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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1999
Registration No.__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________
SOFTLINK, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 7372 86-0891610
---------------------------- ------------------
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(408) 496-6668
(Address and Telephone Number of Principal Executive Offices)
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(Address of Principal Place of Business or Intended Principal Place of Business)
Mr. William Yuan
President
Softlink, Inc.
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(408) 496-6668
(Name, Address and Telephone Number of Agent for Service)
Copy to:
James C. Chapman, Esq.
Cathryn S. Gawne, Esq.
Romin P. Thomson, Esq.
Silicon Valley Law Group
152 N. Third Street, Suite 900
San Jose, California 95112
Approximate Date of Proposed Sale to Public: As soon as practicable after this
Registration Statement becomes effective.
<PAGE>
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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Title of each Amount to be Proposed Proposed
class of registered maximum maximum
securities to be offering aggregate Amount of
registered price per unit offering price registration fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 3,630,000 shares $ 0.97 (1) $ 3,521,100 (1) $ 978.87 (1)
$.001 par value
Common Stock, 240,000 shares $2.43756 (2) $ 585,014 (2) $ 162.63 (2)
$.001 par value
Common Stock, 150,000 shares $ 2.25 (2) $ 337,500 (2) $ 93.83 (2)
$.001 par value
Total 4,020,000 shares $ 4,443,614 (1) (2) $1,235.33 (1)(2)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated in accordance with Rule 457(c).
(2) Calculated in accordance with Rule 457(g).
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID 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 it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Subject to Completion, November 2, 1999
[SOFTLINK, INC. LOGO]
4,020,000 Shares
Common Stock
We have prepared this prospectus to allow Deephaven Private Placement
Trading, Ltd., Hornblower Investors LLC and Cardinal Capital Management LLC, or
their respective pledgees, donees, transferees or other successors in interest,
to sell up to 4,020,000 shares of our common stock which they own or may acquire
upon conversion of our preferred stock and exercise of warrants previously
acquired in private placements. We will receive no proceeds from the sale of
these shares, except for the proceeds from the exercise of the warrants.
Our common stock is listed on the NASD O-T-C Market Bulletin Board under
the symbol "SFLK". On October 29, 1999, the closing price of our common stock
was $0.97 per share.
______________________
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF MATERIAL ISSUES TO
CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
_______________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 19
Price Range of Common Stock and Dividend Policy 19
Capitalization 20
Selected Consolidated Financial Data 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Business 29
Management 38
Related Party Transactions 46
Selling Stockholders 48
Principal Stockholders 50
Description of Capital Stock 51
Shares Eligible for Future Sale 58
Plan of Distribution 59
Legal Matters 60
Experts 60
Where You Can Find Additional Information 61
Index to 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. 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 the common stock. In this
prospectus, "Softlink", the "Company", "we", "us" and "our" refer to Softlink,
Inc. and its wholly-owned subsidiary, Softlink Incorporated.
"eMail inChorus" is a trademark of Softlink. All other trademarks, service
marks or tradenames referred to in this prospectus are the property of their
respective owners.
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PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
the section named "Risk Factors" and our Consolidated Financial Statements and
the related Notes, before deciding to invest in our common stock. All share
information has been adjusted to reflect our reorganization in March 1998.
THE COMPANY
Softlink provides multimedia email solutions that bring life to online
communication with voice, sound, animation and graphics. We develop and market
software products that use our proprietary technology to allow businesses and
consumers to communicate through text, voice, sound, annotation and animation.
Our two key products are eMail VOICELink and eMail inChorus. eMail
VOICELink adds voice messages to email communications over the Internet,
allowing users to add personality, clarity and impact to their email messages.
eMail inChorus is a multimedia email product that integrates text, voice, sound,
annotation and animation with email. Users of both VOICELink and inChorus can
send their messages through standard email packages such as Netscape Mail,
Microsoft Outlook, America Online and Eudora, and can utilize our products with
MSN and other major Internet service providers.
International Data Corporation predicts that the number of email addresses
on the Internet will double yearly from an installed base of 52,000,000 in 1995,
and will continue doubling until 2000. Industry sources also indicate that
email accounts for 70% of all Internet connect time. Businesses are currently
using email in their e-commerce strategies to replace or supplement banners and
other online advertising strategies. To date, however, most email products only
allow the transmission of text or text with file attachments due to the large
amount of capacity, or bandwidth, required for more complex messages.
Our proprietary multimedia composer and compression technology allows
multimedia email messages to be transmitted over the Internet with the minimum
consumption of bandwidth. Use of this technology would permit businesses to
expand their e-commerce marketing capabilities with multimedia email by offering
product demonstrations or complex graphs and tables to customers. In addition,
we believe that companies could realize cost savings by using multimedia email
in lieu of printed brochures, flyers and coupons.
Our products provide online communications solutions for consumers and
business users across a variety of industries. We have established strategic
relationships with several multimedia peripheral manufacturers to promote our
products and have entered an agreement with Earthlink/Sprint combining their
Internet access services with our products in return for a payment by new
Earthlink subscribers. We also have an agreement with one of the largest
Japanese distributors to sell our products in Japan through distributors and OEM
partners.
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THE OFFERING
Common stock offered by selling stockholders 4,020,000 shares (1)
Common stock to be outstanding after this
offering 13,039,293 shares(1)(2)
Use of proceeds Other than the proceeds from the
exercise of the warrants, none
of the proceeds from the sale of
the common stock offered by this
prospectus will be received by
us. Any warrant exercise
proceeds received by us will be
used for marketing,
establishment of our consulting
and service business and for
working capital and general
corporate purposes.
O-T-C Market Bulletin Board symbol: "SFLK"
__________________
(1) Includes the maximum number of shares issuable upon conversion of the
preferred stock and exercise of the warrants.
(2) Does not include 2,056,184 shares reserved for issuance upon exercise of
outstanding stock options and warrants, other than the warrants which can
be exercised for the common stock offered by this prospectus.
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SUMMARY FINANCIAL DATA
Set forth below are summary statements of operations data for the three
months ended June 30, 1999 and 1998, and for the years ended March 31, 1999 and
1998, and summary balance sheet data as of June 30, 1999. This information
should be read together with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended June 30, Years Ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales, including license fee income $ 324,600 $ 160,400 $ 731,100 $ 23,500
Cost of sales 57,000 15,700 39,200 12,900
Loss from operations (555,600) (40,200) (1,128,100) (620,100)
Net loss (562,700) (40,300) (1,015,900) (620,800)
Basic and diluted loss per share $ (0.07) $ (0.01) $ (0.14) $ (0.26)
Basic and diluted weighted-average common shares outstanding 7,803,700 5,500,400 7,132,600 2,377,200
June 30,
1999
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 56,200
Working capital $ 727,100
Total assets $1,186,500
Short-term debt $ 100,000
Total stockholders' equity $ 903,400
</TABLE>
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RISK FACTORS
An investment in the shares of our common stock offered by this prospectus
involves a high degree of risk. You should consider carefully the following
risk factors as well as the other information set forth in this prospectus
before you decide to buy our common stock.
Some of the information in this prospectus contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they: (i) discuss our
expectations about our future performance; (ii) contain projections of our
future operating results or of our future financial condition; or (iii) state
other "forward-looking" information. We believe it is important to communicate
our expectations to our stockholders. There may be events in the future,
however, that we are not able to predict accurately or over which we have no
control. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of any of the events described in
these risk factors and elsewhere in this prospectus could have a material and
adverse effect on our business, results of operations and financial condition
and that upon the occurrence of any of these events, the trading price of our
common stock could decline and you could lose all or part of your investment.
WE HAVE A LIMITED OPERATING HISTORY.
We were founded in November 1995 and commercially released version 1.0 of our
first product, eMail VOICELink, in August 1997. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered by
early stage companies. These risks and uncertainties are increased due to the
new and evolving nature of the multimedia email market. In addition, because we
have a limited operating history, our past results may not be meaningful and you
should not rely on them as indicators of our future performance. For a detailed
discussion of our financial condition and results of operations, please see the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
WE ARE SUBJECT TO THE RISKS AND UNCERTAINTIES FREQUENTLY ENCOUNTERED BY EARLY
STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS.
Due to our limited operating history, we are subject to many of the risks and
uncertainties frequently encountered by early stage companies in new and rapidly
evolving markets. Among other things, we are faced with the need to establish
our credibility with customers, advertising and other service providers, and
prospective strategic partners, and these parties are often understandably
reluctant to do business with companies that have not had an opportunity to
establish a track record of performance and accountability. Early stage
companies must also
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devote substantial time and resources to recruiting qualified senior management
and employees at all levels, and must make significant investments to establish
brand recognition. If we are unable to overcome some of these obstacles, we may
be unable to achieve our business goals and raise sufficient capital to expand
our business.
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE.
Since our inception in November 1995, we have incurred substantial losses.
Our net loss equaled approximately $621,000 for the year ended March 31, 1998,
approximately $1,016,000 for the year ended March 31, 1999, and approximately
$563,000 for the three months ended June 30, 1999. As of June 30, 1999, we had
an accumulated deficit of approximately $2,209,000.
We anticipate that our expenses relating to developing, marketing and
supporting our current and future products and services will increase
substantially in the future. In particular, we expect to make significant
expenditures on the following activities:
- developing new market opportunities for our current and future products
and services;
- funding more research and development to improve our current solutions
and to create new solutions;
- developing awareness of our name and brand among businesses and
consumers;
- expanding and improving our sales and marketing operations;
- developing new channels for distributing our products and providing our
services;
- expanding and improving our financial and operational infrastructure; and
- hiring additional employees.
Accordingly, for the foreseeable future we expect to experience additional
losses as our expenses for developing, marketing and supporting our current
solutions and developing new solutions exceed our total revenues. These
additional losses will increase our accumulated deficit.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY.
Our revenues, gross margins and other operating results may vary
significantly from quarter to quarter. The fluctuations may be due to a number
of factors, many of which are beyond our control. These factors include:
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- our or our competitors' introduction of new or enhanced multimedia email
solutions;
- market acceptance of existing or planned products and services,
including future versions of eMail VOICELink and eMail inChorus;
- our ability to keep current with the evolving tastes of our target
market;
- the time it takes us to sell our products and services and the size of
each transaction;
- the mix of software license and service revenues;
- our or our competitors' price changes or changes in pricing models;
- the shift from higher gross margins from software license and upgrade
revenues to lower gross margins from support and service revenues;
- the mix of distribution channels through which we sell our products and
services;
- costs relating to possible acquisitions of technology or businesses;
- unanticipated delays or cost increases with respect to product
introductions; and
- costs, timing and impact of our sales and marketing initiatives.
Because of these and other factors, we do not believe that quarter-to-
quarter comparisons of our historical results of operations are good predictors
of our future performance. Furthermore, it is possible that in some future
quarters our results of operations may fall below the expectations of securities
analysts and investors. In this event, the trading price of our stock will
likely be materially and adversely affected. Please also see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
more detailed analysis of our period-to-period results.
WE RELY HEAVILY ON LICENSING AND SALES OF ONE PRODUCT FAMILY.
To date, we have generated nearly all of our revenues from the license and
related upgrades of our eMail VOICELink and eMail inChorus family of products.
We expect that our current eMail VOICELink and eMail inChorus family of software
products and future software products will continue to account for a
substantial majority of our revenues for the foreseeable future. Therefore, our
future financial performance is dependent, in significant part, upon the
successful development, introduction and customer acceptance of new and enhanced
versions of eMail VOICELink and eMail inChorus and of related new products and
services that we may develop. We cannot assure you that we will be successful in
upgrading eMail
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VOICELink and eMail inChorus or that we will successfully develop new products
and services, or that any new product or service will achieve market acceptance.
Consequently, factors affecting the pricing of and demand for our current
products, such as competition, technological changes, failure of the market for
advanced email solutions to develop as we expect or lack of customer acceptance
could have a material and adverse effect on our business, results of operations
or financial condition. For more information on the sources of our revenues,
please see the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
WE ARE DEPENDENT ON ONE LICENSING CUSTOMER AND LICENSING REVENUE.
For the three months ended June 30, 1999 and the year ended March 31,
1999, approximately $153,000 and $640,000, respectively, or 47% and 87.5%,
respectively, of our net sales were derived from licensing revenue from one
customer, NIC Ltd. The loss of this customer could have a material and adverse
effect on our business, results of operations or financial condition. Although
we are seeking to increase our sales of software products, we expect that a
substantial majority of our revenues for the foreseeable future will be derived
from the licensing of our software products.
WE HAVE AN UNPROVEN AND CHANGING BUSINESS MODEL.
Our core business model has focused on licensing software designed to
enable our customers to enhance their email communications with voice and
multimedia features. To date, substantially all of our revenue has been derived
from licensing of our software. We are attempting to increase sales of our
software to complement our licensing revenue; however, we believe that it is too
early to determine whether this business model will be successful in the future.
We also intend to broaden our business by offering turnkey multimedia
email services. These services would transfer to us the responsibility for
constructing and disseminating multimedia messages on behalf of our customers.
We would be competing against production and advertising companies in this
market, and we may not compete effectively with these current or future service
providers based on price, performance or other features. We expect to devote
significant engineering, marketing, sales and customer support resources to
enhance the competitiveness and cost-effectiveness of these services. These
actions may divert resources from our other products and services and may thus
harm our core eMail VOICELink and eMail inChorus business.
OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY.
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future both
from existing competitors and new market entrants. We believe that our ability
to compete depends on many factors both within and beyond our control,
including:
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- the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
- the quality of our customer service and support; and
- the effectiveness of our sales and marketing efforts.
In the voice email market, we compete directly with Qualcomm and a variety
of smaller, privately held companies. Some of our competitors bundle their
voice email solutions with existing email products such as Eudora, an email
product owned and marketed by Qualcomm. These competitors have much more
experience with advanced email solutions and may have lower cost structures due,
in part, to efficiencies created from the larger scale of their operations.
In the multimedia email market, we compete with companies that create,
produce and transmit mass multimedia email, such as eCommercial.com and
CyberLink. Although these companies have a greater emphasis on the design and
creation of multimedia email messages rather than providing the tools for
transmission of multimedia e-mail, they have significantly greater resources
than we do, and if they were to offer multimedia email solutions with features
comparable to eMail inChorus, there can be no assurance that we would be able to
compete effectively.
Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do and thus may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. Also, many of
our current and potential competitors have greater name recognition and more
extensive customer bases. These competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies or
offer more attractive terms to purchasers than we can. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could impair our
finances and business prospects. We cannot assure you that we will be able to
compete successfully against existing or potential competitors or that
competitive pressures will not materially impair our finances or business
prospects.
MULTIMEDIA EMAIL IS A NEW AND EVOLVING BUSINESS.
Multimedia email is in its very early stages of development. Like many new
businesses, it is characterized by rapidly evolving technologies, quickly
changing marketing and sales strategies, multiple and aggressive market
participants, fluctuating demand and uncertain market
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acceptance for products and services. Multimedia email is also heavily dependent
on the success of the Internet, which itself is a relatively new medium with an
unpredictable future.
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT AND USE OF THE INTERNET.
Because we are in the business of multimedia email solutions, our success
is directly tied to the widespread acceptance and continued use of the Internet.
However, the Internet may not be accepted as a viable commercial medium for a
number of reasons, including the following:
- inadequate Internet infrastructure;
- security concerns;
- possible governmental regulation;
- inconsistent quality of service; or
- unavailability of cost-effective, high-speed service.
If use of the Internet does not grow as expected, our business, results of
operations and financial condition would be materially and adversely affected.
Also, if the Internet's current infrastructure or the technical standards and
protocols that support such infrastructure change or are replaced by new
technical standards and protocols, we may need to incur substantial costs to
adapt our current solutions.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion. In order
to execute our business plan, we must continue to grow significantly. This
growth will strain our personnel, management systems and resources. Our ability
to compete effectively and manage future growth, if any, will require us to
continue to implement and improve operational, financial and management
information systems on a timely basis and to attract, hire, train efficiently
and effectively and retain additional technical, managerial, finance, sales and
marketing and support personnel. Any failure to implement and improve our
operational, financial and management systems or to attract, hire, train or
retain employees could have a material and adverse effect on our business,
results of operations or financial condition.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.
Our future performance will depend largely on the efforts and abilities of
our key technical, sales and managerial personnel and on our ability to retain
them. We are dependent upon the continued services and on the performance of our
executive officers and other key
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employees, particularly William Yuan, our President and Chief Executive Officer,
Johnson Lee, our Chairman, and Edmund Leung, our Treasurer, Secretary and Chief
Technical Officer. We currently maintain key person life insurance on Messrs.
Yuan, Lee and Leung; however, the loss of the services of any these individuals
could materially and adversely affect our business. Additionally, we believe we
will need to attract, retain and motivate talented management and other highly
skilled employees to be successful.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES.
Due to concerns arising from the increasing popularity and use of the
Internet, a number of laws and regulations have been and may be adopted covering
such issues as use privacy, pricing, acceptable content, taxation and quality of
products and services. Any new law or regulation pertaining to the Internet, or
the application or interpretation of existing laws, could increase our cost of
doing business or otherwise have a material and adverse effect on our business,
results of operations and financial condition. Laws and regulations directly
applicable to Internet communications, commerce and advertising are becoming
more prevalent. The law governing the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws governing intellectual
property, copyright, privacy, obscenity, libel and taxation apply to the
Internet. Any of these developments could have a material and adverse effect on
our business, results of operations or financial condition.
WE FACE RISKS OF PRODUCT DEFECTS AND PRODUCT LIABILITY CLAIMS.
Software products frequently contain errors, defects or performance
problems (commonly called "bugs"), especially when they are first introduced or
when new versions or enhancements are released. Although we test our products
extensively prior to introduction, we cannot assure you that our testing will
detect all serious defects, errors and performance problems prior to commercial
release of our future software products. Any future software defects, errors or
performance problems discovered after commercial release could result in the
diversion of scarce resources away from customer service and product
development, lost revenues or delays in customer acceptance of our products and
damage to our reputation, which, in each case, could have a material and adverse
effect on our business, results of operations or financial condition.
Although our license agreements with our customers typically contain
provisions designed to limit our exposure to liabilities arising from product
liability claims, we cannot assure you that these provisions will be enforceable
under existing or future international, federal, state or local laws and
judicial decisions. We have not experienced any product liability claims to
date, but we may be subject to such claims in the future. A product liability
claim brought against us could have a material and adverse effect on our
business, results of operations or financial condition.
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WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS IN OUR PRODUCTS.
Policing unauthorized use of our products is difficult. The laws of other
countries may afford little or no effective protection of our technology. We
cannot assure you that the steps taken by us will prevent misappropriation of
our technology or that agreements entered into for that purpose will be
enforceable. In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation, whether successful or
unsuccessful, could have a material and adverse effect on our business, results
of operations or financial condition.
The success and competitiveness of our products depend in part upon our
ability to protect our current and future technology through a combination of
trademark, trade secret and copyright law. Because laws protecting certain
ownership rights in software are uncertain and still evolving, we cannot give
you any assurance about the future viability or value of any of our current
technology ownership rights.
We enter into intellectual property agreements with our employees and
consultants and confidentiality agreements with certain other parties, and
generally control access to and distribution of our software, documentation and
other proprietary information. Notwithstanding these precautions, it may be
possible for a third party to copy or otherwise obtain and use our software or
other proprietary information without authorization or to develop similar
software independently.
OUR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
From time to time we expect to be subject to claims of alleged infringement
by us of the copyrights, trade secrets and other intellectual property rights of
third parties. In addition, other parties may assert invalidity claims (or
claims for indemnification resulting from infringement claims) against us. Any
such assertions or prosecutions might materially and adversely affect our
business, results of operations or financial condition. Such claims could
subject us to significant liability for damages and could result in invalidation
of our proprietary rights and be time-consuming and expensive to defend, and
could result in the diversion of management time and attention. If any such
claims or actions are asserted against us, we may seek to obtain a license under
a third party's intellectual property rights. We cannot assure you, however,
that under such circumstances a license would be available on reasonable terms,
or at all.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
We are currently assessing the impact of the Year 2000 issue on our
business and operations. The failure of our internal systems, or any material
third-party systems, to be Year 2000 compliant could have a material and adverse
effect on our business, results of operations and financial condition.
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We believe that the current versions of our eMail VOICELink and eMail
inChorus products are Year 2000 compliant. However, we cannot assure you that
our products will not experience Year 2000 problems in the future. Any such
problems could result in a decrease in sales of our products, an increase in the
allocation of our resources to address Year 2000 problems of our customers
without additional revenue and an increase in litigation costs relating to
losses suffered by our customers due to Year 2000 problems.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. However, we may fail to discover Year
2000 compliance problems in our systems that will require substantial revisions
or replacements. There can be no assurance that third-party software, hardware
or services incorporated into our material systems will not need to be revised
or replaced, which could be time-consuming and expensive. Our inability to fix
or replace third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs and other business
interruptions, any of which could have a material and adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address Year 2000 compliance issues in our software, hardware or
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our services to our users,
decrease the use of the Internet or prevent users from accessing our services,
any of which would have a material and adverse effect on our business, results
of operations and financial condition.
WE ARE HEAVILY RELIANT ON THIRD PARTIES FOR ORDER FULFILLMENT.
We are heavily reliant on the ability of Pakpro and Russ Thill, our
fulfillment houses, to package and ship orders of our products. Growth in the
volume of orders for our products may strain the capacity of our fulfillment
houses, and delays or other problems with order fulfillment could have a
material and adverse effect on our business.
WE ARE VULNERABLE TO POSSIBLE DAMAGE TO OUR OPERATING SYSTEMS.
We maintain substantially all of our computer systems at our Santa Clara
facility. Our operations are dependent in part on our ability to protect our
operating systems against physical damage from fire, floods, earthquakes, power
loss, telecommunications failures, break-ins or other similar events.
Furthermore, despite our implementation of network security measures, our
servers are also vulnerable to computer viruses, break-ins and similar
disruptive problems. To the extent commercially feasible, we have secured
casualty insurance to protect our properties. However, the occurrence of any of
these events could result in interruptions, delays
14
<PAGE>
or cessations in service to our users which could have a material adverse effect
on our business, results of operations and financial condition.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
We may acquire or make investments in complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in carrying out our business strategy. Growth through acquisitions has
been a successful strategy used by other software companies. We do not have any
present understanding, nor are we having any discussions relating to any such
acquisition or investment. If we were to buy a company, the amount of time and
level of resources required to successfully integrate its business operation
could be substantial. The challenges in assimilating its personnel and
organizational structure, and in encountering potential unforeseen technical
issues in integrating that company's technology into ours, could cause
significant delays in executing other key areas of our business plan. This could
include delays in integrating other technology, or moving forward on other
business development relationships, as management and employees, both of whom
are time-constrained, may be distracted. In addition, the key personnel of the
acquired company may decide not to work for us, which could result in the loss
of key technical or business knowledge to us. Furthermore, in making an
acquisition, we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
stockholders.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT.
We are a Nevada corporation. Anti-takeover provisions of Nevada law could
make it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to stockholders. Our articles of
incorporation provide that our Board of Directors may issue up to 1,000,000
shares of preferred stock and to determine the rights, preferences and
privileges of these shares without stockholder approval. The issuance of
preferred stock could make it more difficult for a third party to acquire us.
All of the foregoing could adversely affect prevailing market prices for our
common stock.
WE MAY NEED ADDITIONAL FINANCING.
We currently anticipate that our available funds will be sufficient to meet
our anticipated needs for working capital, capital expenditures and business
expansion through March 2000. Nevertheless, we may need to raise additional
funds within the next nine to 12 months or thereafter. Our capital requirements
depend on many factors, including but not limited to the following:
- the rate at which we develop and introduce our products and services;
- the market acceptance and competitive position of our products and
services;
15
<PAGE>
- the level of promotion and advertising required to market our products
and services and attain a competitive position in the marketplace; and
- the response of competitors to our products and services.
If we require additional funding, such funding might not be available on
terms favorable to our stockholders or us, and might not be adequate to address
our needs. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution and such securities
may have rights, preferences and privileges senior to those of our common stock.
There can be no assurance that additional financing will be available on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to fund expansion, take
advantage of unanticipated acquisition opportunities, develop or enhance
services or products or respond to competitive pressures. Such inability could
have a material adverse effect on our business, results of operations and
financial condition.
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE.
We had 9,019,293 shares of common stock issued and outstanding at September
30, 1999. We are authorized to issue up to 59,000,000 shares of common stock.
To the extent of such authorization, our Board of Directors will have the
ability, without seeking stockholder approval, to issue additional shares of
common stock in the future for such consideration as the Board of Directors may
consider sufficient. The issuance of additional common stock in the future will
reduce the proportionate ownership and voting power of our common stock held by
existing stockholders. We are also authorized to issue up to 1,000,000 shares of
preferred stock, the rights and preferences of which may be designated by the
Board of Directors. To the extent of such authorization, such designations may
be made without stockholder approval. The designation and issuance of series of
preferred stock in the future would create additional securities that would have
dividend and liquidation preferences over our common stock and/or be convertible
into common stock.
CERTAIN CURRENT STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK.
Our officers and directors together beneficially own approximately 27% of
our outstanding common stock (approximately 19% if all of the preferred stock
and warrants subject to this prospectus are converted to common stock). As a
result these shareholders may, as a practical matter, be able to influence all
matters requiring stockholder approval and, thereby, our management and affairs.
Matters that typically require stockholder approval include the election of
directors, merger or consolidation and the sale of all or substantially all of
our assets. This concentration of ownership may delay, deter or prevent acts
that would result in a change of control, which in turn could reduce the market
price of our common stock.
16
<PAGE>
THIS OFFERING WILL BENEFIT CERTAIN EXISTING STOCKHOLDERS AND WARRANTHOLDERS.
The selling stockholders will receive substantial proceeds from converting
their preferred stock and warrants and selling the resulting common stock in
this offering. We will pay the offering expenses of the selling stockholders in
this offering, other than brokers' commissions. We currently estimate these
expenses to be $80,000.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.
To date, we have had a very limited trading volume in our common stock.
Sales of substantial amounts of common stock, including shares issued upon the
exercise of outstanding options and warrants, under Securities and Exchange
Commission Rule 144 or otherwise could adversely affect the prevailing market
price of our common stock and could impair our ability to raise capital at that
time through the sale of our securities.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The market price of our common stock has been, and is likely to continue to
be, highly volatile as the stock market in general, and the market for
technology companies in particular, has been highly volatile. Investors may not
be able to resell their shares of our common stock following periods of
volatility because of the market's adverse reaction to volatility. The trading
prices of many technology companies' stocks have reached historical highs within
the last 52 weeks and have reflected valuations substantially above historical
levels. During the same period, these companies' stocks have also been highly
volatile and have recorded lows well below historical highs. We cannot assure
you that our stock will trade at the same levels of other technology stocks or
that technology stocks in general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of technological innovations;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry;
- changes in the market valuations of other technology companies; and
- general market conditions.
17
<PAGE>
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore,
do not expect to pay any dividends in the foreseeable future.
18
<PAGE>
USE OF PROCEEDS
Other than the proceeds from the exercise of the warrants, we will not
receive any of the proceeds from the sale of the common stock offered by this
prospectus. The holders of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will receive any additional
proceeds. If all of the warrants are exercised, however, the gross proceeds to
us would be approximately $923,000, assuming exercise as of September 30, 1999.
We currently intend to use the proceeds as follows:
- approximately 30% of the proceeds, or $277,000, will be used to expand
our marketing and promotional campaigns in traditional and online media;
- approximately 20% of the proceeds, or $185,000, will be used for the
promotion and establishment of our consulting and service business
operations; and
- the balance of the proceeds, which should be approximately 50% or
$461,000, will be used for working capital and general corporate
purposes, including possible acquisitions of or investment in
complementary businesses, products or technologies.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been traded on the NASD O-T-C Market Bulletin Board
under the trading symbol "SFLK" since October 21, 1998. Prior to that date, our
common stock was not actively traded in the public market. The following table
sets forth, for the periods indicated, the high and low closing prices for our
common stock as reported by various Bulletin Board market makers. The quotations
do not reflect adjustments for retail mark-ups, mark-downs, or commissions and
may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Period Low Close High Close
- ------ --------- ----------
<S> <C> <C>
Fiscal 2000
Third Quarter (October 1, 1999 to October 29, 1999) $0.97 $1.84
Second Quarter (July 1, 1999 to September 30, 1999) $1.50 $3.00
First Quarter (April 1, 1999 to June 30, 1999) $1.937 $4.687
Fiscal 1999
Fourth Quarter (January 1, 1999 to March 31, 1999) $1.250 $8.062
Third Quarter (October 21, 1998 to December 31, 1998) $0.875 $5.500
</TABLE>
On October 29, 1999, the closing price of our common stock on the Bulletin
Board was $0.97 per share, and there were approximately 150 holders of record of
the common stock.
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<PAGE>
To date, no dividends have been declared or paid on any of our capital
stock. We currently intend to retain earnings, if any, to fund the development
and growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
CAPITALIZATION
The following table sets forth, as of June 30, 1999, Softlink's
capitalization (i) on an actual basis, (ii) as adjusted to reflect Softlink's
issuance of preferred stock in August 1999, and (iii) as further adjusted to
reflect the conversion of the preferred stock and exercise of the warrants. This
information should be read in conjunction with our Consolidated Financial
Statements and the related Notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
As Further
Actual As Adjusted(1) Adjusted(2)
-------------- ----------------- ---------------
<S> <C> <C> <C>
Short-term debt $ 100,000 $ 100,000 $ 100,000
----------- ----------- -----------
Stockholders' Equity
Common stock, $0.001 par value; 50,000,000 shares authorized,
59,000,000 shares authorized as adjusted and as further adjusted;
9,363,130 shares issued and outstanding actual and as adjusted
and 13,039,293 shares issued and outstanding as further adjusted (3) 9,400 9,400 13,000
Preferred Stock, $.001 par value; 1,000,000 shares authorized as
adjusted and as further adjusted; no shares issued and outstanding,
300 shares issued and outstanding as adjusted and as further adjusted -- -- --
Additional paid-in capital 5,859,800 8,859,800 10,363,300
Accumulated deficit (2,209,200) (2,209,200) (2,209,200)
----------- ----------- -----------
3,660,000 6,760,000 8,154,100
Less: Treasury stock at cost (1,454,356 shares) (2,738,800) (2,738,800) (2,738,800)
Less: Notes receivable (17,800) (17,800) (17,800)
----------- ----------- -----------
Total Stockholders' Equity 903,400 4,003,400 5,397,500
----------- ----------- -----------
Total Capitalization $ 1,003,400 $ 4,103,400 $ 5,497,500
</TABLE>
___________________________
(1) Reflects the issuance of 300 shares of preferred stock in August 1999.
(2) Reflects the subsequent conversion of the preferred stock into 3,630,000
shares of common stock, as well as the exercise of the related warrants.
Assumes a conversion price for the preferred stock of $1.00 per share and
exercise prices ranging from $2.25 to $2.43756 per share for the warrants.
(3) Also reflects the cancellation of 344,837 shares of treasury stock
effective in October 2, 1999.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are summary consolidated statements of operations data for
the three months ended June 30, 1999 and 1998, respectively, and the years ended
March 31, 1999 and 1998, respectively, and summary balance sheet data as of June
30, 1999 and 1998 and March 31, 1999 and 1998. You should read this information
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and related
Notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended June 30, Years Ended March 31,
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net Sales, including license fee income $ 324,600 $ 160,400 $ 731,100 $ 23,500
Cost of Sales 57,000 15,700 39,200 12,900
---------- ---------- ----------- ----------
Gross Profit 267,600 144,700 691,900 10,600
---------- ---------- ----------- ----------
Operating Expenses:
Research and development 187,500 32,600 286,300 30,200
Sales and marketing 232,600 96,600 688,600 123,800
General and administrative 403,100 55,700 845,100 476,700
---------- ---------- ----------- ----------
Total Operating Expenses 823,200 184,900 1,820,000 630,700
---------- ---------- ----------- ----------
Loss From Operations (555,600) (40,200) (1,128,100) (620,100)
---------- ---------- ----------- ----------
Other Income (Expense):
Interest income 900 700 115,500 100
Interest expense - - (2,500) -
Other (7,200) - - -
---------- ---------- ----------- ----------
Total Other Income (Expense) (6,300) 700 113,000 100
---------- ---------- ----------- ----------
Loss Before Provision for Income Taxes (561,900) (39,500) (1,015,100) (620,000)
Provision for Income Taxes 800 800 800 800
---------- ---------- ----------- ----------
Net Loss $ (562,700) $ (40,300) $(1,015,900) $ (620,800)
---------- ---------- ----------- ----------
Basic and diluted loss per share $ (0.07) $ (0.01) $ (0.14) $ (0.26)
---------- ---------- ----------- ----------
Basic and diluted weighted-average common shares outstanding 7,803,700 5,500,400 7,132,600 2,377,200
Consolidated Balance Sheet Data:
Cash and Cash Equivalents $ 56,200 156,400 307,500 51,900
Working Capital 727,100 (21,200) 774,800 (75,000)
Total Assets 1,186,500 213,400 967,500 85,300
Short-term Debt 100,000 134,600 - 146,200
Total Stockholders' Equity 903,400 2,700 881,100 (63,400)
</TABLE>
21
<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 in conjunction with our Consolidated Financial
Statements and Notes thereto appearing elsewhere in this prospectus. The
matters discussed in this prospectus contain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed above in "Risk
Factors" as well as those discussed in this section and elsewhere in this
prospectus.
OVERVIEW
We provide multimedia email solutions that bring life to online
communication with voice, sound, animation and graphics. We develop and market
software products that use our proprietary technology to allow businesses and
consumers to communicate through text, voice, sound, annotation and animation.
We were incorporated in November 1995 as Softlink, Inc., a California
corporation ("Softlink California") and shipped our first product, eMail
VOICELink, in August 1997. For the period from inception through December 1997,
our revenue was minimal and our operating activities related primarily to the
development of our infrastructure and our first products.
In March 1998, Softlink California entered into a reorganization with Draco
Technologies, Inc., a Nevada corporation. Under the reorganization, the
stockholders of Softlink California received approximately 0.6745344 shares of
common stock of Draco Technologies, Inc. in exchange for each of their shares of
Softlink California, and Softlink California became a wholly-owned subsidiary of
Draco. Draco then changed its name to Softlink, Inc.
During 1998, we also began the marketing and promotion of our products (we
introduced our second product, PowerLink (a precursor of eMail inChorus) in
November 1997). We also focused on recruiting personnel and raising capital.
To date, our revenues have been derived primarily from the licensing of our
products. We are attempting to increase sales of our software to complement our
licensing revenue; however, we believe that it is too early to determine whether
this business model will be successful in the future.
We also intend to broaden our business in 2000 by offering turnkey
multimedia email services. These services would transfer to us the
responsibility for constructing and disseminating multimedia messages on behalf
of our customers. We would be competing against production and advertising
companies in this market, and we may not compete effectively with these current
or future service providers based on price, performance or other features. We
expect to devote significant engineering, marketing, sales and customer support
resources to enhance the competitiveness and cost-effectiveness of these
services; however, to date we have not devoted substantial resources to this
effort. Once commenced, these actions may divert
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<PAGE>
resources from our other products and services and may thus harm our core eMail
VOICELink and eMail inChorus business.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
principal items contained in our Consolidated Statements of Operations for the
three months ended June 30, 1999 and 1998, respectively, and for the fiscal
years ended March 31, 1999 and 1998, respectively. It should be noted that
percentages discussed throughout this analysis are stated on an approximate
basis. Given our limited operating history, we believe that an analysis of our
cost and expense categories as a percentage of net sales is not meaningful.
<TABLE>
<CAPTION>
Three Months Ended June 30, Years Ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales, including license fee income 100% 100% 100% 100%
Cost of sales 18 10 5 55
----- ---- ------ -------
Gross profit 82 90 95 45
Operating expenses 253 115 249 2,684
----- ---- ------ -------
Loss from operations (171) (25) (154) (2,639)
Other income (expense) (2) 0 15 1
----- ---- ------ -------
Loss before provision for income taxes (173) (25) (139) (2,638)
Provision for income taxes 0 0 0 4
----- ---- ------ -------
Net loss (173%) (25%) (139%) (2,642%)
----- ---- ------ -------
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net sales for the three months ended June 30, 1999 were $324,600, compared
to net sales of $160,400 for the three months ended June 30, 1998. The increase
reflects expanded sales efforts for our eMail VOICELink and eMail inChorus
products offset by a slight decrease in licensing fees. In the three months
ended June 30, 1999, $153,000, or 47%, of our revenues consisted of licensing
revenues as compared to licensing revenues of $160,000, or 99% of revenues, for
the three months ended June 30, 1998. Cost of sales increased to $57,000 for
the three months ended June 30, 1999 from $15,700 for the comparable period in
1998, due to increased production of our products.
Operating expenses increased to $823,200 for the three months ended June
30, 1999, compared to $184,900 for the three months ended June 30, 1998. The
increase was comprised of growth in all components of our operating expenses:
research and development, sales and
23
<PAGE>
marketing and general and administrative expenses. Research and development
expenditures increased to $187,500 for the three months ended June 30, 1999
compared to $32,600 for the three months ended June 30, 1998, due primarily to
costs associated with the development of new versions of our existing products
and the design and development of new products. Sales and marketing expenses
increased to $232,600 in the three months ended June 30, 1999 compared to
$96,600 for the comparable period in 1998, due to expanded marketing efforts for
our eMail VOICELink and eMail inChorus software introduced at the end of fiscal
1998. These efforts included hiring additional sales personnel and participation
in trade shows. General and administrative expenses increased to $403,100 for
the three months ended June 30, 1999 compared to $55,700 for the three months
ended June 30, 1998, due primarily to the expansion of our infrastructure
through the hiring of additional personnel and management and the lease of
additional facilities.
Our interest income increased slightly to $900 for the three months ended
June 30, 1999, compared to $700 for the three months ended June 30, 1998. The
increase was due to slightly increased average balances of cash and cash
equivalents in the first quarter of fiscal 2000.
As a result of these factors, we incurred a net loss of $562,700 for the
three months ended June 30, 1999 compared to a net loss of $40,300 for the three
months ended June 30, 1998.
YEARS ENDED MARCH 31, 1999 AND 1998
Net sales for the year ended March 31, 1999 were $731,100, compared to net
sales of $23,500 for the year ended March 31, 1998. The increase in sales
reflects expanded sales efforts for our eMail VOICELink and eMail inChorus
products, introduced in August 1997 and November 1997, respectively, as well as
licensing fees under our license agreement with NIC Ltd., a Japanese company.
For the year ended March 31, 1999, $640,000 or 87.5%, of our revenues consisted
of licensing revenues from NIC. Cost of sales increased to $39,200 for fiscal
1999 from $12,900 in fiscal 1998, due primarily to increased production of our
software products.
Operating expenses increased to $1,820,000 for the year ended March 31,
1999, compared to $630,700 for the year ended March 31, 1998. The increase was
comprised of growth in all components of our operating expenses: research and
development, sales and marketing and general and administrative expenses.
Research and development expenditures increased to $286,300 for the year ended
March 31, 1999 compared to $30,200 for the year ended March 31, 1998, due
primarily to costs associated with the refinement of our existing products, the
development of new versions of these products and the design and development of
anticipated products. Sales and marketing expenses increased to $688,600 in
fiscal 1999 compared to $123,800 in fiscal 1998 due to the expanded marketing
efforts required by the introduction of our eMail VOICELink and eMail inChorus
software at the end of fiscal 1998. These efforts included hiring additional
sales personnel and participation in trade shows. General and administrative
expenses increased to $845,100 in the year ended March 31, 1999 compared to
$476,700 for the year ended March 31, 1998, due primarily to the hiring of
additional personnel and management.
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<PAGE>
Our interest income (net of interest expense) increased to $113,000 for
the year ended March 31, 1999, compared to $100 for the year ended March 31,
1998. The increase was due to interest received on notes receivable on the sale
of common stock.
As a result of these factors, we incurred a net loss of $1,015,900 for the
year ended March 31, 1999 compared to a net loss of $620,800 for the year ended
March 31, 1998.
INCOME TAXES
At June 30, 1999 and March 31, 1999, the Company had deferred tax assets of
$958,400 and $651,600, respectively, principally arising from net operating loss
carryforwards available to offset future taxable income. As management cannot
determine that it is more likely than not that the Company will realize the
benefit of these assets, a 100% valuation allowance has been established.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital requirements have been financed over the past two years
through private placements of common and preferred stock and, to a lesser
extent, from borrowings from principal stockholders. In the years ended March
31, 1999 and 1998, financing activities (principally private placements)
generated $1,363,000 and $314,600, respectively, of cash. In the three months
ended June 30, 1999 and 1998, financing activities generated $480,000 and
$88,500, respectively, of cash. As of June 30, 1999, we had approximately
$56,200 in cash and cash equivalents, a decrease from $307,500 of cash and cash
equivalents at March 31, 1999.
In fiscal 1999, our operating activities utilized $1,005,600 in cash.
Investing activities utilized $101,800 of cash in the same period. Operating
activities utilized $633,100 in cash for the three months ended June 30, 1999,
while investing activities utilized $68,200 during the same period.
In August 1999, we completed a private placement in which we issued 300
shares of preferred stock and warrants to purchase an aggregate of 240,000
shares of common stock. The warrants, which have an exercise price of
approximately $2.44 per share, expire in August 2004. We received net proceeds,
after placement agent commissions and expenses, of $2,788,700 from this private
placement.
Our independent certified public accountants have issued a report on our
audited financial statements with an explanatory paragraph regarding our ability
to continue as a going concern. Our continuation as a going concern is
dependent upon our ability to obtain additional financing or refinancing as may
be required, and ultimately upon our ability to attain profitability.
We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
through March 2000. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. The
25
<PAGE>
incurrence of indebtedness would result in an increase in our fixed obligations
and could result in operating covenants that would restrict its operations.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. If financing is not available when required
or is not available on acceptable terms, we may be unable to develop or enhance
our products or services. In addition, we may be unable to take advantage of
business opportunities or respond to competitive pressures. Any of these events
could have a material and adverse effect on our business, results of operations
and financial condition.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. We have sought verification from our key vendors,
------------------
distributors and suppliers that they are Year 2000 compliant or, if they are not
presently compliant, to provide a description of their plans to become so. To
the extent that vendors failed to provide certification that they are Year 2000
compliant by October 1999, we planned to terminate and replace these
relationships. To date, however, none of our systems have needed to be revised
or replaced.
We are conducting an internal assessment of all material information
technology and non-information technology systems at our headquarters. Until we
complete the assessment, we will not know whether these systems are or will be
Year 2000 compliant.
Costs. To date, we have not incurred any material costs in identifying or
-----
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the upgrades or replacements, when
necessary, of software or hardware, as well as costs associated with time spent
by employees in the evaluation process and Year 2000 compliance matters
generally. These expenses are included in our capital expenditures budget and
are not expected to be material to our financial position or results of
operations. These expenses, however, if higher than anticipated, could have a
material and adverse effect on our business, results of operations and financial
condition.
Risks. There can be no assurance that we will not discover Year 2000
-----
compliance problems in our systems that will require substantial revisions or
replacements. In the event that the operational facilities that support our
business are not Year 2000 compliant, we may be unable to deliver goods or
services to our customers. In addition, there can be no assurance that third-
party software, hardware or services incorporated into our material systems will
not need to be revised or replaced, which could be time-consuming and expensive.
Our inability to fix or replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and other
business interruptions, any of which could have a material
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and adverse effect on our business, results of operations and financial
condition. Moreover, the failure to adequately address Year 2000 compliance
issues in our software, hardware or systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies and others outside our control will be Year
2000-compliant. The failure by these entities to be Year 2000-compliant could
result in a systemic failure beyond our control, including, for example, a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our users, decrease the use of the
Internet or prevent users from accessing our services, any of which would have a
material and adverse effect on our business, results of operations and financial
condition.
Contingency Plan. As discussed above, we are engaged in an ongoing Year
----------------
2000 assessment and do not currently have a contingency plan to deal with the
worst case scenario that might occur if technologies on which we depend are not
Year 2000-compliant and fail to operate effectively after the Year 2000. The
results of our Year 2000 compliance evaluation and the responses received from
distributors, suppliers and other third parties with which we conduct business
will be taken into account in determining the need for and nature and extent of
any contingency plans.
If our present efforts to address the Year 2000 compliance issues discussed
above are not successful, or if distributors, suppliers and other third parties
with which we conduct business do not successfully address such issues, our
users could seek alternate suppliers of our products and services. Any material
Year 2000 problem could require us to incur significant unanticipated expenses
to remedy and could divert our management's time and attention, either of which
could have a material and adverse effect on our business, operating results and
financial condition.
This is a Year 2000 readiness disclosure statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act (P.L. 105-271).
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1997 and 1998, inflation has
not had a significant effect on our results of operations since inception.
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RECENT ACCOUNTING PRONOUNCEMENTS
On October 27, 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 97-2, "Software Revenue Recognition",
which provides guidance on when revenue should be recognized and in what amounts
for licensing, selling, leasing, or otherwise marketing computer software. If
the software arrangement does not require significant production, modification,
or customization of software, revenue should be recognized when all of the
following criteria are met: (1) persuasive evidence of an arrangement exists,
(2) delivery has occurred, (3) the vendor's fee is fixed or determinable, and
(4) collectibility is probable. The adoption of SOP No. 97-2 did not have a
material impact on our consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-1, "Software for Internal Use", which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP No. 98-1 will have a material impact on our consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Historically,
we have not used derivatives and therefore this new pronouncement is not
applicable.
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BUSINESS
You should read the following description of our business together with
the information elsewhere in this prospectus. This description contains certain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors".
OVERVIEW
Softlink provides multimedia email solutions that bring life to online
communication with voice, sound, animation and graphics. We develop and market
software products that use our proprietary technology to allow businesses and
consumers to communicate through text, voice, sound, annotation and animation.
Our two key products are eMail VOICELink and eMail inChorus. eMail
VOICELink adds voice messages to email communications over the Internet,
allowing users to add personality, clarity and impact to their email messages.
eMail inChorus is a multimedia email product that integrates text, voice, sound,
annotation and animation with email. Users of both eMail VOICELink and eMail
inChorus can send their messages through industry standard email packages such
as Netscape Mail, Microsoft Outlook, America Online and Eudora, and can utilize
our products with MSN and other major Internet service providers.
International Data Corporation predicts that the number of email addresses
on the Internet will double yearly from an installed base of 52 million in 1995,
and will continue doubling until 2000. Industry sources also indicate that
email accounts for 70% of all Internet connect time. Businesses are currently
using email in their e-commerce strategies to replace or supplement banners and
other online advertising strategies. To date, however, most email products only
allow the transmission of text or text with file attachments due to the large
amount of capacity, or bandwidth, required for more complex messages.
Our proprietary multimedia composer and compression technology allows
multimedia email messages to be transmitted over the Internet with the minimum
consumption of bandwidth. Use of this technology permits businesses to expand
their e-commerce marketing capabilities with multimedia email by offering
product demonstrations or complex graph and tables to customers. In addition,
we believe that companies could realize cost savings by using multimedia email
in lieu of printed brochures, flyers and coupons.
Our products provide online communication solutions for consumers and
business users across a variety of industries. We have established strategic
relationships with several manufacturers of multimedia computer components to
promote our products and have entered an agreement with Earthlink/Sprint
combining its Internet access services with our products in return for a payment
from new Earthlink subscribers. We also have an agreement with one of the
largest Japanese distributors to sell our products in Japan through distributors
and original
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equipment manufacturer (OEM) partners.
INDUSTRY BACKGROUND AND MARKET OPPORTUNITIES
Email
- -----
Global communication using the Internet has expanded exponentially in the
past few years. Industry sources indicate that over 70 million companies and
households around the world currently use the Internet as a communications link.
A substantial portion of this use (70% of Internet connect time) consists of
email, and industry analysts project that global email utilization will increase
to 800 million email users by 2001.
In addition to providing a medium for basic communication, email can be
used for e-commerce. The increased use of email generally has opened up
significant opportunities for the large number of businesses that are working on
e-commerce strategies. While these companies have relied on banner advertising
and other online advertising strategies to reach potential customers over the
Internet, they are now turning to email as another e-commerce marketing tool.
Various e-commerce functions can be accomplished with email. First of all,
it can be used as a promotional tool to get information out to a targeted list
of customers. This can be done in mass mailing (i.e., bulk email) or on an
individualized basis for businesses that emphasize person-to-person selling.
Second, it can be used as a customer service tool for products that must be
installed by the user, or products that need more than text instruction to
explain clearly. Third, it can be used to obtain customer registrations.
Finally, it can be used as a form of intra-company communications on an
Intranet, which might also include extranet communications through an external
network (an extranet) with vendors and subcontractors.
In each of these functional areas, email reduces costs and improves the
communication with the receiver. For example, using a bulk email approach to a
targeted list of online users is a very inexpensive way to reach customers
directly. Moreover, email has been found by some commercial marketers to be
more effective than banner ads in driving online sales. ZDNet, an industry
media analyst, has reported that Tower Records increased its response rate from
4.4% to 14.9% after introducing personalized email, while The Gap doubled its
online sales after launching an email campaign. Thus the eventual use of email
as a functional replacement for what is currently used in these areas by
companies is very likely.
Multimedia Opportunities
- ------------------------
One of the problems with email to date as a tool to market products is that
most email products only allow text or text with file attachments. Two
important means of reaching customers, the use of sound and the use of pictures,
have been missing, partly due to the bandwidth problem and the need to compress
data files. In today's multimedia environment, the lack of these features has
held email back as a marketing tool. However, due to technical advances,
companies are now able to use innovative multimedia email business solutions.
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Multimedia email is substantially different than text email, or even voice
email when used as an e-commerce tool. Many products require being viewed or
benefit when the customer can see a picture, as well as hear a promotional
pitch. Voice in some ways is superior to text since it easier to listen than it
is read. Voice can add a level of persuasiveness not available with text alone.
Also, if one is sitting in front of a computer screen, it is possible to avoid
reading, but not easy to avoid listening. When voice is combined with pictures
or graphics a far more powerful tool is created.
In order to utilize multimedia email, both the sender and recipient of the
message must have a multimedia computer. Most new computers and much of the
installed base in the United States are multimedia computers. Industry sources
estimate that there are 40 million multimedia computers currently installed in
the United States, and the number of installed computers is increasing at a rate
of 10 million new units a year.
In e-commerce, the primary beneficiaries of multimedia email will be
companies online that need graphics and sound in their selling pitch and in
their communications with others. This would include companies offering
consumer products that must be seen before they are bought because the
particular design and look of the product is important in the buying decision;
leisure and other products that are selling excitement and adventure; products
that are primarily sold by a broker or salesperson to an individual consumer;
and products that are more complicated and may require explanations using graphs
and tables. The other important benefits are cost saving and improved time to
market for companies to market their product and service. Companies can save
thousands or hundreds of thousands of dollar by introducing their products with
multimedia email instead of printed brochures, flyers and coupons.
All of these applications, however, require an enormous increase in the
current capacity, or bandwidth, of communications networks. Behind this
phenomenal rise in consumption of bandwidth is the simple fact that there are
more people connected to networks, sending more bits of information more often.
The Internet has become not only a primary means for interpersonal
communication, but a commercial tool as well. Businesses are now looking at the
Internet and the Web as a connectivity tool to implement remote access, wire
their suppliers and customers to their networks, and potentially integrate their
voice and data traffic over a single network. We believe that a flood of demand
is being created for the products and services that will enable this
connectivity to occur as seamlessly as possible - either through increased
bandwidth or by using the existing capacity to maximum advantage.
THE SOFTLINK SOLUTION
Softlink provides multimedia email solutions that bring life to online
communication through multimedia. Our founders, Johnson Lee and Edmund Leung,
formed Softlink in 1995 in recognition of the growing need for complex
communications on the Internet, the diminishing capacity of text-only email to
meet this need and the need to provide this solution within the existing
bandwidth. Our multimedia email solution is based upon our multimedia composer
and proprietary compression technology, which permits users to shorten the time
and bandwidth required to send and receive complex multimedia email without the
loss
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of quality or resolution. We shipped our first product, eMail VOICELink, in
August 1997, and introduced PowerLink, a previous generation of eMail inChorus,
in November 1997.
Our business is being positioned to capitalize on the growing marketplace
opportunities attributable to several overlapping factors: (1) the increase in
the number of email addresses on the Internet, (2) the increase in frequency of
email use in e-commerce solutions, and (3) the rapidly growing installed base of
multimedia computers.
STRATEGY
Our strategy is to be the leading provider of multimedia communications
solutions, based on our proprietary multimedia composer and compression
technology, for communication over the Internet. Key elements of our strategy
include:
EXTEND TECHNOLOGY LEADERSHIP BY PRODUCING SUPERIOR PRODUCTS. Since
inception, we have focused our research and development efforts on developing
our multimedia composer and core compression technology that addresses the issue
of inadequate capacity on the Internet for the transmission of complex
communications. Our products integrate a number of advanced technologies,
including our proprietary data compression technology, that provide a 50:1
compression rate without loss of quality or resolution. We believe that we are
a leader in multimedia communications technology, and we intend to extend this
leadership position by continuing to devote additional resources to research and
development efforts.
CREATE BRAND RECOGNITION. We are focused on building brand awareness and
acceptance as well as on developing strategic marketing and distribution
relationships. We have a comprehensive marketing strategy with several key
components: image and awareness building, direct marketing to prospective and
existing customers using demographic profiling; a strong Web presence and broad
scale marketing programs in conjunction with key partners. Our corporate
marketing strategy also includes trade shows, television commercials and public
relations activities. Our company and products received broad television news
coverage from ABC, CBS and NBC as well as their affiliated stations nationwide.
We also have received coverage to date from many radio stations.
EXPAND MARKET LEADERSHIP POSITION THROUGH STRATEGIC LICENSING
RELATIONSHIPS. We believe that we have established a leading position in the
emerging market for multimedia communications solutions. To accelerate the
adoption of VOICELink and inChorus as the standard multimedia communications
solutions and to facilitate global acceptance of our products, we have
established and are continuing to establish strategic licensing relationships
with leading personal and laptop computer manufacturers and distributors. Our
strategic licensing partners include Sony (United States), NEC, Packard Bell,
Toshiba and Earthlink. We believe that brand recognition is essential to our
business success, and encourage all of our partners and resellers to use the
Softlink brand name in conjunction with their applications. We intend to
further develop our existing strategic licensing relationships and
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enter into new partnerships in both licensing and sales to expand our market
presence and brand recognition.
BROADEN DISTRIBUTION CHANNELS. To date, we have sold our products
primarily through OEM partners and distributors as well as through direct sales.
We intend to expand our direct sales force as well as to leverage and grow our
existing network of OEM partners and distributors.
INCREASE INTERNATIONAL PRESENCE. While to date our international sales
have been limited, we plan to increase our international sales presence. We
have entered into an agreement with NIC, Ltd., one of the largest Japanese
distributors, to sell our products in Japan, and are also working with our
Chinese partners to stimulate sales in that country. We have also commenced
sales into the Middle East and European markets.
PRODUCTS AND TECHNOLOGY
PRODUCTS
We currently offer two primary communications products: eMail inChorus and
eMail VOICELink. eMail inChorus, introduced in August 1997, develops and
transmits full-featured multimedia presentations via email on the Internet and
corporate Intranets. An email message generated with eMail inChorus integrates
text, voice, sound, annotation and animation. Users can import, manipulate and
edit text, pictures, photos and graphics, capture screen shots displayed on a
monitor, annotate directly from a document, cut and paste documents and use
original art works within a single email message as though the message were
being presented on a white board to an audience. We also include graphical
templates and clip art to reduce the time required for message creation.
eMail inChorus uses our proprietary compression technology to shorten the
time and bandwidth required to send and receive multimedia email. For example, a
one minute multimedia message sent through eMail inChorus requires only 200
kilobytes of capacity, as compared to the 6 megabytes required to send the same
message through competitive channels such as QuickTime. eMail inChorus is
compatible with the most popular email programs including Netscape Mail,
Microsoft Outlook and Eudora, and works with America Online, MSN and other major
Internet service providers. An eMail inChorus message is sent as an attached
file with a free player, giving the recipient the opportunity to play the
message. To send a response, however, the recipient must also have the eMail
inChorus software.
Our eMail inChorus software is currently configured for use with all
Windows and Macintosh applications. In addition, we are currently developing a
version of eMail inChorus with database connectivity and mass mailing
capabilities, called eMail inChorus Pro, for corporate users, and plan to
release this version in the fourth quarter of 1999.
Our second product, eMail VOICELink, was introduced in November 1997.
eMail VOICELink allows users to add voice capability to their email messages to
provide personality,
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clarity and impact without the cost of long distance. Like eMail inChorus, eMail
VOICELink features our proprietary compression technology, permitting a one-
minute eMail VOICELink message to require just 100 kbpm as compared to 5,200
kbpm utilized by a standard one minute audio file.
Except for our Macintosh version (as Macintosh computers already contain a
built-in microphone), we package eMail VOICELink with a high quality microphone,
player software (the message recipient must also have eMail VOICELink to send a
reply) and over 200 pre-designed graphical templates and clip art images. eMail
VOICELink is compatible with both Windows and Macintosh applications, and works
with email packages such as Netscape Mail, Microsoft Outlook, Lotus Notes and
Eudora. eMail VOICELink messages may be sent through most major Internet
service providers, including America Online and MSN.
In addition to refining our existing software products and expanding their
applicability, we are considering the development of complementary
communications services. These services would provide turnkey multimedia
messaging capability (message construction and transmission) for the business
market, using our already developed proprietary multimedia composer and
compression technology. The development and commercialization of these services
will require significant additional effort and resources; accordingly, we
currently do not have an anticipated date of introduction.
TECHNOLOGY
Most email systems contain the limited capability to attach digital files
through a technology known as MIME (multi-purpose Internet mail extension).
While MIME technology permits the compression of data before sending and the
decompression of this data at the recipient's end of the transmission, its data
standards are borrowed from other uses and are not optimal for e-mail. The data
compression standards provided by MIME require 960 kbpm for a one-minute audio
file and 12,000 kbpm for a one-minute video file. Audio, video and text
attachments are not integrated in a MIME transmission, but instead must be
played/viewed/read in sequence.
Our eMail inChorus and eMail VOICELink software features our proprietary
multimedia composer and compression technology. This technology uses neural
network architecture to reduce the size of an input data string to a minimal
number of components. The compressed (at a rate of 50 to one) data is then
transmitted and reconstructed by the message recipient. Our multimedia email
messages are integrated, and can be played simultaneously and synergistically,
similar to a movie. A one-minute email can blend text annotation, graphics,
audio and animation into one coherent message.
MARKETING AND SALES
We are focused on building brand awareness and acceptance as well as on
developing strategic marketing and distribution relationships. We have a
comprehensive marketing strategy with several key components: image and
awareness building, direct marketing to prospective and existing customers using
demographic profiling; a strong Web presence and broad scale marketing programs
in conjunction with key partners. Our corporate marketing strategy also
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includes television commercials and syndicated interviews, public relations
activities and trade shows.
We currently sell or license our products through four channels: (i)
through distributors to retailers, including Fry's, Comp USA, Office Max and
Electronic Boutique; (ii) through bundling relationships with OEMs as Sony,
Toshiba and Earthlink; (iii) through e-commerce outlets such as Beyond.com and
America Online, and (iv) through direct sales to the corporate market. Our
products are distributed in North America by Merisel and Norvar, the largest
domestic distributors of computer products. Through our Japanese distribution
channel, we have gained a significant presence in the hard to penetrate Japanese
domestic market. Our Japanese language edition products were rated the fifth and
sixth best selling products in the retail productivity category in the 1998
Softbank retail report. We believe that eMail inChorus and eMail VOICELink have
provided a solution to the Japanese executive's cultural and complexity problem
of typing email by allowing the executives to use their own voice to
communicate, and anticipate that similar solutions may prove attractive to
speakers of other languages.
From time to time, we have successfully sold our products through other
sales channels. Recently, our products were featured on the QVC home shopping
network and over 5,000 units of VoiceLink were sold during the program. We
currently intend to conduct more sales campaigns through television shopping
networks such as QVC, and may evaluate similar sales opportunities in the
future.
CUSTOMER AND TECHNICAL SUPPORT
We believe that providing superior customer service is critical to the
successful sale and marketing of our products. We provide email and telephone
support during normal business hours, and supplement this with Web-based support
services 24 hours a day, seven days a week, including product update and
download areas. We also have an instructional guide for our customers for
common product usage questions, and we notify our customers about the latest
product updates.
RESEARCH AND DEVELOPMENT
Our research and development team consists of development engineers,
product managers, quality assurance engineers and technical writers. Research
and development expenses were $286,300 for the year ended March 31, 1999 and
$187,500 for the three months ended June 30, 1999. We intend to continue to
make substantial investments in research and development and related activities
to maintain and enhance our products. We believe that our future success will
depend in part on our ability to support current and future releases of popular
operating systems and applications, to maintain and improve our current products
and to timely develop new products and services that achieve market acceptance.
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COMPETITION
We compete in a market that is intensely competitive and characterized by
rapidly changing technology and evolving standards. Our principal competitors
for our eMail inChorus software are companies that create, produce and transmit
mass multimedia email, such as eCommercial.com and CyberLink. While we share
with these companies the goal of using email as a tool to deliver dynamic
marketing messages, they have a greater emphasis on the design and creation of
multimedia email messages rather than the tools for transmission of multimedia
e-mail.
Our eMail VOICELink software competes with similar products marketed by
Qualcomm (the manufacturer of Eudora email products) and Bonzi.
We believe that the principal competitive factors in our market are
technological innovation and time to market. We believe that we currently
feature one of the only multimedia email products on the market, and that our
products offer more sophisticated data compression technology than that of our
competitors. However, many of our current and potential competitors have
significantly greater financial, technical, marketing and other resources than
we do, and therefore may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote more resources to
the development and commercialization of their products. In addition, certain
of our competitors may have greater name recognition and the ability to leverage
significant installed customer bases. We expect additional competition as other
established and emerging companies enter into the multimedia email solutions
market and new products and technologies are introduced. Increased competition
could result in price reductions, reduced gross margins, longer sales cycles and
loss of market share, any of which would materially and adversely affect our
business, operating results and financial condition.
INTELLECTUAL PROPERTY
We are in the process of registering our trademark "eMail inChorus" with
the United States Patent and Trademark Office.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. For example, we license our software pursuant to
shrinkwrap or signed license agreements, which impose certain restrictions on
licensees' ability to utilize the software. We have entered into
confidentiality and invention assignment agreements with our employees and
contractors, and nondisclosure agreements with its suppliers and strategic
partners in order to limit access to and disclosure of its proprietary
information. There can be no assurance that these contractual arrangements or
the other steps taken by us to protect our intellectual property will prove
sufficient to prevent misappropriation of our technology or to deter independent
third-party development of similar technologies. While we intend to pursue
registration of our trademarks and service marks in the U.S. and
internationally, effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available online.
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Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segment grows. Any such claim, whether meritorious or not, could be time-
consuming, result in costly litigation, cause service upgrade delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to us or at all. As a
result, any such claim could have a material adverse effect upon our business,
results of operations and financial condition.
GOVERNMENTAL REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various federal, state and local regulatory agencies.
We take measures to ensure our compliance with all such regulations as
promulgated by these agencies from time to time.
LITIGATION
On April 9, 1999, the Securities and Exchange Commission ("SEC") issued a
formal Order Directing Private Investigation and Designating Officers to Take
Testimony in the Matter of Softlink, Inc. and Certain Other Companies.
The private order empowers the SEC enforcement staff to investigate whether
Softlink, its employees or associates: (i) made misleading statements regarding
projected financial revenues of Softlink; (ii) purchased or sold securities of
Softlink while in possession of material non-public information; and (iii)
offered or sold securities through the use or medium of prospectuses or similar
means while no registration statement was in effect. The private order also
authorizes the staff to investigate possible similar violations by another
unrelated, unaffiliated company. In connection with the private order, the SEC
has issued a subpoena duces tecum to which we have responded. The SEC has not
advised us that Softlink, its employees or affiliates are presently or will be
the subject of any enforcement action by the SEC.
To the best of our knowledge, there are presently no other material pending
legal proceedings to which we or any of our subsidiaries is a party or to which
any of our property is subject and, to the best of our knowledge, no such
actions against us are contemplated or threatened.
EMPLOYEES
As of June 30, 1999, we had 18 employees, including seven in product
development, five in sales, marketing and business development, two in customer
support and four in administration. We believe that our future success will
depend in part on our continued ability to attract, integrate, retain and
motivate highly qualified technical and managerial personnel, and upon the
continued service of our senior management and key technical personnel. The
competition for qualified personnel in our industry and geographical location is
intense, and there can be no assurance that we will be successful in attracting,
integrating, retaining and motivating a sufficient number of qualified personnel
to conduct its business in the future. From
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time to time, we also employ independent contractors to support our research and
development, marketing, sales and support and administrative organizations. We
have never had a work stoppage, and no employees are represented under
collective bargaining agreements. We consider our relations with our employees
to be good.
FACILITIES
Our executive offices, comprising a total of approximately 5,236 square
feet, are located in Santa Clara, California. We lease these facilities pursuant
to two lease agreements, one of which has a term of 24 months, expiring in
September 2001, and the other of which has a term of 18 months, expiring in
August 2000. We believe that our current facilities are suitable for our
current needs, however, we anticipate that we will require additional space in
the next six months.
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names and positions of our directors and
executive officers as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------------------
<S> <C> <C>
William Yuan 45 President and Director (1)
- -------------------------------------------------------------------------------------------
Edmund T. Leung 32 Chief Financial Officer, Chief Technical Officer
and Director (1)
- -------------------------------------------------------------------------------------------
Johnson C. Lee(2) 33 Chairman and Director (1)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Member of the Compensation Committee.
(2) Johnson C. Lee served as our Chief Executive Officer until March 1, 1999.
All members of our board of directors hold office until the next annual
meeting of the shareholders following their election or until their successors
have been elected and qualified. Executive officers are appointed by and serve
at the pleasure of the Board of Directors. The following sets forth
biographical information concerning our directors and executive officers for at
least the past five years:
William Yuan. Mr. Yuan was appointed to the Board of Directors and became
president of Softlink in March 1999. Mr. Yuan served as the chief operating
officer of Net USA, a provider of telecommunications and technology softward
solutions, from July 1998 to December 1998. He served as the president of KPY
Corp., a systems integration company, from March 1990 until June 1998, and was
also the president of Network Partners, a software company, from November 1993
until December 1994. Mr. Yuan earned his bachelor's degree in Computer
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Science in 1986 from the University of California at Santa Cruz and his master's
degree in Business Administration in 1989 from National University.
Edmund Leung. Mr. Leung co-founded Softlink in September 1995. He has
served as the Chief Financial Officer and as a member of the board of directors
since 1995. He became the Chief Technical Officer of Softlink in September
1998. Mr. Leung has over nine years' experience in software development, and has
participated in the development of several commercial software products. Prior
to founding Softlink, he served as a software engineer at MediaMotion, Inc., a
multimedia software company, from November 1993 to August 1995, and worked at
Integrated Information Technology, Inc. from June 1990 to October 1993 as a
software engineer. At Integrated Information Technology, Inc., he developed
algorithms for the most time-critical portion of that company's "XtraDrive".
Mr. Leung received his bachelors' degree in Computer Science from the University
of California at Berkeley in 1989 and his masters' degree in Computer Science
from Stanford University in 1990.
Johnson C. Lee. Mr. Lee was a co-founder of Softlink and has served as a
member of the board of directors since September 1995 and as Chairman since
March 1999. From September 1995 to March 1999, he served as Softlink's Chief
Executive Officer. Mr. Lee has over nine years of extensive experience in
network multimedia software development. Prior to founding Softlink, he worked
as a software engineer for MediaMotion, Inc. from November 1993 to August 1995.
From June 1989 to November 1993 he worked as a software engineer for Oracle
Corp. Mr. Lee received his bachelor's degree in Computer Science from the
University of California at Berkeley in 1989.
Board Committees
The Compensation Committee of the Board of Directors determines the
salaries and incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees. The
compensation committee also administers our Stock Option Plan. The current
members of the Compensation Committee are Messrs. Yuan, Leung and Lee. Prior to
September 1999, we did not have a Compensation Committee or any other committee
of the Board of Directors that performed any similar functions. See
"Compensation Committee Interlocks and Insider Participation."
The Board of Directors does not currently have an audit or nominating
committee.
Compensation Committee Interlocks and Insider Participation
We did not have a Compensation Committee or other committee of the Board of
Directors performing similar functions during the fiscal year ended March 31,
1999. Messrs. William Yuan, Edmund Leung and Johnson L. Lee are each officers of
Softlink and, as members of the Board of Directors, participated in
deliberations of the Board of Directors relating to the compensation of our
executive officers. The Board of Directors established a Compensation Committee
as of September 30, 1999.
Messrs. Yuan, Leung and Lee, current members of the Compensation Committee,
are also officers and directors of the Company. However, no member of the
Compensation
39
<PAGE>
Committee serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of our
Board of Directors or Compensation Committee.
Compensation Summary
The following table sets forth the compensation awarded or paid to, or
earned by, our Chief Executive Officer and all our other executive officers who
earned in excess of $100,000 in salary and bonus (collectively the "Named
Executives") for services rendered to us during the year ended March 31, 1999:
Summary Compensation Table (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME SALARY ($) NUMBER OF SECURITIES
UNDERLYING OPTIONS (#)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William Yuan 12,000 (2) -(3)
- ---------------------------------------------------------------------------------------------------------------------
Johnson C. Lee (4) 96,000 80,201(5)
- ---------------------------------------------------------------------------------------------------------------------
Edmund Leung 96,000 80,201(6)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The columns for "Bonus" "Other Annual Compensation" "Restricted Stock
Awards", "LTP Payouts" and "All Other Compensation" have been omitted
because there is no compensation required to be reported.
(2) Mr. Yuan became our Chief Executive Officer in March 1999. He receives a
salary of $12,000 per month (increased to $15,000 per month as of September
1, 1999) pursuant to his employment agreement which is described below.
(3) On March 1, 1999, Mr. Yuan was granted options to purchase up to 500,000
shares of our common stock. These options were rescinded by our Board of
Directors. Mr. Yuan was subsequently granted options to purchase 657,143
shares of our common stock on September 1, 1999, of which options to
purchase 260,000 shares will vest upon the achievement of certain business
objectives which have been described elsewhere in this prospectus.
(4) Mr. Lee served as our Chief Executive Officer until March 1, 1999.
(5) Mr. Lee was granted options to purchase an additional 50,000 shares of
common stock on September 3, 1999. The options have an exercise price of
$2.00 and vest in eight quarterly installments, with the first installment
vesting on the date of grant.
(6) Mr. Leung was granted options to purchase an additional 50,000 shares of
common stock on September 3, 1999. The options have an exercise price of
$2.00 and vest in eight quarterly installments, with the first installment
vesting on the date of grant.
40
<PAGE>
Option Grants in Last Year
The following table sets forth information concerning options granted to
the Named Executives during the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
Name Number of Securities % of Total Options Exercise Price Fair Market Expira-
Underlying Options Granted Granted to Employees (3) Per Share ($/Sh) Value of Stock tion
(#) (1) (2) on Grant Date Date(4)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William Yuan 240,000(5) 13% $1.20 $4.062 3/1/04
------------------------------------------------------------------------------------------------------------
130,000(5) 7% $1.20 $4.062 3/1/04
-------------------------------------------------------------------------------------------------------------
130,000(5) 7% $1.20 $4.062 3/1/04
- -----------------------------------------------------------------------------------------------------------------------------------
Johnson C. Lee (6) 80,201(7) 7% $0.61 $ 0.61 5/6/03
- -----------------------------------------------------------------------------------------------------------------------------------
Edmund Leung 80,201(7) 7% $0.61 $ 0.61 5/6/03
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No stock appreciation rights were granted to the Named Executives during
the year.
(2) Each option represents the right to purchase one share of our common stock.
(3) During the year ended March 31, 1999, we granted officers, employees and
consultants options to purchase an aggregate of 1,834,324 shares of our
common stock. In September 1999, we rescinded options to purchase 958,000
of these shares.
(4) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated or upon the optionee's
death or disability.
(5) These options were rescinded by our Board of Directors in April 1999. The
Board subsequently granted Mr. Yuan options to purchase 657,143 shares of
our common stock, of which options to purchase 260,000 shares will vest
upon the achievement of certain business objectives described elsewhere in
this prospectus.
(6) Johnson C. Lee served as our Chief Executive Officer until March 1, 1999.
(7) These options vest in 36 equal monthly installments commencing on May 6,
1998.
41
<PAGE>
Aggregate Option Exercises in Year Ended March 31, 1999 and Year-End Option
Values
The following table sets forth certain information with respect to the Named
Executives concerning exercisable and unexercisable stock options held by them
as of March 31, 1999. No Named Executives exercised options to purchase shares
of our common stock in the year ended March 31, 1999.
<TABLE>
<CAPTION>
Name Number of Unexercised Options at Year Value of Unexercised In-the-Money
End(#)(1)(2) Options at Year End($) (3)
---------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Yuan None None N/A N/A
- ------------------------------------------------------------------------------------------------------
Johnson C. Lee 22,278 57,923 $59,861 $155,639
(4)
- ------------------------------------------------------------------------------------------------------
Edmund Leung 22,278 57,923 $59,861 $155,639
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) No stock appreciation rights were owned or exercised by any of the Named
Executives during the year.
(2) The columns for "Shares Acquired On Exercise" and "Value Realized" have
been omitted because there is no compensation required to be reported.
(3) Based on a per share fair market value of our common stock equal to $2.687
at March 31, 1999, the closing price for our common stock on that date as
reported by various market makers for our common stock on the NASD Over-
The-Counter Market Bulletin Board.
(4) Johnson C. Lee served as our Chief Executive Officer until March 1, 1999.
Employment Agreements And Termination Of Employment And Change Of Control
Arrangements
We have entered into executive employment agreements with each of Mr.
William W. Yuan, Mr. Johnson C. Lee and Mr. Edmund Leung. Under the agreements,
the executives receive paid vacation and are eligible to participate in the
health and other benefit programs which we may offer from time to time. We may
terminate either executive at any time with or without "cause". The term "cause"
is defined in the executive employment agreements as:
(i) the failure to follow directions of our Board of Directors which are
not inconsistent with the executive employment agreement;
(ii) the gross neglect of the executive's responsibilities;
(iii) any act by the executive of dishonesty, fraud, misrepresentation,
harassment or employment discrimination;
(iv) the executive's indictment for a felony; and
42
<PAGE>
(v) the executive's unauthorized dissemination of our confidential
information or trade secrets.
The executives are eligible to receive severance pay if they are terminated
without cause. The severance payment would be an amount equal to one year's
salary in one lump sum and must be paid no later than 30 days from the date of
termination. The executive employment agreements also contain covenants
regarding the assignment of inventions, the disclosure of our confidential
information, the solicitation of our employees or agents and the ability of the
executives to engage in competing activities.
William Yuan's executive employment agreement has a term of three years
commencing March 1, 1999 and automatically renews for successive periods of one
year unless terminated prior to such renewal. He serves as our President and
Chief Executive Officer and will perform duties consistent with these positions
and under the direction of the Board of Directors. He receives a monthly salary
of $15,000. His agreement specifically provides that our failure to pay him as
required by the agreement is to be deemed a breach of the agreement. If there
is a change in control of Softlink and Mr. Yuan is terminated without cause
within 12 months of the change, he will be eligible for severance pay and all of
his outstanding options will immediately vest. "Change in control" is defined
as a new owner controlling more than 50% of our common stock.
Johnson C. Lee's agreement has a term of three years commencing August 31,
1999 and automatically renews for successive periods of one year unless
terminated prior to such renewal. He serves as our Chairman and will perform
duties consistent with the position and under the direction of the Board of
Directors. He receives a monthly salary of $10,000.
Edmund Leung's agreement has a term of three years commencing August 31,
1999 and automatically renews for successive periods of one year unless
terminated prior to such renewal. He serves as our Secretary, Chief Financial
Officer and Chief Technical Officer and will perform duties consistent with the
positions and under the direction of the Board of Directors. He receives a
monthly salary of $10,000.
Other Employee Benefit Plans
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by the board
of directors as of September 3, 1999 and has not yet been ratified by our
stockholders. We plan to present the 1999 Stock Option Plan to our stockholders
for approval at the next annual meeting of stockholders, which we currently
anticipate will occur shortly after our fiscal year ending March 31, 2000. The
following description of the 1999 Stock Option Plan is a summary and qualified
in its entirety by the text of the Plan, which is filed as an exhibit to the
registration statement of which this prospectus is a part.
The purpose of the 1999 Stock Option Plan is to enhance our profitability
and stockholder value by enabling us to offer stock based incentives to
employees, directors and consultants. The plan authorizes the grant of options
to purchase shares of common stock to employees, directors and consultants of
Softlink and its affiliates. Under the plan, we may grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
43
<PAGE>
1986 and non-qualified stock options. Incentive stock options may only be
granted our employees.
The number of shares available for options under the 1999 Stock Option Plan
is 2,400,000. The Plan is administered by our Board of Directors. Subject to the
provisions of the plan, the Board of Directors has authority to determine the
employees, directors and consultants who are to be awarded options and the terms
of such awards, including the number of shares subject to such options, the fair
market value of the common stock subject to options, the exercise price per
share and other terms.
Incentive stock options must have an exercise price equal to at least 100%
of the fair market value of a share on the date of the award and generally
cannot have a duration of more than 10 years. If the grant is to a stockholder
holding more than 10% of our voting stock, the exercise price must be at least
110% of the fair market value on the date of grant. Terms and conditions of
awards are set forth in written agreements between Softlink and the respective
option holders. Awards under the Plan may not be made after the tenth
anniversary of the date of its adoption but awards granted before that date may
extend beyond that date.
If the employment of the holder of an incentive stock option is terminated
for any reason other than as a result of the holder's death or disability or for
"cause" as defined in the 1999 Stock Option Plan, the holder may exercise the
option, to the extent exercisable on the date of termination of employment,
until the earlier of the option's specified expiration date and 90 days after
the date of termination. If an option holder dies or becomes disabled, both
incentive and non-qualified stock options may generally be exercised, to the
extent exercisable on the date of death or disability, by the option holder or
the option holder's survivors until the earlier of the option's specified
termination date and one year after the date of death or disability.
As of September 30, 1999, no shares had been issued as the result of the
exercise of options previously granted under the 1999 Stock Option Plan;
however, 1,082,714 shares were subject to outstanding options and 1,337,286
shares were available for future grants. The exercise prices of the outstanding
options ranged from $1.75 to $2.00. The options under the Plan vest over varying
lengths of time pursuant to various option agreements that we have entered into
with the grantees of such options.
We have not registered the 1999 Stock Option Plan, or the shares subject to
issuance thereunder, pursuant to the Securities Act of 1933. Absent
registration, such shares, when issued upon exercise of options, would be
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act of 1933.
Optionees have no rights as stockholders with respect to shares subject to
option prior to the issuance of shares pursuant to the exercise thereof. Options
issued to employees under the Plan shall expire no later than ten years after
the date of grant. An option becomes exercisable at such time and for such
amounts as determined at the discretion of the Board of Directors at the time of
the grant of the option. An optionee may exercise a part of the option from the
date that part first becomes exercisable until the option expires. The purchase
price for shares to be issued to an employee upon his exercise of an option is
determined by the Board of Directors on the
44
<PAGE>
date the option is granted. The purchase price is payable in full in cash, by
promissory note, by net exercise or by delivery of shares of our common stock
when the option is exercised. The plan provides for adjustment as to the number
and kinds of shares covered by the outstanding options and the option price
therefor to give effect to any stock dividend, stock split, stock combination or
other reorganization of or by Softlink.
Directors' Compensation
Directors who are also employees of Softlink receive no compensation for
serving on the Board of Directors. With respect to directors who are not
employees, we intend to reimburse such directors for all travel and other
expenses incurred in connection with attending meetings of the board of
directors and any committees of the board. Non-employee directors will also be
eligible to receive grants of non-qualified stock options under our 1999 Stock
Option Plan. We also intend to establish a non-employee director stock option
plan which will provide for initial option grants of a fixed number of shares of
our common stock to non-employee directors and successive annual option grants
to such non-employee directors covering an additional fixed number of shares, to
provide us with an effective way to recruit and retain qualified individuals to
serve as members of the Board of Directors.
Limitation of Liability and Indemnification
Our Articles of Incorporation, with certain exceptions, eliminate any
personal liability of directors or officers to us or our stockholders for
monetary damages for the breach of such person's fiduciary duty, and, therefore,
an officer or director cannot be held liable for damages to us or our
stockholders for gross negligence or lack of due care in carrying out his or her
fiduciary duties as a director or officer except in certain specified instances.
We may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
There are presently no material pending legal proceeding to which a
director, officer and employee of ours is a party. There is no pending
litigation or proceeding involving one of our directors, officers, employees or
other agents as to which indemnification is being sought, and we are not aware
of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
We have purchased directors' and officers' liability insurance to defend
and indemnify directors and officers who are subject to claims made against them
for their actions and omissions as directors and officers of Softlink. The
insurance policy provides standard directors' and officers' liability insurance
in the amount of $1,000,000 per claim.
We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we shall indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses,
(including attorneys' fees and disbursements), incurred in connection
45
<PAGE>
with, or in any way arising out of, any claim, action or proceeding against, or
affecting, such directors and officers resulting from, relating to or in any way
arising out of, the service of such persons as our directors and officers.
RELATED PARTY TRANSACTIONS
The following describes transactions to which we were or are a party and
in which any of our directors, officers, or significant stockholders, or members
of the immediate family of any of the foregoing persons, had or has a direct or
indirect material interest.
Unless otherwise indicated, information in this section regarding shares
of our common stock reflect the conversion ratio applied to shares of our common
stock at the time of the reorganization described below.
STOCK TRANSACTIONS BY SOFTLINK, INC., A CALIFORNIA CORPORATION
Issuances to Founders. Softlink, Inc., a California corporation ("Softlink
California") was formed in November 1995 by Johnson C. Lee and Edmund Leung. At
the time of formation, each of them was issued 1,011,802 shares of common stock
of Softlink California in consideration of their efforts in establishing that
company and developing its initial business strategy.
All the shares of Softlink California held by Johnson C. Lee and Edmund
Leung were converted into shares of our common stock in the reorganization with
Draco Technologies, Inc. described below.
REORGANIZATION WITH DRACO TECHNOLOGIES, INC.
In March 1998, Softlink California entered into the reorganization with
Draco Technologies, Inc., a Nevada corporation incorporated in July 1997
("Draco"). Under the reorganization, the Softlink California stockholders
received approximately 0.6745344 shares of common stock of Draco in exchange for
the 4,259,449 outstanding shares of Softlink California common stock, and
Softlink California became a wholly-owned subsidiary of Draco. An aggregate of
2,873,145 shares was issued to the former Softlink California stockholders in
the reorganization with Draco and the Softlink California stockholders owned
approximately 52% of Draco immediately after the reorganization. As part of the
reorganization, all of the executive officers and directors of Draco resigned
and the executive officers and directors of Softlink California became the
executive officers and directors of Draco, which then changed its name to
Softlink, Inc.
STOCK OPTION GRANTS
In May 1998, Johnson C. Lee and Edmund Leung each were issued options to
purchase 80,201 shares of Softlink common stock.
46
<PAGE>
In March 1999, we issued William Yuan options to purchase up to 500,000
shares of our common stock, and in April 1999, each of Johnson C. Lee and Edmund
Leung were granted options to purchase up to 50,000 shares of our common stock.
All of these options were rescinded by our Board of Directors and are now of no
further force or effect.
In September 1999, we issued each of Johnson C. Lee and Edmund Leung
options to purchase 50,000 shares of Softlink common stock pursuant to our stock
option plan. These options had an exercise price of $2.00, which was more than
110% of the fair market value of our common stock on the date of grant. For each
of Mr. Lee and Mr. Leung, the right to purchase 6,250 shares vested on the date
of grant and the right to purchase the remainder vest in seven quarterly
installments
In September 1999, we also issued William Yuan options to purchase up to
657,143 shares of our common stock. These options have an exercise price of
$1.75, the fair market value of our common stock on the date of grant. Mr.
Yuan's right to purchase 217,143 shares vested on the date of grant. Options to
purchase 180,000 of the shares vest in 18 monthly installments. The right to
purchase 130,000 shares vests upon the listing of Softlink with Nasdaq. The
right to purchase the remaining 130,000 shares vests upon the recording by
Softlink of 12 million dollars in revenue.
OFFERING OF PREFERRED STOCK AND WARRANTS
On August 17, 1999, we entered into a convertible preferred stock
purchase agreement with Deephaven Private Placement Trading Ltd. and Hornbower
Investors LLC pursuant to which Deephaven and Hornbower were each issued 150
shares of convertible preferred stock and received warrants to purchase 120,000
shares of our common stock. The preferred stock is convertible into a variable
number of shares of our common stock at the option of the preferred
stockholders. In addition, subject to certain exceptions the preferred stock
automatically converts into common stock on August 17, 2002. Holders of
preferred stock are entitled to receive cumulative dividends at the rate of
seven percent per year, payable in cash or shares of our common stock. We may
redeem the preferred stock at any time, with prior notice, if the conversion
price falls below or equals $1.75 per share. The warrants may be exercised at
any time during the five-year period following their issuance at an exercise
price of $2.43756 per share. In connection with this private placement of
preferred stock and warrants, we issued warrants to purchase 150,000 shares of
common stock to Cardinal Capital Management LLC. Cardinal Capital Management
LLC, who also received a payment of $180,000, acted as a finder in this
financing.
OTHER AGREEMENTS
As described above, we have entered into employment agreement with
William Yuan, our President and Chief Executive Officer, Johnson C. Lee, our
Chairman, and Edmund Leung, our Chief Financial Officer, Chief Technical Officer
and Vice President of Engineering.
47
<PAGE>
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. We intend that all future transactions, including loans, between
us and our officers, directors, principal stockholders and their affiliates will
be approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
SELLING STOCKHOLDERS
This prospectus relates to the offering by the selling stockholders for
resale of shares of our common stock acquired by them upon conversion of
preferred stock and exercise of warrants which the selling stockholders received
in private placements and other transactions. All of the shares of common stock
offered by this prospectus are being offered by the selling stockholders for
their own accounts.
The following table sets forth information with respect to the common
stock beneficially owned by the selling stockholders as of the date of this
prospectus, including shares obtainable upon the conversion of preferred stock
and exercise of warrants convertible or exercisable, respectively, within 60
days of such date. The selling stockholders provided us the information included
in the table below. To our knowledge, each of the selling stockholders has sole
voting and investment power over the shares of common stock listed in the table
below. Other than as set forth below, no selling stockholder, to our knowledge,
has had a material relationship with us during the last three years, other than
as an owner of our common stock or other securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK BENEFICIAL OWNERSHIP OF COMMON STOCK
PRIOR TO THE OFFERING AFTER THE OFFERING
- --------------------------------------------------------------------------------------------------------------------------------
SELLING STOCKHOLDER NUMBER OF SHARES NUMBER OF SHARES TO BE NUMBER OF SHARES(3) PERCENT OF CLASS (3)
SOLD UNDER THIS PROSPECTUS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deephaven Private 1,935,000(1) 1,935,000(2) -0- -0-
Placement Trading,
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
Hornblower Investors 1,935,000(1) 1,935,000(2) -0- -0-
LLC
- --------------------------------------------------------------------------------------------------------------------------------
Cardinal Capital 150,000(4) 150,000(4) -0- -0-
Management LLC
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The certificate of designation governing the Series A Preferred Stock and
the Closing Warrant (as defined below), among other things, prohibit the
holder thereof from converting shares of Series A Preferred Stock or
exercising the Closing Warrant to the extent that such conversion or
exercise, as the case may be, would result in the holder, together with any
affiliate thereof, beneficially owning in excess of 4.999% of the
outstanding shares of Common Stock following such conversion of Preferred
Stock and the warrants as to itself upon not less than 61 days' notice to
the Company. The number of shares of common stock listed as beneficially
owned by the Selling Stockholders, subject to the limitations set forth in
the first sentence of this footnote, upon (i) conversion of 150 shares of
Series A Preferred Stock, at a conversion price of
48
<PAGE>
$1.00 (which price will be subject to fluctuations in the market price of
our common stock on and after December 15, 1999, and (ii) exercise of the
warrants issued to the Selling Stockholders in conjunction with the sale of
the Series A Preferred Stock for the purchase of 120,000 shares of common
stock (the "Closing Warrant"). Since, after December 15, 1999, the number
of shares of common stock issuable upon conversion of the Series A
Preferred Stock is dependent in part upon the market price of the Common
Stock prior to a conversion, the actual number of shares of common stock
that will be issued in respect of such conversions, and consequently the
number of shares of common stock that will be beneficially owned by the
Selling Stockholder, will fluctuate daily and cannot be determined at this
time.
(2) Represents the shares of common stock issuable to the Selling Stockholders
upon (i) conversion of the Series A Preferred Stock issued to the Selling
Stockholders at an assumed conversion price of $1.00 and (ii) exercise of
the Closing Warrant. Since, on and after December 15, 1999, the number of
shares of common stock issuable upon conversion of the Series A Preferred
Stock is dependent in part upon the market price of the common stock prior
to a time of conversion, the actual number of shares of common stock
issuable in respect of such conversions and, consequently, offered for sale
under this prospectus, cannot be determined at this time. We have,
however, contractually agreed to include in this prospectus a total of
4,020,000 shares of common stock issuable upon conversion of the Series A
Preferred Stock and exercise of the warrants issued to the Selling
Stockholders.
(3) Assumes the sale of all shares of common stock offered by this prospectus.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 30, 1999 and as adjusted
to reflect the sale of the shares of common stock offered by this prospectus,
the ownership of our common stock by (i) each of our directors and executive
officers; (ii) all of our executive officers and directors as a group; and (iii)
all persons known by us to beneficially own more than 5% of our common stock.
Unless otherwise indicated in the footnotes to the table, the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own and the address of each beneficial owner listed
below is c/o Softlink, Inc., 2041 Mission College Boulevard, Suite 259, Santa
Clara, California 95054.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF CLASS (1)
BENEFICIAL OWNER OF BENEFICIAL
OWNERSHIP (1)
Executive Officers and
Directors:
- -------------------------------------------------------------------------------
<S> <C> <C>
Johnson C. Lee 1,170,589(2) 8.9%
- -------------------------------------------------------------------------------
William Yuan 247,143(3) 1.9%
- -------------------------------------------------------------------------------
Edmund T. Leung 1,170,589(4) 8.9%
- -------------------------------------------------------------------------------
All directors and executive 2,588,321(2)(3)(4) 19.3%
officers as a group (three
persons)
- -------------------------------------------------------------------------------
Other 5% Stockholders:
- -------------------------------------------------------------------------------
EPB Industries, Inc. 861,696 6.6%
696 Orion Drive
New Braunfels, TX 78130
- -------------------------------------------------------------------------------
Silicon Valley New Issues, Inc. 467,938 3.6%
16929 Enterprise Suite 206
Fountain Hills, AZ 85268
- -------------------------------------------------------------------------------
</TABLE>
*Less than one percent
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-
3(d), shares not outstanding which are subject to options, warrants, rights
or conversion privileges exercisable within 60 days are deemed outstanding
for the purpose of calculating the number and percentage owned by such
person, but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. The total number of
outstanding shares of common stock at September 30, 1999 is 9,019,293.
(2) Includes 46,350 shares of common stock subject to options that are
exercisable within 60 days of September 30, 1999.
(3) Includes 247,143 shares of common stock subject to options that are
exercisable within 60 days of September 30, 1999.
50
<PAGE>
(4) Includes 46,350 shares of common stock subject to options that are
exercisable within 60 days of September 30, 1999.
DESCRIPTION OF CAPITAL STOCK
The descriptions in this section and in other sections of this prospectus
of our securities and various provisions of our Articles of Incorporation and
our Bylaws are summaries. Statements contained in this prospectus relating to
such provisions are not necessarily complete, and reference is made to the
Articles of Incorporation and Bylaws, copies of which have been filed with the
SEC as exhibits to the registration statement of which this prospectus forms a
part, and provisions of applicable law.
Our authorized capital stock consists of 59,000,000 shares of common
stock, par value $.001 per share, and 1,000,000 shares of Preferred Stock, par
value $.001. As of September 30, 1999, 9,019,293 shares of our common stock
were issued and outstanding and 2,520,376 shares of common stock were reserved
for issuance upon exercise of outstanding options and warrants. Only our common
stock is being registered under the Exchange Act pursuant to this Registration
Statement. As of September 30, 1999, 300 shares of our Preferred Stock were
issued and outstanding.
Description of Common Stock
The holders of our common stock are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of our common stock has a pre-emptive right to subscribe
for any of our securities, nor are any common shares subject to redemption or
convertible into other of our securities. Upon liquidation, dissolution or
winding up of Softlink, and after payment of creditors and preferred
stockholders, if any, the assets will be divided pro-rata on a share-for-share
basis among the holders of the shares of common stock. All shares of common
stock now outstanding are fully paid, validly issued and non-assessable.
Each share of common stock is entitled to one vote with respect to the
election of any director or any other matter upon which shareholders are
required or permitted to vote. Holders of the common stock do not have
cumulative voting rights, so the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors if they
choose to do so, and, in that event, the holders of the remaining shares will
not be able to elect any members to the Board of Directors.
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Description of Preferred Stock.
The board of directors is authorized, without further stockholder
approval, to issue from time to time up to an aggregate of 1,000,000 shares of
preferred stock. The preferred stock may be issued in one or more series and
the board of directors may fix the rights, preferences and designations thereof.
On August 17, 1999, we issued an aggregate of 300 shares of Series A
Convertible Preferred Stock to two investors. The Series A Convertible
Preferred Stock is convertible at the option of the preferred stockholders into
that number of shares of our common stock equal to the stated value of the
Series A Convertible Preferred Stock (equal to $10,000 per share plus all
accrued but unpaid dividends) divided by the conversion price. Until December
15, 1999, the conversion price is $2.51. After December 15, 1999, the
conversion price is the lesser of $2.51 and (i) 95% of the lowest three closing
bid prices of our common stock on the Over-the-Counter market during the 50
trading days preceding the conversion date, if the conversion date occurs on or
after December 16, 1999 and before January 14, 2000; (ii) 90% of the lowest
three closing bid prices of our common stock on the Over-The-Counter market
during the 50 trading days preceding the conversion date, if the conversion date
occurs on or after January 14, 2000 and before February 13, 2000; and (iii) 85%
of the lowest three closing bid prices of our common stock on the Over-The-
Counter market during the 50 trading days preceding the conversion date, if the
conversion date occurs on or after February 13, 2000. No holder of Series A
Convertible Preferred Stock together with any affiliate thereof may beneficially
own in excess of 4.999% of the outstanding shares of Common Stock following such
conversion. Such restrictions may be waived by a holder of the Series A
Preferred Stock as to itself upon not less than 61 days' notice to Softlink.
If the Series A Convertible Preferred Stock has not been converted or
redeemed by August 17, 2002, subject to certain exceptions it will automatically
convert into common stock as of that date. Upon the occurrence of certain
events specified in the securities purchase agreement, the holders of Series A
Convertible Preferred Stock may elect to have us redeem the Series A Convertible
Preferred Stock at a premium to their purchase price. These events include, but
are not limited to, the following:
- failure by us to maintain the effectiveness of the registration
statement of which this prospectus is a part;
- failure of our common stock to be eligible for quotation on the Nasdaq
O-T-C Market (or any subsequent market on which our common stock may be
listed;
- failure by us to issue shares of our common stock upon conversion of the
Series A Convertible Preferred Stock;
- participation by us in a change of control transaction, agreement by us
to sell (in one or a series of related transactions) all or
substantially all of our assets, or redemption by us of more than a de
minimus amount of securities;
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- failure by us to cure an event of default under the securities purchase
agreement within 60 days after receipt of notice of such default; and
- failure by us to keep the specified number of shares of our common stock
reserved for issuance upon conversion of the Series A Convertible
Preferred Stock.
We may also redeem the Series A Convertible Preferred Stock at any time,
with prior notice, if the conversion price is equal to or falls below $1.75 per
share. Holders of Series A Convertible Preferred Stock are entitled to receive
cumulative dividends at the rate of seven percent per year, payable in cash or
shares of our common stock.
The foregoing has been a brief description of some of the terms of our
Series A Convertible Preferred Stock. For a more detailed description of the
rights of the holders of the Series A Convertible Preferred Stock, prospective
investors are directed to the actual certificate of designation that has been
filed as an exhibit to the registration statement of which this prospectus is a
part.
Other than the Series A Convertible Preferred Stock described above, no
shares of preferred stock are currently outstanding and we have no present plans
to issue any shares of preferred stock. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
Description of Warrants
In connection with the August 1999 issuance of our Series A Preferred
Stock, we also issued warrants to purchase shares of our common stock to the two
investors, Deephaven Private Placement Trading Ltd. and Hornblower Investors
LLC. These warrants may be exercised at any time during the five-year period
following their issuance at an exercise price of $2.43756 per share. The
warrants contain certain provisions that limit the number of shares of common
stock into which they are exercisable. Under these provisions, no holder of a
warrant may exercise his or her warrant if such exercise would result in the
holder beneficially owning more than 4.999% of our common stock.
In consideration for services provided by Cardinal Capital Management, Inc.
to us, we have issued to Cardinal Capital warrants to purchase up to 150,000
shares of our common stock. The warrants may be exercised at any time during the
five-year period following their issuance at an exercise price of $2.25 per
share. The number of shares issuable upon exercise of the warrants is subject to
adjustment upon the occurrence of stock splits, dividends or reclassifications.
The warrants carry registration rights which are described below.
The foregoing has been a brief description of some of the terms of our
outstanding warrants. For a more detailed description of the rights of the
holders of the warrants, prospective
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investors are directed to the actual forms of warrants that have been filed as
exhibits to the registration statement of which this prospectus is a part.
Registration Rights.
Deephaven Private Placement Trading Ltd. and Hornblower Investors LLC have
registration rights with respect to the Series A Preferred Stock and warrants
they hold. Pursuant to a registration rights agreement, the common stock
underlying the Series A Preferred Stock and warrants issued to these investors
are to be registered as part of the registration statement of which this
prospectus forms a part. The registration rights agreement requires us to file a
registration statement with respect to the common stock within a specified
period of time, and to have the registration statement declared effective within
a specific period of time. We must also keep the registration statement
effective until all of the common stock offered has been sold. We are
responsible for the payment of all fees and costs associated with the
registration of the common stock, except that we are not responsible for fees
generated by the investors' counsel. We are required to indemnify and hold
harmless each investor and its officers, directors, agents and brokers against
any untrue statement of a material fact in a registration statement, prospectus
or amendment or supplement to a registration statement or prospectus. Specific
procedures for carrying out the indemnification are set forth in the
registration rights agreement.
Cardinal Capital Management, Inc. has registration rights with respect to
the warrants it holds. Pursuant to our agreement with Cardinal Capital, the
common stock underlying warrants issued to Cardinal Capital are to be registered
as part of the registration statement of which this prospectus forms a part.
Anti-Takeover Effects of Various Provisions of Nevada Law and Our Articles of
Incorporation and Bylaws.
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada Corporation laws, which may have the
effect of delaying or deterring a change in the control or management of
Softlink.
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations having at least 200
stockholders, prohibits an "interested stockholder" from entering into a
"combination" with the corporation, unless certain conditions are met. A
"combination" includes
- any merger with an "interested stockholder," or any other corporation
which is or after the merger would be, an affiliate or associate of the
interested stockholder;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions, to an
"interested stockholder," having
- an aggregate market value equal to 5% or more of the aggregate
market value of the corporation's assets;
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- an aggregate market value equal to 5% or more of the aggregate
market value of all outstanding shares of the corporation; or
- representing 10% or more of the earning power or net income of the
corporation;
- any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an aggregate market
value equal to 5% or more of the aggregate market value of all the
outstanding shares of the corporation;
- the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by the "interested stockholder,";
- certain transactions which would have the effect of increasing the
proportionate share of outstanding shares of the corporation owned by the
"interested stockholder," or
- the receipt of benefits, except proportionately as a stockholder, of any
loans, advances or other financial benefits by an "interested stockholder."
An "interested stockholder" is a person who
- directly or indirectly owns 10% or more of the voting power of the
outstanding voting shares of the corporation; or
- an affiliate or associate of the corporation which at any time within
three years before the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then outstanding shares of
the corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the Board of Directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the three-
year period expires, the combination may be consummated if all the requirements
in the Articles of Incorporation are met and either
- the Board of Directors of the corporation approves, prior to such person
becoming an "interested stockholder," the combination or the purchase of shares
by the "interested stockholder" or the combination is approved by the
affirmative vote of holders of a majority of voting power not beneficially owned
by the "interested stockholder" at a meeting called no earlier than three years
after the date the "interested stockholder" became such or
- the aggregate amount of cash and the market value of consideration other
than cash to be received by holders of common shares and holders of any other
class or series of shares meets the minimum requirements set forth in Sections
78.411 through 78.443, inclusive, and prior to the consummation of the
combination, except in limited circumstances, the
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"interested stockholder" will not have become the beneficial owner of additional
voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
(S)78.378-78.379, prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While we do not currently exceed these thresholds, we may
well do so in the near future. In addition, although we do not presently "do
business" in Nevada within the meaning of the Control Share Acquisition Statute,
we may do so in the future. Therefore, it is likely that the Control Share
Acquisition Statute will apply to us in the future. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of all the outstanding voting
power. Once an acquiror crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. A special stockholders'
meeting may be called at the request of the acquiror to consider the voting
rights of the acquiror's shares no more than 50 days (unless the acquiror agrees
to a later date) after the delivery by the acquiror to the corporation of an
information statement which sets forth the range of voting power that the
acquiror has acquired or proposes to acquire and certain other information
concerning the acquiror and the proposed control share acquisition. If no such
request for a stockholders' meeting is made, consideration of the voting rights
of the acquiror's shares must be taken at the next special or annual
stockholders' meeting. If the stockholders fail to restore voting rights to the
acquiror or if the acquiror fails to timely deliver an information statement to
the corporation, then the corporation may, if so provided in its articles of
incorporation or bylaws, call certain of the acquiror's shares for redemption.
Our Articles of Incorporation and Bylaws do not currently permit us to call an
acquiror's shares for redemption under these circumstances. The Control Share
Acquisition Statute also provides that the stockholders who do not vote in favor
of restoring voting rights to the Control Shares may demand payment for the
"fair value" of their shares (which is generally equal to the highest price paid
in the transaction subjecting the stockholder to the statute).
Certain provisions of our Bylaws, which are summarized below, may affect
potential changes in control of Softlink. The Board of Directors believes that
these provisions are in the best interests of stockholders because they will
encourage a potential acquiror to negotiate with the Board of Directors, which
will be able to consider the interests of all stockholders in a change in
control situation. However, the cumulative effect of these terms maybe to make
it more difficult to acquire and exercise control of Softlink and to make
changes in management more difficult.
The Bylaws provide the number of directors of Softlink shall be established
by the Board of Directors, but shall be no less than one. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. A director may be removed from
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office by the affirmative vote of 66-2/3% of the combined voting power of the
then outstanding shares of stock entitled to vote generally in the election of
directors.
The Bylaws further provide that stockholder action may be taken at a
meeting of stockholders and may be effected by a consent in writing if such
consent is signed by the holders of the percentage of our shares required to
approve the action at a meeting. We are not aware of any proposed takeover
attempt or any proposed attempt to acquire a large block of our common stock.
The provisions described above may have the effect of delaying or deterring
a change in the control or management of Softlink.
Application of California GCL
Although we are incorporated in Nevada, our headquarters is in the State of
California. Section 2115 of the California GCL ("Section 2115") provides that
certain provisions of the California GCL shall be applicable to a corporation
organized under the laws of another state to the exclusion of the law of the
state in which it is incorporated, if the corporation meets certain tests
regarding the business done in California and the number of its California
stockholders.
An entity such as us can be subject to Section 2115 if the average of the
property factor, payroll factor and sales factor deemed to be in California
during its latest full income year is more than 50 percent and more than one-
half of its outstanding voting securities are held of record by persons having
addresses in California. Section 2115 does not apply to corporations with
outstanding securities listed on the New York or American Stock Exchange, or
with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the average of our property factor,
payroll factor and sales factor deemed to be in California during our latest
fiscal year was almost 100%, and over 60% of our outstanding voting securities
are held of record by persons having addresses in California, and our securities
do not currently qualify as a national market security on NASDAQ, we are subject
to Section 2115.
During the period that we are subject to Section 2115, the provisions of
the California GCL regarding the following matters are made applicable to the
exclusion of the law of the State of Nevada:
- general provisions and definitions;
- annual election of directors;
- removal of directors without cause;
- removal of directors by court proceedings;
- filling of director vacancies where less than a majority in office were
elected by the stockholders;
- directors' standard of care;
- liability of directors for unlawful distributions;
- indemnification of directors, officers and others;
- limitations on corporate distributions of cash or property;
- liability of a stockholder who receives an unlawful distribution;
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- requirements for annual stockholders' meetings;
- stockholders' right to cumulate votes at any election of directors;
- supermajority vote requirements;
- limitations on sales of assets;
- limitations on mergers;
- reorganizations;
- dissenters' rights in connection with reorganizations;
- required records and reports;
- actions by the California Attorney General; and
- rights of inspection.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is U.S. Stock
Transfer, and its telephone number is (800) 835-8778.
SHARES ELIGIBLE FOR FUTURE SALE
On September 30, 1999, 9,019,293 shares of our common stock were
outstanding, and 1,082,714 shares of common stock were subject to options
granted under our 1999 Stock Option Plan. In addition, 1,437,662 shares of
common stock were issuable upon conversion or exercise of the preferred stock
and warrants held by the selling stockholders. Of the outstanding shares,
4,406,705 shares of common stock are immediately eligible for sale in the public
market without restriction or further registration under the Securities Act of
1933, unless purchased by or issued to any "affiliate" of ours, as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, described
below. All other outstanding shares of our common stock are "restricted
securities" as such term is defined under Rule 144, in that such shares were
issued in private transactions not involving a public offering and may not be
sold in the absence of registration other than in accordance with Rules 144,
144(k) or 701 promulgated under the Securities Act of 1933 or another exemption
from registration.
In general, under Rule 144 as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then outstanding shares of our common stock or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to various restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate. As of September 30, 1999, 2,545,238 of
our outstanding restricted shares were eligible for sale under Rule 144.
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The shares of common stock issuable upon conversion of the preferred stock
and exercise of the warrants held by the selling stockholders are being
registered under the registration statement of which this prospectus is a part.
Upon effectiveness of that registration statement, such shares will also be
immediately eligible for sale in the public market. We also intend to file a
registration statement to register for resale the 2,400,000 shares of common
stock reserved for issuance under our 1999 Stock Option Plan. That registration
statement will become effective immediately upon filing. Accordingly, shares
covered by that registration statement would become eligible for sale in the
public market subject to vesting restrictions. As of September 30, 1999, options
exercisable for 281,131 shares of common stock were exercisable.
There has been very limited trading volume in our common stock to date.
Sales of substantial amounts of our common stock under Rule 144, this prospectus
or otherwise could adversely affect the prevailing market price of our common
stock and could impair our ability to raise capital through the future sale of
our securities.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - short sales;
- - broker-dealer may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
- - a combination of any such methods of sale; and
- - any other method permitted pursuant to applicable law.
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The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the Selling
Stockholders. We have agreed to indemnify the Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Silicon Valley Law Group, San Jose, California.
EXPERTS
The financial statements included in the registration statement on Form
SB-2 have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report (which
contains an explanatory paragraph regarding our ability to continue as a going
concern) appearing elsewhere herein and in the registration statement, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on form SB-2. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Some information is omitted, and you should refer to the
registration statement and its exhibits. With respect to references made in
this prospectus to any contract, agreement or other document of Softlink, such
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. You may review a copy of the registration
statement, including exhibits, at the Securities and Exchange Commission's
public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 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.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information on file at the public
reference rooms. You can also request copies of these documents, for a copying
fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration
statement can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
------------------
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
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You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. Neither we nor the
selling stockholders have authorized anyone else to provide you with different
information. Neither we nor the selling stockholders are making an offer to
sell, nor soliciting an offer to buy, these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
Until __________, 1999, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
SOFTLINK, INC.
4,020,000 Shares of
Common Stock
________________________
PROSPECTUS
________________________
_____________, 1999
<PAGE>
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Consolidated balance sheets F-3 - F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity (deficiency) F-6
Consolidated statements of cash flows F-7
Notes to consolidated financial statements F-8 - F-25
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders of
Softlink, Inc.
We have audited the accompanying consolidated balance sheet of Softlink, Inc.
and subsidiary as of March 31, 1999, and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
two years in the period ended March 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Softlink, Inc. and subsidiary as of March 31, 1999, and the results of their
consolidated operations and cash flows for each of the two years in the period
ended March 31, 1999, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has an accumulated deficit of $1,646,500
as of March 31, 1999 and incurred net losses of $1,015,900 and $620,800 for the
years ended March 31, 1999 and 1998, respectively. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 1. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
San Jose, California
July 15, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
Softlink, Inc.
Consolidated Balance Sheets
=======================================================================================================
June 30, March 31,
1999 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 56,200 $ 307,500
Accounts receivable, net of allowance for doubtful accounts of
$2,200 and $0, respectively (Notes 5 and 9) 747,100 430,600
Inventories 73,100 39,600
Prepaid expenses and other current assets 133,800 83,500
- -------------------------------------------------------------------------------------------------------
Total Current Assets 1,010,200 861,200
Property and Equipment, net (Note 2) 109,100 54,300
Deposits and Other Assets (Note 3) 67,200 52,000
- -------------------------------------------------------------------------------------------------------
$ 1,186,500 $ 967,500
=======================================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
Softlink, Inc.
Consolidated Balance Sheets
=======================================================================================================
June 30, March 31,
1999 1999
=======================================================================================================
<S> <C> <C>
(Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 135,900 $ 79,700
Accrued liabilities 27,600 6,700
Deferred revenue 12,700 -
Short-term debt (Note 12) 100,000 -
Obligations under capital lease 6,900 -
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 283,100 86,400
- -------------------------------------------------------------------------------------------------------
Commitments, Contingencies and Subsequent Events
(Notes 6, 8, 11, and 12)
Stockholders' Equity (Notes 1, 4, 8 and 12):
Common stock, $0.001 par value; 50,000,000 shares authorized;
9,363,130 shares issued and outstanding 9,400 9,400
Additional paid-in capital 5,859,800 5,634,700
Accumulated deficit (2,209,200) (1,646,500)
------------------------------------------------------------------------------------------------------
3,660,000 3,997,600
Less: Treasury stock at cost (1,454,356 and 1,593,750 shares,
respectively) (2,738,800) (3,116,500)
Less: Notes receivable (17,800) -
- -------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 903,400 881,100
- -------------------------------------------------------------------------------------------------------
$ 1,186,500 $ 967,500
=======================================================================================================
</TABLE> See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Softlink, Inc.
Consolidated Statements of Operations
==================================================================================================================================
Three Months Ended June 30, Years Ended March 31,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales, including license fee income (Notes 5 and 9) $ 324,600 $ 160,400 $ 731,100 $ 23,500
Cost of Sales 57,000 15,700 39,200 12,900
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 267,600 144,700 691,900 10,600
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses (Notes 6 and 8):
Research and development 187,500 32,600 286,300 30,200
Sales and marketing 232,600 96,600 688,600 123,800
General and administrative 403,100 55,700 845,100 476,700
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 823,200 184,900 1,820,000 630,700
- ----------------------------------------------------------------------------------------------------------------------------------
Loss From Operations (555,600) (40,200) (1,128,100) (620,100)
- ----------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 900 700 115,500 100
Interest expense - - (2,500) -
Other (7,200) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (6,300) 700 113,000 100
- ----------------------------------------------------------------------------------------------------------------------------------
Loss Before Provision for Income Taxes (561,900) (39,500) (1,015,100) (620,000)
Provision for Income Taxes (Note 7) 800 800 800 800
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (562,700) $ (40,300) $(1,015,900) $(620,800)
==================================================================================================================================
Basic and diluted loss per share $ (0.07) $ (0.01) $ (0.14) $ (0.26)
==================================================================================================================================
Basic and diluted weighted-average common shares outstanding 7,803,700 5,500,400 7,132,600 2,377,200
==================================================================================================================================
</TABLE> See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Softlink, Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
(Notes 1, 4, 8 and 12)
========================================================================================================
Common stock Additional
---------------------- Paid-in
Shares Amount Capital
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, April 1, 1997 2,192,236 $ 2,200 $ 30,300
Issuance of common stock for services 453,621 500 335,700
Issuance of common stock for cash 222,327 200 164,600
Stock option grants - - 30,000
Exercise of stock options 4,961 - 3,700
Issuance of common stock in connection with reverse 2,627,280 2,600 547,400
merger
Net loss - - -
- --------------------------------------------------------------------------------------------------------
Balances, March 31, 1998 5,500,425 5,500 1,111,700
Issuance of common stock for cash and notes receivable 6,512,835 6,500 5,033,400
Stock option grants - - 343,000
Repurchase and retirement of common stock (2,650,130) (2,600) (971,300)
Treasury stock acquired, at cost - - -
Issuance of treasury stock for retirement of debt - - 22,600
Issuance of treasury stock as bonus to existing
shareholders - - 95,300
Payments received on notes receivable - - -
Net loss - - -
- --------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 9,363,130 9,400 5,634,700
Stock option grants (Unaudited) - - 205,000
Issuance of treasury stock for cash and notes receivable
(Unaudited) - - 700
Issuance of treasury stock (Unaudited) - - 19,400
Net loss (Unaudited) - - -
- --------------------------------------------------------------------------------------------------------
Balances, June 30, 1999 (Unaudited) 9,363,130 $ 9,400 $5,859,800
========================================================================================================
<CAPTION>
================================================================================================================
Treasury Stock
Accumulated ----------------------
Deficit Shares Amount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, April 1, 1997 $ (9,800) - $ -
Issuance of common stock for services - - -
Issuance of common stock for cash - - -
Stock option grants - - -
Exercise of stock options - - -
Issuance of common stock in connection with reverse - - -
merger
Net loss (620,800) - -
- ----------------------------------------------------------------------------------------------------------------
Balances, March 31, 1998 (630,600) - -
Issuance of common stock for cash and notes receivable - - -
Stock option grants - - -
Repurchase and retirement of common stock - - -
Treasury stock acquired, at cost - (1,771,209) (3,186,500)
Issuance of treasury stock for retirement of debt - 21,209 57,000
Issuance of treasury stock as bonus to existing - 156,250 13,000
shareholders
Payments received on notes receivable - - -
Net loss (1,015,900) - -
- ----------------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 (1,646,500) (1,593,750) (3,116,500)
Stock option grants (Unaudited) - - -
Issuance of treasury stock for cash and notes receivable - 72,727 197,100
(Unaudited)
Issuance of treasury stock (Unaudited) - 66,667 180,600
Net loss (Unaudited) (562,700) - -
- ----------------------------------------------------------------------------------------------------------------
Balances, June 30, 1999 (Unaudited) $(2,209,200) (1,454,356) $ (2,738,800)
================================================================================================================
<CAPTION>
==============================================================================================
Notes
Receivable Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Balances, April 1, 1997 $ - $ 22,700
Issuance of common stock for services - 336,200
Issuance of common stock for cash - 164,800
Stock option grants - 30,000
Exercise of stock options - 3,700
Issuance of common stock in connection with reverse (550,000) -
merger
Net loss - (620,800)
- ----------------------------------------------------------------------------------------------
Balances, March 31, 1998 (550,000) (63,400)
Issuance of common stock for cash and notes receivable (4,976,300) 63,600
Stock option grants - 343,000
Repurchase and retirement of common stock 973,900 -
Treasury stock acquired, at cost 3,186,500 -
Issuance of treasury stock for retirement of debt - 79,600
Issuance of treasury stock as bonus to existing - 108,300
shareholders
Payments received on notes receivable 1,365,900 1,365,900
Net loss - (1,015,900)
- ----------------------------------------------------------------------------------------------
Balances, March 31, 1999 - 881,100
Stock option grants (Unaudited) - 205,000
Issuance of treasury stock for cash and notes receivable (17,800) 180,000
(Unaudited)
Issuance of treasury stock (Unaudited) - 200,000
Net loss (Unaudited) - (562,700)
- ----------------------------------------------------------------------------------------------
Balances, June 30, 1999 (Unaudited) $ (17,800) $ 903,400
==============================================================================================
</TABLE> See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Softlink, Inc.
Consolidated Statements of Cash Flows
(Note 10)
=================================================================================================================================
Three Months Ended June 30, Years Ended March 31,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(562,700) $(40,300) $(1,015,900) $(620,800)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 5,100 1,200 7,100 3,800
Allowance for doubtful accounts 2,200 - - -
Compensation relating to stock options issued 205,000 6,400 343,000 30,000
Compensation relating to stock issued for
services - - - 336,200
Compensation relating to issuance of treasury
stock - - 108,300 -
Changes in current operating assets and
liabilities:
Accounts receivable (318,700) 6,500 (423,700) (6,900)
Inventories (33,500) (15,100) (25,600) (14,000)
Prepaid expenses and other current assets (50,300) - (82,700) (800)
Accounts payable 56,200 14,700 77,200 600
Accrued liabilities 20,900 800 6,700 -
Deferred revenue 12,700 58,100 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Operating Activities (663,100) 32,300 (1,005,600) (271,900)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Payments to acquire property and equipment (53,000) (13,500) (49,800) (4,200)
Deposits and other assets (15,200) (2,800) (52,000) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (68,200) (16,300) (101,800) (4,200)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Principal payment on note payable to stockholder - - (50,000) -
Principal payment on note payable - (11,500) (16,500) (3,900)
Proceeds from borrowing on note payable - - - 100,000
Proceeds from borrowing on note payable to
stockholder - - - 50,000
Proceeds from short-term debt from stockholder 100,000 - - -
Proceeds from issuance of common stock - 100,000 63,600 164,800
Proceeds from issuance of treasury stock 380,000 - - -
Proceeds from exercise of stock options - - - 3,700
Payments received on stockholder notes receivable - - 1,365,900 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 480,000 88,500 1,363,000 314,600
- ---------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash (251,300) 104,500 255,600 38,500
Equivalents
Cash and Cash Equivalents, beginning of period 307,500 51,900 51,900 13,400
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 56,200 $156,400 $ 307,500 $ 51,900
=================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
1. Summary of The Company
Significant
Accounting Softlink, Inc. (formerly Draco Technologies, Inc., a
Policies publicly traded shell corporation) (the Company), a Nevada
and Basis Corporation, was incorporated on July 24, 1997.
of Presentation
On March 31, 1998 the Company completed the acquisition of
100% of the outstanding common stock of Softlink, Inc., a
California corporation, (Softlink CA) in exchange for
2,873,145 shares of the Company's $.001 par value common
stock. For accounting purposes, the acquisition has been
treated as the acquisition of the Company by Softlink CA
with Softlink CA as the acquiror (reverse acquisition).
The historical financial statements prior to March 31,
1998 are those of Softlink CA. Since the Company prior to
the reverse acquisition was a public shell corporation
with no significant operations, pro-forma information
giving effect to the acquisition is not presented. All
shares and per share data prior to the acquisition have
been restated to reflect the stock issuance as a
recapitalization of Softlink CA. The 2,627,280 shares held
by the shareholders of the Company prior to the
acquisition have been recognized as if they were issued in
connection with the acquisition of the Company by Softlink
CA. On October 21, 1998, the Company's stock became
publicly traded.
Softlink CA was incorporated on November 8, 1995. Softlink
CA's principal activities consist of developing e-mail
enhancement software, and licensing and marketing its
products through wholesalers and end-users located
primarily in North America.
Basis of Presentation
The accompanying balance sheet as of June 30, 1999 and the
statements of operations and cash flows for each of the
three month periods ended June 30, 1999 and 1998 have not
been audited. However, in the opinion of management, they
include all normal recurring adjustments necessary for a
fair presentation of the financial position and the
results of operations for the periods presented. The
results of operations for the three months ended June 30,
1999 are not necessarily indicative of results to be
expected for any future period.
F-8
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
The accompanying financial statements have been prepared
on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the
financial statements, the Company had an accumulated
deficit of $1,646,500 as of March 31, 1999 and incurred
losses of $1,015,900 and $620,800 for the years ended
March 31, 1999 and 1998, respectively.
These conditions give rise to substantial doubt about the
Company's ability to continue as a going concern. The
consolidated financial statements do not include any
adjustments relating to the recoverability and
classification of reported asset amounts or the amount and
classification of liabilities that might be necessary
should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is
dependent upon its ability to obtain additional financing
or refinancing as may be required and ultimately to attain
profitability. The Company is actively marketing its
existing and new products, which it believes will
ultimately lead to profitable operations. Management is
also pursuing additional financing and has obtained
additional financing of $3,000,000 through the issuance of
300 shares of convertible preferred stock (Note 12).
Consolidation
The accompanying consolidated financial statements include
the accounts of Softlink, Inc. and its wholly-owned
subsidiary, Softlink CA. All intercompany accounts and
transactions have been eliminated in the consolidated
financial statements.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F-9
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The Company places its cash and cash
equivalents with a high quality institution. At times,
such funds may be in excess of the Federal Deposit
Insurance Company limit of $100,000.
Accounts Receivable and Allowance for Doubtful Accounts
The Company grants credit to its customers after
undertaking an investigation of credit risk for all
significant amounts and generally does not require cash
collateral. When necessary, an allowance for doubtful
accounts is provided for estimated credit losses at a
level deemed appropriate to adequately provide for known
and inherent risks related to such amounts. The allowance
is based on reviews of loss, adjustments history, current
economic conditions and other factors that deserve
recognition in estimating potential losses. While
management uses the best information available in making
its determination, the ultimate recovery of recorded
accounts receivable is also dependent upon future economic
and other conditions that may be beyond management's
control.
Inventories
Inventories, which consist principally of software and
packaging, are stated at the lower of cost (average) or
market (net realizable value).
Property and Equipment
Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation is
provided on the straight-line method over the estimated
useful lives of the assets, generally ranging from two to
five years.
Long-Lived Assets
The Company periodically reviews its long-lived assets for
impairment based upon the estimated future cash flows
expected to result from the use
F-10
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
of the asset and its eventual disposition. When events or
changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, the Company writes the
asset down to its estimated then-current fair value.
Revenue Recognition
Sales are recognized at the time of shipment provided no
significant obligations remain, no uncertainty exists
about customer acceptance and collectibility is probable.
License fees are earned according to the terms of the
license agreement with the licensee (Note 5). Deferred
revenue, included in accrued liabilities on the balance
sheet, represent the unearned portion of amounts billed to
customers.
Research and Development Costs
Costs incurred in the research and development of new
software products are expensed as incurred until
technological feasibility has been established. To date,
the establishment of technological feasibility of the
Company's products and general release substantially
coincide. As a result, the Company has not capitalized any
software development costs since such costs qualifying for
capitalization have not been significant.
Advertising Costs
The cost of advertising is expensed as incurred, except
for direct response advertising, which is capitalized and
amortized over its expected period of future benefits.
Direct response advertising consists primarily of
television infomercials which are broadcast to elicit
sales to customers who respond specifically to the
advertisement. The capitalized costs of the advertising
are amortized over the one year period that the
infomercial is broadcasted. As of March 31, 1999, $76,100
of these advertising costs are included in prepaid
expenses and other current assets. Advertising expense for
the fiscal years ended March 31, 1999 and 1998 aggregated
$23,900 and $1,700, respectively. Advertising expense for
the three months ended June 30, 1999 and 1998 aggregated
$79,300 and $3,500, respectively (unaudited).
F-11
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
Income Taxes
The Company reports income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Deferred income taxes
are recognized for the tax consequences of temporary
differences by applying the tax rate expected to be in
effect in future years to differences between the
financial statements carrying amounts and the tax basis of
existing assets and liabilities. Tax credits are recorded
as a reduction of the provision for federal income taxes
in the year realized. A valuation allowance is established
for deferred income tax assets when realization is not
deemed more likely than not.
Adoption of New Accounting Pronouncements
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 98-1,
Software for Internal Use, which provides guidance on
accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after
December 15, 1998. The Company does not expect that the
adoption of SOP No. 98-1 will have a material impact on
its consolidated financial statements.
In June 1998, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No.
133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the
fair value of the hedged assets or liability that are
attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the
gain and loss is recognized in income in the period of
change. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15,
2000.
F-12
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not
expect adoption of the new standard to affect its
financial statements.
On October 27, 1997, the American Institute of Certified
Public Accountants issued Statement of Position (SOP) No.
97-2, Software Revenue Recognition, which provides
guidance on when revenue should be recognized and in what
amounts for licensing, selling, leasing, or otherwise
marketing computer software. If the software arrangement
does not require significant production, modification, or
customization of software, revenue should be recognized
when all of the following criteria are met: (1) persuasive
evidence of an arrangement exists, (2) delivery has
occurred, (3) the vendor's fee is fixed or determinable,
and (4) collectibility is probable. The adoption of SOP
No. 97-2 did not have a material impact on the Company's
financial statements.
Fair Values of Financial Instruments
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for
financial instruments:
Cash and cash equivalents:
The carrying amount reported in the consolidated
balance sheet for cash and cash equivalents
approximates fair value for cash and cash equivalents.
Loan receivable from Actanet, Inc.:
The fair value of the loan receivable from Actanet,
Inc. is not determinable because of the uncertain
period of time to maturity.
Short-term debt:
The fair value of short-term debt approximates cost
because of the short period of time to maturity.
F-13
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
Earnings Per Share
During the year ended March 31, 1998, the Company adopted
the provisions of SFAS No. 128, Earnings Per Share. SFAS
No. 128 provides for the calculation of basic and diluted
earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to
common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of securities
that could share in the earnings of an entity. For the
years ended March 31, 1999 and 1998, options to purchase
2,315,026 and 485,663 shares of common stock,
respectively, were excluded from the computation of
diluted earnings per share since their effect would be
antidilutive. For the three months ended June 30, 1999 and
1998, options to purchase 2,504,493 and 976,654 shares of
common stock, respectively, were excluded from the
computation of diluted earnings per share since their
effect would be anti-dilutive.
2. Property and A summary of property and equipment follows:
Equipment
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
---------------------------------------------------------
(Unaudited)
<S> <C> <C>
Furniture and fixtures $ 49,500 $ 38,900
Equipment 69,400 25,900
Software 9,200 3,400
---------------------------------------------------------
128,100 68,200
Less accumulated depreciation 19,000 13,900
---------------------------------------------------------
$109,100 $ 54,300
=========================================================
</TABLE>
3. Deposits and Included in deposits and other assets is a $49,200 loan
Other Assets receivable from Actanet Inc., an unrelated company. The
loan is non-interest bearing and is payable when Actanet
Inc. raises $250,000 of debt or equity funding from
investors.
4. Short-Term In March 1998, the Company borrowed $50,000 from a
Borrowings stockholder under the terms of a promissory note bearing a
12% interest rate. In August 1998, the note payable and
accrued interest were repaid in full.
F-14
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
In December 1997, the Company received a $100,000 deposit
from Compressant, Inc., a company who had entered into a
merger agreement with the Company. In April 1998, the
Company cancelled the merger agreement with Compressant,
Inc. and executed an 8% promissory note payable in
December 1998. In July 1998, the promissory note was
assigned to Harris & Hull, who subsequently filed a
complaint against the Company in January 1999 for breach
of contract on the promissory note. In March 1999, the
Company entered into a settlement agreement with Harris &
Hull which provided for a $5,000 cash payment and a
transfer of 21,209 shares of the Company's common stock as
full payment on the $84,600 remaining balance due under
the promissory note. Since the Company issued shares of
treasury stock carried at their acquisition cost of
$57,000 to settle this note payable, the resulting gain on
this transaction has been recorded as an increase to
additional paid-in capital.
5. License On March 27, 1998, Softlink, Inc. entered into a license
Agreement agreement with an unrelated Japanese company ("the
Licensee"), which provides for the exclusive right to sell
certain of Softlink, Inc.'s products in Japan. The license
agreement calls for the payment of a minimum guarantee
royalty by the licensee of $800,000 during the first
fifteen months and $1,200,000 during the next twelve
months. As such, Softlink, Inc. has recognized $640,000
and $6,900 in license fee income during the years ended
March 31, 1999 and 1998, respectively. During the three
months ended June 30, 1999 and 1998, the Company
recognized $153,100 and $160,000 respectively (unaudited).
Included in accounts receivable as of March 31, 1999 is
$421,900 due from the Licensee. Future minimum license fee
income to be earned under the terms of the license
agreement totals $1,059,800 and $293,300 during the years
ended March 31, 2000 and 2001, respectively.
F-15
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
6. Commitments The Company has an employment agreement with one of its
officers which provides for a severance payment equal to
one year's salary and immediate vesting of outstanding
stock options if the officer is terminated without cause.
The Company leases its facilities under operating leases.
The facility leases require the Company to pay certain
maintenance and operating expenses such as utilities,
property taxes and insurance costs. Rent expense related
to these leases was $32,000 and $1,500 for the fiscal
years ended March 31, 1999 and 1998, respectively.
A summary of the future minimum lease payments under these
non-cancelable operating leases follows:
<TABLE>
<CAPTION>
Years Ended March 31, Amount
---------------------------------------------------------
<S> <C>
2000 $54,000
2001 24,600
---------------------------------------------------------
$78,600
=========================================================
</TABLE>
7. Income Taxes Income tax expense for the years ended March 31, 1999 and
1998 consisted of the State minimum tax.
The Company's effective tax rate differs from the
statutory federal income tax principally as a result of
Federal and State net operating losses for which a full
valuation allowance has been provided.
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Loss carryforwards $ 680,000 $ 455,200
Depreciation and amortization (2,800) (2,800)
Deferred compensation 241,800 159,800
Reserves not currently deductible 39,400 39,400
-------------------------------------------------------------
958,400 651,600
</TABLE>
F-16
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
<TABLE>
<S> <C> <C>
Valuation allowance (958,400) (651,600)
----------------------------------------------------------
Net deferred tax asset $ -- $ --
==========================================================
</TABLE>
As of March 31, 1999, the Company has net operating loss
carryforwards of approximately $1,175,300 and $590,300
available to reduce future taxable income, if any, for
Federal and California state income tax purposes. The net
operating loss carryforwards expire in various years
through 2019.
Pursuant to the "change in ownership" provisions of the
Tax Reform Act of 1986, utilization of the Company's net
operating loss carryover may be limited, if a cumulative
change of ownership of more than 50% occurs within any
three-year period. The Company has not made this
determination as of March 31, 1999.
8. Capital Stock Common Stock
During the year ended March 31, 1998, Softlink CA sold
222,327 shares of its common stock to various investors
resulting in $164,800 in proceeds. In addition, Softlink
CA issued 453,621 shares of its common stock to various
consultants. Compensation costs relating to stock issued
for services totaling $336,200 were recorded based on the
$0.74 price per share obtained from the sale of common
stock during the period.
On March 31, 1998, the Company completed the acquisition
of 100% of the outstanding common stock of Softlink CA in
a transaction recorded as a reverse acquisition (Note 1).
During the year ended March 31, 1999, the Company sold
6,512,835 shares of its common stock in exchange for
several 8% notes receivable totaling $4,976,300 and
$63,600 in cash. On October 21, 1998 (prior to when the
Company's stock became publicly traded), 2,650,130 of
these shares of common stock were repurchased at the
original per-share issuance price and retired by the
Company in exchange for the cancellation of $973,900 in
notes receivable due to non-payment.
Treasury Stock
On March 31, 1999, the Company repurchased 1,771,209
shares of its common stock at the then-current market
value in exchange for the
F-17
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
cancellation of $3,186,500 in notes receivable due to non-
payment. A former shareholder reserves the right to
repurchase 250,000 of these shares from the Company at
$3.00 per share through September 30, 1999 (Note 12).
The Company reserved 625,000 of these treasury shares
(with a cost of $52,000) for issuance to its existing
shareholders upon achieving the following three
milestones: 25% of the shares would be issued upon the
collection of the first $250,000 due under a license
agreement (Note 5), 35% of the shares would be issued if
the Company generated $2 million in sales and $100,000 in
"audited profits" for the year ended December 31, 1998,
the remaining 40% of the shares would be issued if the
Company generated $1.5 million in sales and $200,000 in
"audited profits" for the six months ended June 30, 1999.
The Company met the first milestone in June 1998, and
recorded $108,300 in compensation expense for the issuance
of 156,250 of these reserved treasury shares based on
their cost. However, the Company did not achieve the
second two milestones. As of the date of this report,
management has not yet formulated a plan for the remaining
468,750 shares reserved in treasury stock.
On March 31, 1999, 21,209 of the shares held in treasury
were reissued for the retirement of $79,600 in debt
(Note 4).
In March 1999, the Company reserved 875,000 shares of
treasury stock (with a cost of $2,400,000) for issuance in
exchange for radio and television advertising.
Based upon an agreement dated April 30, 1999 with a barter
company which is acting as an intermediary in this
transaction, the Company will be invoiced for radio and
television advertising at the standard billing prices
established by the media supplier, less 20%. The number of
treasury shares to be transferred for payment of invoices
received will be based on the lower of $2.50 per share or
50% of the trading price of the Company's common stock on
the date of transfer.
F-18
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
Stock Options
Options are exercisable as determined by the Board of
Directors on the date of grant and expire five years from
the date of grant. The Company applies Accounting
Principles Board (APB) No. 25, Accounting for Stock Issued
to Employees, and Related Interpretations in Accounting
for Stock Options Issued to Employees. Under APB Opinion
No. 25, employee compensation cost is recognized when the
estimated fair value of the underlying stock on date of
grant exceeds the exercise price of the stock option. For
stock options issued to non-employees, the Company applies
SFAS No. 123, Accounting for Stock-Based Compensation,
which requires the recognition of compensation cost based
upon the fair value of stock options at the grant date
using the Black-Scholes option pricing model. During the
years ended March 31, 1999 and 1998, the Company
recognized $343,000 and $30,000 in compensation cost
relating to stock options issued to employees and
consultants.
A summary of the status of the Company's stock options of
March 31, 1999 and 1998, and changes during the years then
ended is presented in the following table:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------
March 31, 1999 March 31, 1998
-------------------------- ----------------------
Wtd.-Avg Wtd.-Avg
Shares Ex. Price Shares Ex. Price
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning 480,702 $ 0.74 -- $ --
Granted 1,834,324 $ 0.94 485,663 $ 0.74
Exercised -- $ -- (4,961) $ 0.74
Forfeited (8,533) $ 0.74 -- $ --
-----------------------------------------------------------------------
Ending 2,306,493 $ 0.90 480,702 $ 0.74
=======================================================================
Exercisable
at year-end 1,150,177 $ 0.75 480,702 $ 0.74
========== ========
</TABLE>
F-19
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
The following table summarizes information about stock
options granted during the year ended March 31, 1999:
<TABLE>
<CAPTION>
Exercise Price
Number of Equals, Exceeds or Weighted-
Options is Less Than Mkt. Average Range of Weighted-
Granted Price of Stock Exercise Exercise Average
During 1999 on Grant Date Price Prices Fair Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
800,991 Equals $ 0.61 $ 0.61 $ 0.09
283,333 Exceeds $ 1.20 $ 1.20 $ 0.01
750,000 Less Than $ 1.19 $0.61-2.00 $ 4.07
---------------------------------------------------------------------------
1,834,324 $ 0.94 $ 1.70
============== ======== ===========
</TABLE>
The weighted-average exercise price and weighted-average
fair value of stock options granted during the year ended
March 31, 1998 was $0.74 and $0.06, respectively.
The following table summarizes information about stock
options outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -------------------------------
Weighted
Number Average
Range of Outstanding Remaining Weighted Number Weighted
Exercise as of Contractual Life Average Exercisable as Average
Price 3/31/99 (Years) Exercise Price of 3/31/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$0.50 75,000 4.9 $0.50 40,625 $0.50
$0.61 830,991 4.2 $0.61 471,771 $0.61
$0.74 472,168 3.9 $0.74 472,169 $0.74
$1.20 853,333 4.9 $1.20 164,778 $1.20
$2.00 75,000 5.0 $2.00 834 $2.00
--------- ---------
2,306,493 1,150,177
========= =========
</TABLE>
F-20
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
SFAS No. 123 requires the Company to provide pro forma
information regarding net loss and loss per share as if
compensation cost for the Company's stock option plans had
been determined in accordance with the fair value based
method prescribed in SFAS No. 123. The Company estimates
the fair value of stock options at the grant date by using
the Black-Scholes option pricing-model with the following
weighted-average assumptions used for grants in 1999 and
1998, respectively: no dividend yield; expected volatility
of 227.3 percent (for options granted while the Company's
stock was publicly traded) and 0.1 percent (for options
granted prior to when the Company's stock was publicly
traded); risk-free interest rate of 5.7 and 6.0 percent;
and expected lives of three years for all plan options.
Under the accounting provisions of SFAS No. 123, the
Company's net loss and loss per share would have been
increased to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Years ended March 31, 1999 1998
------------------------------------------------------
<S> <C> <C>
Net income:
As reported $ (1,015,900) $(620,800)
======================================================
Pro forma $ (1,069,100) $(620,800)
======================================================
Basic earnings per share:
As reported $ (0.14) $ (0.26)
======================================================
Pro forma $ (0.15) $ (0.26)
======================================================
</TABLE>
9. Major Customers For the year ended March 31, 1999, revenues from two
customers amounted to $72,000, or 79% of net sales,
excluding the revenue from license fees (Note 5). Included
in accounts receivable as of March 31, 1999 is $5,500 due
from these two customers.
For the year ended March 31, 1998, revenues from two
customers amounted to $15,500 or 93% of net sales,
excluding the revenue from license fees.
F-21
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
10. Statements of The Company paid $2,500 and $0 for interest in the fiscal
Cash Flows years ended March 31, 1999 and 1998, respectively. The
Company made no income tax payments during the year ended
March 31, 1999 and paid $800 for income taxes during the
year ended March 31, 1998.
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
In May 1999, the Company purchased a copier in the amount
of $6,900 under a capital lease. In June 1999, the Company
received notes receivable totalling $17,800 for the
issuance of treasury stock.
During the year ended March 31, 1999, the Company received
notes receivable totaling $4,976,300 for the sale of
common stock. Of this amount, $973,900 in notes receivable
were cancelled for the repurchase and retirement of common
stock, and $3,186,500 in notes receivable were cancelled
for the acquisition of treasury stock. In addition, a note
payable amounting to $79,600 was retired through the
issuance of treasury stock (Notes 4 and 8).
During the year ended March 31, 1998, a $550,000 note
receivable pertaining to the sale of common stock was
recorded in connection with the completion of a reverse
acquisition (Note 1).
11. Contingency The Company is currently under an investigation by the
Securities and Exchange Commission. As of the date of this
report, the outcome of this investigation is not
determinable.
12. Subsequent During the three months ended June 30, 1999, 208,000
Events and stock options with a $2.00 exercise price were issued to
Interim Period employees.
Information
During the three months ended June 30, 1999, the Company
issued 66,667 shares of treasury stock to a shareholder
for proceeds of $200,000 as an exercise of that
shareholder's right to repurchase shares of treasury stock
(Note 8). The Company also borrowed $100,000 with zero
interest from the same shareholder during the period.
F-22
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
In May 1999, the Company purchased fully vested options to
buy 10,000 shares of the Company's common stock with an
exercise price of $0.61 per share from a consultant for
$5,500.
In June 1999, the Company entered into an agreement to
sell 72,727 shares of treasury stock to two investors for
notes receivable totalling $17,800 and $180,000 in cash.
In June 1999, the Company entered into a lease agreement
to rent office space for two years, effective September
13, 1999. The lease required a security deposit of $7,800,
and a minimum monthly payment of approximately $7,900.
In June 1999, the Company entered into a license agreement
with an unrelated U.S. company ("the Licensor"), which
gave the Company an exclusive right to reproduce,
manufacture, sell and distribute certain motion pictures.
In July 1999, the Company paid $41,400 to acquire the
royalty right and deposit for the use of certain titles.
In June 1999, the Company entered into a license agreement
with an unrelated Japanese company ("the Licensee"), which
provides for the non-exclusive right to distribute certain
media titles in Japan. The license agreement calls for the
payment of $38,500 by the licensee for the initial
shipment of product, and an additional $60,500 royalty
payments at the time when additional materials are
ordered.
In July 1999, the Company borrowed in total $102,300 with
zero interest from three shareholders, and $16,000
interest-free loan from an officer, respectively. In
August 1999, all of these loans were paid in full
(unaudited).
F-23
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
In July 1999, the Company entered into a license agreement
with a U.S. based Japanese company ("the Licensee"), which
allows the licensee to replicate, copy and license certain
computer software programs as part of a bundle for use
with a hardware product. As part of the agreement, the
Company will deliver its standard user manual as well as
the user guide for the program. The Company will also
provide continued upgrades and support to the program. The
licensee shall pay the Company a royalty for the program
at a fixed price per unit, and the royalty payments will
be made to the Company on a quarterly basis (unaudited).
In July 1999, the Company granted an employee an option to
purchase 30,000 shares of the Company's common stock at $2
per share, vesting for a period of two years at a rate of
7,500 shares per every six months at the end of each six
month period (unaudited).
In July 1999, the Company borrowed $20,000 interest-free
loan from an independent lender. In return, the Company
granted the lender an option to purchase 5,000 shares of
the Company's stock at $2 per share. The option will
expire three years from the date of the promissory notes.
In September 1999, the note payable was repaid in full
(unaudited).
In July 1999, the Company borrowed $70,000 from an
unrelated lender under the terms of a promissory note
bearing a 10% interest rate. In August, 1999, the loan was
paid in full (unaudited).
In August, 1999, the Company entered into employment
agreements with two additional officers providing for
severance payments equal to one year's salary if either
officer is terminated without cause (unaudited).
In August the Company restated its Articles of
Incorporation to authorize 59,000,000 shares of common
stock and 1,000,000 shares of preferred stock, each with a
par value of $0.001 per share (unaudited).
F-24
<PAGE>
Softlink, Inc.
Notes to Consolidated Financial Statements
(Information with respect to June 30, 1999 and 1998 is unaudited)
================================================================================
In August 1999, the Company obtained an additional
financing of $3,000,000 through the issuance of 300 shares
of Series A convertible preferred stock to investors. The
Company also issued warrants to purchase an aggregate of
390,000 shares of common stock. The warrants, which have
exercise prices ranging from $2.25 to approximately
$2.44 per share, expire in August 2004. The preferred
stock is convertible into that number of shares of common
stock equal to the stated value of the Series A
convertible preferred stock divided by the conversion
price in effect at the time of the conversion (unaudited).
In September 1999, the Company's board of directors
adopted the 1999 Stock Option Plan, which has not yet been
ratified by the stockholders. Under the Plan 2,400,000
shares of common stock are available for options which may
be granted to employees, directors, and consultants
(unaudited).
In September 1999, the Company's board of directors voted
by unanimous consent to rescind options to purchase
958,000 shares of common stock previously granted to
various employees. The board then granted options to
purchase 1,082,714 shares of common stock under the newly
adopted stock option plan (unaudited).
F-25
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Nevada limits the liability of officers and
directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers corporations organized under Nevada Law to
indemnify officers, directors, employees and others from liability in certain
circumstances such as where the person successfully defended himself on the
merits or acted in good faith in a manner reasonably believed to be in the best
interests of the corporation.
Our Articles of Incorporation, with certain exceptions, eliminate any
personal liability of a directors or officers to us or our stockholders for
monetary damages for the breach of such person's fiduciary duty, and, therefore,
an officer or director cannot be held liable for damages to us or our
stockholders for gross negligence or lack of due care in carrying out his or her
fiduciary duties as a director or officer except in certain specified instances.
We may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
There are presently no material pending legal proceeding to which a
director, officer and employee of ours is a party. There is no pending
litigation or proceeding involving one of our directors, officers, employees or
other agents as to which indemnification is being sought, and we are not aware
of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
We have purchased directors and officers liability insurance to defend and
indemnify directors and officers who are subject to claims made against them for
their actions and omissions as directors and officers of Softlink. The
insurance policy provides standard directors and officers liability insurance in
the amount of $5,000,000.
We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we shall indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses,
(including attorneys' fees and disbursements), incurred in connection with, or
in any way arising out of, any claim, action or proceeding against, or
affecting, such directors and officers resulting from, relating to or in any way
arising out of, the service of such persons as our directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions or otherwise, we have has been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of various expenses, all of
which we will pay, in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee . . . . . . . .$ 1,235
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . $ 30,000
Legal Fees and Expenses . . . . . . . . . . . . ........ . . . . . . . $ 40,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,765
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by us during the past three years. Also included is the consideration, if any,
received by us for such shares and options and information relating to the
section of the Securities Act, or rule of the SEC under which exemption from
registration was claimed.
Transactions described in Items (1) through (6) below refer to the
securities of Softlink, Inc., a California corporation which was the predecessor
entity of the filer of this Registration Statement, and transactions described
in Items (7) through (20) below refer to the securities of Softlink, Inc. a
Nevada corporation which is the Registrant in this Registration Statement.
Unless otherwise indicated, information in this section regarding shares
of our common stock reflect the conversion ratio applied to shares of our common
stock at the time of the reorganization described above.
(1) In January 1997, the Company issued 33,727 shares of common stock to
a consultant in exchange for services provided to the Company valued at
approximately $5,000. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 and was made without general solicitation or advertising.
The consultant was a sophisticated investor with access to all relevant
information necessary to evaluate the investment, and who represented to the
Company that the shares were being acquired for investment.
(2) In January 1997, the Company issued 33,727 shares of common stock to
an investor in exchange for $12,500. The issuance was made in reliance on
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated under
the Securities Act of 1933 and was made without general solicitation or
advertising. The purchaser was a sophisticated investor with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(3) In September 1997 the Company issued 33,727 shares of common stock to
a consultant in exchange for consulting services valued at approximately
$25,000. The issuance was
II-2
<PAGE>
made in reliance on Section 4(2) of the Securities Act of 1933 and was made
without general solicitation or advertising. The consultant was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented to the Company that the shares were being
acquired for investment.
(4) In November 1997 the Company issued 92,380 shares of common stock to
investors in exchange for $68,477. The issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated under
the Securities Act of 1933 and was made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(5) In January 1998, the Company issued 134,907 shares of common stock to
an investor in exchange for $100,000. The issuance was made in reliance on
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated under
the Securities Act of 1933 and was made without general solicitation or
advertising. The purchaser was a sophisticated investor with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(6) From January to March 1998, the Company issued 419,894 shares of
common stock to consultants in exchange for services performed for the Company
valued at $311,249. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and were made without general solicitation or
advertising. The consultants were sophisticated investors with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(7) In March 1998, the Company and its stockholders entered into a
reorganization with Draco Technologies, Inc., a Nevada corporation. Under the
reorganization, the stockholders of the Company received 0.6745344 shares of
common stock of Draco Technologies for each share of the Company they owned
prior to the reorganization and the Company became a wholly-owned subsidiary of
Draco Technologies. Draco Technologies changed its name to Softlink, Inc. and
references to "the Company" hereafter refer to Softlink, Inc., the filer of
this registration statement. The issuance was made in reliance on Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated under the Securities
Act of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to the Company that
the shares were being acquired for investment.
(8) In March 1998, immediately prior to the reorganization, the Company
conducted a private offering of its common stock. Pursuant to that offering, a
total of 875,000 shares of common stock were sold to American Universal Group,
Inc. for total cash and notes receivable consideration of $558,750. The issuance
was made in reliance on Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated under the Securities Act of 1933 and was made without
general solicitation or advertising. The purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate the investment,
and who represented to the Company that the shares were being acquired for
investment. 355,000 of the shares issued pursuant to this offering were later
cancelled by the Company due to nonpayment under the notes.
II-3
<PAGE>
(9) In March 1998, immediately prior to the reorganization, the Company
conducted a private offering of its common stock. Pursuant to that offering, a
total of 1,625,000 shares of common stock were sold to individuals for total
notes receivable consideration of $16,250. The issuances were made in reliance
on Section 4(2) of the Securities Act of 1933 and Regulation D promulgated under
the Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investments, and who represented
to the Company that the shares were being acquired for investment. 1,088,000 of
the shares issued pursuant to this offering were later cancelled by the Company
due to nonpayment under the notes.
(10) In May 1998, the Company issued 612,295 shares of common stock to
investors pursuant to promissory notes in favor of the Company in the aggregate
amount of $373,500. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and Regulation S promulgated under the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to the Company that the
shares were being acquired for investment. All of the shares issued pursuant to
this offering were later cancelled by the Company due to nonpayment under the
notes.
(11) In May 1998, the Company issued 737,705 shares of common stock to
investors pursuant to promissory notes in favor of the Company in the aggregate
amount of $450,000. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated under the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to the Company that the
shares were being acquired for investment. 594,835 of the shares issued pursuant
to this offering were later cancelled by the Company due to nonpayment under the
notes.
(12) Subsequent to the investments noted in (8) and (9) above, the
Company purchased 625,000 shares of common stock for treasury and placed these
shares into an escrow account in favor of employees of the Company. The shares
were to be distributed to the employees upon the achievement by the Company of
three performance milestones. In June 1998, the Company issued 156,250 shares of
this treasury stock to employees upon the achievement of the first of three
performance milestones. The issuances were made in reliance on Section 4(2) of
the Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to the Company that the shares were being acquired for investment.
(13) In October 1998, the Company issued 425,130 shares of common stock
investors in exchange for notes receivable and cash in the amount of $260,901.
The issuances were made in reliance on Section 4(2) of the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to the Company that the
shares were being acquired for investment.
II-4
<PAGE>
(14) In October 1998, the Company issued 2,737,705 shares of common stock
to investors in exchange for $1,670,000. The issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated under
the Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(15) In October 1998, the Company issued 2,000,000 shares of common stock
to investors in exchange for promissory notes in favor of the Company in the
aggregate amount of $2,400,000. The issuances were made in reliance on Section
4(2) of the Securities Act of 1933 and Regulation D promulgated under the
Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment. 1,146,209 of
these shares were later purchased by the Company and converted to treasury stock
of the Company in exchange for the forgiveness of the remaining unpaid amount
due under the promissory notes.
(16) In March 1999, the Company issued 21,209 shares of treasury stock to
an investor to satisfy a loan obligation of the Company. The issuance was made
in reliance on Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment, and who
represented to the Company that the shares were being acquired for investment.
(17) In June 1999, the Company issued an aggregate of 72,727 shares of
treasury stock to two investors in consideration of an aggregate of $180,000 in
cash and notes receivable. The issuances were made in reliance on Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated under the Securities
Act of 1933, and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate the investment, and who represented to the Company that
the shares were being acquired for investment.
(18) In August 1999, the Company issued 300 shares of preferred stock and
warrants to purchase up to 240,000 shares of common stock to two investors in
exchange for $3,000,000 in cash consideration. The issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate the investment, and who
represented to the Company that the shares were being acquired for investment.
(19) In September 1999, the Company issued options to purchase 1,082,714
shares of common stock to officers and employees of the Company, with exercise
prices ranging from $1.75 to $2.00 per share. The issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and Rule 701 promulgated
under the Securities Act of 1933 and were made without general solicitation or
advertising. The recipients were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to the Company that the shares were being acquired for investment.
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ITEM 27. EXHIBITS
</TABLE>
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
- ----------- ------------
<S> <C>
3.1 Articles of Incorporation of the Registrant, dated as of July 24, 1997
3.2 Certificate of Amendment to the Articles of Incorporation of the Registrant, dated as of March 23, 1998
3.3 Certificate of Amendment of Articles of Incorporation of the Registrant, dated as of August 12, 1999
3.4 Certificate of Designation of Preferences for Series A Preferred Stock of the Registrant
3.5 By-Laws of Registrant
4.1 Sample Stock Certificate of the Registrant (*)
4.2 See Exhibit No. 3.1, 3.2 and 3.3
5.1 Opinion of Silicon Valley Law Group (*)
10.1 License Agreement dated as of March 27, 1998 by and between NIC Ltd. and
the Registrant
10.2 Employment Agreement dated as of March 1, 1999 by and between William W.
Yuan and the Registrant
10.3 First Amendment to Employment Agreement dated as of August 31, 1999 by and
between William W. Yuan and the Registrant
10.4 Office Rent Sublease Agreement dated as of April 9, 1999 by and between
Auken-Redac and the Registrant
10.5 Computer Software Distribution Agreement dated as of April 29, 1999 by and
between Navarre Corporation and the Registrant.
10.6 Escrow Agreement, dated as of April 30, 1999 by and between The Providers,
Inc. and the Registrant
10.7 Contract of Engagement by and between Cardinal Capital Management, Inc.
and the Registrant dated May 18,1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
10.8 Lease Agreement dated as of June 14, 1999 by and between Koll/Intereal Bay
Area and the Registrant
10.9 Software Distribution and Marketing Rights Agreement, dated as of June 29,
1999, by and between Fountain Technologies, Inc. and the Registrant
10.10 OEM and License Agreement dated as of July 1, 1999 by and between
Information Technologies Division, a division of Sony Electronics,
Inc. and the Registrant.
10.11 Warrant Agreement dated August 17, 1999 by and between Deephaven Private
Placement Trading Ltd. and the Registrant.
10.12 Warrant Agreement dated August 17, 1999 by and between Hornblower
Investors L.L.C. and the Registrant.
10.13 Registration Rights Agreement dated as of August 17, 1999 by and between
Hornblower Investors L.L.C., Deephaven Private Placement Trading Ltd.
and the Registrant.
10.14 Convertible Preferred Stock Purchase Agreement dated August 17, 1999 by
and between Hornblower Investors, L.L.C., Deephaven Private Placement
Trading Ltd. and the Registrant.
10.15 Distribution Agreement by and between Earthlink Network, Inc. and the
Registrant
10.16 Executive Employment Agreement dated as of August 31, 1999 between
Johnson Lee and Registrant
10.17 Executive Employment Agreement dated August 31, 1999 between Edmund Leung
and Registrant
10.18 Letter Agreement dated as of August 31, 1999 by and between Packard
Bell/NEC and the Registrant
10.20 1999 Stock Option Plan
10.21 Form Stock Option Agreement
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Silicon Valley Law Group (contained in Exhibit 5.1) (*)
27.1 Financial Data Schedule
___________________
(*) To be filed by amendment.
</TABLE>
II-7
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.
[Provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities and Exchange of 1934 that are incorporated by
reference in the registration statement].
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Santa
Clara, State of California, on November 2, 1999.
SOFTLINK, INC.
By: /s/ William Yuan
- ------------------------------------
William Yuan
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------- --------------------------------- ----------------
<S> <C> <C>
/s/ William Yuan President and Director November 2, 1999
- --------------------
William Yuan (principal executive officer)
* Chief Executive Officer, Director November 2, 1999
- --------------------
Johnson Lee
* Treasurer, Secretary and Director November 2, 1999
- --------------------
Edmund Leung (principal accounting officer)
</TABLE>
* By executing his name hereto on November 2, 1999, William Yuan. is signing
this document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
By: /s/ William Yuan
--------------------
William Yuan
(Attorney-in-Fact)
II-9
<PAGE>
POWER OF ATTORNEY
We the undersigned officers and directors of Softlink, Inc., hereby
severally constitute and appoint William W. Yuan and Johnson C. Lee, and each
of them singly (with full power to each of them to act alone), our true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William Yuan President and Director November 2, 1999
- ---------------------
William Yuan (principal executive officer)
/s/ Johnson C. Lee Chief Executive Officer, Director November 2, 1999
- ---------------------
Johnson Lee
/s/ Edmund Leung Treasurer, Secretary and Director November 2, 1999
- ---------------------
Edmund Leung (principal accounting officer)
</TABLE>
II-10
<PAGE>
EXHIBIT 3.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 24, 1997
No. C 1583797
---------------
Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
of
Draco Technologies, Inc.
Know all men by these present:
That the undersigned, have this day voluntarily
associated ourselves together for the purpose of forming a corporation under and
pursuant to the provisions of Nevada Revised Statutes 78.010 to Nevada Revised
Statutes 78.090 inclusive, as amended, and certify that
1. The name of this corporation is:
Draco Technologies,Inc.
2. Offices for the transaction of any business of the Corporation, and where
meetings of the Board of Directors and of Stockholders may be held, may be
established and maintained in any part of the State of Nevada, or in any
other state, territory, or possession of the United States.
3. The nature of the business is to engage in any lawful activity.
4. The Capital Stock shall consist of 50,000,000 shares of common stock, .001
par value.
5. The members of the governing board of the corporation shall be styled
directors, of which there shall be no less than 2. The directors of this
corporation need not be stockholders. The first Board of Directors is James
R. Ray, whose address is 16929 Enterprise, Suite 206, Fountain Hills,
Arizona 85268 and Michael W. Berg, whose
<PAGE>
address is 16929 Enterprise, Suite 206 Fountain Hills, Arizona 85268.
6. This corporation shall have perpetual existence.
7. The name and address of each of the incorporators signing these Articles of
Incorporation are as follows:
Michael W. Berg, 16929 Enterprise, Suite 206, Fountain Hills, Arizona 85268
8. This Corporation shall have a president, one or more vice presidents, a
secretary, a treasurer and a resident agent, to be chosen by the Board of
Directors, any person may hold two or more offices.
9. The resident agent of this Corporation shall be: LAVONNE FROST, 711 S.
CARSON STREET, SUITE 1, CARSON CITY, NEVADA 89701
10. The Capital Stock of the corporation, after the fixed consideration thereof
has been paid or performed, shall not be subject to assessment, and the
individual liable for the debts and liabilities of the Corporation, and the
Articles of Incorporation shall never be amended as to the aforesaid
provisions.
11. No director or officer of the corporation shall be personally liable to the
corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such
director or officer provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer for acts or
omissions which involve
<PAGE>
intentional misconduct, fraud or a knowing violation of law, or the
payments of dividends in violation of Section 78.300 of the Nevada Revised
Statutes. Any repeal or modification of this Article of the Stockholders of
the Corporation shall be prospective only, and shall not adversely affect
any limitation on the personal liability of a director or officer of the
Corporation for acts or omissions prior to such repeal or modification.
I, the undersigned being the incorporator herein above named for the
purpose of forming a corporation pursuant to the general corporation law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts within stated are true, and accordingly
have hereunto set my hand this 22nd, day of July, 1997.
/s/ Michael Berg
---------------------------
Michael W. Berg
16929 Enterprise, Ste.206
Fountain Hills, AZ 85268
STATE OF ARIZONA
COUNTY OF MARICOPA
On the 22/nd/ day of July, 1997, personally appeared before me, a notary public,
Michael W. Berg, personally known to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Kimberly Banuet
---------------------------------
Notary Public
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE STATE
OF NEVADA
MAR 23, 1998
NO. C 1583797
----------------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION OF
DRACO TERCHNOLOGIES, INC.
Pursuant to the provisions of Revised Corporate Statutes of the State of
Nevada, the undersigned corporation adopts the following Articles of Amendment
to its Articles of Incorporation.
1. Statement of Amendment. The amendment alters or changes Article 1 of
the original Articles of Incorporation, filed with the State of Nevada on
July 24, 1997, to read as follows:
1. The name of this corporation is:
Softlink, Inc.
2. Adoption of the Amendment. The Amendment to Article 1 of the original
Articles of Incorporation of Draco Technologies, Inc., was approved in
accordance with Section 78-385 and Section 78.390 of the Revised Corporate
Statutes of the State of Nevada, by a proper stockholder vote on March 12, 1998.
Executed this 19th day of March, 1998
Softlink, Inc.
/s/ Janelle A. Ray
-------------------
President
/s/ Michael M. Berg
-------------------
Secretary
STATE OF ARIZONA
COUNTY OF MARICOPA
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Jenelle Ray, President of Softlink, Inc., a Nevada
Corporation known to me to be the person and officer whose name is subscribed to
the foregoing instrument and acknowledged to me that she executed the same as
duly authorized officer of such corporation, for the purpose and consideration
<PAGE>
therein expressed, in the capacity therein stated and as the act and deed of
such corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 19th day of March, 1998
/s/ Barbara Hawkins
-------------------------
Notary Public's Signature
/s/ Barbara Hawkins
-------------------------
Typed or printed name
My commission expires: 9/8/00
(Seal)
STATE OF ARIZONA
COUNTY OF MARICOPA
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Michael W. Berg, Secretary of Softlink, Inc., a Nevada
Corporation known to me to be the person and officer whose name is subscribed to
the foregoing instrument and acknowledged to me that she executed the same as
duly authorized officer of such corporation, for the purpose and consideration
therein expressed, in the capacity therein stated and as the act and deed of
such corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 19th day of March, 1998
/s/ Barbara Hawkins
-------------------------
Notary Public's Signature
/s/ Barbara Hawkins
-------------------------
Typed or printed name
My commission expires: 9/8/00
[or Notary's stamp]
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
AUG 12, 1997
No. C 15837-97
---------------
Dean Heller
DEAN HELLER, SECRETARY OF STATE
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
SOFTLINK, INC.
William Yuan and Edmund T. Leung certify that:
1. They are the President and Secretary, respectively, of Softlink, Inc., a
Nevada corporation.
2. Article 4 of the Articles of Incorporation is amended to read in full as
follows:
The Corporation is authorized to issue two classes of shares
to be designated respectively common stock ("Common Stock")
and preferred stock ("Preferred Stock"). The total number of
shares of capital stock which the Corporation shall have
authority to issue is sixty million (60,000,000) shares, of
which fifty-nine million (59,000,000) shares shall be Common
Stock, $0.001 par value per share, and one million
(1,000,000) shares shall be Preferred Stock, $0.001 par
value per share. The Preferred Stock herein authorized may
be issued from time to time in one or more series. The Board
of Directors of the Corporation is hereby authorized within
the limitations and restrictions stated in these Articles of
Incorporation, to determine or alter the voting powers,
designations, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of
Preferred Stock, and to fix, alter or reduce (but not below
the number then outstanding) the number constituting any
such series and the designation thereof, or any of them, and
to provide for the rights and terms of redemption or
conversion of the shares of any such series.
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of the Corporation.
4. The foregoing amendment has been duly approved by the required vote of the
shareholders of the Corporation. The total number of outstanding shares of the
Corporation is 8,233,408. The number of shares voting in favor of the amendment
was 4,305,117 and equaled or exceeded the vote required. The percentage vote
required for the approval of the amendment herein set forth was more than fifty
percent (50%).
<PAGE>
The undersigned declare under penalty of perjury under the laws of the
State if Nevada that the matters set forth herein are true and correct of their
own knowledge.
Dated: 8/9, 1999
/s/ William Yuan
------------------------------
William Yuan, President
/s/ Edmund T. Leung
------------------------------
Edmund T. Leung, Secretary
[NOTARY ACKNOWLEDGEMENT]
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
State of California }
County of Santa Clara } ss.
-----------
On August 9/th/, 1999, before me, Paresh Africawala,
------------------ -----------------------------------------------
Date Name and Title of Officer (e.g. "Jane Doe,
Notary Public")
personally appeared William Yuan & Edmund T. Leung,
------------------------------
Name(s) of Signor(s)
[_] personally known to me
[X] proved to me on the basis of satisfactory
evidence
to be the persons whose names are subscribed to
the within instrument and acknowledged to me
[SEAL] that they executed the same in their authorized
PARESH AFRICAWALA capacities, and that by their signatures on the
Commission #1111672 instrument the persons, or the entity upon
Notary Public - California behalf of which the persons acted, executed the
Santa Clara County instrument.
My Comm. Expires Feb 15, 2001
WITNESS my hand and official seal.
/s/ Paresh Africawala
----------------------------
Place Notary Seal Above Signature of Notary Public
___________________________________ OPTIONAL ___________________________________
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
Description of Attached Document
Title or Type of Document: Certificate of Amendment Articles of Incorporation
--------------------------------------------------
of Soft Link.
------------
Document Date: 8/9/99 Number of Pages: 2
------ ------
Signer(s) Other Than Named Above: ______________________________________________
Capacity(ies) Claimed by Signer
_________________
Signer's Name: _________________________________________ RIGHT THUMBPRINT
[_] Individual OF SIGNER
[X] Corporate Officer -- Title(s): President & Secretary -----------------
--------------------- Top of thumb here
[_] Partner -- [_] Limited [_] General
[_] Attorney in Fact
[_] Trustee
[_] Guardian or Conservator
[_] Other: _____________________________________________
Signer is Representing: _________________________________ _________________
<PAGE>
EXHIBIT 3.4
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
AUG 16 1999
No. C 15837-97
---------------
Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF DESIGNATION OF PREFERENCES
FOR SERIES A PREFERRED STOCK OF
SOFTLINK, INC.
The undersigned, William Yuan and Edmund Leung, hereby certify that:
1. They are the President and Secretary, respectively, of Softlink, Inc.,
a Nevada corporation, (the "Corporation").
2. The authorized number of shares of Preferred Stock is One Million
(1,000,000), none of which has been issued.
3. Pursuant to the authority granted by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation has adopted the
following resolutions:
NOW THEREFORE BE IT RESOLVED, that the Corporation shall designate three
hundred (300) shares of Preferred Stock as Series A Preferred Stock (the
"Series A Preferred");
RESOLVED FURTHER, that the Board of Directors has fixed the rights,
preferences and privileges and other matters relating to the Series A Preferred
Stock as follows:
Section 1. Designation, Amount and Par Value. The series of
---------------------------------
preferred stock shall be designated as Series A Convertible Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be 300 (which
---------------
shall not be subject to increase without the consent of the holders of the
Preferred Stock (each, a "Holder" and collectively, the "Holders"). Each share
------ -------
of Preferred Stock shall have a par value of $.001 and a stated value equal to
the sum of $10,000 plus all accrued dividends to the date of determination to
the extent not previously paid in cash in accordance with the terms hereof (the
"Stated Value").
------------
Section 2. Dividends.
---------
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 7% per annum,
payable on each Conversion Date (as defined herein) for such share and for so
long as such Preferred Stock shall be outstanding, commencing August 16, 1999
(each Conversion Date shall also be referred to herein as a "Dividend Payment
----------------
Date"), in cash or shares of Common Stock (as defined in Section 8). Subject to
- ----
the terms and conditions herein, the decision whether to pay dividends hereunder
in Common Stock or cash shall be at the discretion of the Company. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Except as otherwise provided
herein, if at any time the Company pays less than the total amount of dividends
<PAGE>
then accrued on account of the Preferred Stock, such payment shall be
distributed ratably. Among the Holders based upon the number of shares of
Preferred Stock held by each Holder. Any dividends to be paid in cash hereunder
that are not paid within three (3) Trading Days (as defined in Section 8)
following a Dividend Payment Date shall continue to accrue and shall entail a
late fee, which must be paid in cash, at the rate of 18% per annum or the lesser
rate permitted by applicable law (such fees to accrue daily, from the date such
dividend is due hereunder through and including the date of payment).
(b) Notwithstanding anything to the contrary contained herein, the
Company must pay dividends in cash if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) after the Dividend Effectiveness Date (as defined in
Section 8), Underlying Shares (as defined in Section 8) (x) are not registered
for resale pursuant to an effective Underlying Shares Registration Statement (as
defined in Section 8) or (y) may not be sold without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act (as defined in Section
8), as determined by counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent in the form and substance
acceptable to the applicable Holder and such transfer agent (if the Company is
permitted and elects to pay dividends in shares of Common Stock under this
clause (ii) prior to the Dividend Effectiveness Date and thereafter an
Underlying Shares Registration Statement shall be declared effective by the
Commission (as defined in Section 8), the Company shall, within three (3)
Trading Days after the date of such declaration of effectiveness, exchange such
Underlying Shares for shares of Common Stock that are free of restrictive
legends of any kind);
(iii) the Common Stock is not then listed or quoted on the OTC
Bulletin Board ("OTC"), or on the New York Stock Exchange, American Stock
---
Exchange, Nasdaq National Market, or Nasdaq SmallCap Market (each, a "Subsequent
----------
Market");
- ------
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(v) the issuance of the Underlying Shares issuable as payment
of such dividend would result in a violation of Section 5(a)(iii) or the rules
of the OTC or any other rules and regulations governing any Subsequent Market on
which the Common Stock is then listed or quoted for trading.
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 8),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5
or
-2-
<PAGE>
dividends due and paid in the ordinary course on preferred stock of the Company
at such times when the Company is in compliance with its payment and other
obligations hereunder) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein and as
-------------
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, alter or change adversely the
powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation , authorize or create any class of stock ranking
as to dividends or distribution of assets upon a Liquidation (as defined in
Section 4) senior to or otherwise pari passu with the Preferred Stock, amend its
certificate of incorporation or other charter documents so as to affect
adversely any rights of the Holders, increase the authorized number of shares of
Preferred Stock, or (e) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
-----------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
-----------
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value per share before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 33% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies into one or more companies not wholly-owned by the Company shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
Holder.
Section 5. Conversion.
----------
(a)(i) Conversions at Option of Holder. Each share of Preferred Stock
-------------------------------
shall be convertible into shares of Common Stock (subject to the limitations set
forth in Section 5(a)(iii)), at the Conversion Ratio (as defined in Section 8),
at the option of the Holder at any time and from time to time from and after the
Original Issue Date. Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, together with an acceptable form of conversion notice.
Each Conversion Notice shall specify the number of shares of Preferred Stock to
be converted and the date on which such conversion is to be
-3-
<PAGE>
effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). If no Conversion Date is
---------------
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered hereunder. If the Holder is converting
less than all shares of Preferred Stock represented by the certificate or
certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate representing the number of shares of
Preferred Stock as have not been converted.
(ii) Automatic Conversion. Subject to the provisions of this
--------------------
paragraph, all outstanding shares of Preferred Stock for which conversion
notices have not previously been received or for which redemption has not been
made or required hereunder shall be automatically converted on the third
anniversary of the Original Issue Date for such shares. The conversion
contemplated by this paragraph shall not occur at such time if (a) (1) an
Underlying Shares Registration Statement is not then effective or (2) the Holder
is not permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated
under the Securities Act (as defined in Section 8), without volume restrictions,
as evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; (b) there are not sufficient shares of
Common Stock authorized and reserved for issuance upon such conversion; or (c)
the Company shall have defaulted on its covenants and obligations hereunder or
under the Purchase Agreement or Registration Rights Agreement. Notwithstanding
the foregoing, the three-year period for conversion under this Section shall be
extended (on a day-for-day basis) for any Trading Days after the Effectiveness
Date that a Holder is unable to resell Underlying Shares under an Underlying
Shares Registration Statement due to (a) the Common Stock not being quoted or
listed for trading on the OTC or any Subsequent Market, (b) the failure of such
Underlying Shares Registration Statement to be declared, or if declared, to
remain effective during the Effectiveness Period (as defined in the Registration
Rights Agreement) as to all Underlying Shares, or (c) the suspension of the
Holder's right to resell Underlying Shares thereunder. The provisions of Section
5(a)(iii) shall not apply to any automatic conversion pursuant to this Section
5(a)(ii).
(iii) Certain Conversion Restrictions.
-------------------------------
(A) A Holder may not convert shares of Preferred Stock to the
extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act (as defined in Section 8) and the rules thereunder) in excess
of 4.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of the shares of Preferred Stock held by such
Holder after application of this Section. The Holder shall have the sole
authority and obligation to determine whether the restriction contained in this
Section applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which shares of
Preferred Stock are convertible shall be in the sole discretion of the Holder.
The provisions of this Section
-4-
<PAGE>
may be waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(B) A Holder may not convert shares of Preferred Stock to the
extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder) in excess of 9.999% of the then
issued and outstanding shares of Common Stock, including shares issuable upon
conversion of the shares of Preferred Stock held by such Holder after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which shares of
Preferred Stock are convertible shall be in the sole discretion of the Holder.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 61 days prior notice to the
Company. Other Holders shall be unaffected by any such waiver.
(b)(i) Not later than three (3) Trading Days after each Conversion Date,
the Company will deliver to the Holder (A) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock (subject to the limitations set forth in Section 5(a)(iii) hereof), (B)
one or more certificates representing the number of shares of Preferred Stock
not converted and (C) a bank check in the amount of accrued and unpaid dividends
(if the Company has elected or is required to pay accrued dividends in cash).
Notwithstanding the foregoing or anything to the contrary contained herein, the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion of any shares of Preferred Stock until one
Trading Day after certificates evidencing such shares of Preferred Stock are
delivered for conversion to the Company, or the Holder of such Preferred Stock
notifies the Company that such certificates have been lost, stolen or destroyed
and provides a bond (or other adequate security) reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the Holder, if available, use its
best efforts to deliver any certificate or certificates required to be delivered
by the Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
third (3/rd/) Trading Day after the Conversion Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), by the third (3rd)
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such third (3rd) Trading Day until such certificates are delivered.
Nothing herein
-5-
<PAGE>
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), by the third (3rd) Trading Day after the Conversion
Date, and if after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in
------
cash to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Preferred Stock with respect to which the
market price of the Underlying Shares on the date of conversion totaled $10,000,
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
Nothing herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(c)(i)(A) The conversion price for each share of Preferred Stock
(the "Conversion Price") shall be (1)at any time prior to one hundred and twenty
----------------
(120) days following the Original Issue Date, 120% of the average Per Share
Market Value for the ten (10) Trading Days immediately preceding the Original
Issue Date (the "Initial Conversion Price") and (2)at any time thereafter, the
------------------------
lesser of (a)the Initial Conversion Price or (b)the "Applicable Percentage" (as
defined below) of the average of the lowest three (3) Per Share Market Values
during the fifty (50) Trading Days immediately preceding such Conversion Date.
"Applicable Percentage" means (i)95%, if the Conversion Date or any redemption
or repurchase date, if applicable, occurs on or after the 121/st/ day and before
the 150/th/ day after the Original Issue Date, (ii)90%, if the Conversion Date
or any redemption or repurchase date, if applicable, occurs on or after the
150/th/ day and before the 180/th/ day after the Original Issue Date and
(iii)85% if the Conversion Date or any redemption or repurchase date, if
applicable, occurs more than 180 days after the Original Issue Date.
-6-
<PAGE>
(B) If (1) the Underlying Shares Registration Statement is not
filed on or prior to the Filing Date (if the Company files such Underlying
Shares Registration Statement without affording the Holder the opportunity to
review and comment on the same as required by Section 3(a) of the Registration
Rights Agreement, the Company shall not be deemed to have satisfied this clause
(a)), or (2) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 12d1-2 promulgated under the Exchange Act
within five (5) days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed," or not subject to further review
or comment, or (3) the Underlying Shares Registration Statement is not declared
effective by the Commission on or prior to the Effectiveness Date, or (4) such
Underlying Shares Registration Statement is filed with and declared effective by
the Commission but thereafter ceases to be effective as to all Registrable
Securities (as defined in the Registration Rights Agreement) at any time prior
to the expiration of the Effectiveness Period without being succeeded within ten
(10) days by a subsequent Underlying Shares Registration Statement filed with
and declared effective by the Commission, or (5) trading in the Common Stock
shall be suspended from a Subsequent Market or quotations of the Common Stock
shall not be available on the OTC due to the failure of the Company to meet the
requirements for trading on the OTC, in either case, for more than three (3)
Business Days (which need not be consecutive days), (6) the conversion rights of
the Holders are suspended for any reason or (7) an amendment to the Underlying
Shares Registration Statement is not filed by the Company with the Commission
within thirty (30) days of the Commission's notifying the Company that such
amendment is required in order for the Underlying Shares Registration Statement
to be declared effective (if the Company files such amendment without affording
the Holder the opportunity to review and comment on the same as required by
Section 3(a) of the Registration Rights Agreement, the Company shall not be
deemed to have satisfied this clause (7)) (any such failure or breach being
referred to as an "Event," and for purposes of clauses (1), (3), (6) the date on
-----
which such Event occurs, or for purposes of clause (2) the date on which such
five (5) day period is exceeded, or for purposes of clauses (4) and (7) the date
which such 10 day-period is exceeded, or for purposes of clause (5) the date on
which such three (3) Business Day-period is exceeded, being referred to as
"Event Date"), then, on the Event Date and each monthly anniversary thereof
----------
until such time as the applicable Event is cured, the Company shall pay to the
Holder 2% of the aggregate Stated Values of the shares of Preferred Stock then
held by such Holder (which, for purposes hereof shall include all shares of
Preferred Stock tendered for conversion by such Holder but for which Underlying
Shares due in respect thereof shall not have been received by such Holder), in
cash, as liquidated damages and not as a penalty. The provisions of this Section
are not exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or pari passu
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification and exchange of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be
-7-
<PAGE>
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or re-
classification.
(iii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall issue rights, warrants or options to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Per Share Market Value at the record date
mentioned below, then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, warrants or options, plus the
number of shares of Common Stock which the aggregate offering price of the total
number of shares so offered would purchase at such Per Share Market Value, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of shares
of Common Stock offered for subscription or purchase. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. However, upon the expiration of any right,
warrant or option to purchase shares of Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section
5(c)(iii), if any such right, warrant or option shall expire and shall not have
been exercised, the Conversion Price shall immediately upon such expiration
shall be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights, warrants, or options
been made on the basis of offering for subscription or purchase only that number
of shares of Common Stock actually purchased upon the exercise of such rights,
warrants or options actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any shares of Preferred Stock are outstanding, shall issue shares of Common
Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
------------
Equivalents"), entitling any Person to acquire shares of Common Stock at a
- -----------
price per share less than the Conversion Price (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance at a price less than the prevailing
Conversion Price, such issuance shall be deemed to have occurred for less than
the Conversion Price), then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Common Stock or such
Common Stock
-8-
<PAGE>
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents would purchase at
the Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable, provided, that
--------
for purposes hereof, all shares of Common Stock that are issuable upon
conversion, exercise or exchange of Common Stock Equivalents shall be deemed
outstanding immediately after the issuance of such Common Stock Equivalents.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised. Notwithstanding anything
herein to the contrary, no adjustment to the Conversion Price shall be made with
respect to Common Stock or Common Stock Equivalents (1) issuable or issued to
employees, consultants or directors of the Company directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Company, (2) issuable upon exercise of warrants outstanding as of the date
of this Certificate of Designation, and (3) issued or issuable upon conversion
of the Preferred Stock.
(v) If the Company, at any time while shares of Preferred Stock
are outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Conversion Price at which each
share of Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding shares of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
-------- -------
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Preferred Stock
dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Holders of a majority in interest of
---------
the shares of Preferred Stock then outstanding; and provided, further, that the
-------- -------
Company, after receipt of the determination by such
-9-
<PAGE>
Appraiser shall have the right to select an additional Appraiser, in good faith,
in which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. In either case the adjustments shall be
described in a statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(vi) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii),(iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock, or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) In case of any (1) merger or consolidation of the Company
with or into another Person that would constitute a Change of Control
Transaction, or (2) sale by the Company of more than one-half of the assets of
the Company (on an as valued basis) in one or a series of related transactions,
or (3) tender or other offer or exchange (whether by the Company or another
Person) pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, stock, cash or property of the
Company or another Person, a Holder shall have the right thereafter to (A)
convert its shares of Preferred Stock into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, (B) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the Stated Value of
the shares of Preferred Stock then held by such Holder, plus all accrued
-10-
<PAGE>
and unpaid dividends and other amounts owing thereon, which newly issued shares
of preferred stock or debentures shall have terms identical (including with
respect to conversion) to the terms of the Preferred Stock (except, in the case
of debentures, as may be required to reflect the differences between debt and
equity) and shall be entitled to all of the rights and privileges of a Holder of
Preferred Stock set forth herein and the agreements pursuant to which the
Preferred Stock was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation, or (C) in the
event of an exchange or tender offer or other transaction contemplated by clause
(3) of this Section, tender or exchange its shares of Preferred Stock for such
securities, stock, cash and other property receivable upon or deemed to be held
by holders of Common Stock that have tendered or exchanged their shares of
Common Stock following such tender or exchange, and such Holder shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such shares of Preferred
Stock could have been converted (taking into account all then accrued and unpaid
dividends) immediately prior to such tender or exchange would have been entitled
as would have been issued. In the case of clause (B), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction, the
Conversion Ratio immediately prior to the effectiveness or closing date for such
transaction and the Conversion Price stated herein. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
continue to give the Holders of Preferred Stock the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events. The rights set forth in this Section 5(c)(ix) shall not
alter the rights of a Holder set forth in Section 7, provided, that, a Holder
may only exercise the rights set forth in this Section 5(c)(ix) or the rights
set forth in Section 7 with respect to a single event giving rise to such
rights.
(x) If (a) the Company shall declare a dividend (or any other
distribution) on the Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Preferred Stock, and shall cause to be mailed to the
Holders at their last addresses as they shall appear upon the stock books of the
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<PAGE>
Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange.
Holders are entitled to convert shares of Preferred Stock during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of Common Stock as shall be
issuable (taking into account the provisions of Section 5(a) and Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for Common Stock on conversion of
Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock or redeemed
in accordance with the terms hereof shall be canceled and may not be reissued.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Financial Officer of the Company
addressed
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<PAGE>
to 2041 Mission College Blvd., Suite 259, Santa Clara, California 95054 or to
facsimile number (408) 496-6110, or to such other address or facsimile number as
shall be specified in writing by the Company for such purpose. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
6:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Optional Redemption.
-------------------
(a) The Company shall have the right, exercisable at any time upon 10
Trading Days' notice (an "Optional Redemption Notice") to the Holders of the
--------------------------
Preferred Stock given at any time after the Original Issue Date, to redeem all
or any portion of the shares of Preferred Stock which have tendered for
conversion pursuant to a Conversion Notice in the event the Conversion Price in
effect on any Conversion Date is less than or equal to $1.75, at a price equal
to the Optional Redemption Price (as defined below). The entire Optional
Redemption Price shall be paid in cash. Holders of Preferred Stock may convert
any shares of Preferred Stock, including shares subject to an Optional
Redemption Notice given pursuant to this Section 6(a), during the period from
the date of such Optional Redemption Notice through the 9/th/ Trading Day
thereafter.
(b) If any portion of the Optional Redemption Price shall not be paid
by the Company within two (2) Trading Days after the applicable Conversion Date,
interest shall accrue thereon at the rate of 18% per annum until the Optional
Redemption Price plus all such interest is paid in full. In addition, if any
portion of the Optional Redemption Price remains unpaid after the date due, the
Holder of the Preferred Stock subject to such redemption may elect, by written
notice to the Company given at any time thereafter, to either (i) demand
conversion of all or any portion of the shares of Preferred Stock for which such
Optional Redemption Price, plus interest thereof, has not been paid in full (the
"Unpaid Redemption Shares"), in which event the Per Share Market Value for such
------------------------
shares shall be the lower of the Per Share Market Value calculated on the date
the Optional Redemption Price was originally due and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii)invalidate ab initio
---------
such redemption, notwithstanding anything herein contained to the contrary. If
the Holder elects option (i)above, the Company shall within three (3) Trading
Days of its receipt of such election deliver to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject to such
Holder conversion
-13-
<PAGE>
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii)above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of Holder's notice of
such election, return to the Holder all of the Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of (i) 115%
-------------------------
of the product of (A) the number of shares of Preferred Stock to be redeemed and
(B) the Stated Value, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such shares of Preferred Stock.
Section 7. Redemption Upon Triggering Events.
---------------------------------
(a) Upon the occurrence of a Triggering Event, each Holder shall
(in addition to all other rights it may have hereunder or under applicable law),
have the right, exercisable at the sole option of such Holder, to require the
Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions or as payment of dividends hereunder and then
held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date the redemption price hereunder is paid in
full, whichever is greater (such sum, the "Redemption Price"). The Redemption
----------------
Price shall be due and payable within five Trading Days of the date on which the
notice for the payment therefor is provided by a Holder. If the Company fails to
pay the Redemption Price hereunder in full pursuant to this Section on the date
such amount is due in accordance with this Section, the Company will pay
interest thereon at a rate of 18% per annum (or the lesser amount permitted by
applicable law), accruing daily from such date until the Redemption Price, plus
all such interest thereon, is paid in full. For purposes of this Section, a
share of Preferred Stock is outstanding until such date as the Holder shall have
received Underlying Shares upon a conversion (or attempted conversion) thereof
that meets the requirements hereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness of
the Underlying Shares Registration Statement lapses for any reason for more than
an aggregate of three (3) Trading Days, or the Holder shall not be permitted to
resell Registrable Securities (as defined in the Registration Rights Agreement)
under the Underlying Shares Registration Statement for more than an aggregate of
three (3) Trading Days (which need not be consecutive Trading Days);
-14-
<PAGE>
(iii) the failure of the Common Stock to be eligible for
quotation on the OTC or listed for trading on a Subsequent Market or the
suspension of the Common Stock from quotation on the OTC or trading on a
Subsequent Market, in either case, for more than ten calendar days (which need
not be consecutive days) without, in the case of a suspension or delisting from
a Subsequent Market, being immediately available for quotation on the OTC;
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction
of the Holders prior to the expiration of sixty (60) days from the Event Date
relating thereto;
(vii) the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within seven (7) days after notice
therefor is delivered hereunder; or
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder.
Section 8. Definitions. For the purposes hereof, the following
-----------
terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
-----------------------------
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity another entity that is not wholly-owned by the Company,
consolidation or sale of all or substantially all of the assets of the
-15-
<PAGE>
Company in one or a series of related transactions, or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $[ ] per
------------
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator of
----------------
which is Stated Value and the denominator of which is the Conversion Price at
such time.
"Dividend Effectiveness Date" means the earlier to occur of (x) the
---------------------------
Effectiveness Date (as defined in the Registration Rights Agreement) for the
Preferred Stock and (y) the date that an Underlying Shares Registration
Statement relating to the Preferred Stock is declared effective by the
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Junior Securities" means the Common Stock and all other equity
-----------------
securities of the Company other than those securities that are outstanding on
the Original Issue Date and which are explicitly senior in rights or liquidation
preference to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred Stock means
---------------------------
the sum of (i) the greater of (A) 115% of the Stated Value and (B) the product
of (a) the Per Share Market Value on the Trading Day immediately preceding (x)
the date of the Triggering Event or the Conversion Date, as the case may be, or
(y) the date of payment in full by the Company of the applicable redemption
price, whichever is greater, and (b) the Conversion Ratio calculated on the date
of the Triggering Event, or the Conversion Date, as the case may be, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect of such
share of Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
-------------------
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock on such date on the Subsequent Market on
which the Common Stock is then listed or quoted, or if there is no such price on
such date, then the closing bid price on the Subsequent Market on the date
nearest preceding such date, or (b) if the Common Stock is not then listed or
quoted on a Subsequent Market, the closing bid price for a shares of Common
Stock in the OTC, as reported by the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (c) if the
-16-
<PAGE>
Common Stock is not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the Common Stock
are not then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership,
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Trading Day" means (a) a day on which the Common Stock is traded on a
Subsequent Market on which the Common Stock is then listed or quoted, as the
case may be, or (b) if the Common Stock is not listed on a Subsequent Market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC, or (c) if the Common Stock is not quoted on the OTC, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
-------- -------
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Underlying Shares" means, collectively, the shares of Common Stock
-----------------
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
"Underlying Shares Registration Statement" means a registration
----------------------------------------
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the Holder, who shall be named
as a "selling stockholder" thereunder.
RESOLVED FURTHER, that the President and Secretary are hereby authorized
and directed to execute, acknowledge, file and record a Certificate of
Designation of Preferences in accordance with the foregoing resolutions and
provisions of Nevada law.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate this 13
---
day of August, 1999.
/s/ William Yuan
-------------------------
William Yuan, President
/s/ Edmund Leung
-------------------------
Edmund Leung, President
The undersigned further declares under penalty of perjury under the laws of
the State of Nevada that the matters set forth in the foregoing certificate are
true and correct of their own knowledge.
/s/ William Yuan
---------------------------
William Yuan, President
/s/ Edmund Leung
---------------------------
Edmund Leung, President
-18-
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
State of California }
County of Santa Clara } ss.
-----------
On August 13/th/, 1999, before me, Paresh Africawala,
------------------- ----------------------------------------------
Date Name and Title of Officer (e.g. "Jane Doe,
Notary Public")
personally appeared William Yuan and Edmund Leung,
------------------------------
Name(s) of Signer(s)
[_] personally known to me
[X] proved to me on the basis of satisfactory
evidence
to be the persons whose names are subscribed to
the within instrument and acknowledged to me
[SEAL] that they executed the same on their authorized
PARESH AFRICAWALA capacities, and that by their signatures on the
Commission #1111672 instrument the persons, or the entity upon
Notary Public - California behalf of which the persons acted, executed the
Santa Clara County instrument.
My Comm. Expires Feb 15, 2001
WITNESS my hand and official seal.
/s/ Paresh Africawala
----------------------------
Place Notary Seal Above Signature of Notary Public
8/13/99.
___________________________________ OPTIONAL ___________________________________
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
Description of Attached Document
Title or Type of Document: [TITLE ILLEGIBLE]
--------------------------------------------------
Document Date: 8/13/99 Number of Pages: 18
---------- ------
Signer(s) Other Than Named Above: ______________________________________________
Capacity(ies) Claimed by Signer
_________________
Signer's Name: _________________________________________ RIGHT THUMBPRINT
[_] Individual OF SIGNER
[X] Corporate Officer -- Title(s): President & Secretary -----------------
--------------------- Top of thumb here
[_] Partner -- [_] Limited [_] General
[_] Attorney in Fact
[_] Trustee
[_] Guardian or Conservator
[_] Other: _____________________________________________
Signer is Representing: _________________________________ _________________
<PAGE>
EXHIBIT 3.5
BY-LAWS
OF
DRACO TECHNOLOGIES, INC.
ARTICLE I
MEETING OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of the Company shall be
held at a location designated by the Board of Directors on a date designated by
the Board of Directors, not later than six months after the end of the fiscal
year for the purpose of electing directors of the company to serve during the
ensuing year and for transaction of such other business as may be brought before
the meeting.
At least thirty days written notice specifying the time and place, when and
where, the annual meeting shall be convened, shall be mailed in a United States
Post Office addressed to each of the stockholders of record at the time issuing
the notice at his or her, or its address last known, as the same appears on the
books of the company.
SECTION 2. Regular and Special meetings may be held at the office of the
Company in the State of Arizona, or elsewhere, whenever called by the President,
or by the Chairman of the Board of Directors, or by the Board of Directors, or
by vote of, or by an instrument in writing signed by the holders of 25% of the
issued and outstanding capital stock of the company. At least thirty days
written notice of such meeting, specifying the day and hour and place, when and
where such meeting shall be convened and objects for calling the same, shall be
mailed in a United States Post Office, addressed to each of the stockholders of
record ant the time of issuing the notice, at his or her or its last known
address, as the same appears on the books of the company.
SECTION 3. If all the stockholders of the company shall waive notice of a
meeting, no notice of such meeting shall be required, and whenever all of the
stockholders shall meet in person or by proxy, such meeting shall be valid for
all purposes without call or notice, and at such meeting any corporate action
may be taken.
The written certificate of the officer or officers calling any meeting
setting forth the substance of the notice, and the time and place of the mailing
of the same to the several stockholders, and the respective addresses to which
the same were mailed, shall be prima facie evidence of the manner and fact of
the calling and giving such notice.
<PAGE>
If the address of any stockholder does not appear upon the books of the
company, it will be sufficient to address any notice to such stockholder at the
principal office of the corporation.
SECTION 4. All business lawful to be transacted by the stockholders of the
company, may be transacted at any special meeting or at any adjournment thereof.
Only such business, however shall be acted upon at a special meeting of the
stockholders as shall have been referred to in the notice calling such meetings,
but at any stockholders' meeting at which all the outstanding capital stock of
the company is represented, either in person or by proxy, any lawful business
may be transacted and such meeting shall be valid for all purposes.
SECTION 5. At the stockholders' meetings the holders of fifty one percent
(51%) of the amount of the entire issued and outstanding capital stock of the
company shall constitute a quorum for all purposes of such meetings. Nevada
Revised Statutes Section 78.378 to Section 78.3793 do not apply and a
controlling interest of the outstanding capital stock shall have voting rights
upon acquisition.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend, in person or by proxy, at the time and place fixed by
these By-Laws for any annual meeting, or fixed by a notice as above provided for
a special meeting, a majority in interest of the stockholders present in person
or by proxy may adjourn from time to time without notice other than by
announcement at the meeting, until holders of the amount of stock requisite to
constitute a quorum shall be present, any business may be transacted which might
have been transacted as originally called.
SECTION 6. At each meeting of the stockholders every stockholder shall be
entitled to vote in person or by his duly authorized proxy appointed by
instrument in writing subscribed by such stockholder or by his duly authorized
attorney. Each stockholder shall have one vote for each share of stock standing
registered in his name or her or its name upon the books of the corporation, ten
days preceding the day of such meeting. The votes for directors and upon demand
by any stockholder the votes upon any question before the meeting, shall be viva
voce.
At each meeting of the stockholders, a full, true and complete list, in
alphabetical order, of all the stockholders entitled to vote at such meeting,
and indicating the number of shares held by each, certified by the Secretary of
the Company, shall be furnished, which list shall be prepared at least ten days
before such meeting, and shall be open to the inspection of the stockholders, or
their agents or proxies, at the place where such meeting is to be held, and for
ten
<PAGE>
days prior thereto. Only the persons in whose names shares of stock are
registered on the books of the company for ten days preceding the date of such
meeting, as evidenced by the list of stockholders shall be entitled to vote at
such meeting. Proxies and powers of Attorney to vote must be filed with the
Secretary of the Company before an election or a meeting of the stockholders, or
they cannot be used at such election or meeting.
SECTION 7. At each meeting of the stockholders the polls shall be opened
and closed; the proxies and ballots issued, received and be taken in charge of,
for the purpose of the meeting, and all questions touching the qualifications of
voters and the validity of proxies, and the acceptance or rejection of votes
shall be decided by two inspectors. Such inspectors shall be appointed at the
meeting by the presiding officer of the meeting.
SECTION 8. At the stockholders' meetings the regular order of business
shall be as follows:
1. Reading and approval of the Minutes of previous meeting or meetings;
2. Reports of the Board of Directors, the President, Treasure and
Secretary of the Company in the order named;
3. Reports of Committee;
4. Election of Directors;
5. Unfinished Business;
6. New Business;
7. Adjournment.
ARTICLE II
DIRECTORS AND THEIR MEETINGS
SECTION 1. The Board of Directors of the Company shall consist of no less
than one person and no more than seven persons who shall be chosen by the
stockholders annually at the annual meeting of the Company, and who shall hold
office for one year, and until their successor are elected and qualify.
SECTION 2. When any vacancy occurs among the Directors by death,
resignation, disqualification or other cause, the stockholders at any regular or
special meeting, or at any adjourned meeting thereof, or the remaining Directors
by the affirmative vote of a majority thereof, shall elect a
<PAGE>
successor to hold office for the unexpired portion of the term of the Director
whose place shall have become vacant and until his successor shall have been
elected and shall qualify.
SECTION 3. Meeting of the Directors may be held at the principal office of
the company or elsewhere, at such place or places as the Board of Directors may,
from time to time, determine.
SECTION 4. Without notice or call, the Board of Directors shall hold its
first annual meeting for the year immediately after the annual meeting of the
stockholders or immediately after the election of Directors at such annual
meeting.
Regular meetings of the Board of Directors shall be held at the location,
in the afternoon of the same date as the Annual Meeting of the Shareholders.
Notice of such regular meetings shall be mailed to each Director by the
Secretary at least three days previous to the day fixed for such meetings, but
no regular meeting shall be held void or invalid if such notice is not given,
provided the meeting is held at the time and place fixed by these By-Laws for
holding such regular meetings.
Special meetings of the Board of Directors ma-v be held on the call of the
President or Secretary on at least three days notice by mail or telegraph.
Any meeting of the Board, no matter where held, at which all of the members
shall be present, even though without or of which notice shall have been waived
by all absentees, provided a quorum shall be present, shall be valid for all
purposes unless otherwise indicated in the notice calling the meeting or in the
waiver of notice.
Any and all business may be transacted by any meeting of the Board of
Directors, either regular or special.
SECTION 5. A majority of the Board of Directors in office shall constitute
a quorum for the transaction of business, but if at any meeting of the Board
there be less than a quorum present, a majority of those present may adjourn
from time to time until a quorum shall be present, and no notice of such
adjournment shall be required. The Board of Directors may prescribe rules not in
conflict with these By-Laws for the conduct of its business; provided, however,
that in the fixing of salaries of the officers of the corporation, the unanimous
action of all of the Directors shall be required.
SECTION 6. A Director need not be a stockholder of the corporation.
<PAGE>
SECTION 7. The Directors as such, shall not be entitled to receive any
fixed sums or stated salaries for their services, but, by resolution of the
Board of Directors, a fixed sum and reasonable expenses of attendance at the
meeting of the Board of Directors may be -provided and allowed, provided that
nothing herein contained shall, or shall be construed so as to, preclude any
director from serving the corporation in any other capacity or receiving
compensation therefor. Members of special or standing committees may be allowed
a fixed sum and expense of attendance, if any, at committee meetings.
SECTION 8. The Board of Directors shall make a report to the stockholders
at annual meetings of the condition of the company and shall, at request,
furnish each of the stockholders with a true copy thereof.
The Board of Directors in its discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders called for
the purpose of considering any such contract or act, which, if approved, or
ratified by the vote of the holders or a majority of the capital stock of the
company represented in per-son or- by proxy at such meeting, provided that a
lawful quorum of stockholders be there represented in person or by proxy shall
be valid and binding upon the corporation and upon all the stockholders thereof,
as if it had been approved or ratified by every stockholder of the corporation.
SECTION 9. The Board of Directors shall have the power from time to time to
provide for the management of the offices of the Company in such manner as they
see fit, and in particular from time to time to delegate any of the powers of
the Board in 'the course of the current business off the Company to any standing
or special committee or to any officer or agent and to appoint any persons to be
agents of the Company with such powers (including the power subdelegate), and
upon such terms as may be deemed fit.
SECTION 10. The Board of Directors is vested with the complete and
unrestrained authority in the management of all the affairs of the Company, and
is authorized to exercise for such purpose as the General Agent of the Company
its entire corporate authority.
SECTION 11. No director or officer of member of the Executive Committee
shall be liable for acts as such if excused from liability under any present or
future provision or provisions of any federal law or law of any state in which
the Company does business; and, in addition, each officer or director or member
of the Executive committee shall, in the discharge of any duty imposed or power
conferred upon him or her by the corporation, be fully protected if in the
exercise
<PAGE>
of ordinary care, such officer, director of member of the Executive Committee
acted in good faith and in reliance upon the written opinion of any attorney of
the corporation, the books of account or reports made to the corporation by any
of its officials or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the board of directors or by such
committee, or in reliance upon other records of the corporation.
SECTION 12. Each director, officer, former director, and former officer of
this corporation and each person who may have served at its request as a
director or officer of another corporation in which it owned shares of capital
stock or of which it is a creditor, shall be and hereby is, indemnified by the
corporation against liabilities imposed upon such director or officer and
against expenses actually and reasonably incurred in connection any claim made
against such person, or the defense of any action, suit, or proceeding to or in
which such person is or may I be made a party by reason of being or having
beensuch director or officer,and against such sums as independent counsel
selected by the Board of Directors shall deem reasonable payment made in
settlement or any such claim, action, suit or proceeding primarily with a view
of avoiding expenses of litigation; provided, however, that no director or
officer shall be indemnified with respect to matters as to which that person
shall be adjudged in such action, suit, or proceeding to be liable for
negligence or misconduct in performance of duty, orwith respect to any matters
shall be settled by the payment of sums which counsel selected by the Board of
Directors shall not deem reasonable payment,made primarily with a view to
avoiding expenses oflitigation, or with respect to matters for which such
indemnification snail be in addition to, but shall not exclude, any otherrights
to directors or officers may be entitled.
SECTION 13. The regular order of business at meetings of the Board of
Directors shall be as follows:
1. Reading and approval of the minutes of any previous meeting or
meetings;
2. Reports of officers and committees;
3. Election of officers;
4. Unfinished business;
5. New business;
6. Adjournment.
<PAGE>
ARTICLE III
OFFICERS AND THEIR DUTIES
SECTION 1. The Board of Directors, at its first and after each meeting
after the annual meeting of stockholders shall elect a President, a Vice-
President, a Secretary and a Treasurer, to hold office for one year next coming
and until their successors are elected and qualify. The offices of the Secretary
and Treasurer may be held by one person but not by the President.
Any vacancy in any of said offices may be filled by the Board of Directors.
The Board of Directors may from time to time, by resolution, appoint such
additional vice Presidents and additional Assistant Secretaries, Assistant
Treasurers and Transfer Agents of the Company as it may deem advisable;
prescribe their duties, and fix their compensation and all such appointed
officers shall be subject to removal at any time by the Board of Directors. All
officers, agents, and factors of the Company shall be chosen and appointed in
such manner and shall hold their office for such terms as the Board of Directors
may by resolution prescribe.
SECTION 2. The Board of Directors may select from among its members a
Chairman of the Board who may, if so selected, preside at all meetings of the
Board of Directors and approve the minutes of all proceedings thereat, and who
shall be available to consult with and advise the officers of the corporation
with respect to the conduct of the business and affairs of the Company.
SECTION 3. The President subject to the control of Board of Directors,
shall be the chief executive officer of the Company and shall have general
executive charge management, and control of the affairs, properties, and
operations of the Company in the ordinary course of its business, with all such
duties, powers and authority with respect to such affairs, properties and
operations as may be reasonably incident to such responsibilities: the President
may appoint or employ and discharge employees and agents of the Company and fix
their compensation; make, execute, acknowledge and deliver any and all
contracts, leases, deed, conveyances, assignments, bills of sale, transfers,
releases, and receipts, any and all mortgages, liens, and hypothecations, and
any and all bonds, debentures, and notes, and any and all other obligations and
encumbrances and any and all other instruments, documents and papers of any kind
or character for an on behalf of and in the name of the Company; and, with the
Secretary or an Assistant Secretary, may sign all certificates for shares of the
capital stock of the Company. He shall be a member of the Executive
<PAGE>
Committee; in the absence of a Chairman of the Board he shall preside at all
meetings of the Board of Directors, and at all meetings of the stockholders, and
shall perform such other duties as shall be prescribed by the Board of
Directors.
SECTION 3. The Vice-President shall be vested with all the powers and
perform all the duties of the President in his absence or inability to act,
including the signing of the Certificates of Stock issued by the Company and he
shall so perform such other duties as shall be prescribed by the Board of
Directors.
SECTION 4. The Treasurer shall have the custody of all the funds and
securities of the company. When necessary or proper he shall endorse on behalf
of the company for collection checks, notes, and other obligations; he shall
deposit all monies to the credit of the company in such bank or banks or other
depository as the Board of Directors may designate; he shall sign all receipts
and vouchers for payments made by the company, except as herein otherwise
provided. He shall sign with the President all bills of exchange and promissory
notes of the Company; he shall also have the care and custody of all the stocks,
bonds certificates, vouchers, evidence of debts, securities and such other
property belonging to the Company as the Board of Directors shall designate; he
shall sign all papers required by law or by those By-Laws or the Board of
Directors to be signed by the Treasurer. Whenever required by the Board of
Directors he shall render a statement of his cash account; he shall enter
regularly in the books of the Company to be kept by him for the purpose, full
and accurate accounts of all monies received and paid by him on account of the
Company. He shall at all reasonable times exhibit the books of account to any
Directors of the Company during business hours, and he shall perform all acts
incident to the position of Treasurer subject to the control of the Board of
Directors.
The Treasurer shall, if required by the Board of Directors, give bond to
the Company conditioned for the faithful performance of all his duties as
Treasurer in such sum, and with such surety as shall be approved by the Board of
Directors, with expense of such bond to be borne by the Company.
SECTION 5. The Board of Directors may appoint an Assistant Treasurer who
shall have such powers and perform such duties as may be prescribed for him by
the Treasurer of the Company or by the Board of Directors, and the Board of
Directors may require the Assistant Treasurer to give a bond to the Company in
such sum and with such security as it shall approve, as conditioned for the
faithful performance of his duties as Assistant Treasurer, the expense of such
bond to be borne by the Company.
<PAGE>
SECTION 6. The Secretary shall keep the Minutes of all meetings of the
Board of Directors and the Minutes of all meetings of the Stockholders and of
the Executive Committee in books provided for that purpose. He shall attend to
the giving and serving of all notices of the Company; he may sign with the
President or Vice-President, in the name of the Company, all contracts
authorized by the Board of Directors or Executive Committee; he shall affix the
corporate seal of the Company thereto when so authorized by the Board of
Directors or Executive Committee; he shall have the custody of the corporate
seal of the company; he shall affix the corporate seal to all certificates of
stock duly issued by the company; he shall have charge of Stock Certificate
Books, Transfer Books and Stock Ledgers and such other books and papers as the
Board of Directors or the Executive committee may direct, all of which shall at
all reasonable times be open to the examination of any Director upon application
at the office of the Company during business hours and he shall, in general,
perform all duties incident r-o the office of Secretary.
SECTION 7. The Board of Directors may appoint an Assistant Secretary who
shall have such powers and perform such duties as may be prescribed for him by
the Secretary of the Company or by the Board of Directors.
SECTION 8. Unless otherwise ordered by the Board of Directors the President
shall have full power and authority in behalf of the Company to attend and to
act and to vote at any meetings of the stockholders of any corporation in -which
the Company may hold stock, and at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock,
and which as the owner thereof, the Company might have possessed and exercised
if present. The Board of Directors by resolution from time to time, may confer
like powers on any person or persons in place of the President to represent the
Company for the purposes mentioned in this section.
ARTICLE IV
CAPITAL STOCK
SECTION 1. The capital stock of the Company shall be issued in such manner
and at such times and upon such conditions as shall be prescribed by the Board
of Directors.
SECTION 2. Ownership of stock in the Company shall be evidenced by
certificates of stock in such forms as shall be prescribed by the Board of
Directors, and shall be under the seal of the Company and signed by the
President or the Vice-President and also by the Secretary or by an Assistant
Secretary.
All certificates shall be consecutively numbered; the
<PAGE>
name of the person owning the shares represented thereby with the number of such
shares and the date of issue shall be entered on the Company's books.
No certificates shall be valid unless it is signed by the President or
Vice-President and by the Secretary or Assistant Secretary.
All certificates surrendered to the Company shall be canceled and no new
certificate shall be issued until the former certificate for the same number of
shares shall have been surrendered or canceled.
SECTION 3. No transfer of stock shall be valid as against the Company
except on surrender and cancellation of the certificate therefor, accompanied by
an assignment or transfer by the owner therefor, made either in person or under
assignment, a new certificate shall be issued therefor.
Whenever any transfer shall be expressed as made for collateral security
and not absolutely, the same shall be so expressed in the entry of said transfer
on the books of the company.
SECTION 4. The Board of Directors shall have power and authority to make
all such rules and regulations not inconsistent herewith as it may deem
expedient concerning the issue, transfer and registration or certificates for
shares of the capital stock of the company.
The Board of Directors may appoint a transfer agent and a registrar of
transfers and may require all stock certificates to bear the signature of such
transfer agent and such registrar of transfer.
SECTION 5. The Stock Transfer Books shall be closed for all meetings of the
stockholders for the period of ten days prior to such meetings and shall be
closed for the payment of dividends during such periods as from time to time may
be fixed by the Board of Directors, and during such periods no stock shall be
transferable.
SECTION 6. Any person or persons applying for a certificate of stock in
lieu of one alleged to have been lost or destroyed, shall make affidavit or
affirmation of the fact, and shall deposit with the company an affidavit.
Whereupon, at the end of six months after the deposit of said affidavit and upon
such person or persons giving Bond of Indemnity to the Company with surety to be
approved by the Board of Directors in double the current value of stock against
any damage, loss or inconvenience to the Company, which may or can arise in
consequence of a new or duplicate certificate being issued in lieu of the one
lost or missing, the Board of Directors may cause to be issued to such person
<PAGE>
or persons a new certificate, or a duplicate of the certificate, so lost or
destroyed. The Board of Directors may, in its discretion refuse to issue such
new or duplicate certificate save upon the order of some court having
jurisdiction in such matters, anything herein to the contrary notwithstanding.
ARTICLE V
OFFICES AND BOOKS
SECTION 1. The principal office of the corporation shall be at a place
designated by the Board of Directors and the company may have a principal office
in any state or territory as the Board of Directors may designate.
SECTION 2. The Stock and Transfer Books and a copy of the By-Laws and
Articles of Incorporation of the Company shall be kept at its principal office
designated by the Board of Directors, for the inspection of all who are
authorized or have the right to see the same, and for the transfer of stock. All
other books of the Company shall be kept at such places as may be prescribed by
the Board of Directors.
ARTICLE VI
MISCELLANEOUS
SECTION 1. The Board of Directors shall have power to reserve over and
above the capital stock paid in such an amount in its discretion as it may deem
advisable to fix as a reserve fund, and may, from time to time, declare
dividends from the accumulated profits of the Company in excess of the amounts
so reserved, and pay the same to the stockholders of the Company, and may also,
if it deems the same advisable, declare stock dividends of the unissued capital
stock of the Company.
SECTION 2. No agreement, contract or obligation (other than checks in
payment of indebtedness incurred by authority of the Board of Directors)
involving the payment of monies or the credit of the company for more than
$15,000.00 shall be made without the authority of the Board of Directors or of
the Executive Committee acting as such, with the exception of emergencies where
life or property is at immediate risk and the officer so acting shall request
the Board of Directors to ratify his or her actions.
SECTION 3. Unless otherwise ordered by the Board of Directors, all
agreements and contracts shall be signed by the President in the name and on
behalf of the Company.
SECTION 4. All monies of the corporation shall be deposited when and as
received by the Treasurer in such bank
<PAGE>
or banks or other depository as may from time to time be designated by the Board
of Directors and such deposits shall be made in the name of the Company.
SECTION 5. In addition to and cumulative of, but in nowise limiting or
restricting, any other provision or provisions of these By-Laws which confer any
authority relative thereto, all checks, drafts and other orders for the payment
of money or monies out of funds of the Company and all notes and other evidences
of indebtedness of the Company shall be signed on behalf of the Company, in such
manner, and by such officer or officers, person or persons, as shall from time
to time be determined or designated by or pursuant to resolution or resolutions
of the Board of Directors; provided, however, that if, when, after, and as
authorized or provided for by resolution or resolutions of the Board of
Directors the signature or signatures of any such officer or officers, person or
persons, may be facsimile or facsimiles, engraved or printed, and shall have the
same force and effect and bind the corporation as though such officer or
officers, person or persons, had signed the same personally, and in event of the
death, disability, removal, or resignation of any such officer or officers,
person or persons, as though and with the same effect as if such death,
disability, removal, or resignation had not occurred.
SECTION 6. No loan or advance of money shall be made by the Company to any
stockholder or officer therein, unless the Board of Directors shall otherwise
authorize.
SECTION 7. No director nor executive officer of the company shall be
entitled to any salary or compensation for any services performed for the
Company unless such salary or compensation shall be fixed by resolution of the
Board of Directors, adopted by the majority vote of all the Directors voting in
favor thereof.
SECTION 8. The company may take, acquire, hold, mortgage, sell or
otherwise deal in stocks bonds or securities of any other corporation, if and as
often as the Board of Directors shall so elect.
SECTION 9. The Directors shall have power to authorize and cause to be
executed, mortgages, and liens without limit as to the amount upon the property
and franchise of this corporation, and pursuant to the affirmative vote, either
in person or by proxy, of the holders of a majority of the capital stock issued
and outstanding; the Directors shall have the authority to dispose in any manner
of the whole property of this corporation.
SECTION 10. The Company shall have a corporate seal.
<PAGE>
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments and changes of these By-Laws may be, made at any
regular or special meeting of the Board of Directors by a vote of not less than
all of the entire Board or may be made by a vote of or a consent in writing
signed by the holders of fifty-one percent (51%) of the issued and outstanding
capital stock.
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being the
Directors of the above name corporation, do hereby consent to the foregoing By-
Laws and adopt the same as and for the By-Laws of said corporation.
IN WITNESS WHEREOF, we have hereunto set our hands this 8th day of August
1997.
/s/ Michael W. Berg
------------------------------------------
Michael W.Berg
/s/ James R. Ray
------------------------------------------
James R. Ray
/s/ Jenelle Ray
------------------------------------------
Jenelle Ray
<PAGE>
EXHIBIT 10.1
LICENSE AGREEMENT
-----------------
THIS AGREEMENT made and entered into this 27 day of March, 1998 by Softlink
Inc. having a place of business at 1621 W. El Camino Real, Suite 22, Mountain
View, California 94040, U.S.A., (hereinafter referred to as LICENSOR), and NIC
Ltd. having a place of business at 3-16-11 Takadanobaba, Shinjyuku-ku, Tokyo
169, Japan, (hereinafter referred to as LICENSEE).
WHEREAS, LICENSOR has developed certain software and related documentation
(hereinafter PRODUCTS) as described in Exhibit A attached hereto; and
WHEREAS, LICENSOR desires to license and LICENSEE desires to obtain certain
exclusive rights to the PRODUCTS within LICENSEE's TERRITORY.
NOW, therefore the parties agree as follows:
1.0 DEFINITIONS - For the purpose of this licensing Agreement, the
-----------
following words and terms shall have the meanings set forth below:
a) PRODUCTS - The products identified in Exhibit A.
b) TERRITORY - Japan.
c) MARKET - The Retail and Bundling Computer Software Industry.
2.0 THE GRANT
---------
2.1 LICENSOR grants to LICENSEE an exclusive license to assemble, sell,
and distribute in the market exclusivity in the TERRITORY under the
terms and conditions set forth in this AGREEMENT.
2.2 LICENSEE shall not have the right to grant a sub license under this
License Agreement without the written consent of the LICENSOR.
2.3 LICENSOR shall have the right to demand the CD manufacturer
immediately cease the production of the PRODUCT if any part of this
Agreement is violated by the LICENSEE.
<PAGE>
3.0 ROYALTIES
3.1 LICENSEE shall pay to LICENSOR in connection with all sales in the
TERRITORY a royalty as follows:
3.2 BravoMAIL (new name: PowerLink)
(a) Royalty -USD$15.00 per unit
(b) VoiceLink Royalty -USD$7.00 per unit
3.2 LICENSEE shall agree to pay LICENSOR an Annual Minimum Guarantee
Royalty of USD$800,000 for the first year which consists of 15 months,
and an Annual Minimum Guarantee Royalty of USD$1,200,000 in the second
year which consists of 12 months. LICENSEE agrees to pay LICENSOR a
TOTAL INITIAL DEPOSIT of USD$250,000 in three installments. The first
installment of USD$10,000 shall be made at the signing of this
AGREEMENT, the second installment of USD$115,000, shall be paid before
April 20, 1998, and the third and final installment of USD$125,000
shall be paid when the production versions of the PRODUCTS are
completed and given to the LICENSEE. The payment of the TOTAL INITIAL
DEPOSIT shall be credited in full against the minimum Annual Minimum
Guarantee Royalty for the first year. At the end of each royalty year,
any deficiency to the Annual Minimum Guarantee Royalty shall be pay on
within 60 days after the close of the royalty year. Royalty payments
in excess of the minimum payments specified in this paragraph may not
be carried forward from previous years and applied against the future
Annual Minimum Guarantee Royalty. After the second year, thirty (30)
days prior to the beginning of each year, the Annual Minimum Guarantee
Royalty will be established by mutually agreed upon by LICENSOR and
LICENSEE. If LICENSEE fails to pay the deficiency, the LICENSEE will
lose the exclusivity right in the TERRITORY. The LICENSEE is not
liable to pay the deficiency.
3.3 LICENSOR shall be entitled for 30% of the revenue generated from the
sales by the LICENSEE of upgrades on the PRODUCTS.
3.4 LICENSOR shall be entitled for 40% of the revenue generated from
bundling of the PRODUCTS in TERRITORY.
3.5 LICENSEE shall report sales volume to the LICENSOR every month on the
20/th/ day of each month and pay the corresponding royalty fee to the
LICENSOR within 60 days.
2
<PAGE>
4.0 RECORD MAINTENANCE AND INSPECTION
---------------------------------
4.1 LICENSEE shall at all times keep accurate accounts and maintain
complete records of the quantity and selling price of PRODUCTS sold it
or by its SUBSIDIARY or AFFILIATE and of any other information
necessary to confirm the amounts Royalty paid to LICENSOR. Such
records of LICENSEE and its SUBSIDIARY or AFFILIATE shall be open
inspection on behalf of LICENSOR at LICENSOR's own expense by a
Certified Public Accountant to be chosen by LICENSOR on reasonable
notice, during ordinary business hours, but not more than once in any
twelve (12) month period, for the purpose of verifying the records and
the accuracy of royalty payments. LICENSEE agrees that such documents
will be maintained for a period equal to a five (5) years period at
LICENSEE's aforementioned place of business. In the event that such
Certified Public Accountant shall examine the records, documents and
materials in the possession of or in the control of LICENSEE or its
SUBSIDIARY or AFFILIATE with respect to the subject matter hereof,
such examination shall be conducted in such manner as not to unduly
interfere with the business of LICENSEE or its SUBSIDIARY or
AFFILIATE.
5.0 WARRANTIES AND REPRESENTATION
-----------------------------
5.1 LICENSOR warrants and represents that:
a) It has not granted any entity other than the LICENESS the right
to the market in the LICENSEE's TERRITORY.
b) It has made no actual knowledge of any infringement of a third-
party patent or any other claim which would interfere with the
commercialization of the PRODUCTS by LICENSEE.
5.2 At the time when the production versions of the PRODUCTS are completed
and given to LICENSEE, LICENSOR shall disable all future other
localized versions of the PRODUCTS, including English, French, German
and Spanish, to operate on Japanese Windows in Japanese time zone.
6.0 THIRD PARTY CLAIMS
------------------
6.1 LICENSOR agrees to indemnify and hold harmless the LICENSEE from and
against any claim by an U.S. or Japan patent and copyright
infringement or any other claim by a third party, which, if sustained,
would prevent LICENSEE from marketing the PRODUCTS.
3
<PAGE>
6.2 So long as LICENSEE maintains product liability insurance coverage,
LICENSEE agrees to include LICENSOR as an additional named insured
under LICENSEE's product liability insurance as far as any product
covered by this Agreement is concerned.
7.0 COMMERCIALIZATION BY LICENSEE
7.1 LICENSEE shall use its best efforts to promote vigorously the
marketing and distribution of the PRODUCTS to realize the maximum
sales potential for the PRODUCTS in the TERRITORY. LICENSEE shall be
solely responsible for all costs and expenses related to the
advertising, marketing, promotion, and distribution of the PRODUCTS.
7.2 LICENSOR shall be responsible for the localization of the PRODUCTS.
LICENSEE shall be responsible for the localization of manual and
packages.
7.3 LICENSEE shall display "SOFTLINK" copyright in all documents and
software copies of the PRODUCTS.
8.0 FORCE MAJEURE
8.1 It is understood and agreed that in the event of an act of government,
or war conditions, or fire, flood or labor trouble in the offices or
factory of the LICENSEE or in the factory of those assembling the
PRODUCTS including strikes of any nature, embargoes or transportation
interruptions, which prevents the performance by LICENSEE of the
provisions of this agreement, then such non-performance by LICENSEE
shall not be considered a breach of this Agreement and such non-
performance shall be excused while, but no longer than, the conditions
described herein prevail.
9.0 TERM
9.1 This Agreement and the royalty obligations thereunder shall
remain in force, for the greater of two years or terminated under the
provisions of paragraph 10, for the end of the commercial life of the
product.
10.0 TERMINATION
10.1 This License Agreement may be terminated by either party by giving
written notice to such effect, in the event that the other party shall
4
<PAGE>
materially default in the performance of any of its obligations
arising hereunder and shall fail to cure such default within sixty
(60) days after receipt of written notice thereof from the other
party.
10.2 LICENSOR shall have the right to terminate this Agreement if LICENSEE
is materially in default of this Agreement; or make an assignment for
the benefit of creditors; or files a voluntary petition of
bankruptcy; or seeks or consents to any reorganization or similar
relief; or is adjudicated bankrupt; or if a third party commences any
bankruptcy, insolvency, reorganization or similar proceeding
involving the other party; or if the assets of such other party or a
major part thereof are expropriated, nationalized or otherwise made
subject to government control. Upon the occurrence of any such event
LICENSOR shall have the right to terminate this Agreement effective
upon notice at any time within ninety (90) days of such event coming
to its knowledge. LICENCEE agrees that the limit to LICENSEE's right
is the distribution of the PRODUCT in the TERRITORY and under no
conditions does LICENSEE have any rights to the intellectual property
of LICENSOR.
10.3 It is understood and agreed that if LICENSEE ceases the sale of the
PRODUCTS three (3) months, or fails to list the ITEM in LICENSEE's
sales catalogs, LICENSOR may give notice to LICENSEE of his desire to
terminate this Agreement as to that product for that reason, and if
LICENSEE does not within sixty (60) days resume the sale of that
product, this License Agreement and the license granted herein as to
the PRODUCTS shall terminate as of the end of that sixty (60) day
period.
10.4 Upon the termination prior to expiration of this Agreement in any
manner provided herein, LICENSEE shall have a period of three(3)
months to dispose of its then existing inventory and work in progress
of the PRODUCTS
10.5 LICENSEE shall have the right to terminate this contract if the
funding party fails to provide the necessary fund for the INITIAL
DEPOSIT. LICENSOR shall have the right to keep the INITIAL DEPOSIT
when this Contract is rescinded.
11.0 NO JOINT VENTURE
5
<PAGE>
11.1 Nothing herein shall be construed to place the parties in the
relationship of partners or joint ventures and neither party shall
have the power to obligate or bind the other in any manner or the
assignment of ownership rights.
12.0 WAIVER
12.1 No waiver by either party, whether expressed or implied, of any
provisions of this License Agreement, nor any breach nor default of
either party, shall constitute a continuing waiver, or a waiver of
any other provision or provisions of this License Agreement and no
such waiver by either party shall prevent such party from enforcing
any or all other provisions of this Agreement or from acting upon the
same or any subsequent breach or default of the other party under any
provisions of this Agreement.
13.1 APPLICABLE LAW
13.2 This Agreement shall be construed and applied in accordance with the
laws of the States of California, except as to any provisions hereof
that are governed by the laws of the United States of America, in
which case the latter shall govern.
14.0 DISPUTES
14.1 All disputes, controversies or differences which may arise out of or
in relation to or in connection with this License Agreement as
between the parties to this License Agreement shall be resolved
through arbitration on an expedited basis in accordance with the
rules of the American Arbitration Association in San Francisco,
California, USA.
15.0 ASSIGNMENT
15.1 LICENSEE's obligations and rights under this License Agreement cannot
be assigned by LICENSEE except to a purchaser of the entire business
of LICENSEE which shall agree to be bound by the terms and conditions
of this License Agreement.
16.0 INVALIDITY
6
<PAGE>
16.1 Invalidity, illegality or unenforceability of any part of this
License Agreement shall not affect the validity, legality or
enforceability of the balance thereof.
17.0 ENTIRE UNDERSTANDING
17.1 This License Agreement is the entire understanding between the
parties and no change in Agreement or modification shall be effective
unless executed in writing.
18.0 NOTICES
18.1 Any communication, report or notice required or permitted to be given
under this License Agreement shall be made in writing and in English
language and shall be deemed to have been duly and validly given
effective upon receipt of same , or if sent by Certified or
Registered mail, effective seven (7) days after mailing, addressed to
each case as follows:
a) If to LICENSOR, to him at:
____________________________________
____________________________________
____________________________________
b) If to LICENSEE, to it at:
____________________________________
____________________________________
____________________________________
Attention:__________________________
or at such other address as either party may hereafter furnish to the other
party by written notice, as herein provided.
7
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed effective as of the date of this Agreement.
LICENSOR: LICENSEE:
Softlink Inc. N.I.C. Ltd.
By: /s/ Johnson Lee By: /s/ Eijin Goh
-------------------------- --------------------------
Name: Johnson Lee Name: Eijin Goh
Title: Chief Executive Officer Title: President
8
<PAGE>
EXHIBIT A
1. BravoMAIL (new name: PowerLink)
2. VoiceLink'98
9
<PAGE>
CONSULTANT AGREEMENT
--------------------
THIS AGREEMENT made and entered into this 27 day of 1998, by Softlink Inc.
having a place of business at 1621 W. E1 Camino Real, Suite 22, Mountain View,
California 94040, U.S.A., (hereinafter referred to as the "Company"), and NIC
Ltd. having a place of business at 3-16-11 Takadanobaba, Shinjyuku-ku, Tokyo
169-0075, Japan (hereinafter referred to as the "Consultant").
Both parties shall agree on the following issues:
1. For each copy of PowerLink and VoiceLink products sold in Japan, the
Consultant will be entitled for USD$1.00.
2. For the revenue generated from upgrade given to the Company through
the Consultant, the Consultant will be entitled for 10% of the
revenue.
3. The Consultant shall promote bundling for the Japanese market only. If
the bundling territory shall extend beyond Japan, the Company shall be
notified beforehand and reserve the right of refusal.
4. The Consultant shall be entitled for 10% of the Japanese overall
bundling revenue.
5. The Consultant has an option to license the Company's technology and
participate in co-development of future products. Details will be
addressed and negotiated on mutual agreed terms.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
effective as of the date of this Agreement.
The Company: The Consultant:
Softlink Inc N.I.C. Ltd.
By: /s/ Johnson Lee By: /s/ Eijin Goh
-------------------- --------------------
Name: Johnson Lee Name: Eijin Goh
Title: Chief Executive Office Title: President
<PAGE>
EXHIBIT 10.2
Employment Agreement Between Softlink, Inc.
-------------------------------------------
and William W. Yuan
-------------------
This Agreement is made on March 1, 1999, between Softlink, Inc., a Nevada
Corporation, and ("Company"), with principal place of business 2041 Mission
College Blvd., Suite 156, Santa Clara, California 95054 and William W. Yuan, an
individual, ("Employee"), with place of residence 17665 Tourney Road, Los Gatos,
California 95030.
Recital
Company desires to hire Employee because of Employee's business experience and
expertise in software, marketing and business development.
1.0 Term of Contract
This Agreement shall become effective from March 1, 1929, and will continue in
effect for two years with an option to renew for one year unless terminated
earlier. There shall be a six-month trial period, which commences on March 1,
1999. During the trial period, Either Company or Employee may terminate this
Agreement with 30-day notice.
2.0 Duties of Employee
Employee will serve Company faithfully in the capacity of President and Chief
Operating Officer or in a capacity with greater responsibility or authority to
the best of Employee's ability under the direction of the Board of Directors of
Company.
Employee shall not directly or indirectly, render any services of a business,
commercial or professional nature to any person or organization other than
Company, which would benefit a competitor of Company or harm Company.
Additionally, Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any persons or organization other
than Company, which would negatively impact Employee's performance of his duties
with Company.
3.0 Compensation
Employee's salary shall be at a rate of $12,000 a month starting March 1, 1999.
The salary shall be paid on a semi-monthly basis.
Employee will receive an option to purchase 120,000 shares of Softlink's
registered common stock at a price of $1.20 a share for a period of one year.
The option will vest monthly at a rate of 10,000 shares a month.
Employee will receive an option, so long as he maintains the employment with
Softlink, to purchase additional 120,000 shares of Softlink's registered common
stock at a price of $1.20 per share starting from March 1, 2000 for a period of
one year. The option will vest monthly at a rate of 10,000 shares per month.
1
<PAGE>
An additional option plan based on Employee's achievements is defined as
follows:
a. Employee will have an option to purchase additional 130,000 shares of
registered Softlink's common stock at $1.20 per share when Softlink's gross
revenue reaches $12 million.
b. Employee will have an option to purchase additional 130,000 shares of
registered Softlink's common stock at $1.20 per share when S6ftlink
qualifies and traded at NASDAQ stock market.
4.0 Failure to Pay Employee
The failure of Company to pay Employee as provided above may, in Employee's sole
discretion, be deemed a breech of this agreement, and unless such breach is
cured within 15 days after written notice to Company, the breach of contract
issue shall be subject to binding arbitration under terms of the American
Arbitration Association:
5.0 Change of Ownership: In the event there is a change of control during
Employee's employment, (a new owner controls more than 50 percent of the
Company's common stock) and Employee's employment is terminated within 12 months
of that event (for reason other than cause) all stock options will be
immediately vested. Employee will be entitled for a severance pay equal to then
the annual compensation. For the purpose of this agreement, "cause" will be
defined as contemplated by Section 2924 of the California Labor Code)
6.0 Reimbursement of Expenses
Company shall reimburse Employee for reasonable out-of-pocket pre-approved
expenses that Employee shall incur in connection with Employee's services for
Company, on presentation by Employee of appropriate vouchers to Company within
10 days.
7.0 Other Benefits: Employee will receive insurance, medical and health and
other benefits available to other senior executives as per existing or future
policies.
8.0 Termination And Renewal of Agreement
An agreement to exercise the one-year employment extension will be made mutually
by both parties in writing six months prior to the end of the term of the
agreement. If the option is not exercised, the parties are on notice that the
agreement will terminate on February 28, 2001. Company may terminate this
agreement without cause at any time with 30-clay notice. If the Company
terminates Employee without cause prior to February 28, 2001 and after the six-
month trial period, than 100% of the any option to purchase common shares
granted to Employee by Company should immediately vest. Employee will be
entitled for a severance pay equal to then annual compensation.
2
<PAGE>
9.0 Confidential Information
It is understood between the parties that, during the term of the Agreement,
Employee will deal with confidential information that is Company property used
in the course of its business or other business confidential information.
Employee shall treat as confidential any information obtained by Employee
concerning business, products, techniques, methods, systems, prices, plans or
policies of the Company or Company's customers.
10.0 General
This Agreement constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes all prior oral
or written agreements, arrangements, and understandings with respect thereto.
This Agreement is made under and shall be construed pursuant to the laws of the
State of California, in the County of Santa Clara, as if the agreement was made
and entered into by both parties within the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the date first set forth above.
Employee: Company:
William W. Yuan Softlink, Inc.
/s/ William Yuan /s/ Johnson T. Lee
- --------------------- ----------------------------
William W. Yuan Johnson T. Lee, Chairman
3
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT BETWEEN
SOFTLINK, INC. AND WILLIAM W. YUAN
This First Amendment to Employment Agreement between Softlink, Inc. and
William Yuan (the "Amendment") is made and entered into as of this 31st day of
August 1999 by and between Softlink, Inc. (the "Company") and William W. Yuan
("Employee").
RECITALS
--------
A. Employee and the Company entered into that certain Employment
Agreement dated March 1, 1999 (the "Agreement") under which Employee was to
perform services on behalf of the Company for a six (6) month trial period.
B. Such trial period has now expired, and the Company and Employee now
desire to amend the Agreement on the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Section 1.0 "Term of the Contract" is hereby deleted and replaced with
the following language:
Term. Unless the employment of Employee is terminated as set forth
----
herein, this Agreement shall continue in full force and effect for a
period of three (3) years from August 31, 1999. The Agreement shall be
automatically renewed for successive periods of one (1) year unless:
(i) notice is received by the other party at least thirty (30) days
prior to the end of the term or extension thereof; or this Agreement
is otherwise terminated pursuant to the terms hereof.
2. The first paragraph of Section 2.0 "Duties of Employee" is hereby
deleted and replaced with the following:
Employment. Subject to the terms and conditions of this Agreement,
----------
the Company shall employ Employee as the President and Chief Executive
Officer of the Company. As President and Chief Executive Officer,
Employee shall have, subject to the control of the Board of Directors,
full and complete authority to manage and control the Company's
operations. Employees duties shall include but not be limited to the
following: (i) management of the day-to-day operations of the Company;
(ii) supervision of
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the accounting and financial operations and duties of the Company;
(iii) organization, coordination, and supervision of the sales and
marketing functions of the Company; (iv) supervision of the product
development operations of the Company; (iv) the hiring of personnel;
and (v) any other duties reasonably assigned to Employee by the Board
of Directors of the Company. Employee hereby accepts such employment
and agrees to devote his best efforts to the service of the Company,
to render this service to the Company on a full-time basis and
faithfully, diligently and to the best of his ability discharge the
responsibilities thereof. Employee may perform his duties from the
Company's principal location or from such other location as he
believes is appropriate.
3. The first paragraph of Section 3.0, "Compensation" is hereby amended
to state:
Employee shall receive monthly compensation subject to withholding and
other usual deductions in the amount of fifteen thousand dollars
($15,000) per month which shall be paid semi-monthly. The monthly
compensation will be reviewed annually to determine the appropriate
increase, if any.
4. Paragraph 5.0 is hereby deleted
5. Paragraph 8.0 is hereby deleted and replaced with the following
language:
THE COMPANY MAY TERMINATE THE EMPLOYMENT OF EMPLOYEE AT ANY TIME WITH
OR WITHOUT "CAUSE" (AS DEFINED BELOW), FOR ANY REASON OR NO REASON.
THE EMPLOYMENT RELATIONSHIP CONTEMPLATED HEREUNDER SHALL BE AT THE
WILL OF THE PARTIES HERETO. EMPLOYEE'S EMPLOYMENT SHALL ALSO TERMINATE
UPON HIS DEATH.
As contemplated above, the Company may also terminate Employee's
employment for "cause". The term "cause" as used herein shall include
but not be limited to (i) Employee's failure to follow directions of
the Board of Directors of the Company which are not inconsistent with
this Agreement, (ii) Employee's gross neglect of his responsibilities,
(iii) any act by Employee of dishonesty, fraud, misrepresentation,
harassment or employment discrimination, (iv) Employee's death or
disability; (v) Employee's indictment for a felony; and (vi)
Employee's unauthorized dissemination of the Company's confidential
information or trade secrets.
Severance. Upon the termination of the employment of Employee without
cause, Employee shall be paid severance equal to one (1) year's salary
in one lump-sum and all outstanding, unvested options to purchase
stock of the Company shall vest and be exercisable by Employee.
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6. Paragraph 10.0 "General" is hereby deleted and replaced with the
following language:
Attorney's Fees. In the event that any legal action is brought to
---------------
enforce or interpret any part of this Agreement, the prevailing party
shall be entitled to recover reasonable attorney's fees and other
costs incurred in that action, in addition to any other relief to
which that party may be entitled.
Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted, and enforced in accordance with, and governed by the laws
of the State of California.
Severability. If any term or provision of this Agreement shall be
------------
held invalid or unenforceable to any extent, the remainder of this
Agreement shall not be affected and each other term and provision of
this Agreement shall be valid to the fullest extent permitted by law.
Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original and all of which shall be one and
the same instrument.
Arbitration. In the event a dispute of any kind or nature arises
-----------
under this Agreement, any documents executed in connection with this
Agreement, or any matters related to this Agreement, the parties
shall, within ninety (90) days of the receipt by the other party of a
demand for arbitration, select a mutually agreeable arbitrator and
submit the dispute to such arbitrator for binding arbitration, through
the nearest American Arbitration Association Regional Office, under
the Commercial Arbitration Rules of the American Arbitration
Association. In the event the parties are unable to agree upon an
arbitrator, the arbitrator shall be appointed in accordance with the
rules and procedures of the American Arbitration Association. The fees
for the arbitration proceedings shall be forwarded by the party
demanding arbitration. However, the arbitration fee shall be paid or
reimbursed by the non-prevailing party, as determined by the
arbitrator, who shall also award appropriate attorney's fees and costs
to the prevailing party.
Modification. Any amendment, change or modification of this Agreement
------------
shall be effective only if it is in writing and signed by the parties
hereto.
Waiver. The failure of either party to insist upon strict compliance
------
with any of the terms, covenants or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant or
condition, nor shall any waiver or relinquishment of any right or
power at any one time be deemed a waiver or relinquishment of that
right or power for all or any other time.
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7. The following language is hereby added to the Agreement as Paragraph
11.0.
Assignment of Inventions. Employee shall communicate promptly to the
------------------------
Company all inventions, discoveries, concepts and ideas whether
patentable or not, including but not limited to hardware, software,
processes, methods, techniques as well as improvements thereto
conceived (collectively referred to as "Developments"), developed,
completed or reduced to practice during Employee's employment with the
Company, that (i) are related to the present or prospective business,
work or consulting of the Company; (ii) result from any work performed
on behalf of the Company; or (iii) result from use of the Company's
equipment, facilities or materials. Employee hereby assigns his entire
right, title and interest in and to all such Developments and any
intellectual property rights arising therefrom. Employee shall further
cooperate with the Company in connection with any applications,
filings or documents prepared and or filed related to the
Developments.
8. The following language is hereby added to the Agreement as Paragraph
12.0.
Non-Solicitation. During the term of this Agreement and for a period
----------------
of one year following the termination or expiration of this Agreement
for whatever reason (or if this period of time shall be unenforceable
by law, then for such period as shall be enforceable), Employee agrees
not to contact, with a view towards purchasing or selling any product
or service competitive with any product or service purchased or sold
by Company, or purchase or sell any such product or service from or to
any person, firm, association, corporation or other entity whatsoever:
(i) which Employee solicited, contacted or otherwise dealt with on
behalf of the Company during the twelve month period or any portion
thereof preceding termination or expiration of Employee's employment
with the Company; or
(ii) which is known by Employee to have been a customer, or client of
the Company during the twelve month period or any portion thereof
preceding the termination or expiration of his or her employment with
the Company.
Furthermore, Employee shall not for a period of two years after the
termination of his or her employment for whatever reason, solicit for
hire, or hire any employee of the Company, or any person who was
employed by the Company at any time within six (6) months of the
termination of Employee's employment with the Company, to work for
Employee or any other person or entity.
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IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
THE COMPANY: SOFTLINK, INC.
By:___________________
Its:__________________
EMPLOYEE: ______________________
William W. Yuan
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EXHIBIT 10.4
<TABLE>
<S> <C>
WM
Wayne Mascia Associates 3945 Freedom Circle, Suite 350, Santa Clara, California
COMMERCIAL REAL ESTATE SERVICES Phone (408) 970-9400 - Fax (408) 970-0648
</TABLE>
SUBLEASE
1. PARTIES
This Sublease is entered into this 9/th/ day of April, 1999 by and between
Zuken-Redac, Inc., a California Corporation, hereafter referred to as
"Subleasor" and Softlink, Inc., a California Corporation hereinafter referred to
as "Sublessee", as Sublease under the Master Lease dated May 15, 1997 entered
into by Koll/Intereal Bay Area, a California Partnership as Lessor, and
Sublessor under this Sublease as Lessee; a copy of the Master Lease is attached
hereto as Exhibit "A".
2. PREMISES
Sublessor leases to Sublessee and Sublessee hires from Sublessor the
following described Premises together with the appurtenances, situated in the
City of Santa Clara, State of California, commonly known and described as 2041
Mission College Blvd., Suite 259.
3. TERM
The term of this Sublease shall commence on the 1/st/ day of May, 1999, and
terminate on the 21/st/ day of August, 2000.
4. RENTAL
Subleasee shall pay to Sublessor as rental the sum of Four Thousand Nine
Hundred Twenty and no/100's Dollars ($4,920.00) per month in advance on the
1/st/ day of each month in lawful money of the United States of America,
commencing on the 1/st/ day of May, 1999.
4.1 Operating Expenses
Sublessee shall pay to Sublessor, in addition to monthly rent,
Sublessee's pro rata share of monthly operating expenses as required
my Master Lessor in paragraph (6.) of Master Lease.
5. POSSESSION
Notwithstanding said commencement date, if for any reason Sublessor cannot
deliver possession of the Premises to Sublessee on said date, Subleassor shall
not be subject to any liability therefore, nor shall such failure affect the
validity of this Lease of the obligations of Sublessee hereunder or extend the
term hereof, but in such case Sublessee may, at Sublessee's option, by notice in
writing to Sublessor within ten (10) days thereafter, cancel this Sublease, in
which event the parties shall be discharged from all obligation thereunder. If
Sublessee occupies the Premises prior to said commencement date, such occupancy
shall be subject to all provisions hereof, such occupancy shall not advance the
termination date and Sublessee shall pay rent for such period at the initial
monthly rates set forth above.
6. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor upon the execution hereof $4,920.00
as security for Sublessee's faithful performance of Sublessee's obligation
hereunder. If Sublessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Sublease, Sublessor may
use, apply or retain all or any portion of said deposit for the payment of any
rent or other charge in default or for the payment of any other sum to which
Sublessor may become obligated by reason of Sublessee's default, or to
compensate Sublessor for any loss or damage which Subleassor may suffer thereby.
If Sublessee performs all of Sublessee's obligations hereunder, said
deposit, or so much thereof as has not heretofor been applied by Sublessor,
shall be returned, without payment of interest or other increment for its use to
Sublessee's at the expiration of the term hereof, and within 21 days after
Sublessee has vacated the premises.
<PAGE>
7. USE
Sublessee shall use the premises for General Office Use.
8. PROVISIONS CONSTITUTING SUBLEASE
a. This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit "A" and Sublessee shall assume and perform the
obligations of the Lessee in said Master Lease, to the extent said terms and
conditions are applicable to the Premises subleased pursuant to this Sublease.
Sublessee shall not commit or permit to be committed on the Premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of termination of Sublessor's interest as Lessee under the Master Lease
for any reason, then this Sublease shall terminate coincidentally therewith any
liability of Sublessor to Sublessee.
b. All of the terms and condition contained in the Master Lease are
incorporated herein except for paragraphs ____ as terms and conditions of this
Sublease (with each reference therein to Lessor and lessee to be deemed to refer
to Sublessor and Sublessee) and along with all of the following paragraphs set
out in this Sublease, shall be the complete terms and conditions of this
Sublease.
9. ASSIGNMENT OF SUBLEASE
Sublessee shall not assign this Sublease or any interest therein nor sublet
the demised premises or any part thereof or any right or privilege appurtenant
thereto no permit the occupancy or use of any part thereof by any person without
the written consent of Sublessor Master Lessor. Any assignment further
subleting, occupancy or use without the prior written consent of the Sublessor
shall at the option of the Sublessor terminate this Sublease.
10. Upon execution of this Sublease, Sublessor shall pay Wayne Mascia
Associates, a licensed real estate broker, fees set forth a separate agreement
between Sublessor and Broker.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease in
duplicate.
DATED:_____________________ DATED:____________________
/s/ /s/
- --------------------------- --------------------------
Sublessor Sublessee
- --------------------------- --------------------------
Sublessor Sublessee
CONSENT TO SUBLEASE
Without releasing Lessee in the Master Lease from the obligations hereunder, the
undersigned hereby consents to the foregoing Sublease provided that this consent
shall not be construed as a consent to any further subleting.
DATED:_____________________ ____________________________________
Master Lessor under the Master Lease
<PAGE>
EXHIBIT 10.5
COMPUTER SOFTWARE
DISTRIBUTION AGREEMENT
This Agreement is made and is effective as of the 29th day of April 1999, by and
between Navarre Corporation ("Navarre") of 7400 49th Avenue North, New Hope,
Minnesota, 55428 and Softlink of 2041 Mission College Blvd., Suite 156, Santa
Clara, California 95053 (Vendor")
The Parties have agreed as follows.
1 DEFINITIONS
1.1 The term "Product(s)" shall mean all computer software and related products
manufactured or marketed by Vendor during the term of this Agreement.
1.2 The term "Dealer(s)" shall mean any third party or entity to which Navarre
markets any Products for remarketing.
2. GRANT OF MARKETING RIGHTS
2.1 Vendor grants to Navarre and Navarre accepts from Vendor the right to
purchase Products and to market and distribute Products to Customers in the
United States and Canada, unless other territories are approved in writing.
This grant is non-exclusive unless otherwise agreed to by the parties.
3. TERM
3.1 The initial term of this Agreement shall be for a period of eighteen (18)
months, unless sooner terminated as provided by this Agreement.
3.2 After the initial term, this Agreement shall be automatically renewed for
successive one (1) year periods, unless either party gives the other
written notice, at least ninety (90) days prior to the expiration of the
then current contract period that it does not desire that the Agreement
continue. If such notice is given, the Agreement shall terminate at the end
of the then current term.
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4. ORDERS AND SHIPMENT AND DELIVERY OF PRODUCTS
4.1 Navarre shall issue orders in writing (which includes facsimile
transmission.)
4.2 Vendor shall deliver all products ordered by Navarre within the time agreed
to.
4.3 All Products shall be shipped freight paid by Vendor, F.O.B. destination.
4.4 Navarre may cancel all or part of any order prior to the date of shipment.
4.5 Navarre shall have the option to accept or reject any partial shipments.
4.6 A packing list showing Navarre's purchase order number, quantity ordered,
quantity shipped and a detailed identification of the Products must
accompany all shipments. Each carton needs to include P.O. description, UPC
and carton quantities.
4.7 All Products shall bear a UPC part code (sell code), and all shipping
cartons shall contain a UPC shipping code (ship unit) [UPC number and bar
code.] The UPC numbers and codes on Products and shipping cartons shall
conform to the Uniform Code Council, National Office Products Association
and Retail Industry Standards.
4.8 Vendor agrees master carton quantities shall match those originally
provided by Vendor, unless any changes are notified five (5) days before
shipment. Thereafter, any customer penalties and/or Navarre costs of rework
will be charged back to Vendor.
4.9 Navarre has the right to charge back to Vendor costs incurred by Navarre or
its Customers due to missing, defective or inaccurate UPC codes.
5. PURCHASE PRICE
5.1. Vendor represents and warrants that the price, discounts, payment terms and
return provisions set forth with respect to any Product shall never be less
favorable to Navarre than those made available by Vendor to any other
purchasers of such Product, within same class of trade. Vendor agrees that
if such a sale occurs, Vendor will sell the Product to Navarre at the same
terms and reimburse Navarre retroactively from the date of such sale for
the difference.
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5.2 Navarre has the option to add any or all future retail products
manufactured or marketed by Vendor. The Navarre price and the suggested
retail price for any new release may only be increased by sixty (60) days
advance written notice given by Vendor to Navarre.
5.3 Any announced or published price decrease by Vendor shall apply to Navarre
orders shipped on or after the date the price decrease was announced or
published. In addition, Vendor shall credit to Navarre an amount equal to
the difference between the old cost to Navarre for a Product and the new
cost, times the total number of units of the Product held in Navarre's
inventory, defined as current on hand inventory; units sold within five (5)
working days of price protection notification, and in-transit returns. A
similar credit shall be made available for all affected Product held by
Navarre's Customers at the time of a price decrease. Vendor shall provide
credit for all Product effected by the price decrease, as identified above,
within fifteen (15) days of receipt of Navarre's supporting documentation.
6. PAYMENT
6.1 On or after the date of shipment, Vendor shall invoice Navarre for the
purchase of Product. Initial purchase orders written from December 16th
through August 31st of any year shall be paid net ninety (90) days from the
receipt of the Products. Any other purchase orders written from December
16/th/ through August 31/st/ of any year shall be paid net sixty (60) days
from the receipt of the Products. Any purchase orders written from
September 1/st/ through December 15/th/ of any year shall be paid net one-
hundred twenty (120) days from the receipt of the Products. Navarre shall
have the option to deduct from invoices due Vendor any credits or money due
Navarre from Vendor. In case there is a balance due Navarre, Vendor shall
issue a check to Navarre, within thirty (30) days for the credit balance.
In case of a disputed account balance, both parties will make good faith
effort to reconcile account, within twenty-one (21) days.
7. STOCK BALANCING, RETURNS, PRODUCT RECALLS AND CREDITS
7.1 All defective inventory, either identified upon receipt from Vendor, or
determined to be defective when returned from Navarre's customers, will be
reported to Vendor. Vendor shall advise Navarre regarding the disposition
of defective inventory within twenty-one (21) days of return request.
Otherwise, the defective inventory will be destroyed. Vendor shall bear all
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<PAGE>
expenses regarding the destruction or other disposition of defective
inventory and will issue an immediate credit to Navarre for the purchase
price plus all return freight charges for defective product.
7.2 Navarre may return for full credit up to 100% of all inventory received
from Vendor. Upon receipt of return authorization request, Vendor shall
provide a Return Authorization within seven (7) days of notice. Upon
receipt of such Product, Vendor shall credit Navarre's account with the
amount originally paid for the Product. Items delisted by Vendor
(discontinued and/or version changes) must be communicated in writing to
Navarre. Delisted items will be available for return with immediate and
full credit for a period no less than two hundred seventy (270) days.
7.3 Credits for products returns, advertising allowances or other credits
provided for by this Agreement will be handled by the issuance of charge
backs by Navarre, and the issuance of a credit memo by Vendor.
8. WARRANTIES, EXCLUSION OF CONSEQUENTIAL DAMAGES
8.1 Except as provided in Sections 7, 8 and 9 hereof, neither party shall,
under any circumstances, be liable to the other for consequential,
incidental, indirect or special damages arising out of or related to this
Agreement or the transactions contemplated herein, even if such party has
been appraised of the likelihood of such damages occurring.
9. INDEMNIFICATION
9.1 Vendor shall be solely responsible for the design, development, supply,
production and performance of the Products. Vendor agrees to indemnify and
hold Navarre harmless from and against any claim, loss, damage, expense or
liability (including legal fees and costs) that may result, in whole or in
part, from:
A. Any infringement, or any claim of infringement of any patent,
trademark, copyright, trade secret or other proprietary right with
respect to the Products.
B. Any warranty or product liability claim with respect to the Products
or any breach by Vendor of this Agreement.
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C. Vendor represents and warrants that it has and will maintain during
the term of this Agreement sufficient insurance coverage, to enable it
to meet its obligations under this section.
10. ADVERTISING
10.1 Navarre shall have the right to utilize Vendor's trade name and any
trademarks and service marks associated with the Products to identify the
origin of the Products in advertising and promotional materials. With
respect to Products made by a third party, Vendor shall ensure that Navarre
has the right to use the third party's trademarks and service marks
associated with the Products in Navarre's advertising and promotional
materials.
10.2 Vendor shall support Navarre and Navarre's Customers with advertising,
marketing and promotional activities. As a part of these activities, Vendor
shall implement cooperative advertising and market development programs
that Navarre and its Customers can participate in.
10.3 Vendor agrees that it will provide support to Navarre for its advertising,
marketing and promotional activities. This support can be in the form of ad
production assistance, catalog direct mail programs, shows, advertising in
regional or national trade and/or consumer publications, and sales training
days. Funds will only be applied upon Vendor's prior approval on a case-by-
case basis. Navarre requires a minimum investment of two (2) percent of
total dollar amount, to be applied toward Navarre's marketing (detailed in
Exhibit "B") on an annual basis. Vendor shall issue a credit memo for these
costs.
10.4 Navarre requires payment by Vendor of an initial title set up fee of $200
per SKU. This fee includes positioning of the Product in both Navarre
catalog and business-to-business website. This is a non-occurrence set up
fee, applying to the initial set up of the Product line, and future Product
as there are released. Navarre will charge back the Vendor for such fees in
the month following the set up activity, and the Vendor will issue a credit
memo for such fees.
10.4 All cooperative advertising and market development funds (MDF) charges for
product ordered through Navarre must be authorized in writing prior to
placement. No verbal commitments will be accepted. In the event that such
Cooperative Advertising and/or Market Development Fund expenditure would
cause Navarre's account to move to a debit balance, Navarre reserves
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<PAGE>
the right to require Vendor to pay for these expenditures in advance.
Charge backs will make claims for advertising and market development
expenditure to the Vendor, and Vendor will issue a credit memo for these
costs.
11. TERMINATION
11.1 Either party may terminate this Agreement not less than sixty (60) days
after written notice in the event of a material breach by the other party,
and the failure of such other party to cure such breach within thirty (30)
days of such notification.
11.2 Upon expiration or termination of this Agreement, Navarre shall have the
right, for two-hundred seventy (270) days after the termination, to return
to Vendor all or a portion of the Products in Navarre's inventory. Vendor
agrees to repurchase any such returned Products at the prices paid for them
by Navarre less price protections.
11.3 Navarre shall have the option to withhold a portion payment of any invoice
as a reserve against future returns, debit balances or chargebacks, based
upon rate of sale and unsold inventory exposure. Navarre shall have the
option to deduct from invoices due Vendor any credits or money due Navarre
from Vendor. In case there is a balance due Navarre, Vendor shall issue a
check to Navarre within thirty (30) days for the balance. In case of a
disputed account balance, both parties will make good faith effort to
reconcile account within twenty-one (21) days.
11.4 Sections 8, 9 and 10.1 shall survive the expiration or termination of this
Agreement.
12. MISCELLANEOUS
12.1 The laws of the state of Minnesota shall govern this Agreement. Any dispute
arising out of this Agreement shall be brought and prosecuted in a court
within Hennepin County Minnesota. For this purpose, Vendor appoints the
Secretary of State of Minnesota as its agent for service of process.
12.2 This Agreement shall not be assignable by either party, without prior
mutual agreement.
12.3 This Agreement supersedes all prior oral or written proposals and
communications between the parties related to this Agreement, and shall not
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be modified, rescinded, waived or otherwise changed except with the written
consent of the parties.
12.4 Each party confirms that no inducements, promises or representations, not
written herein, caused it to enter into this Agreement.
12.5 Neither party to this Agreement is the employee, agent or legal
representative of the other for any purpose whatsoever.
The parties, by the actions of their authorized representatives, have executed
this Agreement, including the attached Exhibit A, as of the date first mentioned
above.
SOFTLINK NAVARRE CORPORATION
/s/ Carol A. Prior /s/ Ian Wavfield
- ----------------------- --------------------------------
By: Carol A. Prior Ian Wavfield
Vice President of Sales Vice President & General Manager
- ----------------------- --------------------------------
Title Title
4/30/99 4/30/99
- ----------------------- --------------------------------
Date Date
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EXHIBIT 10.6
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (the "Agreement") dated as of the 30th day of
April, 1999 by and among The Providers, Inc., a Colorado corporation ("The
Providers"), Softlink, Inc., A Nevada corporation (the "Softlink") and
Thomas W. Harris, Jr., (the "Escrow Agent").
WHEREAS, The Providers and Softlink (hereinafter sometimes collectively
referred to as the "Parties"), are parties to that certain Agreement dated
April 30, 1999 and effective as of that date ("Agreement"), a true copy of which
is attached hereto as Exhibit "A" and incorporated herein by this reference;
and,
WHEREAS, the parties desire to provide in this escrow agreement for payment
of media as supplied pursuant to the terms of the Agreement:
NOW THEREFORE, it is agreed as follows:
1. APPOINTMENT OF THE ESCROW AGENT.
Each of the Parties hereby appoints the Escrow Agent to serve as escrow
agent with respect to the Escrow pursuant to Exhibit "A" and the Escrow Agent
hereby accepts such appointment.
2. ESTABLISHMENT OF ESCROW.
Simultaneous with the execution and delivery of this Agreement, Softlink
shall deposit with the Escrow Agent eight hundred and seventy-five thousand
(875,000) shares of Softlink common stock (the "Escrow"). The Softlink common
stock shall be subject to Rule 144 restrictions.
3. TERM OF ESCROW.
The Escrow term (the "Escrow Term") shall begin on the date hereof and
shall terminate upon the earlier of (i) disbursement of all of the Escrowed
Shares in accordance with this Agreement or (ii) twenty-four (24) months after
the date of his Agreement.
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4. DISBURSEMENT OF SHARES FROM ESCROWED SHARES.
The Escrow Agent shall disburse Escrowed Shares in accordance with the
following terms and conditions:
(a) During the Escrow Term (but in all events no less than 20 business
days prior to the date described in Section 3 (ii) above), The Providers shall,
so long as it is not in breach of the Agreement, execute and deliver to Softlink
and the Escrow Agent a Request for Payment in the form of Exhibit "B" hereto
each time The Providers can confirm delivery of electronic media in an amount
that shall entitle The Providers to distribution of one hundred thousand
(100,000) shares of Softlink common stock, except that the last distribution
shall be for less than one hundred thousand (100,000) shares if such
distribution is of the final amount of shares being held pursuant to this
escrow. The term "confirm delivery of electronic media" shall mean an invoice
from The Providers to Softlink with attached invoices from suppliers that
transfer the right to a designated dollar of advertising spots to Softlink.
The "Amount Requested" by The Providers in any such notice shall be a
distribution of the number of shares determined by the following formula:
Step One: Determination of Dollar Amount For Release.
2 x EM - 30% [two times Electronic Media minus 30%] [See example./1/]
Step Two: Determination of Number of Shares For Release.
Shares shall be valued as of the date of receipt of Request For
Payment at the lesser of (i) the lowest trading price of Softlink common or
(ii) FIVE DOLLARS ($5.00) per share. [See example./2/]
Within 5 business days of Softlink's receipt of said Request for Payment,
provided that The Providers has established to Softlink's reasonable
satisfaction that the Electronic Media has been delivered, Softlink shall
execute and deliver to the Escrow Agent and
_____________________
/1/ $225,000 of Electronic Media would release the following dollar amount:
2 x $225,000 = $450,000; $450,000 - $135,000 = $315,000.
/2/ If Softlink common is trading at $3.00 per share on the day of the Request
For Payment, the amount of shares to be released shall be $315,000/$3.00=
105,000 shares. 100,000 shares would be released and 5,000 shares would be
credited toward the next Request For Payment.
2
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The Providers a Confirmatory Notice in the form of Exhibit "C" hereto stating
that it confirms same and authorizing and directing the Escrow Agent to
distribute the Request For Payment shares to The Providers; provided, however,
that if Softlink either does not deliver a Confirmatory Notice in the form of
Exhibit "C", hereto to The Providers and the Escrow Agent or does not deliver a
Contested Amount Notice in the form of Exhibit "D" hereto contesting in writing
The Provider's Request for Payment within 5 business days of Softlink's receipt
of such Request for Payment, the Escrow Agent shall disburse to The Providers
the amount indicated in such Request for Payment within 5 days after the
expiration of such 5 business day period. Within 5 business days of the receipt
by the Escrow Agent of a Confirmatory Notice, the Escrow Agent will disburse to
The Providers the amount which The Providers directs to be released pursuant to
such Confirmatory Notice.
(b) In the event that Softlink delivers to the Escrow Agent and The
Providers a Contested Amount Notice in the form of Exhibit "D" hereto before the
expiration of the 5 business day period in response to a Request for Payment
duly given by The Providers to Softlink and the Escrow Agent under this Section
4, the amount so requested in such contested Request for Payment or Request for
Advance Payment shall be considered a contested amount. All contested amounts
shall be held and either disbursed by the Escrow Agent in accordance with any
joint letter of instruction signed and delivered by Softlink and The Providers
to the Escrow Agent (in form and substance satisfactory to the Escrow Agent),
interpleaded in a court of Escrow Agent's choosing or otherwise disbursed in
accordance with this Agreement. All amounts other than contested amounts (and
amounts theretofore disbursed to The Providers) shall, upon the expiration of
the Escrow Term, be returned to Softlink. In the event Softlink timely objects
to any Request for Payment sending a Contested Amount Notice, Softlink shall
send a separate notice to The Providers setting forth in reasonable detail its
basis for asserting that there is a contested amount. Such separate notice shall
be given by Softlink to the The Providers within the applicable 5 business day
period. The parties agree that the failure of Softlink in giving such separate
notice to state any claim or amount in any such separate notice shall not
3
<PAGE>
constitute a waiver of such claim or amount or in any manner or to any extent
compromise or prejudice any claim not stated therein.
(c) Upon termination of the Escrow in accordance with Section 3 hereof,
the Escrow Agent shall promptly disburse to Softlink all Escrow Shares, other
than contested amounts pursuant to Section 4(b) above.
5. EXPENSES AND ESCROW FEES.
The Escrow Agent shall be entitled to reimbursement of all reasonable
expenses, commissions, fees and other costs, including any reasonable costs in
connection with the interpleader described in Section 7(k), incurred by the
Escrow Agent acting pursuant to the terms of this Agreement. Such expenses shall
include any reasonable legal costs incurred by the Escrow Agent acting in his
capacity as escrow agent hereunder. All such reasonable fees, costs and expenses
shall be borne by Softlink and shall be payable to the Escrow Agent monthly
within thirty (30) days after invoice.
Softlink shall pay one hundred percent (100%) of fees and expenses due to
Escrow Agent. Escrow Agent shall bill his time at $250.00 per hour and his
paralegal time at $100.00 per hour for all time incurred in connection with
handling of this escrow.
6. DUTIES OF THE ESCROW AGENT.
The Escrow Agent hereby agrees to perform the following duties under this
Agreement:
(a) Receive, and use reasonable efforts to act as custodian for, the
Escrowed Shares delivered to the Escrow Agent pursuant to this Agreement;
(b) Provide the notices and communications as may be expressly permitted
or required by this Agreement; and
(c) Take such other actions and perform such other duties as may be
required on the part of the Escrow Agent under the terms of this Agreement, or
pursuant to any modifications or amendments hereto affecting the duties of the
Escrow Agent to the extent consented to by the Escrow Agent in writing.
4
<PAGE>
7. ADDITIONAL MATTERS WITH RESPECT TO THE ESCROW AGENT AND SUBSTITUTION OF THE
ESCROW AGENT.
The following additional provisions shall govern the rights, obligations
and liabilities of the Escrow Agent under this Agreement.
(a) The Escrow Agent's duties and responsibilities shall be limited to
those expressly set forth in this Agreement, and he shall not be subject to, nor
obligated to recognize, any other agreement between any or all of the parties
hereto even though reference thereto may be made herein; provided, however, that
with the Escrow Agent's written acknowledgment, this Agreement may be amended at
any time or times by an instrument in writing signed by or on behalf of all the
parties hereto.
(b) If the Escrow Agent believes it to be reasonably necessary to consult
with legal counsel (which may be partners or employees of the Escrow Agent) or
other professionals concerning any of its duties in connection with this
Agreement, or in case it becomes involved in litigation on account of being
escrow agent hereunder (except if such litigation arises from the gross
negligence or willful misconduct of the Escrow Agent) or on account of having
received property subject hereto, or in case the Escrow Agent interpleads the
Escrowed Shares as described in Section 8(k), then in all cases, its reasonable
costs, expenses, and attorneys' fees and other professional fees shall be
reimbursed as provided in Section 5 hereof.
(c) The Escrow Agent shall keep proper books of record and account
relating to the Escrowed Shares.
(d) In the event that the Escrow Agent receives instructions from Softlink
or The Providers with respect to the Escrowed Shares, which instructions, in the
Escrow Agent's reasonable opinion, are in conflict with other instructions
provided by a party to this Agreement or with any of the provisions of this
Agreement, the Escrow Agent shall immediately notify in writing Softlink and The
Providers of such conflict whereupon the Escrow Agent shall be entitled to
refrain from taking any action until it shall be directed otherwise either
pursuant to (i) a letter of instructions signed by both The Providers and
Softlink directing the disposition of such Shares or (ii) a certified copy of a
final judgment, or if appeal is taken, a finally determined judgment, of a court
of competent jurisdiction providing for the disposition of the
5
<PAGE>
shares. In the event of a conflict between the provisions of Section 4 hereof
and this Section 8(d), the provisions of Section 4 hereof shall govern. In the
event a dispute relates only to a portion of media credit claimed by The
Providers, the undisputed portion of any unpaid claim shall be distributed and
only the disputed portion shall be subject to being withheld pending resolution
of the dispute.
(e) The Escrow Agent shall have no liability to anyone for any action
taken or omitted by the Escrow Agent acting in reliance upon instructions given
by Softlink and The Providers.
(f) The Escrow Agent shall have no liability to anyone for an error in
judgment or for any act done or omitted by the Escrow Agent in good faith unless
caused by or arising out of any gross negligence or willful misconduct of the
Escrow Agent.
(g) The Escrow Agent shall be entitled to rely upon any writing furnished
to the Escrow Agent by Softlink or The Providers and shall be entitled to treat
such writing as genuine and as the writing it purports to be.
(h) The Escrow Agent may resign at any time by giving at least ten (10)
days prior written notice thereof to the other parties hereto; provided,
however, that the effective date of such resignation by the Escrow Agent shall
not be earlier than the effective date of the appointment of a successor the
Escrow Agent pursuant to Section 7(i) hereof.
(i) If at any time the Escrow Agent resigns, is removed, dissolves or
otherwise becomes incapable of acting, or the position of the Escrow Agent
becomes vacant for any reason, The Providers shall promptly appoint a successor
the Escrow Agent to fill such vacancy. If The Providers fails to appoint a
successor agent prior to the effective date of the Escrow Agent's resignation,
the Escrow Agent shall be entitled to appoint a successor of its choosing.
(j) Each successor Escrow Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor, Softlink and The Providers a written
instrument accepting such appointment and agreeing to be bound by the provisions
of this Agreement. Immediately following the appointment of a successor Escrow
6
<PAGE>
Agent, the predecessor Escrow Agent shall transfer all Shares, documents and
instruments held under this Agreement to such successor Escrow Agent and the
predecessor Escrow Agent shall thereafter be absolved and released from any and
all further liability hereunder (other than liability for matters attributable
to the predecessor Escrow Agent's bad faith, gross negligence, willful
misconduct or violation of its express obligations under this Agreement).
(k) In the event of a dispute between The Providers and Softlink
concerning the right of the other party to the Escrowed Shares, the Escrow Agent
shall have the right, in its sole discretion, to convert the Escrowed Shares to
cash and interplead the Escrowed Shares into a court of competent jurisdiction.
8. INDEMNIFICATION.
Softlink and The Providers jointly and severally shall indemnify and hold
the Escrow Agent harmless from actions, suits or other charges incurred by or
assessed against the Escrow Agent for anything done or omitted by the Escrow
Agent in the performance of its duties hereunder, except those matters which
result from the Escrow Agent's bad faith, gross negligence or willful
misconduct. This indemnity shall survive the resignation of the Escrow Agent or
the termination of this Agreement.
9. NOTICES.
Any notice, demand, consent, authorization, request, approval or other
communication given pursuant to this Agreement shall be effective and valid only
if in writing (including facsimile), signed by the party giving such notice,
addressed as follows:
If to Softlink:
Softlink, Inc.
2041 Mission College Blvd., Suite 156
Santa Clara, CA 95054
Attn: William Yuan, President
Facsimile: (408) 496-6110
7
<PAGE>
If to The Providers:
The Providers, Inc.
2121 North Frontage Road, #196
Vail, CO 81657
Attn: Martin Blitstein, CEO
Facsimile: (970) 926-1344
If to the Escrow Agent:
Thomas W. Harris, Esq.
Law Offices of Thomas W. Harris
2182 Dupont Drive, Suite 202
Irvine, CA 92612-1320
Facsimile: (949) 477-2394
All such notices shall be considered given on the date when received
(refusal of delivery shall constitute receipt) or if sent by telecopy when
transmitted if the sending machine produces a confirmation of transmission. Any
party may change its address by giving notice of such change to the other
parties.
10. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California.
11. MERGER.
This Agreement represents the final agreement of Softlink, The Providers
and the Escrow Agent with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between Softlink, the The Providers or the Escrow Agent.
12. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original hereof, but all of which shall be deemed a single document.
13. DEFINITIONS.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed thereto in the Agreement.
8
<PAGE>
14. SEVERABILITY.
Each part of this Agreement is intended to be severable. If any term,
covenant, condition or provision hereof is unlawful, invalid or unenforceable
for any reason whatsoever, and such illegality, invalidity or unenforceability
does not affect the remaining parts of this Agreement, then all such remaining
parts hereof shall be valid and enforceable and have full force and effect as if
the invalid or unenforceable part had not been included.
15. RIGHTS CUMULATIVE; WAIVERS.
The rights of each of the parties under this Agreement are cumulative and
may be exercised as often as any party considers appropriate. The rights of each
of the parties hereunder shall not be capable of being waived or varied
otherwise than by an express waiver or variation in writing. Failure to exercise
or any delay in exercising any of such rights also shall not operate as a waiver
or variation of that or any other such right. Defective or partial exercise of
any of such rights shall not preclude any other or further exercise of that or
any other such right. No act or course of conduct or negotiation on the part of
any party shall in any way preclude such party from exercising any such right or
constitute a suspension or any variation of any such right.
16. HEADINGS.
The headings contained in this Agreement are inserted for convenience only
and shall not affect the meaning or interpretation of this Agreement or any
provision hereof.
17. CONSTRUCTION.
(a) The terms "hereby", "hereof", "hereto", "herein", "hereunder", and any
similar terms shall refer to this Agreement.
(b) Words of the masculine, feminine or neuter gender shall mean and
include the correlative words of other genders, and words importing the singular
number shall mean and include the plural number and vice versa.
(c) Words importing persons shall include firms, associations,
partnerships, corporations and other legal entities, including public bodies, as
well as natural persons.
9
<PAGE>
(d) The terms "include", "including" and similar terms shall be construed
as if followed by the phrase "without limitation".
18. ASSIGNMENT.
This Agreement and the terms, covenants, conditions, provisions,
obligations, undertakings, rights and benefits hereof shall be binding upon, and
shall inure to the benefit of, the undersigned parties and their respective
heirs, executors, administrators, representatives and permitted successors and
assigns.
19. NO THIRD PARTY BENEFICIARIES.
No person, firm or other entity other than the parties hereto and their
permitted successors and assigns shall have any rights or claims under this
Agreement.
20. NO LEGAL ADVICE BY ESCROW AGENT.
The Escrow Agent has not and will not provide legal advice to any party to
this agreement. Softlink and The Providers entered into their own agreement
prior to opening of this Escrow and shall be responsible for obtaining legal
advice, if they deem it necessary, prior to execution of this Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
Softlink, Inc
By: /s/ William Yuan
---------------------------
William Yuan, President
By: ___________________________
Name:
Office:
The Providers, Inc.
By: /s/ Martin Blitstein
---------------------------
Martin Blitstein, CEO
By: ___________________________
Name:
Office:
10
<PAGE>
Escrow Agent:
_______________________________
Thomas W. Harris, Jr.
11
<PAGE>
EXHIBIT 10.7
CONTRACT OF ENGAGEMENT
----------------------
THIS IS AN ENGAGEMENT AGREEMENT (this "Agreement") by and between CARDINAL
CAPITAL MANAGEMENT, INC. (CCM), a Georgia corporation, and SOFTLINK, INC., and
its subsidiaries and affiliates, (the "Company"), a Nevada corporation, and by
which CCM and the Company, in consideration of the mutual agreements set forth
below (the mutuality, adequacy, and sufficiency of which are hereby
acknowledged), hereby agree as follows:
1. Retention of CCM as Advisor. The Company hereby engages CCM, and CCM
---------------------------
hereby agrees to provide general financial advisory services to the Company
for the purpose of the financing referred to in Attachment A to this
Agreement (the "Financing Transaction"). Neither CCM nor the Company shall
make any commitment, representation, or warranty of any kind whatsoever on
behalf of the other, nor shall either party have any right or authority to
sign for, bind, or commit the other to any obligation or undertaking in
connection with any transaction contemplated herein, or otherwise, without
the written consent of the other.
2. Non-Contravention.
-----------------
(a) The Company agrees not to engage in, or enter into a contract to
engage in, any financing transaction with a party to whom it was first
introduced by CCM ("CCM Investor(s)"), for a period of Two (2) years from
the date hereof. For clarity purposes, CCM will provide a written listing
of such parties which shall become a part of this Agreement upon the sooner
of thirty (30) days of its execution or the Closing Date of a financial
transaction, hereof. In the event of circumvention of this prohibition by
the Company, the Company shall be required to pay to CCM the same
compensation with respect to such other financing transaction as is set
forth in Section 3 of this Agreement. The terms of this paragraph shall
remain in effect regardless of whether this contract is terminated under
Section 7 below.
(b) The terms of this Contract of Engagement do not prohibit the
Company from raising or attempting to raise additional capital through its
normal and customary bankers and investment bankers to the extent that such
capital raise or attempted capital raise is with investors other than the
CCM Investor(s).
(c) The Company agrees that CCM or its representative shall
participate, when practicable, in any and all communications concerning the
Financing between the Company and the CCM Investor(s), other than such
communications that are made to shareholders or investors generally.
3. Services and Compensation. During the term of this Agreement, CCM will
-------------------------
provide the services for the compensation set forth on Attachment A hereto
(the "Services").
4. Additional Provisions. None
---------------------
5. Acknowledgements of the Company. The Company Acknowledges and agrees
-------------------------------
that CCM may be called upon by other parties or entities from time to time
to provide services similar to the Services provided to the Company to such
other parties or entities and in such
Page 1 of 5
<PAGE>
event the Company hereby consents to CCM providing any such services to
such other party or entity, to the extent such services do not interfere or
conflict with the services to be provided by CCM under this Agreement.
6. Trade Secrets: Confidential Information. The parties agree that:
---------------------------------------
(a) all of the trade secrets of each party (which include, but are
not limited to, technical or non-technical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, or a list of
actual or potential customers or services), whether currently existing or
otherwise developed during the term of this Agreement, that derives
economic value, actual or potential, from not being readily ascertainable
by proper means by other persons who can obtain economic value from its
disclosure or use and is the subject of efforts which are reasonable under
the circumstances to maintain its secrecy and any other information or
materials that is a trade secret; and
(b) all of the confidential or proprietary information of each party,
which includes any data or information of either party other than trade
secrets, whether currently existing or otherwise developed or acquired by
either party during the term of this Agreement, which is not generally
known to the public;
(c) all of the information contained herein, the terms of the
transaction, and the structure of the transaction, except as required by
the rules and regulations of the Securities and Exchange Commission;
that either has been provided, or will be provided, to the other or that
has been obtained, or will be obtained, by either party in connection with
this Agreement (such trade secrets and confidential, proprietary
Information being referred to collectively as the "Information") is
proprietary Information of the disclosing party and is the sole, exclusive
and valuable property of the disclosing party (and the recipient party
acknowledges and agrees that he has, and will acquire no right, title or
interest in such party). Thus, the recipient party agrees:
(1) that it will not use the Information to the detriment of
the disclosing party and
(ii) that it will hold the information in strict confidence, use
the Information only in connection with the matters covered by
this Agreement, and not disclose the Information to any person or
entity (other than an employee of the recipient party who
requires such Information in connection with this Agreement)
unless the disclosing party directs otherwise
indefinitely in the case of trade secrets (so long as they remain trade
secrets) and until Sixty (60) months after the termination of this
Agreement in the case of confidential information; provided, however, that
the agreements in clause (ii) shall not apply to the Information to the
extent the recipient party demonstrates that:
(iii) it was in the public domain at the time of its
communication to the recipient party; or
Page 2 of 5
<PAGE>
(iv) it entered the public domain through no action of the
recipient party subsequent to the time of communication to the
recipient party; or
(v) it was rightfully received by the recipient party from a
third party without a similar restriction and without breach of
this Agreement or any other agreement with the disclosing party;
or
(vi) it was independently developed by the recipient party
without breach of this Agreement; or
(vii) it was approved for release by written authorization of the
disclosing party.
Immediately after termination of this Agreement, the recipient party shall
deliver to the disclosing party all materials in its possession involving
the disclosing party's Information. Any trade secrets shall also be
entitled to all of the protections and benefits under the laws of the State
of New York and any other applicable law. If any information which the
parties deem to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Section 6, then
the Information shall be considered confidential information for purposes
of this Section 6. This Section 6 shall survive the termination of this
Agreement.
7. Term. The term of this Agreement shall be for a period of One Hundred
----
Eighty (180) days from the date of execution, unless sooner terminated in
accordance with this Agreement. The Company or CCM may terminate this
Agreement at any time upon ten (10) days prior written notice to the other
party, and this Agreement shall automatically terminate upon the closing of
a financial transaction, provided, however, that sections 2, 3, 6, 8, and 9
shall survive the termination of this Agreement
8. Limitation on Liability. Notwithstanding anything to the contrary in
-----------------------
this Agreement, CCM's liability to the Company for any loss or damage
arising out of CCM'S performance or nonperformance of the Services shall be
limited to loss or damage directly resulting from willful misconduct or
gross negligence of CCM or its agents. It is expressly agreed that in no
event shall CCM's liability to the Company ever exceed the fees paid to CCM
by the Company for the Services set forth on Attachments A hereto. NEITHER
CCM NOR ITS OFFICERS, DIRECTORS, SHAREHOLDERS OR AGENTS SHALL BE LIABLE FOR
INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES OR LOSS OF REVENUES
SUFFERED BY THE COMPANY OR FOR ANY CLAIM, DEMAND OR ACTION AGAINST THE
COMPANY OR ANY OF ITS REPRESENTATIVES BY ANY THIRD PARTY ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT.
9. Indemnification. The Company shall be solely responsible for, and hold
---------------
harmless and indemnify CCM (including its successors, officers, directors,
shareholders, employees, agents and representatives) from and against, all
losses, claims, damages, liabilities, and expenses (including any and all
reasonable expenses and attorneys fees incurred in investigating, preparing
or defending against any litigation or proceeding, commenced or
Page 3 of 5
<PAGE>
threatened, or any claim whatsoever whether or not resulting in any
liability) in connection with CCM's provision of the Services to the
Company, unless such loss, claim, damage, liability or expense results
from the willful misconduct or gross negligence of CCM or its employees or
agents. Notwithstanding the foregoing, the Company shall have no obligation
to reimburse CCM for cash and expenses (including due diligence and legal
fees and disbursements incurred by CCM in connection with the Financing to
the extent that such costs and expenses exceed Fifteen Thousand Dollars
(USD$15,000,00).
10. Miscellaneous.
-------------
(a) Notices. Each notice under this Agreement shall be in writing and
-------
given either in person or by facsimile, overnight delivery service or first
class mail, postage and any other costs prepaid, to the address of the
party being given notice set forth below his or its signature or to such
other address as a party may furnish to the other as provided in this
sentence; and if such notice is given pursuant to the foregoing of a
permitted successor or assign, then notice shall thereafter be given
pursuant to the foregoing also to such permitted successor or assign.
(b) Assignment; Successors in Interest. No assignment, transfer or
----------------------------------
delegation of any rights or obligations under this Agreement by a party
shall be made without the prior written consent of the other party. This
Agreement is binding upon the parties and their respective successors and
assigns, and inures to the benefit of the parties and their respective
permitted successors and assigns. References to a party are also references
to any successor or assign of such party.
(e) Number; Gender; Captions; Certain Definitions. Whenever the
---------------------------------------------
context requires, the singular includes the plural, the plural includes the
singular, and the gender of any pronoun includes the other genders. Titles
and captions of or in this Agreement are inserted only as a matter of
convenience and for reference and in no way affect the scope of this
Agreement or the intent of its provisions. The parties agree: (i) that
"this Agreement" includes any amendments or other modifications and
supplements, and all exhibits, schedules and any other attachments, to it;
(ii) that "parties to this Agreement" and variations of that phrase
includes all persons who have executed and delivered this Agreement and, in
the event of a successor or assign to a person who has executed and
delivered this Agreement, such successor or assign; and (iii) that
"including" and other words or phrases of inclusion, if any, shall not be
construed as terms of limitation, so that references to "included" matters
shall be regarded as non-exclusive, non-characterizing illustrations.
(d) Severability. Any determination by any court of competent
------------
jurisdiction that any provision of this Agreement is invalid shall not
affect the validity of any other provision of this Agreement, which shall
remain in full force and effect and which shall be construed as to be valid
under applicable law.
(e) Integration; Amendment; Waiver. This Agreement (i) constitutes
------------------------------
the entire agreement of the parties with respect to its subject matters,
(ii) supersedes all prior agreements, if any, of the parties with respect
to its subject matter, and (iii) may not be amended except in writing
signed by the party against whom the change is being asserted. The failure
of any party at any time or times to require the performance of any
provision of
Page 4 of 5
<PAGE>
this Agreement shall in no manner affect the right to enforce the same; and
no waiver by any party of any provision (or of a breach of any provision)
of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed or construed either as a further or continuing
waiver of any such provision or breach or as a waiver of any other
provision (or of a breach of any other provision) of this Agreement.
(f) Attachments. All schedules, attachments and exhibits to this
-----------
Agreement are hereby incorporated into this Agreement and are hereby made a
part of this Agreement as if set out in full in the first place that
reference is made thereto.
(g) Controlling Law. This Agreement is governed by, and shall be
---------------
construed and enforced in accordance with the laws of the State of New
York.
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.
DULY EXECUTED and delivered by the parties hereto on May ____, 1999, and
effective as of May ____, 1999.
CARDINAL CAPITAL MANAGEMENT, INC.
/s/ Scott F. Koch
- ----------------------------------
By: Scott F. Koch
Its: Senior Managing Director
SOFTLINK, INC.
By: /s/ William Yuan
-----------------------------
Name: William Yuan
----------------------------
Title: President
---------------------------
Page 5 of 5
<PAGE>
Attachment A
------------
The Services to be provided by Cardinal Capital Management, Inc. (CCM) and the
compensation to be received by CCM from SoftLink, Inc. (the "Company") shall
include the following:
1. Introducing SoftLink, Inc. to institutional investors for a Private
Placement of up to Three Million Dollars (USD$3,000,000.00) on a Best
Efforts Basis. CCM to be compensated, in cash, in the amount of six percent
(6%) of the Face Amount of the Private Placement payable out of proceeds at
Closing. The Company shall also grant to CCM, Fifty Thousand (50,000) stock
purchase warrants (the "Warrants") for each One Million Dollars
(USD$1,000,000.00) raised. Such Warrants shall be registered on the CCM
Investor's Registration Statement, and shall be exercisable any time until
the fifth (5/th/) anniversary of the Closing Date hereof at one hundred
twenty percent (120%) of the Closing Price on such Closing Date. In
addition, the Company will pay accountable due diligence, legal fees, and
expenses related to the completion of this transaction to CCM in an amount
not in excess of Fifteen Thousand Dollars (USD$15,000.00)
2. The Closing Attorney shall act as the Escrow Agent for the Closing, and all
fees shall be paid to CCM directly from the Escrow Account.
AGREED TO AND ACCEPTED THIS ____ DAY OF MAY, 1999.
CARDINAL CAPITAL MANAGEMENT, INC. SOFTLINK, INC.
/s/ Scott F. Koch /s/ William Yuan
- ------------------------------- ---------------------------------
By: Scott F. Koch By: William Yuan
Its: Senior Managing Director Its: Chief Executive Officer
<PAGE>
EXHIBIT 10.8
Dated: June 14,1999
------------
1. BASIC LEASE TERMS. For Purposes of this Lease, the following terms have the
following definitions and meanings:
(a) Landlord: Koll/Intereal Bay Area, a California general partnership
--------------------------------------------------------
Landlord's Address (For Notices):
1700 Wyatt Drive, Suite 1
-------------------------------------
Santa Clara, CA 95054
-------------------------------------
or such other place as Landlord may from time to time designate by notice to
Tenant with a copy to CB Richard Ellis, Inc., 275 Battery St., Suite 1300, San
Francisco, CA 94111-3305..
(b) Tenant: Softlink, Inc., a California corporation
----------------------------------------
Tenant's Trade Name:
Tenant's Address for Notices (Premises):
2041 Mission College Blvd., Suite 240
-------------------------------------
Santa Clara, CA 95054 Attention:
-------------------------------------
(c) Premises: Suite(s) 240 of building 0202 (the "Building") of the MISSION
---- -------
PARK EXECUTIVE CENTER (the "Project"), located in the City of Santa Clara
- --------------------- -----------
("City"), County of Santa Clara ("County"), State of California ("State") as
-----------
shown on Exhibit "A-I". The Premises are depicted on Exhibit "A-II" and contain
approximately 2.956 Rentable Square Feet (subject to adjustment as provided in
-----
this Lease).
(d) Tenant's Share: 6.62%
----
(e) Term: 24 Lease Months and 0 Days.
-- -
(f) Commencement Date: September 13 1999
-----------------
(g) Expiration Date: September 12, 2001
------------------
(h) Initial Monthly Base Rent: $7,685 60 subject to adjustment as provided in
---------
Exhibit "B" and as set forth in Paragraph 5.
(i) Monthly Operating Expense Charge. $206.92 subject to adjustment as provided
-------
in Exhibit "B".
(j) Security Deposit: $7,833.40
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(k) Permitted Use: General office use for software development, and no other
-------------------------------------------
use without the express written consent of Landlord, which consent Landlord may
withhold in its sole and absolute discretion
(l) Broker(s): N/A
---
(m) Guarantor(s): N/A
---
(n) Interest Rate: The greater of ten percent (10%) per annum or two percent
(2%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A.
or any successor bank in effect on the twenty-fifth (25th) day of the calendar
month immediately prior to the event giving rise to the Interest Rate
imposition; provided, however, the Interest Rate will in no event exceed the
maximum interest rate permitted to be charged by applicable law.
(0) Exhibits: A-l through G, inclusive, which Exhibits are attached to this
Lease and incorporated herein by this reference.
(p) Addendum Paragraphs: - through - , inclusive, which Addendum Paragraphs are
attached to this Lease and incorporated herein by this reference.
(q) Base Year. The Base Year for purposes of calculating real property taxes
and assessments and Landlord's insurance premiums shall be 1999.
This Paragraph 1 represents a summary of the basic terms and definitions of this
Lease. In the event of any inconsistency between the terms contained in this
Paragraph 1 and any specific provision of this Lease, the terms of the more
specific provision shall prevail.
1
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2. PREMISES AND COMMON AREAS.
(a) Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises upon and subject to the terms, covenants and conditions
contained in this Lease to be performed by each party.
(b) Tenant's Use of Common Areas. During the Term of this Lease. Tenant shall
have the nonexclusive right to use in common with all other occupants of the
Project, the following common areas of the Project (collectively, the "Common
Areas"): the parking facilities of the Project which serve the Building, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, and similar areas and facilities situated within
the Project and appurtenant to the Building which are not reserved for the
exclusive use of any Project occupants.
(c) Landlord's Reservation of Rights. Provided Tenant's use of and access to
the Premises is not interfered with in an unreasonable manner, Landlord reserves
for itself and for all other owner(s) and operator(s) of the Common Areas and
the balance of the Project, the right from time to time to: (i) install, use,
maintain, repair, replace and relocate pipes, ducts, conduits, wires and
appurtenant meters and equipment above the ceiling surfaces, below the floor
surfaces and within the walls of the Building; (ii) make changes to the design
and layout of the Project, including, without limitation, changes to buildings,
driveways, entrances, loading and unloading areas, direction of traffic,
landscaped areas and walkways, parking spaces and parking areas; and (iii) use
or close temporarily the Common Areas, and/or other portions of the Project
while engaged in making improvements, repairs or alterations to the Building,
the Project, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated in
Subparagraph 1(e), commencing on the Commencement Date, and ending on the
Expiration Date. Each consecutive twelve (12) month period of the Term of this
Lease, commencing on the Commencement Date, will be referred to herein as a
"Lease Year".
4. POSSESSION.
(a) Delivery of Possession. Landlord will deliver possession of the Premises to
Tenant in its current "as-is" condition with the addition of only those items of
work described on Exhibit "C" which are to be completed by Landlord on or before
the Commencement Date. If, for any reason not caused by Tenant, Landlord cannot
deliver possession of the Premises to Tenant on the Commencement Date, this
Lease will not be void or voidable, nor will Landlord be liable to Tenant for
any loss or damage resulting from such delay, but in such event, the
Commencement Date and Tenant's obligation to pay rent will not commence until
Landlord delivers possession to Tenant. If the delay in possession is caused by
Tenant, then the Term and Tenant's obligation to pay rent will commence as of
the Commencement Date even though Tenant does not yet have possession.
Notwithstanding the foregoing, Landlord will not be obligated to deliver
possession of the Premises to Tenant (but Tenant will be liable for rent if
Landlord can otherwise deliver the Premises to Tenant) until Landlord has
received from Tenant all of the following: (i) a copy of this Lease fully
executed by Tenant and the guaranty of Tenant's obligations under this Lease, if
any, executed by the Guarantor(s); (ii) the Security Deposit and the first
installment of Monthly Base Rent; and (iii) copies of policies of insurance or
certificates thereof as required under Paragraph 19 of this Lease.
(b) Condition of Premises. By taking possession of the Premises. Tenant will be
deemed to have accepted the Premises in its "as-is" condition on the date of
delivery of possession and to have acknowledged that all work to be completed by
Landlord as described on Exhibit "C" has been completed and there are no
additional items needing work or repair by Landlord. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises, the Building, the Project or any portions
thereof or with respect to the suitability of same for the conduct of Tenant's
business and Tenant further acknowledges that Landlord will have no obligation
to construct or complete any additional buildings or improvements within the
Project.
5. RENT.
(a) Monthly Base Rent. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or demand,
except that Tenant agrees to pay the Monthly Base Rent for the first month of
the Term directly to Landlord concurrently with Tenant's delivery of the
executed Lease to Landlord. All rent must be paid to Landlord, without any
deduction or offset, in lawful money of the United States of America, at the
address designated by Landlord or to such other person or at such other place as
Landlord may from time to time designate in writing. Monthly Base Rent will be
adjusted during the Term of this Lease as provided in Exhibit "B".
(b) Additional Rent. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance and
repairs, will be considered additional rent for purposes of this Lease, and the
word "rent" as used in this Lease will include all such additional rent unless
the context specifically or clearly implies that only Monthly Base Rent is
intended.
(c) Late Payments. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Subparagraph 22(1) below.
6. OPERATING EXPENSES.
(a) Operating Expense Charge. Tenant shall pay Landlord, as additional rent,
Tenant's Monthly Operating Expense Charge as set forth in Subparagraph 1(i) of
this Lease. Tenant's Monthly Operating Expense Charge shall be paid monthly
concurrently with Tenant's payment of the Monthly Base Rent. Tenant's Monthly
Operating Expense Charge is intended to reimburse Landlord for a portion of the
costs and expenses incurred by Landlord for the operation and maintenance of the
Project other than real property taxes and assessments (as defined in
Subparagraph 6(b) below) and Landlord's insurance premiums (as defined in
Subparagraph 6(c) below). Tenant's Share of real property taxes and assessments
and insurance premiums shall be determined and paid by Tenant as provided for in
Subparagraphs (6(b) through 6(f) below.
(b) Real Property Taxes and Assessments. Tenant shall pay to Landlord, as
additional rent, Tenant's Share of the amount, if any, by which the real
property taxes and assessments for the Project paid for any Lease Year increase
over the real property taxes and assessments for the Project paid for the Base
Year defined in Subparagraph 1(q) above. The phrase "real property taxes and
assessments" as used in this Lease shall mean with respect to the Project (a)
any form of real property tax assessment, license fee, license tax, business
license fee, commercial rental tax, levy, charge, improvement bond or similar
imposition of any kind or nature imposed by any authority having the direct
power to tax, including, without limitation, any city, county state or federal
government, or any school, agricultural, lighting, drainage, or other
improvement or special assessment district thereof, and (b) any assessments
under any covenants, conditions and restrictions affecting the Project.
(c) Insurance Premiums. Tenant shall pay to Landlord, as additional rent,
Tenant's Share of the amount of any increase in the Landlord's insurance
premiums for the Project over the Landlord's insurance premiums for
the Project paid for the
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<PAGE>
Base Year defined in Subparagraph 1(q) above, whether such increase is a result
of any increased valuation of the Project or general rate increases. The phrase
"Landlord's insurance premiums" as used in this Lease shall mean with respect to
the Project the premiums paid by Landlord for the following policies of
insurance which may be maintained by Landlord from time to time: (a) fire and
extended coverage insurance covering the improvements within the Project
(including, without limitation, the Common Area), with earthquake and/or flood
coverage if required by Landlord, (b) loss of rents insurance, (c) comprehensive
general liability insurance or commercial general liability insurance, (d)
workers compensation insurance, and (e) such other insurance covering such other
liability or hazards as deemed appropriate by Landlord.
(d) Estimate Statement. If for any Lease Year of the Term, the real property
taxes and assessments for such Lease Year are anticipated to increase over the
real property taxes and assessments paid for the Base Year and/or the Landlord's
insurance premiums for such Lease Year are anticipated to increase over the
Landlord's insurance premiums paid for the Base Year, Landlord will estimate the
amount of any such increase in real property taxes and assessments and/or
Landlord's insurance premiums and will endeavor to deliver to Tenant, on or
before March 1st of that Lease Year, a statement (the "Estimate Statement")
wherein Landlord will estimate Tenant's share of the increase in real property
taxes and assessments and/or Landlord's insurance premiums for the then current
calendar year. Tenant agrees to pay Landlord, as additional rent, for each month
thereafter, beginning with the next installment of rent due, Tenant's Share of
the estimated increases in real property taxes and assessments over the real
property taxes and assessments paid for the Base Year and Tenant's Share of the
estimated increases in Landlord's insurance premiums over the Landlord's
insurance premiums paid for the Base Year, until such time as Landlord issues an
Estimate Statement for the succeeding calendar year; except that, concurrently
with the regular monthly payment next due following the receipt of each such
Estimate Statement, Tenant agrees to pay to Landlord an amount equal to one
monthly installment of Tenant's Share of the estimated increases in real
property taxes and assessments and/or Landlord's insurance premiums (less any
applicable payments of estimated increases already paid by Tenant) multiplied by
the number of months from January, in the current calendar year, to the month of
such rent payment next due, all months inclusive.
(e) Actual Statement. By March 1st of each calendar year during the Term of this
Lease, Landlord will also endeavor to deliver to Tenant a statement ("Actual
Statement") which states Tenant's Share of the actual increase in real property
taxes and assessments and Landlord's insurance premiums paid for the preceding
calendar year over the real property taxes and assessments and Landlord's
insurance premiums paid for the Base Year. If the Actual Statement reveals that
the actual increase in real property taxes and assessments and/or Landlord's
insurance premiums is/are more than the estimated increases paid by Tenant for
the preceding calendar year, Tenant shall pay the difference to Landlord in a
lump sum within ten (10) days after receipt of the Actual Statement. If the
Actual Statement reveals that the actual increase in real property taxes and
assessments and/or Landlord's insurance premiums is less than the estimated
increases paid by Tenant for the preceding calendar year, Landlord will credit
any overpayment toward the next monthly installment(s) of estimated increases
due under this Lease.
(f) Miscellaneous. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a
waiver of its right to require an increase in rent nor will it relieve Tenant of
its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement until ten (10) days after receipt of such Estimate Statement or Actual
Statement. If Tenant does not object to any Estimate Statement or Actual
Statement within thirty (30) days after Tenant receives any such statement, such
statement will be deemed final and binding on Tenant. Even though the Term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's Share of any increases in real property taxes and assessments
and/or Landlord's insurance premiums for the year in which this Lease
terminates, Tenant agrees to promptly pay any increase due over the estimated
expenses paid and, conversely, any overpayment made in the event said expenses
decrease shall promptly be rebated by Landlord to Tenant. Such obligation will
be a continuing one which will survive the expiration or termination of this
Lease. Prior to the expiration or sooner termination of the Lease Term and
Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have
the right to estimate the actual increase in real property taxes and assessments
and the actual increase in Landlord's insurance premiums for the then current
Lease Year and to collect from Tenant prior to Tenant's surrender of the
Premises, Tenant's Share of any excess of such actual increase in real property
taxes and assessments and/or any excess of such actual increase in Landlord's
insurance premiums over the estimated increases in real property taxes and
assessments and/or insurance premiums, as appropriate, paid by Tenant in such
Lease Year.
7. SECURITY DEPOSIT. Upon Tenant's execution of this Lease, Tenant will
deposit with Landlord the Security Deposit designated in Subparagraph 1(j). The
Security Deposit will be held by Landlord as security for the full and faithful
performance by Tenant of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the Term hereof. The Security
Deposit is not, and may not be construed by Tenant to constitute, rent for the
last month or any portion thereof. If Tenant defaults with respect to any
provisions of this Lease including, but not limited to, the provisions relating
to the payment of rent or additional rent, Landlord may (but will not be
required to) use, apply or retain all or any part of the Security Deposit for
the payment of any rent or any other sum in default, or for the payment of any
other amount which Landlord may spend by reason of Tenant's default or to
compensate Landlord for any loss or damage which Landlord may suffer by reason
of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant agrees, within ten (10) days after Landlord's written demand
therefor, to deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount and Tenant's failure to do so shall
constitute a default under this Lease. Landlord is not required to keep Tenant's
Security Deposit separate from its general funds, and Tenant is not entitled to
interest on such Security Deposit. If Tenant is not in default at the expiration
or termination of this Lease, Landlord will return the Security Deposit to
Tenant. Landlord's obligations with respect to the Security Deposit are those of
a debtor and not of a trustee.
8. USE.
(a) Tenant's Use of the Premises. The Premises may be used for the use or uses
set forth in Subparagraph 1(k) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Nothing in this Lease will be deemed to give Tenant any exclusive
right to such use in the Project.
(b) Compliance. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental licenses
and permits required for the proper and lawful conduct of Tenant's business from
the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or
allow the Premises to be used, altered and occupied in violation of, and Tenant,
at its sole cost and expense, agrees to use and occupy the Premises, and cause
the Premises to be used and occupied, in compliance with: (i) any and all laws,
statutes, zoning restrictions, ordinances, rules, regulations, orders and
rulings now or hereafter in force and any requirements of any insurer, insurance
authority or duly constituted public authority having jurisdiction over the
Premises, the Building or the Project now or hereafter in force, (ii) the
requirements of the Board of Fire Underwriters and any other similar body, (iii)
the Certificate of Occupancy issued for the
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Building, and (iv) any recorded covenants, conditions and restrictions and
similar regulatory agreements, if any, which affect the use, occupation or
alterations on the Premises, the Building and/or the Project. Tenant agrees to
comply with the Rules and Regulations referenced in Paragraph 28 below. Tenant
agrees not to do or permit anything to be done in or about the Premises which
will in any manner obstruct or interfere with the rights of other tenants or
occupants of the Project, or injure or unreasonably annoy them, or use or allow
the Premises to be used for any unlawful or unreasonably objectionable purpose.
Tenant agrees not to place or store any articles or materials outside of the
Premises or to cause, maintain or permit any nuisance or waste in, on, under or
about the Premises or elsewhere within the Project. Tenant shall not use or
allow the Premises to be used for lodging, bathing or the washing of clothes.
(c) Hazardous Materials. Except for ordinary and general office supplies, such
as copier toner, liquid paper, glue, ink and common household cleaning materials
(some or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on, in,
under or about the Premises, the Building, the Common Areas or any other portion
of the Project by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, "Tenant's Parties"), without
the prior written consent of Landlord, which consent Landlord may withhold in
its sole and absolute discretion. Concurrently with the execution of this Lease,
Tenant agrees to complete and deliver to Landlord an Environmental Questionnaire
in the form of Exhibit "G" attached hereto. Upon the expiration or earlier
termination of this Lease, Tenant agrees to promptly remove from the Premises,
the Building and the Project, at its sole cost and expense, any and all
Hazardous Materials, including any equipment or systems containing Hazardous
Materials which are installed, brought upon, stored, used, generated or released
upon, in, under or about the Premises, the Building and/or the Project or any
portion thereof by Tenant or any of Tenant's Parties. To the fullest extent
permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold
harmless Landlord and Landlord's partners, officers, directors, employees,
agents, property managers, asset managers, successors and assigns (collectively,
"Landlord Indemnified Parties") from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including, without limitation, clean-up, removal,
remediation and restoration costs, sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees and court costs) which arise or result
from the presence of Hazardous Materials on, in, under or about the Premises,
the Building or any other portion of the Project and which are caused or
permitted by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify
Landlord of any release of Hazardous Materials in the Premises, the Building or
any other portion of the Project which Tenant becomes aware of during the Term
of this Lease, whether caused by Tenant or any other persons or entities. In the
event of any release of Hazardous Materials caused or permitted by Tenant or any
of Tenant's Parties, Landlord shall have the right, but not the obligation, to
cause Tenant to immediately take all steps Landlord deems necessary or
appropriate to remediate such release and prevent any similar future release to
the satisfaction of Landlord and Landlord's mortgagee(s). At all times during
the Term of this Lease, Landlord will have the right, but not the obligation, to
enter upon the Premises to inspect, investigate, sample and/or monitor the
Premises to determine if Tenant is in compliance with the terms of this Lease
regarding Hazardous Materials. As used in this Lease, the term "Hazardous
Materials" shall mean and include any hazardous or toxic materials, substances
or wastes as now or hereafter designated under any law, statute, ordinance,
rule, regulation, order or ruling of any agency of the State, the United States
Government or any local governmental authority, including, without limitation,
asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and
other chlorofluorocarbons. The provisions of this Subparagraph 8(c) will survive
the expiration or earlier termination of this Lease.
(d) Refuse and Sewage. Tenant agrees not to keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and agrees to
regularly and frequently remove same from the Premises. Tenant shall keep all
containers or other equipment used for storage of such materials in a clean and
sanitary condition. Tenant shall properly dispose of all sanitary sewage and
shall not use the sewage disposal system for the disposal of anything except
sanitary sewage. Tenant shall keep the sewage disposal system free of all
obstructions and in good operating condition. If the volume of Tenant's trash
becomes excessive in Landlord's judgment, Landlord shall have the right to
charge Tenant for additional trash disposal services and/or to require that
Tenant contract directly for additional trash disposal services at Tenant's sole
cost and expense.
9. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery (including delivery by overnight
courier or an express mailing service) or by mail, if sent by registered or
certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at
the Premises and notices to Landlord shall be sufficient if delivered to
Landlord at the address designated in Subparagraph 1(a). Either party may
specify a different address for notice purposes by written notice to the other,
except that the Landlord may in any event use the Premises as Tenant's address
for notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in Subparagraph 1(1). Landlord and Tenant each agree to
promptly indemnify, protect, defend and hold harmless the other from and against
any and all claims, damages, judgments, suits, causes of action, losses,
liabilities, penalties, fines, expenses and costs (including attorneys' fees and
court costs) resulting from any breach by the indemnifying party of the
foregoing representation, including, without limitation, any claims that may be
asserted by any broker, agent or finder undisclosed by the indemnifying party.
The foregoing mutual indemnity shall survive the expiration or earlier
termination of this Lease. Tenant agrees that Landlord will not recognize or
compensate any third party broker with regards to any renewals and/or expansions
unless such renewal or expansion rights are included within this Lease at the
time of execution by the parties and in Landlord's commission agreement with the
broker(s) specified in Subparagraph 1(l).
11. SURRENDER; HOLDING OVER.
(a) Surrender. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all subleases
or subtenancies. Upon the expiration or earlier termination of this Lease,
Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in
a state of good order, repair and condition, ordinary wear and tear and casualty
damage excepted, with all of Tenant's personal property and alterations removed
from the Premises to the extent required under Paragraph 13 and all damage
caused by such removal repaired as required by Paragraph 13. The delivery of
keys to any employee of Landlord or to Landlord's agent or any employee thereof
alone will not be sufficient to constitute a termination of this Lease or a
surrender of the Premises.
(b) Holding Over. If Tenant remains in possession of all or any part of the
Premises after the expiration or earlier termination of the Term with the
express or implied consent of Landlord, Tenant's occupancy shall be a month-to-
month tenancy at a Monthly Base Rent equal to one hundred fifty percent (150%)
of the Monthly Base Rent payable during the last month of the Term. The
month-to-month tenancy shall be on the terms and conditions of this Lease except
as provided in (a) the preceding sentence, and (b) those provision of this Lease
relating to (i) the term of this Lease as contain in Paragraph 3, (ii) expansion
rights given to Tenant under this Lease, if any, and (iii) extension rights
given to Tenant under this Lease, if
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any. Landlord's acceptance of rent after such holding over with Landlord's
consent shall not result in any other tenancy or in a renewal of the original
term of this Lease. If Tenant remains in possession of all or any part of the
Premises after the expiration or earlier termination of the Term without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as Monthly Base Rent during the
holdover period an amount equal to the greater of (x) one hundred fifty percent
(150%) of the fair market rental (as reasonably determined by Landlord) for the
Premises, or (y) two hundred percent (200%) of the Monthly Base Rent payable
under this Lease for the last full month before the date of expiration or
earlier termination of the Term. In addition, during such holdover period Tenant
shall pay to Landlord all other sums required to be paid by Tenant to Landlord
under this Lease, including, without limitation, Operating Expenses. If Tenant
remains in possession of all or any part of the Premises without Landlord's
consent, Tenant agrees to promptly indemnify, protect, defend and hold Landlord
harmless from all claims, damages, judgments, suits, causes of action, losses,
liabilities, penalties, fines, expenses, and costs, including, without
limitation, attorneys' fees and costs, costs and expenses incurred by Landlord
in returning the Premises or any part thereof to the condition in which Tenant
was to surrender the same, and claims made by any succeeding tenant founded on
or resulting from Tenant's failure to surrender the Premises. The provisions of
the immediately preceding sentence shall survive the expiration or earlier
termination of this Lease. Nothing in this Subparagraph 11(b) shall be construed
as implied consent by Landlord to any holding over by Tenant. Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease on the expiration or earlier termination of
the Term of this Lease. The provision of this Subparagraph 11(b) shall not be
considered to limit or constitute a waiver of any other rights or remedies of
Landlord provided in this Lease or at law.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against Tenant's business
operations or any personal property, improvements, alterations, trade fixtures
or merchandise placed by Tenant in or about the Premises.
13. ALTERATIONS. Tenant shall not make any alterations to the Premises or any
other aspect of the Project, without Landlord's prior written consent, which
consent Landlord may withhold in its reasonable but subjective discretion. All
permitted alterations must be performed in compliance with Landlord's standard
rules and regulations regarding alterations. All alterations will become the
property of Landlord and will remain upon and be surrendered with the Premises
at the end of the Term of this Lease; provided, however, Landlord may require
Tenant to remove any or all alterations at the end of the Term of this Lease. If
Tenant fails to remove by the expiration or earlier termination of this Lease
all of its personal property, or any alterations identified by Landlord for
removal, Landlord may, at its option, treat such failure as a hold-over pursuant
to Subparagraph 11(b) above, and/or Landlord may (without liability to Tenant
for loss thereof) treat such personal property and/or alterations as abandoned
and, at Tenant's sole cost and expense and in addition to Landlord's other
rights and remedies under this Lease, at law or in equity: (a) remove and store
such items; and/or (b) upon ten (10) days' prior notice to Tenant, sell, discard
or otherwise dispose of all or any such items at private or public sale for such
price as Landlord may obtain or by other commercially reasonable means. Tenant
shall be liable for all costs of disposition of Tenant's abandoned property and
Landlord shall have no liability to Tenant with respect to any such abandoned
property. Landlord agrees to apply the proceeds of any sale of any such property
to any amounts due to Landlord under this Lease from Tenant (including
Landlord's attorneys' fees and other costs incurred in the removal, storage
and/or sale of such items), with any remainder to be paid to Tenant.
14. REPAIRS.
(a) Landlord's Obligations. Landlord agrees to repair and maintain the
structural portions of the Building and the plumbing, heating, ventilating, air
conditioning, elevator and electrical systems installed or furnished by
Landlord, unless such maintenance and repairs are (i) attributable to items
installed in Tenant's Premises which are above standard interior improvements
(such as, for example, custom lighting, special HVAC and/or electrical panels or
systems, kitchen or restroom facilities and appliances constructed or installed
within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect
or omission of any duty by Tenant, its agents, servants, employees or invitees,
in which case Tenant will pay to Landlord, as additional rent, the reasonable
cost of such maintenance and repairs. Except as provided in this Subparagraph
14(a), Landlord has no obligation to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof. Landlord will not be liable for any
failure to make any such repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Tenant will not
be entitled to any abatement of rent and Landlord will not have any liability by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures, appurtenances and equipment
therein. Tenant waives the right to make repairs at Landlord's expense under any
law, statute, ordinance, rule, regulation, order or ruling (including, without
limitation, to the extent the Premises are located in California, the provisions
of California Civil Code Sections 1941 and 1942 and any successor statutes or
laws of a similar nature).
(b) Tenant's Obligations. Tenant agrees to keep, maintain and preserve the
Premises in a state of condition and repair consistent with the Building and,
when and if needed, at Tenant's sole cost and expense, to make all repairs to
the Premises and every part thereof including, without limitation, all walls,
storefronts, floors, ceilings, interior and exterior doors and windows and
fixtures and interior plumbing. Any such maintenance and repairs will be
performed by Landlord's contractor, or at Landlord's option, by such contractor
or contractors as Tenant may choose from an approved list to be submitted by
Landlord. Tenant agrees to pay all costs and expenses incurred in such
maintenance and repair within seven (7) days after billing by such contractor or
contractors. If Tenant refuses or neglects to repair and maintain the Premises
properly as required hereunder to the reasonable satisfaction of Landlord,
Landlord, at any time following ten (10) days from the date on which Landlord
makes a written demand on Tenant to effect such repair and maintenance, may
enter upon the Premises and make such repairs and/or maintenance, and upon
completion thereof, Tenant agrees to pay to Landlord as additional rent,
Landlord's costs for making such repairs plus an amount not to exceed ten
percent (10%) of such costs for overhead, within ten (10) days of receipt from
Landlord of a written itemized bill therefor. Any amounts not reimbursed by
Tenant within such ten (10) day period will bear interest at the interest Rate
until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Project, the Building or the
Premises, nor against Tenant's leasehold interest in the Premises, by reason of
or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. At Landlord's
request, Tenant agrees to provide Landlord with enforceable, conditional and
final lien releases (or other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials at the Premises. Landlord will have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost and expense, promptly cause such liens to be
released of record or bonded so that it no longer affects title to the Project,
the Building or the Premises. If Tenant fails to cause any such liens to be so
released or bonded within ten (10) days after filing thereof, such failure will
be deemed a material breach by Tenant under this Lease without the benefit of
any additional notice or cure period described in Paragraph 22 below, and
Landlord may, without waiving its rights and remedies based on such breach, and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payment in
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satisfaction of the claims giving rise to such liens. Tenant agrees to pay to
Landlord within ten (10) days after receipt of invoice from Landlord, any sum
paid by Landlord to remove such liens, together with interest at the Interest
Rate from the date of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all
reasonable times have the right to enter the Premises to inspect the same, to
supply janitorial service and any other service to be provided by Landlord to
Tenant hereunder, to show the Premises to prospective purchasers or tenants, to
post notices of non-responsibility, and/or to repair the Premises as permitted
or required by this Lease. In exercising such entry rights, Landlord will
endeavor to minimize, as reasonably practicable, the interference with Tenant's
business, and will provide Tenant with reasonable advance notice of any such
entry (except in emergency situations). Landlord will at all times have and
retain a key with which to unlock all doors in the Premises, excluding Tenant's
vaults and safes. Tenant shall not alter any lock or install any new or
additional locks or bolts on any door of the Premises without Landlord's prior
written consent and without providing Landlord with a key to all such locks.
Except in the case of the gross negligence or willful misconduct of Landlord,
any entry to the Premises obtained by Landlord will not be construed or deemed
to be a forcible or unlawful entry into the Premises, or an eviction of Tenant
from the Premises and Landlord will not be liable to Tenant for any damages or
losses resulting from any such entry.
17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the
Premises are occupied, Landlord agrees to furnish or cause to be furnished to
the Premises the utilities and services described in the Standards for Utilities
and Services attached hereto as Exhibit "G". Landlord will not be liable to
Tenant for any failure to furnish any of the foregoing utilities and services if
such failure is caused by all or any of the following: (i) accident, breakage or
repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of
any character; (iii) governmental regulation, moratorium or other governmental
action or inaction; (iv) inability despite the exercise of reasonable diligence
to obtain electricity, water or fuel; or (v) any other cause beyond Landlord's
reasonable control. In addition, in the event of any stoppage or interruption of
services or utilities, Tenant shall not be entitled to any abatement or
reduction of rent (except as expressly provided in Subparagraphs 20(f) or 21(b)
if such failure results from a damage or taking described therein), no eviction
of Tenant will result from such failure and Tenant will not be relieved from the
performance of any covenant or agreement in this Lease because of such failure.
In the event of any failure, stoppage or interruption thereof, Landlord agrees
to diligently attempt to resume service promptly. If Tenant requires or utilizes
more water or electrical power than is considered reasonable or normal by
Landlord, Landlord may at its option require Tenant to pay, as additional rent,
the cost, as fairly determined by Landlord, incurred by such extraordinary usage
and/or Landlord may install separate meter(s) for the Premises, at Tenant's sole
expense, and Tenant agrees thereafter to pay all charges of the utility
providing service and Landlord will make an appropriate adjustment to Tenant's
Operating Expenses calculation to account for the fact Tenant is directly paying
such metered charges, provided Tenant will remain obligated to pay its
proportionate share of Operating Expenses subject to such adjustment.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) Assumption of Risk. Tenant, as a material part of the consideration to
Landlord, agrees that neither Landlord nor any Landlord Indemnified Parties (as
defined in Subparagraph 8(c) above) will be liable to Tenant for, and Tenant
expressly assumes the risk of and waives any and all claims it may have against
Landlord or any Landlord Indemnified Parties with respect to, (i) any and all
damage to property or injury to persons in, upon or about the Premises, the
Building or the Project resulting from the act or omission (except for the
grossly negligent or intentionally wrongful act or omission) of Landlord, (ii)
any such damage caused by other tenants or persons in or about the Building or
the Project, or caused by quasi-public work, (iii) any damage to property
entrusted to employees of the Building, (iv) any loss of or damage to property
by theft or otherwise, or (v) any injury or damage to persons or property
resulting from any casualty, explosion, falling plaster or other masonry or
glass, steam, gas, electricity, water or rain which may leak from any part of
the Building or any other portion of the Project or from the pipes, appliances
or plumbing works therein or from the roof, street or subsurface or from any
other place, or resulting from dampness. Neither Landlord nor any Landlord
Indemnified Parties will be liable for consequential damages arising out of any
loss of the use of the Premises or any equipment or facilities therein by Tenant
or any Tenant Parties (as defined in Subparagraph 8(c) above) or for
interference with light. Tenant agrees to give prompt notice to Landlord in case
of fire or accidents in the Premises or the Building, or of defects therein or
in the fixtures or equipment.
(b) Indemnification. Tenant will be liable for, and agrees, to the maximum
extent permissible under applicable law, to promptly indemnify, protect, defend
and hold harmless Landlord and all Landlord Indemnified Parties, from and
against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs, including attorneys'
fees and court costs (collectively, "Indemnified Claims"), arising or resulting
from (i) any act or omission of Tenant or any Tenant Parties; (ii) the use of
the Premises and Common Areas and conduct of Tenant's business by Tenant or any
Tenant Parties, or any other activity, work or thing done, permitted or suffered
by Tenant or any Tenant Parties, in or about the Premises, the Building or
elsewhere within the Project; and/or (iii) any default by Tenant of any
obligations on Tenant's part to be performed under the terms of this Lease. In
case any action or proceeding is brought against Landlord or any Landlord
Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon
notice from Landlord, agrees to promptly defend the same at Tenant's sole cost
and expense by counsel approved in writing by Landlord, which approval Landlord
will not unreasonably withhold.
(c) Survival; No Release of Insurers. Tenant's indemnification obligations
under Subparagraph 18(b) will survive the expiration or earlier termination of
this Lease. Tenant's covenants, agreements and indemnification obligation in
Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve
any insurance carrier of its obligations under policies required to be carried
by Tenant pursuant to the provisions of this Lease.
19. INSURANCE.
(a) Tenant's Insurance. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in the
Premises pursuant to this Lease (which may be prior to the Commencement Date),
and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the insurance specified on Exhibit "F" attached hereto. Landlord
reserves the right to require any other form or forms of insurance as Tenant or
Landlord or any mortgagees of Landlord may reasonably require from time to time
in form, in amounts, and for insurance risks against which, a prudent tenant
would protect itself, but only to the extent coverage for such risks and amounts
are available in the insurance market at commercially acceptable rates. Landlord
makes no representation that the limits of liability required to be carried by
Tenant under the terms of this Lease are adequate to protect Tenant's interests
and Tenant should obtain such additional insurance or increased liability limits
as Tenant deems appropriate.
(b) Supplemental Tenant Insurance Requirements. All policies must be in a form
reasonably satisfactory to Landlord and issued by an insurer admitted to do
business in the State. All policies must be issued by insurers with a
policyholder rating of "A" and a financial rating of "X" in the most recent
version of Best's Key Rating Guide. All policies must contain a requirement to
notify Landlord (and Landlord's property manager and any mortgagees or ground
lessors of Landlord who are named as additional insureds, if any) in writing not
less than thirty (30) days prior to any material change, reduction in
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coverage, cancellation or other termination thereof. Tenant agrees to deliver to
Landlord, as soon as practicable after placing the required insurance, but in
any event within the time frame specified in Subparagraph 19(a) above,
certificate(s) of insurance and/or if required by Landlord, certified copies of
each policy evidencing the existence of such insurance and Tenant's compliance
with the provisions of this Paragraph 19. Tenant agrees to cause replacement
policies or certificates to be delivered to Landlord not less than thirty (30)
days prior to the expiration of any such policy or policies. If any such initial
or replacement policies or certificates are not furnished within the time(s)
specified herein, Landlord will have the right, but not the obligation, to
obtain such insurance as Landlord deems necessary to Protect Landlord's
interests at Tenant's expense. Tenant's insurance under items 1 and 5 of Exhibit
"F" hereto must name Landlord, Landlord's property manager, and Landlord's asset
manager (and at Landlord's request, Landlord's mortgagees and ground lessors of
which Tenant has been informed in writing) as additional insureds and must also
contain a provision that the insurance afforded by such policy is primary
insurance and any insurance carried by Landlord, Landlord's property manager,
Landlord's asset manager or Landlord's mortgagees or ground lessors, if any,
will be excess over and non-contributing with Tenant's insurance.
(c) Waiver of Subrogation. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
20. DAMAGE OR DESTRUCTION.
(a) Partial Destruction. If the Premises or the Building are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof, and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including proceeds from
Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord
pursuant to Subparagraph 20(d) below to cover Tenant's obligation for the costs
of repair, reconstruction and restoration of any portion of the tenant
improvements and any alterations for which Tenant is responsible under this
Lease), then Landlord agrees to commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease will continue in full
force and effect.
(b) Substantial Destruction. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction, Landlord may elect to either: (I) repair, reconstruct
and restore the portion of the Building or the Premises damaged by such
casualty, in which case this Lease will continue in full force and effect,
subject to Tenant's termination right contained in Subparagraph 20(c) below: or
(ii) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
(c) Termination Rights. If Landlord elects to repair, reconstruct and restore
pursuant to Subparagraph 20(b)(i) herein above, and if Landlord's contractor
estimates that as a result of such damage, Tenant cannot be given reasonable use
of and access to the Premises within two hundred forty (240) days after the date
of such damage, then either Landlord or Tenant may terminate this Lease
effective upon delivery of written notice to the other within ten (10) days
after Landlord delivers notice to Tenant of its election to so repair,
reconstruct or restore; provided, however, Tenant shall have no right to
terminate this Lease if Landlord can relocate Tenant to other comparable
Premises in the Building or the Project within one hundred eighty (180) days
after the date of such damage.
(d) Tenant's Costs and Insurance Proceeds. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately (i)
notify Landlord thereof, and (ii) deliver to Landlord all property insurance
proceeds received by Tenant with respect to any tenant improvements installed by
or at the cost of Tenant and any alterations, but excluding proceeds for
Tenant's furniture, fixtures, equipment and other personal property, whether or
not this Lease is terminated as permitted in this Paragraph 20, and Tenant
hereby assigns to Landlord all rights to receive such insurance proceeds. If for
any reason (including Tenant's failure to obtain required insurance), Tenant
fails to receive insurance proceeds covering the full replacement cost of any
tenant improvements and any alterations which are damaged, Tenant will be deemed
to have self-insured the replacement cost of such items, and upon any damage or
destruction thereto, Tenant agrees to immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord from Landlord's or Tenant's insurance with respect to such items.
(e) Abatement of Rent. In the event of any damage, repair, reconstruction
and/or restoration described in this Paragraph 20, rent will be abated or
reduced, as the case may be, from the date of such casualty in proportion to the
degree to which Tenant's use of the Premises is impaired during such period of
repair until such use is restored. Except for abatement of rent as provided
herein above, Tenant will not be entitled to any compensation or damages for
loss of, or interference with, Tenant's business or use or access of all or any
part of the Premises or for lost profits or any other consequential damages of
any kind or nature, which result from any such damage, repair, reconstruction or
restoration.
(f) Damage Near End of Term. Landlord and Tenant shall each have the right to
terminate this Lease if any damage to the Premises or the Building occurs during
the last twelve (12) months of the Term of this Lease where Landlord's
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (f), it shall provide written
notice to the other party of such election within ten (10) days after receipt of
Landlord's contractor's repair estimates.
(g) Waiver of Termination Right. Landlord and Tenant agree that the foregoing
provisions of this Paragraph 20 are to govern their respective rights and
obligations in the event of any damage or destruction and supersede and are in
lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order or ruling now or hereafter in force which provide remedies for
damage or destruction of leased premises (including, without limitation, to the
extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
21. EMINENT DOMAIN.
(a) Substantial Taking. If the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy of the Premises,
as contemplated by this Lease, is taken for any public or quasi-public purpose
by any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, either
party will have the right to terminate this Lease effective as of the date
possession is required to be surrendered to such authority.
(b) Partial Taking; Abatement of Rent. In the event of a taking of a portion of
the Premises which does not substantially interfere with Tenant's use and
occupancy of the Premises including any temporary taking of ninety (90) days or
less, then,
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neither party will have the right to terminate this Lease and Landlord will
thereafter proceed to make a functional unit of the remaining portion of the
Premises, but only to the extent Landlord receives proceeds therefor from the
condemning authority), and rent will be abated with respect to the part of the
Premises which Tenant is deprived of on account of such taking. Notwithstanding
the immediately preceding sentence to the contrary, if any part of the Building
or the Project is taken (whether or not such taking substantially interferes
with Tenant's use of the Premises), Landlord may terminate this Lease upon
thirty (30) days' prior written notice to Tenant if Landlord also terminates the
leases of the other tenants of the Building which are leasing comparably sized
space for comparable lease terms.
(c) Condemnation Award. In connection with any taking of the Premises or the
Building, Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord. Tenant
agrees not to assert any claim against Landlord or the taking authority for any
compensation because of such taking (including any claim for bonus or excess
value of this Lease); provided, however, if any portion of the Premises is
taken, Tenant will have the right to recover from the condemning authority (but
not from Landlord) any compensation as may be separately awarded or recoverable
by Tenant for the taking of Tenant's furniture, fixtures, equipment and other
personal property within the Premises, for Tenant's relocation expenses, and for
any loss of goodwill or other damage to Tenant's business by reason of such
taking.
22. DEFAULTS AND PREMISES.
(a) Defaults. The occurrence of any one or more of the following events will
be deemed a default by Tenant:
(i) The abandonment or vacation of the Premises by Tenant.
(ii) The failure by Tenant to make any payment of rent or additional rent or
any other payment required to be made by Tenant hereunder, as and when due,
where such failure continues for a period of three (3) days after written notice
thereof from Landlord to Tenant; provided, however, that any such notice will be
in lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, the provisions of California Code of Civil Procedure Section 1161
regarding unlawful detainer actions or any successor statute or law of a similar
nature).
(iii) The failure by Tenant to observe or perform any of the express or implied
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in Subparagraph 22(a)(i) or (ii) above, where such
failure continues for a period of five (5) days after written notice thereof
from Landlord to Tenant. The provisions of any such notice will be in lieu of,
and not in addition to, any notice required under applicable law (including,
without limitation, to the extent the Premises are located in California,
California Code of Civil Procedure Section 1161 regarding unlawful detainer
actions and any successor statute or similar law). If the nature of Tenant's
default is such that more than five (5) days are reasonably required for its
cure, then Tenant will not be deemed to be in default if Tenant, with Landlord's
concurrence, commences such cure within such five (5) day period and thereafter
diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (D) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where such seizure
is not discharged within thirty (30) days.
(b) Landlord's Remedies; Termination. In the event of any default by Tenant,
in addition to any other remedies available to Landlord at law or in equity
under applicable law (including, without limitation, to the extent the Premises
are located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law, Landlord may recover from Tenant: (i) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; plus (iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which, in the
ordinary course of things, results therefrom including, but not limited to:
attorneys' fees and costs; brokers' commissions; the costs of refurbishment,
alterations, renovation and repair of the Premises, and removal (including the
repair of any damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, alterations, the tenant
improvements and any other items which Tenant is required under this Lease to
remove but does not remove, as well as the unamortized value of any free rent,
reduced rent, free parking, reduced rate parking and any tenant improvement
allowance or other costs or economic concessions provided, paid, granted or
incurred by Landlord pursuant to this Lease. As used in Subparagraphs 22(b)(i)
and (ii) above, the "worth at the time of award" is computed by allowing
interest at the Interest Rate. As used in Subparagraph 22(b)(iii) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
(c) Landlord's Remedies; Re-Entry Rights. In the event of any default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord will also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere and/or disposed of at the sole cost and expense of and
for the account of Tenant in accordance with the provisions of Paragraph 13 of
this Lease or any other procedures permitted by applicable law. No re-entry or
taking possession of the Premises by Landlord pursuant to this Subparagraph
22(c) will be construed as an election to terminate this Lease unless a written
notice of such intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
(d) Landlord's Remedies; Re-Letting. If Landlord does not elect to terminate
this Lease, Landlord may from time to time, without terminating this Lease,
either recover all rent as it becomes due or relate the Premises or any part
thereof on terms and conditions as Landlord in its sole and absolute discretion
may deem advisable with the right to make alterations and repairs to the
Premises in connection with such reletting. If Landlord elects to relet the
Premises, then rents received by Landlord from such reletting will be applied:
first, to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any cost of such reletting; third,
to the payment of the cost of any alterations and repairs to the Premises
incurred in connection with such reletting; fourth, to the payment of rent due
and unpaid hereunder and the residue, if any, will be held by Landlord and
applied to payment of future rent as the same may become
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due and payable hereunder. Should that portion of such rents received from such
reletting during any month, which is applied to the payment of rent hereunder,
be less than the rent payable during that month by Tenant hereunder, then Tenant
agrees to pay such deficiency to Landlord immediately upon demand therefor by
Landlord. Such deficiency will be calculated and paid monthly.
(e) Landlord's Remedies; Performance for Tenant. All covenants and agreements
to be performed by Tenant under any of the terms of this Lease are to be
performed by Tenant at Tenant's sole cost and expense and without any abatement
of rent. If Tenant fails to pay any sum of money owed to any party other than
Landlord, for which it is liable under this Lease, or if Tenant fails to perform
any other act on its part to be performed hereunder, and such failure continues
for ten (10) days after notice thereof by Landlord. Landlord may, without
waiving or releasing Tenant from its obligations, but shall not be obligated to,
make any such payment or perform any such other act to be made or performed by
Tenant. Tenant agrees to reimburse Landlord upon demand for all sums so paid by
Landlord and all necessary incidental costs, together with interest thereon at
the Interest Rate, from the date of such payment by Landlord until reimbursed by
Tenant. This remedy shall be in addition to any other right or remedy of
Landlord set forth in this Paragraph 22.
(f) Late Payment. If Tenant fails to pay any installment of rent when due or if
Tenant fails to make any other payment for which Tenant is obligated under this
Lease when due, such late amount will accrue interest at the Interest Rate until
such amount is paid by Tenant to Landlord. In addition, Tenant agrees to pay to
Landlord concurrently with such late payment amount, as additional rent, a late
charge equal to ten percent (10%) of the amount due to compensate Landlord for
the extra costs Landlord will incur as a result of such late payment. Landlord
and Tenant agree that such late charge represents a and reasonable estimate of
the costs that Landlord will incur by reason of any such late payment,
Acceptance of any such interest and late charge will not constitute a waiver of
the Tenant's default with respect to the overdue amount, or prevent Landlord
from exercising any of the other rights and remedies available to Landlord. If
Tenant incurs a late charge more three (3) times in any period of twelve (12)
months during the Lease Term, then, notwithstanding that Tenant cures the
payments for which such late charges are imposed, Landlord will have the right
to require Tenant thereafter to pay all installments of Monthly Base Rent
quarterly in advance in the form of a cashier's check throughout the remainder
of the Lease Term. Any payments of any kind returned for insufficient funds will
be subject to an additional handling charge of $25.00, and thereafter, Landlord
may require Tenant to pay all future payments of rent or other sums due by money
order or cashier's check.
(g) Rights and Remedies Cumulative. All rights, options and remedies of
Landlord contained in this Lease will be construed and held to be cumulative,
and no one of them will be exclusive of the other, and Landlord shall have the
right to pursue any one or all of such remedies or any other remedy or relief
which may be provided by law or in equity, whether or not stated in this Lease.
Nothing in this Paragraph 22 will be deemed to limit or otherwise affect
Tenant's indemnification of Landlord pursuant to any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord will
not be deemed in default if it commences such performance within such thirty
(30) day period and thereafter diligently pursues the same to completion. Upon
any default by Landlord, Tenant may exercise any of its rights provided at law
or in equity, subject to the limitations on liability set forth in Paragraph 35
of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfer. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use or occupancy of the Premises by any party other than Tenant (any
such assignment, encumbrance, sublease or the like will sometimes be referred to
as a "Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold. For purposes of this Paragraph 24, if
Tenant is a corporation, partnership or other entity, any transfer, assignment,
encumbrance or hypothecation of fifty percent (50%) or more (individually or in
the aggregate) of any stock or other ownership interest in such entity, and/or
any transfer, assignment, hypothecation or encumbrance of any controlling
ownership or voting interest in such entity, will be deemed a Transfer and will
be subject to all of the restrictions and provisions contained in this Paragraph
24; provided, however, this provision will not apply to public corporations, the
stock of which is traded through a public stock exchange or over the counter
system.
(b) Transfer Notice. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "Transfer Date"). Tenant agrees to give Landlord a notice (the
"Transfer Notice"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require.
(c) Landlord's Options. Within fifteen (15) days of Landlord's receipt of any
Transfer Notice, and any additional information requested by Landlord concerning
the proposed Transferee's financial responsibility, Landlord will notify Tenant
of its election to do one of the following: (i) consent to the proposed Transfer
subject to such reasonable conditions as Landlord may impose in providing such
consent; (ii) refuse such consent, which refusal shall be on reasonable grounds;
or (iii) terminate this Lease as to all or such portion of the Premises which is
proposed to be sublet or assigned and recapture all or such portion of the
Premises for reletting by Landlord.
(d) Additional Conditions. A condition to Landlord's consent to any Transfer of
this Lease will be the delivery to Landlord of a true copy of the fully executed
instrument of assignment, sublease, transfer or hypothecation, in form and
substance reasonably satisfactory to Landlord. Tenant agrees to pay to Landlord,
as additional rent, all sums and other consideration payable to and for the
benefit of Tenant by the assignee or sublessee in excess of the rent payable
under this Lease for the same period and portion of the Premises. In calculating
excess rent or other consideration which may be payable to Landlord under this
paragraph. Tenant will be entitled to deduct commercially reasonable third party
brokerage commissions and attorneys' fees and other amounts reasonably and
actually expended by Tenant in connection with such assignment or subletting if
acceptable written evidence of such expenditures is provided to Landlord. No
Transfer will release Tenant of Tenant's obligations under this Lease or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. Landlord may require that any
Transferee remit directly to Landlord on a monthly basis, all monies due Tenant
by said Transferee. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any Transferee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such Transferee or successor. If Tenant effects a Transfer or
requests the consent of Landlord to any Transfer whether or
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not such Transfer is consummated then, upon demand, Tenant agrees to pay
Landlord a non-refundable administrative fee of not less than One Hundred
Dollars ($100.00) and not more than Five Hundred Dollars ($500.00), plus
Landlord's reasonable attorneys' fees.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Building and/or the Project, or any lessor of a ground or
underlying lease with respect to the Building, this Lease will be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building; and (ii) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed
for which the Building, the Project or any leases thereof, or Landlord's
interest and estate in any of said items, is specified as security.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to this Lease. If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease. Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust. If Tenant fails to sign and return any such documents
within ten (10) days of receipt, Tenant will be in default hereunder.
26. ESTOPPEL CERTIFICATE. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord an estoppel certificate, in Landlord's standard form or as may
reasonably be required by Landlord's lender. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph 26 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
any interest therein. Tenant's failure to deliver such statement within such
time will be conclusive upon Tenant (i) that this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not more
than one (1) month's rent has been paid in advance. Without limiting the
foregoing, if Tenant fails to deliver any such statement within such ten (10)
day period, Landlord may deliver to Tenant an additional request for such
statement and Tenant's failure to deliver such statement to Landlord within ten
(10) days after delivery of such additional request will constitute a default
under this Lease. Tenant agrees to indemnify and protect Landlord from and
against any and all claims, damages, losses, liabilities and expenses (including
attorneys' fees and costs) attributable to any failure by Tenant to timely
deliver any such estoppel certificate to Landlord as required by this Paragraph
26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction
with another suite or for other reasons connected with the planning program for
the Building or the Project, Landlord will have the right, upon sixty (60) days'
prior written notice to Tenant, to move Tenant to other space in the Building of
substantially similar size as the Premises, and with tenant improvements of
substantially similar age, quality and layout as then existing in the Premises.
Any such relocation will be at Landlord's cost and expense, including the cost
of providing such substantially similar tenant improvements (but not any
furniture or personal property) and Tenant's reasonable moving, telephone
installation and stationary reprinting costs. If Landlord so relocates Tenant,
the terms and conditions of this Lease will remain in full force and effect and
apply to the new space, except that (a) a revised Exhibit "A" will become part
of this Lease and will reflect the location of the new space, (b) Paragraph 1 of
this Lease will be amended to include and state all correct data as to the new
space, (c) the new space will thereafter be deemed to be the "Premises", and (d)
all economic terms and conditions (e.g. rent, etc.) will be adjusted on a per
square foot basis based on the total number of rentable square feet of area
contained in the new space. Landlord and Tenant agree to cooperate fully with
one another in order to minimize the inconvenience to Tenant resulting from any
such relocation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and incorporated
herein by this reference as Exhibit "E," and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord will not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
any of the Rules and Regulations.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. Tenant,
within ten (10) days after request therefor, agrees to execute any reasonable
amendments to this Lease which may be requested by any lender or ground lessor
of the Project, provided any such amendments do not increase the obligations of
Tenant under this Lease or adversely affect the leasehold estate created by this
Lease. In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises or ground lessor of Landlord whose address has
been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee
or ground lessor a reasonable opportunity to cure the default (including with
respect to any such beneficiary or mortgagee, time to obtain possession of the
Premises, subject to this Lease and Tenant's rights hereunder, by power of sale
or a judicial foreclosure, if such should prove necessary to effect a cure).
30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Project, the Building,
the Premises and/or this Lease without the consent of Tenant, and such transfer
or subsequent transfer will not be deemed a violation on Landlord's part of any
of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such
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<PAGE>
rent. No acceptance by Landlord of a lesser sum than the basic rent and
additional rent or other sum then due will be deemed to be other than on account
of the earliest installment of such rent or other amount due, nor will any
endorsement or statement on any check or any letter accompanying any check 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 installment
or other amount or pursue any other remedy provided in this Lease. The consent
or approval of Landlord to or of any act by Tenant requiring Landlord's consent
or approval will not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
32. PARKING. So long as this Lease is in effect and provided Tenant is not in
default hereunder, Landlord grants to Tenant, Tenant's visitors and guests a
non-exclusive license to use the parking areas which serve the Building subject
to the terms and conditions of this Paragraph 32 and the Rules and Regulations
regarding parking contained in Exhibit "E" attached hereto. Tenant will not use
or allow any of Tenant's employees or guests to use any parking spaces which
have been specifically assigned by Landlord to other tenants or occupants or for
other uses such as visitor parking or which have been designated by any
governmental entity as being restricted to certain uses. Landlord may assign any
unreserved and unassigned parking spaces and/or make all or any portion of such
spaces reserved, if Landlord reasonably determines that it is necessary for
orderly and efficient parking or for any other reasonable reason. Tenant agrees
to cause its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to comply with the Rules and Regulations. Landlord reserves the
right from time to time to modify and/or adopt such other reasonable and non-
discriminatory rules and regulations for the parking facilities as it deems
reasonably necessary for the operation of the parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33 will
not operate to excuse Tenant from prompt payment of rent or any other payments
required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, for
one or more Tenant identification sign(s). Tenant has no right to install Tenant
identification signs in any other location in, on or about the Premises or the
Project and will not display or erect any other signs, displays or other
advertising materials that are visible from the exterior of the Building or from
within the Building in any interior or exterior common areas. The size, design,
color and other physical aspects of any and all permitted sign(s) will be
subject to (i) Landlord's written approval prior to installation, which approval
may be withheld in Landlord's discretion, (ii) any covenants, conditions or
restrictions and sign criteria governing the Project, and (iii) any applicable
municipal or governmental permits and approvals. Tenant will be solely
responsible for all costs for installation, maintenance, repair and removal of
any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s)
upon termination of this Lease and repair any damage caused by such removal,
Landlord may do so at Tenant's sole cost and expense. Tenant agrees to reimburse
Landlord for all costs incurred by Landlord to effect any installation,
maintenance or removal on Tenant's account, which amount will be deemed
additional rent, and may include, without limitation, all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
actual attorneys' fees with interest thereon at the Interest Rate from the date
of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant
under this Lease are personal to Tenant and may not be assigned, transferred or
otherwise conveyed to any assignee or subtenant of Tenant without Landlord's
prior written consent, which consent Landlord may withhold in its sole and
absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant on behalf of itself and all successors and assigns of Tenant
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord: (a) Tenant's recourse against Landlord for
monetary damages will be limited to Landlord's interest in the Building
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Building and any insurance proceeds payable to Landlord; (b)
except as may be necessary to secure jurisdiction of the partnership, no partner
of Landlord shall be sued or named as a party in any suit or action and no
service of process shall be made against any partner of Landlord; (c) no partner
of Landlord shall be required to answer or otherwise plead to any service of
process; (d) no judgment will be taken against any partner of Landlord and any
judgment taken against any partner of Landlord may be vacated and set aside at
any time after the fact; (e) no writ of execution will be levied against the
assets of any partner of Landlord; (f) the obligations under this Lease do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability in respect to this
Lease, and (g) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon ten (10) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current financial
statement for Tenant and any guarantors of Tenant and financial statements for
the two (2) years prior to the current financial statement year for Tenant and
any guarantors of Tenant. Such statements are to be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, audited by an independent certified public accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent required under this Lease and paying all other charges and
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease, Tenant may peaceably and quietly have, hold and
enjoy the Premises in accordance with this Lease.
38. MISCELLANEOUS.
(a) Conflict of Laws. This Lease shall be governed by and construed solely
pursuant to the laws of the State, without giving effect to choice of law
principles thereunder.
(b) Successors and Assigns. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) Professional Fees and Costs. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual professional fees and costs such as
appraisers', accountants' and attorneys' fees and costs, incurred by the party
which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to
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have accrued on the date of the commencement of such action and shall be
enforceable whether or not the action is prosecuted to judgment. As used
therein, attorneys' fees and costs shall include, without limitation, attorneys'
fees, costs and expenses incurred in connection with any (i) postjudgment
motions; (ii) contempt proceedings; (iii) garnishment, levy and debtor and third
party examination; (iv) discovery; and (v) bankruptcy litigation. Tenant agrees
to pay all collection agency fees and attorneys' fees charged to Landlord in
connection with any late payment or non-payment of rent or any other amounts due
under this Lease including, without limitation, a fee of $75.00 for the
preparation of any demand for delinquent rent or any notice to pay rent or quit.
(d) Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) Prior Agreement; Amendments. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.
(g) Separability. The provisions of this Lease shall be considered separable
such that if any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling, all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) Recording. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) Counterparts. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
(j) Nondisclosure of Lease Terms. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other tenant or apparent prospective tenant of the Building
or other portion of the Project, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
(k) Non-Discrimination. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
39. EXECUTION OF LEASE.
(a) Joint and Several Obligations. If more than one person executes this Lease
as Tenant, their execution of this Lease will constitute their covenant and
agreement that (i) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(ii) the term "Tenant" as used in this Lease means and includes each of them
jointly and severally. The act of or notice from, or notice or refund to, or the
signature of any one or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, will be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
(b) Tenant as Corporation or Partnership. If Tenant executes this Lease as a
corporation or partnership, then Tenant and the persons executing this Lease on
behalf of Tenant represent and warrant that such entity is duly qualified and in
good standing to do business in California and that the individuals executing
this Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on its behalf, and in the case of a corporation, in accordance with a duly
adopted resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, if requested by Landlord, and in
accordance with the by-laws of Tenant, and, in the case of a partnership, in
accordance with the partnership agreement and the most current amendments
thereto, if any, copies of which are to be delivered to Landlord on execution
hereof, if requested by Landlord, and that this Lease is binding upon Tenant in
accordance with its terms.
(c) Examination of Lease. Submission of this instrument by Landlord to Tenant
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
TENANT: Softlink, Inc., LANDLORD: Koll/lntereal Bay Area,
a California corporation a California general partnership
By: CB Richard Ellis, Inc.
a Delaware corporation
Its managing agent
By: /s/ William Yuan By: /s/ Leland A. Wallis
--------------------- ------------------------
Print Name: William Yuan Print Name: Leland A. Wallis
Title: President Title: Director
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MISSION PARK EXECUTIVE CENTER
-----------------------------
THE PROJECT
[MAP APPEARS HERE]
EXHIBIT "A-1"
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<PAGE>
MISSION PARK EXECUTIVE CENTER
-----------------------------
PREMISES FLOOR PLAN
BUILD1NG/SUITE
2041 Mission College Blvd., Suite 240
[DRAWING APPEARS HERE]
The term "Rentable Square Feet" as used in the Lease will be deemed to include:
(a) with respect to the Premises, the usable area of the Premises determined in
accordance with the Method for Measuring Floor Area in Office Buildings. ANSI
Z65.1-1980 (the "BOMA Standard"), plus a pro rata portion of the main lobby area
in the ground floor and all elevator machine rooms, electrical and telephone
equipment rooms and mail delivery facilities and other areas used by all tenants
of the Building, if any, plus (i) for single tenancy floors, all the area
covered by the elevator lobbies, corridors, special stairways, restrooms,
mechanical rooms, electrical rooms and telephone closets on such floors, or (ii)
for multiple tenancy floors, a pro-rata portion of all the area covered by the
elevator lobbies, corridors, special stairways, restrooms, mechanical rooms,
electrical rooms and telephone closets on such floor; and (b) with respect to
the Building, the total rentable area for all floors in the Building computed in
accordance with the provisions of Subparagraph 1(a) above. In calculating the
Rentable Square Feet" of the Premises or the Building, the area contained within
the exterior walls of the Building stairs, fire towers, vertical ducts, elevator
shafts, flues, vents, stacks and major pipe shafts will be excluded.
EXHIBIT "A-II"
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<PAGE>
ADJUSTMENTS TO
MONTHLY BASE RENT AND OPERATING EXPENSE CHARGE
----------------------------------------------
SCHEDULED BASE RENT ADJUSTMENTS
-------------------------------
EFFECTIVE DATE OF INCREASE MONTHLY BASE RENT
-------------------------- -----------------
September 13, 2000 $7,833.40
SCHEDULED MONTHLY OPERATING EXPENSE CHARGE
------------------------------------------
EFFECTIVE DATE OF INCREASE OPERATING EXPENSE CHARGE
-------------------------- ------------------------
September 13, 2000 $236.48
EXHIBIT "B"
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<PAGE>
DESCRIPTION OF TENANT IMPROVEMENT WORK
--------------------------------------
I. WORK TO BE PERFORMED BY LANDLORD*
NONE
*Work to be performed by Landlord will be done by Landlord's approved
vendors during normal business hours.
II. WORK TO BE PERFORMED BY TENANT
NONE
EXHIBIT "C"
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<PAGE>
SIGN CRITERIA
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1. Recitals:
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Signs and other graphics are an essential element of any community. As such,
their location, number, size and design consistency have a significant influence
upon a community's visual environment and a resultant effect upon a viewer's
perception of that community.
In communities where signs have not been property regulated, they have
---
contributed to visual clutter, unpleasant impressions and even confusion. In
many of these instances signs have failed to achieve their original objective:
-----------------------------------------------------
Communication of their intended message.
Under proper regulation, however, signs and other graphics may be designed and
displayed to effectively communicate their message and at the same time be
appropriate to their surroundings. Signs so designed and displayed can
contribute to community identity, and help create a community which is
efficiently organized and visually attractive. All new leases and renewals will
contain this exhibit and management will strictly enforce its intent.
2. Criteria:
--------
Tenant is required to have a minimum of one sign and shall be allowed only one
sign per unit leased. No advertising placards, merchandise, banners, pennants,
names, insignia, trademarks, or other descriptive material shall be affixed or
maintained in a fashion to be displayed to the exterior of the suite or on the
glass panes of the building, landscaped areas, streets or parking areas. No
alarm company stickers larger than 3-1/2" x 2-1/2" will be allowed.
3. Signage Layout Submitted to Landlord for Approval:
-------------------------------------------------
A layout of each proposed sign showing copy/logo and color samples must be
submitted to the Landlord for approval prior to fabrication and installation.
4. Sign Specification/Method of Building Attachment:
------------------------------------------------
a. Tenant shall be entitled to (1) mounted sign outside entrance to Tenant's
suite and one (1) directory strip for placement in building directory.
b. Landlord shall install the Tenant signs to conform with project
specifications and shall bill Tenant directly for all sign costs.
c. No other building mounted or glass storefront signs shall be allowed.
d. Maintenance of the Tenant sign is the responsibility of the Tenant
Landlord may require Tenant to replace the sign(s) as needed, at Tenant's
sole cost, to maintain an acceptable appearance of the signs.
5. Window Lettering:
----------------
No window lettering is permitted.
6. Window Tinting:
--------------
No mirrored or colored tinting will be authorized.
7. Landlord's Right to Enforce:
---------------------------
This criteria establishes the uniform policies for all Tenant sign
identification. This criteria has been established for the purpose of
maintaining the over all appearance of the complex and to provide our tenants
with a consistent quality environment from which to conduct business. Any sign,
graphics or other material installed that does not conform to this criteria may
be brought into conformity by the Landlord without notice. Any cost incurred by
the Landlord to remove non-conforming signs or to correct defacement from
mounting of non-conforming signs shall be the responsibility of Tenant.
INITIAL
Landlord RW
------------------
Tenant [ILLEGIBLE]
--------------------
EXHIBIT "D"
----------
<PAGE>
RULES AND REGULATIONS
---------------------
A. General Rules and Regulations. The following rules and regulations govern
-----------------------------
the use of the Building and the Common Areas. Tenant will be bound by such rules
and regulations and agrees to cause Tenant's Authorized Users, its employees,
subtenants, assignees, contractors, suppliers, customers and invitees to observe
the same.
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, stickers, banners,
advertisement, name or notice may be installed or displayed on any part of the
outside or inside of the Building without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls are to be printed, painted, affixed or inscribed at
the expense of Tenant and under the direction of Landlord by a person or company
designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises, Tenant will immediately discontinue
such use. Tenant agrees not to place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises,
including, without limitation, stickers, tinting materials, foil shades, blinds
or screens.
3. Tenant will not obstruct any sidewalks, passages, exits or entrances of the
Project. The sidewalks, passages, exits and entrances are not open to the
general public, but are open, subject to reasonable regulations, to Tenant's
business invitees. Landlord will in all cases retain the right to control and
prevent access thereto of all persons whose presence in the reasonable judgment
of Landlord would be prejudicial to the safety, character, reputation and
interest of the Project and its tenants, provided that nothing herein contained
will be construed to prevent such access to persons with whom any tenant
normally deals in the ordinary course of its business, unless such persons are
engaged in illegal or unlawful activities. No tenant and no employee or invitee
of any tenant will go upon the roof of the Building.
4. Landlord expressly reserves the right to absolutely prohibit solicitation,
canvassing, distribution of handbills or any other written material or goods,
peddling, sales and displays of products, goods and wares in all portions of the
Project except for such activities as may be expressly permitted under the
Lease. Landlord reserves the right to restrict and regulate the use of the
Common Areas of the Project by invitees of tenants providing services to tenants
on a periodic or daily basis including food and beverage vendors. Such
restrictions may include limitations on time, place, manner and duration of
access to a tenant's premises for such purposes.
5. Landlord reserves the right to prevent access to the Project in case of
invasion, mob, not, public excitement or other commotion by closing the doors or
by other appropriate action.
6. Landlord reserves the right to approve companies providing cleaning and
janitorial services for the Premises. Tenant will not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness of the
Premises.
7. Landlord will furnish Tenant, free of charge, with two keys to each
exterior entry door lock to the Premises. Landlord may make a reasonable charge
for any additional keys. Tenant shall not alter any lock or install any new
additional lock or bolt on any door of the Premises. Tenant, upon the
termination of its tenancy, will deliver to Landlord the keys to all doors which
have been furnished to Tenant.
8. If Tenant requires telegraphic, telephonic, burglar alarm, satellite
dishes, antennae or similar services, it will first obtain Landlord's approval,
and comply with, Landlord's reasonable rules and requirements applicable to such
services, which may include separate licensing by, and fees paid to, Landlord,
as well as all federal, state, and local regulations. Tenant will not transmit
or receive any electromagnetic, microwave or other radiation which may be
harmful or hazardous to any person or property in or about the Premises or
elsewhere within the Project.
9. No deliveries will be made which impede or interfere with other tenants or
the operation of the Building.
10. Tenant will not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant will not
sleep, cook or wash clothes in the Premises or use or permit to be used in the
Premises any foul or noxious gas or substance, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors or vibrations, intense
glare, light or heat, nor will Tenant bring into or keep in or about the
Premises any birds or animals.
11. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Without the written consent of Landlord, Tenant will not use the name of the
Building or the Project in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from any violation of this rule will
be borne by the tenant who, or whose employees or invitees, break this rule.
13. Tenant will not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant will not make any building-to-
building solicitation of business from other tenants in the Project. Tenant will
not use the
EXHIBIT "E"
-----------
<PAGE>
Premises for any business or activity other than that specifically provided for
in this Lease. Tenant will not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Landlord's prior written consent, which consent Landlord may withhold
in its sole and absolute discretion.
14. Except for the ordinary hanging of pictures and wall decorations, Tenant
will not mark, drive nails, screw or drill into the partitions, woodwork or
plaster or in any way deface the Premises or any part thereof, except in
accordance with the provisions of the Lease pertaining to alterations. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant will not cut or
bore holes for wires. Tenant will not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
15. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
16. Tenant will store all its trash and garbage within its Premises or in other
facilities provided by Landlord. Tenant will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
17. The Premises will not be used for lodging nor shall the Premises be used
for any improper, immoral or objectional purpose.
18. Tenant agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
19. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed. Tenant will not leave or store any
equipment, materials or items of any kind outside the walls of the Premises.
20. Tenant shall use such pest extermination and control contractor(s) as
Landlord may direct and at such intervals as Landlord may reasonably require.
21. To the extent Landlord reasonably deems it necessary to exercise exclusive
control over any portions of the Common Areas for the mutual benefit of the
tenants in the Project, Landlord may do so subject to reasonable, non-
discriminatory additional rules and regulations.
22. Tenant's requirements will be attended to only upon appropriate application
to Landlord's management office for the Project by an authorized individual of
Tenant. Employees of Landlord will not perform any work or do anything outside
of their regular duties unless under special instructions from Landlord, and no
employee of Landlord will admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord.
23. These Rules and Regulations are in addition to, and will not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of the Lease. Landlord may waive any one or more of
these Rules and Regulations for the benefit of Tenant or any other tenant, but
no such waiver by Landlord will be construed as a waiver of such Rules and
Regulations in favor of Tenant or any other tenant, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Project.
24. Landlord reserves the right to make such other and reasonable and non-
discriminatory Rules and Regulations as, in its judgment, may from time to time
be needed for safety and security, for care and cleanliness of the Project and
for the preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations herein above stated and any additional reasonable and non-
discriminatory rules and regulations which are adopted. Tenant is responsible
for the observance of all of the foregoing rules by Tenant's employees, agents,
clients, customers, invitees and guests.
B. Parking Rules and Regulations. The following rules and regulations govern
-----------------------------
the use of the parking facilities which serve the Building. Tenant will be bound
by such rules and regulations and agrees to cause its employees, subtenants,
assignees, contractors, suppliers, customers and invitees to observe the same:
1. Tenant will not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, subtenants, customers or invitees to
be loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. No vehicles are to be left in the parking areas overnight
and no vehicles are to be parked in the parking areas other than normally sized
passenger automobiles, motorcycles and pick-up trucks. No extended term storage
of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five (5) miles per hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles
or on ramps; (c) where "no parking" signs are posted; (d) in cross-hatched
areas; and (e) in such other areas as may be designated from time to time by
Landlord or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to Landlord, to tow
any vehicle if such vehicle's audio theft alarm system remains engaged for an
unreasonable period of time.
EXHIBIT "E"
-----------
<PAGE>
EXHIBIT G
---------
STANDARDS FOR UTILITIES AND SERVICES
------------------------------------
The following standards for utilities and services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto.
Subject to the terms and conditions of the Lease and provided Tenant
remains in occupancy of the Premises, Landlord will provide or make available
the following utilities and services:
1. Provide non-attended automatic elevator facilities Monday through
Friday, except holidays, from 8 a.m. to 6 p.m., and have one elevator available
for Tenant's use at all other times.
2. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m.
(and other times for a reasonable additional charge to be fixed by Landlord),
ventilate the Premises and furnish air conditioning or heating on such days and
hours, when in the reasonable judgment of Landlord it may be required for the
comfortable occupancy of the Premises. The air conditioning system achieves
maximum cooling when the window coverings are extended to the full length of the
window opening and adjusted to a 45 (degree) angle upwards. Landlord will not
be responsible for room temperatures if Tenant does not keep all window
coverings in the Premises extended to the full length of the window opening and
adjusted to a 45(degree) angle upwards whenever the system is in operation.
Tenant agrees to cooperate fully at all times with Landlord, and to abide by all
reasonable regulations and requirements which Landlord may prescribe for the
proper function and protection of said air conditioning system. Tenant agrees
not to connect any apparatus, device, conduit or pipe to the chilled and hot
water air conditioning supply lines of the Building. Tenant further agrees that
neither Tenant nor its servants, employees, agents, visitors, licensees or
contractors shall at any time enter the mechanical installations or facilities
of the Building or the Development or adjust, tamper with, touch or otherwise in
any manner affect said installations or facilities. The cost of maintenance and
service calls to adjust and regulate the air conditioning system will be charged
to Tenant if the need for maintenance work results from either Tenant's
adjustment of room thermostats or Tenant's failure to comply with its
obligations under this Exhibit, including keeping window coverings extended to
the full length of the window opening and adjusted to a 45(degree) angle
upwards. Such work will be charged at hourly rates equal to then-current
journeyman's wages for air conditioning mechanics.
3. Landlord will make available to the Premises, 24 hours per day,
seven days a week, electric current as required by the Building standard office
lighting and fractional horsepower office business machines including copiers,
personal computers and word processing equipment in an amount not to exceed six
(6) watts per square foot per normal business day. Tenant agrees, should its
electrical installation or electrical consumption be in excess of the aforesaid
quantity or extend beyond normal business hours, to reimburse Landlord monthly
for the measured consumption at the average cost per kilowatt hour charged to
the Building during the period. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, such cost will be
established by an independent licensed engineer selected in Landlord's
reasonable discretion, whose fee shall be shared equally by Landlord and Tenant.
Tenant agrees not to use any apparatus or device in, upon or about the Premises
(other than standard office business machines, personal computers and word
processing equipment) which may in any way increase the amount of such services
usually furnished or supplied to said Premises, and Tenant further agrees not
to connect any apparatus or device with wires, conduits or pipes, or other means
by which such services are supplied, for the purpose of using additional or
unusual amounts of such services without the written consent of Landlord. Should
Tenant use the same to excess, the refusal on the part of Tenant to pay upon
demand of Landlord the amount established by Landlord for such excess charge
will constitute a breach of the obligation to pay rent under this Lease and will
entitle Landlord to the rights therein granted for such breach. Tenant's use of
electric current will never exceed the capacity of the feeders to the Building,
or the risers or wiring installation and Tenants will not install or use or
permit the installation or use of any computer or electronic data processing
equipment in the Premises (except standard office business machines, personal
computers and word processing equipment) without the prior written consent of
Landlord.
4. Water will be available in public areas for drinking and lavatory
purposes only, but if Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking and lavatory purposes, of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant agrees
to pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant's occupancy Tenant will keep said
meter and installation equipment in good working order and repair at Tenant's
own cost and expense, in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on such meter, as and when
bills are rendered, and on default in making such payment, Landlord may pay such
charges and collect the same from Tenant. Any such costs or expenses incurred,
or payments made by Landlord for any of the reasons or purposes hereinabove
stated will be deemed to be additional rent payable by Tenant and collectible by
Landlord as such.
5. Landlord will provide janitor service to the Premises, provided
the same are used exclusively as offices, and are kept reasonably in order by
Tenant, and unless otherwise agreed to by Landlord and Tenant no one other than
persons approved by Landlord shall be permitted to enter the Premises for such
purposes. If the Premises are not used exclusively as offices, they will be kept
clean and in order by Tenant, at Tenant's expense, and to the satisfaction of
Landlord, and by persons approved by Landlord. Tenant agrees to pay to Landlord
the cost of removal of any of Tenant's refuse and rubbish to the extent that the
same exceeds the refuse and rubbish usually attendant upon the use of the
Premises as offices.
6. Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electrical systems, when necessary,
by reason of accident or emergency or for repairs, alterations or improvements,
when in the judgment of Landlord such actions are desirable or necessary to be
made, until said repairs, alterations or improvements shall have been completed,
and Landlord will have no responsibility or liability for failure to supply
elevator facilities, plumbing, ventilating, air conditioning or electric
service, when prevented from so doing by strike or accident or by any cause
beyond Landlord's reasonable control, or by laws, rules, orders, ordinances,
directions, regulations or by reason of the requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel supply. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any services pursuant to any of the
terms, covenants, conditions, provisions or agreements of this Lease, or to
perform any act or thing for the benefit of Tenant, will not be deemed breached
if Landlord is unable to furnish or perform the same by virtue of a strike or
labor trouble or any other cause whatsoever beyond Landlord's control.
EXHIBIT "G"
-----------
<PAGE>
Solicitation is strictly prohibited. If at any time you observe solicitors in
the building, please notify our office immediately.
We also request your assistance in reporting any problems or abnormal conditions
which you may observe anywhere in Mission Park Business Center. We will endeavor
to respond immediately to ensure that the project is one of which we can all be
proud of and enjoy each day.
Please do not hesitate to call us with any questions or requests; our phone
number is (408) 492-0304. We look forward to serving you. We hope that you will
enjoy your tenancy with us and that your business will prosper in future years.
Sincerely,
/s/ Christina Yang
Christina Yang
Property Administrator
CB RICHARD ELLIS
<PAGE>
EXHIBIT 10.9
SOFTLINK & FOUNTAIN
SOFTWARE DISTRIBUTION AND MARKETING RIGHTS AGREEMENT
----------------------------------------------------
This Agreement is by and between Softlink Inc., a Nevada Corporation, with
its principal office at 2041 Mission College Boulevard, Suite 259, Santa Clara,
CA 95054 (hereinafter referred to as "SOFTLINK"), FOUNTAIN TECHNOLOGIES, INC., a
New York corporation and its affiliated corporations with a principal place of
business at 50 Randolph Road, Somerset, New Jersey, 08873 (hereinafter referred
to as "FOUNTAIN").
SOFTLINK has developed the software product(s) described in the attached
Schedule A (the "Licensed Software"), a version or versions of which will be
- ----------
provided to FOUNTAIN for distribution under this Agreement. FOUNTAIN desires to
bundle the Licensed Software with computer hardware and/or computer services
provided by FOUNTAIN, all as described in Schedule A and to market FOUNTAIN'S
----------
products and/or services, together with the Licensed Software, to distributors,
resellers, and end users, subject to the provisions of this Agreement.
In consideration of the foregoing and the mutual promises set out in this
Agreement, the parties agree as follows:
1. Grant of License. SOFTLINK hereby grants to FOUNTAIN a nonexclusive
----------------
nontransferable right and license to market and distribute the Licensed Software
to its customers anywhere in the world, but only in connection with the sale of
hardware produced or marketed by FOUNTAIN or in connection with services
provided by FOUNTAIN related to configuring, integrating, or imaging computers
or computer systems. This license includes a nonexclusive right to make, sell,
and offer for sale copies of the Licensed Software, and a nonexclusive right and
license under applicable copyright laws to reproduce and distribute the Licensed
Software, subject to the terms of this Agreement.
2. License Terms to End Users. FOUNTAIN shall provide the Licensed
--------------------------
Software to its customers only under the terms of a license that includes
provisions that are legally sufficient to (i) notify the end user that the
Licensed Software is protected by copyright, (ii) notify the end user that the
Licensed Software is being licensed (not sold) and that ownership is not being
transferred, (iii) prohibit copying or transfer of the Licensed Software, (iv)
prohibit reverse programming, decompilation, and other reverse engineering of
the Licensed Software, (v) disclaim ALL WARRANTIES WITH RESPECT TO THE USE OF
THE LICENSED SOFTWARE, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTIES ARISING FROM
USAGE OF TRADE OR COURSE OF DEALING, and (vi) limit SOFTLINK's liability related
to the Licensed Software to license fees actually paid by FOUNTAIN for the
Licensed Software. If SOFTLINK so requests, FOUNTAIN shall distribute the
Licensed Software under the terms of SOFTLINK's standard license agreement to
end users.
<PAGE>
3. Master Diskettes. SOFTLINK shall provide FOUNTAIN with golden master
----------------
diskettes or a golden master CD-ROM for the Licensed Software. FOUNTAIN may use
the master CD-ROM to duplicate the Licensed Software as necessary to provide the
Licensed Software to its customers, together with FOUNTAIN'S hardware or the
configuration of computer(s) or computer system(s) by FOUNTAIN for its
customers, all as contemplated by this Agreement. SOFTLINK shall not be
responsible for any materials provided to an end user other than the Licensed
Software.
4. Changes in Licensed Products and Software License Agreements. SOFTLINK
------------------------------------------------------------
shall have the right at any time and from time to time, in its sole discretion,
(i) to change the design, capabilities, or other characteristics of any Licensed
Software or discontinue the production or marketing of any Licensed Software
without prior notice of any kind, and (ii) to change the terms and conditions of
any of its standard software license to end users. SOFTLINK shall not have any
obligation to make upgrades or enhancements to the Licensed Software, but any
upgrades or enhancements that are provided to FOUNTAIN shall automatically be
deemed included as part of the Licensed Software. Upon making any changes to the
Licensed Software, SOFTLINK shall provide to FOUNTAIN a replacement golden
master CD-ROM, and FOUNTAIN shall thereafter license, market, and distribute
only the version of the Licensed Software contained on the replacement CD-ROM.
FOUNTAIN shall not modify, alter, reverse engineer, decompile, or disassemble
the Licensed Software or remove or alter any notices, legends or proprietary
markings that are placed upon or contained in the Licensed Software.
5. Royalties and Fees. In consideration of the rights granted to FOUNTAIN
------------------
under this Agreement, FOUNTAIN shall pay to SOFTLINK the royalties and fees set
out in Schedule B. Except as otherwise specified in Schedule B, all payments
---------- ----------
hereunder shall be made by FOUNTAIN within thirty (30) days after the date of
SOFTLINK's invoice, or, in the case of monthly or quarterly payments, within
thirty (30) days after the end of the applicable month or quarter. If any
royalties or fees are based upon the number of copies of Licensed Software
distributed by FOUNTAIN or upon revenues received by FOUNTAIN, accurate records
shall be kept by FOUNTAIN sufficient to show compliance with this Agreement, and
SOFTLINK or its representative shall have the right, at SOFTLINK's expense, to
examine such records from time to time during regular business hours for the
purpose of verifying the accuracy of payments due under this Agreement. If the
examination reveals an underpayment of five percent (5%) or more of amounts due
under this Agreement with respect to the period of time being examined, the
expenses of the examination shall be borne by FOUNTAIN.
6. Technical and Sales Support. SOFTLINK agrees to provide to FOUNTAIN a
---------------------------
level of telephone support to FOUNTAIN'S technical support staff that is
substantially equivalent to the support provided by SOFTLINK to OEMs generally.
<PAGE>
7. Marketing Practices and Use of Trademarks. FOUNTAIN shall not take any
-----------------------------------------
action relating to the Licensed Software that reflects unfavorably on the
Licensed Software or upon SOFTLlNK's good name, goodwill, and reputation.
FOUNTAIN shall not make any representations or warranties regarding the Licensed
Software, except as authorized in writing by SOFTLINK. FOUNTAIN shall not have
the right to use any of SOFTLINK'S trademarks, trade names, service marks,
logos, or designations, except as specifically approved in writing by SOFTLINK.
8. Distributor Agreements. If FOUNTAIN distributes the Licensed Software
----------------------
through distributors, FOUNTAIN shall exercise its best efforts to ensure that
its distributors conduct their business in a manner that is consistent with the
terms of this Agreement and permits FOUNTAIN to comply with all of its
obligations hereunder.
9. Compliance with Laws. FOUNTAIN shall conduct its business in
--------------------
compliance with all applicable laws and regulations in any way related to the
Licensed Software or to the exercise of FOUNTAIN'S rights under this Agreement.
Without limiting the generality of the foregoing, FOUNTAIN shall not market or
distribute any Licensed Software in violation of any United States law relating
to the export or reexport of goods or technical information, including without
limitation, the Export Administration Act of 1979 as amended from time to time
and any regulations promulgated thereunder, or engage in any act that violates
the U.S. Foreign Corrupt Practices Act as amended from time to time or any
regulations promulgated thereunder.
10. Ownership of Intellectual Property. SOFTLINK represents that it has
----------------------------------
all rights and licenses necessary to grant the rights and licenses set out in
this Agreement. FOUNTAIN acknowledges that all intellectual property rights in
and relating to the Licensed Software, including but not limited to any patents,
copyrights, trade secrets, and trademarks, whether developed prior to or after
the date of this Agreement, are and shall remain the property of SOFTLINK or its
licensors.
11. Confidential Information. The parties acknowledge that during the term
------------------------
of this Agreement, each of them may receive from the other confidential
information, including any and all information and know-how related directly or
indirectly to the disclosing party, its business, or its products that is
conspicuously marked "CONFIDENTIAL", "PROPRIETARY", or with other words of
similar import, or that the receiving party knows is not publicly available. The
receiving party shall not use or disclose the confidential information except in
connection with, and as contemplated by, this Agreement. The receiving party
shall use at least the same degree of care to avoid disclosure or unauthorized
use of confidential information as it employs with respect to its own most
confidential and proprietary information, but at all times shall use at least
reasonable care. The receiving party shall not have any obligation of
confidentiality with respect to any information that (i) is already known to the
receiving party at the time the information is received from the disclosing
party, as proven by prior documents or records of the
<PAGE>
receiving party; or (ii) is or becomes publicly known through no wrongful act of
the receiving party; or (iii) is rightfully received by the receiving party from
a third party without restriction.
12. Limited Warranty. SOFTLINK WARRANTS THAT THE LICENSED SOFTWARE
----------------
CONFORMS TO ANY WARRANTIES SET OUT IN SOFTLINK'S STANDARD END USER LICENSE FOR
THE LICENSED SOFTWARE. SUCH WARRANTIES ARE IN LIEU OF AND EXCLUDE ALL OTHER
WARRANTIES, WHETHER TO FOUNTAIN OR ANY CUSTOMER OF FOUNTAIN, WHETHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
13. Limitation of Liability. IN NO EVENT SHALL SOFTLINK'S LIABILITY
-----------------------
RELATED TO ANY LICENSED SOFTWARE EXCEED THE ROYALTIES ACTUALLY PAID HEREUNDER
DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE DATE SOFTLINK IS
NOTIFIED OF THE CLAIM GIVING RISE TO THE LIABILITY. FOUNTAIN SHALL NOT BE LIABLE
UNDER ANY CIRCUMSTANCES TO FOUNTAIN OR ANY OTHER PERSON FOR CONSEQUENTIAL,
INDIRECT, SPECIAL, OR INCIDENTAL DAMAGES ARISING FROM OR IN CONNECTION WITH THE
HANDLING OR USE OF LICENSED SOFTWARE OR ARISING FROM OR IN CONNECTION WITH ANY
ACTS OR OMISSIONS OF SOFTLINK RELATED TO THE LICENSED SOFTWARE.
14. Indemnification by SOFTLINK. SOFTLINK shall defend any action brought
---------------------------
against FOUNTAIN based on an allegation that any Licensed Software infringes a
United States or foreign patent, copyright, or trade secret, and SOFTLINK shall
pay all costs and damages made in settlement or awarded as a result of any such
action. If a final injunction shall be obtained in any such action restraining
use of the Licensed Software by any customer of FOUNTAIN, or if SOFTLINK
believes that any Licensed Software is likely to become the subject of a claim
of infringement, SOFTLINK shall, at its option and at its expense, (i) procure
for FOUNTAIN'S customer the right to continue using the Licensed Software, (ii)
replace or modify the Licensed Software so that it becomes non-infringing or
(iii) refund to FOUNTAIN the royalties paid by FOUNTAIN under this Agreement
during the immediately preceding twelve (12) months, whereupon FOUNTAIN shall
promptly cease using the Software. Notwithstanding the foregoing, SOFTLINK shall
have no obligation with respect to any action brought against FOUNTAIN based on
an allegation of patent, copyright, or trade secret infringement unless SOFTLINK
is promptly notified by FOUNTAIN in writing of such action and is allowed
complete control of the defense of such action and all negotiations for its
settlement or compromise. These provisions state SOFTLINK's entire liability
with respect to infringement of patents, copyrights, or trade secrets.
15. Indemnification by FOUNTAIN. FOUNTAIN shall defend, indemnify, and
---------------------------
hold harmless SOFTLINK from and against any and all claims, liabilities,
damages, costs, and
<PAGE>
expenses (including reasonable legal fees) suffered incurred, or asserted
against SOFTLINK arising out of or related to alleged losses or damages
(including but not limited to any loss of business profits, business
interruption, or loss of business information) suffered or incurred by any third
party in connection with the use of FOUNTAIN'S products or suffered or incurred
by a third party as a result of any breach of this Agreement by FOUNTAIN.
16. Term of Agreement. The initial term of this Agreement, and FOUNTAIN'S
-----------------
nonexclusive license hereunder, shall continue in force for a period of one
year, unless it is terminated earlier as provided herein. Upon expiration of the
initial term, this Agreement shall automatically renew for successive one year
terms unless either party notifies the other in writing of its intent to
discontinue this Agreement at least forty-five (45) days prior to the expiration
of the then-current term.
17. Termination at Either Party's Option. Either party may terminate this
------------------------------------
Agreement prior to its expiration, as follows:
1. If the other party materially fails to perform its obligations under
this Agreement or takes any action that violates the terms of this
Agreement, the non-breaching party may terminate this Agreement, effective
thirty (30) days after the date written notice is sent by the non-breaching
party specifying the nature of the other party's breach and stating that
the Agreement will terminate if the breach is not cured. If the breach is
not cured during the cure period, this Agreement shall terminate upon
expiration thereof.
1. Notwithstanding the provisions of subparagraph (a), above, the
terminating party may specify a shorter cure period for any breach
(including no cure period in appropriate circumstances), and may terminate
this Agreement immediately upon the expiration of the shorter cure period,
to the extent reasonably necessary to avoid irreparable injury to the non-
breaching party.
18. Liability Upon Termination. SOFTLINK shall have no liability to
--------------------------
FOUNTAIN by reason of the expiration or termination of this Agreement for
compensation, reimbursement, or damages of any kind, including but not limited
to any loss of prospective profits on anticipated sales, loss of goodwill, or
investments made in reliance on this Agreement. Each party acknowledges that it
has received no assurances from the other that their business relationship under
this Agreement will continue beyond the term established herein.
19. Return of Materials: Sale of Inventory. Promptly upon the expiration
--------------------------------------
or termination of this Agreement, FOUNTAIN shall return to Softlink the golden
master diskettes or golden master CD-ROM and all other materials in FOUNTAIN'S
possession or
<PAGE>
control that belong to SOFTLINK. If this Agreement is terminated for any reason
other than breach by FOUNTAIN, FOUNTAIN shall have the right to distribute,
together with FOUNTAIN products and subject to all of the terms of this
Agreement, its inventory of Licensed Software existing as of the date of
termination, provided that the quantity of such inventory does not exceed the
average inventory held by FOUNTAIN over the immediately preceding twelve (12)
months.
20. Notices. All notices, demands, or other communications under this
-------
Agreement shall be in writing and shall be deemed given if served personally or
sent by fax, overnight courier, or certified mail, postage prepaid, and
addressed as follows:
If to SOFTLINK: Copy to:
Carol Prior William Yuan
Vice President Sales President
Softlink Inc. Softlink Inc.
2041 Mission College Blvd., Suite 2041 Mission College Blvd., Suite
156 172
Santa Clara, CA 95054 Santa Clara, CA 95054
Phone: 408-496-6668 Phone: 408-496-6668
Fax: 408-496-6110 Fax: 408-496-6110
Email: [email protected] Email: [email protected]
With a copy to OEMCentral:
Chris Minick
President
OEMCentral
34 Sunrise Avenue
Mill Valley, California 94941-3339
Phone: 415-383-6727
Fax: 415-383-6746
Email: [email protected]
If to FOUNTAIN: With a copy to:
Steve Markin Office of the Controller
VP Business Affairs Accounting Department
Fountain Technologies Fountain Technologies, Inc.
6 Spruce Hill Road 50 Randolph Road
Armonk, NY 10405 Somerset, NJ 08873
<PAGE>
Phone: 914-273-7300 1
Fax: 914-273-8619
Email: [email protected]
---------------
Notices shall be deemed given when received if hand delivered or sent by
confirmed fax, the next business day after being sent by overnight courier, or
four calendar days after being sent by certified mail. Either party may
designate by notice, given as specified above, a new address to which notices,
demands, or other communications may be sent.
21. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties pertaining to its subject matter, and it supersedes any and
all written or oral agreements previously existing between the parties with
respect to such subject matter. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by both parties.
22. Waiver. Either party's failure to insist on strict performance of any
------
provision of this Agreement shall not be deemed a waiver of any of its rights or
remedies, nor shall it relieve the other party from performing any subsequent
obligation strictly in accordance with the terms of this Agreement. No waiver
shall be effective unless it is in writing and signed by the party against whom
enforcement is sought.
23. Assignment. This Agreement may not be assigned by either party without
----------
the prior written consent of the other. Any attempted assignment in violation of
this provision shall be void and shall be deemed a breach of this Agreement.
24. Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with California law, without regard to its rules regarding conflicts
of law.
25. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach of this Agreement, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The place of arbitration shall be San Jose, California, and
judgment upon the award of the arbitrator (or arbitrators) may be entered in any
court having jurisdiction.
In witness of the foregoing, the parties have signed this Agreement on the
dates indicated below. This Agreement shall be deemed effective on the date it
is signed by SOFTLINK.
Softlink Inc. FOUNTAIN
By: /s/ Carol A Prior By: /s/ Steve Markin
<PAGE>
(Corporate Officer) (Corporate Officer)
Name: Carol A Prior Name: Steve Markin
Title: VP of Sales Title: V.P. Corporate Affairs
Date: 7/1/99 Date: 6/29/99
<PAGE>
SCHEDULE A
Description of Licensed Software and FOUNTAIN Products
------------------------------------------------------
Licensed Software: email VoiceLINK
FOUNTAIN Products: Any and all FOUNTAIN computer system products that FOUNTAIN
may choose at its sole discretion.
<PAGE>
SCHEDULE B
DESCRIPTION OF FEES
-------------------
FOUNTAIN shall pay SOFTLINK a one-time license fee of fifty thousand dollars
($50,000.00) for the unlimited use of the Licensed Software for a period of
twelve (12) months from the date of first shipment of the licensed software with
FOUNTAIN'S products, not to exceed 300,000 units
Revenue Sharing on Upgrades:
1. SOFTLINK shall share $5.00 upgrade revenues with FOUNTAIN for FOUNTAIN
customers who upgrade to another SOFTLINK product.
2. SOFTLINK will handle all fulfillment and track revenue share credit back to
FOUNTAIN through a special code that identifies FOUNTAIN customers purchasing
upgrade products.
3. As incentive to and to insure that end-users use their special code which
identifies them as FOUNTAIN customers, the price to FOUNTAIN customers shall
always be at least $5.00 less than the price direct from SOFTLINK
4. SOFTLINK shall submit revenue share reports quarterly with payment from
SOFTLINK to FOUNTAIN within forty-five (45) days after the end of each
calendar quarter for the previous calendar quarter.
5. FOUNTAIN shall provide reports within forty-five (45) days after the end of
each calendar quarter for the previous calendar quarters for the number of
FOUNTAIN computer system products that have been shipped with SOFTLINKS
Licensed Software to the recipients listed in Section 20 of this Agreement.
<PAGE>
SCHEDULE C
Invoices to be sent to: Revenue share payments and reports sent
to:
Anil Patel
Senior Accountant Anil Patel
Fountain Technologies Inc. Senior Accountant
50 Randolph Road Fountain Technologies Inc.
Somerset, NJ 08873 50 Randolph Road
Somerset, NJ 08873
Phone: 732-356-9299 Ex: 1375
Fax: 732-563-2661 Phone: 732-356-9299 Ex: 1375
Email: [email protected] Fax: 732-563-2661
---------------- Email: [email protected]
----------------
Royalty payments and reports sent to: With copies of Royalty Reports sent to;
Carol Prior Chris Minick
Vice President Sales
Softlink Inc. OEMCentral
2041 Mission College Blvd., Suite 34 Sunrise Avenue
259 Mill Valley, CA 94941-3339
Santa Clara, CA 95054 Phone: 415-383-6727
FAX: 415-383-6746
Phone: 408-496-6668 Email: [email protected]
Fax: 408-496-6110 --------------------
Email: [email protected]
<PAGE>
SCHEDULE D
1. Single Point of Contact. While FOUNTAIN has the responsibility to provide
technical support to all end users, FOUNTAIN agrees to identify a single
person to act as the support liaison between FOUNTAIN and SOFTLINK.
FOUNTAIN agrees to provide the name, phone, address, and email information
for this person. SOFTLINK will permit a backup contact, as well.
2. Software/Equipment/Documentation Exchange. FOUNTAIN agrees to provide on an
"as required basis" any equipment, software licenses, and documentation
required to support FOUNTAIN'S shipping product as a means to duplicate and
solve end-user problems.
3. FOUNTAIN agrees to cooperate in a press release concerning this arrangement
upon signing of this Agreement. Email VoiceLINK will be included in all
marketing efforts promoted by FOUNTAIN in conjunction with it's offering of
software bundles.
<PAGE>
EXHIBIT 10.10
OEM AND LICENSE AGREEMENT
-------------------------
THIS AGREEMENT is made as of July 1, 1999 ("Effective Date") by and between,
Information Technologies Division, a division of Sony Electronics Inc., a
Delaware corporation having offices at 3300 Zanker Road, San Jose, California
95134 ("Sony") and Softlink Inc., a Nevada corporation, having offices at 2041
Mission College Blvd., Suite 259, Santa Clara, California 95054 ("Licensor").
WITNESSETH:
WHEREAS, Licensor is in the business of developing, producing, distributing and
selling computer programs throughout the world; and
WHEREAS, Sony wishes to license certain computer software programs distributed
by Licensor for sale by Sony with its currently existing or later developed
hardware products ("Hardware Products"), including a license to replicate, copy
and license same to its customers ("Customers"), for use with such Hardware
Products, and from time to time other software for license to its Customers, as
and if requested by Sony.
NOW, THEREFORE, in consideration of the terms and conditions of this Agreement
and for other good and valuable consideration, the receipt and sufficiency of
which is acknowledged by the signing and delivery hereof, the parties agree as
follows:
1.0 GENERAL
The parties acknowledge that this Agreement generally contemplates:
(a) Licensor's delivery of the software program(s) with related installer
files (the "Program"), in object code form, in accordance with the
Specifications, all as set forth in Exhibit A (Program and
Specifications) attached hereto and made a part hereof. The delivery
shall be done on a Master Disk(s) suitable for replication so that
Sony can copy the Program for inclusion in its Hardware Products;
(b) Sony's sale of the Program as part of a bundle with a Hardware Product
and not as a standalone product. Notwithstanding any provision of this
Agreement, Sony shall be free to market and sell any product,
including without limitation, the Hardware Products, without the
Program;
(c) Licensor's delivery of its standard user manual, as well as the User
Guide for the Program in printed format (collectively the
"Documentation") suitable for inclusion in Sony's end user
documentation and on-line help system. The Documentation will be
delivered in an electronic format compatible with Word 6.0 for
Windows;
(d) Provision to Sony from time to time of software programs other than
the Program for license with Hardware Products or other Sony Products
by adding other software programs to the Program listed on Exhibit A
by written amendment(s) to this Agreement signed by the parties. (Any
Program subsequently added to Exhibit A shall thereafter be included
in the definition of "Program");
(e) Sony's licensing of the Program from Licensor for sale as part of a
bundle with a Hardware Product and/or other Sony products that Sony
will sell to end users directly or through its dealers or resellers;
and
(f) Licensor's continued support of the Program.
Page 1 of 15
<PAGE>
The parties agree to effect the foregoing in accordance with the terms
and conditions hereof and the terms and conditions of any instruments
expressly made a part hereof.
2.0 DELIVERY OF THE PROGRAM
2.1 Final Delivery. Licensor will deliver the Program on a Master Disk(s)
suitable for duplication along with the required copies of the Documentation.
2.2 Delivery Schedule. Licensor will deliver the Program and Documentation
within five (5) working days of the signing of this Agreement.
3.0 LICENSE
3.1 License and Rights. Subject to all of the terms and conditions of this
Agreement, Licensor hereby grants Sony a nonexclusive, North America license and
right to replicate the Program and to replicate/copy and modify any portion of
the Documentation and incorporate same in Sony's documentation, including its
on-line help system and to license the use of the Program and the Documentation
as provided by Licensor or as modified and incorporated in Sony's documentation
to its Customers, all under Licensor's or its licensor's patents, copyrights and
other proprietary rights therein and thereto. Licensor acknowledges that Sony
may pre-install all or part of the Program on the Hardware Products and that
Sony may include in the product sold to the end user a recovery CD containing
some or all of the software titles sold with the Hardware Products, including
the Program, whereby the end user has the capability to re-install all or some
of the titles. Such pre-installation or duplication onto a recovery CD shall not
obligate Sony to incur additional royalties. The main copy of the Program sold
to the end user and any pre-installed or recovery copy shall be considered one
copy of the Program. Except for the limited license granted to Sony hereunder,
this Agreement does not confer or transfer to Sony any right, title or interest
in any of the Programs or Documentation or any intellectual property rights
relating thereto.
3.2 Sublicense. Sony shall have the right to sublicense the Program, the
Documentation and rights granted to it or any portion thereof to any of its
parent companies or its or their subsidiary or affiliated companies North
America ("Sony Companies") as a sublicensee under this Agreement provided all
such Sony Companies agree to be bound by the terms hereof.
3.3 Third Party Duplication. Sony may allow a third party to perform
duplication of the Program and/or Documentation on its behalf, subject to the
terms of this Section 3.
3.4 Royalty. In consideration of the license and rights granted to Sony under
Sections 3.1, 3.2 and 3.3 above, Sony shall pay to Licensor royalties in the
amount and in the manner provided in Exhibit B (Royalties) attached hereto and
made a part hereof.
3.5 Prices. Licensor represents that the prices offered to Sony are no higher
than those offered to similar OEM purchasers purchasing similar volumes.
3.6 Bookmarks/Hotlinks. Sony will insert a bookmark in its pre-installed
browsers listing the name of Licensor, the developer(s) of the Program, and the
Program and/or otherwise include on Sony related web pages "hot links" to
Licensor's and/or the developer of the Program's web pages (the "Licensor Web
Site"). Sony may terminate at any time in its sole discretion, with 30 day
notice to Licensor or any other party, such bookmarks and/or "hot links".
4.0 SUPPORT AND UPGRADES
4.1 Support. For a period commencing on the date of the delivery of the
Program until three (3) years from the date that Sony and its permitted
sublicensees last license the use of the
Page 2 of 15
<PAGE>
Program to their customers, Licensor will support the Program, including bug
fixes and changes to maintain compatibility with the then dominant operating
system.
(a) For bugs Sony identifies in good faith as fatal or critical defects,
Sony will use its reasonable commercial efforts to notify Licensor within three
(3) working days of its discovery of the defect. Licensor will use its best
efforts to communicate a resolution (fix or otherwise) to Sony within three (3)
calendar days after such notification. All resulting Software revisions will be
provided in Gold Master to Sony within five (5) working days of communication of
the resolution, and shall thereafter be included in the definition of "Program".
If timely resolution is not achieved, the Program may be eliminated by Sony from
its bundling program and any prepaid or advanced royalties or fees shall be
promptly refunded to Sony.
(b) For bugs Sony identifies in good faith as minor bugs, Sony will use its
reasonable commercial efforts to notify Licensor within three (3) working days
of its discovery of the defect. Licensor will use its reasonable commercial
efforts to communicate a resolution (fix or otherwise) to Sony within three (3)
calendar days after such notification. All resulting Software revisions will be
provided in Gold Master to Sony within five (5) working days of communication of
the resolution, and shall thereafter be included in the definition of "Program".
If the user impact of all unresolved "Should Fix" defects is significant, in
Sony's sole commercially reasonable discretion, the Program may be eliminated by
Sony from its bundling program and any prepaid or advanced royalties shall be
promptly refunded to Sony.
4.2 Upgrades. Licensor will deliver updates and upgrades of the Program and
Documentation to Sony no later than to other similarly situated customers and in
any case prior to release to Licensor's end user customers. Upgrades and
updates are to be provided free of charge, or in any event under the same terms
and conditions as made available to other similarly situated customers.
4.3 Versions. Licensor will offer new versions and features of the Program and
Documentation to Sony on substantially the same terms offered to other similarly
situated customers.
4.4 Versions for End Users. Licensor will provide upgrades, updates or new
versions or features of the Program and Documentation to Sony's end users on
substantially the same terms as those offered to customers buying the Program
and Documentation at retail.
4.5 End User Support. 1. Licensor must provide end user customer support.
Sony will refer customers to Licensor when there appears to be a problem related
to the Program. 2. Licensor will provide training on the Program to Sony
technical support personnel from time to time during the term of the Agreement
without charge. Licensor will provide at least two (2) days of on-site training
per year to Sony's technical support staff at Sony's designated continental
United States location. 3. Licensor will have a separate toll free number
available for technical support directly to Sony technical support personnel to
be available M-F 8-5 PST at no charge. 4. Licensor will have a separate toll
free number available for technical support directly end users to be available
M-F 8-5 PST at no charge. These support obligations will continue for at least
one (1) year following delivery of the Program to Sony.
5.0 REPRESENTATIONS AND WARRANTIES AND OTHER COVENANTS
5.1 Title and Authority. Licensor represents and warrants to Sony that it has
the right to grant to Sony the license and rights granted to it under this
Agreement; and, that the Program and the Documentation and any Licensor Web Site
linked to by Sony and Sony's exercise of such license and rights will not
infringe or misappropriate any third party's patents, trademarks, copyrights or
other proprietary, or intellectual property rights.
Page 3 of 15
<PAGE>
5.2 Content of Licensor Software. Licensor represents and warrants that
Licensor has obtained all necessary rights to third party intellectual property
contained in the Program, the Documentation and Licensor's Web Site, so that the
Program can function in accordance with normal use and visitors may utilize
Licensor's Web Site; to allow Sony to use, display and perform the Program and
Documentation and link to Licensor's Web Site; and, to use in Sony's marketing
material for its products, including the Sony personal computer product, any and
all images, sounds, or content contained in the Program or Documentation,
including all intellectual property rights contained therein.
5.3 No Encryption. The Program contains no encryption capabilities other than
password protection.
5.4 Program. Licensor represents that the Program and Documentation provided
to Sony is the full and complete version of the Program and Documentation sold
as a standalone product and described in applicable brochures.
5.5 Compliance. Licensor represents and warrants to Sony that it has obtained
all permits, approvals and licenses that apply to its delivery of the Program
and Documentation, and the license and rights it has granted to Sony and its
faithful observance and performance of its other obligations under the terms and
conditions of this Agreement.
5.6 Indemnification. Licensor shall defend, indemnify and hold Sony harmless
from and against all claims, suits, losses or damages (including court costs and
reasonable attorneys' and experts' fees) arising from or incident to its
misrepresentation of any representation or breach of any warranty made in
Sections 5.1, 5.2, 5.3, 5.4 and 5.5. This indemnification will survive the
termination of this Agreement.
5.7 Software Warranty. Licensor warrants to Sony that for a period of one (1)
year from the date of delivery of the Program and the Documentation, the Program
will perform substantially in accordance with the published specifications for
the Program, the Specifications, and the Documentation. Licensor further
warrants that the Program shall be Year 2000 Compliant, meaning that such
software shall accurately process date data (including, but not limited to,
calculating, comparing and sequencing) from, into, and between the twentieth and
twenty-first centuries, including leap year calculations, when used in
accordance with the Documentation. If the Program fails to perform in any way,
and Sony give Licensor notice to that effect, together with details about the
nature of the deficiency, Licensor will, at its own cost and expense, use its
best efforts to correct such deficiency within ten (10) working days. This
warranty does not cover any code of the Program which is modified in any manner
by Sony, its sublicensees or any of their customers.
5.8 Limitation of Liability. THE LIMITED WARRANTIES IN SECTION 5 ABOVE ARE THE
SOLE AND EXCLUSIVE WARRANTIES, IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, GIVEN BY LICENSOR INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES
OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. LICENSOR DOES NOT
WARRANT OR REPRESENT THAT THE PROGRAMS WILL BE ERROR FREE OR WILL OPERATE
WITHOUT INTERRUPTION.
THE LIABILITY OF EITHER PARTY TO THE OTHER UNDER ALL OF THE PROVISIONS OF
THIS AGREEMENT (OTHER THAN THE LIABILITY OF LICENSOR TO SONY UNDER SECTIONS 6.3
AND 6.4) SHALL BE LIMITED TO DIRECT DAMAGES AND, EXCEPT AS PROVIDED IN THIS
SECTION, SHALL NOT EXCEED THE AGGREGATE AMOUNT OF THE ROYALTIES PAID BY SONY TO
LICENSOR HEREUNDER. IN NO EVENT WILL EITHER PARTY BE RESPONSIBLE TO THE OTHER
FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
Page 4 of 15
<PAGE>
PROFITS) EVEN IF THE OTHER PARTY HAS PREVIOUSLY BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
5.9 Warranty Disclaimer Packaged with Software. Sony will include with its
shrink-wrap license to the end user Customer language substantially in the form
attached hereto as Exhibit D.
5.10 Nondiscrimination in Employment. Licensor shall not discriminate against
any employee, or application for employment, because of race, creed, color,
national origin, sex, age, Vietnam Veteran's status or physical or mental
disability in connection with its delivery of the Program and Documentation or
in its faithful observance and performance of its other obligations under the
terms and conditions of this Agreement. In addition, Licensor will comply with
all applicable federal, state and local laws and regulations pertaining to
wages, hours and other terms and conditions of employment.
6.0 ACKNOWLEDGEMENTS, PATENTS, COPYRIGHTS, AND OTHER PROPRIETARY RIGHTS;
INDEMNIFICATION
6.1 Copyright Notice. Sony shall not remove or alter any copyright notice
contained in the Master Disk for inclusion with each copy of the Program
replicated by Sony. A copy of such notice is set forth on Exhibit E hereto.
6.2 Use of Trademark. Licensor hereby grants Sony the right to use the name(s)
and logo(s) by which the Program is marketed in Sony's sales literature,
advertising, internet programs and documentation and packaging relating to the
marketing, sales and distribution of the products incorporating or utilizing the
Program.
6.3 Warranty As To Rights. Licensor represents and warrants to Sony that it
has obtained, by license or otherwise, all rights, covenants, authorizations and
permissions required by Licensor or other third parties to: 1) grant Sony the
right to use the names or trademarks as provided in Section 6.2 above; 2) grant
Sony the licenses provided in Section 3.0 hereof; 3) make all representations
and warranties provided to Sony in this Agreement; and 4) grant Sony all other
rights and licenses provided in this Agreement and to perform all of its other
obligations as provided in this Agreement.
6.4 Intellectual Property Indemnification. Licensor shall defend, indemnify
and hold Sony and the Sony Companies harmless from and against all claims,
suits, losses or damages (including court costs and reasonable attorneys' and
experts' fees and expenses) arising from or incident to alleged or actual
infringement or misappropriation of any third party's patent(s), copyright(s),
trademark(s), trade secret(s), or other intellectual property right(s) arising
out of or in any way connected with the Program, the Documentation, Licensor's
trademarks, Licensor's Web Site linked to by Sony, or any repair, replacement,
updates, modifications and bug fixes to same. This indemnification shall
survive the expiration or termination of this Agreement.
7.0 TERM AND TERMINATION
7.1 Term. This Agreement shall commence as of the Effective Date and shall
continue thereafter, unless sooner terminated as provided in Sections 7.2, 7.3
and 7.4, for twelve (12) months (the "Initial Term"). This Agreement shall
automatically renew (unless terminated as provided in Sections 7.2, 7.3 and
7.4), for successive twelve (12) month periods ("Additional Terms") unless
either party provides to the other party notice (in accordance with section 8)
of non-renewal at least thirty (30) days prior to the expiration of the Initial
Term or any Additional Term. Notwithstanding anything contained herein to the
contrary, any volume purchase or pre-
Page 5 of 15
<PAGE>
payment commitment or guarantee shall expire and terminate after the Initial
Term. All obligations expressly identified herein as having a limited period for
their observance and performance will expire upon the completion of such period.
7.2 Automatic Termination by Sony. This Agreement may be immediately
terminated by Sony giving Licensor notice to that effect upon the occurrence of
any of the following:
(a) Licensor engages directly or indirectly in any attempt to defraud
Sony; or
(b) Licensor misrepresents any of the representations or breaches any of
the warranties set forth in Sections 5.0 or 6.0; or,
(c) Licensor becomes insolvent or unable to pay any and/or all of its
debts as they mature in the ordinary course of its business; or, makes
an assignment for the benefit of its creditors; or, any proceedings
are commenced by, for or against it under any bankruptcy, insolvency
or debtors' relief law; or, it is liquidated or dissolved.
7.3 For Convenience. This Agreement may be terminated by Sony giving Licensor
thirty (30) days' prior notice to that effect.
7.4 For Cause. Except as may be provided in Section 7.2, upon either party's
failure to observe and perform its obligations under the terms and conditions of
this Agreement, the non-defaulting party may give the defaulting party notice to
that effect, and, if curable, the defaulting party shall then have thirty (30)
days to cure same. If such default is not cured within such period, then this
Agreement will terminate upon the non-defaulting party giving the defaulting
party further notice to that effect.
8.0 NOTICES
All notices and other communications required or permitted to be given under
this Agreement shall be in writing and will be delivered personally, or mailed
by registered or certified mail, return receipt requested, postage prepaid, or
by overnight courier or telex, telecopy or other form of rapid transmission,
confirmed by mailing as described above, addressed as follows:
If to Licensor: Softlink Inc.
2041 Mission College Blvd., Suite 259
Santa Clara, CA 95054
Attention: Johnson Lee
If to Sony: Sony Electronics Inc.
3300 Zanker Road
San Jose, California 95134-1940
Attention: Law Department
And
Sony Electronics Inc.
3300 Zander Road, M/S SJ1A5
San Jose, California 95134
Attention: Nancy Kusumoto
Any notice so addressed and delivered personally will be deemed given upon
receipt. Any notice so addressed and mailed shall be deemed given after deposit
in the United States mails, and if sent by rapid transmission followed promptly
by mailing, upon receipt of such transmission.
Page 6 of 15
<PAGE>
Either party may change its address by giving the other written notice to that
effect in the manner provided in this Section.
9.0 MISCELLANEOUS
9.1 Assignment. Except for Sony's right to sublicense and to permit third
party duplication of the Program and/or Documentation in accordance with this
Agreement, neither party shall assign or otherwise transfer this Agreement or
any interest herein or any right hereunder without the prior written consent of
the other, which consent will not be unreasonably delayed or withheld, except
that Sony may assign this Agreement to any of its parent companies or its or
their subsidiaries or affiliated companies without Licensor's consent by giving
Licensor notice to that effect. Any other purported assignment, transfer or
attempt to assign or transfer this Agreement by either party without such
consent will be deemed null, void and of no force or effect.
9.2 Change of Ownership. Licensor will inform Sony of a change of ownership of
more than twenty five (25%) percent of Licensor's stock ownership.
9.3 Waivers. Neither party's waiver of any default under this Agreement or
failure to enforce any term or condition hereof at any time shall in any way
affect, limit or waive such party's right thereafter to enforce and compel
strict compliance herewith and with every term and condition hereof.
9.4 Non-Exclusiveness. Any specific right or remedy provided in this Agreement
shall not be exclusive, but will be cumulative of all other rights and remedies
set forth herein or allowed by law.
9.5 Headings. The headings of Articles and Sections in this Agreement are for
convenience and reference only, and they shall in no way define, limit or
describe the scope thereof and will not be considered in the interpretation or
construction hereof.
9.6 Survival. Any term or condition of this Agreement which is specifically,
by its terms, intended to survive the expiration or earlier termination hereof
shall survive such expiration or termination and continue, thereafter, in full
force and effect.
9.7 Governing Law/Waiver of Jury Trial. This Agreement shall be interpreted,
construed and enforced in accordance with the local law of the State of
California, without reference to its conflicts of law. THE PARTIES HEREBY WAIVE
TRIAL BY JURY IN ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
9.8 Invalidity. The invalidity or unenforceability of any term or condition of
this Agreement shall not effect the other terms and conditions, and such invalid
or unenforceable term or condition will, in all events, be interpreted,
construed and enforced to the fullest extent allowed by law.
9.9 Confidentiality. Except as provided below, each party acknowledges that all
information furnished or disclosed by the other party that is either marked
"confidential", "proprietary", or with a similar legend, or if not so marked, is
identified as confidential at the time of disclosure and confirmed in writing
within ten (10) days thereafter, and all software, is "Confidential Information"
of the disclosing party. The receiving party agrees that it will not permit the
duplication, use or disclosure of any such Confidential Information to any third
party (other than employees, agents or contractors of it or its affiliates who
agree in writing to maintain the confidentiality of the Confidential Information
in accordance with the terms of this Agreement). The receiving party shall take
appropriate action, by instruction, agreement or otherwise, with any person
permitted access to the Confidential Information so as to enable it to satisfy
its obligations hereunder. "Confidential Information" shall not include any
information which: (i) at
Page 7 of 15
<PAGE>
the time of the disclosure is in the public domain; (ii) after disclosure is
published or otherwise becomes part of the public domain through no fault of the
receiving party; (iii) the receiving party can document already was in its
possession at the time of the disclosure hereunder or which rightfully comes
into its possession from a third party source.
9.10 Entirety of Agreement. This Agreement supersedes, terminates an otherwise
renders null and void any and all prior agreements or understanding entered into
between the parties with respect to the subject matter hereof. This Agreement
represents and incorporates the entire understanding of the parties with respect
to such subject matter, and each party acknowledges that there are no
warranties, representations, covenants or understandings of any kind, nature or
description whatsoever made by either to the other, except those expressly set
forth herein and therein. This Agreement may be modified only by a written
instrument signed by the parties which states that it is an amendment hereto.
IN WITNESS WHEREOF, the parties have signed and delivered this Agreement as of
the date first above written.
INFORMATION TECHNOLOGIES
DIVISION, A DIVISION OF
SONY ELECTRONICS INC. SOFTLINK INC.
By: /s/ Ed Sheehan By: /s/ William Yuan
--------------------------------------- ------------------------
Print Name: Ed Sheehan Print Name: William Yuan
------------------------------- -----------------
Title: Vice President Information Title: President
------------------------------------ ----------------------
Technology Division Engineering &
------------------------------------
Manufacturing Sony Electronics, Inc.
------------------------------------
Page 8 of 15
<PAGE>
EXHIBIT A
---------
PROGRAM AND SPECIFICATIONS
The Program(s) consists of: inChorus, version 3.0.
The Specifications shall conform to the functionality and performance parameters
documented in the most current User Manual for inChorus.
Page 9 of 15
<PAGE>
EXHIBIT B
---------
ROYALTIES
Sony shall pay to Licensor a royalty for the Program of $0.20 U.S. per unit.
Royalty payments will be made by Sony to Licensor on a quarterly basis.
Royalties will be calculated based upon the number of copies replicated by Sony
and shipped by or for Sony to an end user customer or reseller with or for a
Hardware Product. No royalties shall be due for copies of the Program made for
testing or demonstration purposes.
There will be no downstream revenue sharing for the Program under this
Agreement.
All royalty payments hereunder shall be made within thirty (30) days from the
end of the quarter to which they relate, and shall be made in U.S. dollars,
without any deduction for taxes, currency export charges, wire transfer or other
fees of any kind. Sony will maintain complete records, during and for one (1)
year after the termination or expiration of this Agreement (or as may otherwise
be required by applicable law), regarding the distribution and sublicensing of
the Programs. Within thirty (30) days after the close of each fiscal quarter of
Sony, Sony will deliver to Licensor a report which will provide all information
reasonably necessary for computation and confirmation of the royalty payments,
if any, due or credited to Licensor for such quarterly period. An independent
certified public accountant selected by Licensor and approved in writing by Sony
(which approval shall not be unreasonably withheld), may, upon reasonable notice
and during normal business hours, inspect the records of Sony on which such
reports are based. The audit, and all information and reports obtained
therefrom, shall be subject to the confidentiality obligations provided in
section 9.9 of this Agreement. If, upon performing such audit, it is determined
that Sony has underpaid Licensor by an amount greater than five percent (5%) of
the payments due Licensor in the period being audited, Sony will bear all
reasonable expenses and costs of such audit in addition to its obligation to
make full payment of such underpayment.
Page 10 of 15
<PAGE>
EXHIBIT C
---------
UPGRADES AND SUPPORT
In addition to its warranty obligations under Section 5.7 of the Agreement,
Licensor will make all upgrades and enhancements to the Programs beyond those
specified in Exhibit A, and other Programs available to Sony at the best
wholesale price offered by Licensor to its distributors or resellers, or at no
charge if offered for no charge to Licensor's distributors or resellers.
Any other support requested by Sony will be provided at Licensor's then-
prevailing time-and-materials rate for licensees paying similar royalty rates to
Licensor.
Page 11 of 15
<PAGE>
EXHIBIT D
---------
END-USER LICENSE AGREEMENT FOR SONY SOFTWARE
IMPORTANT-READ CAREFULLY: This End-User License Agreement ("License") is a
legal agreement between you and Sony Electronics Inc. ("SONY"), the manufacturer
of your computer system ("COMPUTER"). All Sony software and third party
software (other than software provided by Microsoft Corporation) shall be
referred to herein as the SONY SOFTWARE. This License covers only the SONY
SOFTWARE . The SONY SOFTWARE includes computer software, the associated media,
any printed materials, and any "on-line" or electronic documentation. All
software provided by Microsoft Corporation is covered by a separate End User
License Agreement. You may use the SONY SOFTWARE only in connection with the
use of the COMPUTER. By installing, copying or otherwise using the SONY
SOFTWARE, you agree to be bound by the terms of this License. If you do not
agree to the terms of this License, SONY is unwilling to license the SONY
SOFTWARE to you. In such event, you may not use or copy the SONY SOFTWARE ,
and you should promptly contact SONY for instructions on return of the unused
product(s) for a refund of the purchase price of the COMPUTER allocable to the
SONY SOFTWARE.
COPYRIGHT. All title and copyrights in and to the SONY SOFTWARE (including but
not limited to any images, photographs, animation, video, audio, music, text and
"applets," incorporated into the SONY SOFTWARE), and any copies of the SONY
SOFTWARE, are owned by SONY or its suppliers. All rights not specifically
granted under this License are reserved by SONY.
HIGH RISK ACTIVITIES. The SONY SOFTWARE is not fault-tolerant and is not
designed, manufactured or intended for use or resale as on-line control
equipment in hazardous environments requiring fail-safe performance, such as in
the operation of nuclear facilities, aircraft navigation or communication
systems, air traffic control, direct life support machines, or weapons systems,
in which the failure of the SONY SOFTWARE could lead directly to death, personal
injury, or severe physical or environmental damage ("High Risk Activities").
SONY and its suppliers specifically disclaim any express or implied warranty of
fitness for High Risk Activities.
PROHIBITION ON EXPORT. EXCEPT FOR EXPORT TO CANADA FOR USE IN CANADA BY
CANADIAN CITIZENS, THE SONY SOFTWARE AND ANY UNDERLYING TECHNOLOGY MAY NOT BE
EXPORTED OUTSIDE THE UNITED STATES OR TO ANY FOREIGN ENTITY OR "FOREIGN PERSON"
AS DEFINED BY U.S. GOVERNMENT REGULATIONS, INCLUDING WITHOUT LIMITATION, ANYONE
WHO IS NOT A CITIZEN, NATIONAL OR LAWFUL PERMANENT RESIDENT OF THE UNITED
STATES. BY DOWNLOADING OR USING THE SONY SOFTWARE, YOU ARE AGREEING TO THE
FOREGOING AND YOU ARE WARRANTING THAT YOU ARE NOT A "FOREIGN PERSON" OR UNDER
THE CONTROL OF A FOREIGN PERSON.
U.S. GOVERNMENT RESTRICTED RIGHTS. THE SOFTWARE PRODUCT and documentation are
provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the United
States Government is subject to restrictions as set forth in subparagraph (c)(1)
and (2) of the Commercial Computer Software-Restricted Rights at 48 CFR 52.227-
19, as applicable. Manufacturer is Sony Electronics Inc., One Sony Drive, Park
Ridge, New Jersey 07656.
<PAGE>
LIMITED WARRANTY
LIMITED WARRANTY ON CD-ROM MEDIA. SONY warrants that for a period of ninety
(90) days from the date of its delivery to you the CD-ROM media on which the
back-up copy of the SONY SOFTWARE is furnished to you will be free from defects
in materials and workmanship under normal use. This limited warranty extends
only to you as the original licensee. SONY's entire liability and your
exclusive remedy will be replacement of the CD-ROM media not meeting SONY's
limited warranty and which is returned to SONY with proof of purchase in the
form of a bill of sale (which is evidence that the CD-ROM media is within the
warranty period). SONY will have no responsibility to replace a disk damaged by
accident, abuse or misapplication. ANY IMPLIED WARRANTIES ON THE CD-ROM MEDIA,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, ARE LIMITED IN DURATION TO NINETY (90) DAYS FROM THE DATE OF DELIVERY.
SOME STATES DO NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS, SO
THESE LIMITATIONS MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL
RIGHTS, AND YOU MAY ALSO HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE.
EXCLUSION OF WARRANTY ON SONY SOFTWARE. You expressly acknowledge and agree
that use of the SONY SOFTWARE is at your sole risk. The SONY SOFTWARE is
provided "AS IS" and without warranty of any kind and SONY and SONY's licensors
(hereinafter, SONY and SONY's licensors shall be collectively referred to as
"SONY") EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. SONY DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE
SONY SOFTWARE WILL MEET YOUR REQUIREMENTS, OR THAT THE OPERATION OF THE SONY
SOFTWARE WILL BE CORRECTED. FURTHERMORE, SONY DOES NOT WARRANT OR MAKE ANY
REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE OF THE SONY SOFTWARE
IN TERMS OF ITS CORRECTNESS, ACCURACY, RELIABILITY, OR OTHERWISE. NO ORAL OR
WRITTEN INFORMATION OR ADVICE GIVEN BY SONY OR A SONY AUTHORIZED REPRESENTATIVE
SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY.
SHOULD THE SONY SOFTWARE PROVE DEFECTIVE. YOU (AND NOT SONY OR A SONY AUTHORIZED
REPRESENTATIVE) ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR
CORRECTION. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED
WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
LIMITATION OF LIABILITY
HEREINAFTER, SONY AND SONY'S LICENSOR'S SHALL BE COLLECTIVELY REFERRED TO AS
"SONY." SONY SHALL NOT BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
FOR BREACH OF ANY EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR ANY OTHER LEGAL THEORY RELATED TO THIS PRODUCT. SUCH
DAMAGES INCLUDE, BUT ARE NOT LIMITED TO , LOSS OF PROFITS, LOSS OF REVENUE, LOSS
OF DATA, LOSS OF USE OF THE PRODUCT OR ANY ASSOCIATED EQUIPMENT, DOWN TIME AND
PURCHASER'S TIME, EVEN IF SONY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN ANY CASE, SONY'S ENTIRE LIABILITY UNDER ANY PROVISION OF THIS
AGREEMENT SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID BY YOU ALLOCABLE TO THE
SONY SOFTWARE. SOME STATES
<PAGE>
DO NOT ALLOW THE EXCLUSION OR LIMITATION OF CONSEQUENTIAL OR INCIDENTAL DAMAGES,
SO THE ABOVE EXCLUSION OR LIMITATION MAY NOT APPLY TO YOU.
Should you have any questions concerning this license or this limited warranty,
you may contact SONY by writing to SONY at Sony Technical Response Center, 12451
Gateway Boulevard, Fort Myers, Florida 33913.
<PAGE>
EXHIBIT E
---------
COPYRIGHT NOTICE
[TO BE PROVIDED BY LICENSOR]
<PAGE>
EXHIBIT 10.11
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
SOFTLINK, INC.
WARRANT
-------
Dated: August 17, 1999
SoftLink, Inc., a Nevada corporation (the "Company"), hereby certifies
that, for value received, Deephaven Private Placement Trading Ltd. or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company 120,000 shares of common stock, $.001 par
value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $2.43756 per share (as adjusted from time to time as provided in
Section 9, the "Exercise Price"), at any time and from time to time from and
after the date hereof and through and including August 17, 2004 (the "Expiration
Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached
<PAGE>
hereto duly completed and signed, to the Company at the office specified in or
pursuant to Section 12. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a holder of a Warrant. No assignment or transfer of this Warrant
shall be deemed effective until the Form of Assignment is submitted to the
Company at the address specified in Section 12.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of the original issuance of this Warrant and not
the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 6:30 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
6:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except as required under Section
3.1(b) of the Purchase Agreement. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
4. Piggyback Registration Rights. During the Effectiveness Period
-----------------------------
(as defined in the Registration Rights Agreement, of even date herewith, between
the Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares by the Holder (the "Underlying Shares Registration
Statement"), unless the Company provides the Holder with not less than 20 days
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in connection
therewith.
5. Certain Exercise Restrictions.
-----------------------------
(a) The Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon exercise
of this Warrant after application of this Section. The Holder shall have the
sole authority and obligation to determine whether and to which Warrant Shares
the restriction contained in this Section applies. The provisions of this
Section may be waived by the Holder upon not less than 61 days prior notice to
the Company.
(b) The Holder may not to exercise this Warrant to the extent
such exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 9.999% of the then issued
and outstanding Common Stock, including shares issuable upon exercise of this
Warrant after application of this Section. The Holder shall have the sole
authority and obligation to determine whether and to which Warrant Shares the
restriction contained in this Section applies. The provisions of this Section
may be waived by the Holder upon not less than 61 days prior notice to the
Company.
6. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
-3-
<PAGE>
7. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
-4-
<PAGE>
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If at any time prior to the 180/th/ day after the date that
the Commission declares effective an Underlying Shares Registration Statement
(which 180 day period shall be increased on a day to day basis for each day
after the date the Commission declares effective such Underlying Shares
Registration Statement that a Holder is unable to resell Warrant Shares
thereunder due to (a) the Common Stock not being quoted or listed for trading on
the OTC or any Subsequent Market (as the case may be), (b) the failure of such
Underlying Shares Registration Statement to remain effective during the entire
180 day period as to all Warrant Shares or (c) the suspension of a Holder's
right to resell Warrant Shares under such Underlying Shares Registration
Statement) the Company or any subsidiary thereof, as applicable with respect to
Common Stock Equivalents (as defined below), shall issue shares of Common Stock
or rights, warrants, options or other securities or debt that is convertible
into or exchangeable for shares of Common Stock ("Common Stock Equivalents"),
-------------------------
entitling any person or entity to acquire shares of Common Stock at a price per
share less than both the market price of the Common Stock at the time of
issuance and the Exercise Price then in effect (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, receive or have the right to acquire
Common Stock at a
-5-
<PAGE>
price less than the Exercise Price or market price of the Common Stock at the
time of the issuance of the originally issued Common Stock or Common Stock
Equivalent, then such issuance shall be deemed to have occurred for less than
such Exercise Price or market price), then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance, and
(ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in full of such
Common Stock Equivalents) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. For purposes hereof, all shares of
Common Stock that are issuable upon conversion, exercise or exchange of Common
Stock Equivalents shall be deemed outstanding immediately after the issuance of
such Common Stock Equivalents. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. However, upon the
expiration of any Common Stock Equivalents the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this Section, if any such Common
Stock Equivalents shall expire and shall not have been exercised, the Exercise
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Exercise Price made pursuant
to the provisions of this Section after the issuance of such Common Stock
Equivalents) had the adjustment of the Exercise Price made upon the issuance of
such Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such Common Stock Equivalents actually exercised.
Notwithstanding anything herein to the contrary, no adjustment to the Conversion
Price shall be made with respect to Common Stock or Common Stock Equivalents (1)
issuable or issued to employees, consultants or directors of the Company
directly or pursuant to a stock option plan or restricted stock plan approved by
the Board of Directors of the Company, (2) issuable upon exercise of warrants
outstanding as of the date hereof, and (3) issued or issuable upon conversion of
the Company's Series A Convertible Preferred Stock, par value $.001 per share.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
-----------
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, 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 the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
-6-
<PAGE>
(ii) 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 Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to Section
9(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(h) If (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; (iii) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be mailed to each Holder at their last addresses as they
shall appear upon the Warrant Register, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in one of the following manners:
-7-
<PAGE>
(a) Cash Exercise. The Holder may deliver immediately available
-------------
funds; or
(b) Cashless Exercise. At the option of the Company, the
-----------------
Holder may surrender this Warrant to the Company together with a notice of
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the original issue date of this Warrant.
11. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
to 2041 Mission College Blvd., Suite 259,
-8-
<PAGE>
Santa Clara, CA 95054 Attention: Chief Executive Officer, or to Facsimile No.
(408) 496-6110, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 12.
13. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
-9-
<PAGE>
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK,
SIGNATURE PAGES FOLLOWS]
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
SOFTLINK, INC.
By: /s/ William Yuan
----------------------------------
Name: William Yuan
--------------------------------
Title: President
-------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SoftLink, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock of SoftLink, Inc (the "Common Stock") and , if such
Holder is not utilizing the cashless exercise provisions set forth in this
Warrant, encloses herewith $________ in cash, certified or official bank check
or checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) for the number of shares of Common Stock to which this Form of Election
to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________________
____________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:______, _____ Name of Holder:
(Print)_____________________________________
(By:)_______________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of SoftLink, Inc to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of SoftLink, Inc with full power of
substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXHIBIT 10.12
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
SOFTLINK, INC.
WARRANT
-------
Dated: August 17, 1999
SoftLink, Inc., a Nevada corporation (the "Company"), hereby certifies
that, for value received, Hornblower Investors LLC or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company 120,000 shares of common stock, $.001 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $2.43756 per share
(as adjusted from time to time as provided in Section 9, the "Exercise Price"),
at any time and from time to time from and after the date hereof and through and
including August 17, 2004 (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached
<PAGE>
hereto duly completed and signed, to the Company at the office specified in or
pursuant to Section 12. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a holder of a Warrant. No assignment or transfer of this Warrant
shall be deemed effective until the Form of Assignment is submitted to the
Company at the address specified in Section 12.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of the original issuance of this Warrant and not
the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 6:30 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
6:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except as required under Section
3.1(b) of the Purchase Agreement. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
4. Piggyback Registration Rights. During the Effectiveness Period
-----------------------------
(as defined in the Registration Rights Agreement, of even date herewith, between
the Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares by the Holder (the "Underlying Shares Registration
Statement"), unless the Company provides the Holder with not less than 20 days
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in connection
therewith.
5. Certain Exercise Restrictions.
-----------------------------
(a) The Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon exercise
of this Warrant after application of this Section. The Holder shall have the
sole authority and obligation to determine whether and to which Warrant Shares
the restriction contained in this Section applies. The provisions of this
Section may be waived by the Holder upon not less than 61 days prior notice to
the Company.
(b) The Holder may not to exercise this Warrant to the extent
such exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 9.999% of the then issued
and outstanding Common Stock, including shares issuable upon exercise of this
Warrant after application of this Section. The Holder shall have the sole
authority and obligation to determine whether and to which Warrant Shares the
restriction contained in this Section applies. The provisions of this Section
may be waived by the Holder upon not less than 61 days prior notice to the
Company.
6. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
-3-
<PAGE>
7. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
-4-
<PAGE>
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If at any time prior to the 180/th/ day after the date that
the Commission declares effective an Underlying Shares Registration Statement
(which 180 day period shall be increased on a day to day basis for each day
after the date the Commission declares effective such Underlying Shares
Registration Statement that a Holder is unable to resell Warrant Shares
thereunder due to (a) the Common Stock not being quoted or listed for trading on
the OTC or any Subsequent Market (as the case may be), (b) the failure of such
Underlying Shares Registration Statement to remain effective during the entire
180 day period as to all Warrant Shares or (c) the suspension of a Holder's
right to resell Warrant Shares under such Underlying Shares Registration
Statement) the Company or any subsidiary thereof, as applicable with respect to
Common Stock Equivalents (as defined below), shall issue shares of Common Stock
or rights, warrants, options or other securities or debt that is convertible
into or exchangeable for shares of Common Stock ("Common Stock Equivalents"),
-------------------------
any person or entity to acquire shares of Common Stock at a price per share less
entitling than both the market price of the Common Stock at the time of issuance
and the Exercise Price then in effect (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance, receive or have the right to acquire Common Stock
at a
-5-
<PAGE>
price less than the Exercise Price or market price of the Common Stock at the
time of the issuance of the originally issued Common Stock or Common Stock
Equivalent, then such issuance shall be deemed to have occurred for less than
such Exercise Price or market price), then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance, and
(ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in full of such
Common Stock Equivalents) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. For purposes hereof, all shares of
Common Stock that are issuable upon conversion, exercise or exchange of Common
Stock Equivalents shall be deemed outstanding immediately after the issuance of
such Common Stock Equivalents. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. However, upon the
expiration of any Common Stock Equivalents the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this Section, if any such Common
Stock Equivalents shall expire and shall not have been exercised, the Exercise
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Exercise Price made pursuant
to the provisions of this Section after the issuance of such Common Stock
Equivalents) had the adjustment of the Exercise Price made upon the issuance of
such Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such Common Stock Equivalents actually exercised.
Notwithstanding anything herein to the contrary, no adjustment to the Conversion
Price shall be made with respect to Common Stock or Common Stock Equivalents (1)
issuable or issued to employees, consultants or directors of the Company
directly or pursuant to a stock option plan or restricted stock plan approved by
the Board of Directors of the Company, (2) issuable upon exercise of warrants
outstanding as of the date hereof, and (3) issued or issuable upon conversion of
the Company's Series A Convertible Preferred Stock, par value $.001 per share.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
-----------
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, 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 the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
-6-
<PAGE>
(ii) 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 Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to Section
9(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(h) If (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; (iii) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be mailed to each Holder at their last addresses as they
shall appear upon the Warrant Register, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in one of the following manners:
-7-
<PAGE>
(a) Cash Exercise. The Holder may deliver immediately available
-------------
funds; or
(b) Cashless Exercise. At the option of the Company, the
-----------------
Holder may surrender this Warrant to the Company together with a notice of
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the original issue date of this Warrant.
11. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
to 2041 Mission College Blvd., Suite 259,
-8-
<PAGE>
Santa Clara, CA 95054 Attention: Chief Executive Officer, or to Facsimile No.
(408) 496-6110, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 12.
13. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
-9-
<PAGE>
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGES FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
SOFTLINK, INC.
By: /s/ William Yuan
---------------------------------
Name: William Yuan
-------------------------------
Title: President
------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SoftLink, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock of SoftLink, Inc (the "Common Stock") and , if such
Holder is not utilizing the cashless exercise provisions set forth in this
Warrant, encloses herewith $________ in cash, certified or official bank check
or checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) for the number of shares of Common Stock to which this Form of Election
to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
____________________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:____, _____ Name of Holder:
(Print)____________________________________
(By:)______________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of SoftLink, Inc to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of SoftLink, Inc with full power of
substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXHIBIT 10.13
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of August 17, 1999, among SoftLink, Inc., a Nevada corporation
(the "Company"), and the investors signatory hereto on the date of this
-------
Agreement (each such investor is a "Purchaser" and all such investors are,
---------
collectively, the "Purchasers").
----------
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
------------------
The Company and the Purchasers hereby agree as follows:
1. Definitions
-----------
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 6(f).
------
"Affiliate" means, with respect to any Person, any other Person
---------
that directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "control," when used
-------
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
---------- ----------- ----------
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
------------
which shall be a legal holiday or a day on which banking institutions in the
state of New York or the state of California generally are authorized or
required by law or other government actions to close.
"Closing Date" means August 17, 1999.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $.001
------------
per share, or such securities that such stock shall hereafter be reclassified
into.
"Effectiveness Date" means the 120/th/ day following the Closing
------------------
Date.
"Effectiveness Period" shall have the meaning set forth in Section
--------------------
2(a).
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
"Filing Date" means the 30/th/ day following the Closing Date.
-----------
"Holder" or "Holders" means the holder or holders, as the case may be,
----- -------
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
-----------------
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
------------------
"Losses" shall have the meaning set forth in Section 5(a).
------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's Series A Convertible Preferred
---------------
Stock issued to the Purchasers in accordance with the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable (i)
----------------------
upon conversion in full of the Preferred Stock, (ii) upon payment of dividends
on the Preferred Stock and (iii) upon exercise of the Warrants.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
-2-
<PAGE>
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Special Counsel" means one special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the Common Stock purchase warrants issued to the
--------
Purchasers pursuant to the Purchase Agreement.
2. Shelf Registration
------------------
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a shelf Registration Statement covering the number of
Registrable Securities contemplated by Section 2(b) for an offering to be made
on a continuous basis pursuant to Rule 415. The Registration Statement shall be
on Form SB-2 (or on another appropriate form in the event that the Company is
not eligible to file a Registration Statement on Form SB-2 for the resale of the
Registrable Securities). In the event that the Company becomes eligible to file
a Registration Statement on Form S-3, the Registration Statement on Form SB-2
shall be promptly converted to Form S-3 Registration Statement. The Company
shall use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and shall use its
best efforts to keep such Registration Statement continuously effective under
the Securities Act until the date which is three years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period"), provided, however, that the
-------------------- -------- -------
Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement
-3-
<PAGE>
during the Effectiveness Period, unless such action is required under applicable
law or the Company has filed a post-effective amendment to the Registration
Statement and the Commission has not declared it effective.
(b) In order to account for the fact that the number of shares of
Common Stock issuable upon conversion of the Preferred Stock (and as payment of
dividend thereon) is determined in part upon the market price of the Common
Stock prior to the time of conversion, the initial Registration Statement
required to be filed hereunder shall include (but not be limited to) a number of
shares of Common Stock equal to no less than the sum of (i) the number of shares
of Common Stock into which the Preferred Stock, together with the payment of
dividends thereon (assuming all dividends are paid in shares of Common Stock and
that the Preferred Stock remain outstanding for three years), are convertible,
assuming such conversion occurred on the Closing Date and the Conversion Price
is [$1.00] and (ii) the number of shares of Common Stock issuable upon exercise
in full of the Warrants. When initially filed, such initial Registration
Statement shall cause [3,870,000] shares of Common Stock to be registered for
the benefit of the Holders.
(c) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro-rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(d) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the 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 arrangements.
3. Registration Procedures
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on the form contemplated by Section 2(a) which
Registration Statement shall contain (except if otherwise directed by the
Holders) the "Plan of Distribution" attached hereto as Annex A, and cause the
-------
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than three (3) Business Days prior to
-------- -------
the filing of the
-4-
<PAGE>
Registration Statement or any related Prospectus or any amendment or supplement
thereto (other than any supplement required to be filed in accordance with
Section 3(c)(ii), which need only be furnished for review two (2) Business Days
prior to filing), the Company shall, (i) furnish to the Holders, their Special
Counsel and any managing underwriters, copies of all such documents proposed to
be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, their
Special Counsel and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Holders shall
provide any comments or objections to any proposed filings by the expiration of
the third Business Day after actual receipt of the materials provided for their
review. For each Business Day after such third Business Day during which a
failure to provide such comments (which may be provided orally or in writing)
exists one day shall be added to each of the Filing Date and Effectiveness Date
for all purposes hereof. The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities, their Special Counsel, or
any managing underwriters, shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as reasonably possible, and in any event within twenty (20)
days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) (i) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement. The Company shall have 30
days to file such additional Registration Statements after such requirement
notice of which may be given by the Holders). In such event, the Registration
Statement required to be filed by the Company shall include a number of shares
of Common Stock equal to no less than the number of shares of Common Stock into
which all then outstanding shares of Preferred Stock are convertible (assuming
such conversion occurred on the Filing Date for such Registration Statement or
the date of the filing of the final acceleration request therefor, whichever
-5-
<PAGE>
date yields a lower Conversion Price) less the shares covered by the prior
Registration Statement and any other Registrable Securities not then registered
in a Registration Statement.
(ii) File such supplements or "stickers" to the Registration
Statement or Prospectus as and when required by the Commission to evidence a
material amount of resales by a Holder pursuant to a Prospectus. In connection
therewith, if such supplements or such "stickers" are periodically required by
the Commission, the Company shall, within four (4) Business Days, file such
supplements or such "stickers" whenever a Holder has sold 50% of the Registrable
Securities covered by the then outstanding Prospectus (as last supplemented or
"stickered") in order to cover 100% of the number of the outstanding Registrable
Securities.
(d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than five (5) Business Days (or, in
the case of a supplement or "sticker" required to be filed pursuant to Section
3(c)(ii), within one Business Day) prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders, which the
Holders shall keep confidential); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event or passage of time that makes the financial statements
included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
-6-
<PAGE>
(f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
-------- -------
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company, violate applicable law or be
materially detrimental to the business prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including, if requested, financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
-------- -------
generally to do business in any jurisdiction where it is not then so qualified
or subject the Company to any material tax in any such jurisdiction where it is
not then so subject.
(k) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall comply with the requirements of
the Certificate of Designation and Warrants, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
managing underwriters or Holders may request.
-7-
<PAGE>
(k) Upon the occurrence of any event contemplated by Section 6(e), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(l) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board or on any
other stock market or trading facility on which the shares of Common Stock are
traded, listed or quoted (each a "Subsequent Market") as and when required
-----------------
pursuant to the Purchase Agreement.
(m) Enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings (subject to the scheduling of appropriate
exceptions to insure such representations and warranties are accurate), and
confirm the same if and when requested; (ii) in the case of an Underwritten
Offering obtain and deliver copies thereof to each Holder and the managing
underwriters, if any, of opinions of counsel to the Company and updates thereof
addressed to each Holder and each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special Counsel to
the selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior to
the effectiveness of the Registration Statement, and, in the case of an
Underwritten Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, use its best reasonable efforts to obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to the Company in form
and substance as are customary in connection with Underwritten Offerings; (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or such
other provisions and procedures acceptable to the managing underwriters, if any,
and holders of a majority of Registrable Securities participating in such
Underwritten Offering); and (v) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to Section 3(m)(i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
-8-
<PAGE>
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
-------- -------
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(o) Comply with all applicable rules and regulations of the
Commission.
(p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
(q) If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
(r) Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(h) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(d) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
-9-
<PAGE>
4. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the OTC Bulletin Board and
any Subsequent Market on which the Common Stock is then listed for trading, and
(B) in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, and there shall be at such time an effective Registration
Statement covering all of the Registrable Securities pursuant to which the
Holders are both named Selling Security holders thereunder and permitted to
utilize the Prospectus thereunder to resell such Registrable Securities held by
them, then the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants. By way of illustration which is not intended to diminish from
the provisions of Section 4(a), the Holders shall not be responsible for, and
the Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof. If the Holders require an Underwritten Offering at a time
when all of the circumstances specified in the opening clause to the first
sentence of this Section 4(b) are present, then such Holders shall bear all
costs associated with such Underwritten Offering, including those costs
specified in Section 4(a) above.
-10-
<PAGE>
5. Indemnification
---------------
(a) Indemnification by the Company. The Company shall,
------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
------
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(f) or (3) such Holder fails
to comply with its prospectus delivery requirements in connection with the sale
giving rise to such Loss and such delivery would have avoided such Loss. The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
--------------------------
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such
-11-
<PAGE>
Prospectus or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus, or in
any amendment or supplement thereto, or to the extent such loss was directly
caused by the Holder's failure to comply with its prospectus delivery
requirements in connection with the sale giving rise to such Loss and such
delivery would have avoided such Loss. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
--------------------------------------
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party
-12-
<PAGE>
(regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder; provided, that the Indemnifying Party
--------
may require such Indemnified Party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such Indemnified
Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
------------
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation
-13-
<PAGE>
for any losses incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
--------------------------
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(b) hereto, neither the
-------------
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
-----------------------------
specified in Schedule 6(b) hereto, neither the Company nor any of its security
-------------
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when there is not an
------------------------
effective Registration Statement covering all of the Registrable Securities and
the Underlying Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
-------- -------
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission.
(e) Prospectus Delivery Requirements. Each Holder covenants and
--------------------------------
agrees that (i) it will not sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(h) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(d) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to any of them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
-14-
<PAGE>
(f) Discontinued Disposition. Each Holder agrees by its acquisition
------------------------
of such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
------
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(g) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
-------- -------
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: SoftLink, Inc.
2041 Mission College Blvd., Suite 259
Santa Clara, CA 95054
Facsimile No.: (408) 496-6110
Attn: Chief Financial Officer
With copies to: Silicon Valley Law Group
152 North Third Street, Suite 900
San Jose, CA 95112
Facsimile No: (408) 286-1400
Attn: James C. Chapman
-15-
<PAGE>
If to a Purchaser: To the address set forth under such Purchaser's name
on the signature pages hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(i) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(j) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. All questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(l) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall
-16-
<PAGE>
use their reasonable efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(o) Shares Held by The Company and its Affiliates. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(p) Attorney Fees. In the event any legal action is brought by a
-------------
party hereto to enforce its rights under this Agreement, the prevailing party
shall be entitled to recover in addition to any other relief to which it is
entitled, its reasonable attorneys fees and cost of suit.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SOFTLINK, INC.
By: /s/ William Yuan
--------------------------
Name: William Yuan
Title: President
<PAGE>
DEEPHAVEN PRIVATE PLACEMENT TRADING LTD.
By: /s/ Gary Sebczah
--------------------------
Name: Gary Sebczah
Title: CFO
Address for Notice:
Deephaven Private Placement Trading Ltd.
c/o Deephaven Capital Management LLC
1112 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
<PAGE>
HORNBLOWER INVESTORS LLC
By: /s/ [ILLEGIBLE]
---------------------------
Name:
Title:
Address for Notice:
Hornblower Investors LLC
c/o WEC Asset Management LLC
One World Trade Center
Suite 4563
New York, New York 10048
Facsimile No.: (212) 775-9311
Attn: Ethan Benovitz
With copies to:
Rosenman & Colin, LLP
575 Madison Avenue
New York, New York 10022
Facsimile No.: (212) 940-8776
Attn: Herman Shtern, Esq.
Elliot Press, Esq.
-20-
<PAGE>
Annex A
-------
PLAN OF DISTRIBUTION
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
. an exchange distribution in accordance with the rules of the applicable
exchange;
. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser)
<PAGE>
in amounts to be negotiated. The Selling Stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
<PAGE>
EXHIBIT 10.14
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
SOFTLINK, INC.
and
THE INVESTORS SIGNATORY HERETO
August 17, 1999
================================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as
---------
of August 17, 1999, between SoftLink Inc, a Nevada corporation (the "Company"),
-------
and the investors signatory hereto on the date of this Agreement (each such
investor is a "Purchaser" and all such investors are, collectively, the
---------
"Purchasers").
----------
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers,
severally and not jointly, desire to purchase from the Company, shares of the
Company's Series A Convertible Preferred Stock, par value $.001 per share (the
"Preferred Stock"), which are convertible into shares of the Company's common
---------------
stock, par value $.001 per share (the "Common Stock").
------------
IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy are hereby
acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
-----------
(a) The Closing. Subject to the terms and conditions set forth in
-----------
this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall, severally and not jointly, purchase 300 shares of Preferred
Stock (the "Shares") for an aggregate purchase price of $3,000,000. The closing
------
of the purchase and sale of the Shares (the "Closing") shall take place at the
-------
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
--------
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
- ---------
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date." The
------------
Closing may also take place electronically via the exchange of facsimile
signature pages of all documents followed by transmittal of the originals by
overnight mail
(ii) Prior to the Closing Date, the parties shall deliver or
shall cause to be delivered the following: (A) the Company shall deliver to each
Purchaser (1) stock certificates representing a number of Shares equal to the
quotient obtained by dividing the purchase price indicated below such
Purchaser's name on the signature page to this Agreement by 10,000, registered
in the name of such Purchaser, (2) a Common Stock purchase warrant, in the form
of Exhibit D, pursuant to which such Purchaser shall have the right to purchase
---------
the number of shares of Common Stock indicated below such Purchaser's name on
the signature page to this Agreement, registered in the name of such Purchaser
(collectively, the "Warrants"), (3) the legal opinion of Silicon Valley Law
--------
Group, outside counsel to the Company, substantially in the form of Exhibit C,
---------
and (4) all other documents, instruments and writings required to have been
delivered at or prior to the Closing Date by the Company pursuant to this
Agreement, including an executed Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B (the
---------
"Registration Rights Agreement"), and the Irrevocable Transfer Agent
-----------------------------
Instructions, in the form of
<PAGE>
Exhibit E, delivered to and acknowledged by the Company's transfer agent (the
- ---------
"Transfer Agent Instructions"); and (B) each Purchaser shall deliver (1) the
---------------------------
purchase price indicated below such Purchaser's name on the signature page to
this Agreement in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose,
and (2) all documents, instruments and writings required to have been delivered
at or prior to the Closing Date by such Purchaser pursuant to this Agreement,
including, without limitation, an executed Registration Rights Agreement.
1.2 Terms of Preferred Stock. The Preferred Stock shall have the rights
------------------------
preferences and privileges set forth in Exhibit A, and shall be incorporated
---------
into a Certificate of Determination (the "Certificate of Determination") which
----------------------------
shall be filed on or prior to the Closing Date by the Company with the Secretary
of State of the State of Nevada, in form and substance mutually agreed to by the
parties.
For purposes of this Agreement, "Conversion Price," "Original Issue Date"
---------------- -------------------
and "Trading Day" shall have the meanings set forth in Exhibit A; "Business Day"
----------- --------- ------------
shall mean any day except Saturday, Sunday and any day which shall be a federal
legal holiday or a day on which banking institutions in the State of New York or
the State of California are authorized or required by law or other governmental
action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
---------------------------------------------------------
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Nevada, with the requisite corporate power and authority to (i) own and use
its properties and assets, (ii) carry on its business as currently conducted,
and (iii) enter into and perform the transactions contemplated by this
Agreement, the Certificate of Determination, the Registration Rights Agreement,
the Warrants and the Transfer Agent Instructions (collectively, the "Transaction
-----------
Documents"). The Company has no subsidiaries other than as set forth in
- ---------
Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is
- --------------- ------------
an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of the Transaction Documents, (y) have or result in a
material adverse effect on the results of operations, assets, prospects, or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (z) adversely impair the Company's ability to perform fully on a
-2-
<PAGE>
timely basis its obligations under any of the Transaction Documents (any of (x),
(y) or (z), a "Material Adverse Effect").
-----------------------
(b) Authorization; Enforcement. The Company has the requisite
--------------------------
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and, when delivered (or filed, as the case may be) in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and outstanding
--------------
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
---------------
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as a result of the purchase and sale of the Shares and the
Warrant and except as disclosed in Schedule 2.1(c), there are no outstanding
---------------
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the actual
knowledge of the Company, except as specifically disclosed in the SEC Documents
(as defined below) or Schedule 2.1(c), no Person or group of related Persons
---------------
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), or has the
------------
right to acquire by agreement with or by obligation binding upon the Company, in
excess of 5% of the Common Stock. A "Person" means an individual or
------
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares and the Warrants. The Shares and the
---------------------------------------
Warrants are duly authorized and, when issued and paid for in accordance with
the terms hereof, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has an adequate reserve of duly
-----
authorized shares of Common Stock, reserved for issuance to the holders of the
Shares and the Warrants, to enable it to perform its conversion, exercise and
other obligations under this Agreement, the Certificate of Determination and the
Warrants. Such number of reserved and available shares of Common Stock is not
less than the sum of (i) the number of shares of Common Stock which would be
issuable upon conversion in full of the Shares, assuming such conversion
occurred on the Original Issue Date at a Conversion Price of $1.00 per share,
(ii) the number of shares of Common Stock issuable upon exercise of the
Warrants, and (iii) the number of shares Common Stock which
-3-
<PAGE>
would be issuable upon payment of dividends on the Shares, assuming each Share
is outstanding for three years and all dividends are paid in shares of Common
Stock (such number of shares of Common Stock, the "Initial Minimum"). All such
---------------
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Shares and the Warrants. The shares of Common Stock issuable upon
conversion of the Shares, as payment of dividends thereon and upon exercise of
the Warrant are collectively referred to herein as the "Underlying Shares." The
-----------------
Shares, the Warrants and the Underlying Shares are collectively referred to
herein as, the "Securities." When issued in accordance with the Certificate of
----------
Determination and the Warrants, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor any
-------------------------------
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Determination with the Secretary of State of Nevada (ii) the filings required
pursuant to Section 3.10, (iii) the filing of the Underlying Shares Registration
Statement with the Securities and Exchange Commission (the "Commission") meeting
----------
the requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchaser, (iv) the application(s) to the
OTC Bulletin Board ("OTC") for the listing of the Underlying Shares for trading
---
on the OTC (and with any other national securities exchange, trading facility or
market on which the Common Stock is then listed), (v) applicable Blue Sky
filings, (vi) the approval of the Board of Directors of the Company and (vii) in
all other cases where the failure to obtain such consent, waiver, authorization
or order, or to give such notice or make such filing or registration could not
have or result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "Required Approvals").
------------------
-4-
<PAGE>
(g) Litigation; Proceedings. Except as set forth in Schedule 2.1(g),
-----------------------
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties before
or by any court, governmental or administrative agency or regulatory authority
(Federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
-----------------------
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
----------------
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on
--------------
its behalf has taken any action that could subject the offering, issuance or
sale of the Securities to the registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed all
-----------------------------------
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC Documents" and, together with the Schedules to this Agreement hereinafter
-------------
referred to as the "Disclosure Materials") on a timely basis or has received a
--------------------
valid extension of such time of filing and has filed any such SEC Documents
prior to the expiration of any such extension. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Documents as required. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
----
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the
-5-
<PAGE>
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Since March 31 ,1999, except as specifically disclosed in the SEC
Documents, (a) there has been no event, occurrence or development that has or
that could result in a Material Adverse Effect, (b) the Company has not incurred
any liabilities (contingent or otherwise) other than (x) liabilities incurred in
the ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock.
(k) Investment Company. The Company is not, and is not an Affiliate
------------------
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable to Cardinal Capital
------------
Management, Inc., no fees or commissions will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, or bank with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold harmless
each Purchaser, its employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as such fees and expenses are
incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting
----------------------
on the Company's behalf has solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Seniority. No class of equity securities of the Company is senior
---------
to the Shares in right of payment, whether upon liquidation or dissolution, or
otherwise.
(o) Listing and Maintenance Requirements Compliance. The Company has
-----------------------------------------------
not, in the two years preceding the date hereof, received notice (written or
oral) from the OTC or any other stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such maintenance requirements.
-6-
<PAGE>
(p) Patents and Trademarks. The Company has, or has rights to use,
----------------------
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights which are necessary or
material for use in connection with its business, and which the failure to so
have would have a Material Adverse Effect (collectively, the "Intellectual
------------
Property Rights").To the best knowledge of the Company, all such Intellectual
- ---------------
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
(q) Registration Rights; Rights of Participation. Except as set forth
--------------------------------------------
on Schedule 6(b) to the Registration Rights Agreement, the Company has not
-------------
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(r) Regulatory Permits. The Company and its Subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("Material Permits"), and neither the Company nor
----------------
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(s) Title. Neither the Company nor any of the Subsidiaries own any
-----
real property. The Company and the Subsidiaries have good and marketable title
to all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(t) Disclosure. The Company confirms that it has not provided any
----------
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
-7-
<PAGE>
(a) Organization; Authority. Such Purchaser is a corporation or limited
-----------------------
partnership validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority, to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase
by such Purchaser of the Securities hereunder has been duly authorized by all
necessary corporate or partnership action on the part of such Purchaser. Each
of this Agreement and the Registration Rights Agreement has been duly executed
and delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities offered
-----------------
and sold to it hereunder as principal for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration. By making this representation,
such Purchaser does not represent that it will hold such Securities for any
period of time.
(c) Purchaser Status. Such Purchaser is, and at the date of each exercise
----------------
under its respective Warrant, it will be, an "accredited investor" as defined in
Rule 501(a) under the Securities Act. Such Purchaser has not been formed solely
for the purpose of acquiring the Securities.
(d) Experience of Purchaser. Such Purchaser either alone or together with
-----------------------
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
-----------------------------------------------
able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges receipt of the
---------------------
Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted
-8-
<PAGE>
by or on behalf of such Purchaser or its representatives or counsel shall
modify, amend or affect such Purchaser's right to rely on the truth, accuracy
and completeness of the Disclosure Materials and the Company's representations
and warranties contained in the Transaction Documents.
(g) General Solicitation. To the best of such Purchaser's knowledge, such
--------------------
Purchaser is not purchasing the Securities as a result of or subsequent to any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that (i) the
--------
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
---------------------
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by a Purchaser to
an Affiliate of such Purchaser or to one or more funds under common management
with such Purchaser, and any transfer among any such Affiliates or one or more
funds, provided that the transferee certifies to the Company that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and
that it is acquiring the Securities solely for investment purposes. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of the Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchasers agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Securities:
-9-
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Shares, the payment of dividends thereon, and
exercise of the Warrant or other issuances of Underlying Shares as contemplated
hereby, by the Certificate of Determination or the Warrants occurs at any time
while an Underlying Shares Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Shares
Registration Statement, at such time, in the opinion of counsel to the Company,
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Shares Registration Statement is declared effective
by the Commission. The Company agrees that, in the event any Underlying Shares
are issued with a legend in accordance with this Section 3.1(b), it will, within
three (3) Trading Days after request therefor by a Purchaser, provide such
Purchaser with a certificate or certificates representing such Underlying
Shares, free from such legend at such time as such legend would not have been
required under this Section 3.1(b) had such issuance occurred on the date of
such request. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
--------------------------
issuance of the Underlying Shares upon (i) conversion of the Shares in
accordance with the terms of the Certificate of Determination, and (ii) exercise
of the Warrants in accordance with their terms, will result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares upon (x) conversion of the Shares in accordance with
the terms of the Certificate of Determination, and (y) exercise of the Warrants
in accordance with its terms, is unconditional and absolute, subject to the
limitations set forth herein in the Certificate of Determination or pursuant to
the Warrants, regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as any Purchaser owns Securities,
-------------------------
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
-10-
<PAGE>
required to file reports pursuant to such sections, it will prepare and furnish
to such Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for such
Purchasers to sell the Securities under Rule 144 promulgated under the
Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in this Section. Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts
-----------
to ensure that, no Affiliate shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. If on any date the Company would be,
-----------------------------
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing the number of Underlying Shares as
would then be issuable upon a conversion in full of the Shares, or (b) issuing
the number of Underlying Shares upon exercise in full of the Warrants, subject
to the limitations on the Company's obligation to issue shares of Common Stock
pursuant to Sections 5(a)(iii) of the Certificate of Determination (the "Current
-------
Required Minimum"), in either case, due to the unavailability of a sufficient
- ----------------
number of authorized but unissued or reserved shares of Common Stock, then the
Board of Directors of the Company shall promptly (and in any case, within 45
Business Days from such date) prepare and mail to the stockholders of the
Company proxy materials requesting authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchaser in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its issuance, conversion, exercise and reservation of shares obligations as
set forth in this Agreement, the Certificate of Determination and the Warrants
(the sum of (x) the number of shares of Common Stock then outstanding plus all
shares of Common Stock issuable upon exercise of all outstanding options,
warrants and convertible instruments, and (y) the Current Required Minimum,
shall be a reasonable number). In connection therewith, the Board of Directors
shall (a) adopt proper resolutions authorizing such increase, (b) recommend to
and otherwise use its best efforts to promptly and duly obtain stockholder
approval to carry out such resolutions (and hold a special meeting of the
stockholders no later than the 60/th/ day after delivery of the proxy materials
relating to such meeting) and (c) within five (5) Business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
Certificate of Incorporation to evidence such increase.
3.6 Listing of Underlying Shares. If, after the date hereof, the Company
----------------------------
shall list the Common Stock on any of the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market or Nasdaq SmallCap Market (each, a
"Subsequent Market"), then the Company
- ------------------
-11-
<PAGE>
shall include in such listing for the benefit of the Purchasers for issuance
upon exercise of the Warrants and conversion of the Shares a number of shares of
Common Stock equal to not less than the then Current Required Minimum. If the
number of Underlying Shares issuable upon conversion in full of the then
outstanding Shares, as payment of dividends thereon, and upon exercise of the
then unexercised portion of the Warrants exceed the number of Underlying Shares
previously listed on account thereof with a Subsequent Market, then the Company
shall take the necessary actions to immediately list a number of Underlying
Shares as equals no less than the then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent Instructions,
----------------------------------
Conversion Notice (as defined in Exhibit A) and Notice of Exercise under the
----------
Warrants set forth the totality of the procedures with respect to the conversion
of the Shares and exercise of the Warrants, including the form of legal opinion,
if necessary, that shall be rendered to the Company's transfer agent and such
other information and instructions as may be reasonably necessary to enable the
Purchasers to convert Shares and exercise Warrants as contemplated in the
Certificate of Determination and the Warrants. The Company shall honor
conversions of the Shares and exercises of the Warrants and shall deliver
Underlying Shares in accordance with the respective terms, conditions and time
periods set forth in the Certificate of Determination and the Warrants.
3.8 Notice of Breaches. Each of the Company and the Purchasers shall
------------------
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by a party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
3.9 Right of First Refusal; Subsequent Registrations. (a) The Company
------------------------------------------------
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity, debt or equity-equivalent
securities or a transaction intended to be exempt or not subject to registration
under the Securities Act (a "Subsequent Placement") for a period of 180 days
--------------------
after the date that the Underlying Shares Registration Statement is declared
effective by the Commission, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares of Common Stock issuable upon exercise of
any currently outstanding warrants and upon conversion of any currently
outstanding convertible securities of the Company, in each case disclosed in
Schedule 2.1(c), and (iii) shares of Common Stock issuable upon conversion of
- ---------------
Preferred Stock and upon exercise of the Warrants in accordance with the
Certificate of Determination or the Warrants, respectively, unless (A) the
Company delivers to the Purchasers a written notice (the "Subsequent Placement
--------------------
Notice") of its intention to effect such Subsequent Placement, which Subsequent
- ------
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be effected, and attached
to which shall be a
-12-
<PAGE>
term sheet or similar document relating thereto and (B) the Purchasers shall not
have notified the Company by 6:30 p.m. (New York City time) on the fifth (5/th/)
Trading Day after their receipt of the Subsequent Placement Notice of their
willingness to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
conversion, reset and pricing terms (including original issue discount, if any)
and substantially on such other terms set forth in the Subsequent Placement
Notice. If the Purchasers shall fail to notify the Company of their intention to
enter into such negotiations within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Placement Notice;
provided, that the Company shall provide the Purchasers with a second Subsequent
- --------
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this Section, if the Subsequent Placement subject to the
initial Subsequent Placement Notice shall not have been consummated for any
reason on conversion, reset and pricing terms (including original issue
discount, if any) and substantially on such other terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro rata portion of the aggregate number of Shares
purchased by such Purchaser under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount less than or in
excess of the amount set forth in the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
-------------
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i) - (iii) of
Section 3.9(a), the Company shall not, without the prior written consent of the
Purchaser (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register for resale any securities of the Company for a
period of not less than 90 Trading Days after the date that the Underlying
Shares Registration Statement is declared effective by the Commission. Any days
that a Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.10 Certain Securities Laws Disclosures; Publicity. The Company shall:
----------------------------------------------
(i) issue a press release acceptable to the Purchasers disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within twelve (12) Business Days after the Closing Date, and (iii) timely file
with the Commission a Form D promulgated under the Securities Act as required
under Regulation D promulgated under the Securities Act and provide a copy
thereof to the Purchasers promptly after the filing thereof. The Company shall,
no less than two (2) Business Days prior to the filing of any disclosure
required by clauses (ii) and (iii) above, provide a copy thereof to the
Purchasers. No such filing or disclosure may be made that mentions a Purchaser
by name without the prior consent of
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<PAGE>
such Purchaser. Such filings shall be subject to Section 4.11 hereof.
3.11 Transfer of Intellectual Property Rights. Except in connection with
----------------------------------------
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of any Intellectual Property
Rights, or allow any of the Intellectual Property Rights to become subject to
any Liens, or fail to renew such Intellectual Property Rights (if renewable and
it would otherwise lapse if not renewed), without the prior written consent of
the Purchasers.
3.12 Use of Proceeds. The Company shall use the net proceeds from the
---------------
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt or to redeem any Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.13 Reimbursement. If any Purchaser, other than by reason of its gross
-------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchasers or entity in connection with the
transactions contemplated by this Agreement.
3.14 Independent Nature of Purchasers' Obligations and Rights. The
--------------------------------------------------------
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity,
-14-
<PAGE>
or create a presumption that the Purchasers are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Purchaser shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the Transaction Documents, and it shall not be necessary for any other Purchaser
to be joined as an additional party in any proceeding for such purpose.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall pay the legal
-----------------
fees and disbursements of Purchasers' counsel in connection with the negotiation
and preparation of the Transaction Documents in the amount of $30,000. The
amount contemplated by the immediately preceding sentence shall be retained by
the Purchasers, and shall not be delivered to the Company at the Closing. Other
than the amount contemplated in the immediately preceding sentence, and except
as otherwise set forth in the Registration Rights Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all U.S. stamp and other taxes and duties levied in
connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents, together
----------------------------
with the Exhibits and Schedules thereto, and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: SoftLink, Inc.
2041 Mission College Blvd., Suite 259
Santa Clara, CA 95054
Facsimile No.: (408) 496-6110
Attn: Chief Financial Officer
-15-
<PAGE>
With copies to: Silicon Valley Law Group
152 North Third Street, Suite 900
San Jose, CA 95112
Facsimile No.: (408) 286-1400
Attn: James C. Chapman
If to a Purchaser: To the address set forth under such Purchaser's
name on the signature pages hereto.
4.4 Amendments; Waivers. No provision of this Agreement may be waived
-------------------
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), a Purchaser may not assign this Agreement or any of the rights
or obligations hereunder without the consent of the Company.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. The corporate laws of the State of Nevada shall
-------------
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and
-16-
<PAGE>
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
4.9 Survival. The representations, warranties, agreements and
--------
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrants.
4.10 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Publicity. The Company and the Purchasers shall consult with
---------
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law or stock market rule or regulation, in
which such case the disclosing party shall provide the other party with prior
notice of such public statement, filing or other communication. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of a Purchaser,
or include the name of the Purchaser in any filing with the Commission, or any
regulatory agency, trading facility or stock market (other than one or more
Underlying Shares Registration Statements, or other reports or applications
required by the terms hereof without the prior written consent of the Purchaser,
except to the extent such disclosure (but not any disclosure as to the
controlling Persons thereof) is required by law or stock market rule or
regulation, in which case the Company shall provide the Purchaser with prior
notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the
-17-
<PAGE>
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
4.14 Attorney Fees. In the event any legal action is brought by a
-------------
party hereto to enforce its rights under this Agreement, the prevailing party
shall be entitled to recover in addition to any other relief to which it is
entitled, its reasonable attorneys fees and cost of suit.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
SOFTLINK, INC.
By:/s/ William Yuan
---------------------
Name: William Yuan
Title: President
<PAGE>
HORNBLOWER INVESTORS LLC
By: /s/ [ILLEGIBLE]
--------------
Name:
Title:
Purchase Price for Preferred Stock
to be acquired at Closing: $1,500,000
Warrant Shares to be acquired
at Closing: 120,000
Address for Notice:
Hornblower Investors LLc
c/o WEC Asset Management LLc
One World Trade Center
Suite 4563
New York, New York 10048
Facsimile No.: (212) 775-9311
Attn: Ethan Benovitz
With copies to:
Rosenman & Colin, LLP
575 Madison Avenue
New York, New York, 10022
Facsimile No.: (212) 940-8776
Attn: Herman Shtern, Esq.
Elliott Press, Esq.
-21-
<PAGE>
EXHIBIT 10.15
TotalAccess Software
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made as of the Effective Date set forth
below among EarthLink Network, Inc., a Delaware corporation ("EarthLink") and
the Distributor named below.
Agreement Data:
1. Distributor: Softlink, Inc.
2. Effective Date:____________________________
3. Notice information per Section 12:
(1) If intended for Distributor: (2) If intended for EarthLink:
Softlink, Inc. EarthLink Network, Inc.
2041 Mission College Blvd.- Suite 172 3100 New York Drive
Santa Clara, CA 95054 Pasadena, California 91107
Attn: Mr. William Yuan Attn: Legal Department
Facsimile No.: (408) 970-3371 Facsimile No.: (626) 398-5477
4. Applicable Exhibits (The referenced exhibits are a part of this
Agreement):
<TABLE>
Initials
--------
<S> <C>
/s/ WSH /s/ WY A. Definitions /s/ WSH /s/ WY B. EarthLink Brand and Marks
--------------- -------------- ------------------ ----------------
EarthLink Distributor EarthLink Distributor
/s/ WSH /s/ WY C. Trademark Usage /s/ WSH /s/ WY D. Special Terms
--------------- -------------- ------------------ ----------------
EarthLink Distributor Guidelines EarthLink Distributor
</TABLE>
5. Total pages in this Agreement: ____________ (including this cover page).
Signatures:
Distributor and EarthLink acknowledge that they have read and fully understand
this Agreement and hereby agree to its terms. In witness whereof, the parties
have executed this Agreement under seal.
<TABLE>
<S> <C>
EARTHLINK: DISTRIBUTOR:
/s/ William S Heys /s/ William Yuan
- --------------------------------------------- ---------------------------------------------
(Signature of Authorized Representative) (Signature of Authorized Representative)
/s/ William S Heys /s/ WILLIAM YUAN
- --------------------------------------------- ---------------------------------------------
(Printed Name of Authorized Representative) (Printed Name of Authorized Representative)
SVP President
- --------------------------------------------- ---------------------------------------------
(Title) (Title)
</TABLE>
1
<PAGE>
1. Definitions. Certain terms used in this Agreement have the meanings defined
-----------
on the Definitions Exhibit hereto.
License Grant.
- -------------
2.1 Non-Exclusive License. EarthLink hereby grants to Distributor a royalty
---------------------
free, non-exclusive and non-transferable license during the Term to market, sell
and distribute the Licensed Material in the Territory (the "License"). If
EarthLink delivers the Licensed Material to Distributor in the form of a Master
CD-ROM or a Master Diskette (as indicated in the Special Terms Exhibit), the
License shall include the right to reproduce the Licensed Material. If so
indicated on the Special Terms Exhibit, the Licensed Material may be distributed
only if bundled with the Distributor Product; otherwise, the Licensed Material
may be distributed without being bundled with any Distributor Product.
2.2 Intentionally left blank.
2.3 Prohibition On Other Sales Or License. Distributor shall distribute the
-------------------------------------
Licensed Material only in accordance with the terms of this Agreement and only
in the form of EarthLink Network TotalAccess and shall not independently
distribute the various components of EarthLink Network TotalAccess or any
component of the Licensed Material separately from all other components.
2.4 No Other Right. Distributor shall not, nor shall it permit others to:
--------------
reproduce or otherwise make copies of any portion of the Licensed Material
(except as provided in Section 4.2) or modify, reverse engineer, disassemble,
decompile, or otherwise determine or attempt to determine or have or attempt to
obtain access to, the source code or internal design of the Software or to
create any derivative works based upon the Software. Nothing in this Agreement
shall be construed as granting Distributor any rights of any kind with respect
to any portion of the Licensed Material except as expressly and unambiguously
set forth in this Agreement. All rights, title and interest in and to, and
ownership of, the Licensed Material shall remain at all times exclusively with
EarthLink and EarthLink's third-party licensors.
3. Representations and Warranties.
------------------------------
3.1 EarthLink Authority. EarthLink represents and warrants to Distributor that
-------------------
(i) EarthLink owns or has a valid license to all portions of the Licensed
Material and to EarthLink Trademarks, (ii) EarthLink has the full power and
authority to enter into this Agreement and grant the License, and (iii)
EarthLink is a functional Internet access provider (the "Authority Warranty").
3.2 Access Warranty. Subject to the limitations set forth in this Agreement and
---------------
any other warranties contained herein, EarthLink warrants to Distributor that
the Software when properly installed and used in conjunction with the EarthLink
Sprint dial-up Internet access service will provide access to the Internet a
substantial amount of time and will perform substantially in accordance with the
Documentation (the "Access Warranty"). EARTHLINK MAKES NO WARRANTY THAT ALL
ERRORS OR FAILURES IN THE SOFTWARE WILL BE CORRECTED, AND MAKES NO OTHER
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE SOFTWARE (EXCEPT WITH
RESPECT TO THE PROPRIETARY SOFTWARE AS SET FORTH IN SECTION 3.3 BELOW), WHETHER
EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW. EARTHLINK EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
EARTHLINK DOES NOT WARRANT THAT THE SOFTWARE IS ERROR-FREE OR THAT OPERATION OF
THE SOFTWARE OR INTERNET ACCESS WILL BE SECURE, UNINTERRUPTED OR ERROR-FREE.
3.3 Non-infringement Warranty and Third Party Software Representation.
--------------------------------------------------------------------
EarthLink warrants to Distributor that the Proprietary Software and related
Documentation and EarthLink Trademarks do not infringe upon the patents,
copyrights, trademarks or other intellectual property rights of any third party
(the "Non-infringement Warranty"). EarthLink represents to Distributor that as
of the Effective Date with respect to the Third Party Software and related
Documentation, EarthLink has not received notice, either oral or written, that
the Third Party Software and related Documentation infringes upon the patents,
copyrights, trademarks or other intellectual property rights of any third party.
3.4 Defects Not Covered by Warranties.
-------------------------------------
EARTHLINK SHALL HAVE NO OBLIGATION UNDER THE WARRANTY PROVISIONS SET FORTH IN
THE ABOVE SECTIONS IN THE EVENT OF ANY OF THE FOLLOWING ACTIONS/INACTION BY
DISTRIBUTOR OR END USERS: (A) DISTRIBUTOR INCORPORATES, ATTACHES OR OTHERWISE
ENGAGES ANY ATTACHMENT, FEATURE, PROGRAM, OR DEVICE TO THE SOFTWARE OR ANY PART
THEREOF OR MODIFIES THE SOFTWARE IN ANY WAY WHICH CAUSES THE SOFTWARE NOT TO
CONFORM TO THE WARRANTY; OR (B) IF ANY NONCONFORMANCE IS CAUSED BY ACCIDENT;
TRANSPORTATION; NEGLECT OR MISUSE; ALTERATION, MODIFICATION, OR ENHANCEMENT OF
THE SOFTWARE BY DISTRIBUTOR; FAILURE TO PROVIDE A SUITABLE INSTALLATION
ENVIRONMENT; USE OF SUPPLIES OR MATERIALS NOT MEETING SPECIFICATIONS; USE OF THE
SOFTWARE FOR OTHER THAN THE SPECIFIED
2
<PAGE>
PURPOSE FOR WHICH THE SOFTWARE IS DESIGNED; USE OF THE SOFTWARE ON ANY SYSTEMS
OTHER THAN THE SPECIFIED SOFTWARE PLATFORM FOR THE SOFTWARE; OR DISTRIBUTOR'S
USE OF DEFECTIVE MEDIA OR DEFECTIVE REPLICATION OF THE SOFTWARE.
3.5 Prohibition on Extension of Warranties. Distributor shall not make or
--------------------------------------
pass on, or attempt to make or pass on, any representation or warranty on behalf
of EarthLink to any third party other than as set forth in EarthLink's standard
end user license agreement, in a form to be specified by EarthLink in its sole
and absolute discretion, and which shall be included by Distributor together
with the Software distributed by Distributor under this Agreement.
3.6 Remedy for Breach of Authorization Warranty. In the event of a breach by
-------------------------------------------
EarthLink of the Authority Warranty, EarthLink shall take whatever action is
reasonably necessary to acquire such authorization or licenses necessary to
grant the License and perform its obligations hereunder. If such authority or
licenses is or are not reasonably obtainable, this Agreement shall terminate.
3.7 Remedies for Breach of Non-infringement Warranty.
------------------------------------------------
3.7.1 Remedy for Breach of Non-Infringement Warranty for Proprietary Software.
-----------------------------------------------------------------------
In the event the Proprietary Software fails to conform to the Non-infringement
Warranty, EarthLink shall either: (i) obtain a valid license or other right, as
applicable, for Distributor to distribute the Proprietary Software; or (ii)
replace or modify the Proprietary Software, without affecting the material
portions of its functionality, to make it non-infringing in which case that
replacement software shall then be governed by the terms of this Agreement.
Distributor shall have the right to terminate this Agreement pursuant to Section
10.2 in the event that: (a) EarthLink provides Distributor with written notice
that neither Subsection (i) nor Subsection (ii) of the preceding sentence of
this Sub-section is commercially reasonable in the discretion of EarthLink; or
(b) Distributor provides EarthLink with written notice that Distributor believes
that the replacement or modified Software is not of equal material
functionality.
3.7.2 Remedy for Breach of Non-Infringement Warranty for EarthLink
-------------------------------------------------------------
Trademarks. In the event any EarthLink Trademark fails to conform to the Non-
- ----------
infringement Warranty Distributor shall immediately upon notice from EarthLink
cease use of such alleged infringing EarthLInk Trademark. In such event,
EarthLink, at its sole option, shall either obtain a valid license for
Distributor to use such EarthLink Trademark or select an alternative Non-
infringing mark which is as similar as possible to the unavailable EarthLink
Trademark, and that new mark shall then be governed by the terms of this
Agreement as an EarthLink Trademark.
3.7.3 Indemnification for Third Party Infringement Claims. EarthLink agrees to
---------------------------------------------------
indemnify, and hold harmless, Distributor from and against all reasonable costs
and expenses related to claims made by third parties against Distributor that
the Proprietary Software or EarthLInk Trademarks infringe the parents,
copyrights, trademarks or service marks or other intellectual property rights of
such third parties.
3.7.4 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY
-----------------------
CONTAINED IN THIS AGREEMENT, AND EXCEPT FOR THE OBLIGATIONS SET FORTH IN
SECTIONS 3.7.3 AND 11, NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE
TO THE OTHER PARTY FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING
LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH
DAMAGES OCCURRING.
4. Delivery; Replication; Reorders.
-------------------------------
4. 1 Delivery of Licensed Material. EarthLink shall deliver the Licensed
-----------------------------
Material to Distributor in the format indicated on the Special Terms Exhibit.
Shipment of the media containing the Licensed Material shall be made to
Distributor to an address specified in writing by Distributor. Risk of loss
shall pass to Distributor when EarthLink has placed the Licensed Material in the
possession of the carrier. Shipping and freight costs and expenses shall be
payable in accordance with the Special Terms Exhibit.
4.2 Replication; Order Quantities; Software Fees.
--------------------------------------------
4.2.1 Format - Master Disk. In the event that the Licensed Material is
--------------------
delivered from EarthLink to Distributor in the form of a master disk (whether a
gold master CD-ROM, a master 3.5" diskette or otherwise) Distributor shall have
the right to replicate the Licensed Material in such quantities as Distributor
shall, in good faith, believe it can reasonably distribute. If Distributor
outsources the replication process, then (i) within seven (7) days prior to
each replication run of the Licensed Material, Distributor shall provide
EarthLink with a copy of the purchase order submitted to the replicator, and
(ii) within seven (7) days following each replication run, Distributor shall
notify EarthLink in a writing signed by an authorized officer verifying the
quantity of licensed Material replicated and providing a copy of the invoice
from the replicator for such run showing the quantity of Licensed Material
replicated. If Distributor performs the replication process inhouse, Distributor
will provide EarthLink with written notice signed by an authorized officer,
verifying the quantity of Licensed material replicated. If the
3
<PAGE>
Licensed Material is to be distributed over an Internet site, Distributor shall
notify EarthLink of the Internet address from where the Licensed Material may be
downloaded.
4.2.2 Format - Individual Disks. In the event that the Licensed Material is
-------------------------
delivered in the form of individual disks (whether on CD-ROM, 3.5" diskettes or
otherwise) Distributor shall be delivered the Initial Quantity set forth on the
Special Terms Exhibit and shall, thereafter, order such quantities of
additional disks as Distributor and EarthLink may, in good faith, determine that
Distributor can distribute with a reasonable probability of obtaining new
Qualified Subscribers; provided, however, that EarthLink shall be under no
obligation to distribute additional disks in quantities less than the Minimum
Reorder Quantity set forth on the Special Terms Exhibit.
4.2.3 Software Fees. Distributor shall pay to EarthLink the Software Fees
-------- ----
specified on the Special Terms Exhibit. Such Software Fees shall be due and
payable to EarthLink within 30 days of receipt by Distributor of an invoice
therefor. All past due amounts shall bear an interest rate of 1.5% per month.
5. Quality Control.
---------------
5.1 Gold Master Samples. Distributor shall provide EarthLink with a gold
-------------------
master containing the Software (and Distributor Product, if applicable), no less
than ten (10) days prior to initial replication run.
5.2 Samples. Distributor shall provide EarthLink with the disks containing
-------
the Software and five copies of all reproduced Documentation from: (i) each
initial replication run of the Software and Documentation, and of any update,
upgrade and/or new version of the Software provided to Distributor by EarthLink;
and (ii) each initial replication run subsequent to any change in the
replication facility and/or process utilized by Distributor.
5.3 Quality Problems. In the event EarthLink notifies Distributor of quality
----------------
problems with the replicated Licensed Materials which cause the Software not to
operate properly or not consistent with the Documentation, Distributor shall
immediately correct such problems in current and future replication runs.
EarthLink may, in its sole discretion, require Distributor to remove from
inventory and/or Distributor's distribution channel all faulty copies of the
Licensed Material. Failure by Distributor to so correct any such identified
problems shall constitute a material breach of this Agreement.
6. Marketing
---------
6.1 Promotion. Distributor shall use its best efforts to promote, advertise
---------
and market the Software and to promote the goodwill of EarthLink and the market
reputation of EarthLink's products and services.
6.2 Publicity. Each party shall have the right to refer to the other party
---------
and its services and products in advertisements, press releases, news releases
and general releases to professional and trade publications; provided, however,
that any such item shall be presented to such other party not less than ten (10)
days prior to the intended publication date for approval by such other party,
which approval shall not be unreasonably withheld or delayed, and which shall be
deemed to be given if no written response is provided within said ten (10) day
period.
6.3 Bookmarks. EarthLink may include bookmarks in the Software provided to
---------
Distributor in accordance with mutually agreed upon specifications; provided,
however, that Distributor agrees that EarthLink may include a bookmark to
EarthLink's home page which bookmark shall be the first bookmark if additional
bookmarks are agreed upon. Distributor shall not alter any bookmarks included
in the Software.
7. Trademarks, Trade Names and Other Designations. Distributor undertakes to
----------------------------------------------
faithfully reproduce all Marks as they may appear on or in respect of the
Licensed Material. Distributor shall not use the Marks except as provided
herein. All such use of the Marks shall be in accordance with the "EarthLink
General Guidelines for Use of Marks." Distributor undertakes to reproduce
faithfully all EarthLink Marks and proprietary notices, slogans, designs and
distinct advertising as may appear on or in respect of the Licensed Material.
Notwithstanding the foregoing, any such use or proposed use shall be presented
to EarthLink for approval, in EarthLink's sole discretion, not less than ten
(10) business days prior to the intended date of use, which approval shall be
deemed given if no written response is provided to Distributor within said ten
(10) business day period. Notwithstanding the authorization granted in this
section, EarthLink and its third party licensors shall own all right, title and
interest in and to the Marks. Other than as expressly and unambiguously provided
in this Agreement, Distributor shall not have, under any circumstances
whatsoever, any right to use the Marks. Solely for the purpose of enforcing
their rights in and to their trademarks, service marks, slogans and logos,
sprint Corporation and Sprint Communications Company, L.P. are third-party
beneficiaries to this Agreement.
8. Payment and Reporting.
---------------------
8.1 Bounty Payments. If applicable, EarthLink will pay Distributor, at the
---------------
address indicated on the cover page, a bounty in the amount specified on the
Special Terms Exhibit for each Qualified Subscriber (the "Bounty"). Within sixty
(60) days after the end of each calendar month, EarthLink shall pay the Bounty
for each Qualified Subscriber obtained in the previous month. EarthLink shall
accompany each monthly payment with a report containing all information
reasonably necessary to verify the accuracy of the payment for that month.
4
<PAGE>
8.2 Registration Number. EarthLink will assign unique registration numbers to
-------------------
the versions of the Software provided to Distributor. The Bounty will be
calculated through the use of these unique registration numbers by tracking each
Qualified Subscriber.
8.3 Maintenance of Records; Audit. Each party shall maintain proper books and
-----------------------------
records so as to allow for the verification of amounts paid or owed to the other
party. Each party agrees to allow the other party's auditors to audit and
analyze its applicable records to ensure compliance with all terms of this
Agreement. Any such audit shall be permitted by party to be audited, during
normal business hours, upon at least fifteen (15) days notice given in
accordance with Section 12. The cost of this audit shall be borne by the
auditing party, unless the results identify a bona fide underpayment to the
auditing party by more than five percent (5%) of the total amount paid or owed
during the audited period, in which case the cost of the audit shall be borne by
the audited party.
9. Technical Support and Training. EarthLink shall provide to end users of
------------------------------
the Software that obtain the Software through Distributor, technical support for
the Software in accordance with the general policies of EarthLink with respect
to the particular Software product at issue.
10. Term; Termination.
-----------------
10.1 Term. This Agreement shall commence on the Effective Date, and unless
----
sooner terminated in accordance with this Section, shall continue for one (1)
year, whereupon it shall automatically renew for consecutive one (1) year terms
unless notice of non-renewal is given by either party in writing no less than
thirty (30) calendar days and no more than ninety (90) calendar days prior to
the end of the then current term.
10.2 Termination For Infringement Claim. Distributor shall have the right to
----------------------------------
terminate this Agreement at any time, effective immediately upon written notice
of termination as set forth in Section 3.7.1.
10.3 Automatic Termination For Termination Of Underlying License. In the event
-----------------------------------------------------------
of termination of any underlying license to the Software this Agreement and the
License shall automatically terminate with respect to the Software for which the
underlying license has terminated.
10.4 Termination For Cause. Either party shall have the right to terminate
---------------------
this Agreement at any time, effective upon written notice of termination to the
other party, in the event of a breach of this agreement which is unremedied for
a period of thirty (30) days after written notice. Notwithstanding the
foregoing, either party may terminate this Agreement immediately upon a breach
of Section 11.
10.5 Effect Of Termination Of This Agreement. Upon termination of this
---------------------------------------
Agreement for any reason whatsoever Distributor shall: (i) immediately cease to
replicate copies of the Licensed Material; and (ii) return to EarthLink all
other existing copies (including original copies) of any of the Licensed
Material (gold master, unused CD-ROM or disks) in the possession or under the
control of Distributor. Notwithstanding the foregoing, upon any termination of
this Agreement, Distributor shall have the right to continue to distribute
copies of the Licensed Material then in the inventory of Distributor until such
time as such inventory is exhausted for a period of 180 days, whichever is less,
except that Distributor shall not have such right in the event that such
termination of this Agreement was by EarthLink pursuant to Sections 10.3 or 10.4
or by reason of Distributor's failure to correct a quality problem as described
in Section 5.2.
10.6 No Damages Or Indemnification For Termination. Neither party shall be
---------------------------------------------
liable to the other party for any costs or damages of any kind, including
incidental or consequential damages, or for indemnification, solely on account
of the lawful termination of this Agreement, even if informed of the
possibility of such damages.
10.7 Survival Of Terms Upon Termination. The provisions of this Agreement that
----------------------------------
by their sense and context are intended to survive termination of this
Agreement, shall so survive this Agreement, including Sections 3.7.3 (which will
survive for one year), 3.7.4, 10.5, 10.6, 11 and 13.
11. Confidentiality. Each party shall: (i) hold in confidence, and not
---------------
disclose or reveal to any person or entity, any Confidential Information
disclosed under this Agreement without the clear and express prior written
consent of a duly authorized representative of the disclosing party; and (ii)
not use or disclose any of the Confidential Information for any purpose at any
time, other than for the limited purpose of performance under this Agreement.
These obligations shall continue indefinitely for so long as the Confidential
Information is a trade secret under applicable law and shall continue for two
(2) years following termination of this Agreement with respect to Confidential
Information which does not rise to the level of a trade secret.
12. Notices. Except as specifically provided in this Agreement, all notices
-------
required hereunder shall be in writing and shall be given by personal delivery,
overnight courier service, or first class mail postage prepaid, to the parties
at their respective addresses set forth on the first page hereof, or at such
other address(es) as shall be specified in writing by such party to the other
parties in accordance with the terms and conditions of this Section. All notices
shall be deemed effective upon personal delivery, or three (3) business days
following deposit with any overnight courier service or with the U.S. Postal
5
<PAGE>
System, first class postage attached, in accordance with this Section.
13. Miscellaneous.
-------------
13.1 Entire Agreement. This Agreement constitutes the entire understanding and
----------------
agreement, and supersedes any and all prior or contemporaneous representations,
understandings and agreements between the parties with respect to the subject
matter of this Agreement, all of which are merged in this Agreement.
13.2 Independent Parties. The parties are independent parties and nothing
-------------------
herein shall be construed as creating an employment relationship between the
parties. Neither party is authorized as an agent or legal representative of the
other party. Neither party is granted any right or authority to assume or to
create, any obligation or responsibility, express or implied, on behalf or in
the name of the other party, or to bind such other party in any manner. Each
party is solely responsible for its own taxes.
13.3 Waiver. No waiver of any provision of this Agreement, or any rights or
------
obligations of either party under this Agreement, shall be effective, except
pursuant to a written instrument signed by the party or parties waiving
compliance, and any such waiver shall be effective only in the specific instance
and for the specific purpose stated in such writing.
13.4 Amendment. All amendments or modifications of this Agreement shall be
---------
binding upon the parties despite any lack of consideration so long as such
amendment or modifications are in writing and executed by the parties.
13.5 Severability Of Provisions. In the event that any provision of this
--------------------------
Agreement is found to be invalid or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
13.6 Assignment. This Agreement may not be assigned by Distributor without the
----------
written consent of EarthLink. This Agreement shall be binding upon and inure to
the benefit of each of the parties and their respective legal successors and
permitted assigns.
13.7 Governing Law; Jurisdiction; Attorneys' Fees. This Agreement shall be
--------------------------------------------
governed by the laws of California without giving effect to applicable conflict
of laws provisions. All actions with respect of this Agreement shall be brought
in the federal and state courts having jurisdiction within Pasadena, California
and the parties expressly consent to the personal jurisdiction of such courts.
In the event any litigation or other proceeding is brought by either party in
connection with this Agreement, the prevailing party in such litigation or other
proceeding shall be entitled to recover from the other party all costs,
attorneys' fees and other expenses incurred by such prevailing party in such
litigation.
13.8 Force Majeure. Neither EarthLink nor Distributor shall be deemed in
-------------
default of this Agreement if its performance or obligations under this Agreement
are delayed or become impossible or impractical by reason of any act of God,
war, civil disobedience or any other cause beyond the control of such party.
Notwithstanding the foregoing, a change in economic conditions or technology
shall not be deemed a force majeure event.
13.9 Export Restrictions. None of the Licensed Material or underlying
-------------------
information or technology may be downloaded or otherwise exported or re-
exported, except in accordance with federal import/export laws, rules and
regulations including those regulating the export of encryption technology.
6
<PAGE>
EXHIBIT A
DEFINITIONS
1.1 Co-Branding means the joint placement of each of Earthlink's Distributor's
-----------
brands.
1.2 Confidential Information means any Information or material which: (i) is
------------------------
confidential or proprietary to the disclosing party, which derives economic
value from not being generally known and is the subject of reasonable efforts by
the disclosing party to maintain its secrecy; or (ii) the disclosing party
obtains from any third party, which the disclosing party treats as proprietary,
whether or not owned by the disclosing party. Confidential Information shall not
include information which the receiving party can show is: (i) known by the
receiving party at the time of receipt from the disclosing party and not subject
to any other nondisclosure agreement between the parties; (ii) now, or which
hereafter becomes, generally known to the public through no fault of the
receiving party; (iii) otherwise lawfully and independently developed by the
receiving party without reference to Confidential Information of the disclosing
party; or (iv) lawfully acquired by the receiving party from a third party
without any obligation of confidentiality.
1.3 Customization Fee means the amount payable to EarthLink by Distributor for
-----------------
EarthLink's customization of the Licensed Material as provided in Section 2.2.
1.4 Distributor Product means the hardware and/or software product(s)
-------------------
distributed or marketed by Distributor as set forth on the Special Terms
Exhibit.
1.5 Documentation means the documentation customarily supplied by EarthLink
-------------
with the Software.
1.6 EarthLink Trademarks means the trademarks, service marks, logos, trade
--------------------
names and slogans of EarthLink identified in the Trademarks Exhibit.
1.7 Effective Date means the date first set forth above which, upon execution
--------------
of this Agreement by both parties, shall be the effective date of this
Agreement.
1.8 Initial Order Quantity means the number of disk sets in the initial order
----------------------
of Licensed Materials as specified on the Special Terms Exhibit.
1.9 Licensed Material means the Software and the related Documentation.
-----------------
1.10 Marks means the EarthLink Trademarks and copyright and proprietary notices
-----
associated with EarthLink's products and services as well as the trademarks,
trade names, service marks, logos, slogans and copyright and proprietary
notices of EarthLink's third-party licensors, including those of Sprint
Corporation and Sprint Communications Company, L.P.
1.11 Minimum Reorder Quantity means the minimum number of disk sets which
------------------------
Distributor may reorder in a single order as specified in the Special Terms
Exhibit.
1.12 Proprietary Software means the object code form only of Earthlink's
--------------------
proprietary software contained in the EarthLink Network TotalAccess software
suite.
1.13 Qualified Subscriber means an end user who subscribes to EarthLink's
--------------------
services through Software distributed by Distributor, and who has paid in full
for at least two months service from EarthLink.
1.14 Software means the Proprietary Software and the Third Party Software. The
--------
Software shall include all enhancements, updates, upgrades and/or new versions
released during the term of this Agreement.
1.15 Software Fees means the fees charged to Distributor for the right to
-------------
replicate and/or distribute the Licensed Material.
1.16 Termination Date means the date upon which any termination of this
----------------
Agreement, for any reason whatsoever (including expiration), becomes effective.
1.17 Territory means the territory in which Distributor may market and
---------
distribute the Licensed Material as described on the Special Terms Exhibit.
1.18 Third Party Software means the object code form only or software EarthLink
--------------------
licenses from other third parties and which is included in EarthLink Network
TotalAccess, including but not limited to: Netscape Navigator, Microsoft
Internet Explorer and software from Apple Computer, Inc. and Network
Telesystems.
EXHIBIT A - Definitions
<PAGE>
EXHIBIT B
EARTHLINK BRAND AND MARKS
Trademarks, trade names, logos and other product and proprietary
----------------------------------------------------------------
identifiers.
-----------
The EarthLink Network logo
The EarthLink Sprint combined logo
EarthLink Network(R)
EarthLink Network TotalAccess(TM)
"EarthLink Sprint"(TM)
bLink(TM)
It's Your Internet(TM)
All the internet You Can Eat(TM)
The Mall(TM)
The Arena(TM)
Personal Start Page(TM)
Exhibit B - Trademarks
<PAGE>
EXHIBIT C
TRADEMARK USAGE GUIDELINES
EarthLink Network, Inc.
Trademark and Copyright Notice Requirements For
EarthLink Network TotalAccess(TM) Software
I. CONTRACT TERMS
A. EarthLink Network, Inc.'s ownership of trademarks, trade names, and
copyrights shall be clearly indicated on all documents which include
reference to the EarthLink Network TotalAccess(TM) software. A
representative sample of each document, showing EarthLink's ownership,
must be sent to the Legal Department.
B. There shall be no alteration of any proprietary ((TM), (R) or (C))
notices on the EarthLink Network TotalAccess(TM) software delivered no
Distributor by EarthLink.
C. All trademarks and service marks belonging no EarthLink Network, Inc.
shall be used consistently and in the exact form provided by
EarthLink Network, Inc. The marks shall never be abbreviated, used in
a plural form, or altered in any manner.
II. ADDITIONAL TERMS PROVIDED:
A. SPECIFICATIONS FOR USE OF NOTICES:
Trademarks and Service Marks:
----------------------------
EarthLink Network is both a trade name and a federally registered
service mark of EarthLink Network, Inc. EarthLink Network
TotalAccess(TM) is a common law trademark of EarthLink Network, Inc.
1. The marks "EarthLink Network(R)" and "EarthLink Network
TotalAccess(TM)" should always be used as adjectives rather than
----------
as nouns or verbs.
Examples: OK: The EarthLink Network TotalAccess(TM) software
includes...
EarthLink Network(R) Internet access services are among
the most innovative access services available..
NOT OK: The EarthLink Network TotalAccess(TM) includes...
2. The mark must be set apart, an all times, from any surrounding
text, either physically or through the use of boldface type,
underlining, italics, or quotation marks, so that it is
distinctive.
3. Proper trademark notice ((R) or (TM), as appropriate) should be
used. For marks than are not federally registered, i.e.,
---
"EarthLink Network TotalAccess(TM)", the symbol "(TM)" must be
used with the mark at all times. For marks that are federally
registered, i.e., "EarthLink Network,' the symbol "(R)" must be
---
used with the mark at all times.
Copyrights:
----------
4. Copyright notices must read as follows:
(C) [Year date of publication] EarthLink Network, Inc. All Rights
Reserved.
EXHIBIT C - Trademark Usage Guidelines - 1
<PAGE>
B. SPECIFICATIONS FOR USE OF LOGO:
1. In Product Packaging:
(a) Placement:
(1) The logo must not touch or overlap any other logo on the
packaging.
(2) When used in conjunction with the Netscape Navigator(TM)
logo, the EarthLink logo must be 10% larger.
2. In Print, On-line, Broadcast Advertising and Direct Mail:
(a) Placement:
(1) Generally: The logo must be on a high-contrast background
and stand-alone in making a commercial impression.
(2) Generally: The logo must not touch or overlap any other logo
on the advertisement.
(3) In print and direct mail: The logo must appear in every
viewing plane (plane, spread or gatefold) of the
advertisement.
(4) In broadcast advertising: The logo must be on a screen for
at least five seconds and totally within the title-safe
screen area.
3. In Production Brochures and Other Collateral:
(a) Placement:
(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound collateral.
(2) The logo must be on high contrast background and stand-alone
in making a commercial impression.
4. General Logo Requirements:
(a) All usage of EarthLink Network(R) and/or EarthLink Network
TotalAccess(TM) included logos must always be identified as
trademarks of EarthLink Network, Inc. as follows: EarthLink
Network(R) (and/or EarthLink Network TotalAccess(TM)) and the
EarthLink Network(R)) logo are trademarks of EarthLink Network,
Inc.
(b) The EarthLink Network and/or EarthLink Network TotalAccess(TM)
included logos must be displayed in a positive manner and may not
depict EarthLink in any negative way.
(c) The logo may not be altered in color, shape, font, proportion or
in any other manner without prior written consent from an officer
of EarthLink Network, Inc.
EXHIBIT C- Trademark Usage Guidelines - 2
<PAGE>
RELATIONSHIP BETWEEN EARTHLINK AND NETSCAPE NAVIGATOR(TM) MARKS
When Netscape Navigator(TM) software is included with the EarthLink Network
TotalAccess(TM) software, the following requirements must be met:
1. Netscape Navigator(TM) included logo in relation to the EarthLink
logo:
a) The EarthLink logo may stand alone, however, any use of the
Netscape Navigator(TM) logo must be accompanied by the EarthLink
logo.
b) The EarthLink logo must be 10% larger than the Netscape logo.
Type face should be Garamond, Garamond Bold, and/or Garamond
Italic.
2. Netscape Navigator(TM) trademark and trade name usage in relation to
EarthLink Network TotalAccess(TM) trademark and trade name usage:
a) Any reference to the combination of marks should read as follows:
"Includes EarthLink Network TotalAccess(TM) with Netscape
Navigator(TM)
b) EarthLink Network TotalAccess(TM) typeface must be 30% larger
than the Netscape Navigator(TM) trademark typeface.
3. Copyright notices must read as follows:
a) In combination with EarthLink references:
1999 EarthLink Network, Inc. Trademarks are property of their
respective owners. Netscape Navigator is a trademark of Netscape
Communications Corporation. All Rights Reserved.
4. For all material that is distributed outside of the United States and
Canada the following notice must appear:
Netscape Navigator(TM) is offered only in conjunction with
EarthLink Network(R) Internet access service, which may not be
available in all areas.
EXHIBIT C - Trademark Usage Guidelines - 3
<PAGE>
Netscape Trademark Provisions
For "Netscape Navigator(TM) Included"
I. CONTRACT TERMS:
A. Whenever reference is made to Netscape Navigator or the functionality
of Netscape Navigator when used in conjunction with EarthLink's
Product, the Netscape trademarks and trade names relating to Netscape
Navigator must be used in any advertising, marketing, technical or
other materials related to the Navigator which are distributed.
B. Netscape's ownership of trademarks or trade names must be clearly
indicated on all documents which include reference to the Netscape
Navigator(TM) software.
C. Netscape may request copies of goods bearing Netscape's trademarks and
trade names to verify their adequate quality and if Netscape
determines the quality is inferior, EarthLink must suspend use of
Netscape's trademarks and trade names until EarthLink has taken the
steps Netscape requires to solve the quality deficiencies.
D. There shall be no alteration of any proprietary ((TM), (R), or (C))
notices on any documents or on the Netscape Navigator(TM) software
delivered to EarthLink by Netscape.
E. Each portion of the Netscape Navigator(TM) and documentation
reproduced by EarthLink shall include the intellectual property
notices appearing in or on the corresponding portion of such materials
as delivered by Netscape.
F. All copies of the Netscape Navigator(TM) must conspicuously display on
labels and all media containing the Navigator the following:
Copyright (C) 1999 (or other appropriate years), Netscape
Communications Corporation. All Rights Reserved.
II. ADDITIONAL TERMS PROVIDED:
A. SPECIFICATIONS OF LOGO: Use of logo must comply with all of the
following terms:
1. In Product Packaging:
a) Placement:
(1) The logo must appear on the front of the product
package.
(2) The logo may appear on the spine and/or back of the
product package.
(3) The logo must be placed on a high contrast background.
(4) The logo must not touch or overlap any other logo on
the packaging.
b) Size:
(1) Generally: The "N" graphic portion of Netscape
Navigator(TM) logo must be at least 3/4" (1/2" is okay)
on each side. The proportion of the entire graphic
should be based on the size of the "N" graphic.
(2) For CD ROMs and CD ROM Jewel Cases: the minimum size of
the "N" graphic portion of the Netscape Navigator(TM)
logo must be at least 1/2" on each side.
(3) Maximum size: The "N" graphic portion of the Netscape
Navigator logo can be no larger than 3/4" on each side.
(4) The Netscape Navigator(TM) logo must be no larger than
the OEM brand or product name or logo on the package.
(5) When a third party is bundling their products with
EarthLink Network(R) service (i.e. EarthLink is
entering into an "Affiliate" relationship) and three
brands, EarthLink, Netscape. Third party brand X, are
on the package, the required size is 3/8" as measured
by the size of the N square size.
EXHIBIT C - Trademark Usage Guidelines - 4
<PAGE>
2. In Print, On-line, Broadcast Advertising and Direct Mail:
a) Placement:
(1) Generally: The logo must be on a high-contrast
background and stand-alone in making a commercial
impression.
(2) Generally: The logo must not touch or overlap any
other logo on the advertisement.
(3) In print and direct mail: The logo must appear in every
viewing plane (page, spread or gatefold) of the
advertisement.
(4) In broadcast advertising: The logo must be on a screen
for at least 5 seconds and totally within the title-
safe screen area.
b) Size:
(1) Print: The "N" graphic portion of Netscape
Navigator(TM) Included logo must be at least 3/4" on
each side.
(2) Print: The "N" graphic portion of the Netscape
Navigator(TM) Included logo can never be larger than
1 1/2" one each side.
(3) Print: The "N" graphic portion of the Netscape
Navigator(TM) Included logo can never be larger than
the OEM brand or product name or logo.
(4) Broadcast: the logo must be a minimum of 15% of the
title safe area.
(5) Broadcast: the logo may be no larger than the OEM brand
or product name or logo in the broadcast advertisement.
(6) On-line: the "N" graphic portion of the Netscape
Navigator(TM) Included logo must be at least 30 pixels
one each side and must link to the Netscape site at the
following URL: "www.netscape.com."
3. In Production Brochures and Other Collateral:
a) Placement:
(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound
collateral.
(2) The logo must be on high contrast background and stand-
alone in making a commercial Impression.
b) Size:
(1) The "N" graphic portion of the Netscape Navigator(TM)
Included logo must be at least 3/4" on each side.
(2) The "N" graphic portion of the Netscape Navigator(TM)
Included logo can never exceed 1 1/2" on each side.
(3) The logo can never be larger than the OEM brand/
product name or logo in the collateral.
4. General Logo Requirements:
a) All usage of Netscape Navigator(TM) Included logo should
always be identified as a trademark of Netscape
Communications Corporation as follows:
"Netscape Navigator and the Netscape Navigator Included logo
are trademarks of Netscape Communications Corporation"
b) The Netscape Navigator(TM) Included logo must be displayed
in positive manner and may not depict Netscape in any
negative way.
c) The logo may only be reproduced directly from the diskette
provided by Netscape. It may not be altered in color, shape,
font, proportion or in any other manner.
d) The words Netscape Navigator(TM) must be 16 Pt font or
smaller on all usage including, but not limited to,
packaging and advertising. The only exception is the usage
of the words within the Navigator Included logo at the
appropriate size.
EXHIBIT C - Trademark Usage Guidelines 5
<PAGE>
e) The words "free," "free Upgrades," or "Personal Edition" may
not be used in association with the words Netscape
Navigator(TM).
f) The number version of the Netscape Navigator software may
not be used (i.e Netscape Navigator 2.0 or Netscape
Navigator 3.0)
B. TRADEMARK, TRADE NAME AND COPYRIGHT USE: Use of the Netscape marks
must comply with all of the following terms:
1. The first mention of a Netscape trademark in the body of printed
material must include proper notice of trademark ownership ((R),
(TM), or sm.)
a) If the first use is in a headline, the symbols do not have
to appear in the headline provided there is text on the same
page/screen where proper notice does appear.
2. "Netscape Navigator(TM) should be used as an adjective rather
than a noun or verb:
a) Example: OK: The Netscape Navigator(TM) software provides....
NOT OK: The Netscape Navigator(TM) provides....
b) However, after first use of the Netscape trademark as an
adjective, the trademark can alternately be used as both a
noun and adjective.
3. When referencing Netscape Communications Corporation: "Copyright
(c) 1999, Netscape Communications Corporation. All Rights
Reserved."
a) If more than one Netscape mark is used, all may be
incorporated into one sentence as follows: "The following are
worldwide trademarks of Netscape Communications Corporation
or its subsidiaries, registered in the United States as
indicated by(R) and in numerous other countries worldwide:
Netscape(TM); Netscape Navigator(TM), Netscape iStore(TM)."
4. The OEM must always represent the products as "including",
"containing" or "with" Netscape Navigator(TM) software.
5. The words "Netscape" or "Netscape Navigator(TM)" may not appear
In the product or brand name
a) OK: ABC Internet Suite with Netscape Navigator(TM) software
b) NOT OK: ABC Netscape Navigator(TM)
6. The OEM must not Indicate that the product is supported by
Netscape Communications Corporation directly.
7. The Netscape Navigator(TM) name must be used in a positive
manner. The name may not depict Netscape in any negative way.
EXHIBIT C - Trademark Usage GuIdelines - 6
<PAGE>
EXHIBIT D
SPECIAL TERMS
- --------------------------------------------------------------------------------
Territory
The Territory shall be the fifty states of the United States and Canada. Prices
shall be higher in Alaska, and Canada.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bundling
The Distributor Product bundled with the Licensed Material shall be VoiceLink.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Customization
The Customized Bookmarks shall be: http://www.sonk.com
The Customization Fee to be withheld from the initial Bounty payment(s) shall be
$0.00.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shipping and Freight
EarthLink shall pay for shipping and freight costs of the Licensed Material.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Waiver of Sign-Up Fee
The sign-up fee shall be waived for customers who sign-up to EarthLink's dial-up
service as a result of Distributor's efforts.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bounty
Bounty shall be the one-time fixed amount of $45.00 per Qualified Subscriber.
This shall be a one-time payment per subscriber.
- --------------------------------------------------------------------------------
EXHIBIT D - Special Terms - 1
<PAGE>
- --------------------------------------------------------------------------------
Performance Bonus
EarthLink shall pay Distributor a bonus for production of a minimum number of
Qualified subscribers per calendar quarter, in accordance with the schedule
below:
Qualified Subscribers per Quarter Corresponding Bonus
0 - 11,999 $ 0.00
12,000 - 19,999 $ 50,000.00
20,000 + $100,000.00
Applicable bonus will be payable within 60 days of the end of the qualifying
quarterly measurement period. For example, bonus for subscribers attained in the
three months ending September 30, 1999 would be payable within 60 days of
November 30, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Format and Platform
The format in which the Licensed Material will be delivered to distributor
shall be Gold Master CD-ROM.
The platform for the Licensed Material shall be Windows 95/98, Windows 3.x and
Macintosh.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Software Fee
The Software Fee shall be $0.00.
- --------------------------------------------------------------------------------
Packaging
Distributor shall, at its own cost and expense, provide its own packaging
subject to EarthLink's prior approval thereof, which approval may be withheld in
EarthLink's sole discretion.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL SPECIAL TERMS
The Licensed Material shall also include Eudora Lite
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agreed to by the parties:
Sign below:
/s/ [ILLEGIBLE]^ /s/ [ILLEGIBLE]^
- ------------------------------- -------------------------------
EarthLink Distributor
- --------------------------------------------------------------------------------
EXHIBIT D - Special Terms - 2
<PAGE>
EXHIBIT 10.16
SOFTLINK, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
this 31st day of August 1999 by and between Softlink, Inc. (the "Company") and
Johnson C. Lee ("Executive").
RECITALS
--------
A. Executive has been employed by the Company since September 1995, and
has acquired certain additional skills, experience and abilities with respect to
the Company's business.
B. The Company and Executive wish to document the terms of such
employment, and to modify certain of these terms as set forth herein.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
----------
the Company shall employ Executive in the capacity set forth on Exhibit A,
---------
attached hereto and incorporated herein by reference. Executive shall be
responsible for all of the normal activities associated with Executive's
position and shall perform the duties set forth on Exhibit A on behalf of the
---------
Corporation.
2. Acceptance of Executive.
-----------------------
(a) Executive hereby agrees to devote his best efforts to the service
of the Company, to render this service to the Company on a full-time basis and
faithfully, diligently and to the best of his ability discharge the
responsibilities thereof. Executive may perform his duties from the Company's
principle location or from such other location as he and the Company deem
appropriate.
(b) During the term hereof, Executive may not directly or indirectly,
either as an employee or employer, consultant, agent, principal, partner,
stockholder or in any other individual or representative capacity engage in
other businesses competitive with the email related software development
business as currently conducted or contemplated to be conducted by the Company.
3. Compensation. In consideration of the services to be rendered
------------
hereunder, Executive shall receive the compensation set forth on Exhibit A.
---------
4. Payment of Expenses. The Company shall pay directly on behalf of
-------------------
Executive, or reimburse Executive upon presentation of satisfactory receipts,
the reasonable expenses incurred by Executive in carrying out Executive's duties
pursuant to this Agreement.
<PAGE>
5. Other Benefits. Executive shall receive vacation in accordance with
--------------
Company policies. Executive shall be entitled to participate in the Company's
health and other benefit plans which may be in effect from time to time.
6. Option to Purchase Common Stock. The Company hereby grants Executive
-------------------------------
an option to purchase fifty thousand (50,000) shares of common stock of the
Company. The terms and conditions of this option shall be set forth in a
separate Option Agreement, a copy of which shall be attached as Exhibit B to
this Agreement.
7. Assignment of Inventions. Executive shall communicate promptly to the
------------------------
Company all inventions, discoveries, concepts and ideas whether patentable or
not, including but not limited to hardware, software, processes, methods,
techniques as well as improvements thereto conceived (collectively referred to
as "Developments"), developed, completed or reduced to practice during
Executive's employment with the Company, that (i) are related to the present or
prospective business, work or consulting of the Company; (ii) result from any
work performed on behalf of the Company; or (iii) result from use of the
Company's equipment, facilities or materials. Executive hereby assigns his
entire right, title and interest in and to all such Developments and any
intellectual property rights arising therefrom. Executive shall further
cooperate with the Company in connection with any applications, filings or
documents prepared and or filed related to the Developments.
8. Term. Unless the employment of Executive is terminated as set forth
----
herein, this Agreement shall continue in full force and effect for a period of
three (3) years from the date hereof. The Agreement shall be automatically
renewed for successive periods of one (1) year unless (i) notice is received by
the other party at least thirty (30) days prior to the end of the term or
extension thereof or (ii) this Agreement is otherwise terminated pursuant to the
terms hereof.
9. Termination of Employment by the Company.
----------------------------------------
(a) THE COMPANY MAY TERMINATE THE EMPLOYMENT OF EXECUTIVE AT ANY TIME
WITH OR WITHOUT "CAUSE" (as defined below), FOR ANY REASON OR NO REASON. THE
EMPLOYMENT RELATIONSHIP CONTEMPLATED HEREUNDER SHALL BE AT THE WILL OF THE
PARTIES HERETO. EXECUTIVE'S EMPLOYMENT SHALL ALSO TERMINATE UPON HIS DEATH.
(b) As contemplated in Section 9(a) hereof, the Company may also
terminate Executive's employment for "cause". The term "cause" as used herein
shall include but not be limited to (i) Executive's failure to follow directions
of the Board of Directors of the Company which are not inconsistent with this
Agreement, (ii) Executive's gross neglect of his responsibilities, (iii) any act
by Executive of dishonesty, fraud, misrepresentation, harassment or employment
discrimination, (iv) Executive's death or disability; (v) Executive's indictment
for a felony; and (vi) Executive's unauthorized dissemination of the Company's
confidential information or trade secrets.
<PAGE>
(c) Severance. Upon the termination of the employment of Executive
without "cause", Executive shall be paid severance equal to one (1) year's
salary in one lump sum such as severance shall be paid no later than thirty (30)
days from the date of termination.
10. Nondisclosure. Except as may be required by Executive's employment
-------------
with the Company, Executive shall not, without the prior written consent of the
Company, disclose or use at any time, either during or subsequent to Executive's
employment with the Company, any secret or confidential information disclosed by
the Company to him or which he learns during his employment with the Company.
Upon termination of his employment, Executive shall promptly deliver to the
Company all correspondence, manuals, letters, notes, notebooks, reports, flow-
charts, programs, proposals or any other documents concerning the Company's
customers, products, processes or business practices. However, this provision
shall not apply to the information, systems, processes, contacts or operating
methodologies brought by Executive to the Company or general information and
skills learned or developed by Executive, any information in the public domain,
or disclosed to third parties by the Company.
11. Non-Solicitation. During the term of this Agreement and for a period
----------------
of one year following the termination or expiration of this Agreement for
whatever reason (or if this period of time shall be unenforceable by law, then
for such period as shall be enforceable), Executive agrees not to contact, with
a view towards purchasing or selling any product or service competitive with any
product or service purchased or sold by Company, or purchase or sell any such
product or service from or to any person, firm, association, corporation or
other entity whatsoever:
(i) which Executive solicited, contacted or otherwise dealt with on
behalf of the Company during the twelve month period or any
portion thereof preceding termination or expiration of
Executive's employment with the Company; or
(ii) which is known by Executive to have been a customer, or client of
the Company during the twelve month period or any portion thereof
preceding the termination or expiration of his or her employment
with the Company.
Furthermore, Executive shall not for a period of two years after the
termination of his employment for whatever reason, solicit for hire, or hire any
employee of the Company, or any person who was employed by the Company at any
time within six (6) months of the termination of Executive's employment with the
Company, to work for Executive or any other person or entity.
12. Attorney's Fees. In the event that any legal action is brought to
---------------
enforce or interpret any part of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees and other costs incurred in that
action, in addition to any other relief to which that party may be entitled.
13. Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted, and enforced in accordance with, and governed by the laws of the
State of California.
<PAGE>
14. Severability. If any term or provision of this Agreement shall be
------------
held invalid or unenforceable to any extent, the remainder of this Agreement
shall not be affected and each other term and provision of this Agreement shall
be valid to the fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original and all of which shall be one and the same
instrument.
16. Arbitration. In the event a dispute of any kind or nature arises
-----------
under this Agreement, any documents executed in connection with this Agreement,
or any matters related to this Agreement, the parties shall, within ninety (90)
days of the receipt by the other party of a demand for arbitration, select a
mutually agreeable arbitrator and submit the dispute to such arbitrator for
binding arbitration, through the nearest American Arbitration Association
Regional Office, under the Commercial Arbitration Rules of the American
Arbitration Association. In the event the parties are unable to agree upon an
arbitrator, the arbitrator shall be appointed in accordance with the rules and
procedures of the American Arbitration Association. The fees for the
arbitration proceedings shall be forwarded by the party demanding arbitration.
However, the arbitration fee shall be paid or reimbursed by the non-prevailing
party, as determined by the arbitrator, who shall also award appropriate
attorney's fees and costs to the prevailing party.
17. Modification. Any amendment, change or modification of this Agreement
------------
shall be effective only if it is in writing and signed by the parties hereto.
18. Waiver. The failure of either party to insist upon strict compliance
------
with any of the terms, covenants or conditions of this Agreement by the other
party shall not be deemed a waiver of that term, covenant or condition, nor
shall any waiver or relinquishment of any right or power at any one time be
deemed a waiver or relinquishment of that right or power for all or any other
time.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement on the date first written above.
THE COMPANY: SOFTLINK, INC.
By:________________
Its:_______________
EXECUTIVE:
___________________
Johnson C. Lee
<PAGE>
EXHIBIT A
---------
This is Exhibit A to the Executive Employment Agreement dated August 31,
---------
1999 by and between Johnson C. Lee ("Executive") and Softlink, Inc. (the
"Company").
1. Capacity. Executive shall serve as the ___________________ of the Company.
--------
2. Duties. Executive's duties shall include but not be limited to:
------
(i) supervising the development of the technology underlying the
Company's software products;
(ii) hiring and supervising employees;
(iii) selling the Company's products and services; and
(vi) any other duty assigned to the Executive by the President, Chief
Executive Officer of the Board of Directors.
3. Compensation. Executive shall receive monthly compensation subject to
------------
withholding and other usual deductions in the amount of ten thousand dollars
($10,000) per month which shall be paid semi-monthly. The monthly compensation
will be reviewed annually to determine the appropriate increase, if any.
THE COMPANY: SOFTLINK, INC.
By:_______________
Its:______________
EXECUTIVE:
__________________
Johnson C. Lee
<PAGE>
EXHIBIT 10.17
SOFTLINK, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
this 31st day of August 1999 by and between Softlink, Inc. (the "Company") and
Edmund Leung ("Executive").
RECITALS
--------
A. Executive has been employed by the Company since September 1995, and
has acquired certain additional skills, experience and abilities with respect to
the Company's business.
B. The Company and Executive wish to document the terms of such
employment, and to modify certain of these terms as set forth herein.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
----------
the Company shall employ Executive in the capacity set forth on Exhibit A,
---------
attached hereto and incorporated herein by reference. Executive shall be
responsible for all of the normal activities associated with Executive's
position and shall perform the duties set forth on Exhibit A on behalf of the
---------
Corporation.
2. Acceptance of Executive.
-----------------------
(a) Executive hereby agrees to devote his best efforts to the service
of the Company, to render this service to the Company on a full-time basis and
faithfully, diligently and to the best of his ability discharge the
responsibilities thereof. Executive may perform his duties from the Company's
principle location or from such other location as he and the Company deem
appropriate.
(b) During the term hereof, Executive may not directly or indirectly,
either as an employee or employer, consultant, agent, principal, partner,
stockholder or in any other individual or representative capacity engage in
other businesses competitive with the email related software development
business as currently conducted or contemplated to be conducted by the Company.
3. Compensation. In consideration of the services to be rendered
------------
hereunder, Executive shall receive the compensation set forth on Exhibit A.
---------
4. Payment of Expenses. The Company shall pay directly on behalf of
-------------------
Executive, or reimburse Executive upon presentation of satisfactory receipts,
the reasonable expenses incurred by Executive in carrying out Executive's duties
pursuant to this Agreement.
<PAGE>
5. Other Benefits. Executive shall receive vacation in accordance with
--------------
Company policies. Executive shall be entitled to participate in the Company's
health and other benefit plans which may be in effect from time to time.
6. Option to Purchase Common Stock. The Company hereby grants Executive
-------------------------------
an option to purchase fifty thousand (50,000) shares of common stock of the
Company. The terms and conditions of this option shall be set forth in a
separate Option Agreement, a copy of which shall be attached as Exhibit B to
this Agreement.
7. Assignment of Inventions. Executive shall communicate promptly to the
------------------------
Company all inventions, discoveries, concepts and ideas whether patentable or
not, including but not limited to hardware, software, processes, methods,
techniques as well as improvements thereto conceived (collectively referred to
as "Developments"), developed, completed or reduced to practice during
Executive's employment with the Company, that (i) are related to the present or
prospective business, work or consulting of the Company; (ii) result from any
work performed on behalf of the Company; or (iii) result from use of the
Company's equipment, facilities or materials. Executive hereby assigns his
entire right, title and interest in and to all such Developments and any
intellectual property rights arising therefrom. Executive shall further
cooperate with the Company in connection with any applications, filings or
documents prepared and or filed related to the Developments.
8. Term. Unless the employment of Executive is terminated as set forth
----
herein, this Agreement shall continue in full force and effect for a period of
three (3) years from the date hereof. The Agreement shall be automatically
renewed for successive periods of one (1) year unless (i) notice is received by
the other party at least thirty (30) days prior to the end of the term or
extension thereof or (ii) this Agreement is otherwise terminated pursuant to the
terms hereof.
9. Termination of Employment by the Company.
----------------------------------------
(a) THE COMPANY MAY TERMINATE THE EMPLOYMENT OF EXECUTIVE AT ANY TIME
WITH OR WITHOUT "CAUSE" (as defined below), FOR ANY REASON OR NO REASON. THE
EMPLOYMENT RELATIONSHIP CONTEMPLATED HEREUNDER SHALL BE AT THE WILL OF THE
PARTIES HERETO. EXECUTIVE'S EMPLOYMENT SHALL ALSO TERMINATE UPON HIS DEATH.
(b) As contemplated in Section 9(a) hereof, the Company may also
terminate Executive's employment for "cause". The term "cause" as used herein
shall include but not be limited to (i) Executive's failure to follow directions
of the Board of Directors of the Company which are not inconsistent with this
Agreement, (ii) Executive's gross neglect of his responsibilities, (iii) any act
by Executive of dishonesty, fraud, misrepresentation, harassment or employment
discrimination, (iv) Executive's death or disability; (v) Executive's indictment
for a felony; and (vi) Executive's unauthorized dissemination of the Company's
confidential information or trade secrets.
<PAGE>
(c) Severance. Upon the termination of the employment of Executive
without "cause", Executive shall be paid severance equal to one (1) year's
salary in one lump sum such as severance shall be paid no later than thirty (30)
days from the date of termination.
10. Nondisclosure. Except as may be required by Executive's employment
-------------
with the Company, Executive shall not, without the prior written consent of the
Company, disclose or use at any time, either during or subsequent to Executive's
employment with the Company, any secret or confidential information disclosed by
the Company to him or which he learns during his employment with the Company.
Upon termination of his employment, Executive shall promptly deliver to the
Company all correspondence, manuals, letters, notes, notebooks, reports, flow-
charts, programs, proposals or any other documents concerning the Company's
customers, products, processes or business practices. However, this provision
shall not apply to the information, systems, processes, contacts or operating
methodologies brought by Executive to the Company or general information and
skills learned or developed by Executive, any information in the public domain,
or disclosed to third parties by the Company.
11. Non-Solicitation. During the term of this Agreement and for a period
----------------
of one year following the termination or expiration of this Agreement for
whatever reason (or if this period of time shall be unenforceable by law, then
for such period as shall be enforceable), Executive agrees not to contact, with
a view towards purchasing or selling any product or service competitive with any
product or service purchased or sold by Company, or purchase or sell any such
product or service from or to any person, firm, association, corporation or
other entity whatsoever:
(i) which Executive solicited, contacted or otherwise dealt with on
behalf of the Company during the twelve month period or any
portion thereof preceding termination or expiration of
Executive's employment with the Company; or
(ii) which is known by Executive to have been a customer, or client of
the Company during the twelve month period or any portion thereof
preceding the termination or expiration of his or her employment
with the Company.
Furthermore, Executive shall not for a period of two years after the
termination of his employment for whatever reason, solicit for hire, or hire any
employee of the Company, or any person who was employed by the Company at any
time within six (6) months of the termination of Executive's employment with the
Company, to work for Executive or any other person or entity.
12. Attorney's Fees. In the event that any legal action is brought to
---------------
enforce or interpret any part of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees and other costs incurred in that
action, in addition to any other relief to which that party may be entitled.
13. Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted, and enforced in accordance with, and governed by the laws of the
State of California.
<PAGE>
14. Severability. If any term or provision of this Agreement shall be
------------
held invalid or unenforceable to any extent, the remainder of this Agreement
shall not be affected and each other term and provision of this Agreement shall
be valid to the fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original and all of which shall be one and the same
instrument.
16. Arbitration. In the event a dispute of any kind or nature arises
-----------
under this Agreement, any documents executed in connection with this Agreement,
or any matters related to this Agreement, the parties shall, within ninety (90)
days of the receipt by the other party of a demand for arbitration, select a
mutually agreeable arbitrator and submit the dispute to such arbitrator for
binding arbitration, through the nearest American Arbitration Association
Regional Office, under the Commercial Arbitration Rules of the American
Arbitration Association. In the event the parties are unable to agree upon an
arbitrator, the arbitrator shall be appointed in accordance with the rules and
procedures of the American Arbitration Association. The fees for the
arbitration proceedings shall be forwarded by the party demanding arbitration.
However, the arbitration fee shall be paid or reimbursed by the non-prevailing
party, as determined by the arbitrator, who shall also award appropriate
attorney's fees and costs to the prevailing party.
17. Modification. Any amendment, change or modification of this Agreement
------------
shall be effective only if it is in writing and signed by the parties hereto.
18. Waiver. The failure of either party to insist upon strict compliance
------
with any of the terms, covenants or conditions of this Agreement by the other
party shall not be deemed a waiver of that term, covenant or condition, nor
shall any waiver or relinquishment of any right or power at any one time be
deemed a waiver or relinquishment of that right or power for all or any other
time.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement on the date first written above.
THE COMPANY: SOFTLINK, INC.
By:____________________
Its:___________________
EXECUTIVE:
_______________________
Edmund Leung
<PAGE>
EXHIBIT A
---------
This is Exhibit A to the Executive Employment Agreement by dated August 31,
1999 and between Edmund Leung ("Executive") and Softlink, Inc. (the "Company").
1. Capacity. Executive shall serve as the Chief Technical Officer of the
--------
Company.
2. Duties. Executive's duties shall include but not be limited to:
------
(i) supervising the development of the technology underlying the
Company's software products;
(ii) hiring and supervising employees;
(iii) any other duty assigned to the Executive by the President,
Chief Executive Officer or the Board of Directors.
3. Compensation. Executive shall receive monthly compensation subject to
------------
withholding and other usual deductions in the amount of ten thousand dollars
($10,000) per month which shall be paid semi-monthly. The monthly compensation
will be reviewed annually to determine the appropriate increase, if any.
THE COMPANY: SOFTLINK, INC.
By:_________________
Its:________________
EXECUTIVE:
____________________
Edmund Leung
<PAGE>
EXHIBIT 10.18
[LOGO OF SOFTLINK APPEARS HERE]
August 31, 1999
Mr. Roy Timor
Director, Product Marketing
Packard Bell/NEC
Europe
Dear Mr. Timor:
I wanted to send off a quick proposal to you since I understand there are some
time restrains. We are all very excited with the opportunity to review an OEM
opportunity with such a strong marketer and recognized leader in your industry.
Softlink will provide a Gold Master CD of Voice link 3.0 with an average
message time limit with at no charge to be installed on the NEC and/or
Packard Bell branded product in English.
Softlink will provide the following languages: Dutch, Spanish and French
version 3.0. Packard Bell will translate all marketing materials to these
three languages.
Softlink will provide level two support at no charge to the customer,
either through it's website hotline or through it's technical support
department Softlink Corporate offices.
Six months after the initial launch of the program, Packard Bell will
market the latest version of Softlink and the latest version of email
inChorus to Packard Bell's customer base. A hot linked from Packard Bell's
website will be set up in which Softlink will provide the downloading
process.
Softlink will give Packard Bell NEC a $2.00 US fee for all upgrades on
Soft1ink's email Voicelink and a $3.00 US fee for all upgrades downloaded
for email inChorus. Revenue to Packard Bell will be paid on a monthly
basis within forty-five days of the recorded revenue month.
Softlink Packard Bell/NEC
- -------- ----------------
Approval By: /s/ [ILLEGIBLE] Approved By: /s/ DOMINIQUE HALATRE
---------------------- ---------------------
INTERNET BUSINESS
MANAGER
PACKARD BELL NEC EUROPE
Date: 10/10/99 Date: 10 September 1999
----------------------------- ----------------------------
<PAGE>
EXHIBIT 10.20
SOFTLINK, INC.
1999 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
--------------------
The purposes of this 1999 Stock Option Plan (the "Plan") of Softlink, Inc.,
a Nevada corporation (the "Company") are to:
(i) Encourage selected officers, directors, key employees and
consultants to improve operations and increase profits of the Company or its
Affiliates;
(ii) Encourage selected officers and key employees to accept or continue
employment with the Company or its Affiliates; and
(iii) Increase the interest of selected officers, directors, key
employees and consultants in the Company's welfare through participation in the
growth in value of the common stock of the Company ("Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
----------------
Every person who at the date of grant of an Option is a key employee of the
Company or of any Affiliate (as defined below) (including employees who are also
officers or directors of the Company or of any Affiliate) is eligible to receive
NQOs or ISOs under this Plan. The applicable term "Affiliate" as used in the
Plan means a parent or subsidiary corporation as defined in the provisions
(currently Sections 424(e) and (f), respectively) of the Code. Every person who
is a director of or consultant to the Company or any Affiliate at the date of
grant of an Option is eligible to receive NQOs under this Plan.
3. STOCK SUBJECT TO THIS PLAN
--------------------------
Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock which may be granted pursuant to this Plan
is two million four hundred thousand (2,400,000) shares of Common Stock. The
shares unexercised shall become available again for grants under the Plan.
4. ADMINISTRATION
--------------
4.1 Option Committee. This Plan shall be administered by the Board of
----------------
Directors of the Company (the "Board") or by a committee of at least two Board
members, one of which is the President, (hereinafter referred to as the
"Committee Chairman") to which administration of the Plan is delegated (in
either case, the "Option Committee"). No member of the Option Committee shall
be liable for any decision, action, or omission respecting the Plan, any
options, or any option shares.
4.2 Disinterested Administration. From and after such time as the Company
----------------------------
registers a class of equity securities under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), this Plan shall be
administered in accordance with the disinterested administrative requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.
<PAGE>
4.3 Authority of the Option Committee. Subject to the other provisions
---------------------------------
of this Plan, the Options Committee shall have the authority, in its discretion:
(i) to grant Options; (ii) to determine the fair market of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee, to modify or amend any Option; (ix) to defer (with the consent of
the optionee) or accelerate the exercise date or vesting of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The Option
Committee may delegate nondiscretionary administrative duties to such employees
of the Company as it deems proper.
4.4 Determinations Final. All questions of interpretation,
--------------------
implementation, and application of this Plan shall be determined by the Board or
the Option Committee. Such determinations shall be final and binding on all
persons.
5. GRANTING OF OPTIONS: OPTION AGREEMENT
-------------------------------------
5.1 Ten-Year Term. No Options shall be granted under this Plan after ten
-------------
years from the date of adoption of this Plan by the Board.
5.2 Option Agreement. Each Option shall be evidenced by a written stock
----------------
option agreement, in form satisfactory to the Company, executed by the Company
and the person to whom such Option is granted; provided, however, that the
failure by the Company, the optionee, or both to execute such an agreement shall
not invalidate the granting of any Option.
5.3 Designation as ISO or NQO. The agreement shall specify whether each
-------------------------
Option it evidences is a NQO or an ISO. Notwithstanding designation of any
Option as an ISO or a NQO, if the aggregate fair market value of the shares
under Options designated as ISOs which would become exercisable for the first
time by any Optionee at a rate in excess of $100,000 in any calendar year (under
all plans of the Company), then unless otherwise provided in the stock option
agreement or by the Option Committee, such Options shall be NQOs to the extent
of the excess above $100,000. For purposes of this Section 5.3, Options shall
be taken into account in the order in which they were granted, and the fair
market value of the shares shall be determined as of the time the Option, with
respect to such shares, is granted.
5.4 Grant to Prospective Employees. The Option Committee or the Committee
------------------------------
Chairman may approve the grant of Options under this Plan to persons who are
expected to become employees of the Company, but who are not employees at the
date of approval. In such cases, the Option shall be deemed granted, without
further approval, on the date the optionee is first treated as an employee for
payroll purposes.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under this Plan shall be designated as a NQO or an ISO.
Each Option shall be subject to the terms and conditions set forth in Section
6.1. NQOs shall be also subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject
to the terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
6.1 Terms and Conditions to Which Options Are Subject. Options granted
-------------------------------------------------
under this Plan shall, as
<PAGE>
provided in Section 6, be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure. The existence of outstanding
----------------------------
Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred, or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 6.1.2,
if the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, or other event, or converted into or
exchanged for other securities as a result of a merger, consolidation,
reorganization, or other event, appropriate adjustments shall be made in (i) the
number and class of shares of stock subject to this Plan and each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result to any such adjustments. Each such adjustment
shall be subject to approval by the Option Committee in its sole discretion, and
may be made without regard to any resulting tax consequence to the optionee.
6.1.2 Corporate Transactions. In connection with (i) any merger,
----------------------
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Option Committee may, in its absolute
discretion, do one or more of the following upon ten days' prior written notice
to all optionees; (a) accelerate any vesting schedule to which an Option is
subject; (b) cancel Options upon payment to each optionee in cash, with respect
to each Option to the extent then exercisable, of any amount which, in the
absolute discretion of the Option Committee, is determined to be equivalent to
any excess of the market value (at the effective time of such event) of the
consideration that such optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new option rights be
substituted for the option rights granted under this Plan, or that the Company's
obligations as to Options outstanding under this Plan be assumed, by an employer
corporation other than the Company or by a parent or subsidiary of such employer
corporation. The actions described in this Section 6.1.2 may be taken without
regard to any resulting tax consequence to the optionee.
6.1.3 Time of Option Exercise. Except as necessary to satisfy the
-----------------------
requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable at such times as are specified in
the written stock option agreement relating to such Option: provided, however,
that so long as the optionee is a director or officer, as those terms are used
in Section 16 of the Exchange Act, such Option may not be exercisable, in whole
or in part, at any time prior to the six-month anniversary of the date of the
Option grant, unless the Option Committee determines that the foregoing
provision is not necessary to comply with the provisions of Rule 16b-3 or that
Rule 16b-3 is not applicable to the Plan. No Option shall be exercisable,
however, until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee. The Option Committee, in
its absolute discretion, may later waive any limitations respecting the time at
which an Option or any portion of an Option first becomes exercisable.
6.1.4 Option Grant Date. Except as provided in Section 5.4 or as
-----------------
otherwise specified by the Option Committee, the date of grant of an Option
under this Plan shall be the date as of which the Option Committee approves the
grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
---------------------------------
this Plan shall be assignable or otherwise transferable by the optionee except
by will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (limited in the case of an ISO, to a qualified domestic
relations order that effects a transfer of an ISO that is community property as
part of a division of community property). During the life of the optionee, an
Option shall be exercisable only by the optionee.
<PAGE>
6.1.6 Payment. Except as provided below, payment in full shall be
-------
made for all stock purchased at the time written notice of exercise of an Option
is given to the Company, and proceeds of any payment shall constitute general
funds of the Company. Payment may be made in cash, by promissory note, by
delivery to the Company of shares of Common Stock owned by the optionee (duly
endorsed in favor of the Company or accompanied by a duly endorsed stock power),
or by any other form of consideration and method of payment to the extent
permitted under applicable law. Any shares delivered shall be valued as of the
date of exercise of the Option in the manner set forth in Section 6.1.12.
Optionees may not exercise Options by delivery of shares more frequently than at
six-month intervals.
6.1.7 Termination of Employment. Unless determined otherwise by the
-------------------------
Option Committee in its absolute discretion to the extent not already expired or
exercised, every Option granted under this Plan shall terminate at the earlier
of (a) the Expiration Date (as defined in Section 6.1.12) or (b) three months
after termination of employment with the Company or any Affiliate; provided,
that an Option shall be exercisable after the date of termination of employment
only to the extent exercisable on the date of termination; and provided further,
that if termination of employment is due to the optionee's "disability" (as
determined in accordance with Section 22(e)(3) of the Code), the optionee, or
the optionee's personal representative, may at any time within one (1) year
after the termination of employment (or such lesser period as is specified in
the option agreement but in no event after the Expiration Date of the Option),
exercise the option to the extent it was exercisable at the date of termination;
and provided further that if termination of employment is due to the Optionee's
death, the Optionee's estate or a legal representative thereof, may at any time
within and including six (6) months after the date of death of Optionee (or such
lesser period as is specified in the option agreement but in no event after the
Expiration Date of the Option), exercise the option to the extent it was
exercisable at the date of termination. Transfer of an optionee from the
Company to an Affiliate or vice versa, or from one Affiliate to another, or a
leave of absence due to sickness, military service, or other cause duly approved
by the Company, shall not be deemed a termination of employment for purposes of
this Plan. For the purpose of this Section 6.1.7, "employment" means engagement
with the Company or any Affiliate of the Company either as an employee, as a
director, or as a consultant.
6.1.8 Repurchase of Stock. In addition to the right of first refusal
-------------------
set forth in Section 6.1.9, at the time it grants Options under this Plan, the
Company may retain, for itself or others, rights to purchase the shares acquired
under the Option or impose other restrictions on the transfer of such shares.
The terms and conditions of any such rights or other restrictions shall be set
forth in the option agreement evidencing the Option.
6.1.9 Company's Right of First Refusal.
--------------------------------
(i) Company's Right; Notice. Stock delivered pursuant to the
exercise of any option granted under this Plan shall be subject to a right of
first refusal by the Company in the event that the holder of such shares
proposes to sell, pledge, or otherwise transfer such shares or any interest in
such shares to any person or entity. Any holder of shares purchased under this
Plan desiring to transfer such shares or any interest in such shares shall give
a written notice (the "Offer Notice") to the Company describing the proposed
transfer, including the number of shares proposed to be transferred, the
proposed transfer price and terms, and the name and address of the proposed
transferee. The Company's rights under this Section 6.1.9 shall be freely
assignable.
(ii) Exercise. Except as provided under any repurchase right
imposed under Section 6.1.8, if the Company fails to exercise its right of first
refusal within 20 days from the date on which the Company receives the Offer
Notice, the shareholder may, within the next 90 days, conclude a transfer to the
proposed transferee of the exact number of shares covered by that notice on
terms not more favorable to the transferee than those described in the notice.
Any subsequent proposed transfer shall again be subject to the Company's right
of first refusal. If the Company exercises its right of first refusal, the
shareholder shall endorse and deliver to the Company the stock certificates
representing the shares being repurchased. The Company shall pay the shareholder
the total repurchase price for the shares no later than the later of (a) sixty
(60) days after receipt of the Offer Notice and (b) the end of such period for
payment offered by the bona fide third-party transferor. The holder of the
shares being repurchased shall cease to have any rights with respect to such
shares immediately upon receipt of the repurchase price.
<PAGE>
(iii) Exceptions. Notwithstanding the foregoing provisions of
this Section 6.1.9, no notice of a proposed transfer shall be required and no
right of first refusal shall exist with respect to transfers, including sales,
to an optionee's children, grandchildren, or parents or to trusts, estates, or
custodianships of or for the account of an optionee or an optionee's children,
grandchildren, or parents; provided, however, that the transferee shall take
such shares subject to the provisions of Sections 6.1.8. and 6.1.9.
(iv) Termination of Company's Right. The right of first
refusal set forth in this Section 6.1.9 shall terminate upon the earlier of the
consummation of an underwritten public offering of the Company's Common Stock
registered under the Securities Act of 1933 or the date on which the Common
Stock is registered under Section 12 of the Exchange Act.
(v) No Limitation. Nothing in this Section 6.1.9 shall
limit the rights of the Company under any repurchase right imposed under Section
6.1.8.
(vi) Conflict. In the event that the terms of this paragraph
6.1.9 conflict or are inconsistent with any provision in the Bylaws of the
Company, the terms of the Bylaws shall control.
6.1.10 Withholding and Employment Taxes. At the time of exercise of
--------------------------------
an Option (or at such later time(s) as the Company may prescribe), the optionee
shall remit to the Company in cash all applicable (as determined by the Company
in its sole discretion) federal and state withholding taxes. The Option
Committee may, in the exercise of its sole discretion, permit an optionee to pay
some or all of such taxes by means of a promissory note on such terms as the
Option Committee deems appropriate. If authorized by the Option Committee in
its sole discretion, and if the Option has been held for six months or more, an
optionee may elect to have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company or to tender to the Company other
shares of Common Stock or other securities of the Company owned by the optionee
on the date of determination of the amount of tax to be withheld as a result of
the exercise of such Option (the "Tax Date") to pay the amount of tax that is
required by law to be withheld by the Company as a result of the exercise of
such Option, provided that the election satisfies the following requirements:
(i) the election shall be irrevocable, shall be made at
least six months before the Option exercise, and shall be subject to the
disapproval of the Option Committee at any time before consummation of the
Option exercise; or
(ii) the election shall be made in advance to take effect in
a subsequent "window period" (as defined below) in which the Option is
exercised, and the Option Committee shall approve the election when it is made
or at any time thereafter up to consummation of the Option exercise; or
(iii) the election shall be made in a window period and the
approval of the Option Committee shall be given after the election is made and
within the same window period, and the Option exercise shall be consummated
within such window period; or
(iv) shares or other previously owned securities shall be
tendered (but stock shall not be withheld) at any time up to the consummation of
the Option exercise (in which event, neither a prior irrevocable election nor
window period timing shall be required).
Notwithstanding the foregoing, clauses (ii) and (iii) shall not be
available until the Company has been subject to the reporting requirements of
the Securities Exchange Act of 1934 for at least one year.
A "window period" is the period beginning on the third business day
following the date of release for publication of quarterly or annual summary
statements of sales and earnings and ending on the 12th business day following
such date. Any securities so withheld or tendered shall be valued by the
Company as of the Tax Date.
<PAGE>
6.1.11 Other Provisions. Each Option granted under this Plan may
----------------
contain such other terms, provisions, and conditions not consistent with this
Plan as may be determined by the Option Committee, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.12 Determination of Value. For purposes of the Plan, the value
----------------------
of Common Stock or other securities of the Company shall be determined as
follows:
(i) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers Automated Quotation System, its fair market value shall be the closing
sales price for such stock or the closing bid if no sale was reported, as quoted
on such system or exchange (or the largest such exchange) for the date the value
is to be determined (or if there is no sale for such date, then for the last
preceding business day on which there was at least one sale), as reported in the
Wall Street Journal.
- -------------------
(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there is no quoted price
for the date of grant, then for the last preceding business day on which there
was a quoted price).
(iii) If the stock of the Company is as described in Section
6.1.12(i) or (ii), but is restricted by law, contract, market conditions, or
otherwise as to salability or transferability, its fair market value shall be as
set forth in Section 6.1.12(i) or (ii), as appropriate, less, as determined by
the Option Committee, an appropriate discount, based on the nature and terms of
the restrictions.
(iv) In the absence of an established market for the stock,
the fair market value thereof shall be determined by the Option Committee, with
reference to the Company's net worth, prospective earning power, dividend-paying
capacity, and other relevant factors, including the goodwill of the Company, the
economic outlook in the Company's industry, the Company's position in the
industry and its management, and the values of stock of other corporations in
the same or a similar line of business.
6.1.13 Option Term. No Option shall be exercisable more than ten
-----------
years after the date of grant, or such lesser period of time as set forth in the
option agreement (the end of the maximum exercise period stated in the option
agreement is referred to in this Plan as the "Expiration Date"). No ISO granted
to any person who owns, directly or by attribution, stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company of any Affiliate ( a "Ten Percent Stockholder") shall be exercisable
more than five years after the date of grant.
6.1.14 Exercise Price. The exercise price of any Option granted to
--------------
any Ten Percent Stockholder shall in no event be less than 110 percent of the
fair market value (determined in accordance with Section 6.1.12) of the stock
covered by the Option at the time the Option is granted.
6.1.15 Compliance with Securities Laws. The Company shall not be
-------------------------------
obligated to offer or sell any shares upon exercise of an Option unless the
shares are at that time effectively registered or exempt from registration under
the federal securities laws and the offer and sale of the shares are otherwise
in compliance with all applicable state and local securities laws. The Company
shall have no obligation to register the shares under the federal securities
laws or take whatever other steps may be necessary to enable the shares to be
offered and sold under federal or other securities laws. Upon exercising all or
any portion of an Option, an optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the Option shares or subsequent transfers of any interest in the shares to
comply with applicable securities laws. Stock certificates evidencing shares
acquired upon exercise of options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan, or the
option agreement evidencing the Option.
<PAGE>
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following additional terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section 6.1.14,
--------------
the exercise price of a NQO shall not be less than 85 percent of the fair market
value (determined in accordance with Section 6.1.12) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following additional terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.14,
--------------
the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.12) of the stock covered
by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired upon
--------------------------
exercise of an ISO is disposed of in a "disqualifying disposition" within the
meaning of Section 422 of the Code, the holder of the stock immediately before
the disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
------------------
7.1 Notice of Exercise. An optionee wishing to exercise an Option
------------------
shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Option Committee,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option will be considered as the date such Option was exercised.
7.2 Issuance of Certificates. Promptly after receipt of written
------------------------
notice of exercise of an Option, the Company shall, without stock issue or
transfer taxes to the optionee or other person entitled to exercise the Option,
deliver to the optionee or such other person a certificate or certificates for
the requisite number of shares of stock. Unless the Company specifies
otherwise, an optionee or transferee of an optionee shall not have any
privileges as a shareholder with respect to any stock covered by the Option
until the date of issuance of a stock certificate. Subject to Section 6.1.1
hereof, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date the certificates are delivered.
8. EMPLOYMENT RELATIONSHIP
-----------------------
Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its Affiliates.
9. AMENDMENTS TO PLAN
------------------
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to federal or other tax laws relating to
incentive stock options. No amendment shall require shareholder approval unless
shareholder approval is required to preserve incentive stock option treatment
for tax purposes or the Board otherwise concludes that shareholder approval is
advisable.
<PAGE>
10. SHAREHOLDER APPROVAL: TERM
--------------------------
The Board of Directors of the Company adopted this Plan as of September 3,
1999 and the Company's shareholders approved this Plan as of _________________.
This Plan shall terminate ten years after initial adoption by the Board unless
terminated earlier by the Board. The Board may terminate this Plan without
shareholder approval. No Options shall be granted after termination of this
Plan, but termination shall not affect rights and obligations under then-
outstanding Options.
<PAGE>
EXHIBIT 10.21
SOFTLINK, INC.
STOCK OPTION AGREEMENT
[FORM]
This Softlink, Inc. Stock Option Agreement (the "Agreement"), by and
between Softlink, Inc., a Nevada corporation (the "Company"), and ____________
("Optionee"), is made effective as of this _____ day of __________, 1999.
RECITALS
1. Pursuant to the Softlink, Inc. 1999 Stock Option Plan (the "Plan"),
the Board of Directors of the Company (the "Board") has authorized the grant of
an option to purchase common stock of the Company ("Common Stock") to Optionee,
effective on the date indicated above, thereby allowing Optionee to acquire a
proprietary interest in the Company in order that Optionee will have further
incentive for continuing his or her employment by, and increasing his or her
efforts on behalf of, the Company or an Affiliate of the Company.
2. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stock option on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Option Grant. The Company hereby grants to the Optionee, as a
------------
separate incentive and not in lieu of any fees or other compensation for his or
her services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of _________________ (___________) shares
of authorized but unissued shares of Common Stock, at the Purchase Price set
forth in paragraph 2 of this Agreement.
2. Purchase Price. The Purchase Price per share (the "Option Price")
--------------
shall be $_________, which is not less than eighty five percent (85%) [or one
hundred ten percent (110%)] of the fair market value per share of Common Stock
on the date hereof. The Option Price shall be payable in the manner provided in
paragraph 9 below.
3. Adjustment. The number and class of shares specified in paragraph 1
----------
above, and the Option Price, are subject to appropriate adjustment in the event
of certain changes in the capital structure of the Company such as stock splits,
recapitalizations and other events which alter the per share value of Common
Stock or the rights of holders thereof. In connection with (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Company may, in its absolute discretion, do
one or more of the following upon ten days' prior written notice to the
Optionee: (a) accelerate any vesting schedule to which this option is subject;
(b) cancel this option upon payment to the Optionee in cash, to the extent this
option is then exercisable, of any amount which, in the absolute discretion of
the Company, is determined to be equivalent to any excess of the market value
(at the effective time of such event) of the consideration that the Optionee
would have received if this option had been exercised before the effective time
over the Option Price; (c) shorten the period during which this option is
exercisable (provided that this option shall remain exercisable, to the extent
otherwise exercisable, for at least ten days after the date the notice is
given); or (d) arrange that new option rights be substituted for the option
rights granted under this option, or that the Company's obligations under this
option be assumed, by an employer corporation other than the Company or by a
parent or subsidiary of such employer corporation. The actions described in
this paragraph 3 may be taken without regard
<PAGE>
to any resulting tax consequence to the Optionee.
[OPTIONAL FOUR YEAR VESTING]
4. Option Exercise. Commencing on the date one (1) year after the date
---------------
of this Agreement the right to exercise this option will accrue as to one-fourth
( 1/4) of the number of shares subject to this option. Thereafter, the right to
exercise the remainder of this option will accrue in twelve (12) equal quarterly
installments. Shares entitled to be, but not, purchased as of any accrual date
may be purchased at any subsequent time, subject to paragraphs 5 and 6 below.
The number of shares which may be purchased as of any such anniversary date will
be rounded up to the nearest whole number. No partial exercise of the option
may be for an aggregate exercise price of less than One Hundred Dollars ($100).
In order to exercise any part of this option, Optionee must agree to be bound by
the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of
the exercise of this Option.
[OPTIONAL IMMEDIATE VESTING]
4. Option Exercise. Commencing on the date of this Agreement, the right
---------------
to exercise this option will accrue as to all of the shares subject to this
option. Shares entitled to be, but not, purchased as of the accrual date may be
purchased at any subsequent time, subject to paragraphs 5 and 6 below. No
partial exercise of the option may be for an aggregate exercise price of less
than One Hundred Dollars ($100). In order to exercise any part of this option,
Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement,
if any, existing at the time of the exercise of this Option.
5. Termination of Option. The right to exercise this option will lapse
---------------------
in four (4) equal installments of the number of shares subject to this option on
each of the sixth, seventh, eighth, and ninth anniversaries of the effective
date of this Agreement. Notwithstanding any other provision of this Agreement,
this option may not be exercised after, and will completely expire on, the close
of business on the date ten (10) years after the effective date of this
Agreement, unless terminated sooner pursuant to paragraph 6 below.
6. Termination of Employment. In the event of termination of Optionee's
-------------------------
employment with the Company for any reason, this option will terminate three (3)
months after the date of the termination of Optionee's employment, unless
terminated earlier pursuant to paragraph 5 above. However, (i) if termination
is due to the death of Optionee, the Optionee's estate or a legal representative
thereof, may at any time within and including six (6) months after the date of
death of Optionee, exercise the option to the extent it was exercisable at the
date of termination; or (ii) if termination is due to Optionee's "disability"
(as determined in accordance with Section 22(e)(3) of the Internal Revenue
Code), Optionee may, at any time, within one (1) year following the date of this
Agreement, exercise the option to the extent it was exercisable at the date of
termination. If the Optionee or his or her legal representative fails to
exercise the option within the time periods specified in this paragraph 6, the
option shall expire. The Optionee or his or her legal representative may, on or
before the close of business on the earlier of the date for exercise set forth
in paragraph 5 or the dates specified in paragraph 4 above, exercise the option
only to the extent Optionee could have exercised the option on the date of such
termination of employment pursuant to paragraphs 4 and 5 above.
7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the Plan,
----------------------------
in the event of termination of Optionee's employment with the Company for any
reason, the Company shall have an option to repurchase ("Repurchase Option") any
Common Stock owned by the Optionee or his or her heirs, legal representatives,
successors or assigns at the time of termination, or acquired thereafter by any
of them at any time, by way of an option granted hereunder. The Repurchase
Option must be exercised, if at all, by the Company within ninety (90) days
after the date of termination upon notice ("Repurchase Notice") to the Optionee
or his or her heirs, legal representatives, successors or assigns, in
conformance with paragraph 13 below. The purchase price to be paid for the
shares subject to the Repurchase Option shall be One Hundred Fifteen Percent
(115%) of their book value. For the purposes of this paragraph, the Company's
book value shall be determined in accordance with generally accepted accounting
principles applied on a basis consistent with those previously applied by the
Company. The book value shall be fixed under this paragraph by the accountants
of the Company and shall be computed as of the last day of the Company's fiscal
quarter most recently preceding the Repurchase Notice. Any shares issued
pursuant to an exercise of an option hereunder shall contain the following
legend condition in addition to any other applicable legend condition:
2
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE
PROVISIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
8. Transferability. This option will be exercisable during Optionee's
---------------
lifetime only by Optionee. Except as otherwise set forth in the Plan, this
option will be non-transferable.
9. Method of Exercise. Subject to paragraph 10 below, this option may be
------------------
exercised by the person then entitled to do so as to any shares which may then
be purchased by delivering to the Company an exercise notice in the form
attached hereto as Exhibit A and:
---------
(a) full payment of the Option Price thereof (and the amount of any
tax the Company is required by law to withhold by reason of such exercise) in
the form of:
(i) cash or readily available funds; or
(ii) delivery of Optionee's promisory note (the "Note")
substantially in the form attached hereto as Exhibit B in the amount of the
---------
aggregate Option Price of the exercised shares together with the execution and
delivery by the Optionee of the Security Agreement attached hereto as Exhibit C;
---------
or
(iii) a written request to Net Exercise, as defined in this
paragraph 9(a)(iii). In lieu of exercising this Option via cash payment or
promissory note, Optionee may elect to receive shares equal to the value of this
Warrant (or portion thereof being canceled) by surrender of this Option at the
principal office of the Company together with notice of election to exercise by
means of a Net Exercise in which event the Company shall issue to Optionee a
number of shares of the Company computed using the following formula:
X = Y (A-B)
-------
A
where X is the number of shares of stock to be issued to Optionee; Y is the
number of shares purchasable under this Option; A is the fair market value of
the stock determined in accordance with Section 6.1.12 of the Plan; and B is
the Option Price as adjusted to the date of such calculation.
(b) payment of any withholding or employment taxes, if any;
(c) an executed Shareholders Buy-Sell Agreement, if any, binding the
Company's shareholders and restricting the transfer of their shares, executed
appropriately by the Optionee and his or her spouse, if any.
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any existing
Shareholders Buy-Sell Agreement, with appropriate certificate legends.
10. Securities Laws. The issuance of shares of Common Stock upon the
---------------
exercise of the option will be subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is permitted under applicable federal or state securities laws. Nothing herein
will be construed to require the Company to register or qualify any securities
under applicable federal or state securities laws, or take any action to secure
an exemption from such registration and qualification for the issuance of any
securities upon the exercise of this option.
11. No Rights as Shareholder. Neither Optionee nor any person claiming
------------------------
under or through Optionee will be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any of the shares issuable upon the
exercise of the option, unless and until this option is properly and lawfully
exercised.
3
<PAGE>
12. No Right to Continued Employment. Nothing in this Agreement will be
--------------------------------
construed as granting Optionee any right to continued employment. EXCEPT AS THE
COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S
EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR
ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in
its sole discretion will determine whether any leave of absence or interruption
in service (including an interruption during military service) will be deemed a
termination of employment for the purpose of this Agreement.
13. Notices. Any notice to be given to the Company under the terms of
-------
this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
14. Non-Transferrable. Except as otherwise provided in the Plan or in
-----------------
this Agreement, the option herein granted and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of
any right or upon any attempted sale under any execution, attachment or similar
process upon the rights and privileges conferred hereby, this option will
immediately become null and void.
15. Successor. Subject to the limitation on the transferability of the
---------
option contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
16. California Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of California.
17. Type of Option. The option granted in this Agreement:
--------------
[ ] Is intended to be an Incentive Stock Option ("ISO") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended.
[ ] Is a non-qualified Option and is not intended to be an ISO.
18. Plan Provisions Incorporated by Reference. A copy of the Plan is
-----------------------------------------
attached hereto as Exhibit "A" and incorporated herein by this reference. In
the case of conflict between any provision in this Agreement and any provision
in the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this
Agreement shall prevail. In the case of conflict between any provision in the
Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of
the Plan shall prevail.
19. Term. Capitalized terms used herein, except as otherwise indicated,
----
shall have the same meaning as those terms have under the Plan.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
COMPANY: SOFTLINK, INC.
By:_______________________
Its:______________________
OPTIONEE:
__________________________
(Optionee)
Address:__________________
__________________________
5
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated July 15, 1999, relating
to the consolidated financial statements of Softlink, Inc., which is contained
in that Prospectus. Our report contains an explanatory paragraph regarding the
Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
San Jose, California
November 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SOFTLINK, INC. AT JUNE 30, 1999 AND FOR THE
THREE MONTHS THEN ENDED, AND AT MARCH 31, 1999 AND FOR THE TWO YEARS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 56,200 307,500
<SECURITIES> 0 0
<RECEIVABLES> 747,100 430,600
<ALLOWANCES> 2,200 0
<INVENTORY> 73,100 39,600
<CURRENT-ASSETS> 1,010,200 861,200
<PP&E> 109,100 54,300
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,186,500 967,500
<CURRENT-LIABILITIES> 283,100 86,400
<BONDS> 0 0
0 0
0 0
<COMMON> 9,400 9,400
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,186,500 1,186,500
<SALES> 324,600 731,100
<TOTAL-REVENUES> 324,600 731,100
<CGS> 57,000 39,200
<TOTAL-COSTS> 823,200 1,820,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 2,500
<INCOME-PRETAX> (561,900) (1,015,100)
<INCOME-TAX> 800 800
<INCOME-CONTINUING> (562,700) (1,015,900)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (562,700) (1,015,900)
<EPS-BASIC> (0.07) (0.14)
<EPS-DILUTED> (0.07) (0.14)
</TABLE>
