rights. No right
or remedy
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conferred hereby shall be exclusive of any other right or remedy referred to
herein or available at law, in equity, by statute or otherwise.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
[Rest of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized representatives as of the date first
above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
-----------------------------
Title: Chief Executive Officer
--------------------------
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YOUNG & RUBICAM INC.
By: /s/ Steven Blondy
-----------------------------
Title: Senior Vice President
--------------------------
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EXHIBIT A
Calendar Minimum Total Revenue Minimum
Quarter Per Quarter Internet Revenue
- ------- ----------- ----------------
1st 2000 $ 375,000 $ 187,500
2nd 2000 $ 625,000 $ 312,500
3rd 2000 $ 625,000 $ 312,500
4th 2000 $ 625,000 $ 312,500
1st 2001 $ 625,000 $ 312,500
2nd 2001 $1,250,000 $ 625,000
3rd 2001 $1,250,000 $ 625,000
4th 2001 $1,250,000 $ 625,000
1st 2002 $1,250,000 $ 625,000
2nd 2002 $2,500,000 $1,250,000
3rd 2002 $2,500,000 $1,250,000
4th 2002 $2,500,000 $1,250,000
1st 2003 $2,500,000 $1,250,000
2nd 2003 $2,500,000 $1,250,000
3rd 2003 $2,500,000 $1,250,000
4th 2003 $2,500,000 $1,250,000
1st 2004 $2,500,000 $1,250,000
2nd 2004 $2,500,000 $1,250,000
3rd 2004 $2,500,000 $1,250,000
4th 2004 $2,500,000 $1,250,000
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EXHIBIT B
STANDARD CONDITIONS OF ENGAGEMENT
Unless otherwise specified in this document, the following conditions of
engagement apply between Harris Interactive Inc. (HI) and Client:
(1) This proposal remains open for a period of 60 days. If the work is
not commissioned within 60 days, we reserve the right to modify the
proposal and the fee.
(2) The agreed price shall be paid within 30 days of submission of
invoices, which will be submitted in accordance with the following
schedule:
-- one-third upon commissioning
-- one-third at the start of data collection
-- one-third upon delivery of final draft report.
Interest will be charged at 1% a month on bills not paid within 30
days.
(3) The agreed price covers the preparation and delivery of the report
(and up to 10 copies) and does not cover any additional work carried
out at the Client's request outside the scope of the proposal.
Additional copies of reports over and above the 10 copies provided
will be charged at cost.
(4) Unless the proposal states otherwise, the price quoted does not
include the cost of travel. Travel and hotel costs for any such
trips will be charged, at cost, to the Client.
(5) This proposal is considered a fixed-price bid, except when the
actual project specifications or parameters differ substantially
from those described in the proposal. In that case, HI will notify
Client immediately following determination of those differences, and
discuss with Client appropriate changes and/or the relevant cost
implications. Two specifications which can significantly affect the
cost are incidence rates and questionnaire length.
(6) Decisions taken by Client to change the specifications or the
schedule for a study after it has been commissioned and after these
have been agreed may result in additional costs for which Client
will be liable.
(7) We shall use our best endeavors to achieve the dates and times
mentioned in the proposal and to notify the Client if and when it is
reasonably apparent that a delay may occur.
(8) If Client cancels a survey after it has been commissioned, a
cancellation fee will be charged sufficient to cover the costs
incurred by HI as well as the added value of the ideas that have
gone into the design of the survey and questionnaires.
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(9) Client shall indemnify HI against all proceedings, costs, claims,
expenses and liabilities whatsoever which may occur wholly, or in
part, in consequence of the use by or demonstration to third parties
of any goods or services of Client which, in accordance with the
proposal, HI may give, loan or sell to such third parties. Any such
gift, loan, or sale will be made by HI as agent for Client.
(10) HI's analysis sometimes includes statements about the future. Client
recognizes that forecasts or predictions about the future are
judgements not measurements. Any such judgments may be proved wrong
by events. HI does not claim that its judgments or expectations are
infallible and will not be liable if events prove them wrong.
(11) It is understood and agreed by Client that HI has made no
representations or warranties, nor has Client relied upon any
representations or warranties, express or implied. Client expressly
acknowledges that the studies and surveys conducted by HI are
generated from information, data and responses collected from third
parties, and the research company makes no representations or
warranties, either express or implied, as to the reliability of such
information, data or responses. Further, HI makes no representations
or warranties, either express or implied, with respect to the survey
findings or interpretation of findings.
HI shall not be liable for any loss or damages claimed to have
resulted directly or indirectly from any use of the survey findings
or research, including consequential, special or incidental damages.
(12) HI will seek to ensure that surveys addressing public policy issues
or other controversial subjects are balanced, comprehensive and
unbiased. HI will not agree to conduct surveys which do not meet
these criteria. HI will work closely with Client in the preparation
of all study materials and will take final responsibility for the
design of the study, the wording of questions and interpretation of
survey findings.
(13) In all matters, HI, as a research agency, adheres to the current
Code of Standards for Survey Research of the Council of American
Survey Research Organizations (CASRO), and to the Code of the
National Council on Public Polls (NCPP).
(14) Clients who commission surveys for publication shall ensure that the
form of publication complies with the NCPP code. In the event that
Client releases data from a survey which was not originally intended
for publication, this Code will apply to it as if it had originally
been commissioned for publication. Client may choose to publish or
not to publish a HI report. However, should Client release any
findings from a survey, it must also be willing to release the
complete report.
(15) Unless specifically requested to do so, HI will not keep paper
questionnaires for more than three months after the completion of
fieldwork.
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(16) Data tapes for publicly-released HI surveys are normally sent to the
HI Data Center at the University of North Carolina, where they are
available for academic research and secondary analysis, unless
Client specifically requests that access to the tapes be restricted.
(17) The results of HI surveys may not be used in paid advertising or in
any paid promotion without our written consent.
(18) Customer Satisfaction Survey: After completing a project, it is HI's
normal practice to interview our Clients to measure how well the
firm performed, and to look for ways to improve. However,
willingness to be interviewed is not a condition of engagement.
Rev. 07/99
20
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EXHIBIT C
HI CLIENTS
Kodak
Xerox
Johnson & Johnson
Nationwide Insurance
United Parcel Service
Roadway
Danka
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Exhibit 10.23
FIRST AMENDMENT TO
UNIQUE NAME AGREEMENT
This agreement is made this 14th day of October, 1999 by and between
HARRIS INTERACTIVE INC. ("HI"), a Delaware corporation with an address of 135
Corporate Woods, Rochester, New York 14623 and At Home Corporation ("ATHM"), a
Delaware corporation with an address of 1033 Church Ranch Blvd., Westminster,
Colorado 80021.
RECITALS
WHEREAS, HI and ATHM entered into a Unique Name Agreement dated October 1,
1999 (the "Unique Name Agreement"),
NOW THEREFORE, in consideration of the mutual agreement contained herein
and other good and valuable consideration, HI and ATHM hereby agree as follows:
1. Section 8.1 of the Unique Name Agreement is hereby amended to read as
follows:
8.1 The initial term of the Agreement will begin on the
Effective Date, continue for three (3) years, and
automatically renew for succeeding one (1) year terms;
provided that after the initial three (3) year term either
party may terminate this Agreement without cause by giving the
other at least one hundred twenty (120) days prior written
notice of its intention to terminate. If termination occurs
during any annual renewal term, the Unique and Completed Names
to be provided and the Fee to be paid shall be pro rated based
upon the portion of the year during which this Agreement
remains in effect.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
HARRIS INTERACTIVE INC.
By: /s/ Gordon S. Black
----------------------------
Title: Chief Executive Officer
-------------------------
AT HOME CORPORATION
By: /s/ Mark Stevens
----------------------------
Title: Executive Vice President
-------------------------
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Exhibit 16.1
[KPMG LETTERHEAD LOGO]
October 18, 1999
Securities and Exchange Commission
450 Fifth Street North West
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Harris Interactive Inc.
(formerly Gordon S. Black Corporation and Subsidiaries) and, under the date
of September 8, 1997, we reported on the consolidated financial statements of
Harris Interactive Inc. as of and for the year ended June 30, 1997. On
May 21, 1998, our appointment as independent auditors was terminated. We have
read Harris Interactive Inc.'s statements included under the caption "Change
in Principal Accountants" in its registration statement of its Registration
Statement on Form S-1 and we agree with such statements except that:
1. We are not in a position to agree or disagree with the statement that
ratification of the selection of PricewaterhouseCoopers LLP as successor
principal accountants was ratified by the Board of Directors of Harris
Interactive Inc.; and
2. We are not in the position to agree or disagree with the statement that
PricewaterhouseCoopers LLP confirmed our position that database development
costs should be expensed as incurred or that the fiscal 1998 and 1999
consolidated financial statements of Harris Interactive Inc. reflect the
expensing of such costs.
Our discussions with Harris Interactive Inc. regarding accounting for
database development costs constituted a disagreement, which if not resolved
to our satisfaction, would have required us to qualify our report with
respect to the consolidated financial statements if we had been retained.
Very truly yours,
/s/ KPMG LLP
- --------------
KPMG LLP
cc: Bruce Newman - Harris Interactive Inc.
Tom Willet - Harris Beach
Tim White - KPMG Rochester
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the 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
October 25, 1999
