<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMBARK.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 94-3230831
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------------
111 TOWNSEND STREET
SAN FRANCISCO, CA 94107
(415) 615-1500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
YOUNG J. SHIN
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EMBARK.COM, INC.
111 TOWNSEND STREET
SAN FRANCISCO, CA 94107
(415) 615-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
MARK P. TANOURY, ESQ. JOHN R. SAGAN, ESQ.
MATTHEW B. HEMINGTON, ESQ. KERRY T. SMITH, ESQ.
COOLEY GODWARD LLP MAYER, BROWN & PLATT
FIVE PALO ALTO SQUARE 190 SOUTH LASALLE STREET
3000 EL CAMINO REAL CHICAGO, IL 60603-3441
PALO ALTO, CA 94306-2155 (312) 782-0600
(650) 843-5000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
COMMON STOCK, $.001 PAR VALUE............................................... $55,000,000 $15,290
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT 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>
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1999
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.
<PAGE>
Shares
[EMBARK.COM LOGO]
Common Stock
-----------
Prior to this offering, there has been no public market for the common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list the common stock on The
Nasdaq Stock Market's National Market under the symbol "EMBK."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS EMBARK.COM
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
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.
CREDIT SUISSE FIRST BOSTON
THOMAS WEISEL PARTNERS LLC
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
<PAGE>
INSIDE FRONT COVER:
Copy: Embark.com is an online guide that connects individuals with the right
educational opportunities.
Circle graphic around Embark.com logo in center of page
Graphic of students, with arrow pointing in to circle, on upper left hand
side. Graphic of computer monitor, mouse and keyboard. Copy: www.Embark.com
helps students research and apply to educational institutions
Graphic of high school administrators with students, with arrow pointing in
to circle, on lower left hand side. Graphic of computer monitor, mouse and
keyboard. Copy: Educational and Career Opportunities System helps high school
administrators work with students to map and achieve educational and career
goals
Graphic of universities, with arrow pointing in to circle on right side.
Graphic of monitor, mouse and keyboard. Copy: Enrollment Services System helps
universities streamline the admissions process and enroll a targeted mix of
students.
GATEFOLD (LEFT SIDE):
ECOS Logo with Education and Career Opporunities System below on upper left
hand side. Copy: Provides colleges and universities with an integrated, online
solution for conducting highly targeted recruiting programs, tracking recruiting
program results and processing inquiries and applications from students around
the world. Graphic: arrow from Copy pointing down to a graphic of ECOS (screen
shot). Arrow from top right hand side of ECOS (screen shot) pointing to graphic
of Embark "portfolio" web page. The word "Student" is written above the arrow.
Arrow below the previous arrow from the ECOS screen shot pointing to a graphic
of an Embark customize (screen shot). The word "Administrator" is written below
the arrow.
Graphic: A series of 15 dots across the middle left page of the gatefold.
Graphic: Embark.com logo on left hand side below the line of dots. Copy to
the right of Embark.com logo: the Embark.com website provides students with the
tools they need to research, choose, apply and go to the right school. The site
offers extensive information about college, graduate schools, financial aid and
much more, and allows students to prepare and submit applications directly
online.
GATEFIELD (BOTTOM):
Graphic: Five screen shots across bottom of two pages, with arrows pointing
between the screen shots from left to right to a bullet at the top left corner
of each screen shot. Words are across the left hand side of the screen shot as
follows:
- - Find the right school--Embark.com Matchmaker (screen shot).
- - Get recruited--Recruiter (screen shot).
- - Apply online--Web Apps (screen shot). (across middle of gatefold)
- - Fund your education--Scholarship search (screen shot).
- - Buy what you need--Embark.com School Store (screen shot).
GATEFOLD (RIGHT SIDE):
Logo of ESS on upper right side. Copy below logo: Enrollment Services System
helps guidance counselors provide in-depth college and career advice while also
providing the functionality to monitor their students' progress. Below copy is
an arrow to ESS (screen shot). Mapped to ESS Logo are five shaded circles which
read counter clockwise as follows:
- - Outreach (circle)--Copy: Identify and target students via Embark.com's student
network.
<PAGE>
- - Inquiries (circle)--Copy: Provide targeted information to potential applicants
while collecting valuable demographic data.
- - Application Manager (circle)--Copy: Complete communication and planning tool
that turns recruits into applicants.
- - Interview Scheduler (circle)--Copy: Connects applicants to admissions
professionals and alumni and manage the interview process entirely over the
web..
- - Event Scheduler (circle)--Copy: Tool to streamline the scheduling and
administration of on- and off-campus events.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY............................. 4
RISK FACTORS................................... 8
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS................... 21
USE OF PROCEEDS................................ 22
DIVIDEND POLICY................................ 22
CAPITALIZATION................................. 23
DILUTION....................................... 24
SELECTED FINANCIAL DATA........................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 26
BUSINESS....................................... 34
<CAPTION>
PAGE
---------
<S> <C>
MANAGEMENT..................................... 47
CERTAIN TRANSACTIONS........................... 57
PRINCIPAL STOCKHOLDERS......................... 58
DESCRIPTION OF CAPITAL STOCK................... 60
SHARES ELIGIBLE FOR FUTURE SALE................ 64
UNDERWRITING................................... 66
NOTICE TO CANADIAN RESIDENTS................... 69
LEGAL MATTERS.................................. 70
EXPERTS........................................ 70
WHERE YOU CAN FIND MORE INFORMATION............ 70
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
--------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS IS BASED ON
THE FOLLOWING ASSUMPTIONS:
- A 1-FOR-2 REVERSE STOCK SPLIT TO BE COMPLETED PRIOR TO THE CLOSING OF THIS
OFFERING;
- THE CONVERSION OF ALL OUR OUTSTANDING SHARES OF PREFERRED STOCK INTO
SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING;
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND
- THE FILING OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION PRIOR
TO THE CLOSING OF THIS OFFERING.
"Embark," "Embark.com," "Education and Career Opportunities System,"
"Enrollment Services System," "I*Embark" and the Embark.com logo are trademarks
of Embark.com. This prospectus also includes trademarks owned by other parties.
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
Embark.com is a leading provider of online information, products and
services to facilitate the achievement of higher education goals. Our web-based
services allow colleges and universities, high schools, middle schools,
community colleges, community youth programs, students and parents to more
efficiently manage critical steps in the transition to higher education,
including school selection, recruiting and admissions. Our web-based Embark.com
Enrollment Services System (ESS) provides colleges and universities with an
integrated, online solution for conducting highly targeted recruiting campaigns,
processing inquiries and managing applications from students around the world.
As of September 24, 1999, we had licensed Embark.com ESS to over 240
undergraduate and graduate schools, including Boston College, Columbia
University, INSEAD, Northwestern University, Stanford University and The
University of North Carolina at Chapel Hill. As a fully-outsourced solution,
Embark.com ESS is designed to improve the recruiting and admissions results for
our higher education customers and reduce the high cost of technology
development, deployment and maintenance.
Our web-based Embark.com Education and Career Opportunities System (ECOS)
helps guidance counselors provide in-depth college and career advice while also
providing the functionality to monitor their students' progress. As of September
24, 1999, we had licensed Embark.com ECOS to approximately 930 high schools,
middle schools, community colleges and community youth programs. Embark.com ECOS
is a fully-outsourced solution designed to improve guidance counseling results
while reducing high technology costs.
We believe our web site, WWW.EMBARK.COM, formerly WWW.COLLEGEEDGE.COM, is
the most comprehensive source of information on higher education on the
Internet, with over 120,000 pages of content. At our web site, students and
parents can efficiently research detailed information on over 5,000 colleges,
universities and vocational schools and over 1,450 graduate schools. Students
and their parents can also research financial aid and other information that is
relevant to their higher education decisions. In addition, students can develop
and submit applications directly online to college and university subscribers of
Embark.com ESS. Students can also elect to receive targeted recruiting messages
from colleges and universities while student identities are protected. As of
September 24, 1999, we had over 500,000 registered users on our web site.
We generate revenues from multiple sources. From higher education
institutions we receive one-time set-up and development fees, annual
subscription fees and transaction processing fees for online applications and
targeted recruiting messages. From high schools and community youth programs we
receive annual subscription fees. From our corporate sponsors and commerce
partners, including United Airlines and Visa International, we receive
sponsorship and marketing referral fees. In August 1999, we opened our online
store as part of an ongoing strategy to generate e-commerce revenues and are
currently developing additional products and services, including online test
preparation for the Scholastic Aptitude Test (SAT), Graduate Management Aptitude
Test (GMAT) and other standardized tests.
Our goal is to be the premier online destination for students around the
world who seek information, products and services related to higher education.
Because of our rapidly emerging network of schools, counselors, parents and
students, we believe we are uniquely positioned to build a global community of
users seeking to enhance their life-long learning and career opportunities.
4
<PAGE>
OUR MARKET OPPORTUNITY
Education is the second largest sector of the U.S. economy, representing
approximately 7% of the country's gross domestic product. The U.S. Department of
Education estimates that in 1999 there are approximately 15 million students
enrolled in higher education and over 53 million students in public and private
kindergarten through 12(th) grade schools. The percentage of high school
graduates that enrolled in two- and four-year higher education programs rose
from 54% in 1986 to 67% in 1997. We believe that in 1997, more than 14 million
applications were submitted to U.S. colleges and universities. We expect this
number to grow as a result of the greater number of high school graduates
pursuing higher education opportunities.
We estimate that U.S. colleges and universities spend approximately $12
billion annually to recruit and enroll students. Most higher education
institutions continue to depend on traditional paper-based processes to market
their schools, recruit students and process applications for enrollment. For
high school students and their parents, the process of researching and applying
to colleges and universities and accessing education-related services, such as
financial aid options and test preparation, is complex, costly and time
consuming. While high school guidance counselors play an important role in this
process, the demands placed upon them by school administrators, parents and
students are significant. According to U.S. government data, the average
student/counselor ratio at U.S. high schools is approximately 500:1. As a
result, we believe that there is strong demand for new methods and technologies
that allow guidance counselors to serve their students more efficiently. We
believe that the international education community faces similar challenges.
OUR SOLUTION
We are pioneering the use of the Internet to simplify processes and improve
results for our customers. Our web-based information, products and services are
designed to:
- provide higher education institutions with more cost effective means to
conduct targeted recruiting programs, communicate with prospective
students and automate the application and admissions processes;
- provide guidance counselors with more efficient means to communicate with
their students, monitor their progress and track their results; and
- provide students and their parents with more efficient means to research
and select the right higher education program, communicate with higher
education institutions, prepare and submit applications and explore
financial aid opportunities.
OUR STRATEGY
Our strategy is to expand our position as a leading provider of web-based
information, products and services to the education community. To achieve this
objective, we plan to:
- CAPITALIZE ON OUR STRONG MARKET POSITION. We intend to leverage our
first-mover advantage with leading higher education institutions and high
schools to expand our user network and subscriber base.
- BUILD BRAND RECOGNITION. We intend to focus on aggressively promoting our
brand within the global education community through targeted advertising
strategies to secure a strong competitive advantage in our segment of the
online education market.
- EXPAND AND BUILD UPON DISTRIBUTION AND COMMERCE RELATIONSHIPS. We intend
to continue to develop distribution and commerce relationships to increase
traffic to our web site and our co-branded web sites, obtain additional
content and pursue additional commerce opportunities.
5
<PAGE>
- ENHANCE AND EXPAND WEB-BASED TECHNOLOGIES. We intend to identify and
incorporate new web-based technologies and functionality that address the
needs of our user network and make our services and products more
efficient and effective.
- EXPAND INTERNATIONALLY. We intend to use the reach of the Internet and
our current international relationships to expand our products and
services to the international education community.
OUR OFFICES
We were incorporated in California in August 1995 as Snap Technologies, Inc.
and reincorporated in Delaware in September 1999 as Embark.com, Inc. Our
principal executive offices are located at 111 Townsend Street, San Francisco,
California 94107, and our telephone number is (415) 615-1500. Our Internet
address is WWW.EMBARK.COM. The information on our web site is not incorporated
by reference into this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................... shares
Common stock to be outstanding after this shares
offering.........................................
Use of proceeds.................................... For working capital and general
corporate purposes, including expansion
of our sales and marketing programs,
research and development and general
administrative operations. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. EMBK
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999, and
excludes:
- 2,093,185 shares subject to options outstanding as of September 30, 1999,
at a weighted average exercise price of $1.05 per share;
- 2,618,317 additional shares that we could issue under our stock option
plans;
- 750,000 shares that we could issue under our employee stock purchase plan;
and
- 36,129 shares subject to warrants outstanding as of September 30, 1999, at
a weighted average exercise price of $2.19 per share.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 141 $ 427 $ 1,632 $ 331 $ 1,245
Operating expenses.......................................... 1,024 1,471 4,662 1,473 6,394
Net loss attributable to common stock....................... (880) (1,051) (3,211) (1,210) (5,497)
Net loss per common share:
Basic and diluted......................................... $ (1.55) $ (0.26) $ (0.49) $ (0.21) $ (0.73)
Weighted average shares................................... 569 4,020 6,496 5,871 7,537
Pro forma net loss per common share:
Basic and diluted......................................... $ (0.28) $ (0.38)
Weighted average shares................................... 11,374 14,309
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 10,751 $ 34,801 $
Working capital.............................................................. 8,739 32,789
Total assets................................................................. 14,224 38,274
Deferred revenues............................................................ 2,686 2,686
Mandatorily redeemable convertible preferred stock........................... 17,318 --
Total stockholders' equity (deficit)......................................... (7,995) 33,373
</TABLE>
- ------------------------
See Note 1 of the notes to our financial statements for an explanation of
the determination of the number of shares used in computing per share data.
The pro forma information above gives effect to (1) the receipt of proceeds
of $50,000 from the sale of 13,037 shares of Series D preferred stock in
September 1999; (2) the receipt of proceeds of $24.0 million from the sale of
2,400,000 shares of Series E preferred stock in September 1999; and (3) the
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering.
The pro forma as adjusted information above is adjusted to give further
effect to the receipt of the estimated proceeds of $ from the sale of the
shares of common stock in this offering at an assumed public offering
price of $ per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING
OUR SHARES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT
WE CURRENTLY SEE AS IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS MODEL
SINCE OUR SHORT OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR PROSPECTS,
OUR FUTURE FINANCIAL PERFORMANCE MAY DISAPPOINT SECURITIES ANALYSTS AND
INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE.
We were incorporated in August 1995 and did not begin offering
Internet-based education services and products until March 1996. As a result of
our limited operating history, we have limited financial data that you can use
to evaluate our business. Because of our limited operating history, we have
limited insights into trends that may emerge in our market and affect our
business, and it will be difficult to accurately predict our future revenues or
results of operations. This may result in one or more quarters where our
financial results fall below the expectations of analysts and investors. As a
result, the trading price of our common stock may decline. Our revenue model
depends in part on our ability to generate multiple revenue streams, including
revenue from sponsorships and e-commerce, and we have limited experience in
these areas. You must consider our prospects in light of the risks, expenses and
challenges we might encounter because we are at an early stage of development in
a new and rapidly evolving market. Before investing, you should evaluate the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in early stages of development, particularly companies in new and
rapidly evolving Internet markets.
THE MARKET FOR INTERNET-BASED SERVICES AND PRODUCTS IS NEW AND UNPROVEN, AND IF
IT DOES NOT DEVELOP, WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT REVENUES.
We seek to generate revenues by offering college and graduate school
applications, education and career counseling and education related services and
products through our web site and from fees generated through sponsorship
arrangements. The market for Internet-based services and products is new and
rapidly evolving, so there is uncertainty whether demand for our services and
products will develop and be sustained. If the market for our services and
products does not develop or develops more slowly than anticipated, or if our
services and products do not achieve market acceptance, we will not be able to
generate significant revenues.
WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE LOSSES, AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred substantial losses and negative operating cash flow since
inception as we funded the development of our products, services and
technologies, and through our efforts to expand our sales and marketing
organization. Our net losses were $880,000 in 1996, $1.1 million in 1997, $3.2
million in 1998 and $5.5 million for the six months ended June 30, 1999. As of
June 30, 1999, we had an accumulated deficit of $11.0 million. We intend to
continue to invest heavily in sales, marketing and research and development. We
will continue to lose money unless we significantly increase our revenues. We
cannot predict when we will operate profitably, if at all.
OUR MARKETS ARE HIGHLY COMPETITIVE AND, IF WE DO NOT COMPETE EFFECTIVELY, WE MAY
SUFFER PRICE REDUCTIONS AND LOSS OF MARKET SHARE.
The market for our products and services is intensely competitive, evolving
and subject to rapid technological change. We expect the intensity of
competition to increase in the future. Increased
8
<PAGE>
competition may result in price reductions and loss of market share which could
significantly reduce our future revenues. Barriers to entry are relatively low
and much of our content we license from third parties on a non-exclusive basis.
As a result, current and new competitors could launch web sites offering
services and products similar to ours at relatively low cost. Our current
competitors include:
INTERNAL INFORMATION TECHNOLOGY DEPARTMENTS. "In house" information
technology departments of higher education institutions have developed or may
develop systems and web sites that provide for some or all of the functionality
of Embark.com ESS and our other services and products. We expect that internally
developed applications and web sites will continue to be a principal source of
competition for the foreseeable future. In particular, it can be difficult to
sell our services and products to an institution whose internal department group
has already made large investments in and progress toward completion of systems
that overlap with our products and services.
TRADITIONAL PRINT MEDIA COMPANIES. We face competition from traditional
off-line sources, such as self-help guides on college and graduate school
selection and admission, from companies including Petersons, a subsidiary of
Thomson Publishing, The Princeton Review, ARCO-Macmillan General Reference and
Kaplan Educational Centers. Some of these companies have established web sites
to provide their content on the Web. In the future these and other companies may
expand the distribution of their printed materials and information via the
Internet.
EDUCATIONAL NON-PROFIT AND MEMBERSHIP ORGANIZATIONS. We face competition
from educational non-profit and membership organizations like the College Board
and ACT. These organizations offer traditional and Internet-based services to
help educational organizations improve their operation. They also provide
information and advice via Internet to students.
COMPANIES OFFERING INTERNET-BASED SERVICES. We face direct competition from
companies providing internet-based services including CollegeNet.com,
GradAdvantage, a joint venture of Petersons and Educational Testing Service, and
CollegeQuest.com by Petersons who provide online services and products to
colleges and universities and students. We also face competition from companies
like Bridges.com which offer online services to high schools.
SOFTWARE AND CD-ROM COMPANIES. We face competition from companies providing
software or services to educational institutions. Many companies provide CD-ROMs
including Apply! by The Princeton Review or enterprise-level packaged software
to educational institutions. Many of these companies have launched or plan to
launch Internet-based solutions.
Many of our competitors have more resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of the education industry. Our competitors may be able to respond more
quickly than we can to new technologies or changes in Internet user preferences
and devote greater resources than we can to the development, promotion and sale
of their services. We may not be able to maintain our competitive position
against current and future competitors, especially those with significantly
greater resources.
FAILURE TO DEVELOP OUR BRAND WOULD LIMIT OR REDUCE THE DEMAND FOR OUR SERVICES
AND PRODUCTS.
If we fail to promote and maintain our brand or incur substantial expenses
in an unsuccessful attempt to promote and maintain our brand, our business would
be harmed. We believe that our historical growth has been largely attributable
to word of mouth. We believe that continuing to strengthen our brand will be
important to increasing demand for, and achieving widespread acceptance of, our
services and products. Promoting and positioning our brand will depend largely
on the success of our marketing efforts and our ability to provide high quality
services and products. In order to promote our brand, we will need to increase
our marketing budget and otherwise increase our financial commitment to creating
and maintaining brand loyalty among users. Brand promotion activities may
9
<PAGE>
not yield increased revenues, and even if they do, any increased revenues may
not offset the expenses we incurred in building our brand.
OUR GROWTH CONTINUES TO PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES, AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO MARKET AND SELL
OUR SERVICES AND PRODUCTS AND DEVELOP NEW SERVICES AND PRODUCTS MAY BE HARMED.
We must plan and manage our growth effectively in order to offer our
services and products and achieve revenue growth and profitability in a rapidly
evolving market. Our growth has and will continue to place a significant strain
on our management systems and resources, and we may not be able to effectively
manage our growth in the future. We continue to increase domestically, and to a
lesser extent internationally, the scope of our operations, and have added a
number of employees recently, including employees in key management and sales
positions. For example, the number of our employees grew from 21 at December 31,
1997 to 127 at June 30, 1999. In particular, our sales force grew from 6 people
at December 31, 1997 to 21 people at June 30, 1999. For us to effectively manage
our growth, we must continue to:
- improve our operational, financial and management controls;
- improve our reporting systems and procedures;
- install new management and information control systems; and
- expand, train and motivate our workforce.
IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR ABILITY TO COMPETE
WILL BE HARMED.
We depend on the continued service of our key technical, sales and senior
management personnel. None of these persons are bound by an employment agreement
and we do not maintain any "key person" life insurance policies. The loss of any
of our senior management or other key research, development, sales and marketing
personnel could have a material adverse effect on our future operating results.
In particular, the loss of the services of Young J. Shin, Chairman of the Board,
President and Chief Executive Officer, or other key management personnel, could
cause us to incur increased operating expenses and divert other senior
management time in searching for their replacements.
In addition, we must attract, retain and motivate highly skilled employees.
In particular, we are actively seeking a vice president of marketing. We face
significant competition for individuals with the skills required to develop,
market and support our products and services. We cannot assure that we will be
able to recruit and retain sufficient numbers of these highly skilled employees.
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND AN UNANTICIPATED DECLINE IN
REVENUES MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE
IN OUR STOCK PRICE.
Although we have had significant revenue growth since our inception, our
growth may not be sustainable and prospective investors should not use these
past results to predict future results. Our quarterly revenues, expenses and
operating results have fluctuated significantly in the past and may vary
significantly in the future which may make it difficult to forecast future
performance. If our results are below the expectations of securities analysts or
investors, our stock price is likely to decline. We believe that
period-to-period comparisons of our historical results of operations are not a
good predictor of our future performance.
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OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH MAY AFFECT OUR REVENUES
AND OPERATING RESULTS.
Our operating results are significantly dependent upon the college
application market and we expect them to vary seasonally based upon the typical
school year. Most college and university application deadlines are during the
months of November through March, and therefore our revenues from college
applications will typically be higher in the first and fourth quarters than in
the second and third quarters of each fiscal year.
Our limited operating history and rapid growth make it difficult for us to
assess the impact of seasonal factors on other parts of our business. However,
because our business is dependent upon the college application market, we expect
that our other revenues may be higher during the first and fourth quarters due
to increased activity associated with the deadlines for college applications.
IF WE FAIL TO RENEW OUR ANNUAL SUBSCRIPTION AGREEMENTS WITH HIGHER EDUCATION
INSTITUTIONS, HIGH SCHOOLS, MIDDLE SCHOOLS, COMMUNITY COLLEGES AND COMMUNITY
YOUTH PROGRAMS WE WILL EXPERIENCE A DECLINE IN REVENUES.
The term of our subscription agreements is generally one year. If we are
unable to migrate educational institutions to multi-year licenses and we fail to
continually renew our one-year licensing agreements we may experience
unanticipated declines in revenues. Since our operating expenses are based on
anticipated revenues and because a high percentage of these expenses are
relatively fixed, a rapid decrease in revenues could cause significant
variations in operating results from quarter to quarter and cause unexpected
results.
WE DEPEND UPON RELATIONSHIPS WITH THIRD-PARTY WEB SITES TO ATTRACT VISITORS TO
OUR WEB SITES AND THESE RELATIONSHIPS MAY TERMINATE OR MAY NOT PRODUCE A
SIGNIFICANT NUMBER OF VISITORS.
We rely upon contractual relationships with third party web sites to attract
a significant portion of the user traffic on our web sites and co-branded web
sites. For example, during the first half of 1999, user traffic generated from
the top two arrangements accounted for a significant number of page views on our
web site and co-branded web sites. We have entered into agreements with
Excite@Home, Lycos and the providers of other third-party web sites to market
co-branded web sites. Our failure to maintain existing relationships, establish
additional relationships or fully capitalize on such relationships could reduce
the number of visitors to our web site and our co-branded web sites, which could
make it more difficult for us to market our products and services to colleges
and universities, attract corporate sponsors and generate transaction and
e-commerce revenues.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE MAY LOSE THESE
RIGHTS AND OUR BUSINESS MAY BE HARMED.
We depend upon our ability to develop and protect our proprietary technology
and intellectual property rights to distinguish our products and services from
those of our competitors. The use by others of our proprietary rights could harm
our business. We rely on a combination of copyright, trademark and trade secret
laws, as well as confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. We have no issued patents. Despite
our efforts to protect our proprietary rights, existing laws afford only limited
protection. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, there can be no assurance that we will be able to protect our
proprietary rights against unauthorized third-party copying or use. Furthermore,
policing the unauthorized use of our products and services is difficult, and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
11
<PAGE>
OUR PRODUCTS AND SERVICES COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS CAUSING COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.
Third parties may claim that we have infringed their current or future
intellectual property rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation, prevent us from offering our
products or services or cause delays, or require us to enter into royalty or
licensing agreements, any of which could harm our business. In the event an
infringement claim against us is successful and we cannot obtain a license on
acceptable terms or license a substitute technology or redesign our product to
avoid infringement, our business would be harmed. Furthermore, former employers
of our current and future employees may assert that our employees have
improperly disclosed to us or are using confidential or proprietary information.
WE MAY NOT SUCCESSFULLY ENTER INTERNATIONAL MARKETS OR GENERATE SIGNIFICANT
REVENUES ABROAD, WHICH COULD RESULT IN SLOWER REVENUE GROWTH.
We are expanding internationally primarily to enable foreign students to
research and apply to colleges and universities in the United States and
recently launched separate home pages dedicated to China and Japan. We may not
be successful in expanding into international markets or in generating revenues
from foreign operations. Expansion into international markets will require
management attention and resources. We have limited experience in localizing our
service to conform to local cultures, standards and policies. As we continue to
expand internationally, we are subject to risks of doing business
internationally, including the following:
- regulatory requirements that may limit or prevent the offering of our
products and services in local jurisdictions;
- government-imposed limitations on the public's access to the Internet;
- difficulties in staffing and managing foreign operations;
- the need to pay costs of foreign operations in foreign currencies;
- longer payment cycles, different accounting practices and problems in
collecting accounts receivable;
- political instability; and
- potentially adverse tax consequences.
To the extent we expand our international operations and have portions of
our international revenues denominated in foreign currencies, we also could
become subject to increased difficulties in collecting accounts receivable and
risks related to foreign currency exchange rate fluctuations.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE, THIRD-PARTY EQUIPMENT OR OUR
INTERNAL OPERATING SYSTEMS COULD REDUCE OUR FUTURE REVENUES AND INCREASE OUR
EXPENSES.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates, and the failure to do so could
result in the loss of revenues. The Year 2000 computer issue creates the
following risks for us:
- our products or services could fail due to processing errors caused by
unanticipated inaccurate calculations with respect to the Year 2000;
- third party hardware and software used with our product or that we rely on
to provide our services could experience Year 2000 compliance problems;
and
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- our customers, suppliers or other third parties that we rely on could
experience Year 2000 problems.
If any of these events occur, it could cause all or a portion of our
products or services to fail or become unavailable which could reduce our future
revenues and increase our expenses. For a further discussion of Year 2000
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness."
RISKS RELATED TO OUR ONLINE SERVICES
IF WE EXPERIENCE SYSTEM FAILURES OUR REPUTATION WILL BE HARMED AND USERS MAY
SEEK ALTERNATIVE SERVICE PROVIDERS CAUSING US TO LOSE REVENUES.
We depend upon our ability to process student applications successfully and
provide high quality customer service. We depend on the efficient and
uninterrupted operation of our computer and communications hardware and software
systems. Substantially all of our computer hardware for operating our service is
currently located onsite at our facility in San Francisco, California. These
systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar
events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. We do not have fully redundant systems and we
do not carry sufficient business interruption insurance to compensate us for
losses that may occur. Despite any precautions we may take, the occurrence of a
natural disaster or other unanticipated problems at our facility could result in
interruptions in our services. Any damage to or failure of our systems could
result in interruptions in our service. In addition, the system failures of
various third party Internet service providers, online service providers and
other web site operators could result in interruptions in our service to those
users who require such third party providers and operators in order to access
our service. Such interruptions will reduce our revenues and our future revenues
will be harmed if our users believe that our system is unreliable.
Our web site has been interrupted for periods ranging from one minute to
five hours due to either internal system problems or system failures at our
Internet service providers. Certain web-based applications which are accessible
from our home page have been inaccessible for as long as 12 hours due to
internal system problems. In January 1999, some users experienced interruptions
in our service caused by the system failure of an Internet service provider
which resulted in the inability of some users to timely file their college
applications. As a result of this system failure, one university extended their
deadline for students to submit their applications by one day. In addition to
placing increased burdens on our engineering staff, any system failures could
create a number of user questions and complaints that must be responded to by
our customer support personnel. If we experience frequent or persistent system
failures, or if users experience service interruptions due to the system
failures of third party providers or operators, our reputation and brand could
be permanently harmed and our attractiveness to colleges, universities, students
and other users would be reduced.
WE MAY HAVE CAPACITY RESTRAINTS WHICH COULD REDUCE OR LIMIT THE GROWTH OF OUR
REVENUES.
We seek to generate a high volume of traffic and transactions on our web
site. The satisfactory performance, reliability and availability of our web
site, processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain large numbers of users. Our
revenues depend in part on the number of applications submitted to colleges and
universities using our service, the quality and quantity of research materials
available through our service and the number of college or career related
transactions conducted using our service. If the volume of traffic on our web
site continues to increase, we will need to expand and upgrade our technology,
transaction processing systems and network infrastructure. We may not be able to
accurately project the rate or timing of
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<PAGE>
increases, if any, in the use of our service or to timely expand and upgrade our
systems and infrastructure to accommodate any increases.
We use internally developed systems to operate our service and for
transaction processing, including billing and collections processing. We must
continually improve these systems in order to accommodate the level of use of
our web site. In addition, we may add new features and functionality to our
services that would result in the need to develop or license additional
technologies. Our inability to add additional software and hardware or to
upgrade our technology, transaction processing systems or network infrastructure
to accommodate increased traffic or transaction volume could have adverse
consequences. These consequences include unanticipated system disruptions,
slower response times, degradation in levels of customer support, impaired
quality of the users' experience on our service and delays in reporting accurate
financial information. Our failure to provide new features or functionality also
could result in these consequences. We may be unable to effectively upgrade and
expand our systems in a timely manner or to integrate smoothly any newly
developed or purchased technologies with our existing systems. These
difficulties could harm or limit our ability to expand our business.
WE DEPEND ON THE INCREASING USE OF THE INTERNET AND ON THE GROWTH OF E-COMMERCE.
IF THE USE OF THE INTERNET AND E-COMMERCE DOES NOT GROW AS ANTICIPATED, OUR
REVENUES COULD DECLINE AND OUR BUSINESS WILL BE HARMED.
We depend on the increased acceptance and use of the Internet as a medium
for e-commerce and the adoption and use of the Internet by consumers, businesses
and institutions, particularly colleges, universities, high schools and
community youth programs. Rapid growth in the use of the Internet is a recent
occurrence. As a result, acceptance and use may not continue to develop at
historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced products and services over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.
THE INTERNET IS SUBJECT TO RAPID CHANGE WHICH COULD RESULT IN SIGNIFICANT
ADDITIONAL COSTS OR OUR PRODUCTS AND SERVICES BECOMING OBSOLETE.
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbate these
market characteristics. To succeed, we will need to effectively adapt to rapidly
changing technologies and continually improve the performance features and
reliability of our products and services. We could incur substantial costs in
modifying our products, services or infrastructure to adapt to these changes.
Our technologies may also become obsolete and we may also lose customers and
revenues if our products and services fail to adapt to the rapid changes which
are characteristic of the Internet.
WE MAY BE HELD LIABLE FOR CONTENT AVAILABLE ON OUR WEB SITE OR PRODUCTS SOLD
THROUGH OUR WEB SITE.
We may be subject to claims relating to content that is published on or
downloaded from our web site. We also could be subject to liability for content
that is accessible from our web site through links to other web sites or that is
posted by our users in chat rooms or bulletin boards. Although we carry general
liability insurance, our insurance may not cover potential claims of this type,
such as defamation or trademark infringement, or may not be adequate to cover
all costs incurred in defense of potential claims or to indemnify us for all
liability that may be imposed. In addition, claims like this, with or without
merit, would result in diversion of our financial resources and management
personnel.
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. To date, we have had
very limited experience in the sale of products online
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and the development of relationships with manufacturers or suppliers of such
products. Liability claims resulting from our sale of products could require us
to spend significant time and money in litigation or to pay significant damages.
WITHOUT THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE INTERNET AND THE
AVAILABILITY OF INCREASED BANDWIDTH TO CONSUMERS, WE MAY NOT BE ABLE TO INCREASE
OUR REVENUES AND OUR BUSINESS COULD BE HARMED.
Given the online nature of our business, without the continued development
and maintenance of the Internet infrastructure, we could fail to meet our
overall strategic objectives and ultimately fail to generate the web site
traffic and revenues we expect. This continued development of the Internet
includes maintenance of a reliable network with the necessary speed, data
capacity and security, as well as timely development of complementary products
including high speed modems, for providing reliable Internet access and
services. Because global commerce on the Internet and the online exchange of
information is new and evolving, we cannot predict whether the Internet will
prove to be a viable commercial marketplace in the long term.
The Internet has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic. As the
Internet continues to experience increased numbers of users, increased frequency
of use and increased bandwidth requirements, the Internet infrastructure may be
unable to support the demands placed on it. The success of our business will
rely on the continued improvement of the Internet as a convenient means of
consumer interaction and commerce, as well as an efficient medium for applying
to colleges and universities and conducting student and career related research
and transactions. Our business will depend on the ability of customers to
continue to download information on colleges and universities, career paths and
financial aid, as well as to conduct commercial transactions with us without
significant delays or aggravation that may be associated with decreased
availability of Internet bandwidth and access to our web site. The
infrastructure and complementary products or services necessary to make the
Internet a viable commercial marketplace for the long term may not be developed
successfully or in a timely manner.
FUTURE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES PERTAINING TO THE INTERNET
COULD DECREASE THE DEMAND FOR OUR PRODUCTS AND SERVICES OR INCREASE THE COST OF
DOING BUSINESS.
There is, and will likely continue to be, an increasing number of laws and
regulations pertaining to the Internet. These laws or regulations may relate to
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, taxation and the quality of products
and services. Furthermore, the growth and development of e-commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on e-commerce companies as well as companies like us that provide
e-commerce services. For example, Congress recently enacted the Children's
Online Privacy Protection Act which restricts the ability of web sites and
online services to collect information on children under the age of 13 without
their parents' consent. In addition, the Federal Trade Commission and state and
local authorities have been investigating Internet companies regarding their use
of personal information. We could incur additional expenses if new laws or
regulations regarding the use of personal information are introduced or if these
authorities choose to investigate our privacy practices. While we have
implemented and intend to implement additional programs designed to enhance the
protection of the privacy of our users, these programs may not conform with
future laws or regulations that are adopted. Compliance with future laws and
regulations could be time consuming, expensive, impractical or impossible. In
addition, these legislative and regulatory initiatives may adversely affect our
ability to collect demographic and personal information from users. The European
Union has adopted a directive that imposes restrictions on the collection and
use of personal data. The directive imposes restrictions that are more stringent
than current Internet privacy laws in the United States. Although it is
uncertain whether this directive and
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resulting legislation will apply to companies located in the United States, if
it were applied to us, we may have to take additional costly or time consuming
steps to comply with its requirements. Other countries have adopted or may adopt
similar legislation. Any new law or regulation pertaining to the Internet, or
the application or interpretation of existing laws, could decrease the demand
for our products and services, increase our cost of doing business or otherwise
harm our business.
In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of such laws were
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address such issues could create
uncertainty in the Internet market. Such uncertainty could reduce demand for our
products and services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs.
THE IMPOSITION OF ADDITIONAL STATE TAXES ON INTERNET-BASED TRANSACTIONS WOULD
INCREASE OUR COST OF DOING BUSINESS AND COULD ADVERSELY EFFECT OUR ABILITY TO
BECOME PROFITABLE.
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and adversely
affect our opportunity to become profitable.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the United States
Congress. However, this legislation, known as the Internet Tax Freedom Act,
imposes only a three-year moratorium, which commenced October 1, 1998 and ends
on October 21, 2001, on state and local taxes on electronic commerce, where such
taxes are discriminatory against Internet access, unless such taxes were
generally imposed and actually enforced prior to October 1, 1998. It is possible
that the tax moratorium could fail to be renewed prior to October 21, 2001.
Failure to renew this legislation would allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could adversely affect our
ability to become profitable.
UNAUTHORIZED BREAK-INS TO OUR SERVICE COULD CAUSE US TO LOSE USERS AND
DISCOURAGE NEW USERS FROM USING OUR SERVICE.
Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays,
loss of data or the inability to complete their college applications. In
addition, unauthorized persons may improperly access our data, damage or change
our system or take confidential information. Such actions may be very expensive
to remedy and could damage our reputation and discourage new and existing users
from using our service.
WE MAY BE LIABLE FOR INVASION OF PRIVACY OR MISAPPROPRIATION BY OTHERS OF OUR
USERS' PERSONAL OR CREDIT CARD INFORMATION.
The college application process, the career placement process and the
financial aid process all require the disclosure of highly sensitive information
by the applicant, including prior grade point averages, test scores, personal
history, work experience, financial status and contact information. We have
developed internal security systems for our service to protect the information
disclosed to us from unauthorized use or access. We also rely on security and
authentication technology licensed from third parties to perform real-time
credit card authorization and verification. We cannot predict whether new
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technological developments could allow these security measures to be
circumvented. If the security measures that we use to protect personal
information or credit card information are ineffective, we may be subject to
liability. These could include claims for invasion of privacy, unauthorized
purchases with credit card information, impersonation or other similar fraud
claims.
Although we have a policy against using personal information, we may decide
in the future to compile and provide such information to our corporate customers
and electronic commerce merchants. Both the Federal Trade Commission and state
and local authorities have been investigating Internet companies regarding their
use of personal information. We could incur additional expenses if new laws or
regulations regarding the use of personal information are introduced or if these
authorities choose to investigate our privacy practices. While we have
implemented and intend to implement additional programs designed to enhance the
protection of the privacy of our users, these programs may not conform with laws
or regulations that are adopted.
IF OUR SOURCE CODE IS RELEASED TO OUR SUBSCRIBERS, OUR ABILITY TO PROTECT OUR
PROPRIETARY RIGHTS COULD BE JEOPARDIZED AND OUR REVENUES COULD DECLINE.
Some of our subscription agreements require us to place the source code for
our products in escrow. These agreements generally provide these subscribers
with a limited, non-exclusive license to use this code if:
- we fail to provide the product or maintenance and support;
- we cease to do business without a successor; or
- there is a bankruptcy proceeding against us.
Our revenues could decline and our business could be seriously harmed if
subscribers were granted this access.
RISKS RELATED TO OUR OFFERING
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.
Sales of substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
agreements that our stockholders have entered into with the underwriters and
with us. Those lock-up agreements restrict our stockholders from selling,
pledging our otherwise disposing of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston Corporation. However, Credit Suisse First Boston Corporation may,
in its sole discretion, release all or any portion of the common stock from the
restrictions of the lock-up agreements. The following table indicates
approximately when the 20,080,175 shares of our common stock that are not being
sold in the offering but which were outstanding as of September 30, 1999 will be
eligible for sale into the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED
SHARES FOR
SALE IN PUBLIC MARKET
-------------------------------
<S> <C>
On the date of this prospectus............................... 0
180 days after the date of this prospectus................... 17,667,138
At various times after the expiration of the 180 day
lock-up period............................................. 2,413,037
</TABLE>
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Additionally, of the 2,093,185 shares issuable upon exercise of options to
purchase our common stock outstanding as of September 30, 1999, approximately
1,211,709 shares will be vested and eligible for sale 180 days after the date of
this prospectus. In addition, 36,129 shares issuable upon exercise of
outstanding warrants will be eligible for sale 180 days after the date of this
prospectus. We have granted registration rights to the holders of substantially
all of our capital stock and warrants to purchase capital stock, which will
allow those holders to sell their shares in the public market sooner and in
larger amounts than they otherwise could. We also intend to register 5,461,502
shares that we have reserved under our stock option plans and our employee stock
purchase plan which will allow these shares to be sold in the public market. For
a further description of the eligibility of shares for sale into the public
market following the offering. See "Shares Eligible for Future Sale."
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS AND SERVICES COULD
REDUCE OUR ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.
We expect that the net proceeds from this offering, together with currently
available funds, will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds, and we cannot be certain that we will be able to obtain
additional financing on favorable terms, or at all. If we need additional
capital and cannot raise it on acceptable terms, we may not be able to, among
other things:
- develop or enhance our products and services;
- acquire technologies, products or businesses;
- expand operations, in the United States or internationally;
- hire, train and retain employees;
- promote our products and services; or
- respond to competitive pressures or unanticipated capital requirements.
Our failure to do any of these things could result in lower revenues and could
harm our business.
WE MAY SEEK TO RAISE ADDITIONAL FUNDS, FINANCE ACQUISITIONS OR DEVELOP STRATEGIC
RELATIONSHIPS BY ISSUING CAPITAL STOCK WHICH WOULD REDUCE THE PERCENTAGE
OWNERSHIP OF EXISTING STOCKHOLDERS.
We may seek to raise additional funds, finance acquisitions or develop
strategic relationships by issuing equity or convertible debt securities, which
would reduce the percentage ownership of existing stockholders. Furthermore, any
new securities could have rights, preferences or privileges senior to those of
our common stock.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of common stock, based on an assumed public offering price
of $ per share. In addition, the number of shares available for issuance
under our stock option and employee stock purchase plans will automatically
increase without stockholder approval. Investors will incur additional dilution
upon the exercise of outstanding stock options. See "Dilution."
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OUR STOCK PRICE MAY BE VOLATILE BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY TRADED
BEFORE, AND YOU MAY LOSE ALL OR A PART OF YOUR INVESTMENT.
Prior to this offering, you could not buy or sell our common stock publicly.
The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. An active public market
for our common stock may not develop or be sustained after the offering and
therefore we cannot predict how liquid this market will become. We will
negotiate and determine the initial public offering price with the
representatives of the underwriters and this price may not be indicative of
prices that will prevail in the trading market. As a result you may be unable to
sell your shares of common stock at or above the offering price. The market
price of the common stock may fluctuate significantly in response to the
following factors, most of which are beyond our control:
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- the discussion of our company or stock price in online investor
communities such as chat rooms;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major customer or failure to complete significant subscription
transactions;
- additions or departures of key personnel; and
- fluctuations in stock market price and volume, which are particularly
common among securities of Internet-based companies.
The market prices of stock for Internet-related and technology companies,
particularly following an initial public offering, frequently reach levels that
bear no relationship to the past or present operating performance of such
companies. Such market prices may not be sustainable and may be subject to wide
variations. If our common stock trades to such levels following this offering,
it may thereafter experience a material decline.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially acute for us because technology companies have
experienced greater than average stock price volatility in recent years and, as
a result, have been subject to, on average, a greater number of securities class
action claims than companies in other industries. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources, and could harm our
business.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
We have implemented anti-takeover provisions which could discourage or
prevent a takeover, even if an acquisition would be beneficial to our
stockholders. Provisions of our amended and restated certificate of
incorporation and bylaws, as well as provisions of Delaware law, could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
19
<PAGE>
- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
- limitations on the ability of stockholders to call special meetings of
stockholders;
- prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Embark.com. See "Description of Capital Stock."
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
Upon completion of this offering, our executive officers, directors and
principal stockholders who hold more than 5% of our capital stock will
beneficially own, in the aggregate, approximately % of our outstanding
common stock. As a result, these stockholders will be able to exercise control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This could have
the effect of delaying or preventing a change of control of Embark.com and will
make some transactions difficult or impossible without the support of these
stockholders. See "Principal Stockholders."
20
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology including "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results, unless
required by law.
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the
shares of our common stock to be approximately $ million, approximately
$ million if the underwriters' over-allotment option is exercised in full,
at an assumed initial public offering price of $ per share, after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses.
We intend to use the net proceeds from this offering for working capital and
general corporate purposes, including expansion of our sales and marketing
programs, research and development and general administrative operations. The
amounts and timing of these expenditures will vary depending on a number of
factors, including the amount of cash generated by our operations, competitive
and technological developments and the rate of growth, if any, of our business.
We may also use a portion of the net proceeds to acquire additional businesses,
products and technologies, to lease additional facilities, or to establish joint
ventures that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments to do so and are
not currently engaged in any negotiations for any acquisition or joint venture.
The amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate from
operations. As a result, we will retain broad discretion in the allocation of
the net proceeds of this offering. Pending the uses described above, we will
invest the net proceeds of this offering in short term interest bearing,
investment-grade securities. We cannot predict whether the proceeds will be
invested to yield a favorable return. We believe that our available cash,
together with the net proceeds of this offering, will be sufficient to meet our
capital requirements for at least the next 12 months.
DIVIDEND POLICY
We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends. See "Description of
Capital Stock."
22
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- - Our actual capitalization as of June 30, 1999;
- - Our pro forma capitalization after giving effect to (a) the receipt of
proceeds of $50,000 from the sale of 13,037 shares of Series D preferred stock
in September 1999; (b) the receipt of proceeds of $24.0 million from the sale
of 2,400,000 shares of Series E preferred stock in September 1999; and (c) the
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering; and
- - Our pro forma as adjusted capitalization after giving effect to the sale of
shares of common stock at an assumed initial public offering price
of $ per share in this offering, less the estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Borrowings, excluding current portion....................................... $ 426 $ 426 $ 426
---------- ----------- -----------
Mandatorily redeemable convertible preferred stock, $0.001 par value;
actual-- 6,197,019 shares issued and outstanding; pro forma and pro forma
as adjusted--no shares, issued and outstanding............................ 17,318 -- --
---------- ----------- -----------
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; actual--20,600,000 shares
authorized; 3,195,662 shares issued and outstanding; pro forma and pro
forma as adjusted--5,000,000 shares authorized; no shares issued and
outstanding............................................................... 3 -- --
Common stock, $0.001 par value; actual--50,000,000 shares authorized;
7,727,788 shares issued and outstanding; pro forma-- 100,000,000
authorized; 19,533,506 shares issued and outstanding; pro forma as
adjusted--100,000,000 shares authorized; shares issued and
outstanding............................................................... 8 20
Additional paid-in capital.................................................. 5,756 47,115
Notes receivable from stockholders.......................................... (42) (42) (42)
Unearned stock-based compensation........................................... (2,736) (2,736) (2,736)
Accumulated deficit......................................................... (10,984) (10,984) (10,984)
---------- ----------- -----------
Total stockholders' equity (deficit)...................................... (7,995) 33,373
---------- ----------- -----------
Total capitalization.................................................... $ 9,749 $ 33,799 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
This table excludes the following shares:
- - 2,093,185 shares subject to options outstanding as of September 30, 1999, at a
weighted average exercise price of $1.05 per share;
- - 2,618,317 additional shares that we could issue under our stock option plans;
- - 750,000 shares that we could issue under our employee stock purchase plan; and
- - 36,129 shares subject to warrants outstanding as of September 30, 1999, at a
weighted average exercise price of $2.19 per share.
23
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on June 30, 1999,
after giving effect to (a) the receipt of proceeds of $50,000 from the sale of
13,037 shares of Series D preferred stock in September 1999; (b) the receipt of
proceeds of $24.0 million from the sale of 2,400,000 shares of Series E
preferred stock in September 1999; and (c) the conversion of all outstanding
shares of preferred stock upon the closing of the offering, was approximately
$ million, or approximately $ per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of our common
stock immediately afterwards. Assuming our sale of shares of common stock
offered by this prospectus at an assumed initial public offering price of
$ per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our net tangible book value at June
30, 1999 would have been approximately $ million or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate decrease in net tangible
book value of $ per share to new investors purchasing shares of common
stock in this offering. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share at June 30,
1999.................................................. $
Increase per share attributable to new investors........
---------
Pro forma net tangible book value per share after this
offering................................................
---------
Dilution per share to new investors....................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering. We have
assumed an initial public offering price of $ per share, and we have not
deducted estimated underwriting discounts and commissions and estimated offering
expenses in our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 20,080,175 % $ 20,349 % $
New stockholders.....................................
------------ --------- ---------- ---------
Total.............................................. % $ %
------------ --------- ---------- ---------
------------ --------- ---------- ---------
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. The exercise of options or warrants having an
exercise price less than the offering price would increase the dilutive effect
to new investors. See "Capitalization," "Management--Employee Benefit Plans" and
notes 5, 8 and 10 of the notes to our financial statements.
24
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Embark.com's financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance sheet
data as of December 31, 1997 and 1998, are derived from the audited financial
statements included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 is derived from audited financial statements not included
elsewhere in this prospectus. The statement of operations data for the period
from inception (August 22, 1995) to December 31, 1995, and the balance sheet
data as of December 31, 1995, are derived from the unaudited financial
statements not included elsewhere in this prospectus. The statement of
operations data for the six months ended June 30, 1998 and 1999 and the balance
sheet data as of June 30, 1999 are derived from the unaudited financial
statements included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for future periods. The
financial information presented below is in thousands, except per share data.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION AUG. YEAR ENDED DECEMBER 31, JUNE 30,
22, 1995 TO ------------------------------- --------------------
DEC. 31, 1995 1996 1997 1998 1998 1999
--------------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ -- $ 141 $ 427 $ 1,632 $ 331 $ 1,245
----- --------- --------- --------- --------- ---------
Operating expenses:
Cost of revenues..................................... -- 21 290 851 209 1,404
Research and development............................. 26 449 375 440 163 615
Sales and marketing.................................. 57 392 346 2,067 543 3,225
General and administrative........................... 15 134 225 722 243 655
Amortization of stock-based compensation............. 246 28 235 582 315 495
----- --------- --------- --------- --------- ---------
Total operating expenses........................... 344 1,024 1,471 4,662 1,473 6,394
----- --------- --------- --------- --------- ---------
Loss from operations................................... (344) (883) (1,044) (3,030) (1,142) (5,149)
Interest expense....................................... -- -- (9) (14) (8) (41)
Interest and other income (expense), net............... 1 3 2 10 (1) 57
----- --------- --------- --------- --------- ---------
Net loss............................................... (345) (880) (1,051) (3,034) (1,151) (5,133)
Accretion of mandatorily redeemable convertible
preferred stock...................................... -- -- -- (177) (59) (364)
----- --------- --------- --------- --------- ---------
Net loss attributable to common stock.................. $ (345) $ (880) $ (1,051) $ (3,211) $ (1,210) $ (5,497)
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
Net loss per share attributable to common stock:
Basic and diluted.................................... $ (1.55) $ (0.26) $ (0.49) $ (0.21) $ (0.73)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares.............................. 569 4,020 6,496 5,871 7,537
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share attributable to common
stock (unaudited):
Basic and diluted.................................... $ (0.28) $ (0.38)
--------- ---------
--------- ---------
Weighted average shares.............................. 11,374 14,309
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
------------- --------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 46 $ 97 $ 102 $ 658 $ 10,751
Working capital (deficit)........................................ 2 7 (458) (730) 8,739
Total assets..................................................... 68 186 482 1,839 14,224
Deferred revenues................................................ -- -- 505 1,008 2,686
Borrowings, less current portion................................. -- -- -- 246 426
Mandatorily redeemable convertible preferred stock............... -- -- -- 2,540 17,318
Total stockholders' equity (deficit)............................. 22 39 (379) (3,007) (7,995)
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Embark was incorporated in August 1995. We intitially generated revenues
exlusively through the sale of educational content on CD-ROMs. In March 1996 we
launched our web site WWW.EMBARK.COM, formerly WWW.COLLEGEEDGE.COM. We launched
the initial versions of our web-based Embark.com Enrollment Services System
(ESS) in December 1996 and our web-based Embark.com Education and Career
Opportunities System (ECOS) in October 1998. With the initial release of these
products and services we accelerated the development of our sales and marketing
organizations. We have continued to release new versions of these fully-hosted
products as upgrades are developed. Our number of employees grew from 21 at
December 31, 1997 to 127 at June 30, 1999 to 152 at August 31, 1999. We have
incurred significant losses and negative cash flows since inception and, as of
June 30, 1999, we had an accumulated deficit of $11.0 million.
We market and sell subscriptions to higher education institutions, high
schools and community youth programs primarily through our direct sales
organization. We market to consumers, primarily students who are typically ages
15-17, through a mix of marketing programs. Our revenues to date have been
derived predominantly from accounts in the United States. However, we believe
that international revenues will grow in absolute dollars as we expand our
operations. To date, we have experienced seasonality in our revenues, with
revenues being concentrated in the fourth and first quarters of the year which
match the undergraduate and graduate application season. We expect this trend to
continue.
We have and expect to continue to generate revenues from multiple sources.
To date, substantially all of our revenues consist of set-up and development
fees, subscription fees and transaction processing fees associated with
Embark.com ESS and subscription fees associated with Embark.com ECOS. We also
generate revenues from corporate sponsorship fees, marketing referral fees and
e-commerce transaction fees from our web site.
Set-up and development fees are recognized after any customization and
design work has been completed and the subscriber has been granted access to our
network. Subscription fees are recognized over the length of the subscription,
which is typically one year. Payments received in advance of revenue recognition
are recorded as deferred revenues. As of June 30, 1999 we had $2.7 million in
deferred revenues. We derive transaction processing fees from the submission of
online applications by students and targeted recruiting messages by colleges and
universities. Application fees are recognized at the time that the application
is submitted and revenues from targeted recruiting messages are recognized at
the time of delivery. Up-front fees and other payments from corporate sponsors
are recognized ratably over the term of the agreement. Marketing referral fees
from corporate sponsors and commerce partners are recognized when we are
notified by our corporate sponsors and commerce partners on a quarterly basis.
In August 1999, we opened our online store to provide students and parents with
educational products, care packages and selected collegiate wear. To date, we
have not generated significant revenues from e-commerce transactions.
A relatively broad base of customers concentrated in the educational
community account for a significant portion of our total revenues. We believe
that the loss of one or more of the perceived leaders among colleges or
universities could result in additional lost revenues and slower growth. In 1997
and 1998, Educational Testing Service, which provides services to educational
institutions including the University of California undergraduate system,
accounted for 16% and 10% of our revenues, respectively. For the six month
period ended June 30, 1999, no single customer accounted for more than 10% of
our total revenues.
26
<PAGE>
Our operating expenses include cost of revenues, research and development,
sales and marketing and general and administrative.
Cost of revenues primarily consists of costs for customer support and web
site operations, including fees for independent contractors, compensation for
institutional customer support, user technical support, web page development and
web site operations personnel, ISP connectivity charges, bank processing charges
for customer fees paid by credit cards, depreciation of the equipment required
for our web site operations and quality assurance activities.
Research and development expenses consist primarily of compensation for
research and development staff and payments to outside contractors and, to a
lesser extent, depreciation on equipment used for development and overhead
costs. Research and development expenses include costs associated with the
development of new products and services and enhancements to existing products
and services. These costs consist primarily of employee salaries, benefits, and
the cost of consulting resources that supplement the internal development team.
We have not capitalized any software development costs and have expensed all of
these costs as incurred.
Sales and marketing expenses primarily consist of compensation for sales and
marketing personnel, advertising and other promotional costs, expenses for
creative design of our web site and marketing materials costs.
General and administrative expenses consist of salaries for administrative,
executive and finance personnel, recruiting costs, information systems costs,
professional services fees and allowances for doubtful accounts.
We expect to make significant investments in research and development and
technology to enhance our current products and services, develop new products
and services and further advance our solution offerings. In addition, an
important part of our strategy is to expand our operations and employee base and
build our sales, marketing, customer support, technical and operational
resources. Our rate of expense growth is primarily driven by increases in
personnel and expenditures for advertising and promotion. We intend to increase
our expenses significantly in an effort to increase our revenues and expect to
incur operating losses for at least the next 18 months. We have a limited
operating history which makes it difficult to predict future operating results.
Our operating expenses are relatively fixed and are based on anticipated
revenues trends; and the failure of our customers to renew their subscriptions
or an unexpected decrease in the use of our web site by students to submit
applications to colleges and universities could cause significant variations in
operating results from quarter to quarter and could result in unforeseen losses.
We believe that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
In this event, the price of our common stock would likely decline.
27
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth statement of operations data for each of the
six quarters in the period ended June 30, 1999. This information has been
derived from our unaudited financial statements. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements contained in this prospectus and include all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of this information. You should read this information in
conjunction with our annual audited financial statements and related notes
appearing elsewhere in this prospectus. Our quarterly operating results are
expected to vary significantly from quarter to quarter and you should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 146 $ 185 $ 428 $ 873 $ 632 $ 613
-------- -------- --------- -------- -------- --------
Operating expenses:
Cost of revenues.......................................... 91 118 233 409 595 809
Research and development.................................. 66 97 121 156 275 340
Sales and marketing....................................... 181 362 590 934 1,026 2,199
General and administrative................................ 104 139 220 259 277 378
Amortization of stock-based compensation.................. 87 228 139 128 136 359
-------- -------- --------- -------- -------- --------
Total operating expenses................................ 529 944 1,303 1,886 2,309 4,085
-------- -------- --------- -------- -------- --------
Loss from operations........................................ (383) (759) (875) (1,013) (1,677) (3,472)
Interest expense............................................ -- (8) (1) (5) (10) (31)
Interest and other income (expense), net.................... -- (1) 7 4 1 56
-------- -------- --------- -------- -------- --------
Net loss.................................................... $(383) $(768) $ (869) $ (1,014) $ (1,686) $ (3,447)
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------
</TABLE>
REVENUES
Revenues increased from $141,000 in 1996, to $427,000 in 1997, to $1.6
million in 1998. Comparing the six months ended June 30, 1998 to the six months
ended June 30, 1999, revenues increased from $331,000 to $1.2 million. The
increase in revenues for the periods presented resulted from growth in the
number of subscriptions to Embark.com ESS and Embark.com ECOS by new customers
and growth in the number of applications submitted to colleges and universities
through our web site. Although we increased the prices of our set-up and
development fees, annual subscription fees and online application submission
fees during the periods presented, the effects of these increases were not
material.
OPERATING EXPENSES
COST OF REVENUES. Cost of revenues increased from $21,000 in 1996, to
$290,000 in 1997, to $851,000 in 1998. In the six months ended June 30, 1998
cost of revenues was $209,000 or 63% of revenues and, in the six months ended
June 30, 1999, $1.4 million or 113% of revenues. Comparing the six months ended
June 30, 1998 to the six months ended June 30, 1999, these costs increased $1.2
million, of which $658,000 is attributable to salaries and related taxes
associated with additional personnel in our web page development, technical
support and other support groups. In the fourth quarter of 1998, we
significantly increased our customer support personnel and web site operations
personnel and accordingly experienced an increase in personnel-related costs.
Also in the fourth quarter of 1998, we began a significant build-up of our
computer network in order to handle the
28
<PAGE>
increasing volume of transactions on our web site resulting in increased
depreciation expense as well as increased ISP connectivity charges. We
anticipate that our cost of revenues will vary, and may increase, as a
percentage of revenues in future quarters as we expand our web site operations
group and web site facilities.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased from
$449,000 in 1996, to $375,000 in 1997, and increased to $440,000 in 1998.
Research and development expenses were $163,000 in the six months ended June 30,
1998 and $615,000 in the six months ended June 30, 1999. Comparing the six
months ended June 30, 1998 to the six months ended June 30, 1999, these costs
increased $452,000, of which $234,000 is attributable to salaries and related
taxes associated with additional personnel and $99,000 is attributable to
increases in consulting expenses. The decrease of $74,000 from 1996 to 1997 is
due to purchases of non-capitalized hardware and software in 1996. We expect
that research and development expenses will continue to increase in absolute
dollars and will vary as a percentage of revenues in future quarters.
SALES AND MARKETING. Sales and marketing expenses decreased from $392,000
in 1996 to $346,000 in 1997, and increased to $2.1 million in 1998. Sales and
marketing expenses were $543,000 in the six months ended June 30, 1998 and $3.2
million in the six months ended June 30, 1999. Comparing the six months ended
June 30, 1998 to the six months ended June 30, 1999, these costs increased $2.7
million, of which $668,000 is attributable to salaries and related taxes
associated with additional personnel and $1.2 million is attributable to
increases in advertising and promotional expenses. We expect that sales and
marketing expenses will continue to increase in absolute dollars as we continue
to expand our sales and marketing efforts and increase promotional activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $134,000 in 1996, to $225,000 in 1997, to $722,000 in 1998. General and
administrative expenses were $243,000 in the six months ended June 30, 1998 and
$655,000 in the six months ended June 30, 1999. Comparing the six months ended
June 30, 1998 to the six months ended June 30, 1999, these costs increased
$412,000, of which $99,000 is attributable to salaries and related taxes
associated with additional personnel and $136,000 is attributable to
professional services fees. We expect that general and administrative expenses
will continue to increase in absolute dollars in future quarters as we continue
to build our infrastructure and the expenses associated with operating as a
public company.
AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock options granted to consultants in exchange
for services. Employee stock-based compensation expense is amortized over the
corresponding vesting period, generally three to four years, using an
accelerated method. In connection with the grant of employee stock options, we
recorded aggregate unearned stock-based compensation of $3.6 million through
June 30, 1999. We amortized stock-based compensation expense of $582,000 in 1998
and $495,000 for the six months ended June 30, 1999. As of June 30, 1999, we
expect to record employee stock-based compensation expense of approximately
$328,000 and $321,000 for the quarters ending September 30, 1999 and December
31, 1999, respectively, and $1.0 million, $662,000, $346,000 and $79,000 for the
years ending December 31, 2000 through 2003, respectively. Stock-based
compensation expense may be reduced in future periods to the extent that options
are terminated prior to full vesting.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the options are earned using an accelerated method.
At each reporting date, we re-value the unearned stock options using the
Black-Scholes option pricing model. As a result, the stock-based compensation
expense will fluctuate as the fair market value of our common stock fluctuates.
For the year ended December 31, 1998 and the six months ended June 30, 1999, we
recorded expenses of $268,000 and $48,000, respectively. Stock-based
compensation expense may increase if additional stock options are
granted.
29
<PAGE>
INTEREST EXPENSE
Interest expense is primarily comprised of interest charges on borrowings.
INTEREST AND OTHER INCOME (EXPENSE)
Interest and other income (expense) consists primarily of interest income
earned on our cash and cash equivalent balances offset by local business taxes.
INCOME TAXES
We have incurred operating losses for all periods. As of December 31, 1998,
we had net operating loss carryforwards for federal tax purposes of
approximately $3.7 million and for state tax purposes of approximately $2.5
million. These federal and state tax loss carryforwards are available to reduce
future taxable income and expire at various dates through fiscal 2018. Under the
provisions of the Internal Revenue Code, some substantial changes in our
ownership may limit the amount of net operating loss carryforwards that could be
utilized annually in the future to offset taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception through June 30, 1999, we have financed our operations
primarily through private sales of common and preferred stock, with net proceeds
totaling approximately $18.1 million. As of June 30, 1999, we had $10.8 million
in cash and cash equivalents and $8.7 million in working capital.
Net cash used in operating activities was $793,000 in 1996, $412,000 in
1997, $1.5 million in 1998 and $4.0 million for the six months ended June 30,
1999. Net cash used to fund operating activities in each of these periods
reflect net losses, offset in part by increases in deferred revenues and accrued
liabilities. Net cash used in investing activities was $25,000 in 1996, $69,000
in 1997, $522,000 in 1998 and $647,000 for the six months ended June 30, 1999.
Investing activities consist primarily of purchases of computer hardware and
software, office furniture and equipment. Net cash generated from financing
activities was $869,000 in 1996, $486,000 in 1997, $2.6 million in 1998 and
$14.7 million for the six months ended June 30, 1999. Net cash generated from
financing activities consists primarily of net proceeds from the issuance of
convertible preferred stock.
We entered into an equipment line of credit in July 1998 at an interest rate
of prime plus 1.25% and secured by purchased equipment and substantially all of
our assets. We had borrowed a total of $500,000 under the equipment line of
credit as of January 31, 1999. This amount, including interest, is repayable
over 36 months beginning in February 1999. No additional amounts may be drawn
against this facility.
We entered into a loan agreement in October 1998, under which we could
borrow up to $500,000 at an interest rate of 13.14% and secured by purchased
equipment. Advances under the loan agreement are to be repaid over 42 months. In
January 1999, we drew down approximately $261,000. A warrant was issued to the
lender in conjunction with the loan agreement. "See Capital Stock--Warrants."
We issued an aggregate of 2,400,000 shares of Series E preferred stock at
$10.00 per share in September 1999, for an aggregate purchase price of $24.0
million.
We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next 12 months. Thereafter, we may require
additional funds to support our working
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capital and operating expense requirements or for other purposes and may seek to
raise these additional funds through public or private debt or equity
financings. There can be no assurance that this additional financing will be
available, or if available, will be on reasonable terms and not dilutive to our
stockholders.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company does not expect the adoption of SOP
98-1 to have a material impact on its financial position, results of operations
or cash flows. The Company will be required to implement SOP 98-1 for the year
ending December 31, 1999.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that start-up costs related to new
operations be expensed as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. The
Company has adopted SOP 98-5 for all periods presented, which did not have a
material impact on its financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative financial
instruments and hedging activities. Because the Company currently holds no
derivative instruments and does not engage in hedging activities, the Company
does not expect the adoption of SFAS No. 133 to have a material impact on its
financial position, results of operations or cash flows. The Company will be
required to implement SFAS No. 133 for the year ending December 31, 2001.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We offer our products and services in the United States and Europe. We
anticipate marketing our products and services in Asia in 2000. As a result, our
financial results could be affected by factors including changes in foreign
currency exchange rates or weak economic conditions in foreign markets. As all
sales are currently made in U.S. dollars, a strengthening of the dollar could
make our product less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of United States interest rates,
particularly since the majority of our cash equivalents are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore, no quantitative tabular
disclosures are required.
YEAR 2000 READINESS
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We designed our product to be Year 2000 compliant when configured and used
in accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in the
host machine or our product are Year 2000 compliant. However, we have not
exhaustively tested our product for Year 2000 compliance. We continue to respond
to customer questions about prior versions of our product on a case-by-case
basis.
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We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize year 2000 as a leap year.
We are seeking assurances from our vendors that licensed software is Year
2000 compliant. To date, we have received assurances from a subset of the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current and
potential customers, and assurances from developers of products incorporated
into our products, our products may contain undetected errors or defects
associated with Year 2000 date functions. Known or unknown errors or defects in
our product could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability from our customers, any of which could harm our business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of this potential
litigation, it is uncertain whether or to what extent we may be affected by it.
Congress recently passed a law that is intended to limit liability for some
failures to achieve Year 2000 compliance. There can be no assurance that this
bill will provide us with any protection.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We are in the process of assessing our
non-information technology systems. We expect to complete our assessment and
testing and perform any needed remediation of these systems by December 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from these vendors that their systems are
Year 2000 compliant. We are not currently aware of any material operational
issues or costs associated with preparing our internal information technology
and non-information technology systems for the Year 2000. However, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal information technology and
non-information technology systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our product and services. As a result, our business could be
harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could harm our business.
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We do not have a contingency plan to address situations that may result if
our critical operations are not Year 2000 ready, and we do not anticipate the
need to do so. The cost of developing and implementing the plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, including utility or transportation company Year
2000 compliance failure interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our product and services to
function properly, and any resulting settlements or judgments; and
- our inability to manage our own business.
IMPACT OF EUROPEAN MONETARY CONVERSION
We are aware of the issues associated with the changes in Europe resulting
from the formation of a European economic and monetary union. One change
resulting from this union required EMU member states to irrevocably fix their
respective currencies to a new currency, the euro, as of January 1, 1999, at
which date the euro became a functional legal currency of these countries.
During the next three years, business in the EMU member states will be conducted
in both the existing national currency, such as the French franc or the Deutsche
mark, and the euro. As a result, companies operating or conducting business in
EMU member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling these
currencies, including the euro. We are still assessing the impact that the
conversion to the euro will have on our internal systems, the sales of our
products and services, and the European and global economies. We will take
appropriate corrective actions based on the results of such assessment. We have
not yet determined the cost related to addressing this issue.
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BUSINESS
OVERVIEW
Embark.com is a leading provider of online information, products and
services to facilitate the achievement of higher education goals. We help
colleges and universities to more effectively manage their recruiting and
enrollment processes. As of September 24, 1999, over 240 graduate and
undergraduate schools subscribed to our services. Our users include 26 of the
top 50 national undergraduate institutions and 47 of the top 50 graduate
business schools as ranked by U.S.News & World Report. We also help over 930
high schools, middle schools, community colleges and community youth programs
provide in-depth career and college guidance to students while monitoring and
tracking their results. Through our web site, located at WWW.EMBARK.COM, we also
help students and parents manage the transition to higher education. We believe
our web site is the most comprehensive source of information on higher education
on the Internet with over 120,000 pages of content. By combining our content
with our Internet-based technologies, students and their parents can research
detailed information on higher education institutions as well as financial aid
programs and other relevant information. They can also communicate with these
institutions, be recruited and submit applications online. As of September 24,
1999, over 500,000 users have registered to use our services on our web site.
INDUSTRY BACKGROUND
MARKET FOR HIGHER EDUCATION IN THE UNITED STATES. The market for education
is the second largest sector of the U.S. economy. The U.S. Department of
Education estimates that expenditures by higher education institutions will be
approximately $227 billion and that student enrollment in our nation's colleges
and universities will be approximately 15 million in 1999. We estimate that
approximately 14 million applications were submitted to U.S. colleges and
universities in the 1997/1998 school year. We estimate that the market for
recruiting and enrolling students is approximately $12 billion, and that private
colleges and universities spend approximately $2,500 per enrolled student to
recruit each new fall class while public colleges and universities spend an
average of $400 per enrolled student.
DEMAND FOR COLLEGE AND CAREER GUIDANCE IN THE UNITED STATES. According to
the U.S. Department of Education, total enrollment in public and private
kindergarten through 12(th) grade (K-12) schools is over 53 million in 1999 and
is projected to continue to grow. The percentage of high school graduates that
enrolled in two-year or four-year college programs rose from 54% in 1986 to 67%
in 1997. As a result, college and career guidance has become increasingly
important to the education community. In 1997 there were over 14,500 public
school districts and over 114,500 public and private K-12 schools. In order to
meet the demands of an increasing student population, public K-12 schools will
spend an estimated $312 billion in 1999 rising to $369 billion in 2002.
TRADITIONAL APPROACHES TO HIGHER EDUCATION IN THE UNITED STATES. There are
approximately 3,700 higher education institutions in the United States, many
with multiple admissions offices, spending significant funds to recruit and
enroll prospective students. Most higher education institutions depend on
traditional, paper-based processes to market their schools, recruit students,
and process applications for enrollment. Costly traditional marketing and
recruiting involves mass mailing paper brochures, attending college fairs or
placing advertisements. Processing paper applications often includes the
re-keying of information that can result in errors or delays. Admissions
officers and staff are also increasingly inundated by email inquiries while
facing the difficulties of managing events and communications with their
prospective students. Recognizing the limitations of traditional paper-based
processes, many higher education institutions have developed more sophisticated
functionality in their own web site. However, attracting a significant number of
students to their web site may require costly marketing and advertising
programs. Education institutions also face the growing costs and challenges
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of managing a secure, transaction-based Internet infrastructure that can handle
increasing usage and evolve with rapidly changing technology.
High schools are finding it increasingly difficult to provide individual
college and career counseling. According to the National Center of Education
Statistics, in 1995 the national student/counselor ratio in United States high
schools was 512:1. Furthermore, we believe that high schools have limited
resources to track and measure the effectiveness of their guidance programs.
Students and parents face the challenges of identifying the best higher
education opportunities available to them. Many students and parents cannot
afford professional advice and preparation and therefore must search for the
best education opportunities available to them from a confusing array of books,
marketing literature, counselors, teachers and friends. In addition, the process
of applying to and financing higher education is complex, costly and time
consuming.
GROWTH OF THE INTERNET. Through the Internet, people can efficiently and
rapidly search, access and manipulate information from a wide variety of sources
regardless of their location. We believe the Internet is particularly well
suited to deliver information and facilitate transactions within the global
community of educational institutions and students. Jupiter Communications
projects that 75% of all teens and 85% of all college students in the United
States will be using the Internet in 2000. We believe that Americans between the
ages of 10 and 24, who are considered "Generation Y," will adopt the Internet to
gather information on educational opportunities and to purchase education
related services and other consumer products. U.S.News & World Report recently
reported that 21% of students who applied to college last year said they prefer
the electronic application method, up from 11% two years ago.
THE EMBARK.COM SOLUTION
We are pioneering the use of the Internet to simplify processes and improve
results for higher education institutions, high schools, community youth
programs, students and parents. Embark.com Enrollment Services System (ESS) is a
web-based service that provides higher education institutions with management
tools for automating and improving the recruiting and admissions processes.
Embark.com Education and Career Opportunities System (ECOS) is a web-based
college and career guidance service to high schools and community youth
programs. Embark.com ECOS provides information and tools to students and
parents, while giving schools management and tracking tools to measure their
students' progress and results. Our web site, WWW.EMBARK.COM, provides detailed
information, advice, tools and other interactive functionality to help people
achieve their education and career goals. Through our web site students can
apply online to colleges and universities and can purchase educational materials
and other products.
BENEFITS TO HIGHER EDUCATION INSTITUTIONS
- BETTER MARKETING REACH. Embark.com ESS provides individual subscriber
colleges and universities with a cost effective method to reach a larger
pool of prospective students. A rapidly growing base of students who use
our WWW.EMBARK.COM web site and Embark.com ECOS are registering to be
recruited by colleges and universities through Embark.com ESS.
- BETTER TARGETING OF RECRUITS. Embark.com ESS allows colleges and
universities to select a detailed profile of students for targeted
recruiting while protecting the students' identities.
- OPERATIONAL EFFICIENCY. Embark.com ESS streamlines and automates many
routine admissions tasks like handling student inquiries, managing
recruiting events and scheduling interviews.
- REDUCE ERRORS AND SHORTEN RESPONSE TIME. Embark.com ESS allows colleges
and universities to receive and process applications for admission
electronically. Automatic downloading of
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application data reduces errors and allows colleges and universities to
begin processing immediately.
- IMPROVE CUSTOMER SERVICE. Embark.com ESS provides a web-based tool to
communicate electronically with recruiting prospects and applicants
throughout the admissions process.
- REDUCE COSTLY DEVELOPMENT, DEPLOYMENT AND MAINTENANCE
EXPENDITURES. Embark.com ESS resides entirely on our servers, which
eliminates the need for subscriber colleges and universities to replicate
the costly infrastructure, support and development resources.
BENEFITS TO HIGH SCHOOLS AND COMMUNITY YOUTH PROGRAMS
- EASY ACCESS TO COMPREHENSIVE INFORMATION AND TOOLS. Embark.com ECOS
enables high schools and community youth programs to provide students with
detailed information on colleges, college majors, financial aid,
scholarships and careers, as well as college admissions criteria and
application requirements.
- CONVENIENT STORAGE FOR STUDENT PORTFOLIO. Embark.com ECOS allows students
to store personal profiles, academic records, career goals, letters,
emails and course plans in one convenient, accessible and secure location.
- INCREASE PRODUCTIVITY OF GUIDANCE COUNSELORS. Embark.com ECOS enables
guidance counselors to efficiently review and advise student users.
Guidance counselors can distribute news as well as store local information
regarding careers or scholarship opportunities into the system for their
students to access.
- TRACK AND MEASURE STUDENT PROGRESS AND RESULTS. Embark.com ECOS helps
guidance counselors and administrators at the school, district and
regional levels to measure and track the progress of students on an
individual and aggregate basis.
- INCREASE OPPORTUNITY FOR PARENTAL INVOLVEMENT. Embark.com ECOS provides
convenient online access to parents for increased involvement with their
children's educational development with guidance counselors.
- REDUCE COSTLY DEVELOPMENT, DEPLOYMENT AND MAINTENANCE
EXPENDITURES. Embark.com ECOS resides entirely on our servers, which
eliminates the need for subscriber schools to replicate the costly
infrastructure, support and development resources.
BENEFITS TO STUDENTS AND PARENTS
- CONVENIENT, "ONE-STOP SHOP" ACCESS. Our web site, located at
WWW.EMBARK.COM, provides a comprehensive base of detailed information
covering colleges, financial aid, scholarships and careers. Our content
includes information geared toward students going to undergraduate and
graduate schools, business school, law school and international programs
in a user-friendly format.
- CONDUCT TIME-CONSUMING, PAPER-ORIENTED TASKS VIA THE INTERNET. Our web
site allows students to electronically submit requests for information or
materials and reserve space in recruiting events.
- PROVIDE ADDITIONAL EDUCATIONAL OPTIONS. Our web site provides searchable
databases to identify additional opportunities for online recruitment by
colleges and universities seeking a particular student's profile of
credentials, interests or goals.
- SAVE TIME AND REDUCE ERRORS. Our web site allows students to prepare over
a period of time custom applications for admission to be submitted
electronically. Each student's profile is automatically entered into each
custom application and the system automatically checks each application
for data integrity errors or missing items.
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- CONVENIENT ACCESS TO RELATED PRODUCTS AND SERVICES. Our web site provides
students and parents with the opportunity to conveniently purchase or
request information on various products and services that can help them
achieve their education and career goals.
STRATEGY
Our objective is to expand upon our position as a leading provider of
web-based information, products and services to higher education institutions,
high schools, community youth programs, students and parents. Key elements of
our strategy include:
CAPITALIZE ON OUR STRONG MARKET POSITION. We intend to leverage our
first-mover advantage with leading higher education institutions and high
schools. We believe that our relationships with some of the most prestigious
higher education institutions in the United States and our online enrollment
capability will influence peer higher education institutions and students to
join our network. We believe that as additional higher education institutions
subscribe to our services a network effect is created which attracts more
students and educational institutions to our products and services.
BUILD BRAND RECOGNITION. We believe that better consumer recognition will
result in higher traffic to our web site and an increase in revenues. We are
pursuing an aggressive brand development strategy through targeted advertising,
promotion and press campaigns. We believe that there is a lack of a dominant
brand in our category and our brand development strategy will give us a
competitive advantage in our segment of the online education market.
EXPAND AND BUILD UPON DISTRIBUTION AND COMMERCE RELATIONSHIPS. We intend to
continue to develop distribution relationships to increase traffic, obtain
additional content and pursue additional commerce opportunities. We currently
attract a portion of the visitors to our web site and to co-branded web sites
through links from other web sites and portals, like Excite@Home and Lycos. We
plan to pursue additional distribution relationships to grow our base of
registered users. We also plan to build upon our content and technology
relationships with education industry companies and organizations. These
relationships allow us to focus on our core area of expertise while offering
comprehensive content and industry-leading technology. We also intend to develop
commerce relationships with additional corporate sponsors and commerce partners
to provide complementary products and services to students and their parents and
capitalize on our growing user base.
ENHANCE AND EXPAND WEB-BASED TECHNOLOGIES. We seek to identify and
incorporate key functions and technologies that are critical to participants in
the education industry. By offering industry-leading functionality, we intend to
expand relationships with our existing customer base and develop new customers
and constituencies. For example, we are expanding the functionality of
Embark.com ESS by developing Prospect Manager which is designed to allow
admissions professionals to communicate with prospective students from initial
contact through enrollment. We plan to continue to offer industry-leading
functionality by further building our internal development group, by partnering
with third parties that offer leading web-based technologies and, where
appropriate, by acquiring businesses and technologies.
EXPAND INTERNATIONALLY. The global reach of the Internet and the world wide
demand for higher education has allowed us to expand internationally. We believe
that the international markets are underserved with respect to the information,
products and services we provide. Many U.S. higher education institutions
recruit internationally and we can facilitate the recruitment and enrollment of
foreign students. We are following our domestic strategy in the international
education community by establishing relationships to increase student use of our
network while gaining the highest profile international universities as
subscribers to Embark.com ESS. Currently our international subscribers include 6
of the top 10 European business schools. We have also established relationships
with government, educational and private entities to increase student use of our
network in China, Japan
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and Taiwan. We intend to seek additional relationships to expand our reach into
foreign markets. We intend to grow internationally by aggressively expanding our
sales, marketing and business development activities worldwide.
EMBARK.COM'S SERVICES
EMBARK.COM ENROLLMENT SERVICES SYSTEM (ESS). Embark.com ESS, located at
WWW.ESS.EMBARK.COM, is designed to help admissions professionals identify,
recruit, admit and enroll a targeted mix of qualified students in a
cost-effective and convenient manner. Embark.com ESS is a comprehensive set of
management modules that enable higher education institutions to conduct their
admissions processes such as outreach recruiting, event management, inquiry
processing, interview scheduling and application for admission processing via a
standard web browser. The five existing management modules that make up
Embark.com ESS can be combined and configured to provide custom solutions for
the unique needs of each higher education institution. Embark.com ESS allows
each subscriber institution to provide user interfaces for students with its own
custom look and feel. Embark.com ESS consists of the following modules:
- OUTREACH RECRUITING MODULE. Outreach Recruiting Module identifies and
selectively targets prospects in our student network according to defined
criteria for active recruitment by admissions professionals. The module
allows admissions professionals to track and evaluate the results of their
outreach marketing campaigns. Student identities are hidden from the
colleges and universities until released by the student.
- INQUIRY MANAGEMENT MODULE. Inquiry Management Module automates the
routine tasks of receiving, processing and responding to requests for
information and materials. In addition, the module gathers student profile
data for convenient use by admissions professionals.
- EVENT MANAGEMENT MODULE. Event Management Module places information
regarding various recruiting events and campus tours on the web. It allows
students to reserve open spaces or respond to invitations on a real-time
basis. Admissions professionals can create and edit events, generate
reports and manage wait lists automatically.
- INTERVIEW MANAGEMENT MODULE. Interview Management Module places the
scheduling of interviews among applicants, admissions officers and alumni
on the web. Admissions professionals can create and edit interviews,
communicate electronically with applicants or alumni, and generate
reports.
- APPLICATION MANAGEMENT MODULE. Application Management Module provides
admissions officers with a convenient tool for receiving, printing and
managing each application. Admissions professionals can communicate online
with one applicant or a group of applicants throughout the admissions
process. In addition, electronically submitted applications can be
downloaded to institutions' information systems.
- PROSPECT MANAGEMENT MODULE (UNDER DEVELOPMENT). Prospect Management
Module is being designed to allow admissions officers to track and
communicate with prospective students from initial contact through
application submission and eventual enrollment. The module will allow
admissions professionals to check for duplicate identities as well as
track the results of various recruiting campaigns.
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EMBARK.COM EDUCATION AND CAREER OPPORTUNITIES SYSTEM (ECOS). Embark.com
ECOS, located at WWW.ECOS.EMBARK.COM, helps guidance counselors and students
research and plan education and career goals in a cost-effective and convenient
manner. Embark.com ECOS is an integrated system of student and counselor
functions that is designed to allow guidance counselors to efficiently compare
student interests and goals contained in a student profile with career and
educational opportunities, while providing counselors with management tools to
measure and track each student's progress. Each local school, district or region
can add customized data such as local career statistics to our database of
college and career information and tools. In addition, Embark.com ECOS offers
online community tools that allow students to communicate directly with school
counselors, community mentors and professionals, trade associations, admissions
officers, athletic directors and financial aid officers via the Internet.
Embark.com ECOS consists of the following two areas:
- STUDENT AREA. Student Area provides the student with a comprehensive
desktop for accessing all of the channels of Embark.com ECOS. The
following summarizes the key channels of the Student Area:
PORTFOLIO--allows students to maintain a personal portfolio that includes
a complete student history, with academic information, interest
assessments, career goals, course plans and resumes. It also contains
tools such as a resume writer, letter generator, course planner, and
online calendar;
COLLEGE--provides a searchable database of 5,484 accredited college,
vocational and technical schools, a college admission strategy maker, and
access to online applications;
MAJOR--provides a searchable database of approximately 300 detailed
college majors, a college major strategy maker and a customized list of
web resources;
FINANCIAL AID--provides financial aid advice, useful calculators,
government forms and a searchable database of over 7,000 unique
scholarships amounting to over 600,000 total scholarship awards;
CAREER--provides a searchable database of over 1,000 detailed careers
profiles, a career strategy maker, a resume writer and access to a
school-approved network of mentors; and
LIFE SKILLS--provides real world advice on subjects of interest to
students including creating a budget and renting an apartment.
- COUNSELOR AREA. Counselor Area provides counselors with an easy to use
desktop for overseeing their students. The following summarizes the key
channels of the Counselor Area:
CUSTOMIZE--add information specific to a school or community, including
logos, mission statements, announcements, events, course offerings,
curriculum changes, local scholarships, internships, news, articles and
events;
MANAGE--create a personal "account" for each student and monitor his or
her use of the account and provides course planning tools that match
individual student career and education interests;
COMMUNICATE--search for specific student interests and facts for
evaluating programs, planning events and communicating to target student
groups; and
TRACK--monitor usage rates, perform analyses, and generate reports for
measuring accountability and analyze and report on benchmarks for
student achievement by accessing student test scores, GPAs, special
awards and assessment tests.
WWW.EMBARK.COM WEB SITE. Our web site helps students and parents from
around the world manage the transition to higher education with over 120,000
pages of content on colleges, college
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majors, financial aid, scholarships, and careers. We also provide a range of
interactive tools that allow students to prepare and submit electronically
admission applications, register for online recruitment by colleges and
universities, and submit requests for information and materials. Our web site
also provides a range of additional information, products and services designed
to help students achieve their learning and career goals either directly from us
or from our corporate sponsors. Our web site is made up of the following major
areas:
- I*EMBARK--a customized and personalized desktop for students to manage
their admissions tasks, messages and applications;
- COLLEGE--helps people bound for undergraduate programs;
- GRADUATE--helps people bound for graduate schools;
- PROFESSIONAL--helps people bound for business or law schools;
- QUICK TOOLS--provides convenient access to functions such as online
applications; and
- STORE--a centralized area within the web site to purchase products related
to college bound students as well as submit requests for information to
various corporate sponsors.
CUSTOMERS AND MARKETS
HIGHER EDUCATION INSTITUTIONS
We target large or prestigious higher education institutions that can gain
the most benefit from our services. As of September 24, 1999, 94 undergraduate
institutions are using Embark.com ESS including the following 26 institutions
which are ranked within the top 50 national undergraduate institutions by
U.S.News & World Report:
<TABLE>
<S> <C>
Boston College Tufts University
Brandeis University Tulane University
Case Western Reserve University University of California, Berkeley
Columbia University University of California, Davis
Cornell University University of California, Irvine
Duke University University of California, Los Angeles
Emory University University of California, San Diego
Lehigh University University of California, Santa Barbara
Massachusetts Institute of Technology University of Chicago
New York University University of North Carolina, Chapel Hill
Northwestern University University of Pennsylvania
Rice University University of Rochester
Stanford University Yale University
</TABLE>
The University of California undergraduate system uses Embark.com ESS
through our agreement with Educational Testing Service. In addition, we have
entered into an agreement with the State University of New York to license
Embark.com ESS to 49 programs in their system.
40
<PAGE>
As of September 24, 1999, the following 47 of the top 50 business schools as
ranked by U.S.News & World Report are using Embark.com ESS:
<TABLE>
<S> <C>
Arizona State University Tulane University (Freeman)
Brigham Young University (Marriott) University of Arizona (Ellen)
Carnegie Mellon University University of California, Berkeley (Haas)
Case Western Reserve University (Weatherhead) University of California, Davis
College of William and Mary University of California, Irvine
Columbia University University of California, Los Angeles (Anderson)
Cornell University (Johnson) University of Chicago
Dartmouth College (Tuck) University of Illinois at Urbana-Champaign
Duke University (Fuqua) University of Maryland (Smith)
Emory University (Goizueta) University of Michigan, Ann Arbor
Georgetown University (McDough) University of Minnesota (Carlson)
Georgia Institute of Technology (Dupree) University of North Carolina at Chapel Hill
(Kenan-Flagler)
Harvard University University of Pennsylvania (Wharton)
Indiana University (Kelley) University of Pittsburgh (Katz)
Michigan State University (Eli) University of Rochester (Simon)
New York University (Stern) University of Southern California (Marshall)
Northwestern University (Kellogg) University of Texas at Austin
Ohio State University (Fisher) University of Virginia (Darden)
Penn State University-University Park (Smeal) University of Washington
Purdue University-West Lafayette (Krannert) Vanderbilt University (Owen)
Rice University (Jones) Wake Forest University (Babcock)
Southern Methodist University (Cox) Washington University (Olin)
Stanford University Yale University
Texas A&M University-College Station (Mays)
</TABLE>
In addition, as of September 24, 1999, 26 graduate schools and 22 schools
offering English as a Second Language programs are using Embark.com ESS.
HIGH SCHOOLS
We target districts or regions of schools that can deploy our services
across the largest number of students. As of September 24, 1999, over 930 high
schools, middle schools, community colleges and community youth programs have
subscribed to Embark.com ECOS.
MARKETING, DISTRIBUTION AND COMMERCE RELATIONSHIPS
MARKETING AND DISTRIBUTION. We have developed marketing and distribution
relationships with leading Internet portals, traditional media print companies
with complementary web sites, and domestic and international organizations which
use our products and services. We have established co-branded web sites with
leading internet portals to increase the distribution of our content and drive
traffic to our web site. Many of these relationships give us various exclusive
rights. For example, some of these partners have agreed that Embark.com will be
the only company to display college admissions related content on their web
sites. Others have agreed that they will not enter into agreements with other
companies targeting our markets. These relationships are typically for a period
of one to three years.
41
<PAGE>
We have entered into agreements with the following companies which operate
Internet portals and web sites, and domestic and international organizations
which provide guidance and support for individuals pursuing education and career
goals.
<TABLE>
<S> <C>
INTERNET PORTALS DOMESTIC ORGANIZATIONS
Excite@Home United States Information Agency
Lycos National Urban League
About.com Council for Opportunity in Education (TRIO programs)
LookSmart Boys & Girls Clubs
WEB SITES INTERNATIONAL WEB SITES AND ORGANIZATIONS
U.S.News & World Report Sina.com
BusinessWeek Ministry of Education of People's Republic of China
USA Today Foundation for International Education in Japan
Highwired.Net Merica in Taiwan
Neoplanet
FindLaw
</TABLE>
COMMERCE RELATIONSHIPS. We have entered into commerce relationships with
corporate sponsors to provide through our web site products and services that we
believe are well suited for students embarking on their higher education. For
example, students and parents can use Visa to purchase products from our online
store. Visa is the preferred method of payment for services and products on our
web site, although other credit cards are accepted. United Airlines allows
students from accredited universities to join United College Plus, a new
frequent flyer program, and earn Mileage Plus miles toward a free airline ticket
on United Airlines. We intend to pursue additional corporate sponsors to provide
our users with additional products and services.
CONTENT
We have entered into content agreements which provide us with education
related articles, data, and other content for our web site with
Wintergreen-Orchardhouse, a subsidiary of Houghton Mifflin, Inc., USA Today and
Barrons. These agreements are generally for one to two years and allow us to
provide our users and distribution partners with what we believe to be the most
comprehensive selection of education related articles and data.
MARKETING AND BRAND AWARENESS
We use multiple advertising media, like television, print and web-based
advertising in order to build our brand and increase traffic to our web site.
Our television advertisements have appeared on cable and satellite networks in
the United States. In addition to advertising on television, we advertise in
print, and have a presence in highly-targeted online media. We also maintain an
extensive public relations campaign. Our corporate sponsors also provide us with
promotional support.
SALES, MARKETING AND SUPPORT
Our sales, marketing and support efforts are organized according to our
three main customer segments: higher education institutions, K-12 school
districts and students and parents. We market and sell subscriptions to higher
education institutions and K-12 school districts primarily through our direct
sales organization. We market to consumers, primarily students, who are
typically ages 15-17 through a mix of marketing programs. Since our potential
customers and users are within defined segments, we are able to easily identify
and target decision-makers through a variety of cost-effective programs.
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<PAGE>
Our sales and marketing approach is designed to help higher education
institutions and K-12 school districts understand the benefits of our services.
We conduct a variety of marketing programs including direct mailings, trade
shows, advertising and public relations to educate our target market and
generate awareness of our services. We deploy a dedicated team of client service
and account management professionals who conduct one-on-one user training and
support during both implementation and production stages. The education
community is an extremely tight-knit group of people where testimonials and
word-of-mouth are extremely important. Since launching Embark.com ESS in
December 1996, we have retained substantially all of our Embark.com ESS
customers. We expect to renew most of our high schools and school districts as
we now enter the second year of web-based service to that market. We also
conduct a variety of consumer marketing programs including direct mailing and
emailing, advertising and public relations to generate awareness, traffic and
transactions at our WWW.EMBARK.COM web site. We work closely with a range of
distribution partners to further generate awareness, traffic and transactions.
We deploy a dedicated team of technical user support staff to provide support
and guidance to consumers.
As of August 31, 1999, our worldwide sales and marketing organization
consisted of 47 individuals and our customer support and web operations
organization consisted of 50 individuals. We intend to continue to focus
significant resources on customer service programs and to significantly expand
the size of our direct sales and marketing organizations both domestically and
internationally.
RESEARCH AND DEVELOPMENT
We originally introduced WWW.EMBARK.COM in March 1996 and have released a
number of subsequent enhancements since the original launch. We launched the
Embark.com ESS in December 1996 and have continuously improved and extended the
functionality of the system. We launched the Embark.com ECOS in October 1998 and
released the second version of the system in September 1999. As of August 31,
1999, our research and development group consisted of 41 employees.
Our product development organization is divided into three main groups. The
architecture and database group develops and maintains application architecture
standards, design frameworks and reusable components in addition to providing
internal consulting and direction to product development teams. The enterprise
development group focuses on developing, maintaining and enhancing Embark.com
ESS and Embark.com ECOS for the institutional users. The consumer development
group focuses on designing, developing, maintaining and enhancing our
WWW.EMBARK.COM web site including co-branded partner sites. A separate quality
assurance and technical writing team supports each group.
We believe our core technologies and our product development teams represent
a significant competitive advantage. A number of key members of our organization
have extensive experience in software engineering and large-scale system
development and implementation. We believe a highly productive team of
technically skilled engineers is a key factor in developing and maintaining
successful Internet solutions.
TECHNOLOGY AND OPERATIONS
Embark.com ESS, Embark.com ECOS and our web site reside entirely on our
servers and are accessible by standard web browsers, requiring minimal
integration at the customer site and enabling rapid deployment of new services,
enhancements and updates. The architecture of our services is a distributed
application framework consisting of multiple layers that help maintain security,
scalability, reliability and manageability. Our services are deployed at the
Embark.com Network Operations Center
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<PAGE>
(NOC) in San Francisco, California, which consists of dozens of Intel
processor-based servers using a fault-tolerant configuration and redundant or
fault-tolerant network components.
The Embark.com NOC employs large clusters of high-end servers in order to
deploy functionality to its customers. Our production systems include the
following features.
SECURITY. Embark.com uses several proven methodologies and technologies in
order to help protect the security of the information entered and stored within
the web site. All communication between web site users and our in-house systems
are encrypted using the industry standard secure socket layer. This helps ensure
security while being relatively non-intrusive for the typical Internet user. We
also employ rigorous logging of all Internet sessions to have an audit trail for
detecting and investigating suspicious activity on our web sites. The data
entered on our web sites are stored on separate database servers that are not
connected to the Internet for further security. Our security experts regularly
employ network vulnerability scans to detect and address any potential
weaknesses. All production servers are housed in a enterprise-grade network
operations center with multi-level electronic access and dedicated alarm
systems.
SCALABILITY. The underlying Embark.com network architecture is designed to
scale. For example, all web servers are clustered, allowing traffic increases to
be met as needed. Production servers are all multi-processor systems with large
amounts of memory, minimizing the chance that the servers become constrained.
Database systems are given large amounts of memory, high processor counts and
large disk arrays to handle the volume of information being transacted and
stored. Bandwidth is provisioned through temporarily expandable Internet network
lines that allow us to increase bandwidth quickly without having to pay for
amounts that go unused. This expansion capability allows us to provision more
Internet network lines.
AVAILABILITY. We have redundant components, including network lines,
servers, hard drives, battery backups and network switches. Power is also
provided by a large array of batteries and a generator, helping ensure that the
site continues to be available during power outages. The network automatically
informs personnel right after any component fails and immediately takes steps to
heal itself. Most of the network is able to resolve itself without human
intervention, typically within a few minutes. Because the web and database
servers are clustered, failures of these key components will not be detected by
web site users.
DISASTER RECOVERY PLANS. Embark.com intends to deploy a disaster recovery
site in the next few months. We intend to give our web site the ability to
recover all data in the event of a catastrophic event at the Embark.com NOC. The
short-term plan will allow web services to recover in 2-5 days with little or no
loss of data. The longer-term plan involves deploying data centers throughout
strategic locations of the globe, thereby giving web site users increased
availability and performance.
COMPETITION
The market for providing web-based services to education institutions and
consumers is intensely competitive, evolving and subject to rapid technological
change. Barriers to entry on the Internet are relatively low, and we expect
competition to increase significantly in the future. We face competitive
pressures from numerous actual and potential competitors. "In house" information
technology departments of higher education institutions have developed or may
develop systems and web sites that provide for some or all of the functionality
of Embark.com ESS and our other services and products. We expect that internally
developed applications and web sites will continue to be a principal source of
competition for the foreseeable future.
We also face competition from traditional off-line sources, such as
self-help guides on college and graduate school selection and admission. Some of
these companies have established web sites to provide their content on the web.
We also face competition from educational non-profit and
44
<PAGE>
membership organizations who offer traditional and Internet-based services to
help educational organizations improve their operations and information and
advice via the Internet to students. We face direct competition from companies
who provide online services and products to colleges and universities, high
schools and students. In addition, we expect competition on the Internet from
companies now providing software and services to educational institutions. We
believe that the principal competitive factors in our market include the
following:
- a significant base of reference customers in both higher education and
high school and middle school markets;
- a critical mass of higher education institutions and student users;
- marketing and distribution alliances that increase usage of the services;
- quality, reliability and performance of the services;
- features and functions of the services;
- breadth and depth of the services;
- core technology and the ability to rapidly implement solutions;
- value and availability of the services; and
- brand recognition and trust.
Our failure to achieve one or more of these competitive factors could
significantly impact our ability to generate revenues or achieve profitability.
In addition, new technologies may increase the competitive pressures on us. Our
competitors may be able to respond more quickly than we can to new or emerging
technologies or changes in Internet user preferences and to devote greater
resources than we can to the development, promotion and sale of their services.
INTELLECTUAL PROPERTY AND OTHER PROPERTY RIGHTS
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily on
a combination of contractual provisions, confidentiality procedures, trade
secrets, and copyright and trademark laws to accomplish these goals.
We license Embark.com ESS and Embark.com ECOS pursuant to non-exclusive
license agreements which impose restrictions on customers' ability to utilize
our software and services. In addition, we seek to avoid disclosure of our trade
secrets by requiring employees, customers and others with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We also seek to protect our software,
documentation and other written materials under trade secret and copyright laws.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
It is also possible that third parties will claim that we have infringed
their current or future products. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause delays or require us to enter
into royalty or licensing agreements, any of which could harm our business.
Patent litigation in particular has complex technical issues and inherent
uncertainties. In the event an infringement claim against us was successful and
we could not obtain a license on acceptable
45
<PAGE>
terms or license a substitute technology or redesign to avoid infringement, our
business would be harmed.
EMPLOYEES
As of August 31, 1999, we had a total of 152 employees, including 41 in
research and development, 47 in sales and marketing, 50 in customer support and
web operations and 14 in administration and finance. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good.
FACILITIES
Our sales, marketing, research and development and administrative offices
are currently located in approximately 29,800 square feet in San Francisco,
California. A lease for 7,500 square feet will expire in December 2000, and a
lease for approximately 22,000 square feet will expire in June 2002. The Company
also has a month to month lease for 300 square feet.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not
engaged in any legal proceedings that we expect to harm our business.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and information about them as of
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Young J. Shin........................ 33 Chairman of the Board, President and Chief Executive Officer
Howard A. Berman..................... 57 Executive Vice President, Chief Operating Officer and Director
Stephen E. Chen...................... 30 Vice President, Sales
Connellan K. Coxwell................. 30 Vice President, Consumer Products
Judy E. David........................ 43 Vice President, Finance, Chief Financial Officer and Secretary
Alexander P. Doll.................... 29 Vice President, Strategy and Business Development
Jung M. Shin......................... 30 Vice President, Research and Development
K. David Chao(1)..................... 32 Director
Philip J. Quigley(1)................. 57 Director
Charles B. Reed(2)................... 58 Director
George J. Still, Jr.(2).............. 41 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
YOUNG J. SHIN co-founded Embark.com in August 1995 and has been our Chairman
of the Board, President and Chief Executive Officer since Embark.com's
inception. From January 1995 to July 1995, he served as Director of Information
Technology at Mecon, Inc., a healthcare consulting firm. From March 1991 to
December 1994, he worked at Seer Technologies, Inc., a computer-aided software
company, where he directed the application architecture practice. Mr. Shin also
worked in the information technology division at Morgan Stanley (now Morgan
Stanley DeanWitter), an investment banking firm. Mr. Shin holds a B.S. from
Massachusetts Institute of Technology in Aeronautical and Astronautical
Engineering and a B.S. in Management Science from Massachusetts Institute of
Technology's Sloan School of Management.
HOWARD A. BERMAN has been our Executive Vice President and Chief Operating
Officer since November 1998, a Director since July 1997, and our Vice President,
Sales and Marketing from July 1997 to November 1998. From June 1992 to June
1997, Mr. Berman was the President and co-founder of Canter Technology, a
developer of multimedia content for the interactive television industry. From
1990 to 1992, he was Vice President of Sales for Macromedia, Inc., a multimedia
company. Prior to joining Macromedia, Mr. Berman was a Regional Manager for
Apple Computer, Inc. Mr. Berman holds a B.S. in History from Brown University.
STEPHEN E. CHEN co-founded Embark.com in August 1995 and has served as our
Vice President, Sales since January 1997 and from August 1995 to December 1996
he served as our Vice President, Research and Development. From January 1995 to
July 1995, Mr. Chen served as a senior manager in research and development at
Mecon, Inc., a healthcare consulting firm. From September 1991 to January 1995,
Mr. Chen was a senior consultant, client engagement manager and marketing
product manager for Seer Technologies, Inc., a computer-aided software company.
Mr. Chen holds a B.S. in Systems Engineering from Boston University.
47
<PAGE>
CONNELLAN K. COXWELL co-founded Embark.com in August 1995 and has served as
our Vice President, Consumer Products, since May 1999. From August 1997 to May
1999, she served as our Director of Marketing and from August 1995 to August
1997 she was a company associate. From January 1994 to August 1995, she served
as Senior Editor at BusinessWire, an international business news service. From
July 1994 to July 1995, she served as Marketing Communications Director for the
Association of Women in Communications, San Francisco chapter, a national
organization serving professional marketers, writers and designers. Ms. Coxwell
holds a B.A. in Art History from Boston University.
JUDY E. DAVID has been our Vice President, Finance and Chief Financial
Officer since June 1999 and has served as Secretary since September 1999. From
January 1996 to May 1999, she was the Chief Financial Officer of Chromatic
Research, Inc., a semiconductor chip design company which was acquired by ATI
Technologies, Inc. in January 1999. From January 1990 to December 1995, she
served as Director of Finance for Apple Computer Japan, Inc. Ms. David is a
C.P.A. and holds an M.B.A. from DePaul University.
ALEXANDER P. DOLL has been our Vice President, Strategy and Business
Development since August 1999 and served as our Director of Business Development
from May 1999 to August 1999. From July 1997 to May 1999, Mr. Doll was a member
of the corporate strategy group at PeopleSoft, Inc., an enterprise software
applications company. From September 1995 to June 1997 he attended Stanford
Graduate School of Business. From May 1996 to September 1996, Mr. Doll was a
member of the technology research group at Dresdner RCM Capital Management. From
December 1992 to June 1994, Mr. Doll was an analyst and from June 1994 to July
1995, he was an associate with Robertson, Stephens & Company, now BancBoston
Robertson Stephens & Company, an investment banking firm. Mr. Doll holds a B.S.
in Finance from the Wharton School of Business and a B.S. in Systems Engineering
from the Moore School, both at the University of Pennsylvania, and an M.B.A.
from Stanford University.
JUNG M. SHIN co-founded Embark.com in August 1995 and has served as our Vice
President, Research and Development since January 1997 and from August 1995 to
December 1996, he served as our Vice President, Finance and Operations. From May
1994 to June 1995, Mr. Shin served as Senior Manager in the research and
development department at Mecon, Inc., a healthcare consulting firm. In March
1993, he co-founded Market Insights, a healthcare data analysis company, where
he served as Principal until April 1994. Mr. Shin has also worked as a research
associate at APM, Inc. and as a business analyst at McKinsey & Company, a
management consulting company. Mr. Shin holds a B.A. in History and Science from
Harvard University.
K. DAVID CHAO has been a Director since April 1998. He has served as General
Partner at Doll Capital Management, Inc., a venture capital investment fund
since July 1997. From January 1997 to July 1997, Mr. Chao served as a founding
executive team member of Japan Communication, Inc. From July 1993 to January
1997, he was an associate and engagement manager at McKinsey & Company, a
management consulting company. Mr. Chao holds a B.A. in Economics and East Asian
Studies from Brown University and an M.B.A from Stanford University.
PHILIP J. QUIGLEY has been a Director since August 1998. From July 1994
until his retirement in April 1997, he served as Chairman, President and Chief
Executive Officer of Pacific Telesis Group, a telephone holding company. From
July 1987 to March 1994 he served as President and Chief Executive Officer of
Pacific Bell, the California operating subsidiary of Pacific Telesis Group. He
is also a director of Wells Fargo & Company, a bank holding company. Mr. Quigley
sits on the advisory board of Thomas Weisel Partners LLC, one of the
underwriters of this offering. Mr. Quigley holds a B.S. in Business
Administration from California State University, Los Angeles.
CHARLES B. REED has been a Director since September 1999. He has been
Chancellor of the California State University System since March 1998. From
August 1985 to February 1998, he was the Chancellor of the State University
System of Florida. He has been awarded a Doctor of Letters from
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<PAGE>
Waynesburg College, a Doctor of Humane Letters from St. Thomas University, and a
Doctor of Laws from Stetson University. Mr. Reed holds a B.S. in Health and
Physical Education, an M.S. in Secondary Education and an Ed.D., major in
Education, from George Washington University.
GEORGE J. STILL, JR., has been a Director since May 1999. He has been a
partner of Norwest Venture Capital, a venture capital investment fund, since
October 1989 and presently serves as Managing Partner of several Norwest Venture
partnerships. Mr. Still currently serves on the board of directors of
PeopleSoft, Inc., an enterprise software applications company, Verio, Inc., an
internet service provider and numerous private companies. Mr. Still holds a B.S.
in Business Administration from Pennsylvania State University and an M.B.A. from
Amos Tuck School at Dartmouth College, where he currently serves on the Board of
Advisors of the Tuck School's Foster Center for Private Equity.
Young J. Shin, our Chairman of the Board, President and Chief Executive
Officer, and Jung M. Shin, our Vice President, Research and Development, are
brothers. Stephen E. Chen, our Vice President, Sales, and Connellan K. Coxwell,
our Vice President, Consumer Products, are married to each other. There are no
other family relationships between any of our directors or executive officers.
BOARD COMMITTEES
AUDIT COMMITTEE. Our audit committee currently consists of Messrs. Reed and
Still. The audit committee reviews our internal accounting procedures and
consults with and reviews the services provided by our independent accountants.
COMPENSATION COMMITTEE. Our compensation committee currently consists of
Messrs. Chao and Quigley. The compensation committee administers our stock
option plans, reviews and approves the compensation and benefits of all our
officers and establishes and reviews general policies relating to employee
compensation and benefits.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings. Members of the
board are reimbursed for some expenses in connection with attendance at board
and committee meetings.
In May 1999, Messrs. Chao, Quigley and Still each received an option to
purchase 75,000 shares of common stock of Embark.com at an exercise price per
share of $0.38. The exercise price was equal to the fair market value of the
common stock on the date of grant as determined by the board of directors. In
August 1999, Mr. Reed received an option to purchase 37,500 shares of common
stock of Embark.com at an exercise price per share of $3.835. The exercise price
was equal to the fair market value of the common stock on the date of grant as
determined by the board of directors. Twenty-five percent of the shares subject
to the options vest on the first anniversary of the date of grant, with the
remaining shares vesting in equal monthly installments over the following three
years.
In September 1999, we adopted the 1999 non-employee directors' stock option
plan to provide for the automatic grant of options to purchase shares of common
stock to directors of Embark.com who are not employees of or consultants to
Embark.com or of any affiliate of Embark.com. Any non-employee director elected
after the closing of this offering is expected to receive an initial option to
purchase 37,500 shares of common stock. All non-employee directors are expected
to receive an annual option to purchase 10,000 shares of common stock on each
anniversary of the closing of this offering. See "--Employee Benefit Plans--1999
Non-Employee Directors' Stock Option Plan" for a description of this plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serve 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
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<PAGE>
directors or compensation committee. Messrs. Chao and Quigley serve as members
of the compensation committee. Investment entities affiliated with Messrs. Chao
and Still have purchased shares of preferred stock. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION NUMBER OF
SECURITIES
-------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) OPTIONS COMPENSATION(2)
- ----------------------------------------------------------- --------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Young J. Shin ............................................. $ 87,500 $ 20,000 -- $ 1,427
Chairman of the Board, President and
Chief Executive Officer
Howard A. Berman .......................................... $ 75,500 $ 15,000 45,534 $ 1,227
Executive Vice President and
Chief Operating Officer
Jung M. Shin .............................................. $ 74,667 $ 15,000 -- $ 1,202
Vice President, Research and Development
Stephen E. Chen ........................................... $ 74,667 $ 15,000 -- $ 1,202
Vice President, Sales
</TABLE>
- ------------------------
(1) Represents bonuses to be paid in 1999 for services performed in 1998.
(2) Represents matching of employee contributions pursuant to our simple IRA
plan.
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998, to each of the individuals listed on the previous
table.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, promissory notes, in shares of our common
stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
- - multiplying the number of shares of common stock subject to a given option by
the assumed initial public offering price of $ per share;
- - assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the expiration
of the options; and
- - subtracting from that result the aggregate option exercise price.
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<PAGE>
The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public offering
price.
The shares listed in the following table under "Number of Securities
Underlying Options Granted" are immediately exercisable. Each of the options has
a ten-year term, subject to earlier termination if the optionee's service with
us ceases. See "Employee Benefit Plans" for a description of the material terms
of these options.
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal 1998" are based on an aggregate of 479,788 options granted to employees
of Embark.com under our stock option plans during the fiscal year ended December
31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL 1998 SHARE DATE 5% 10%
- --------------------------------------------- ----------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Young J. Shin................................ -- -- -- -- -- --
Howard A. Berman............................. 45,534 9.5% $ 0.06 04/01/08
Jung M. Shin................................. -- -- -- -- -- --
Stephen E. Chen.............................. -- -- -- -- -- --
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1998. No shares were acquired on the exercise
of stock options by the individuals during the year ended December 31, 1998.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1998" are based on the assumed initial public offering price of
$ , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares. Embark.com's stock
option plans allow for the early exercise of options granted to employees. All
options exercised early are subject to repurchase by Embark.com at the original
exercise price, upon the optionee's cessation of service prior to the vesting of
the shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------- -----------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Young J. Shin.................................................. -- --
Howard A. Berman............................................... 493,534/0
Jung M. Shin................................................... -- --
Stephen E. Chen................................................ -- --
</TABLE>
CHANGE OF CONTROL ARRANGEMENTS
Upon a change of control of Embark.com the surviving entity will either
assume or substitute outstanding awards under our equity incentive plan and
non-employee directors' stock option plan. Otherwise, the vesting and
exercisability of awards generally will accelerate.
51
<PAGE>
We have entered into arrangements with Howard A. Berman, Judy E. David and
Alexander P. Doll which provide for acceleration of specific percentages of the
outstanding portions of the options held by such individuals in the event we are
acquired or sold. Specifically, if we are acquired or sold, 100% of the unvested
portion of Ms. David's options and the remainder of the unvested portion of one
of Mr. Berman's options vest immediately. For Mr. Doll's options, if the sale or
acquisition occurs within one year of grant, then 1,250 shares for each month
since the grant and half of the remaining shares subject to vesting shall vest
immediately; after that date, half of the unvested options would vest
immediately.
EMPLOYEE BENEFIT PLANS
1999 EQUITY INCENTIVE PLAN
We adopted the equity incentive plan in September 1999. The incentive plan
is an amendment and restatement of the stock option plan we adopted in 1996.
SHARE RESERVE. As of September 30, 1999, we have reserved 5,500,000 shares
for issuance under the incentive plan, subject to stockholder approval. On
January 1 of each year for 9 years, starting with the year 2001, the number of
shares in this reserve will automatically increase by 3.0% of the outstanding
common stock on a fully-diluted basis. However, no more than 7,500,000 shares
may be used for incentive stock options under the incentive plan. If stock
awards granted under the incentive plan expire or otherwise terminate without
being exercised, the shares not acquired pursuant to the stock awards again
become available for issuance under the incentive plan.
ADMINISTRATION. The board administers the incentive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine:
- the grant recipients;
- the grant dates;
- the number of shares subject to the award;
- the exercisability of the award;
- the exercise price;
- the type of consideration; and
- the other terms of the award.
ELIGIBILITY. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code, to employees, including officers, of
Embark.com or an affiliate of Embark.com. The board may grant nonstatutory stock
options, stock bonuses, restricted stock purchase awards and stock appreciation
rights to employees, including officers, or directors of and consultants to
Embark.com or an affiliate of Embark.com. A restricted stock purchase award is
an offer to purchase our shares at a price either at or near the fair market
value of the shares. A stock bonus, on the other hand, is a grant of our shares
at no cost to the recipient in consideration for past services rendered.
Embark.com may reacquire the shares under either type of award at the original
purchase price, which is zero in the case of a stock bonus, if the recipient's
service to Embark.com or an affiliate is terminated before the shares vest. A
stock appreciation right is a right that allows a recipient to elect to receive
cash or stock of a value equal to the appreciation of optioned rights.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns, or is deemed to own stock possessing more than 10% of
the total combined voting power of Embark.com or any affiliate of Embark.com,
unless the exercise price is at least 110% of the fair market value of the stock
on the grant date and the option term is five years or less. In addition, the
52
<PAGE>
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year,
under the incentive plan and all other stock plans of Embark.com and its
affiliates, may not exceed $100,000 for any person.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to some compensation paid to specific
employees in a taxable year to the extent that the compensation exceeds
$1,000,000. When we become subject to Section 162(m), the board may not grant
options and stock appreciation rights under the incentive plan to an employee
covering an aggregate of more than 1,500,000 shares in any calendar year.
OPTIONS AND STOCK APPRECIATION RIGHTS. The board may grant incentive stock
options and stock appreciation rights with an exercise price of 100% or more of
the fair market value of a share of our common stock on the grant date. It may
grant nonstatutory stock options with an exercise price as low as 85% of the
fair market value of a share on the grant date.
OPTION TERMS. The maximum option term is 10 years. The board may provide
for exercise periods of any length in individual option grants, subject to
limitations. However, generally an option terminates three months after the
optionholder's service terminates. If the termination is due to the
optionholder's disability, the exercise period generally is extended to 12
months. If the termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following death.
OTHER PROVISIONS. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may be
transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.
The board determines the purchase price of other stock awards, but the
purchase price may not be less than 85% of the fair market value of Embark.com's
common stock on the grant date. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the incentive plan may, but need not be, restricted and subject to
a repurchase option in favor of Embark.com in accordance with a vesting schedule
that the board determines. The board, however, may accelerate the vesting of the
restricted stock.
Transactions not involving receipt of consideration by Embark.com, including
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the incentive stock option limitation and to the Section
162(m) limitation. It also will adjust outstanding awards as to the class,
number of shares and price per share subject to the awards.
Upon a change in control of Embark.com, the surviving entity will either
assume or substitute outstanding awards under the incentive plan. Otherwise, the
vesting and exercisability of awards generally will accelerate.
OPTIONS ISSUED. As of September 30, 1999, Embark.com has issued 1,038,498
shares upon the exercise of options under the incentive plan, no shares of which
have been repurchased and 495,383 shares of which are subject to repurchase;
options to purchase 2,093,185 shares were outstanding; and 2,368,317 shares
remained available for future grant.
The incentive plan will terminate in 2009 unless the board terminates it
sooner.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
We adopted the non-employee directors' stock option plan in September 1999.
SHARE RESERVE. We authorized the issuance of 250,000 shares of our common
stock pursuant to non-employee directors' stock option plan, subject to
stockholder approval. On January 1 of each year
53
<PAGE>
for 9 years, starting with the year 2001, the number of shares in the reserve
will automatically increase by 75,000 shares, or such smaller number as the
board shall designate. Under the non-employee directors' stock option plan, each
new non-employee director who is subsequently elected or appointed for the first
time after this offering will automatically be granted an option to purchase
37,500 shares of common stock. This is the non-employee director's initial
grant.
On each anniversary date of the offering, beginning in the year 2000, each
non-employee director will be granted an option to purchase 10,000 shares of
common stock; PROVIDED, HOWEVER, that if such person has not been serving as a
non-employee director for the entire period since the preceding anniversary of
the offering, then the number of shares of common stock subject to the option
shall be reduced pro rata for each full month prior to the date of grant during
which such person did not serve as a non-employee director. This is the
non-employee director's annual grant.
Options granted under the non-employee directors' stock option plan are
granted at 100% of the fair market value of the common stock on the date of
grant. Options granted under the non-employee directors' stock option plan have
a ten-year term and vest as follows: initial grants vest as to 1/4th of the
shares 12 months after the date of the grant and 1/48th of the shares each month
for 48 months thereafter; annual grants vest as to 1/48th of the shares each
month for 48 months after the date of the grant. The non-employee directors'
stock option plan will terminate if and when terminated by the board of
directors.
Upon certain changes in control of Embark.com, all outstanding options under
the non-employee directors' stock option plan shall be assumed by the surviving
entity or the surviving entity shall substitute similar options for such
outstanding options. If the surviving entity determines not to assume such
outstanding options or substitute similar options therefor, then, with respect
to persons whose service with Embark.com or an affiliate has not terminated
prior to such change in control, the vesting of such options shall accelerate
and the options will terminate if not exercised prior to such change in control.
OPTIONS ISSUED. As of September 30, 1999, no options have been granted
under the non-employee directors' stock option plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
We adopted the employee stock purchase plan in September 1999.
SHARE RESERVE. We authorized the issuance of 750,000 shares of our common
stock pursuant to purchase rights granted to employees of Embark.com and to
employees of designated affiliates of Embark.com, subject to stockholder
approval. On January 1 of each year for 9 years, beginning in 2001, the number
of shares in the reserve automatically will be increased by the lesser of
250,000 shares or the number of shares designated in advance by the board of
directors.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all employees of Embark.com
and any United States affiliate may participate in the purchase plan, excluding
part-time and seasonal employees. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock. As
of the date of this prospectus, no shares of common stock have been purchased
under the purchase plan.
54
<PAGE>
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common stock
is purchased for accounts of participating employees at a price per share equal
to the lower of:
- 85% of the fair market value of a share on the first day of the offering,
or
- 85% of the fair market value of a share on the purchase date.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan, or
- 85% of the fair market value of a share on the purchase date.
Under the offering to commence on the date of this prospectus, employees may
authorize payroll deductions of up to 10% of their base compensation, not
including sales commissions or bonuses, for the purchase of stock under the
purchase plan and may end their participation in the offering at any time up to
10 days before a purchase date. Participation ends automatically on termination
of employment with Embark.com or its affiliate.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
Embark.com or its affiliate, if any, do not permit the employee's rights to
purchase our stock to accrue at a rate that exceeds $25,000 of the fair market
value of our stock for each calendar year in which the purchase rights are
outstanding. The board also may limit the number of shares that an employee may
purchase on any purchase date.
Upon a change of control of Embark.com the board may provide that the
successor corporation will assume or substitute outstanding purchase rights.
Alternatively, the board may shorten the offering and provide that shares will
be purchased for participants immediately before the change in control.
SIMPLE IRA PLAN
On June 1, 1998, our board adopted a simple IRA plan which is intended to be
a simple individual retirement account plan established pursuant to Section
408(p) of the Internal Revenue Code. The simple IRA plan covers our employees
who have at least three months of service with us. For 1999, eligible employees
may make pre-tax contributions to the simple IRA plan equal to a percentage of
their compensation from us up to a maximum pre-tax contribution of $6,000, which
amount may be adjusted in future years by the Internal Revenue Service for
changes in the cost of living. Under the terms of the simple IRA plan, we also
make a matching contribution to an employee's account equal to the employee's
pre-tax contributions up to a maximum of 3% of the employee's compensation from
us, up to a maximum compensation of $160,000. Employees may generally roll over
funds from another simple individual retirement account plan into the simple IRA
plan on a tax-deferred basis. Employees may generally also roll over funds from
the simple IRA plan to another individual retirement account plan on a
tax-deferred basis.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for
55
<PAGE>
monetary damages resulting from a breach of fiduciary duty, except in
circumstances involving wrongful acts, including:
- for any breach of the director's duty of loyalty to Embark.com or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful dividends or unlawful stock repurchases or redemptions under
Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief including an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. Upon the closing of this offering we will also
have directors' and officers' insurance in place. We believe that these
provisions and agreements will assist us in attracting and retaining qualified
individuals to serve as directors and officers.
56
<PAGE>
CERTAIN TRANSACTIONS
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and on the
dates set forth below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
--------------------------------------------------------------- SERIES D
SERIES A SERIES B SERIES C SERIES D SERIES E WARRANTS
---------- --------- ------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICER AND DIRECTORS
Howard A. Berman............................... -- 100,000 -- -- -- --
Philip J. Quigley.............................. -- -- 103,360 24,460 10,000 --
George J. Still, Jr............................ -- -- -- 13,037 -- --
5% STOCKHOLDERS
Doll Capital Management, Inc.(1)(2)............ -- -- 1,860,463 521,510 500,000 15,457
Norwest Venture Partners(3).................... -- -- -- 2,086,048 100,000 --
Price Per Share................................ $0.30 $0.60 $0.9675 $3.835 $10.00 $ 3.835
Date(s) of Purchase............................ 3/96 8/97 4/98 to 6/98 5/99 to 9/99 9/99 5/99
</TABLE>
- ------------------------
(1) K. David Chao, one of our directors, is a general partner of Doll Capital
Management, Inc.
(2) Alexander P. Doll, our Vice President, Strategy and Business Development is
the son of Dixon Doll, the Managing General Partner of Doll Capital
Management, Inc.
(3) George J. Still, Jr., one of our directors, is a general partner of Norwest
Venture Partners.
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. Embark.com and the
preferred stockholders described above have entered into an agreement, pursuant
to which these and other preferred stockholders will have registration rights
with respect to their shares of common stock following this offering. Upon the
completion of this offering, all shares of our outstanding preferred stock will
be automatically converted into an equal number of shares of common stock, and
all outstanding warrants to purchase Series D preferred stock, if not exercised
prior to the closing of this offering, will terminate pursuant to their terms.
INDEMNIFICATION AGREEMENTS. We intend to enter into indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these persons to the full extent permitted by
law. We also intend to execute these agreements with our future directors and
officers.
INDEBTEDNESS OF MANAGEMENT. In August 1999, we loaned Judy E. David, our
Vice President, Finance and Chief Financial Officer, $73,895 in connection with
the exercise of stock options prior to vesting. The interest on the loan is 6%
per annum and the maturity date is June 1, 2003. The promissory note will
accelerate and become due and payable in the event Ms. David's employment with
us is terminated for any reason. The promissory note is full recourse and is
secured by the shares of common stock issued upon exercise of the stock options.
BRIDGE LOAN FROM STOCKHOLDER. From March 8, 1999 through April 17, 1999,
Doll Capital Management, Inc. loaned Embark.com an aggregate of $1,100,000 at an
interest rate of 8%. The principal and interest amounts of the loans
automatically converted into Series D preferred stock upon the closing of the
sale and issuance of Series D preferred stock on May 5, 1999.
We believe that all of the transactions set forth above were made on terms
no less favorable to Embark.com than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between Embark.com and
its executive 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 continue to be on terms
no less favorable to Embark.com than could be obtained from unaffiliated third
parties.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 30, 1999, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
- each of the individuals listed in the "Summary Compensation Table" above;
- each of our directors;
- each person (or group of affiliated persons) who is known by us to own
beneficially 5% or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of September 30, 1999 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage of ownership is based on 20,080,175 shares of common
stock outstanding on September 30, 1999 and shares of common stock
outstanding after completion of this offering. This table assumes no exercise of
the underwriters' over-allotment option. Unless otherwise indicated, the address
of each of the individuals named below is: c/o Embark.com, Inc., 111 Townsend
Street, San Francisco, California 94107.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
--------------------------------
SHARES ISSUABLE
PURSUANT TO
OPTIONS AND PERCENT
NUMBER OF WARRANTS BENEFICIALLY OWNED
SHARES EXERCISABLE WITHIN ------------------------
BENEFICIALLY 60 DAYS OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED SEPTEMBER 30, 1999 OFFERING OFFERING
- ------------------------------------------------------------ ------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Young J. Shin(1)............................................ 2,270,000 -- 11.3% %
K. David Chao(2)............................................ 3,024,423 15,457 15.1
George J. Still, Jr.(3)..................................... 2,199,085 75,000 11.3
Stephen E. Chen(4).......................................... 1,758,000 8,000 8.8
Jung M. Shin(5)............................................. 1,397,500 -- 7.0
Philip J. Quigley(6)........................................ 287,048 -- 1.4
Howard A. Berman............................................ 100,000 605,784 3.4
Charles B. Reed............................................. -- 37,500 * *
5% STOCKHOLDERS:
Entities affiliated with Doll Capital Management, Inc.(7)... 2,881,973 15,457 13.8
3000 Sand Hill Road
Building 2, Suite 225
Menlo Park, CA 94025
Entity affiliated with Norwest Venture Partners............. 2,186,048 -- 14.42
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301-1426
All directors and executive officers as a group
(11 persons)(8)........................................... 11,290,516 843,241 58.0% %
</TABLE>
- ------------------------
* Less than 1%.
58
<PAGE>
(1) Includes 300,000 shares held by the Young J. Shin 1999 Annuity Trust. Also
includes 300,000 shares held by the Eloisa Tejero 1999 Annuity Trust of
which Mr. Shin does not have voting or dispositive power. Mr. Shin disclaims
beneficial ownership of the shares held by his wife's trust.
(2) Includes 2,171,083 shares held by Doll Technology Investment Fund, a
California Limited Partnership, 500,000 shares held by Doll Technology
Investment Fund II, L.P., 127,732 shares held by Doll Technology Affiliates
Fund, L.P. and 83,158 shares held by Doll Technology Side Fund, L.P. Mr.
Chao is a general partner of Doll Capital Management, Inc. and disclaims
beneficial ownership of the shares held by these entities except to the
extent of his pecuniary partnership interest therein. Also includes 105,482
shares subject to repurchase by Embark.com within 60 days of September 30,
1999.
(3) Represents 2,186,048 shares held by Norwest Venture Partners VII, L.P. Mr.
Still is a general partner of Norwest Venture Partners and disclaims
beneficial ownership of the shares held by this entity except to the extent
of his pecuniary interest therein.
(4) Includes 150,000 shares held by the Stephen E. Chen 1999 Annuity Trust. Also
includes 208,000 shares held by Connellan K. Coxwell, Mr. Chen's wife and
our Vice President, Consumer Products, and 150,000 shares held by the
Connellan K. Coxwell 1999 Annuity Trust. The 8,000 shares issuable pursuant
to options exercisable within 60 days of September 30, 1999 are held by Ms.
Coxwell. Mr. Chen does not have voting or dispositive power and disclaims
beneficial ownership of the shares held by his wife and her trust.
(5) Includes 300,000 shares held by the Jung M. Shin 1999 Annuity Trust. Also
includes 300,000 shares held by the Sabrina Shin 1999 Annuity Trust of which
Mr. Shin does not have voting or dispositive power. Mr. Shin disclaims
beneficial ownership of the shares held by his wife's trust.
(6) Represents shares held in the Quigley Family Trust, of which Mr. Quigley is
the trustee. Includes 126,032 shares subject to repurchase by Embark.com
within 60 days of September 30, 1999.
(7) Includes 2,171,083 shares held by Doll Technology Investment Fund, a
California Limited Partnership, 500,000 shares held by Doll Technology
Investment Fund II, L.P., 127,732 shares held by Doll Technology Affiliates
Fund, L.P. and 83,158 shares held by Doll Technology Side Fund, L.P. Dixon
Doll is the Managing General Partner of Doll Capital Management, Inc. and
the father of Alexander P. Doll, our Vice President, Strategy and Business
Development.
(8) Includes 485,974 shares subject to repurchase by Embark.com within 60 days
of September 30, 1999. See footnotes (2) and (6).
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 100 million shares of common stock, $0.001 par value, and 5 million shares of
preferred stock, $0.001 par value.
COMMON STOCK
As of September 30, 1999, there were 20,080,175 shares of common stock
outstanding that were held of record by approximately 122 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options, after giving effect to the sale of the shares of common
stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any dividends
out of assets legally available therefor as our board of directors may from time
to time determine. Upon liquidation, dissolution or winding up of Embark.com,
holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation provides that our board of directors will
have the authority, without further action by the stockholders, to issue up to
five million shares of preferred stock in one or more series. The board will be
able to fix the rights, preferences, privileges and restrictions of the
preferred stock, including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund terms and the number
of shares constituting any series or the designation of this series. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock, and the likelihood that holders of preferred stock will receive
dividend payments and payments upon liquidation may have the effect of delaying,
deferring or preventing a change in control of Embark.com, which could depress
the market price of our common stock. We have no present plan to issue any
shares of preferred stock.
WARRANTS
In October 1998, we entered into a loan agreement with Phoenix Leasing
Incorporated under which Phoenix agreed to lend us up to $500,000 secured by
assets purchased with the advanced funds. In connection with the agreement, we
issued to Phoenix a warrant to purchase up to 20,672 of our Series C preferred
stock at an exercise price of $0.9675 per share. The Phoenix warrant will be
exercisable into common stock at the closing of this offering and will be
exercisable until the second anniversary of the closing of this offering.
As of September 30, 1999, warrants to purchase an aggregate of 15,457 shares
of our Series D preferred stock were outstanding at an exercise price of $3.835
per share. Each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrant in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations. If the warrants are not exercised prior to
the closing of this offering, the warrants will terminate pursuant to their
terms.
60
<PAGE>
REGISTRATION RIGHTS OF STOCKHOLDERS
On the date 180 days after the completion of this offering, the holders of
11,805,680 shares of common stock and the holders of warrants exercisable for up
to an aggregate of 36,129 shares of common stock, or their transferees, will be
entitled to rights to register these shares under the Securities Act of 1933. If
we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other securityholders, the holders of
these shares of common stock and warrants to purchase common stock will be
entitled to notice of the registration and will be entitled to include, at our
expense, their shares of common stock. In addition, the holders of these shares
of common stock may require us, at our expense and on not more than two
occasions at any time beginning approximately six months from the date of the
closing of this offering, to file a registration statement under the Securities
Act with respect to their shares of common stock, and we will be required to use
our best efforts to effect the registration. Further, the holders of these
shares of common stock may require us at our expense to register their shares on
Form S-3 when we become eligible to use this form. The rights of these holders
shall terminate on the earlier of six years after the effective date of this
offering or when the holder is able to sell all its shares pursuant to Rule 144
under the Securities Act in any 90-day period.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
61
<PAGE>
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us at least
90 days but not more than 120 days prior to the first anniversary of the last
annual meeting of stockholders. Stockholders must give similar advance notice to
raise other business at stockholders' meetings. The board may consist of one or
more members to be determined from time to time by the board. Between
stockholder meetings, the board may appoint new directors to fill vacancies or
newly created directorships. Our bylaws also limit the ability of stockholders
to call special meetings.
Our certificate of incorporation requires that upon completion of the
offering, any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the board of directors. Delaware law and these charter and bylaw
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or our management, which could depress the market price of
our common stock.
SECTION 2115
We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:
- - we are qualified for trading as a national market security on The Nasdaq
National Market, and we have at least 800 stockholders of record as of the
record date of our most recent annual meeting, or
- - during any income year less than 50% of our outstanding voting securities are
held of record by persons having addresses in California.
62
<PAGE>
The following table sets forth some of the effects on our corporate
governance of California Corporations Code Section 2115:
<TABLE>
<CAPTION>
SECTION 2115 NON-SECTION 2115
------------------------------------ ------------------------------------
<S> <C> <C>
Election of Directors............... Cumulative voting is allowed, which No cumulative voting is allowed;
allows each shareholder to vote the accordingly a holder of 50% or more
number of votes equal to the number of voting stock controls election of
of candidates multiplied by the all directors.
number of votes to which the
shareholders' shares are normally
entitled in favor of one candidate.
This potentially allows minority
stockholders to elect some members
of the board.
Removal of Directors................ Removal with or without cause by the If the board is classified, removal
affirmative vote of the holders of a is only allowed for cause upon the
majority of outstanding voting stock affirmative vote of a majority of
is allowed. the outstanding voting stock
entitled to vote in the election of
directors.
Supermajority Vote Requirement...... In order to institute a Simple majority may adopt amendment
supermajority provision, the providing for supermajority.
amendment must be approved by at
least as large a proportion as would
be required under the amendment.
Dividend Distribution............... Dividends are only payable out of Dividends are payable out of either
the surplus of retained earnings and the surplus of retained earnings or
if, immediately after the out of its net profits for the year
distribution, a company's assets are the distribution takes place, or the
at least equal to its liabilities. preceding year.
Dissenters' Rights.................. Generally available in any type of Generally only available in a
reorganization, including a merger, merger. No rights so long as our
sale of assets or sale/ exchange of common stock is quoted on The Nasdaq
shares. If the shares are listed on National Market or traded on an
an exchange, 5% of the shareholders exchange.
must assert their right for any
shareholder to have these rights.
</TABLE>
In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, N.A.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
these shares are purchased by affiliates. The remaining 20,080,175 shares of
common stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:
- no shares will be eligible for immediate sale on the date the registration
statement of which this prospectus is a part is declared effective;
- no shares will be eligible for sale prior to 180 days from the date the
registration statement of which this prospectus is a part is declared
effective;
- 17,667,138 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, 180 days after the date this offering
is declared effective;
- 2,413,037 shares will be eligible for sale at various times after the
180-day lock-up period;
- 1,211,709 shares will be eligible for sale upon the exercise options 180
days after the date this offering is declared effective; and
- 36,129 shares issuable upon the exercise of warrants will be eligible for
sale 180 days after the date this offering is declared effective.
LOCK-UP AGREEMENTS. All of our officers, directors, stockholders,
optionholders and warrantholders have agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Credit Suisse
First Boston Corporation.
RULE 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated, who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Embark.com.
64
<PAGE>
RULE 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates 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,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. No shares will
qualify as "144(k) shares" within 180 days after the date the registration
statement of which this prospectus is a part is declared effective.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.
REGISTRATION RIGHTS. Upon completion of this offering, the holders of
11,805,680 shares of our common stock and the holders of warrants exercisable
for up to an aggregate of 36,129 shares of common stock, or their transferees,
will be entitled to rights with respect to the registration of their shares
under the Securities Act. Registration of their shares under the Securities Act
would result in the shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of this registration. See "Description of Capital Stock --
Registration Rights."
STOCK OPTIONS. We intend to file a registration statement under the
Securities Act covering the shares of common stock reserved for issuance under
our stock option plans and employee stock purchase plan. The registration
statement is expected to be filed and become effective as soon as practicable
after the closing of this offering. Accordingly, shares registered under the
registration statements will, subject to Rule 144 volume limitations applicable
to affiliates, be available for sale in the open market, beginning 180 days
after the effective date of the registration statement of which this prospectus
is a part.
65
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Thomas Weisel
Partners LLC, Hambrecht & Quist LLC and U.S. Bancorp Piper Jaffray Inc. are
acting as representatives, the following respective numbers of shares of common
stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
-------------
<S> <C>
Credit Suisse First Boston Corporation.............................................................
Thomas Weisel Partners LLC.........................................................................
Hambrecht & Quist LLC..............................................................................
U.S. Bancorp Piper Jaffray Inc.....................................................................
-------------
Total......................................................................................
-------------
-------------
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. This option may be exercised
only to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------ ------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions paid by us....... $ $ $ $
Expenses payable by us.................................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
66
<PAGE>
We, our directors, officers, stockholders, optionholders and warrantholders
have agreed that we and they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any offer, sale, pledge, disposition or filing, without
the prior consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "EMBK."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These
67
<PAGE>
transactions may be effected on The Nasdaq Stock Market's National Market or
otherwise and, if commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on numerous
public offerings of equity securities. In May 1999, an entity affiliated with
Thomas Weisel Partners purchased 65,188 shares of our Series D preferred stock
for an aggregate purchase price of $250,000, or $3.835 per share. These shares
were acquired on the same terms and conditions as other investors in our Series
D private placement. In addition, Philip J. Quigley, one of our directors, sits
on the advisory board of Thomas Weisel Partners LLC. Other than Mr. Quigley's
affiliation, Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
68
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as agent,
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. The underwriters have
been represented by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement, which term shall include any amendment to the registration statement,
on Form S-1 under the Securities Act of 1933 with respect to the shares of
common stock offered by our company. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set forth
in the registration statement, some items of which are contained in exhibits to
the registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Embark.com and the common
stock offered, reference is made to the registration statement, including the
exhibits, and the financial statements and notes filed as a part of the
registration statement. A copy of the registration statement, including the
exhibits and the financial statements and notes filed as a part of it, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be obtained from the
Securities and Exchange Commission upon the payment of fees prescribed by it.
You may call the Commission at 1-800-SEC-0330 for more information on the
operation of the public reference facilities. The Securities and Exchange
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding companies that
file electronically with it.
70
<PAGE>
EMBARK.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants......................................................................... F-2
Balance Sheet............................................................................................. F-3
Statement of Operations................................................................................... F-4
Statement of Stockholders' Equity (Deficit)............................................................... F-5
Statement of Cash Flows................................................................................... F-6
Notes to Financial Statements............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Embark.com, Inc.
The reverse stock split described in Note 10 to the financial statements has
not been consummated at September 30, 1999. When it has been consummated, we
will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity (deficit) and of cash
flows, present fairly, in all material respects, the financial position
of Embark.com, Inc. (the "Company") at December 31, 1997 and 1998, and
the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Francisco, California
September 30, 1999
F-2
<PAGE>
EMBARK.COM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
-------------------- JUNE 30, EQUITY AT
1997 1998 1999 JUNE 30, 1999
--------- --------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 102 $ 658 $ 10,751
Accounts receivable, net....................................... 277 613 2,373
Other current assets........................................... 24 59 90
--------- --------- ----------
Total current assets......................................... 403 1,330 13,214
Property and equipment, net...................................... 76 507 796
Restricted cash.................................................. -- -- 175
Other assets..................................................... 3 2 39
--------- --------- ----------
$ 482 $ 1,839 $ 14,224
--------- --------- ----------
--------- --------- ----------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................... $ 117 $ 182 $ 442
Accrued liabilities............................................ 151 762 1,092
Deferred revenues.............................................. 505 1,008 2,686
Borrowings..................................................... 88 108 255
--------- --------- ----------
Total current liabilities.................................... 861 2,060 4,475
Borrowings, less current portion................................. -- 246 426
--------- --------- ----------
Total liabilities............................................ 861 2,306 4,901
--------- --------- ----------
Mandatorily Redeemable Convertible Preferred Stock
(Note 7)....................................................... -- 2,540 17,318 $ --
--------- --------- ----------
Commitments (Note 6)
Stockholders' equity (deficit):
Convertible Preferred Stock, $0.001 par value; 20,600 shares
authorized; 3,196 issued and outstanding; aggregate liquidation
preference of $1,293; pro forma-- 5,000 authorized; no shares
issued and outstanding......................................... 3 3 3 --
Common Stock, $0.001 par value; 50,000 shares authorized; 7,240,
7,391 and 7,728 shares issued and outstanding; pro
forma--100,000 shares authorized; 17,121 shares issued and
outstanding.................................................... 7 7 8 17
Additional paid-in capital....................................... 2,174 3,156 5,756 23,068
Notes receivable from stockholders............................... -- (10) (42) (42)
Unearned stock-based compensation................................ (287) (676) (2,736) (2,736)
Accumulated deficit.............................................. (2,276) (5,487) (10,984) (10,984)
--------- --------- ---------- -------------
Total stockholders' equity (deficit)......................... (379) (3,007) (7,995) $ 9,323
--------- --------- ---------- -------------
-------------
$ 482 $ 1,839 $ 14,224
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EMBARK.COM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ 141 $ 427 $ 1,632 $ 331 $ 1,245
--------- --------- --------- --------- ---------
Operating expenses:
Cost of revenues.......................................... 21 290 851 209 1,404
Research and development.................................. 449 375 440 163 615
Sales and marketing....................................... 392 346 2,067 543 3,225
General and administrative................................ 134 225 722 243 655
Amortization of stock-based compensation.................. 28 235 582 315 495
--------- --------- --------- --------- ---------
Total operating expenses................................ 1,024 1,471 4,662 1,473 6,394
--------- --------- --------- --------- ---------
Loss from operations........................................ (883) (1,044) (3,030) (1,142) (5,149)
Interest expense............................................ -- (9) (14) (8) (41)
Interest and other income (expense), net.................... 3 2 10 (1) 57
--------- --------- --------- --------- ---------
Net loss.................................................... (880) (1,051) (3,034) (1,151) (5,133)
Accretion of Mandatorily Redeemable Convertible Preferred
Stock..................................................... -- -- (177) (59) (364)
--------- --------- --------- --------- ---------
Net loss attributable to Common Stock....................... $ (880) $ (1,051) $ (3,211) $ (1,210) $ (5,497)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share attributable to Common Stock:
Basic and diluted......................................... $ (1.55) $ (0.26) $ (0.49) $ (0.21) $ (0.73)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares................................... 569 4,020 6,496 5,871 7,537
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share attributable to Common Stock
(Unaudited):
Basic and diluted......................................... $ (0.28) $ (0.38)
--------- ---------
--------- ---------
Weighted average shares................................... 11,374 14,309
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EMBARK.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
----------------- ----------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
------ -------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996........................ -- $ -- 7,348 $ 7 $ 360 $ --
Issuance of Series A Convertible Preferred Stock,
net............................................. 2,082 2 -- -- 616 --
Issuance of Series B Convertible Preferred Stock,
net............................................. 428 -- -- -- 251 --
Unearned compensation, net........................ -- -- -- -- 33 --
Net loss.......................................... -- -- -- -- -- --
------ --- ------ --- ------ ---
BALANCE AT DECEMBER 31, 1996...................... 2,510 2 7,348 7 1,260 --
Issuance of Series B Convertible Preferred Stock,
net............................................. 686 1 -- -- 402 --
Issuance of Common Stock upon exercise of stock
options......................................... -- -- 4 -- -- --
Repurchase of Common Stock........................ -- -- (112 ) -- (5) --
Unearned compensation, net........................ -- -- -- -- 517 --
Net loss.......................................... -- -- -- -- -- --
------ --- ------ --- ------ ---
BALANCE AT DECEMBER 31, 1997...................... 3,196 3 7,240 7 2,174 --
Issuance of Common Stock upon exercise of stock
options......................................... -- -- 151 -- 11 (10)
Unearned compensation, net........................ -- -- -- -- 971 --
Accretion of Mandatorily Redeemable Convertible
Preferred Stock to redemption value............. -- -- -- -- -- --
Net loss.......................................... -- -- -- -- -- --
------ --- ------ --- ------ ---
BALANCE AT DECEMBER 31, 1998...................... 3,196 3 7,391 7 3,156 (10)
Issuance of Common Stock upon exercise of stock
options, net (Unaudited)........................ -- -- 337 1 45 (32)
Unearned compensation, net (Unaudited)............ -- -- -- -- 2,555 --
Accretion of Mandatorily Redeemable Convertible
Preferred Stock to redemption value
(Unaudited)..................................... -- -- -- -- -- --
Net loss (Unaudited).............................. -- -- -- -- -- --
------ --- ------ --- ------ ---
BALANCE AT JUNE 30, 1999 (UNAUDITED).............. 3,196 $ 3 7,728 $ 8 $ 5,756 $(42)
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
<CAPTION>
UNEARNED
STOCK-BASED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- -------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996........................ $ -- $ (345) $ 22
Issuance of Series A Convertible Preferred Stock,
net............................................. -- -- 618
Issuance of Series B Convertible Preferred Stock,
net............................................. -- -- 251
Unearned compensation, net........................ (5) -- 28
Net loss.......................................... -- (880) (880)
------------ ----------- -------
BALANCE AT DECEMBER 31, 1996...................... (5) (1,225) 39
Issuance of Series B Convertible Preferred Stock,
net............................................. -- -- 403
Issuance of Common Stock upon exercise of stock
options......................................... -- -- --
Repurchase of Common Stock........................ -- -- (5)
Unearned compensation, net........................ (282) -- 235
Net loss.......................................... -- (1,051) (1,051)
------------ ----------- -------
BALANCE AT DECEMBER 31, 1997...................... (287) (2,276) (379)
Issuance of Common Stock upon exercise of stock
options......................................... -- -- 1
Unearned compensation, net........................ (389) -- 582
Accretion of Mandatorily Redeemable Convertible
Preferred Stock to redemption value............. -- (177) (177)
Net loss.......................................... -- (3,034) (3,034)
------------ ----------- -------
BALANCE AT DECEMBER 31, 1998...................... (676) (5,487) (3,007)
Issuance of Common Stock upon exercise of stock
options, net (Unaudited)........................ -- -- 14
Unearned compensation, net (Unaudited)............ (2,060) -- 495
Accretion of Mandatorily Redeemable Convertible
Preferred Stock to redemption value
(Unaudited)..................................... -- (364) (364)
Net loss (Unaudited).............................. -- (5,133) (5,133)
------------ ----------- -------
BALANCE AT JUNE 30, 1999 (UNAUDITED).............. $(2,736) $(10,984) $(7,995)
------------ ----------- -------
------------ ----------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EMBARK.COM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $ (880) $ (1,051) $ (3,034) $ (1,151) $ (5,133)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization........................................ 11 22 91 20 183
Charges relating to issuance of warrant in connection with bridge
loan............................................................... -- -- -- -- 55
Amortization of stock-based compensation............................. 28 235 582 315 495
Provision for doubtful accounts...................................... -- 52 187 63 25
Changes in operating assets and liabilities:
Accounts receivable................................................ -- (329) (523) (321) (1,785)
Other assets....................................................... (53) 33 3 (5) (68)
Accounts payable................................................... 88 29 65 (93) 260
Accrued liabilities................................................ 13 92 611 124 338
Deferred revenues.................................................. -- 505 503 448 1,678
--------- --------- --------- --------- ---------
Net cash used in operating activities............................ (793) (412) (1,515) (600) (3,952)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash............................................ -- -- -- -- (175)
Purchases of property and equipment.................................... (25) (69) (522) (79) (472)
--------- --------- --------- --------- ---------
Net cash used in investing activities............................ (25) (69) (522) (79) (647)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Preferred Stock, net............. 869 403 -- -- --
Proceeds from issuance of Mandatorily
Redeemable Convertible Preferred Stock, net.......................... -- -- 2,326 2,326 13,251
Proceeds from issuance of Common Stock, net............................ -- -- 1 -- 14
Repurchase of Common Stock............................................. -- (5) -- -- --
Proceeds from bridge loan.............................................. -- -- -- -- 1,100
Proceeds from borrowings............................................... -- 88 354 -- 407
Repayment of borrowings................................................ -- -- (88) (88) (80)
--------- --------- --------- --------- ---------
Net cash provided by financing activities........................ 869 486 2,593 2,238 14,692
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents.............................. 51 5 556 1,559 10,093
Cash and cash equivalents at beginning of period....................... 46 97 102 102 658
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............................. $ 97 $ 102 $ 658 $ 1,661 $ 10,751
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................................. $ -- $ 1 $ 14 $ 8 $ 41
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of capital stock in exchange for notes receivable............. $ -- $ -- $ 10 $ -- $ 32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of bridge loan and interest payable to Mandatorily
Redeemable Convertible Preferred Stock............................... $ -- $ -- $ -- $ -- $ 1,108
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred charges relating to warrants issued........................... $ -- $ -- $ 37 $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Embark.com, Inc., formerly Snap Technologies (the "Company"), was
incorporated in California in August 1995 and reincorporated in the state of
Delaware in September 1999. As a result of the reincorporation, the Company is
authorized to issue 50 million shares of $0.001 par value Common Stock and 14.6
million shares of $0.001 par value Convertible Preferred Stock. The financial
statements for all periods presented have been retroactively adjusted to reflect
the reincorporation. The Company provides the development and marketing of
web-based solutions for providing information and services to facilitate the
achievement of higher education goals to students and assisting colleges and
universities to more effectively manage their recruiting and enrollment
processes.
UNAUDITED INTERIM RESULTS
The accompanying interim financial statements as of June 30, 1999, and for
the six months ended June 30, 1998 and 1999, together with the related notes,
are unaudited. The unaudited interim financial statements have been prepared on
the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and its cash flows as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999. The results for the six months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
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 financial
statements and reported amounts of revenues and expenses during the reporting
period. Significant estimates include valuation allowances for accounts
receivable and deferred tax assets and the value of the Company's stock. Actual
results could differ from those estimates.
STOCK SPLITS
The Company's Board of Directors authorized a 2-for-1 stock split on April
2, 1999 and another 2-for-1 stock split on July 2, 1999. All share and per share
information in these financial statements have been retroactively adjusted to
reflect these stock splits (see Note 10).
RISKS AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage
company conducting electronic commerce over the Internet. These risks include,
but are not limited to, a limited operating history, limited management
resources, dependence upon consumer acceptance of the Internet, Internet related
security risks and the changing nature of the electronic commerce industry. The
Company's operating results may be materially affected by the foregoing factors.
F-7
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of acquisition to be cash
equivalents.
As of June 30, 1999 (unaudited), cash of $150,000 and $25,000 was pledged as
collateral on outstanding letters of credit relating to a lease agreement for
the Company's office facilities and on a corporate credit-card facility,
respectively. These amounts are classified as restricted cash on the balance
sheet. The Company is required to maintain the letter of credit through the end
of the term of the lease.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, and accounts
receivable. Cash and cash equivalents consist of deposits with a large United
States financial institution that management believes is credit worthy. The
Company's accounts receivable are derived from revenues earned from customers
located mainly in the United States. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of accounts receivable. For the
years ended December 31, 1997 and 1998, one customer accounted 16% and 10% of
revenues, respectively. No one customer accounted for more than 10% of revenues
for the year ended December 31, 1996 or for the six months ended June 30, 1998
and 1999. For the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and 1999, no one customer accounted for more than 10%
of net accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
restricted cash, accounts and notes receivable, accounts payable and borrowings,
are carried at cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Depreciation expense
is computed using the straight-line method over the shorter of the estimated
useful lives of the assets, generally three years, or the lease term of the
respective assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
F-8
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
To date, substantially all the Company's revenues have been derived from
set-up and development fees, subscription fees and transaction processing fees
in connection with its web-based solutions. Set-up and development fees are
recognized after any customization and design work has been completed and the
subscriber has been granted access to the Company's network. Subscription fees
are recognized over the length of the subscription, which is typically one year.
Transaction processing fees are derived from the submission of online
applications by students and targeted recruiting messages by colleges and
universities. Application fees are recognized at the time that the application
is submitted, and revenues from targeted recruiting messages are recognized at
the time of delivery.
Sponsorship revenues are derived principally from contracts ranging from
twelve to thirty-six months in which the Company commits to provide sponsors
enhanced promotional opportunities beyond traditional banner advertising.
Sponsorship agreements typically include exclusive relationships and the design
and development of co-branded pages designed to enhance the promotional
objective of the sponsor. To the extent these arrangements include up-front fees
and other payments, the Company recognizes revenue ratably over the term of the
agreement.
Certain agreements provide that the Company receives marketing referral fees
generated on co-branded pages and commissions on revenues generated from
electronic commerce transactions. These revenues are recognized by the Company
when notified by corporate sponsors or e-commerce partners of the amount of
commissions or fees earned. Such notification is generally received quarterly.
Payments received in advance of services performed are recorded as deferred
revenue.
ADVERTISING EXPENSES
The Company expenses the costs of producing advertisements at the time
production occurs, and expenses the cost of communicating advertising in the
period in which the advertising space or airtime is used. Internet advertising
expenses are recognized based on the terms of the individual agreements, but
generally over the greater of the ratio of the number of impressions delivered
over the total number of contracted impressions, or a straight-line basis over
the term of the contract. Advertising expenses totaled $125,000, $60,000 and
$422,000, for the years ended 1996, 1997 and 1998, respectively, and $74,000
(unaudited) and $574,000 (unaudited) for the six months ended June 30, 1998 and
1999, respectively.
PRODUCT DEVELOPMENT
Product development includes expenses incurred by the Company to develop and
enhance the Company's website. Product development costs are expensed as
incurred.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123 , "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of the Company's stock and
the exercise price and is
F-9
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized over the vesting period of generally 3 or 4 years, using the method
prescribed by FASB Interpretation No. 28, "Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans." The Company accounts for
stock issued to non-employees in accordance with the provisions of SFAS No. 123
and the Emerging Issue Task Force consensus in Issue No. 96-18.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not that they will be realized.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and the SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is
computed by dividing net loss attributable to Common Stock for the period by the
weighted-average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss attributable to Common
Stock for the period by the weighted average number of common and potential
common shares outstanding during the period if their effect is dilutive.
Potential common shares include Common Stock subject to repurchase and
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon the conversion of Convertible Preferred Stock and
Mandatorily Redeemable Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net loss
per share attributable to Common Stock of the periods indicated (in thousands,
except for per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss attributable to Common Stock...................... $ (880) $ (1,051) $ (3,211) $ (1,210) $ (5,497)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares of Common Stock
outstanding.............................................. 7,348 7,267 7,335 7,281 7,537
Weighted average shares of Common Stock
subject to repurchase.................................... 6,779 3,247 839 1,410 --
--------- --------- --------- --------- ---------
Weighted average shares used to compute
basic and diluted net loss per share attributable to
Common Stock............................................. 569 4,020 6,496 5,871 7,537
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net loss per share attributable to Common
Stock.................................................... $ (1.55) $ (0.26) $ (0.49) $ (0.21) $ (0.73)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-10
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth potential common shares that are not included
in the diluted net loss per share calculation above because to do so would be
anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average effect of potential common shares:
Series A Convertible Preferred Stock........................... 1,700 2,082 2,082 2,082 2,082
Series B Convertible Preferred Stock........................... 41 897 1,114 1,114 1,114
Series C Mandatorily Redeemable Preferred Stock................ -- -- 1,682 905 2,446
Series D Mandatorily Redeemable Preferred Stock................ -- -- -- -- 1,130
Common Stock subject to repurchase............................. 6,779 3,247 861 1,410 88
Stock options and warrants..................................... 380 840 1,464 1,367 1,871
--------- --------- --------- --------- ---------
8,900 7,066 7,203 6,878 8,731
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share attributable to Common Stock for the year ended
December 31, 1998 and the six months ended June 30, 1999 is computed using the
weighted average number of common shares outstanding including the pro forma
effects of the automatic conversion of the Company's Convertible Preferred Stock
and Mandatorily Redeemable Convertible Preferred Stock into shares of the
Company's Common Stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1998, or at the
date of original issue, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic net loss per share
of 4,878,000 shares for the year ended December 31, 1998 and 6,772,000 shares
for the six months ended June 30, 1999.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Immediately prior to the effective date of the offering, all of the
Mandatorily Redeemable Convertible Preferred Stock and Convertible Preferred
Stock outstanding will automatically convert into Common Stock at a one-to-one
ratio. The pro forma effects of these transactions are unaudited and have been
reflected in the accompanying Pro Forma Stockholders' Equity as of June 30,
1999.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
F-11
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company's management identifies their operating segments based on business
activities, management responsibility and geographic location. During all
periods presented, the Company operated in a single business segment providing
the development and marketing of an Internet-based solution for providing
information and services to facilitate the achievement of higher education goals
to students and assisting colleges and universities to more effectively manage
their recruiting and enrollment processes. Through December 31, 1998, foreign
operations have not been significant in either revenues or investments in
long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company does not expect the adoption of SOP
98-1 to have a material impact on its financial position, results of operations
or cash flows. The Company will be required to implement SOP 98-1 for the year
ending December 31, 1999.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that start-up costs related to new
operations be expensed as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. The
Company has adopted SOP 98-5 for all periods presented, which did not have a
material impact on its financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative financial
instruments and hedging activities. Because the Company currently holds no
derivative instruments and does not engage in hedging activities, the Company
does not expect the adoption of SFAS No. 133 to have a material impact on its
financial position, results of operations or cash flows. The Company will be
required to implement SFAS No. 133 for the year ending December 31, 2001.
F-12
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable................................................................ $ 329 $ 852 $ 2,637
Less: Allowance for doubtful accounts.............................................. (52) (239) (264)
--------- --------- -----------
$ 277 $ 613 $ 2,373
--------- --------- -----------
--------- --------- -----------
Property and equipment, net:
Computer equipment................................................................. $ 104 $ 600 $ 987
Furnitures and fixtures............................................................ 2 28 107
Software........................................................................... 4 4 10
--------- --------- -----------
110 632 1,104
Less: Accumulated depreciation..................................................... (34) (125) (308)
--------- --------- -----------
$ 76 $ 507 $ 796
--------- --------- -----------
--------- --------- -----------
Accrued liabilities:
Accrued payroll and related expenses............................................... $ 78 $ 379 $ 777
Accrued expenses................................................................... 73 108 228
School escrow fee.................................................................. -- 275 87
--------- --------- -----------
$ 151 $ 762 $ 1,092
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD PROVISIONS DEDUCTIONS PERIOD
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996....................................... $ -- $ -- $ -- $ --
Year ended December 31, 1997....................................... -- 52 -- 52
Year ended December 31, 1998....................................... 52 187 -- 239
Six months ended June 31, 1999 (Unaudited)......................... 239 25 -- 264
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
At December 31, 1998 and June 30, 1999 (unaudited), the Company, in
connection with stock option exercises, received notes receivable from officers
of the Company totaling approximately $6,000 and $32,000 respectively. The notes
are collateralized by the corresponding shares of Common Stock, bear interest at
6% per annum and are payable at various dates through January 2003.
F-13
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--BORROWINGS
EQUIPMENT LINE OF CREDIT
In July 1998, the Company entered into an equipment line of credit (the
"Line") with a financial institution in which the Company can borrow up to an
amount of $500,000 and is collaterialized by the equipment and substantially all
assets of the Company. The Company may draw upon the Line through January 14,
1999, after which any outstanding amounts including interest will be repaid over
thirty-six months. The Line bears an interest rate at the prime rate (7.75% at
December 31, 1998) plus 1.25% per annum. As of December 31, 1998, the Company
had borrowed approximately $354,000 against this equipment line of credit.
At December 31, 1998, future minimum payments, excluding interest charges,
under the Line are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1999.................................................................................. $ 108
2000.................................................................................. 118
2001.................................................................................. 118
2002.................................................................................. 10
---------
Total principal amounts due........................................................... 354
Less: Current portion................................................................. (108)
---------
Long-term portion..................................................................... $ 246
---------
---------
</TABLE>
In January 1999 (unaudited), the Company borrowed an additional $146,000
under the Line. Under the terms of the agreement, the outstanding balance of
$500,000 is being repaid over thirty-six months beginning in February 1999.
EQUIPMENT FINANCING ARRANGEMENT
In October 1998, the Company entered into a loan agreement (the
"Arrangement") in which the Company can borrow up to $500,000 at an interest
rate of 13.14%. The loan is collateralized by the assets purchased under the
Arrangement. Draws against the Arrangement are repaid over a term of 42 months.
The Company did not borrow against the Arrangement as of December 31, 1998.
In conjunction with the Arrangement, the Company issued approximately 21,000
warrants to purchase Series C Mandatorily Redeemable Preferred Stock ("Series
C") at approximately $0.968 per share. The warrants were immediately exercisable
after issuance and expire at the later of October 1, 2003 or the second
anniversary of the closing of the Company's initial sale and issuance of shares
of Common Stock in an underwritten public offering. The Company estimated the
fair value of the warrants at approximately $37,000 using the Black-Scholes
option pricing model. The Company records the expense related to the warrants
over the life of the loan agreement as additional interest expense.
F-14
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS
OPERATING LEASES
The Company leases various facilities under non-cancelable operating leases
expiring through 2002. At December 31, 1998, future minimum lease payments are
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1999................................................................................. $ 438
2000................................................................................. 713
2001................................................................................. 645
2002................................................................................. 293
---------
Total future minimum lease payments.................................................. $ 2,089
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997, 1998 and for the
six months ended June 30, 1998 and 1999 totaled $25,000, $23,000, $56,000,
$21,000 (unaudited) and $197,000 (unaudited), respectively.
NOTE 7--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
MANDATORILY REDEEMABLE PREFERRED STOCK AND CONVERTIBLE PREFERRED STOCK
At December 31, 1998, the amounts, terms, number of shares reserved for
conversion and liquidation value for Series A Convertible Preferred Stock
("Series A"), Series B Convertible Preferred Stock ("Series B"), and Series C
are as follows (in thousands):
<TABLE>
<CAPTION>
LIQUIDATION PROCEEDS NET OF
SERIES DESIGNATED OUTSTANDING VALUE ISSUANCE COSTS
- --------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
A 2,400 2,082 $ 625 $ 618
B 2,600 1,114 668 654
C 2,800 2,446 2,543 2,326
----------- ----------- ----------- ------
7,800 5,642 $ 3,836 $ 3,598
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
DIVIDENDS
The holder of shares of Series A, Series B and Series C (collectively,
"Preferred Stock") are entitled to receive non-cumulative dividends at the per
share price of $0.030, $0.060 and $0.097, per annum, respectively, payable when
and if declared by the Board of Directors. For any other dividends or
distributions, the outstanding shares of Preferred Stock shall participate with
Common Stock on an as converted basis. No dividends on Preferred Stock or Common
Stock have been declared by the Board of Directors from inception through
December 31, 1998.
LIQUIDATION
In the event of any liquidation, dissolution or winding-up of the Company,
either voluntary or involuntary, the holders of Series C shall be entitled to
receive, prior and in preference to any
F-15
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
distribution of any assets of the Company to the holders of Series A, Series B
and Common Stock, at the per share price of $0.97 plus declared but unpaid
dividends. After the payment to the holders of Series C, the holders of Series A
and Series B are entitled to receive payment, in preference to the holders of
the Common Stock, at the per share price of $0.30 and $0.60, respectively.
Thereafter, the remaining assets or property distributable upon such liquidation
shall be divided pro rata among the holders of Series A, Series B, Series C, on
a converted basis, and Common Stock.
CONVERSION
Each share of Series A, Series B and Series C is convertible, at the option
of the holder, into shares of Common Stock at the original respective issuance
price after adjusting for dilutive issuances of stock, stock splits and
combinations.
Each share of Series A and Series B shall automatically be converted into
shares of Common Stock immediately upon the earlier of the closing of an
underwritten public offering or the date specified by written consent or
agreement by the holders of a majority of the then outstanding shares of Series
A and Series B voting together as a single class.
Each share of Series C shall automatically be converted into shares of
Common Stock immediately upon the earlier of the closing of an underwritten
public offering in which the public offering results in $10,000,000 with a per
share price of at least $5.81 or the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of Series
C.
VOTING
The holders of Series A, Series B and Series C are entitled to the number of
votes equal to the number of shares of Common Stock into which each share of
Preferred Stock could be converted on the record date for the vote or consent of
stockholders, except as otherwise required by law, and has voting rights and
powers equal to the voting rights and powers of the holders of common stock.
REDEMPTION
Series A and Series B are redeemable at the option of the Company in the
event that the Company proposes any merger, consolidation or other similar
transaction which requires the approval of the holders of Series A and Series B.
If the holders of Series A and Series B approve such transaction, the redemption
price is three times the Series A and Series B issue price. If the holders of
Series A and B do not provide any necessary approval of such transaction, the
redemption price is the issuance price plus any declared but unpaid dividends
plus eight percent of the issuance price per annum compounded from the date of
issuance of Series A and Series B, respectively.
Series C is redeemable at the election of the holders of 66 2/3% of the
outstanding shares of Series C or after the earlier of the sixth anniversary of
the first date on which any Series C shares are issued or the redemption in
whole or in part of the Series A and Series B. The redemption price for Series C
is the issuance price plus any declared but unpaid dividends plus an amount
equal to 10% of the issuance price per annum compounded from the date of
issuance of Series C.
F-16
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
COMMON STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 50,000,000 shares of Common Stock. In October and December
1995, the Company issued approximately 7,348,000 shares of Common Stock to its
founders for $121,000 in cash. A portion of the shares outstanding were subject
to repurchase by the Company over a three-year vesting period from the earlier
of the issuance date or employee hire date, as applicable. At December 31, 1998,
all shares subject to repurchase rights were fully vested.
At December 31, 1998, the Company has reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<S> <C>
Conversion of Series A Convertible Preferred Stock.................. 2,082
Conversion of Series B Convertible Preferred Stock.................. 1,114
Conversion of Series C Mandatorily Redeemable
Convertible Preferred Stock....................................... 2,446
Exercise and conversion of Series C warrant......................... 21
1996 Stock Option Plan.............................................. 1,813
---------
7,476
---------
---------
</TABLE>
NOTE 8--STOCK OPTION PLANS
1996 STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Stock Option Plan (the "1996 Plan").
The 1996 Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the 1996 Plan may be either
incentive stock options ("ISO") or nonqualified stock options ("NSO"). ISOs may
only be granted to employees (including officers and directors who are also
employees). NSOs may be granted to employees and consultants. As of December 31,
1998, the Company has authorized approximately 1,968,000 shares of Common Stock
for issuance under the 1996 Plan.
Options under the 1996 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
(i) the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% shareholder may not be less than 110% of the estimated fair
value of the shares on the date of grant. Options under the 1996 Plan generally
vest over a period of three or four years.
F-17
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK OPTION PLANS (CONTINUED)
OPTION PLAN ACTIVITY
The following table summarizes activity under the Company's stock option
plan for the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------ SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... -- $ -- 497 $0.030 1,293 $0.049 1,803 $0.061
Granted................................. 497 0.030 846 0.060 690 0.085 816 0.380
Exercised............................... -- -- (4) 0.030 (151) 0.071 (337) 0.139
Canceled................................ -- -- (46) 0.056 (29) 0.055 (13) 0.136
------- ------- ------- -------
Outstanding at end of period............ 497 0.030 1,293 0.049 1,803 0.061 2,269 0.164
------- ------- ------- -------
------- ------- ------- -------
Options exercisable at end of period.... -- -- 431 0.040 1,013 0.051 1,014 0.051
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The following table summarizes information about all stock options
outstanding at December 31, 1998 (in thousands, except per share):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED-
AVERAGE WEIGHTED
NUMBER OF REMAINING WEIGHTED- NUMBER OF AVERAGE
SHARES CONTRACTUAL AVERAGE SHARES EXERCISE
EXERCISE PRICE OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE
- -------------- ------------- ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$0.030 347 6.68 years $ 0.030 347 $ 0.030
0.060 863 8.02 years 0.060 605 0.060
0.096 320 9.14 years 0.096 43 0.096
0.380 739 9.89 years 0.380 -- 0.380
----- -----
0.030-0.380 2,269 8.58 years 0.030-0.380 995 0.051
----- -----
----- -----
</TABLE>
FAIR VALUE DISCLOSURES
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model prescribed by SFAS
No. 123 using the following assumptions (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Risk free interest rates................. 5.81% 6.11% 5.28% 5.53% 5.69%
Expected lives........................... 4 years 4 years 4 years 4 years 4 years
Dividend yield........................... 0% 0% 0% 0% 0%
Expected volatility...................... 0% 0% 0% 0% 0%
</TABLE>
F-18
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK OPTION PLANS (CONTINUED)
The compensation cost associated with the Company's stock-based compensation
plan, determined using the minimum value method prescribed by SFAS No. 123, did
not result in a material difference from the reported net loss for the years
ended December 31, 1996, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited).
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999, the
Company recognized unearned compensation totaling $33,000, $517,000, $971,000
and $2,555,000 (unaudited), respectively, which is being amortized over the
vesting periods of the related options, using the method prescribed by FASB
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plan." Amortization expense recognized during the
years ended December 31, 1996, 1997 and 1998 and the six months ended June 30,
1999, totaled approximately $28,000, $235,000, $582,000, and $495,000
(unaudited), respectively.
NOTE 9--INCOME TAXES
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................ $ 542 $ 1,387
Depreciable assets...................................................... 142 92
Compensation............................................................ 53 170
Reserves and accruals................................................... -- 111
Other................................................................... 50 29
--------- ---------
787 1,789
Less: valuation allowance............................................... (787) (1,789)
--------- ---------
Net deferred tax asset.................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded.
F-19
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INCOME TAXES (CONTINUED)
The principal items accounting for the difference between income taxes
benefit at the United States federal statutory rate and the benefit from income
taxes reflected in the Statement of Operations are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Federal benefit at statutory rate..................................... $ 299 $ 357 $ 1,032
State taxes........................................................... 54 65 89
Permanent differences................................................. (2) (54) (119)
Change in valuation allowance......................................... (351) (397) (1,002)
Other................................................................. -- 29 --
-------- -------- --------
Income tax provision.................................................. $ -- $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1998, the Company has federal and state net operating loss
carryforwards of approximately $3,652,000 and $2,483,000 respectively available
to reduce future taxable income, if any. These carryforwards expire through 2018
and 2003, respectively. In addition, the Company has research and development
tax credit carryforwards of approximately $23,000 for federal income tax
purposes and $9,100 for California tax purposes at December 31, 1998. The
federal and state research and development tax credit carryforwards expire in
2012.
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED)
In March and April of 1999, the Company entered into a bridge loan for
$1,100,000. The loan accrued interest at a rate of 8% per annum. The loan and
interest were converted into Series D Mandatorily Redeemable Convertible
Preferred Stock ("Series D") in May 1999. In connection with the bridge loan,
the Company issued approximately 15,000 warrants. The warrants enable the holder
to purchase shares of Series D at $3.835 per share and were valued using the
Black-Scholes option pricing model at approximately $55,000, which was recorded
as an expense during the six months ended June 30, 1999.
In May 1999, the Company issued approximately 3,751,000 shares of Series D
at $3.835 per share for net proceeds of approximately $14,359,000. In September
1999, the Company issued to an existing shareholder an additional 13,037 shares
of Series D at $3.835 per share for proceeds of approximately $50,000. The terms
and conditions for Series D are similar to those describe in Note 7 relating to
Series C except that the liquidation amount per share is $3.835 and dividend per
share of $0.3835. The liquidation value of the Series D is approximately
$14,623,000 as of June 30, 1999.
In September 1999, the Board of Directors authorized, subject to shareholder
approval, the following plans:
- - The issuance of 750,000 shares of Common Stock under the Employee Stock
Purchase Plan (the "ESP Plan"). The ESP Plan permits eligible employees to
purchase shares of the Company's Common Stock through payroll deductions at
85% of the fair market value, as defined in the ESP Plan.
- - The issuance of 250,000 shares of Common Stock under the 1999 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan").
F-20
<PAGE>
EMBARK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
- - The amendment and restatement of the 1996 Plan as described in Note 8 through
the 1999 Equity Incentive Plan (the "1999 Plan"). A total of 5,500,000 shares
of Common Stock have been reserved for issuance under the 1999 Plan.
In September 1999, the Company issued an aggregate of 2,400,000 shares of
Series E Mandatorily Redeemable Convertible ("Series E") Preferred Stock at
$10.00 per share, for an aggregate purchase price of $24,000,000. Series E is
convertible into shares of Common Stock at the rate of one share of Common Stock
for each share of Series E. The terms and conditions for Series E are similar to
those described in Note 7 relating to Series C except that the liquidation
amount per share is $10.10 and dividend per share of $1.01.
In September 1999 the Company entered into a content license and co-branded
agreement with a Series E investor, under which the Company is obligated to pay
$2,750,000 for advertising and co-branding services and exclusivity rights
rendered through January 31, 2003
In October 1999, the Company's Board of Directors intends to authorize a 1
for 2 reverse stock split. All share and per share information in these
financial statements have been retroactively adjusted to reflect the
contemplated reverse stock split.
F-21
<PAGE>
[EMBARK.COM LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 15,290
NASD Filing Fee................................................... 6,000
NASDAQ National Market Additional Listing Fee..................... 90,000
Printing.......................................................... 150,000
Legal Fees and Expenses........................................... 400,000
Accounting Fees and Expenses...................................... 250,000
Blue Sky Fees and Expenses........................................ 15,000
Transfer Agent and Registrar Fees................................. 10,000
Miscellaneous..................................................... 13,710
---------
Total............................................................. $ 950,000
---------
---------
</TABLE>
We intend to pay all expenses of registration, issuance and distribution.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for some expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any of these persons in any action or
proceeding, including any action by or in the right of Embark.com, arising out
of person's services as our director or officer, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Embark.com, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, Embark.com has sold and issued the following unregistered
securities:
(1) From August 1995 through September 30, 1999, Embark.com has granted stock
options to purchase 3,235,407 shares of the common stock to employees,
consultants and directors pursuant to its 1999 Equity Incentive Plan. Of
these stock options, 103,724 shares have been canceled without being
exercised, 1,038,498 shares have been exercised, no shares of which have
been repurchased and 2,093,185 shares remain outstanding.
(2) In October 1995, Embark.com issued an aggregate of 5,848,000 shares of
common stock to 5 purchasers at weighted average price of $0.0079 per share,
for an aggregate purchase price of $46,200.
(3) In December 1995, Embark.com issued an aggregate of 1,500,000 shares of
common stock to 5 purchasers at $0.05 per share, for an aggregate purchase
price of $75,000.
(4) In March 1996, Embark.com issued an aggregate of 2,081,992 shares of Series
A preferred stock to 23 purchasers at $0.30 per share, for an aggregate
purchase price of $624,600. Shares of Series A preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A preferred stock owned.
(5) From November 1996 to August 1997, Embark.com issued an aggregate of
1,113,655 shares of Series B preferred stock to 25 purchasers at $0.60 per
share, for an aggregate purchase price of $668,197. Shares of Series B
preferred stock are convertible into shares of common stock at the rate of
one share of common stock for each share of Series B preferred stock owned.
(6) From April 1998 to June 1998, Embark.com issued an aggregate of 2,445,562
shares of Series C preferred stock to 16 purchasers at $0.9675 per share,
for an aggregate purchase price of $2,366,087. In October 1998, Embark.com
issued a warrant to purchase 20,672 shares of Series C preferred stock at an
exercise price of $0.9675 per share. Shares of Series C preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series C preferred stock owned.
(7) From May 1999 to September 1999, Embark.com issued an aggregate of 3,764,471
shares of Series D preferred stock to 34 purchasers at $3.835 per share, for
an aggregate purchase price of $14,436,813. In May 1999, Embark.com issued
warrants to purchase an aggregate of 15,457 shares of Series D preferred
stock at an exercise price of $3.835 per share. Shares of Series D preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series D preferred stock owned.
(8) In September 1999, Embark.com issued an aggregate of 2,400,000 shares of
Series E preferred stock to 31 purchasers at $10.00 per share, for an
aggregate purchase price of $24,000,000. Shares of Series E preferred stock
are convertible into shares of common stock at the rate of one share of
common stock for each share of Series E preferred stock owned.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act in that they were offered and sold either pursuant to
a written compensatory benefit plan or pursuant to a written contract relating
to compensation, as provided by Rule 701.
The sales and issuances of securities described in paragraphs (2) through
(8) above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 4(2), Regulation D or Regulation S promulgated thereunder. With
respect to the grant of stock options and restricted stock awards described in
paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as this term is used in Section
2(3) of the Securities Act.
II-2
<PAGE>
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any of these securities. All recipients either received
adequate information about Embark.com or had access, through employment or other
relationships, to the information.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to be effective following the
closing of this offering.
3.2 Bylaws of the Registrant.
3.3* Amended and Restated Certificate of Incorporation of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Fourth Amended and Restated Investor Rights Agreement dated September 30, 1999.
4.4 Warrant to Purchase Shares of Series C Preferred Stock dated October 1, 1998.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Non-Employee Directors' Stock Option Plan.
10.5 Standard Industrial/Commercial Single-Tenant Lease-Net by and between Ichi Juu Ichi, LLC and the
Registrant, dated March 4, 1999, with amendments thereto.
10.6 Standard Industrial Lease--Gross, by and between 101 Townsend Association and the Registrant, dated
January 25, 1996, with amendments thereto.
10.7 Rental Agreement by and between Civitas Equity Fund I, LLC and the Registrant, dated August 11, 1998.
10.8 Senior Loan and Security Agreement No. 6182 by and between Phoenix Leasing Limited and the Registrant
dated, October 1, 1998, and Note No. 1 thereto dated January 1, 1999.
10.9* QuickStart Loan and Security Agreement by and between Silicon Valley Bank and the Registrant, dated July
14, 1998.
10.10* Co-Branding Agreement, by and between United Airlines, Inc. and the Registrant, dated June 8, 1999.
10.11* Promotional Agreement, by and between VISA USA, Inc. and the Registrant, dated July 1, 1999.
10.12* Content License and Co-Branded Area Agreement by and between Excite, Inc. and Registrant, dated
September 30, 1999.
10.13* Content Agreement by and between Lycos and the Registrant, dated as of January, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney--reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act, the
information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission this indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against these liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by a director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether the
indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of
this issue.
(4) To provide to the Underwriters at the closing specified in the Underwriting
Agreement certificates in the denomination and registered in the names
required by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, State of
California, on October 1, 1999.
<TABLE>
<S> <C> <C>
EMBARK.COM, INC.
By: /s/ YOUNG J. SHIN
-----------------------------------------
Young J. Shin
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Young J. Shin and Judy E. David, and each
of them, his or her true and lawful agent, proxy and attorney-in-fact, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to (i) act on, sign and file with
the Securities and Exchange Commission any and all amendments (including
post-effective amendments) to this registration statement together with all
schedules and exhibits thereto and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto, (ii) act on, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, (iii) act on and file any supplement to any
prospectus included in this registration statement or any such amendment or any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and (iv) take any and all actions which may
be necessary or appropriate to be done, as fully for all intents and purposes as
he or she might or could do in person, hereby approving, ratifying and
confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THESE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ YOUNG J. SHIN President and Chief
---------------------------- Executive Officer October 1, 1999
Young J. Shin (Principal Executive
Officer)
Vice President, Finance,
/s/ JUDY E. DAVID Chief Financial Officer
---------------------------- and Secretary (Principal October 1, 1999
Judy E. David Financial and Accounting
Officer)
/s/ HOWARD A. BERMAN Executive Vice President,
---------------------------- Chief Operating Officer October 1, 1999
Howard A. Berman and Director
/s/ K. DAVID CHAO
---------------------------- Director October 1, 1999
K. David Chao
/s/ PHILIP J. QUIGLEY
---------------------------- Director October 1, 1999
Philip J. Quigley
/s/ CHARLES B. REED
---------------------------- Director October 1, 1999
Charles B. Reed
/s/ GEORGE J. STILL, JR.
---------------------------- Director October 1, 1999
George J. Still, Jr.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to be effective following
the closing of this offering.
3.2 Bylaws of the Registrant.
3.3* Amended and Restated Certificate of Incorporation of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Fourth Amended and Restated Investor Rights Agreement dated September 30, 1999.
4.4 Warrant to Purchase Shares of Series C Preferred Stock dated October 1, 1998.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Non-Employee Directors' Stock Option Plan.
10.5 Standard Industrial/Commercial Single-Tenant Lease-Net by and between Ichi Juu Ichi, LLC and
the Registrant, dated March 4, 1999, with amendments thereto.
10.6 Standard Industrial Lease--Gross, by and between 101 Townsend Association and the Registrant,
dated January 25, 1996, with amendments thereto.
10.7 Rental Agreement by and between Civitas Equity Fund I, LLC and the Registrant dated August 11,
1998.
10.8 Senior Loan and Security Agreement No. 6182 by and between Phoenix Leasing Limited and the
Registrant, dated October 1, 1998, and Note No. 1 thereto dated January 1, 1999.
10.9* QuickStart Loan and Security Agreement by and between Silicon Valley Bank and the Registrant,
dated July 14, 1998.
10.10* Co-Branding Agreement, by and between United Airlines, Inc. and the Registrant, dated June 8,
1999.
10.11* Promotional Agreement, by and between VISA USA, Inc. and the Registrant, dated July 1, 1999.
10.12* Content License and Co-Branded Area Agreement by and between Excite, Inc. and Registrant,
dated September 30, 1999.
10.13* Content Agreement by and between Lycos and the Registrant, dated as of January, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney--reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EMBARK.COM, INC.
Young J. Shin and Judy E. David hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Embark.com, Inc., a Delaware corporation.
TWO: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of the corporation is EMBARK.COM, INC. (the "Corporation" or
the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is one hundred five
million (105,000,000) shares. One hundred million (100,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($.001). Five
million (5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation")
1.
<PAGE>
pursuant to the Delaware General Corporation Law ("DGCL"), to fix or alter from
time to time the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions of any
wholly unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. MANAGEMENT
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director shall hold office
either until the expiration of the term for which elected or appointed and until
a successor has been elected and qualified, or until such director's death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
b. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the California
General Corporation Law (" CGCL") AND (ii) is not a "listed" corporation or
ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this
time, every stockholder entitled to vote at an election for directors may
cumulate such stockholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the
2.
<PAGE>
candidates receiving the highest number of votes, up to the number of directors
to be elected, are elected.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A(3)(a) above shall not apply and the Board of Directors or any director
may be removed from office at any time (i) with cause by the affirmative vote of
the holders of a majority of the voting power of all then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors or
(ii) without cause by the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3 %) of the voting power of all then-outstanding
shares of voting stock of the corporation entitled to vote at an election of
directors.
4. VACANCIES
a. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships,
3.
<PAGE>
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of fifty percent (50%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except (i) at an annual or special meeting of stockholders called in accordance
with the Bylaws or (ii) by written consent of stockholders in accordance with
the Bylaws prior to the closing of the Initial Public Offering and following the
closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its shareholders through
4.
<PAGE>
bylaw provisions or through agreements with the agents, or through shareholder
resolutions, or otherwise, in excess of the indemnification otherwise permitted
by Section 317 of the CGCL, subject, at any time or times the corporation is
subject to Section 2115(b) to the limits on such excess indemnification set
forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, following the closing of
the Initial Public Offering the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal Articles V, VI or VII of this
Amended and Restated Certificate of Incorporation.
* * * *
THREE: This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this Corporation.
FOUR: This Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and the
stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was 16,334,840 shares of Common
Stock, 4,164,000 shares of Series A Preferred Stock, 2,227,324 shares of
Series B Preferred Stock, 4,891,136 shares of Series C Preferred Stock, 0
shares of C-1 Preferred Stock, 7,528,977 shares of Series D Preferred Stock,
0 shares of D-1 Preferred Stock, 4,800,000 shares of Series E Preferred
Stock and 0 Shares of E-1 Preferred Stock. A majority of the outstanding
shares of Common Stock, a majority of the outstanding shares of Preferred
Stock, a two-thirds majority of the Series C, Series C-1, Series D, Series
D-1, Series E and Series E-1 Preferred Stock voting together as a single
class and a majority of the outstanding shares of Common Stock and Preferred
Stock voting together as a single class, approved this Restated Certificate
of Incorporation by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware and written notice of such
was given by the Corporation in accordance with said Section 228.
5.
<PAGE>
IN WITNESS WHEREOF, EMBARK.COM, INC. has caused this Amended and Restated
Certificate of Incorporation to be signed by the President and the Secretary in
San Francisco, California this _______ day of ________________ 1999.
EMBARK.COM, INC.
By:
----------------------
Young J. Shin
President
ATTEST:
By:
---------------------------
Judy E. David
Secretary
6.
<PAGE>
Exhibit 3.2
BYLAWS
OF
EMBARK.COM, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES.....................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Other Offices..........................................................................1
ARTICLE II CORPORATE SEAL..............................................................................1
Section 3. Corporate Seal.........................................................................1
ARTICLE III STOCKHOLDERS' MEETINGS......................................................................1
Section 4. Place of Meetings......................................................................1
Section 5. Annual Meeting.........................................................................1
Section 6. Special Meetings.......................................................................3
Section 7. Notice of Meetings.....................................................................4
Section 8. Quorum.................................................................................4
Section 9. Adjournment and Notice of Adjourned Meetings...........................................5
Section 10. Voting Rights..........................................................................5
Section 11. Joint Owners of Stock..................................................................5
Section 12. List of Stockholders...................................................................6
Section 13. Action Without Meeting.................................................................6
Section 14. Organization...........................................................................6
ARTICLE IV DIRECTORS...................................................................................7
Section 15. Number and Term of Office..............................................................7
Section 16. Powers.................................................................................7
Section 17. Term of Directors......................................................................7
Section 18. Vacancies..............................................................................8
Section 19. Resignation............................................................................9
Section 20. Removal................................................................................9
Section 21. Meetings...............................................................................9
(a) Annual Meetings........................................................................9
(b) Regular Meetings.......................................................................9
(c) Special Meetings......................................................................10
(d) Telephone Meetings....................................................................10
(e) Notice of Meetings....................................................................10
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
(f) Waiver of Notice......................................................................10
Section 22. Quorum and Voting.....................................................................10
Section 23. Action Without Meeting................................................................11
Section 24. Fees and Compensation.................................................................11
Section 25. Committees............................................................................11
(a) Executive Committee...................................................................11
(b) Other Committees......................................................................11
(c) Term..................................................................................11
(d) Meetings..............................................................................12
Section 26. Organization..........................................................................12
ARTICLE V OFFICERS...................................................................................12
Section 27. Officers Designated...................................................................12
Section 28. Tenure and Duties of Officers.........................................................13
(a) General...............................................................................13
(b) Duties of Chairman of the Board of Directors..........................................13
(c) Duties of President...................................................................13
(d) Duties of Vice Presidents.............................................................13
(e) Duties of Secretary...................................................................13
(f) Duties of Chief Financial Officer.....................................................14
Section 29. Delegation of Authority...............................................................14
Section 30. Resignations..........................................................................14
Section 31. Removal...............................................................................14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION................................................................................14
Section 32. Execution of Corporate Instruments....................................................14
Section 33. Voting of Securities Owned by the Corporation.........................................15
ARTICLE VII SHARES OF STOCK............................................................................15
Section 34. Form and Execution of Certificates....................................................15
Section 35. Lost Certificates.....................................................................16
Section 36. Transfers.............................................................................16
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
Section 37. Fixing Record Dates...................................................................16
Section 38. Registered Stockholders...............................................................17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................................................17
Section 39. Execution of Other Securities.........................................................17
ARTICLE IX DIVIDENDS..................................................................................18
Section 40. Declaration of Dividends..............................................................18
Section 41. Dividend Reserve......................................................................18
ARTICLE X FISCAL YEAR................................................................................18
Section 42. Fiscal Year...........................................................................18
ARTICLE XI INDEMNIFICATION............................................................................18
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees
and Other Agents......................................................................18
(a) Directors and Executive Officers......................................................18
(b) Other Officers, Employees and Other Agents............................................19
(c) Expenses..............................................................................19
(d) Enforcement...........................................................................19
(e) Non-Exclusivity of Rights.............................................................20
(f) Survival of Rights....................................................................20
(g) Insurance.............................................................................20
(h) Amendments............................................................................20
(i) Saving Clause.........................................................................21
(j) Certain Definitions...................................................................21
ARTICLE XII NOTICES....................................................................................22
Section 44. Notices...............................................................................22
(a) Notice to Stockholders................................................................22
(b) Notice to Directors...................................................................22
(c) Affidavit of Mailing..................................................................22
(d) Time Notices Deemed Given.............................................................22
(e) Methods of Notice.....................................................................22
(f) Failure to Receive Notice.............................................................22
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
(g) Notice to Person with Whom Communication Is Unlawful..................................22
(h) Notice to Person with Undeliverable Address...........................................23
ARTICLE XIII AMENDMENTS.................................................................................23
Section 45. Amendments............................................................................23
ARTICLE XIV LOANS TO OFFICERS..........................................................................23
Section 46. Loans to Officers.....................................................................23
ARTICLE XV MISCELLANEOUS..............................................................................24
Section 47. Annual Report.........................................................................24
</TABLE>
iv.
<PAGE>
BYLAWS
OF
EMBARK.COM, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent. (Del. Code
Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require. (Del. Code Ann., tit.
8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the
1.
<PAGE>
direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5. (Del.
Code Ann., tit. 8, Section 211(b)).
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books,
2.
<PAGE>
and of such beneficial owner, (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner, and (iii) whether either such stockholder or beneficial
owner intends to deliver a proxy statement and form of proxy to holders of, in
the case of the proposal, at least the percentage of the corporation's voting
shares required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b) of
these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total
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number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption) or (iv) by the holders of shares
entitled to cast not less than ten percent (10%) of the votes at the meeting,
and shall be held at such place, on such date, and at such time as the Board of
Directors shall fix. At any time or times that the corporation is subject to
Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders
holding five percent (5%) or more of the outstanding shares shall have the right
to call a special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons properly requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a
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quorum. Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, all action taken by the holders of a majority of the vote cast in
all matters other than the election of directors, the affirmative vote of a
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided
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in the Delaware General Corporation Law, Section 217(b). If the instrument filed
with the Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present. (Del. Code Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(Del. Code Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.
SECTION 14. ORGANIZATION.
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(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE.
The authorized number of directors of the corporation shall be fixed
by the Board of Directors from time to time.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient. (Del. Code
Ann., tit. 8, Sections 141(b), 211(b), (c))
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
(Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. TERM OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, directors
shall be elected at each annual meeting of stockholders for a term of one year.
Each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
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(b) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL,
every stockholder entitled to vote at an election for directors may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (a) the names of such candidate or
candidates have been placed in nomination prior to the voting and (b) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director. (Del. Code Ann., tit. 8, Section 223(a),
(b)).
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law (Del. Code Ann. tit. 8, Section 223(c)).
(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(i) any holder or holders of an aggregate of five percent (5%) or
more of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or
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(ii) the Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of the stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL, the term of office of any director
shall terminate upon that election of a successor. (CGCL Section 305(c).
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified. (Del. Code Ann., tit. 8, Sections 141(b),
223(d))
SECTION 20. REMOVAL.
(a) Subject to any limitations imposed by applicable law (and assuming
the corporation is not subject to Section 2115 of the CGCL), the Board of
Directors or any director may be removed from office at any time (i) with cause
by the affirmative vote of the holders of a majority of the voting power of all
then-outstanding shares of voting stock of the corporation entitled to vote at
an election of directors or (ii) without cause by the affirmative vote of the
holders of a majority of the voting power of all then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors.
(b) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
SECTION 21. MEETINGS
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of
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Directors and publicized among all directors. No formal notice shall be required
for a regular meeting of the Board of Directors. (Del. Code Ann., tit. 8,
Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors. (Del. Code
Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, postage prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Certificate of Incorporation; PROVIDED,
HOWEVER, at any meeting, whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
Section 141(b))
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation. (Del. Code
Ann., tit. 8, Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of Preferred Stock or the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a
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committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code Ann.,
tit. 8, Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, (if a director) or, in the absence of any such person, a chairman of
the meeting chosen by a majority of the directors present, shall preside over
the meeting. The Secretary, or in his absence, any Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual meeting of the Board of
Directors. The Board of Directors may also appoint one or more Assistant
Secretaries, Assistant Treasurers, Assistant Controllers and such other officers
and agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors. (Del. Code Ann.,
tit. 8, Sections 122(5), 142(a), (b))
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SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, Section
142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8,
Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
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(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
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All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, Section 158)
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SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, Section 201,
tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law. (Del. Code Ann., tit. 8,
Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten
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(10) days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within ten (10) days of the date on which such a request is received,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures
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of such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear imprinted
thereon the facsimile signature of such person. In case any officer who shall
have signed or attested any bond, debenture or other corporate security, or
whose facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law. (Del. Code Ann., tit. 8,
Sections 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not
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prohibited by the Delaware General Corporation Law or any other applicable law;
PROVIDED, HOWEVER, that the corporation may modify the extent of such
indemnification by individual contracts with its directors and executive
officers and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law or any other applicable law. The
Board of Directors shall have the power to delegate the determination of whether
indemnification shall be given to any such person except executive officers to
such officers or other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation, in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent
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jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or any
other applicable law, nor an actual determination by the corporation (including
its Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or executive officer to
enforce a right to indemnification or to an advancement of expenses hereunder,
the burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law or any
other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation or any other applicable law, upon approval by
the Board of Directors, may purchase insurance on behalf of any person required
or permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged
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occurrence of any action or omission to act that is the cause of any proceeding
against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an
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employee benefit plan shall be deemed to have acted in a manner "not opposed
to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent. (Del. Code Ann., tit. 8, Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, Section
222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any
22.
<PAGE>
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders entitled to vote. The Board of Directors shall also have the power,
if such power is conferred upon the Board of Directors by the Certificate of
Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation,
the amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors). (Del. Code Ann., tit. 8, Sections
109(a), 122(6)).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other
23.
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assistance may be with or without interest and may be unsecured, or secured
in such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these
Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute. (Del. Code
Ann., tit. 8, Section 143)
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by Section
605 of the CGCL, additional information as required by Section 1501(b) of the
CGCL shall also be contained in such report, provided that if the corporation
has a class of securities registered under Section 12 of the 1934 Act, that Act
shall take precedence. Such report shall be sent to stockholders at least
fifteen (15) days prior to the next annual meeting of stockholders after the end
of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to the
stockholders of the corporation is hereby expressly waived.
24.
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Exhibit 4.3
EMBARK.COM, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
SEPTEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. AMENDMENT.........................................................1
1.1 Procedure................................................1
1.2 Rights of Holders........................................2
2. REGISTRATION RIGHTS...............................................2
2.1 Definitions..............................................2
2.2 Company Registration.....................................3
2.3 Obligations of the Company...............................3
2.4 Furnish Information......................................4
2.5 Expenses of Company Registration.........................4
2.6 Underwriting Requirements................................5
2.7 No Delay of Registration.................................5
2.8 Indemnification..........................................5
2.9 Reports Under Securities Exchange Act of 1934............7
2.10 Form S-3 Registration....................................8
2.11 Request for Registration.................................9
2.12 Assignment of Registration Rights.......................10
2.13 "Market Stand-Off" Agreement............................11
2.14 Termination of Registration Rights......................11
2.15 Limitations on Subsequent Registration Rights...........11
2.16 Right to Maintain Percentage Interest...................11
2.17 Board Representations...................................13
3. FINANCIAL INFORMATION............................................13
3.1 Annual and Quarterly Information........................13
3.2 Inspection..............................................14
3.3 Covenants of the Company................................14
3.4 Termination of Covenants................................14
4. MISCELLANEOUS....................................................14
4.1 Successors and Assigns..................................14
4.2 Governing Law...........................................15
4.3 Counterparts............................................15
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.4 Titles and Subtitles.....................................15
4.5 Notices..................................................15
4.6 Amendments and Waivers...................................16
4.7 Entire Agreement.........................................16
4.8 Severability.............................................16
4.9 Grant of Additional Rights...............................16
4.10 Waiver...................................................16
ii.
<PAGE>
EMBARK.COM, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Third Amended and Restated Investor Rights Agreement ("AGREEMENT")
is entered into as of September 30, 1999, among Embark.com, Inc., a Delaware
corporation (the "COMPANY"), and the investors whose names are set forth on
EXHIBIT A hereto (individually an "INVESTOR," collectively, the "INVESTORS").
A. Certain investors (the "SERIES A INVESTORS") hold Series A Preferred
Stock (the "SERIES A SHARES") purchased from the Company pursuant to the Series
A Preferred Stock Purchase Agreement dated as of March 8, 1996, certain
investors (the "SERIES B INVESTORS") hold Series B Preferred Stock (the "SERIES
B SHARES") purchased from the Company pursuant to the Series B Preferred Stock
Purchase Agreements dated as of November 7, 1996, December 31, 1996, March 6,
1997 and August 29, 1997, certain investors (the "SERIES C INVESTORS") hold
Series C Preferred Stock (the "SERIES C SHARES") purchased from the Company
pursuant to the Series C Preferred Stock Purchase Agreements dated as of April
24, 1998 and June 30, 1998 and certain investors (the "SERIES D INVESTORS") hold
Series D Preferred Stock (the "SERIES D SHARES") purchased from the Company
pursuant to the Series D Preferred Stock Purchase Agreements dated as of May 5,
1999, May 13, 1999 and September 8, 1999. The Company, the Series A Investors,
the Series B Investors, the Series C Investors and the Series D Investors
previously entered into the Third Amended and Restated Investor Rights Agreement
(the "EXISTING AGREEMENT") dated as of May 13, 1999. The Company is proposing to
issue up to 5,000,000 shares of Series E Preferred Stock ("SERIES E SHARES") to
certain investors, and to induce such investors to purchase Series E Shares, the
Company and the holders of a majority of the outstanding Registrable Securities
(as defined in the Existing Agreement) desire to amend and restate the Existing
Agreement in certain respects.
B. This Agreement shall become effective upon the execution hereof by
the (a) Company and (b) holders of a majority of the outstanding Registrable
Securities.
AGREEMENT
The Existing Agreement is hereby amended and restated to read in its
entirety as follows:
1. AMENDMENT.
1.1 PROCEDURE. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought. Notwithstanding the foregoing, any provision of this Agreement may be
amended, waived, discharged or terminated upon the written consent of the
Company and the Holders of a majority of the outstanding Registrable
Securities (as defined below), determined on the basis of assumed conversion
of all Series A Shares, Series B Shares, Series C Shares, Series D and Series
E Shares into Registrable Securities. Each Holder of Registrable Securities
acknowledges that the holders of a majority of the outstanding Registrable
1.
<PAGE>
Securities will thereby have the right and power to diminish or eliminate all
rights of the Investors pursuant to this Agreement, without liability to any
Investor.
1.2 RIGHTS OF HOLDERS. Each Holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
2. REGISTRATION RIGHTS.
2.1 DEFINITIONS. As used in this Agreement:
(a) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "SECURITIES ACT")
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(b) The term "REGISTRABLE SECURITIES" means:
(i) The shares of Common Stock issuable or issued upon
conversion of the Series A Shares, Series B Shares, Series C Shares, Series D
Shares, Series E Shares and the Shares of Common Stock issuable or issued upon
conversion of the Series D Preferred Stock issuable or issued upon exercise of
the warrants to purchase Series D Preferred Stock between the Company and Doll
Technologies Affiliates Fund, L.P. and, with respect only to Section 2.2, the
shares of Common Stock issuable or issued upon conversion of the Series C
Preferred Stock issuable or issued upon exercise of the Warrant to purchase
Series C Preferred Stock between the Company and Phoenix Leasing Incorporated
dated October 1, 1998 (such shares of Common Stock are collectively referred to
hereinafter as the "STOCK"); and
(ii) Any other shares of Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, the Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his, her or its rights under this Agreement are not assigned; PROVIDED, HOWEVER,
that Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale.
(c) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock or
other securities outstanding which are, and the number of shares of Common Stock
or other securities issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities.
2.
<PAGE>
(d) The term "HOLDER" means (1) any holder of outstanding Registrable
Securities who, subject to the limitations set forth in Section 2.12 below,
acquired such Registrable Securities in a transaction or series of transactions
not involving any registered public offering and (2) Phoenix Leasing
Incorporated with respect only to Section 2.2.
(e) The term "FORM S-3" means such form under the Securities Act as
in effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
2.2 COMPANY REGISTRATION. If (but without any obligation to do so), at
any time after the initial public offering the Company' securities ("Initial
Public Offering") proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its Common Stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration relating either to the sale of securities to participants in
a Company stock option, stock purchase or similar plan or to an SEC Rule 145
transaction, or a registration on any form which does not include substantially
similar information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within fifteen (15) days from
receipt of such notice by the Company in accordance with Section 4.5, the
Company shall, subject to the provisions of Section 2.6, cause to be registered
under the Securities Act all of the Registrable Securities that each such Holder
has requested to be registered.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for one hundred twenty (120) days, or such
shorter period ending when all shares covered thereby have been sold.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such reasonable numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3.
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
PROVIDED that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(h) Cause all such Registrable Securities registered pursuant to the
terms hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the terms hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
2.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
4.
<PAGE>
2.5 EXPENSES OF COMPANY REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, shall be borne by the Company.
2.6 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 2.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall the amount of securities of
the selling Holders of Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock included in the offering be reduced below thirty
percent (30%) of the total amount of securities included in such offering,
unless such offering is the initial public offering of the Company's securities,
in which case the selling stockholders may be excluded if the underwriters make
the determination described above and no other stockholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling stockholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single selling stockholder ("SELLING
STOCKHOLDER"), and any pro-rata reduction with respect to such Selling
Stockholder shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
Selling Stockholder.
2.7 NO DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under
5.
<PAGE>
the Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a "VIOLATION"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will pay, as incurred,
to each such Holder, underwriter or controlling person, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 2.8(a) in connection with investigating or defending any such
loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this subsection 2.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 2.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection 2.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld), PROVIDED FURTHER, that in no event shall any indemnity under this
subsection 2.8(b) exceed the gross proceeds from the offering received by such
Holder. Nothing contained in this subsection 2.8(b) is intended to preclude the
underwriters in any offering from requiring broader indemnities from the Holders
participating in such offering.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to
6.
<PAGE>
assume the defense thereof with counsel mutually satisfactory to the parties;
PROVIDED, HOWEVER, that an indemnified party shall have the right to retain
separate counsel of its own, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; and PROVIDED, FURTHER, that the
indemnifying party shall not be responsible for the fees and expenses of more
than one separate counsel for all indemnified parties. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8 (to the extent of such prejudicial
effect), but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(d) No indemnifying party, in the defense of any claim arising out
of a Violation shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation and, in the event the terms of such judgment or settlement include
any term other than the payment by the indemnifying party of money damages, the
indemnifying party shall not so consent or enter into such a settlement without
the consent of each indemnified party (which will not be unreasonably withheld)
whether or not the terms thereof include such a release.
(e) If the indemnification provided for in this Section 2.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omission that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(f) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(g) The obligations of the Company and Holders under this Section
2.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
7.
<PAGE>
2.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the public;
(b) Take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(d) Furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
2.10 FORM S-3 REGISTRATION. In case the Company shall receive, from
any Holder or Holders owning in the aggregate at least 30% of the Registrable
Securities, a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) Promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) Use best efforts to effect, as soon as practicable, such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company in accordance with Section 4.5; PROVIDED, HOWEVER, that
the Company shall not be obligated to
8.
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effect any such registration, qualification or compliance, pursuant to this
Section 2.10, (i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities at an aggregate price to the public (net of any underwriters'
discounts and commissions) of less than $2,000,000; (iii) if the Company shall
furnish to the Holders a certificate signed by the president of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 2.10; PROVIDED, HOWEVER,
that the Company shall not utilize this right more than once in any twelve (12)
month period; (iv) if the Company has completed its Initial Public Offering
within one hundred eighty (180) days of the Company's receipt of the request for
the Form S-3 registration; or (v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance. Notwithstanding anything to the contrary herein, the Company shall
not be obligated to effect more than two (2) Form S-3 Registrations pursuant to
this Section 2.10 in any twelve (12) month period.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to this Section 2.10, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders and counsel for the Company, shall be borne by the Company.
Registrations effected pursuant to this Section 2.10 shall not be counted as a
registration effected pursuant to Section 2.2.
2.11 REQUEST FOR REGISTRATION.
(a) If the Company shall receive (i) at any time after the date six
(6) months from the date hereof, a written request from Holders of forty percent
(40%) of the Series E Preferred Stock, or (ii) at any time after the earlier of
(a) the third anniversary of the date of this Agreement, or (b) six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of thirty percent (30%) of the
Registrable Securities Then Outstanding that the Company file a registration
statement under the Securities Act for such shares with an anticipated aggregate
offering price, net of underwriting discounts and commissions, in excess of
$7,500,000, then the Company shall, within ten (10) days of the receipt thereof,
give written notice of such request to all Holders and shall, subject to the
limitations of subsection 2.11(b), use its best efforts to effect as soon as
practicable, and in any event within ninety (90) days of the receipt of such
request, the registration under the Securities Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice in accordance with Section 4.5.
9.
<PAGE>
(b) If the Holders initiating the registration request hereunder
("INITIATING HOLDERS") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 2.11 and the Company
shall include such information in the written notice referred to in subsection
2.11(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 2.3) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2.11, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; PROVIDED, HOWEVER,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.11 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Initiating Holders; PROVIDED, HOWEVER, that the Company may not
utilize this right more than once in any twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 2.11:
(i) After the Company has effected one (1) registration pursuant
to this Section 2.11 and such registrations have been declared or ordered
effective;
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 2.2 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
10.
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(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 2.10.
2.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may only
be assigned by a Holder to a transferee who acquires at least 20% of the
Investor's original shares of Registrable Securities (subject to appropriate
adjustment for any stock split, reverse stock split, stock dividend,
recapitalization or similar transaction) or all of such Holder's shares, if
less, PROVIDED the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee; and
PROVIDED, FURTHER, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act. The foregoing
limitation shall not apply, however, to transfers by a Holder to constituent
affiliates, or constituent partners (including any constituent of a constituent)
of the Holder (including spouses and ancestors, lineal descendants and siblings
of such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) if all such transferees or assignees agree in writing to
be bound by the terms of this Agreement and appoint a single representative as
their attorney-in-fact for the purpose of receiving any notices and exercising
their rights under this Section 2.
2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that during the one hundred eighty (180) day period following the effective date
of a registration statement of the Company filed under the Securities Act in
connection with the Initial Public Offering, it shall not, to the extent
requested by the Company and the Company's underwriter, sell, offer to sell, or
otherwise transfer or dispose of any Common Stock of the Company held by it at
any time during such period except Common Stock included in such registration,
provided that all officers and directors and one percent (1%) stockholders are
similarly bound. To enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of the
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. Each Holder agrees to
execute the form of such market stand-off agreement as may be reasonably
requested by the underwriters.
2.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Agreement (a) after six (6)
years following the closing of the Initial Public Offering (other than an
offering relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction) or (b) at such time following the Company's Initial Public Offering
and for so long as such Holder may sell all of such Holder's Registrable
Securities in any single three (3) month period pursuant to Rule 144 (or such
successor rule as may be adopted).
2.15 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities issuable upon conversion of Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder any
registration rights, unless such rights are subordinate to the rights of the
Holders of the Registered Securities.
11.
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2.16 RIGHT TO MAINTAIN PERCENTAGE INTEREST. Subject to the terms
and conditions specified in this Section 2.16, the Company hereby grants to each
Holder a right to participate in certain future sales by the Company of its New
Securities (as hereinafter defined). Each Holder shall be entitled to apportion
the right of first offer hereby granted among itself and its partners,
stockholders and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("NEW SECURITIES"), the Company shall, no later than twenty (20) days
prior to the closing of such sale of New Securities, make an offering of
such New Securities to each Holder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("NOTICE") to the Holders stating (i) the number of such New Securities to be
offered, and (ii) the price and terms, if any, upon which it has or proposes to
offer such New Securities.
(b) Within fifteen (15) calendar days after receipt of the
Notice, the Holder may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such New Securities which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion of the Series A Shares, Series B Share, Series C
Shares, Series D Shares and Series E Shares then held, by such Holder bears to
the total number of shares of Common Stock of the Company then outstanding
(assuming for such purposes full conversion of all Series A, Series B, Series C,
Series D and Series E Preferred Stock and the exercise or conversion of all
warrants, options and convertible securities then outstanding).
(c) The Company may, during the one hundred twenty (120) day
period following the expiration of the period provided in subsection 2.16(b)
hereof, offer the remaining unsubscribed portion of the New Securities to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the New Securities within such period, or if
such agreement is not consummated within forty-five (45) days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such New
Securities shall not be offered unless first reoffered to the Holders in
accordance herewith.
(d) The right to maintain percentage interest in this paragraph
2.16 shall not be applicable to: (i) the issuance or sale of Common Stock (or
options or warrants therefor) to employees, consultants and directors, pursuant
to plans or agreements approved by the Board of Directors for the primary
purpose of soliciting or retaining their services (provided that such issuance
following the date of this Agreement do not exceed two million five hundred
thousand (2,500,000) shares except as approved by the holders of sixty six and
two-thirds percent (66-2/3%) of the Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, voting together as a single class, (ii) the
issuance of securities pursuant to a bona fide, firmly underwritten public
offering of shares of Common Stock (as appropriately adjusted for any stock
split, dividend, combination or other recapitalization), registered under the
Securities Act pursuant to a registration statement, (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities outstanding as of the date hereof or issued upon exercise or
conversion of securities previously offered to the Holder pursuant to
12.
<PAGE>
this Section 2.16(d) or otherwise exempt from this Section 2.16(d), (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise, (v) the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings, or similar transactions (provided that such issuances do
not exceed one percent (1%) of the outstanding shares of Common Stock in any
twelve (12) month period, assuming the conversion of all shares of Preferred
Stock into Common Stock), (vi) the issuance or sale of the Series E Shares and
Series E-1 Shares, pursuant to the Series E Stock Purchase Agreement, (vii) any
issuance of securities unanimously approved by the Board of Directors of the
Company, (viii) the issuance of securities pursuant to currently outstanding
options, warrants, notes or other rights to acquire securities of the Company,
or (vix) any issuance as to which Holders of a majority of the Registrable
Securities have agreed in writing shall be exempt from this Section 2.16(d).
(e) The right to maintain percentage interest in this paragraph
2.16 shall terminate immediately prior to consummation of a bona fide, firmly
underwritten public offering of shares of Common Stock, registered under the
Securities Act pursuant to a registration statement.
2.17 BOARD REPRESENTATIONS. As long as Doll Capital Management
("Doll Capital") or any affiliate thereof owns not less than fifty percent (50%)
of the shares of Series C Preferred Stock it holds immediately after the Closing
(as defined in the Series C Stock Purchase Agreement) (or an equivalent amount
of Common Stock issued upon conversion thereof) (both as adjusted for any stock
split, reverse stock split, stock dividend, recapitalization or similar
transaction), it shall be entitled to designate one (1) representative to the
Company's Board of Directors ("Board") pursuant to the Company's Amended and
Restated Certificate of Incorporation ("Restated Certificate"). As long as the
holders of Series C Preferred Stock other than Doll Capital or any affiliate of
such other holders ("Other Investors") own not less than fifty percent (50%) of
the shares of Series C Preferred Stock they hold immediately after the Closing
(as defined in the Series C Stock Purchase Agreement) (or an equivalent amount
of Common Stock issued upon conversion thereof) (both as adjusted for any stock
split, reverse stock split, stock dividend, recapitalization or similar
transaction), they shall be entitled to designate one (1) representative to the
Board pursuant to the Restated Certificate by any method of designation approved
by holders of a majority of the Series C Preferred Stock (or an equivalent
amount of Common Stock issued upon conversion thereof) then held by Other
Investors. As long as Norwest Venture Partners or any affiliate thereof owns not
less than fifty percent (50%) of the shares of Series D Preferred Stock it holds
immediately after the Closing (as defined in Series D Stock Purchase Agreement)
(or an equivalent amount of Common Stock issued upon conversion thereof) (both
as adjusted for any stock split, reverse stock split, stock dividend,
recapitalization or similar transaction), it shall be entitled to designate one
(1) representative to the Company's Board of Directors ("Board") pursuant to the
Company's Restated Certificate.
3. FINANCIAL INFORMATION.
3.1 ANNUAL AND QUARTERLY INFORMATION. The Company will mail the
following reports to each Holder for so long as such Holder is a holder of
Series A Shares, Series
13.
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B Shares, Series C Shares, Series D Shares or Series E Shares purchased by such
person pursuant to the relevant purchase agreement or Common Stock issued upon
conversion of such shares:
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, audited consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income, consolidated statements of changes in
financial position and consolidated statements of STOCKHOLDERS equity of the
Company and its subsidiaries, if any, for such year, prepared substantially in
accordance with generally accepted accounting principles ("GAAP") and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company and in
any event within 45 days thereafter, an unaudited consolidated balance sheet of
the Company and its subsidiaries, if any, as of the end of each such quarterly
period, and unaudited consolidated statements of income, unaudited consolidated
statements of cash flow and unaudited consolidated statements of STOCKHOLDERS'
equity of the Company and its subsidiaries, if any, for such period and for the
current fiscal year to date, prepared substantially in accordance with GAAP
(other than for accompanying notes and subject to normal year-end audit
adjustments), all in reasonable detail.
(c) As soon as practicable after the end of each calendar month,
and in any event within 30 days thereafter, unaudited consolidated financial
reports of the Company and its subsidiaries, if any, as of the end of such
calendar month, prepared substantially in accordance with GAAP.
(d) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, a budget and business plan for the
next fiscal year, prepared on a monthly basis.
3.2 INSPECTION. The Company shall permit each Holder, at such
Holder's expense, to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times and with reasonable
notice as may be requested by the Holder; PROVIDED, HOWEVER, that the Company
shall not be obligated pursuant to this Section 3.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
3.3 COVENANTS OF THE COMPANY.
(a) ARBITRATION AGREEMENT. The Company shall secure, with all
individuals owning and/or controlling five percent (5%) or more of the existing
Common Stock in the Company, an agreement by which all disputes between such
individuals and the Company shall be resolved through binding arbitration.
(b) BOARD REPRESENTATION. The Company shall use its best efforts
to cause and maintain the election to the Board of Directors the representatives
of the holders of
14.
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Series C Preferred Stock and the representative of the holders of the Series D
Preferred Stock as described in Section 2.17 above.
3.4 TERMINATION OF COVENANTS. The covenants set forth in this
Section 3 shall terminate upon the earlier of (i) the consummation of the
Company's Initial Public Offering, or (ii) the registration by the Company of a
class of its equity securities under Section 12(b) or 12(g) of the Exchange Act.
4. MISCELLANEOUS.
4.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Registrable Securities). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
4.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
4.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.5 NOTICES.
(a) All notices, requests, demands and other communications under
this Agreement or in connection herewith shall be given to or made upon the
respective parties as follows:
To the Company: Embark.com, Inc.
101 Townsend Street, Suite 333
San Francisco, CA 94107
Telephone: (415) 778-6262
Telecopy: (415) 778-6263
Attention: President
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
15.
<PAGE>
Telephone: (650) 843-5000
Telecopy: (650) 857-0663
Attention: Matthew B. Hemington
To an Investor: At such Investor's address as set forth on the
signature page hereto.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by telex or telecopy
(facsimile) with confirmation of receipt, and shall be deemed to be given or
made when receipt is so confirmed.
(c) Any party may, by written notice (in accordance with this
Section 4.5) to the other, alter its address or respondent.
4.6 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the outstanding Registrable Securities. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
4.7 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Third Amended and Restated Co-Sale Agreement dated as of the date
hereof, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
4.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
4.9 GRANT OF ADDITIONAL RIGHTS. Each holder of Registrable
Securities acknowledges and agrees that the Company may, in its discretion and
without approval of the holders of Registrable Securities, amend this Agreement
to include shares held by any other securityholder of the Company as
"Registrable Securities," so as to grant such securityholder any of the rights
and benefits set forth herein, but only on a pari passu basis.
4.10 WAIVER. Each Investor further understands that the Company is
considering the sale of its Common Stock to the public through a firm commitment
underwritten initial public offering under the Securities Act of 1933, as
amended, (the "Offering") by filing a registration statement on Form S-1 (the
"Registration Statement"). Each Investor hereby waives any registration rights
such Investor may have in connection with the Offering, including, without
limitation, any right to include any Registrable Securities in the Offering and
understands that the Company will proceed with the Offering in reliance on this
Agreement and
16.
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waiver. The Company agrees that this waiver shall apply only with
respect to the Offering if the Offering is commenced by the filing of the
Registration Statement with the SEC prior to February 1, 2000 and shall not have
any other effect upon any Investor's rights hereunder.
17.
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IN WITNESS WHEREOF, the parties hereto have executed this FOURTH
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the
first paragraph hereof.
COMPANY INVESTORS:
By: /s/ Young J. Shin By:
-------------------------------- ---------------------------
Young J. Shin
Chief Executive Officer Print Name:
--------------------
Title:
-------------------------
SIGNATURE PAGE FOR THE EMBARK.COM
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
Exhibit 4.4
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION
OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH
THE PROVISIONS OF ARTICLE III OF THIS WARRANT.
WARRANT
TO PURCHASE SHARES OF SERIES C PREFERRED STOCK
DATED OCTOBER 1, 1998
This certifies that for value received, PHOENIX LEASING INCORPORATED, or
registered assigns, is entitled as of October 1, 1998 (the "Closing Date"),
subject to the terms set forth herein, to purchase from SNAP TECHNOLOGIES, INC.,
a California corporation (the "Company"), up to Ten Thousand Three Hundred
Thirty-Six (10,336) fully paid and non-assessable shares of Company's Series C
Preferred Stock, at the price of One Dollar and Ninety-Three and One-Half Cents
($1.935) per share. The initial exercise price of One Dollar and Ninety-three
and One-Half Cents ($1.935) per share, and the number of shares purchasable
hereunder, are subject to adjustment in certain events, all as more fully set
forth under Article IV herein.
ARTICLE 1
DEFINITIONS
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of Company, as filed with the California Secretary of State on
Apri1 24, 1998, and as the same may be amended from time to time.
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"COMMON STOCK" means Company's Common Stock, any stock into which such
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of Company of any class or series now
or hereafter authorized having the right to share in distributions either of
earnings or assets of Company without limit as to amount or percentage.
"COMPANY" means SNAP TECHNOLOGIES, INC., a California corporation, and
any successor corporation.
"CONVERSION PRICE" means the Conversion Price for Series C Preferred
Stock, as determined in accordance with the Articles of Incorporation.
"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common
1
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Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event or both.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" means the period commencing on the Closing Date and
terminating at the later to occur of: (i) 5:00 p.m., Pacific Time on the
fifth (5th) anniversary of the Closing Date, or (ii) 5:00 p.m., Pacific Time
on the second (2nd) anniversary of the closing of Company's initial sale and
issuance of shares of Common Stock in an underwritten public offering,
pursuant to a Registration.
"EXERCISE PRICE" means the price per share of Series C Preferred Stock
set forth in the Preamble to this Warrant, as such price may be adjusted
pursuant to Article IV hereof.
"FAIR MARKET VALUE" means
(i) If shares of Series C Preferred Stock or Common Stock, as
the case may be, are being sold pursuant to a Registration and Fair Market Value
is being determined as of the closing of the public offering, the "price to
public" specified for such shares in the final prospectus for such public
offering;
(ii) If shares of Series C Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system and Fair Market
Value is not being determined as of the date described in clause (i) of this
definition, the average of the daily closing prices for the thirty (30) trading
days before such date, excluding any trades which are not bona fide, arm's
length transactions. The closing price for each day shall be the last sale
price on such date or, if no such sales takes place on such date, the average of
the closing bid and asked prices on such date, in each case as officially
reported on the principal national securities exchange or national market system
on which such shares are then listed, admitted to trading or traded;
(iii) If no shares of Series C Preferred Stock or Common Stock,
as the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system or being offered to
the public pursuant to a Registration, the average of the reported closing bid
and asked prices thereof on such date in the over-the-counter market as shown by
the National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by Holder;
(iv) If no shares of Series C Preferred Stock or Common Stock,
as the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system, if no closing bid
and asked prices thereof are then so quoted or published in the over-the-counter
market and if no such shares are being offered to the public pursuant to a
Registration, the Fair Market Value of a share of Series C Preferred Stock or
Common Stock, as the case may be, shall be as determined in good faith by
Company's Board of Directors.
"FISCAL YEAR" means the fiscal year of Company.
"HOLDER" means the person in whose name this Warrant is registered on the
books of Company maintained for such purpose.
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"OPTION" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"PREFERRED STOCK" means the Preferred Stock of Company, as defined in the
Articles of Incorporation.
"PRINCIPAL EXECUTIVE OFFICE" means Company's office at 101 Townsend
Street, Suite 333, San Francisco, CA 94107, or such other office as designated
in writing to Holder by Company.
"REGISTER," and "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"RIGHTS AGREEMENT" means the Second Amended and Restated Investor Rights
Agreement, dated as of April 24, 1998, by and among Company and the shareholders
of Company named therein, attached hereto as EXHIBIT "D"
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule maybe amended from time to time, or any similar
successor rule that the Commission may promulgate.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock of Company,
as defined in the Articles of Incorporation.
"SHAREHOLDER" means a holder of one or more Warrant Shares or shares of
Common Stock acquired upon conversion of Warrant Shares.
"WARRANT" means the warrant dated as of Closing Date issued to Holder and
all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"WARRANT SHARES" means the shares of Series C Preferred Stock issuable
upon the exercise of this Warrant provided that if under the terms hereof there
shall be a change such that the securities purchasable hereunder shall be issued
by an entity other than Company or there shall be a change in the type or class
of securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
2.1 EXERCISE RIGHT; MANNER OF EXERCISE. Holder may exercise this
Warrant, in whole or in part, at any time and from time to time during the
Exercise Period upon (i) surrender of this Warrant, together
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with an executed Notice of Exercise, substantially in the form of EXHIBIT "A"
attached hereto, at the Principal Executive Office, and (ii) payment to
Company of the aggregate Exercise Price for the number of Warrant Shares
specified in the Notice of Exercise (such aggregate Exercise Price the "TOTAL
EXERCISE PRICE"). The Total Exercise Price shall be paid by check
Certificates for the Warrant Shares so purchased shall be delivered to Holder
within a reasonable time, not exceeding fifteen (15) days after this Warrant
is exercised. If the Warrant is exercised in part, Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing
the rights of the Holder to purchase the balance of the Warrant Shares which
Holder is entitled to purchase hereunder. The issuance of Warrant Shares
upon exercise of this Warrant shall be made without charge to Holder for any
issuance tax with respect thereto or any other cost incurred by Company in
connection with the exercise of this Warrant and the related issuance of
Warrant Shares.
2.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 2.1, Holder may from time to time convert this Warrant,
in whole or in part, into the number of Warrant Shares determined by dividing
(a) the aggregate Fair Market Value of the Warrant Shares issuable upon
exercise of this Warrant minus the aggregate Exercise Price of such Warrant
Shares by (b) the Fair Market Value of one Warrant Share. If, as of the last
day of the Exercise Period, this Warrant has not been fully exercised, then
as of such date this Warrant shall be automatically converted, in full, in
accordance with this Section 2.2, without any action or notice by Holder.
2.3 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
2.4 FRACTIONAL SHARES. Company shall not issue fractional shares
of Series C Preferred Stock or Common Stock or scrip representing fractional
shares of Series C Preferred Stock or Common Stock upon any exercise or
conversion of this Warrant. As to any fractional Shares of Series C
Preferred Stock or Common Stock which Holder would otherwise be entitled to
purchase from Company upon such exercise or conversion, Company shall
purchase from Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by the fair market value of a share of Series C Preferred
Stock or Common Stock, as applicable, on the date of the Notice of Exercise
or the Conversion Date, as applicable, as determined in good faith by
Company's Board of Directors. Payment of such amount shall be made in cash
or by check payable to the order of Holder at the time of delivery of any
certificate or certificates arising upon such exercise or conversion.
ARTICLE III
REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
3.1 MAINTENANCE OF REGISTRATION BOOKS. Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant Company and any Company agent may treat the Person
in whose name this Warrant is registered as the owner of this Warrant for all
purposes whatsoever and neither Company nor any Company agent shall be affected
by any notice to the contrary.
3.2 REGISTRATIONS ON TRANSFERS.
(a) COMPLIANCE WITH SECURITIES ACT. Holder, by acceptance
hereof, agrees that this Warrant, the Series C Preferred Stock to be issued upon
exercise hereof and the shares of Common Stock to be issued upon conversion of
such shares of Series C Preferred Stock are being acquired for investment,
solely for
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Holder's own account and not as a nominee for any other Person, and that
Holder will not offer, sell or otherwise dispose of this Warrant, any such
shares of Series C Preferred Stock or any such shares of Common Stock except
under circumstances which will not result in a violation of the Securities
Act. Upon exercise of this Warrant, Holder shall confirm in writing, by
executing the form attached as EXHIBIT "B" hereto, that the shares of Series
C Preferred Stock or Common Stock purchased thereby are being acquired for
investment, solely for Holder's own account and not as a nominee for any
other Person, and not with a view toward distribution or resale.
(b) CERTIFICATE LEGENDS. This Warrant, all shares of Series C
Preferred Stock issued upon exercise of this Warrant (unless Registered under
the Securities Act), and all shares of Common Stock issued upon conversion of
such shares of Series C Preferred Stock (unless Registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE
OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION
OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THE
WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
(c) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant, any shares of Series C
Preferred Stock issued upon exercise of this Warrant or shares of Common Stock
acquired pursuant to conversion of such shares of Series C Preferred Stock prior
to Registration of such shares, Holder or the Shareholder, as the case may be,
agrees to give written notice to Company prior thereto, describing briefly the
manner thereof, together with a written opinion of Holder's or Shareholder's
counsel, if reasonably requested by Company, to the effect that such offer, sale
or other disposition may be effected without Registration under the Securities
Act or qualification under any applicable state securities laws of this Warrant
or such shares, as the case may be, and indicating whether or not under the
Securities Act certificates for this Warrant or such shares, as the case may be,
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, Company, as promptly as practicable,
shall notify Holder or the Shareholder, as the case may be, that it may sell or
otherwise dispose of this Warrant or such shares, as the case may be, all in
accordance with the terms of the notice delivered to Company. If a
determination has been made pursuant to this subsection (c) that the opinion of
counsel for Holder or the Shareholder, as the case may be, is not reasonably
satisfactory to Company, Company shall so notify Holder or the Shareholder, as
the case may be, promptly after such determination has been made and shall
specify the legal analysis supporting any such conclusion. Notwithstanding the
foregoing, this Warrant or such shares, as the case may be, may be offered, sold
or otherwise disposed of in accordance with Rule 144, provided that Company
shall have been furnished with such information as Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Securities Act, unless in the aforesaid reasonably satisfactory opinion
of counsel for Holder or the Shareholder, as the case may be, such legend is not
necessary in order toinsure compliance with the Securities Act. Company may
issue stop transfer
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instructions to its transfer agent in connection with such restrictions.
(d) WARRANT TRANSFER PROCEDURE. Transfer of this Warrant to
a third party, following compliance with the preceding subsections of this
Section 3.2, shall be effected by execution of the Assignment Form attached
hereto as EXHIBIT "C", and surrender for registration of transfer of this
Warrant at the Principal Executive Office, together with funds sufficient to
pay any applicable transfer tax. Upon receipt of the duly executed
Assignment Form and the necessary transfer tax funds, if any, Company, at its
expense, shall execute and deliver, in the name of the designated transferee
or transferees, one or more new Warrants representing the right to purchase a
like aggregate umber of shares of Series C Preferred Stock.
(e) TERMINATION OF RESTRICTIONS. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant, the shares of
Series C Preferred Stock acquired upon the exercise of this Warrant and the
shares of Common Stock issuable upon conversion of such shares of Series C
Preferred Stock shall cease when (i) a registration statement covering all
shares of Common Stock issued or issuable upon conversion of the Series C
Preferred Stock becomes effective under the Securities Act, (ii) Company is
presented with an opinion of counsel reasonably satisfactory to Company that
such restrictions are no longer required in order to insure compliance with
the Securities Act or with a Commission "no-action" letter stating that
future transfers of such securities by the transferor or the contemplated
transferee would be exempt from registration under the Securities Act, or
(iii) such securities may be transferred in accordance with Rule 144(k).
When such restrictions terminate, Company shall, or shall instruct its
transfer agent to, promptly, and without expense to Holder or the
Shareholder, as the case may be, issue new securities in the name of Holder
and/or the Shareholder as the case may be, not bearing the legends required
under subsection (b) of this Section 3.2. In addition, new securities shall
be issued without such legends if such legends may be properly removed under
the term of Rule 144(k).
3.3 EXCHANGE. At Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number
of shares of Series C Preferred Stork upon surrender of this Warrant at the
Principal Executive Office. Whenever this Warrant is so surrendered to
Company at the Principal Executive Office for exchange, Company shall execute
and deliver the Warrants which Holder is entitled to receive. All Warrants
issued upon any registration of transfer or exchange of Warrants shall be the
valid obligations of Company, evidencing the same rights, and entitled to the
same benefits, as the Warrants surrendered upon such registration of transfer
or exchange. No service charge shall be made for any exchange of this
Warrant.
3.4 REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss, theft or destruction, upon delivery of
indemnity reasonably satisfactory to Company in form and amount, or (ii) in
the case of any such mutilation, upon surrender of such Warrant for
cancellation at the Principal Executive Office, Company, at its expense,
shall execute and deliver, in lieu thereof, a new Warrant.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 CONVERSION OF SERIES C PREFERRED STOCK. If all of the Series C
Preferred Stock is converted into shares of Common Stock in connection with a
Registration, then this Warrant shall automatically become exercisable for
that number of shares of Common Stock equal to the number of shares of Common
Stock that would have been received if this Warrant had been exercised in
full and the shares of Series C Preferred Stock received thereupon had been
simultaneously converted into Shares of Common Stock immediately prior
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to such event, and the Exercise Price shall be automatically Adjusted to
equal the amount obtained by dividing (i) the aggregate Exercise Price of the
shares of Series C Preferred Stock for which this Warrant was exercisable
immediately prior to such conversion, by (ii) the number of shares of Common
Stock for which this Warrant is exercisable immediately after such conversion.
4.2 REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of (1) a capital reorganization, reclassification or
recapitalization of Company's capital stock (other than in the cases referred
to in Section 4.4 hereof), (2) Company's consolidation or merger with or into
another corporation in which Company is not the surviving entity or a reverse
triangular merger in which Company is the surviving entity but the shares of
Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form
of securities, cash or otherwise, or (3) the sale or transfer of Company's
property as an entirety or substantially as an entirety, then, as part of
such reorganization, reclassification, recapitalization merger,
consolidation, sale or transfer, lawful provision shall be made so that there
shall thereafter be deliverable upon the exercise of this Warrant or any
portion thereof (in lieu of or in addition to the number of shares of Series
C Preferred Stock theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock or
other securities or property to which the holder of the number of Shares of
Series C Preferred Stock which would otherwise have been deliverable upon the
exercise of this Warranty or any portion thereof at the time of such
reorganization, reclassification, recapitalization, consolidation, merger,
sale or transfer would have been entitled to receive in such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer.
This Section 4.2 shall apply to successive reorganizations,
reclassifications, consolidations, mergers, sales and transfers and to the
stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to
Holder for shares of Series C Preferred Stock in connection with any
transaction described in this Section 4.2 is in a form other than cash or
marketable securities, then the value of such consideration, shall be
determined in good faith by Company's Board of Directors.
4.3 SPLITS AND COMBINATIONS. If Company at any time subdivides any
of its outstanding shares of Series C Preferred Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely if the outstanding shares
of Series C Preferred Stock are combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased. Upon any adjustment of the Exercise Price under
this Section 4.3, the number of shares of Series C Preferred Stock issuable
upon exercise of this Warrant shall equal the number of shares determined by
dividing (i) the aggregate Exercise Price pay able for the purchase of all
shares issuable upon exercise of this Warrant immediately prior to such
adjustment by (ii) the Exercise Price per share in effect immediately after
such adjustment.
4.4 RECLASSIFICATIONS. If Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Exercise Price therefor shall be appropriately adjusted. No adjustment shall
be made pursuant to this Section 4.4 upon any conversion described in Section
4.1 hereof.
4.5. DIVIDENDS AND DISTRIBUTIONS. If Company declares a dividend or
other distribution on the Series C Preferred Stock or if a dividend or other
distribution on the Series C Preferred Stock occurs pursuant
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to the Articles of Incorporation (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful
provision shall be made so that there shall thereafter be deliverable upon
the exercise of this Warrant or any portion thereof, in addition to the
number of shares of Series C Preferred Stock receivable thereupon and without
payment of any additional consideration, the amount of the dividend or other
distribution to which the holder of the number of shares of Series C
Preferred Stock obtained upon exercise hereof would have been entitled to
receive had the exercise occurred as of the record date for such dividend or
distribution.
4.6 LIQUIDATION; DISSOLUTION. If Company shall dissolve, liquidate
or wind up its affairs, Holder shall have the right, but not the obligation,
to exercise this Warrant effective as of the date of such dissolution,
liquidation or winding up. If any such dissolution, liquidation or winding
up results in any cash distribution to Holder in excess of the aggregate
Exercise Price for the shares of Series C Preferred Stock for which this
Warrant is exercised, then Holder may, at its option, exercise this Warrant
without making payment of such aggregate Exercise Price and, in such case,
Company shall, upon distribution to Holder, consider such aggregate Exercise
Price to have been paid in full, and in making such settlement to Holder,
shall deduct an amount equal to such aggregate Exercise Price from the amount
payable to Holder.
4.7 OTHER DILUTIVE EVENTS. If any event occurs as to which the
other provisions of this Article IV are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, Company shall appoint a firm of
independent public accountants of recognized national standing (which may be
Company's regular auditors) which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Article IV, necessary to preserve, without
dilution the purchase rights represented by this Warrant. Upon receipt of
such opinion, Company shall promptly mail a copy thereof to Holder and shall
make the adjustments described therein.
4.8 CERTIFICATES AND NOTICES.
(a) ADJUSTMENT CERTIFICATES. Upon any adjustment of the
Exercise Price and/or the number of Shares of Series C Preferred Stock
purchasable upon exercise of this Warrant, a Certificate, signed by (i)
Company's President and Chief Financial Officer, or (ii) any independent firm
of certified public accountants of recognized national standing Company
selects at its own expense, setting forth in reasonable detail the events
requiring the adjustment and the method by which such adjustment was
calculated, shall be mailed to Holder and shall specify the adjusted Exercise
Price and the number of shares of Series C Preferred Stock purchasable upon
exercise of the Warrant after giving effect to the adjustment.
(b) EXTRAORDINARY CORPORATE EVENTS. If Company, after the date
hereof, proposes to effect (i) any transaction described in Sections 4.2 or
4.4 hereof, (ii) a liquidation, dissolution or winding up of Company
described in Section 4.6 hereof, or (iii) any payment of a dividend or
distribution with respect to Series C Preferred Stock or Common Stock, then,
in each such case, Company shall mail to Holder a notice describing such
proposed action and specifying the date on which Company's books shall close,
or a record shall be taken, for determining the holders of Series C Preferred
Stock or Common Stock, as appropriate, entitled to participate in such
action, or the date on which such reorganization, reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up
shall take place or commence, as the case may be, and the date as of which it
is expected that holders of Series C Preferred Stock and Common Stock of
record shall be entitled to receive securities and/or other property
deliverable upon such action, if any such date is to be fixed. Such notice
shall be mailed to Holder at least fifteen (15) days prior to the record date
for such action in the case of any action described in clause (i) or clause
(iii) above, and in the case of any action described in clause (ii) above, at
least fifteen (15) days prior to the date on which the action described is to
take place and at least fifteen (15)
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days prior to the record date for determining holders of Series C Preferred
Stock or Common Stock, as appropriate, entitled to receive securities and/or
other property in connection with such action.
4.9 NO IMPAIRMENT. Company shall not, by amendment of the Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
Company, but shall at all times in good faith assist in the carrying out of
all the provisions of this Article IV and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of Holder
against impairment.
4.10 APPLICATION. Except as otherwise provided herein, all sections
of this Article IV are intended to operate independently of one another. If
an event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V
REGISTRATION RIGHTS
Concurrent with the execution and delivery of this Warrant, Company shall
cause Holder to become a party to the Rights Agreement and Holder shall be
deemed a "Holder", as defined in the Rights Agreement, for purposes of the
Rights Agreement and shall be entitled to all the rights, and be subject to
all the obligations, of a Holder under the Rights Agreement, and the Common
Stock issuable upon conversion of the Warrant Shares shall be deemed
"Registrable Securities", as defined in the Rights Agreement, for purposes of
Section 2.2 of the Rights Agreement. Such actions shall be effected by
Company executing and delivering to Holder a fully-executed Amendment to
Rights Agreement substantially in the form of EXHIBIT "E" hereto.
ARTICLE VI
COVENANTS
6.1 FINANCIAL INFORMATION. Company shall deliver to Holder,
concurrent with delivery to any of the Holders, as defined in the Rights
Agreement, all information delivered to any of the Holders pursuant to
Sections 3.1 and 3.2 of the Rights Agreement as in effect from time to time
during the term hereof. If the Rights Agreement is terminated for any
reason, and for so long as Company is not subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the Exchange Act, Company shall
deliver to Holder all information that was required to be delivered to any of
the Investors, as defined in the Rights Agreement, pursuant to the Sections
3.1 and 3.2 of the Rights Agreement, as in effect on the date hereof.
6.2 NON-FINANCIAL COVENANTS. Company covenants that:
(a) AUTHORIZED SHARES. Company will at all times have
authorized, reserved for the purpose of issue or transfer upon exercise of
the rights evidenced by this Warrant, a sufficient number of shares of Series
C Preferred Stock to provide for the exercise of the rights represented by
this Warrant (for purposes of determining compliance with this covenant, the
shares of Series C Preferred Stock issuable upon exercise of all other
options and warrants shall be deemed issued and outstanding), and a
sufficient number of shares of Common Stock to provide for the conversion
into Common Stock of all the shares of Series C Preferred Stock issued and
issuable upon the exercise of this Warrant but theretofore unconverted (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock
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shall be deemed issued and outstanding);
(b) PROPER ISSUANCE. Company, at its expense, will take all
such action as may be necessary to assure that the Series C Preferred Stock
issuable upon the exercise of this Warrant, and the Common Stock issuable
upon the conversion of such Series C Preferred Stock, may be so issued
without violation of any applicable law or regulation, or of any requirements
of any domestic securities exchange upon which any capital stock of Company
may be listed. Such action may include, but not be limited to, causing such
shares to be duly registered or approved or listed on relevant domestic
securities exchanges; and
(c) FULLY PAID SHARES. Company will take all actions
necessary or appropriate to validly and legally issue (i) fully paid and
non-assessable shares of Series C Preferred Stock upon exercise of this
Warrant and (ii) fully paid and non-assessable shares of Common Stock upon
conversion of such shares of Series C Preferred Stock. All such shares will
be free from all taxes, liens and charges with respect to any transfer
occurring contemporaneously with such issuance.
ARTICLE VII
MISCELLANEOUS
7.1 CERTAIN EXPENSES. Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery of
the Warrant, the Warrant Shares and the shares of Common Stock issuable upon
conversion of the Warrant Shares.
7.2 REMEDIES. Company stipulates that the remedies at law of
Holder in the event of any default or threatened default by Company in the
performance of or compliance with any of the terms of this Warrant are not
and will not be adequate to the fullest extent permitted by law, and that
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
7.3 ENFORCEMENT COSTS. If any party to, or beneficiary of, this
Warrant seeks to enforce its rights hereunder by legal proceedings or
otherwise, then the non-prevailing party shall pay all reasonable costs and
expenses incurred by the prevailing party, including, without limitation, all
reasonable attorneys' fees (including the allocable costs of in-house
counsel).
7.4 NOTICES. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to (a) Holder and the Shareholders at their last
known addresses appearing on the books of Company maintained for such purpose
or (b) Company at its Principal Executive Office. Holder, the Shareholders
and Company may each designate a different address by notice to the other
pursuant to this section. A notice shall be deemed effective upon the
earlier of (i) receipt or (ii) the third day after mailing in accordance with
the terms of this Section 7.4.
7.5 SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
Company and any Person succeeding Company by merger, consolidation or
acquisition of all or substantially all of Company's assets, and all of the
obligations of Company with respect to the shares of Series C Preferred Stock
issuable upon exercise of this Warrant and the shares of Common Stock
issuable upon the conversion of such shares of Series C Preferred Stock,
shall survive the exercise, expiration or termination of this Warrant and all
of the covenants and agreements of Company shall inure to the benefit of
Holder, each Shareholder and their respective successors
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<PAGE>
and assigns.
7.6 MODIFICATION; SEVERABILITY. If, in any action before any court
or agency legally empowered to enforce any term, any term is found to be
unenforceable, then such term shall be deemed modified to the extent
necessary to make it enforceable by such court or agency. If any term is not
curable as set forth in this section, the unenforceability of such term shall
not affect the other provisions of this Warrant but this Warrant shall be
construed as if such unenforceable term had never been contained herein.
7.7 AMENDMENT. This Warrant may not be modified or amended except by
written agreement of Company and Holder.
7.8 HEADINGS. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
7.9 GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the California law, without giving effect to
conflicts of law principles.
IN WITNESS WHEREOF, Company has caused this Warrant to be executed by
its duly authorized officer as of October 1, 1998.
SNAP TECHNOLOGIES, INC.
By: /s/ Young J. Shin
--------------------------------
Name: Young J. Shin
------------------------------
Title: President
----------------------------
11
<PAGE>
Exhibit 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of
________________, 1999 by and between EMBARK.COM, INC., a Delaware corporation
(the "Corporation"), and ______________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
__________ capacity as _________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ___________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
_________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the
2.
<PAGE>
proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such
3.
<PAGE>
action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
5.
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(b) If to the Corporation, to:
EMBARK.COM, INC.
111 Townsend Street
San Francisco, CA 94107
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
EMBARK.COM, INC.
By:
-----------------------------------------
Young J. Shin
President and Chief Executive Officer
AGENT
--------------------------------------------
Name:
-------------------------------------
Address:
----------------------------------
----------------------------------
<PAGE>
Exhibit 10.2
EMBARK.COM, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED ON SEPTEMBER 20, 1999
APPROVED BY THE STOCKHOLDERS ON , 1999
TERMINATION DATE: SEPTEMBER 19, 2009
1. PURPOSES.
(a) The Plan initially was established as the Snap Technologies,
Inc. 1996 Stock Option Plan, effective as of February 28, 1996 (the "Initial
Plan"). The Initial Plan hereby is amended and restated in its entirety as
the Embark.com, Inc. 1999 Equity Incentive Plan, effective as of its adoption
by the Board. The terms of the Initial Plan (other than the aggregate number
of shares issuable thereunder) shall remain in effect and apply to all Stock
Awards granted pursuant to the Initial Plan.
(b) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(c) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new
Employees, Directors and Consultants, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(d) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof, or (iii) stock appreciation rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to Section 6, and a separate certificate or certificates will
be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
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(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Embark.com, Inc., a Delaware corporation.
(g) "CONCURRENT STOCK APPRECIATION Right" or "CONCURRENT RIGHT"
means a right granted pursuant to subsection 8(b)(ii) of the Plan.
(h) "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member of
the Board of Directors of an Affiliate. However, the term "Consultant" shall
not include either Directors who are not compensated by the Company for their
services as Directors or Directors who are merely paid a director's fee by
the Company for their services as Directors.
(i) "CONTINUOUS SERVICE" (formerly, "CONTINUOUS STATUS AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT") means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Participant's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no interruption or
termination of the Participant's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or
a Director will not constitute an interruption of Continuous Service. The
Board or the chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal leave.
(j) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(k) "DIRECTOR" means a member of the Board.
(l) "DISABILITY" means (i) before the Listing Date, the inability
of a person, in the opinion of a qualified physician acceptable to the
Company, to perform the major duties of that person's position with the
Company or an Affiliate of the Company because of the sickness or injury of
the person and (ii) after the Listing Date, the permanent and total
disability of a person within the meaning of Section 22(e)(3) of the Code.
2
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(m) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows and in each case in a manner consistent
with Section 260.140.50 of Title 10 of the California Code of Regulations:
(i) If the Common Stock 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,
Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
last market trading day prior to the day of determination, as reported in the
Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
(iv) Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title
10 of the California Code of Regulations.
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(q) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted pursuant to subsection 8(b)(iii) of the Plan.
(r) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer quotation
system if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
3
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(s) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company or its parent
or a subsidiary, does not receive compensation (directly or indirectly) from
the Company or its parent or a subsidiary for services rendered as a
consultant or in any capacity other than as a Director (except for an amount
as to which disclosure would not be required under Item 404(a) of Regulation
S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(u) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing
Date, a person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the Plan.
(w) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the terms
and conditions of the Plan.
(x) "OPTIONHOLDER" means an Employee, Director or Consultant who
holds an outstanding Option.
(y) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(z) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(aa) "PLAN" means this 1999 Equity Incentive Plan.
(bb) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended.
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(dd) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(ee) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(ff) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(gg) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a
right granted pursuant to subsection 8(b)(i) of the Plan.
(hh) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c). Any
interpretation of the Plan by the Board and any decision by the Board under
the Plan shall be final and binding on all persons.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; whether a Stock Award will be an Incentive
Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock, a Stock Appreciation Right, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an Independent Stock Appreciation Right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 13.
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<PAGE>
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests
of the Company that are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all
of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and also may be, in the discretion of the Board,
Outside Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has
been delegated. Notwithstanding anything in this Section 3 to the contrary,
the Board or the Committee may delegate to a committee of one or more members
of the Board the authority to grant Stock Awards to eligible persons who (1)
are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees
at the time of recognition of income resulting from such Stock Award, or (ii)
not persons with respect to whom the Company wishes to avoid the application
of Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock and the provisions of subsection 4(a)(iii) relating to
automatic increases, the stock that may be issued pursuant to Stock Awards
under this plan as of the amendment and restatement of the Plan shall not
exceed in the aggregate Five Million Five Hundred Thousand (5,500,000) shares
(as adjusted from time to time provided herein, the "Reserved Amount").
(i) During the term of this amended and restated plan,
commencing on January 1, 2001, the aggregate number of shares of stock
specified in subsection 4(a) hereof automatically shall be increased each
January 1 (the "Calculation Date") by three percent (3%) of the Diluted
Shares Outstanding on the Calculation Date or such smaller number as the
Board of Directors may designate.
(ii) For purposes of subsection 4(a)(iii), "Diluted Shares
Outstanding" means the number of outstanding shares of Common Stock on the
Calculation Date, plus the number of shares of Common Stock issuable upon the
Calculation Date assuming the conversion of all outstanding Preferred Stock
and convertible notes, plus the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the prior 12-month period, calculated using the treasury
stock method.
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(iii) If any Stock Award shall for any reason expire, be
repurchased or otherwise terminate, in whole or in part, the stock under such
Stock Award shall revert to and again become available for issuance under the
Plan.
(iv) Shares subject to Stock Appreciation Rights exercised in
accordance with Section 8 of the Plan shall not be available for subsequent
issuance under the Plan.
(v) In no event shall Stock Awards qualifying as Incentive
Stock Options exceed Seven Million Five Hundred Thousand (7,500,000) shares
over the term of this amended and restated plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(c) Prior to the Listing Date and to the extent then required by
Section 260.140.45 of Title 10 of the California Code of Regulations, the
total number of shares of Common Stock issuable upon exercise of all
outstanding Options and the total number of shares of Common Stock provided
for under any stock bonus or similar plan of the Company shall not exceed the
applicable percentage as calculated in accordance with the conditions and
exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock that are outstanding at the
time the calculation is made.(1)
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other
than Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees, Directors or Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an
Incentive Stock Option unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of the Common Stock
at the date of grant and the Option is not exercisable after the expiration
of five (5) years from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a Nonstatutory Stock Option unless the exercise price of
such Option is at least (i) one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage
of the Fair Market Value of the Common Stock at the date of grant as is
- ---------------------------------
(1) Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
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permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a restricted stock award unless the purchase price of
the restricted stock is at least (i) one hundred percent (100%) of the Fair
Market Value of the Common Stock at the date of grant or (ii) such lower
percentage of the Fair Market Value of the Common Stock at the date of grant
as is permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of
Section 12 relating to adjustments upon changes in the shares of Common
Stock, no Employee shall be eligible to be granted Options and/or Stock
Appreciation Rights covering more than One Million Five Hundred Thousand
(1,500,000) shares of Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing
Date, this subsection 5(c) shall not apply until (i) the earliest of: (1)
the first material modification of the Plan (including any increase in the
number of shares of Common Stock reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (3) the expiration of the Plan;
or (4) the first meeting of stockholders at which Directors are to be elected
that occurs after the close of the third calendar year following the calendar
year in which occurred the first registration of an equity security under
Section 12 of the Exchange Act; or (ii) such other date required by Section
162(m) of the Code and the rules and regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is not
exempt under Rule 701 of the Securities Act ("Rule 701") because of the
nature of the services that the Consultant is providing to the Company, or
because the Consultant is not a natural person, or as otherwise provided by
Rule 701, unless the Company determines that such grant need not comply with
the requirements of Rule 701 and will satisfy another exemption under the
Securities Act as well as comply with the securities laws of all other
relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not
be eligible for the grant of a Stock Award if, at the time of grant, a Form
S-8 Registration Statement under the Securities Act ("Form S-8") is not
available to register either the offer or the sale of the Company's
securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (E.G., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities
laws of all other relevant jurisdictions.
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(iii) Rule 701 and Form S-8 generally are available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or (for Rule 701 purposes only) majority-owned subsidiaries of
the issuer's parent; and (iii) the services are not in connection with the
offer or sale of securities in a capital-raising transaction, and do not
directly or indirectly promote or maintain a market for the issuer's
securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions regarding Ten Percent Stockholders, the exercise price of each
Nonstatutory Stock Option granted prior to the Listing Date shall be not less
than eighty-five percent (85%) of the Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted. The exercise price
of each Nonstatutory Stock Option granted on or after the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes
and regulations, either (i) in cash at the time the Option is exercised, or
(ii) at the discretion of the Board or the Committee, at the time of the
grant of the Option, (A) by delivery to the Company of other Common Stock,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common
Stock) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(f), or (C) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
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In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable
except by will or by the laws of descent and distribution and, to the extent
provided in the Option Agreement, to such further extent as permitted by
Section 260.140.41(d) of Title 10 of the California Code of Regulations at
the time of the grant of the Option, and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock
Option granted on or after the Listing Date shall be transferable to the
extent provided in the Option Agreement. If the Nonstatutory Stock Option
does not provide for transferability, then the Nonstatutory Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to
the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable
in periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options may
vary. The provisions of this subsection 6(g) are subject to any Option
provisions governing the minimum number of shares of Common Stock as to which
an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California
Code of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee
who is not an Officer, Director or Consultant shall provide for vesting of
the total number of shares of Common Stock at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was
granted, subject to reasonable conditions such as continued employment; and
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(ii) Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement, which period shall not be
less than thirty (30) days for Options granted prior to the Listing Date
unless such termination is for cause), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 6(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event that an
Optionholder's Continuous Service terminates as a result of the
Optionholder's Disability, the Optionholder may exercise his or her Option
(to the extent that the Optionholder was entitled to exercise such Option as
of the date of termination), but only within such period of time ending on
the earlier of (i) the date twelve (12) months following such termination (or
such longer or shorter period specified in the Option Agreement, which period
shall not be less than six (6) months for Options granted prior to the
Listing Date) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise such Option as of the date of
death) by the Optionholder's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionholder's death, but only within the period
ending on the earlier of (1) the date eighteen (18) months following the date
of death (or such longer or shorter period specified in the Option Agreement,
which period shall not be less than six (6) months for Options granted prior
to the Listing Date) or (2) the
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expiration of the term of such Option as set forth in the Option Agreement.
If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Subject to the "Repurchase Limitation" in
subsection 11(h), any unvested shares of Common Stock so purchased may be
subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 11(h), the Option may, but need not, include a provision whereby
the Company may elect, prior to the Listing Date, to repurchase all or any
part of the vested shares of Common Stock acquired by the Optionholder
pursuant to the exercise of the Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include
a provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionholder of the intent to transfer all or any part of the shares of
Common Stock received upon the exercise of the Option. Except as expressly
provided in this subsection, such right of first refusal shall otherwise
comply with any applicable provisions of the Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder,
the Board or Committee shall have the authority (but not an obligation) to
include as part of any Option Agreement a provision entitling the
Optionholder to a further Option (a "Re-Load Option") in the event the
Optionholder exercises the Option evidenced by the Option Agreement, in whole
or in part, by surrendering other shares of Common Stock in accordance with
this Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the number of
shares surrendered as part or all of the exercise price of such Option; (ii)
shall have an expiration date which is the same as the expiration date of the
Option the exercise of which gave rise to such Re-Load Option; and (iii)
shall have an exercise price which is equal to one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Re-Load Option on
the date of exercise of the original Option or, in the case of a Re-Load
Option which is an Incentive Stock Option and which is granted to a Ten
Percent Stockholder shall have an exercise price which is equal to one
hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the
time of the grant of the original Option; PROVIDED, HOWEVER, that the
designation of any Re-Load Option as an Incentive Stock Option shall be
subject to the one hundred thousand dollar ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subsection 11(c) of
the Plan and in Section 422(d) of the Code. There shall be no Re-Load
Options on a Re-Load Option. Any such Re-Load Option shall be
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subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection
5(c), and shall be subject to such other terms and conditions as the Board or
Committee may determine.
7. PROVISIONS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change
from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 11(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor
of the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 11(h), in the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before
the Listing Date, rights to acquire shares of Common Stock under the stock
bonus agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a stock bonus award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
stock bonus agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the stock bonus agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock
bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate restricted stock purchase agreements need
not be identical, but each restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
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(i) PURCHASE PRICE. Subject to the provisions of subsection
5(b) regarding Ten Percent Stockholders, the purchase price under each
restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. For
restricted stock awards made prior to the Listing Date, the purchase price
shall not be less than eighty-five percent (85%) of the Common Stock's Fair
Market Value on the date such award is made or at the time the purchase is
consummated. For restricted stock awards made on or after the Listing Date,
the purchase price shall not be less than eighty-five percent (85%) of the
Common Stock's Fair Market Value on the date such award is made or at the
time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any
time that the Company is incorporated in Delaware, then payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 11(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 11(h), in the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the
terms of the restricted stock purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant. For a restricted
stock award made on or after the Listing Date, rights to acquire shares of
Common Stock under the restricted stock purchase agreement shall be
transferable by the Participant only upon such terms and conditions as are
set forth in the restricted stock purchase agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right
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is granted to an individual who is at the time subject to Section 16(b) of
the Exchange Act (a "Section 16(b) Insider"), the Stock Award Agreement of
grant shall incorporate all the terms and conditions at the time necessary to
assure that the subsequent exercise of such right shall qualify for the
safe-harbor exemption from short-swing profit liability provided by Rule
16b-3 promulgated under the Exchange Act (or any successor rule or
regulation). No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise
of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized
for issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall,
except as specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of shares
of stock based on Fair Market Value on the date of the Option surrender) in
an amount up to the excess of (A) the Fair Market Value (on the date of the
Option surrender) of the number of shares of stock covered by that portion of
the surrendered Option in which the Optionholder is vested over (B) the
aggregate exercise price payable for such vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion
of the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution payable
on an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Concurrent Right) in an amount equal to such portion
as shall be determined by the Board or the Committee at the time of the grant
of the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Concurrent Right) of the vested shares of stock purchased
under the underlying Option which have Concurrent Rights appurtenant to them
over (B) the aggregate exercise price paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section
6. They shall be denominated in share equivalents. The appreciation
distribution payable on the exercised Independent Right shall be not greater
than an amount equal to the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
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exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution payable on
the exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Independent Right.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may
be required to issue and sell shares of stock upon exercise of the Stock
Award; provided, however, that this undertaking shall not require the Company
to register under the Securities Act either the Plan, any Stock Award or any
stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such Stock Awards unless and until such authority is
obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to
whom a Stock Award is transferred shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to
such Stock Award unless and until such person has satisfied all requirements
for exercise of the Stock Award pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or other holder of Stock Awards with or without cause.
(c) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionholder
during any calendar year under all plans of the Company and its Affiliates
exceeds one hundred thousand dollars ($100,000), the Options or portions
thereof which exceed such limit (according to the order in which they were
granted) shall be treated as Nonstatutory Stock Options.
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(d) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred, as a condition
of exercising or acquiring stock under any Stock Award, (1) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters, and that he or she is
capable of evaluating, alone or together with the purchaser representative,
the merits and risks of exercising the Stock Award; and (2) to give written
assurances satisfactory to the Company stating that such person is acquiring
the stock subject to the Stock Award for such person's own account and not
with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon
the exercise or acquisition of stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (iv) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to,
legends restricting the transfer of the stock.
(e) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares
of the Common Stock.
(f) The Board shall have the power to accelerate the time at which
a Stock Award may first be exercised or the time during which a Stock Award
or any part thereof will vest in accordance with the Plan, notwithstanding
the provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(g) Prior to the Listing Date, to the extent required by Section
260.140.46 of Title 10 of the California Code of Regulations, the Company
shall deliver financial statements to Participants at least annually. This
subsection 11(g) shall not apply to key Employees whose duties in connection
with the Company assure them access to equivalent information.
(h) The terms of any repurchase option shall be specified in the
Stock Award and may be either at Fair Market Value at the time of repurchase
or at not less than the original purchase price. To the extent required by
Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code
of Regulations at the time a Stock Award is made, any repurchase option
contained in a Stock Award granted prior to the Listing Date to a person who
is not an Officer, Director or Consultant shall be upon the terms described
below:
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(i) If the repurchase option gives the Company the right to
repurchase the shares of Common Stock upon termination of employment at not
less than the Fair Market Value of the shares of Common Stock to be purchased
on the date of termination of Continuous Service, then (i) the right to
repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may
be agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the
shares of Common Stock become publicly traded.
(ii) If the repurchase option gives the Company the right to
repurchase the shares of Common Stock upon termination of Continuous Service
at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent
(20%) of the shares of Common Stock per year over five (5) years from the
date the Stock Award is granted (without respect to the date the Stock Award
was exercised or became exercisable) and (ii) the right to repurchase shall
be exercised for cash or cancellation of purchase money indebtedness for the
shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the
date of the exercise) or such longer period as may be agreed to by the
Company and the Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Common Stock subject to the Plan,
or subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of securities subject to the Plan pursuant
to subsection 4(a) and the maximum number of securities subject to award to
any person pursuant to subsection 5(c), and the outstanding Stock Awards will
be appropriately adjusted in the class(es) and number of securities and price
per share of Common Stock subject to such outstanding Stock Awards. The Board
shall make such adjustments, and its determination shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by
the Company.)
(b) In the event of a dissolution or liquidation of the Company,
then all outstanding Stock Awards shall terminate immediately prior to such
event.
(c) In the event of (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving
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corporation or (iii) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise, then any surviving corporation
or acquiring corporation shall assume any Stock Awards outstanding under the
Plan or shall substitute similar stock awards (including an award to acquire
the same consideration paid to the stockholders in the transaction described
in this subsection 12(c) for those outstanding under the Plan. In the event
any surviving corporation or acquiring corporation refuses to assume such
Stock Awards or to substitute similar stock awards for those outstanding
under the Plan, then the vesting of outstanding Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full, and the Stock Awards shall terminate if not exercised
(if applicable) at or prior to such event. Stock Awards shall terminate if
not exercised (if applicable) prior to such event.
(d) After the Listing Date, in the event of an acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Exchange Act, or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or an
Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors, then the
vesting of outstanding Stock Awards (and, if applicable, the time during
which such Stock Awards may be exercised) shall be accelerated in full.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
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(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the amended and restated plan is adopted by
the Board or approved by the stockholders of the Company, whichever is
earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be altered or impaired by suspension or
termination of the Plan, except with the consent of the person to whom the
Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the latest of (i) adoption by the
Board (ii) approval by stock holders or (iii) the Initial Public Offering of
the Company.
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Exhibit 10.3
EMBARK.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS SEPTEMBER 20, 1999
APPROVED BY STOCKHOLDERS , 1999
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of the
Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of such
Employees, to secure and retain the services of new Employees and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subparagraph 3(c) of the Plan.
(e) "COMPANY" means Embark.com, Inc., a Delaware corporation.
(f) "DIRECTOR" means a member of the Board.
(g) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or an Affiliate of the Company. Neither service as a Director nor
payment of a director's fee shall be sufficient to constitute "employment" by
the Company or the Affiliate.
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(i) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights intended
to be options issued under an "employee stock purchase plan," as that term is
defined in Section 423(b) of the Code.
(j) "EXCHANGE ACT" means the United States Securities Exchange Act of 1934,
as amended.
(k) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in THE WALL
STREET JOURNAL or such other source as the Board deems reliable.
(l) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(m) "OFFERING" means the grant of Rights to purchase Shares under the Plan
to Eligible Employees.
(n) "OFFERING DATE" means a date selected by the Board for an Offering to
commence.
(o) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(p) "PARTICIPANT" means an Eligible Employee who holds an outstanding Right
granted pursuant to the Plan or, if applicable, such other person who holds an
outstanding Right granted under the Plan.
(q) "PLAN" means this Embark.com, Inc. 1999 Employee Stock Purchase Plan.
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(r) "PURCHASE DATE" means one or more dates established by the Board during
an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "RIGHT" means an option to purchase Shares granted pursuant to the
Plan.
(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
(v) "SHARE" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts as it
deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of the
Board composed of two (2) or more members, all of the members of which Committee
may be, in the discretion of the Board, Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee of two
(2) or more Outside Directors any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be
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to the Committee or such a subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate Seven Hundred Fifty Thousand
(750,000) Shares. If any Right granted under the Plan shall for any
reason terminate without having been exercised, the Shares not purchased under
such Right shall again become available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to Rights
granted under the Plan as specified in subparagraph 4(a) shall automatically be
increased on each January 1, beginning on January 1, 2001, by the smaller of:
(i) two hundred fifty thousand (250,000) shares, or
(ii) such smaller number that the Board of Directors may designate.
(c) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.
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6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the Board
may designated as provided in subparagraph 3(b), to Employees of an Affiliate.
Except as provided in subparagraph 6(b), an Employee shall not be eligible to be
granted Rights under the Plan unless, on the Offering Date, such Employee has
been in the employ of the Company or the Affiliate, as the case may be, for such
continuous period preceding such grant as the Board may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;
(ii) the period of the Offering with respect to such Right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 6(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any Employee, and stock
which such Employee may purchase under all outstanding rights and options
shall be treated as stock owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if such
Rights, together with any other Rights granted under all Employee Stock Purchase
Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employee's rights to purchase Shares of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of the fair market value of such Shares (determined
at the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
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7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted the Right to purchase up to the number of
Shares purchasable either:
(i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's base Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as the
Board determines for a particular Offering, (1) shall be withheld, in whole or
in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an Offering
on which Rights granted under the Plan shall be exercised and purchases of
Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's
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Earnings during the Offering (as defined in each Offering). The payroll
deductions made for each Participant shall be credited to a bookkeeping account
for such Participant under the Plan and either may be deposited with the general
funds of the Company or may be deposited in a separate account in the name of,
and for the benefit of, such Participant with a financial institution designated
by the Company. To the extent provided in the Offering, a Participant may reduce
(including to zero) or increase such payroll deductions. To the extent provided
in the Offering, a Participant may begin such payroll deductions after the
beginning of the Offering. A Participant may make additional payments into his
or her account only if specifically provided for in the Offering and only if the
Participant has not already had the maximum permitted amount withheld during the
Offering.
(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the Offering by
a Participant, the Company shall distribute to such Participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire Shares for the terminated Employee) under the Offering, without
interest unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of
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Shares up to the maximum amount of Shares permitted pursuant to the terms of the
Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional Shares shall be issued upon the exercise of Rights
granted under the Plan unless specifically provided for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount, if
any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement and such
compliance, except that the Purchase Date shall not be delayed more than twelve
(12) months and the Purchase Date shall in no event be more than twenty-seven
(27) months from the Offering Date. If, on the Purchase Date of any Offering
hereunder, as delayed to the maximum extent permissible, the Plan is not
registered and in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance
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<PAGE>
and sale of Shares under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Shares upon exercise of such Rights
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject to
any Right, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), the annual
increases pursuant to subparagraph 4(b), and the outstanding Rights will be
appropriately adjusted in the class(es), number of Shares and purchase limits of
such outstanding Rights. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction that
does not involve the receipt of consideration by the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
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14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
Stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such Rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or Rights granted under the Plan comply with the requirements of
Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is to
receive any Shares and/or cash, if any, from the Participant's account under the
Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company
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shall deliver such Shares and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its sole
discretion, may deliver such Shares and/or cash to the spouse or to any one or
more dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the Stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the effective date set by the Board.
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Exhibit 10.4
EMBARK.COM, INC.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 20, 1999
APPROVED BY STOCKHOLDERS ON ____________, 1999
1. PURPOSE.
(a) The purpose of the 1999 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of EMBARK.COM, INC.
(the "Company") who is not otherwise at the time of grant an employee of or
consultant to the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "AFFILIATE" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee of the Board, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
options granted under the Plan shall not exceed in the aggregate the number
which is equal to two hundred fifty thousand (250,000) shares of the
Company's common stock. On each January 1 of the term of the Plan beginning
on January 1, 2001, such reserve shall be increased by the lesser of (i)
seventy-five thousand (75,000) shares of the Company's common stock, or (ii)
such smaller number of shares of the Company's Common Stock as the Board of
Directors may designate. If any option granted under the Plan
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shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again
become available for the Plan. If any shares of the Company's common stock
acquired pursuant to the exercise of an option shall for any reason be
repurchased by the Company under a repurchase option provided under the Plan,
the stock repurchased by the Company under such repurchase option shall
revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is first elected or appointed to the Board as a
Non-Employee Director after the Effective Date shall automatically be
granted, on the date of such initial election or appointment, an option to
purchase thirty-seven thousand five hundred (37,500) shares of common stock
of the Company on the terms and conditions set forth herein (hereinafter, an
"Initial Grant").
(b) Each Non-Employee Director who is serving as a Non-Employee
Director immediately following each anniversary of the closing of the
Company's initial public offering (the "Anniversary Date"), commencing with
the Anniversary Date occurring in calendar year 2000, shall automatically be
granted, on such date, an option to purchase ten thousand (10,000) shares
of common stock of the Company, which amount shall be pro-rated for any
Non-Employee Director who has not continuously served as a Non-Employee
Director for the twelve (12)-month period prior to the date of such
Anniversary Date, on the terms and conditions set forth herein (hereinafter,
an "Annual Grant").
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted
and, unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from the date of grant. If the optionee's
service as a Non-Employee Director or employee of or consultant to the
Company or any Affiliate terminates for any reason or for no reason, the
option shall terminate on the earlier of the Expiration Date or the date six
(6) months following the date of termination of such service; PROVIDED,
HOWEVER, that (i) if such termination of service is due to the optionee's
death, the option shall terminate on the earlier of the Expiration Date or
eighteen (18) months following the date of the optionee's death or (ii) if
such termination of service is due to the optionee's permanent and total
disability within the meaning of Section 22(e)(3) of the Code ("Disability"),
the option shall terminate on the earlier of the Expiration Date or twelve
(12) months following the date of the optionee's Disability. In any and all
circumstances, an option may be exercised following termination of the
optionee's service as a Non-Employee Director of the Company or any Affiliate
only as to that number of shares as to which it was
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<PAGE>
exercisable as of the date of termination of such service under the
provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent
(100%) of the Fair Market Value of the stock (as defined in subsection 9(d))
subject to such option on the date such option is granted.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) In cash (or check) at the time of exercise;
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date immediately preceding the date of exercise;
(iii) Pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock; or
(iv) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; PROVIDED, HOWEVER, that if the option
agreement does not specifically provide for the transferability of the option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a domestic relations order, and shall
be exercisable during the lifetime of the person to whom the option is granted
only by such person or transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the optionee may, by delivering written notice to
the Company in a form satisfactory to the Company, designate a third party who,
in the event of the death of the optionee, shall thereafter be entitled to
exercise the option.
(e) Vesting.
(i) An Initial Grant shall vest (i.e., become exercisable)
1/4th of the shares on the one year anniversary of the grant date and 1/48th on
a monthly basis thereafter measured from the date of grant of the option,
PROVIDED THAT, with respect to any grant under the Plan, the optionee has,
during the entire period prior to such vesting date, continuously served as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate of the Company.
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(ii) An Annual Grant shall vest (i.e., become exercisable) in
forty-eight (48) equal monthly installments over a four (4)-year period measured
from the date of grant of the option, PROVIDED THAT, with respect to any grant
under the Plan, the optionee has, during the entire period prior to such vesting
date, continuously served as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate of the Company.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (x) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (y), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may
require any optionee to provide such other representations, written assurances
or information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option.
The Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time before the optionee's service as a Non-Employee
Director or employee of or consultant to the Company or any Affiliate terminates
to exercise the option as to any part or all of the shares subject to the option
prior to the full vesting of the option. Any unvested shares so purchased shall
be subject to a repurchase right in favor of the Company or any other
restriction the Board determines appropriate.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of common stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; PROVIDED, HOWEVER, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted
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<PAGE>
under the Plan, or any stock issued or issuable pursuant to any such option.
If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of the Delaware
General Corporation Law (or the applicable laws of the Company's state of
incorporation if the Company's state of incorporation should change in the
future).
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) As used in this Plan, "Fair Market Value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market, the Fair Market Value of a share
of common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in common stock) on the
last market trading day prior to the day of determination, as reported in THE
WALL STREET JOURNAL or such other source as the Board deems reliable; or
(ii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend,
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<PAGE>
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
other transaction not involving the receipt of consideration by the Company),
the Plan and outstanding options will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan and the class(es)
and number of shares and price per share of stock subject to outstanding
options. Such adjustments shall be made by the Board, the determination of
which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction
not involving the receipt of consideration by the Company.")
(b) In the event of a Change in Control (as defined herein) any
surviving corporation or acquiring corporation shall assume any options
outstanding under the Plan or shall substitute similar options (including an
award to acquire the same consideration paid to the shareholders in the
transaction described in this subsection 10(b)) for those outstanding under the
Plan. In the event any surviving or acquiring corporation refuses to assume
such options or to substitute similar options for those outstanding under the
Plan, then with respect to persons whose Continuous Service has not terminated
prior to such Change in Control: (i) the vesting (and, if applicable, the
exercisability) of options held by such persons shall be accelerated immediately
prior to such event, and the options terminated if not exercised at or prior to
such event, and (ii) any Company repurchase option or reacquisition right with
respect to shares acquired by such persons under a Stock Award shall lapse
immediately prior to such event and the shares held by such persons shall be
fully vested. With respect to any other options outstanding under the Plan,
such options shall terminate if not exercised prior to such event.
For purposes of this Plan, a "Change in Control" shall mean: (i) a sale
of all or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation or a reverse
merger in which the Company is the surviving corporation but the shares of the
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise (other than (a) a merger or consolidation in which
stockholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, greater stock voting power of the acquiring
or controlling corporation, and in no event less than a majority of such stock
voting power, (b) a transaction the principal purpose of which is to change the
State of the Company's incorporation, or (c) a merger of the Company into any of
its wholly owned subsidiaries); or (iii) an acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors.
(c) In the event of a dissolution or liquidation of the Company, any
options outstanding under the Plan shall terminate if not exercised prior to
such event.
11. AMENDMENT OF THE PLAN OR OPTIONS.
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<PAGE>
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, no
amendment to the Plan, including an amendment to increase the size of the share
reserve (except as provided in paragraph 10 relating to adjustments upon changes
in stock), shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
(b) Rights and obligations under any option granted before any
amendment of the Plan or the agreement documenting such option shall not be
impaired by such amendment unless (i) the Company requests the consent of the
person to whom the option was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the first date upon which any
security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange, or designated (or approved for designation)
upon notice of issuance as a national market security on an interdealer
quotation system (the "Effective Date").
(b) Notwithstanding any other provision in the Plan to the contrary,
no option otherwise authorized under the Plan shall be granted unless and until
sufficient shares of the Company's common stock to be issued under the Plan have
been approved by the stockholders of the Company.
14. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
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Exhibit 10.5
111 TOWNSEND STREET
LEASE
BASIC LEASE INFORMATION
Date: March 4, 1999
LANDLORD: Ichi Juu Ichi, LLC
Address: Ronaldo Cianciarulo
700 Seventh Street, #107
San Francisco, CA 94107
TENANT: College Edge/Snap Technologies, Inc.
111 Townsend Street
San Francisco, CA
- -------------------------------------------------------------------------------
PARAGRAPH 1 PREMISES
Rentable Area of Premises: Floor 2 consisting of
approximately 5,902 square feet
and Floor 3 consisting of
approximately 6,018 square feet
PARAGRAPH 2 TERM
Thirty-Six (36) months, with an option for an additional year,
subject to the terms of Section 2
Commencement Date: Substantial Completion of the
Tenant Improvements (estimated to
be May 1, 1999)
PARAGRAPH 3 BASE RENT: $29.50 per rentable square foot per year
(i.e., $29,303.33 per month)
PARAGRAPH 5 SECURITY DEPOSIT: $29,303.33
LETTER OF CREDIT: $150,000
PARAGRAPH 31 BROKER: Landlord: Grubb & Ellis
Tenant: CAC Group
The foregoing Basic Lease Information is incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information set forth above and shall
be construed to incorporate all of the terms provided under the particular
Lease paragraph pertaining to such information. In the event of a conflict
between any Basic Lease Information and the Lease, the Lease shall control.
LANDLORD: TENANT:
ICHI JUU ICHI, LLC SNAP TECHNOLOGIES, INC. a California
a California limited liability company corporation
By: /s/ Ronaldo Cianciarulo By: /s/ Howard A. Berman
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Its: President Its: EVP, COO
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Howard A. Berman
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LEASE
111 TOWNSEND STREET
San Francisco, California
ICHI JUU ICHI, LLC
-LANDLORD-
SNAP TECHNOLOGIES, INC.
-TENANT-
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LEASE
THIS LEASE (the "Lease") is made and entered into as of the 4th day of
March 1999, by and between Ichi Juu Ichi, LLC, a California limited liability
company (the "Landlord"), and College Edge/Snap Technologies, Inc., a
California corporation (the "Tenant").
1. PREMISES
(a) Subject to and upon the terms, covenants and conditions
hereinafter set forth, Landlord leases to Tenant and Tenant rents from
Landlord those certain premises as set forth in the BASIC LEASE INFORMATION
attached hereto and as approximately shown on the plan attached hereto as
EXHIBIT A (the "Premises") in the building located at 111 Townsend Street,
San Francisco, California (the "Building").
(b) Tenant shall accept the Premises in their "as-is" condition;
provided, however, Landlord, at its cost, shall complete the following work
("Tenant Improvements"):
(i) Any operable windows, the electrical systems and the
roof shall be in good working order and repair;
(ii) The Common Areas shall be improved with Building
standard finishes;
(iii) A second restroom shall be installed on the second floor
of the Building so there will be two (2) restrooms on the second floor;
(iv) The restroom on the third floor of the Building shall be
cleaned and painted;
(v) A space heater shall be installed on the second floor;
and
(vi) Perform the work outlined on EXHIBIT B attached hereto.
Upon substantial completion of the Tenant Improvements, Tenant shall execute
a written notice of its acceptance of Premises, which shall be conclusive
evidence that Tenant has accepted the Premises in good and satisfactory
condition as of the date of such notice and Landlord shall not be liable to
Tenant for any defects in the Tenant Improvements thereafter. Landlord
hereby discloses to Tenant that the western wall of the Building is shared
with the building immediately adjacent to the Building and such wall is an
unreinforced masonry wall. The City and County of San Francisco has
declared that such walls are unsafe; and, Tenant on behalf of itself and its
employees and invitees hereby accepts such risk.
2. TERM
(a) This Lease shall be for the term commencing on the Commencement
Date (as defined in the BASIC LEASE INFORMATION) (provided Tenant shall have
the right to move its furniture, fixtures and equipment into the Premises
five days prior to the Commencement Date) and expiring on the date that is
thirty-six (36) months following the Commencement Date, unless sooner
terminated as provided herein (the "Term"). If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on the date
specified herein for the commencement of the Term, this Lease shall not be
void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom; provided, however, that Tenant may terminate this
lease in the event that Landlord cannot deliver the Premises by August 1,
1999 by providing Landlord written notice of its termination no later than
August 15, 1999. In that event, however, Tenant shall not be liable for any
Base Rental or Additional Charges (as hereinafter defined) until Landlord
delivers possession of the Premises to Tenant.
(b) Tenant and Landlord shall each have the right to change the
Expiration Date of the Lease from the end of the 36th month of the Term to be
the end of the 24th month of the Term upon not less than 120 days prior
written notice. In the event the Expiration Date is changed from the 36th
month to the 24th month, neither party shall be required to pay the other
party any termination fee or other payment of any type or nature.
(c) Subject to the rights of Landlord in Section 2(b), Landlord
hereby grants Tenant an option to extend the term of the Lease for one
additional period of one (1) year, at Tenant's election as specified below,
commencing immediately after the expiration of the Term, upon the same terms
and conditions contained herein, except that (i) the Base Annual Rent for the
Premises shall be equal to the fair market rent for the Premises determined in
the manner set forth below, (ii) Tenant shall accept the Premises in an "as
is" condition without any obligation of Landlord to repaint, remodel, repair,
improve or alter the Premises, and (iii) there shall be no further options to
extend the term of the Lease. Tenant's election to exercise the option
granted herein must be given to Landlord in writing no less than 120 days
prior to expiration of the Term. If Tenant properly exercises the option
granted herein, references in the
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Lease to the term shall be deemed to mean the option term unless the context
clearly provides otherwise. Notwithstanding anything to the contrary
contained, herein, all option rights of Tenant pursuant to this Section shall
automatically terminate without notice and shall be of no further force and
effect, whether or not Tenant has timely exercised the option granted herein,
if (i) an Event of Default exists at the time of exercise of the option or at
the time of commencement of the option term, or (ii) Tenant has not
subsequently cured such Event of Default.
(d) If Tenant properly exercises its option to extend the term of
the Lease, the Base Annual Rent during the option term shall be determined in
the following manner. The Base Annual Rent shall be increased to an amount
equal to the fair market rent for the Premises as of the commencement of the
option term for a term equal to the option term, as such fair market rent is
specified by Landlord by notice to Tenant not less than thirty (30) days
prior to commencement of the option term, subject to Tenant's right of
arbitration as set forth below. If Tenant believes that the fair market rent
specified by Landlord exceeds the actual fair market rent for the Premises as
of commencement of the option term, then Tenant shall so notify Landlord
within ten (10) business days following receipt of Landlord's notice. If
Tenant fails to so notify Landlord within said ten (10) business days,
Landlord's determination of the fair market rent for the Premises shall be
final and binding upon the parties. If the parties are unable to agree upon
the fair market rent for the Premises within ten (10) days after Landlord's
receipt of notice of Tenant's objection, the amount of Base Annual Rent as of
commencement of the option term shall be determined as follows:
(i) Within 20 days after receipt of Landlord's notice
specifying fair market rent, Tenant, at its sole expense, shall obtain and
deliver in writing to Landlord a determination of the fair market rent for
the Premises for a term equal to the option term from a broker ("Tenant's
broker") licensed in the State of California and engaged in the office
brokerage business in San Francisco, California for at least the immediately
preceding five (5) years. If Landlord accepts such determination, the
Monthly Base Rent for the option term shall be increased to an amount equal
to of the amount determined by Tenant's broker. If Landlord fails to notify
Tenant within ten (10) business days of its rejection of such determination,
the Monthly Base Rent shall be increased to an amount equal to the amount
determined by Tenant's broker.
(ii) If Landlord does not accept such determination, within
15 days after receipt of the determination of Tenant's broker, Landlord shall
designate a broker ("Landlord's broker") licensed in the State of California
and engaged in the office brokerage business in San Francisco, California,
for at least the immediately preceding five (5) years. Landlord's broker and
Tenant's broker shall name a third broker, similarly qualified, within five
(5) days after the appointment of Landlord's broker. Each of said three
brokers shall determine the fair market rent for the Premises as of the
commencement of the option term for a term equal to the option term of the
Lease within 15 days after the appointment of the third broker. The third
appraiser shall choose the appraisal of the Landlord's Broker or the
appraisal of the Tenant's Broker which ever is closer to its determination of
fair market rent. The Annual Base Rent payable by Tenant effective as of the
commencement of the option term shall be increased to an amount equal to the
average of said three determinations; provided, however, any such
determination that is ten percent greater or less than the three
determinations shall not be considered.
(iii) Landlord shall pay the costs and fees of Landlord's
broker in connection with any determination hereunder, and Tenant shall pay
the costs and fees of Tenant's broker in connection with such determination.
The costs and fees of any third broker shall be paid one-half by Landlord and
one-half by Tenant.
(e) If the amount of the fair market rent is not known as of the
commencement of the option term, then Tenant shall continue to pay the Base
Annual Rent in effect at the expiration of the initial term until the amount
of the fair market basic rent is determined. When such determination is
made, Tenant shall pay any deficiency to Landlord within five (5) business
days of demand. In no event shall the Base Annual Rent payable during the
option term be less than the sum of (i) the Base Annual Rent in effect
immediately prior to the expiration of the initial term, and (ii) the
Tenant's Share payable by Tenant on a per square foot basis during the last
year of the Term.
3. RENT
(a) Tenant shall pay to Landlord a total annual "Base Rental"
throughout the Term in equal monthly installments as set forth in the BASIC
LEASE INFORMATION attached hereto, due and payable upon the first day of each
and every month during the Term, without any further notice from or demand by
Landlord and without any offset or deduction whatsoever, except as set forth
herein, in lawful money of the United States of America, at the address set
forth in the BASIC LEASE INFORMATION attached hereto or elsewhere as
designated from time to time by Landlord's written notice to Tenant. Tenant
shall also pay to Landlord all charges and other amounts whatsoever as
provided in this Lease ("Additional Charges"); and such Additional Charges
shall be payable to Landlord at the place where the Base Rental is payable
and Landlord shall have the same remedies for a default in the payment of
Additional Charges as for a
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default in the payment of Base Rental. If the Commencement Date should occur
on a day other than the first day of a calendar month, or the Expiration Date
should occur on a day other than the last day of a calendar month, then the
Base Rental and Additional Charges for such fractional month shall be
prorated on a daily basis.
(b) Tenant recognizes that late payment of any Base Rental or Additional
Charges will result in additional administrative expense to Landlord and will
impair Landlord's ability to meet its obligations with respect to the
Building and otherwise, the exact extent of which additional expense and
impairment will be extremely difficult or impractical to determine. Tenant
therefore agrees that if any Base Rental or Additional Charges remain unpaid
for a period of fifteen (15) days after the date the same is due, the amount
of such unpaid Base Rental or Additional Charges shall be increased by a late
charge to be paid to Landlord by Tenant in an amount equal to ten percent
(10%) of the amount of the past due Base Rental and/or Additional Charges.
The amount of the late charge to be paid to Landlord by Tenant on any
delinquent Base Rental and/or Additional Charges shall be reassessed and
added to Tenant's obligation for each successive monthly period accruing
after the date on which the late charge is initially imposed until such late
charge and all delinquent Base Rental and Additional Charges have been paid
in full by Tenant. Tenant agrees that such amount is a reasonable estimate of
the loss and expense to be suffered by Landlord as a result of any such late
payment by Tenant. The provisions of this Paragraph 3(b) in no way relieve
Tenant of the obligation to pay Base Rental or Additional Charges on or
before the date on which they are due, nor do the terms of this Paragraph
3(b) in any way affect Landlord's remedies pursuant to Paragraph 18 in the
event any Base Rental or Additional Charges are unpaid after the date due.
4. ADDITIONAL CHARGES. For purposes of this Paragraph 4, the following
terms shall have the meanings hereinafter set forth:
(i) "Base Year" shall mean the calendar year 1999.
(ii) "Taxes" shall mean all impositions, taxes, assessments
(special or otherwise), and other governmental liens or charges of any kind
or nature whatsoever, ordinary and extraordinary, foreseen and unforeseen,
and any substitute therefor, including all taxes attributable in any manner
to the Premises, the land on which the Premises is located or the rents
(however the term may be defined) receivable therefrom or any charge or other
payment required to be paid to any governmental authority, whether or not any
of the foregoing shall be designated "real estate tax", "sales tax", "rental
tax", "excise tax", "business tax", or designated in any other manner (except
only those taxes of the following categories: any inheritance, estate
succession, transfer or gift taxes imposed upon Landlord or any income taxes
specifically payable by Landlord as a separate tax paying entity without
regard to Landlord's income source as arising from or out of the Premises
and/or the land on which it is located). Taxes shall also include reasonable
legal fees, costs, and disbursements incurred in connection with proceedings
to contest, determine, or reduce such Taxes.
(iii) "Operating Costs" shall mean all costs incurred by Landlord
in connection with owning, operating and maintaining the Building.
(iv) "Tenant's Share" shall mean 67%, unless Landlord leases the
basement for office space, in which event Tenant's Share shall be
proportionately reduced.
(a) Tenant shall pay to Landlord as Additional Charges, each month, an
amount equal to Tenant's Share of any increase in Taxes and Operating Costs
from the Base Year.
(b) In addition, Tenant shall pay to Landlord as Additional Charges,
upon written demand, such portion of all real estate Taxes which are
attributable to the value of the improvements installed in the Premises by
Tenant.
(c) Tenant shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere. When possible,
Tenant shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Landlord. If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord the taxes attributable to
Tenant within 10 days after receipt of a written statement setting forth the
taxes applicable to Tenant's property.
5. SECURITY DEPOSIT AND LETTER OF CREDIT
(a) Tenant concurrently with the execution of this Lease, has deposited
with Landlord the sum set forth in the BASIC LEASE INFORMATION attached
hereto, the receipt of which is hereby acknowledged by Landlord as security
for the faithful performance by Tenant of all terms, covenants and conditions
of this Lease. Tenant agrees that Landlord may apply the security deposit to
remedy any failure by Tenant to repair or maintain the Premises or to perform
any other terms, covenants and conditions contained
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herein or make any payment owing hereunder. If Tenant has kept and performed
all terms, covenants and conditions of this Lease during the Term, Landlord
will, within thirty (30) days after the expiration hereof, promptly return
the security deposit to Tenant or the last permitted assignee of Tenant's
interest hereunder. Should Landlord use any portion of the security deposit
to cure any default by Tenant hereunder, Tenant shall forthwith replenish the
security deposit to the original amount. Landlord shall not be required to
keep the security deposit separate from its general funds, and Tenant shall
not be entitled to interest on any such deposit. Upon the occurrence of any
Events of Default (as defined in Paragraph 18 of this Lease) the security
deposit shall become due and payable to Landlord to the extent required to
compensate Landlord for damages incurred, or to reimburse Landlord as
provided herein, in connection with any such Event of Default.
(b) Concurrently with execution of this Lease by Tenant, Tenant shall
deliver to Landlord as security for the faithful performance of all of its
obligations under this Lease an unconditional and irrevocable letter of
credit ("Letter of Credit") in the amount of $150,000 for the benefit of
Landlord and any successor in interest of Landlord, issued by a financial
institution acceptable to Landlord, and providing for partial drawings. All
costs incurred in obtaining the Letter of Credit shall be borne by Tenant.
Landlord shall be entitled to draw upon the Letter of Credit if an Event of
Default shall occur under the Lease, to the extent of the default. Tenant
shall maintain the Letter of Credit in effect in accordance with the terms of
this paragraph until 60 days after the later of (i) the expiration of the
term of the Lease, or (ii) vacation of the Premises by Tenant. If the stated
term of the Letter of Credit would expire prior to such time as Tenant is no
longer required to maintain the Letter of Credit in effect under the Lease,
prior to its stated expiration Tenant shall renew the Letter of Credit for a
period of time until Tenant is no longer required to maintain the Letter of
Credit or shall deliver to Landlord a new Letter of Credit in accordance with
the terms hereof. If Tenant fails either to give Landlord satisfactory
evidence confirming such renewal of the Letter of Credit or to deliver a new
Letter of Credit to Landlord at least 20 days prior to the stated expiration
of the Letter of Credit in effect, Landlord shall be entitled to draw down
the full amount of the Letter of Credit prior to the expiration thereof, and
the amount so drawn shall be treated in the manner described in below.
Any cash proceeds drawn under the Letter of Credit and not applied by
Landlord as provided in paragraph above plus such additional amount as shall
be necessary to restore the amount so held by Landlord to the amount of the
Letter of Credit shall be held by Landlord as security for the faithful
performance by Tenant of all of the provisions of the Lease to be performed
or observed by Tenant (the "deposit"). If Tenant fails to pay rent or other
charges due under the Lease, or otherwise defaults with respect to any
provision of the Lease, Landlord may at its sole option apply or retain all
or any portion of the Letter of Credit for the payment of any rent or other
charges in default or the payment of any other sum to which Landlord may
become entitled by Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer thereby. If Landlord so uses or applies
all or any portion of the deposit (including draws under the Letter of
Credit), then within thirty (30) days after demand therefor Tenant shall
deposit cash with Landlord in an amount sufficient to restore the amount
thereof, and Tenant's failure to do so shall be a material breach of the
Lease. Landlord's application or retention of the deposit shall not
constitute a waiver of Tenant's default to the extent that the deposit does
not fully compensate Landlord for all losses or damages incurred by Landlord
in connection with such default and shall not prejudice any other rights or
remedies available to Landlord under the Lease or by law. Landlord shall not
be required to keep the deposit separate from its general accounts. If Tenant
performs all of Tenant's obligations under the Lease, the deposit, or so much
thereof as has not theretofore been applied by Landlord, shall be returned,
without payment of interest or other increment for its use, to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest under
the Lease) within thirty (30) days after the later of (i) expiration of the
term of the Lease, or (ii) vacation of the Premises by Tenant. No trust
relationship is created herein between Landlord and Tenant with respect to
the deposit.
6. USE AND COMPLIANCE WITH LAWS
(a) Tenant shall use and occupy the Premises for general office and for
no other use or purpose.
(b) Tenant shall not use the Premises or permit anything to be done in
or about the Premises that will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall not do or permit anything
to be done in or about the Premises or bring or keep anything therein which
will in any way increase the rate of any insurance upon the Building or any
of its contents above the rate as of the initial move-in date or cause a
cancellation of such insurance or otherwise affect such insurance in any
manner after the initial move-in date, and Tenant shall at its sole cost and
expense promptly comply with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be in
force and with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by alterations or improvements made by Tenant or
Tenant's use of the
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Premises. Tenant shall not have the right to use the freight elevator in the
Building except for the initial move in of its furniture, fixtures and
equipment.
7. HAZARDOUS SUBSTANCES
Tenant will not cause, suffer or permit any Hazardous Substance (as
hereinafter defined) to be brought, kept or stored within the Premises, and
Tenant will not engage in or permit any other person to engage in any
activity, operation or business upon the Premises that involves the
generation, manufacture, refining, transportation, treatment, storage,
handling or disposal of any Hazardous Substance that would or could result in
Tenant, Landlord, the Premises, or the Building to be subject to any law,
statute, ordinance, or regulation or rule of common law pertaining to health,
industrial hygiene, or the environment. Tenant shall be responsible for any
violation of this Article 7 by any subtenant or other occupant of the
Premises. The term "Hazardous Substance" shall include, without limitation
those substances, materials and wastes that are or become regulated under
applicable local, state or federal law, or the United States government, or
which are classified as hazardous or toxic under federal, state, or local
laws or regulations.
8. UTILITIES AND JANITORIAL
Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any
taxes thereon. If any such services are not separately metered to Tenant,
Tenant shall pay a reasonable proportion to be reasonably determined by
Landlord of all charges jointly metered with other premises. Tenant, at
Tenant's sole cost, shall be responsible for providing janitorial services to
the Premises.
9. ALTERATIONS
Tenant shall not make any alternations, additions or improvements
(collectively, "Alterations") in or to the Premises without the prior written
consent of Landlord, which shall not be unreasonably withheld, but may be
predicated upon but not limited to Tenant's use of contractors who are
acceptable to Landlord; and any Alterations, except for Tenant's movable
furniture and equipment, at Landlord's election, shall immediately become
Landlord's property and, at the end of the Term, shall remain on the Premises
without compensation to Tenant or, if Landlord shall elect, be removed by
Tenant prior to the expiration date of this Lease. All Alteration shall be
completed in compliance with all laws, codes, rules, and ordinances in effect
at the time of such Alterations. In the event the making of any Alterations
triggers any additional work to be performed to the Premises or the Building,
such additional work shall be performed at Tenant's sole cost and expense. In
the event Tenant fails to remove any Alterations required by Landlord to be
removed, Landlord may remove such Alterations and Tenant shall be obligated
to immediately reimburse Landlord for the cost therefor. In the event
Landlord consents to the making of any Alterations by Tenant, the same shall
be made by Tenant, at Tenant's sole cost and expense, in accordance with
plans and specifications approved by Landlord, and any contractor or person
selected by Tenant to make the same must first be approved in writing by
Landlord or, at Landlord's option, the Alterations shall be made by Landlord
for Tenant's account and Tenant shall reimburse Landlord for the cost thereof
(including a reasonable charge for Landlord's overhead) within twenty (20)
days after receipt of a statement from Landlord therefor. Upon the expiration
or sooner termination of the Term, Tenant shall upon demand by Landlord and
at Tenant's sole cost and expense, promptly remove any Alterations made by or
for the account of Tenant that are designated by Landlord to be removed, and
Tenant shall at its sole cost and expense, promptly repair and restore the
Premises to its original condition.
10. REPAIR
(a) Tenant shall take good care of the Premises and, at Tenant's cost
and expense, shall make all repairs and replacements as and when Landlord
deems necessary to preserve the Premises in good working order and condition
normal wear and tear excepting, except that Tenant shall not be required to
make any such structural repairs or structural replacements unless
necessitated or occasioned by the acts, omissions or negligence of Tenant, or
any of its employees, contractors, agents or invitees, or by the manner of
Tenant's use or occupancy of the Premises (but then only to the extent not
covered by Landlord's insurance). Landlord shall not be liable for and there
shall be no abatement of Base Rental or Additional Charges with respect to
any injury to or interference with Tenant's business arising from any
repairs, maintenance, alteration or improvement in or to any portion of the
Building, including the Premises, or in or to the fixtures, appurtenances and
equipment therein. Tenant hereby waives and releases its right to make
repairs at Landlord's expense under Sections 1941 and 1942 of the California
Civil Code or under any similar law, statute or ordinance now or hereafter in
effect. In addition, Tenant hereby waives and releases its right to terminate
this Lease under Section 1932(1) of the California Civil Code or under any
similar law, statute or ordinance now or hereafter in effect.
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(b) All repairs and replacements made by or on behalf of Tenant or any
person claiming through or under Tenant shall be made and performed (i) at
Tenant's sole cost and expense and at such time and in such manner as
Landlord may reasonably designate, (ii) by contractors or mechanics
reasonably approved by Landlord, (iii) so that same shall be at least equal
in quality, value, and utility to the original work or installation in all
material respects, (iv) in accordance with the rules and regulations for the
Building reasonably adopted by Landlord from time to time, and (v) in
accordance with all applicable laws and regulations of governmental
authorities having jurisdiction over the Premises.
11. LIENS
Tenant shall keep the Premises free from any liens arising out of any
work performed, material furnished or obligations incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the
same to be released by such means as it shall deem proper, including payment
of the claim giving rise to such lien. All such sums paid by Landlord and all
expenses reasonably incurred by it in connection therewith shall be
considered Additional Charges and shall be payable to it by Tenant on demand
with interest at the maximum rate permitted by law. Landlord shall have the
right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises and the Building from mechanics' and
materialmen's liens, and Tenant shall give to landlord at least five (5)
business days' prior notice of commencement of any construction in the
Premises.
12. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied
by anyone other than Tenant or sublet the Premises or any portion thereof
(collectively, "Sublease") without Landlord's prior written consent in each
instance, which consent may not be unreasonably withheld by Landlord;
provided, however, that no such consent shall be required in connection with
any merger, consolidation, any sale of all or substantially all of Tenant's
assets or any other transaction in which more than fifty percent (50%) of
Tenant's power is transferred.
(b) Without limiting the other instances in which it may be reasonable
for Landlord to withhold its consent to an Assignment or Sublease, Landlord
and Tenant acknowledge that it shall be reasonable for Landlord to withhold
its consent in the following instances:
(i) if at the time consent is requested or at any time prior to
the granting of consent, Tenant is in default under this Lease;
(ii) if the proposed assignee or sublessee is a governmental
agency;
(iii) if, in Landlord's good faith judgment, the use of the
Premises by the proposed assignee or sublessee would not be compatible to the
types of use by other tenants in the Building, would entail any alterations
which would lessen the value of the leasehold improvements in the Premises,
would result in more than a reasonable number of occupants per floor, would
require increased services by Landlord or would conflict with any so-called
"exclusive" or percentage lease then in favor of another tenant of the
Building;
(iv) if, in Landlord's reasonable judgment, the financial
strength of the proposed assignee or sublessee does not meet the credit
standards applied by Landlord for other tenants under leases with comparable
terms;
(v) if the Sublease would result in the division of the
Premises into three or more units; or
(vi) if the proposed assignee or sublessee is an existing
tenant of the Building or Landlord is currently marketing space in the
Building to such proposed assignee or sublessee.
(c) If Tenant desires at any time to enter into an Assignment or
Sublease, it shall first give written notice ("Tenant's Notice") to Landlord
of its desire to do so, which notice shall contain (i) the name of the
proposed assignee or subtenant, (ii) the terms and provisions of the proposed
Assignment or Sublease, and (iii) such financial information as Landlord may
reasonably request concerning the proposed assignee or subtenant.
(d) If Landlord consents to an Assignment or a Sublease within a
fifteen (15) day period from receipt of Tenant's Notice, Tenant may
thereafter, within ninety (90) days after Landlord's consent,
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but not later than the expiration date of said ninety (90) days, enter into
such Assignment or Sublease, upon the terms and conditions set forth in the
notice furnished by Tenant to Landlord pursuant to Paragraph 12(c).
(e) In the case of an assignment, one hundred percent (100%) of any
sums or other economic consideration received by Tenant as a result of such
Assignment shall be paid to Landlord. In the case of a Sublease, fifty
percent (50%) of any sums or economic consideration received by Tenant as a
result of such Sublease shall be paid to Landlord after first deducting the
rental due hereunder, prorated to reflect only rental allocable to the sublet
portion of the Premises.
(f) No consent by Landlord to any Assignment or Sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
from the obligation to obtain Landlord's express written consent to any other
Assignment or Sublease. Any Assignment or Sublease that is not in compliance
with this Paragraph 12 shall be void and, at the option of Landlord, shall
constitute a material default by Tenant under this Lease. The acceptance of
Base Rental or Additional Charges by Landlord from a proposed assignee or
sublessee shall not constitute the consent to such Assignment or Sublease by
Landlord.
(g) Each assignee of this Lease shall assume all obligations of
Tenant under this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of Base Rental and Additional Charges, and for
the performance of all the terms, covenants and conditions herein contained
on Tenant's part to be performed. No Assignment shall be binding on Landlord
unless the assignee or Tenant shall deliver to Landlord a counterpart of the
Assignment and an instrument in recordable form that contains a covenant of
assumption by the assignee satisfactory in substance and form to Landlord,
but the failure or refusal of the assignee to execute such instrument of
assumption shall not release or discharge the assignee from its liability as
set forth above.
13. INSURANCE AND INDEMNIFICATION
(a) Except as resulting from Landlord's gross negligence, willful
misconduct or breach of this Lease, Tenant agrees to defend, protect and
indemnify Landlord against and save Landlord harmless from any and all loss,
cost, liability, damage and expense, including without limitation, penalties,
fines and reasonable counsel fees and disbursements, incurred in connection
with or arising from any cause whatsoever in, on or about the Premises,
including without limiting the generality of the foregoing: (i) any default
by Tenant in the observance or performance of any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed or performed; or
(ii) the use or occupancy or manner of use or occupancy of the Premises by
Tenant or any person or entity claiming through or under Tenant, or (iii) the
condition of the Premises or any occurrence or happening on the Premises from
any cause whatsoever, or (iv) any acts, omissions or negligence of Tenant or
any person or entity claiming through or under Tenant, or of the contractors,
agents, servants, employees, visitors or licensees of Tenant or any such
person or entity, in, on or about the Premises or the Building, either prior
to the commencement of, during, or after the expiration of the Term,
including without limitation any acts, omissions or negligence in making or
performing any Alterations. In the event any action or proceeding is brought
against Landlord for any claim against which Tenant is obligated to indemnify
Landlord hereunder, Tenant upon notice from Landlord shall defend such action
or proceeding at Tenant's sole expense by counsel reasonably acceptable to
Tenant and Landlord. The provisions of this Paragraph 13 shall survive the
expiration or termination of this Lease with respect to any claims or
liability occurring prior to such expiration or termination.
(b) Tenant shall procure at its cost and expense and keep in effect
during the Term comprehensive general liability insurance including
contractual liability with a minimum combined single limit of liability of
Two Million Dollars ($2,000,000.00). Such insurance shall name Landlord the
current property manager of the Building as additional insured, shall
specifically include the liability assumed hereunder by Tenant (provided that
the amount of such insurance shall not be construed to limit the liability of
Tenant hereunder), and shall provide that it is primary insurance, and not
excess over or contributory with any other valid, existing and applicable
insurance in force for or on behalf of Landlord, and shall provide that
Landlord shall receive thirty (30) days' written notice from the insurer
prior to any cancellation or change of coverage. Tenant shall deliver
policies of such insurance or certificates thereof to Landlord on or before
the Commencement Date, and thereafter at least thirty (30) days before the
expiration dates of expiring policies; and, in the event Tenant shall fail to
procure such insurance, or to deliver such policies or certificates, Landlord
may, at its option, procure the same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Charges within five (5) days
after delivery to Tenant of bills thereafter. Tenant's compliance with the
provisions of this Paragraph 13(b) shall in no way limit Tenant's liability
under any of the other provisions of this Paragraph 13.
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(c) Landlord shall procure and keep in effect during the Term
casualty insurance insuring the Building, excluding any improvements or
Alterations made by Tenant, and Tenant shall pay Tenant's Share of the annual
cost within thirty days after receipt of an invoice from Landlord.
14. WAIVER OF SUBROGATION
Landlord and Tenant shall each obtain from their respective insurers
under all policies of fire, theft, public liability, workers' compensation
and other insurance maintained by either of them at any time during the Term
insuring or covering the Building or any portion thereof or operations
therin, a waiver of all rights of subrogation which the insurer of one party
might otherwise have against the other party, and Landlord and Tenant shall
each indemnify the other against any loss or expense, including reasonable
attorneys' fees, resulting from the failure to obtain such waiver.
15. DAMAGE AND DESTRUCTION
If the Premises or the Building are damaged by fire or other casualty,
Landlord shall forthwith repair the same, provided that such repairs can be
made within ninety (90) days after the date of such damage under the laws and
regulations of the federal, state and local governmental authorities having
jurisdiction thereof. In such event, this Lease shall remain in full force
and effect except that Tenant shall be entitled to a proportionate reduction
of Base Rental based upon the extent to which such damage and the making of
such repairs by Landlord shall interfere with the business carried on by
Tenant in the Premises. Within twenty (20) days after the date of such
damage, Landlord shall notify Tenant whether or not such repairs can be made
within ninety (90) days after the date of such damage. If such repairs cannot
be made within ninety (90) days from the date of such damage, Landlord shall
have the option within thirty (30) days after the date of such damage either
to: (a) notify Tenant of Landlord's intention to repair such damage and
diligently prosecute such repairs, in which event this Lease shall continue
in full force and effect and the Base Rental shall be reduced as provided
herein; or (b) notify Tenant of Landlord's election to terminate this Lease
as of a date specified in such notice, which date shall be not less than
thirty (30) nor more than sixty (60) days after notice is given. In case of
termination, the Base Rental shall be reduced by a proportionate amount based
upon the extent to which such damage interfered with the business carried on
by Tenant in the Premises, and Tenant shall pay such reduced Base Rental up
to the date of termination. The repairs to be made hereunder by Landlord
shall not include, and Landlord shall not be required to repair, any damage
to the property of Tenant. Tenant hereby waives the provisions of Section
0932, subdivision 2, and Section 1933, subdivision 4, of the Civil Code of
California.
16. EMINENT DOMAIN
If any part of the Premises shall be taken or appropriated under the
power of eminent domain such that any part of the Premises is rendered
unsuitable for its intended use, either party shall have the right to
terminate this Lease at its option. In such event, Landlord shall receive
(and Tenant shall assign to Landlord upon demand from Landlord) any income,
rent, award or any interest therein which may be paid in connection with the
exercise of such power of eminent domain provided, however, that Tenant may
receive the portion of the sum paid by virtue of such proceedings to Tenant
in its own right for relocation expenses and damage to Tenant's personal
property. If a part of the Premises shall be so taken or appropriated and
such taking or appropriation does not render the balances of the Premises
unsuitable for its intended use or neither party hereto elects to terminate
this Lease, and if the Premises have been damaged as a consequence of such
partial taking or appropriation, Landlord shall restore the Premises
continuing under this Lease at Landlord's cost and expense. Thereafter, the
Base Rental to be paid under this Lease for the remainder of the term shall
be proportionately reduced, such reduction to be based upon the extent to
which the partial taking or appropriation shall interfere with the business
carried on by Tenant in the Premises. Notwithstanding anything to the
contrary contained in this Paragraph 16, in the case of any temporary taking
of any part of the Premises during the Term for not more than sixty (60)
days, this Lease shall be and remain unaffected by such temporary taking and
Tenant shall continue to pay in full the Base Rental payable hereunder, and
Tenant shall be entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the Premises during
the Term, and Landlord shall be entitled to receive that portion of any award
which represents the cost of restoration of the Premises and the use and
occupancy of the Premises after the end of the Term.
17. RIGHT OF ENTRY
Landlord, or any of its agents, shall have the right to enter the
Premises during all reasonable hours to examine the same or to make such
repairs, additions or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of the Building, or to exhibit the
Premises at any time within one hundred eight (180) days before the
expiration of this Lease.
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18. EVENTS OF DEFAULT AND REMEDIES
(a) The occurrence of any one or more of the following events
("Event of Default") shall constitute a breach of this Lease by Tenant:
(i) Tenant fails to pay any Base Rental under this Lease
as and when such rent becomes due and payable and such failure continues for
more than ten (10) days after Landlord gives written notice thereof to
Tenant; provided, however, that after the third such failure in a calendar
year, only the passage of time, but no further notice, shall be required to
establish an Event of Default in the same calendar year; or
(ii) Tenant fails to pay any Additional Charges or other
amount of money or charge payable by Tenant hereunder as and when such
Additional Charges or amount or charge becomes due and payable and such
failure continues for more than ten (10) days after Landlord gives written
notice thereof to Tenant; provided, however, that after the third such
failure in a calendar year, only the passage of time, but no further notice,
shall be required to establish an Event of Default in the same calendar year;
or
(iii) Tenant fails to perform or breaches any other
agreement or covenant of this Lease to be performed or observed by Tenant as
and when performance or observance is due and such failure or breach
continues for more than ten (10) days after Landlord gives written notice
thereof to Tenant; provided, however, that if, by the nature of such
agreement or covenant, such failure or breach cannot reasonably be cured
within such period of ten (10) days, an Event of Default shall not exist as
long as Tenant commences with due diligence and dispatch the curing of such
failure or breach within such period of ten (10) days and, having so
commenced, thereafter prosecutes with diligence and dispatch and completes
the curing of such failure or breach; or
(iv) Tenant (A) files, or consents by answer or otherwise
to the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy, insolvency or other debtors' relief law of any
jurisdiction, (B) makes an assignment for the benefit of its creditors, (C)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers of Tenant or of any substantial part of Tenant's
property, or (D) takes action for the purpose of any of the foregoing; or
(v) Without consent by Tenant, a court or government
authority enters an order, and such order is not vacated within thirty (30)
days, (A) appointing a custodian, receiver, trustee or other officer with
similar powers with respect to Tenant or with respect to any substantial part
of Tenant's property, or (B) constituting an order for relief or approving a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy,
insolvency or other debtors' relief law of any jurisdiction, or (C) ordering
the dissolution, winding-up or liquidation of Tenant; or
(vi) This Lease or any estate of Tenant hereunder is
levied upon under any attachment or execution and such attachment or
execution is not vacated within thirty (30) days; or
(vii) Tenant intentionally abandons the Premises.
(b) If an Event of Default occurs, Landlord shall have the right
at any time to give a written termination notice to Tenant and, on the date
specified in such notice, Tenant's right to possession shall terminate and
this Lease shall terminate. Upon such termination, Landlord shall have the
right to recover from Tenant:
(i) The worth at the time of award of all unpaid rent
which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by
which all unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(iii) The worth at the time of award of the amount by
which all unpaid rent for the balance of the term of this Lease after the
time of award exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided; and
(iv) All other amounts necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform all of
Tenant's obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom. The "worth at the time of award"
of the amounts referred to in clauses (i) and (ii) above shall be computed by
allowing interest at the maximum annual interest rate allowed by law for
business loans (not primarily for personal, family or household purposes) not
exempt from the usury law at the time of termination or, if there is no such
maximum
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annual interest rate, at the rate of eighteen percent (18%) per annum. The
"worth at the time of award" of the amount referred to in clause (iii) above
shall be 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%).
For the purpose of determining unpaid rent under clauses (i), (ii) and (iii)
above, the rent reserved in this Lease shall be deemed to be the total rent
payable by Tenant under Paragraphs 3 and 4 hereof.
(c) Notwithstanding the occurrence of an Event of Default,
pursuant to California Civil Code Section 1954.1, or any successor statute
thereof, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the right to
enforce all its rights and remedies under this Lease, including the right to
recover all rent as it becomes due under this Lease. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under
this Lease shall not constitute a termination of Tenant's right to possession
unless written notice of termination is given by Landlord to Tenant.
(d) The remedies provided for in this Lease are in addition to all
other remedies available to Landlord at law or in equity by statute or
otherwise.
(e) All agreements and covenants to be performed or observed by
Tenant under this Lease shall be at Tenant's sole cost and expense and
without any abatement of Base Rental and Additional Charges. If Tenant fails
to pay any sum of money to be paid by Tenant or to perform any other act to
be performed by Tenant under this Lease, Landlord shall have the right, but
shall not be obligated, and without waiving or releasing Tenant from any
obligations of Tenant, to make any such payment or to perform any such other
act on behalf of Tenant in accordance with this Lease. All sums so paid by
Landlord and all necessary incidental costs shall be deemed Additional Charges
hereunder and shall be payable by Tenant to Landlord on demand, together with
interest on all such sums from the date of expenditure by Landlord to the
date of repayment by Tenant at the maximum annual interest rate allowed by law
for business loans (not primarily for personal, family or household purposes)
not exempt from the usury law at the date of expenditure or, if there is no
such maximum annual interest rate, at the rate of eighteen percent (18%) per
annum. Landlord shall have, in addition to all other rights and remedies of
Landlord, the same rights and remedies in the event of the nonpayment of such
sums plus interest by Tenant as in the case of default by Tenant in the
payment of Base Rental.
(f) If Tenant abandons or surrenders the Premises, or is
dispossessed by process of law or otherwise, any movable furniture,
equipment, trade fixtures or personal property belonging to Tenant and left
in the Premises shall be deemed to be abandoned, at the option of Landlord,
and Landlord shall have the right to sell or otherwise dispose of such
personal property in any commercially reasonable manner.
19. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any abatement of Base Rental or Additional Charges.
If Tenant shall fail to pay any sum of money, other than Base Rental or
Additional Charges, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for ten (10) days after notice thereof by Landlord, Landlord
may, but shall not be obligated to do so, and without waiving or releasing
Tenant from any obligations of Tenant, make any such payment or perform any
such act on Tenant's part to be made or performed as provided in this Lease.
All sums so paid by Landlord and all necessary incidental costs together with
interest thereon at the maximum rate permitted by law, from the date of such
payment by Landlord shall be payable as Additional Charges to Landlord on
demand.
20. NOTICES
Any notices under this Lease shall be effective only if given in
writing, sent by certified mail or delivered personally, (a) to Tenant (i) at
the address designated for such notices in the BASIC LEASE INFORMATION
attached hereto, if sent prior to Tenant's taking possession of the Premises,
or (ii) at the Premises if sent subsequent to Tenant's taking possession of
the Premises, or (iii) at any place where Tenant may be found if sent
subsequent to Tenant's vacating, deserting, abandoning or surrendering the
Premises, and (b) to Landlord at the address set forth in the BASIC LEASE
INFORMATION, or (c) to such other address as either Landlord or Tenant may
designate as its new address for such purpose by notice given to the other in
accordance with the provisions of this Paragraph 20. Any notice shall be
deemed to have been given two (2) days after the date when it shall have been
mailed or upon the date personal delivery is made. If Tenant is notified of
the identity and address of any mortgagee, Tenant shall give to such
mortgagee notice of any default by Landlord under the terms of this Lease in
writing sent by certified mail, and such mortgagee shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to it.
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21. QUIET ENJOYMENT
Upon the payment by Tenant of all Base Rental and Additional Charges due
hereunder, and upon performance by Tenant of all of the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant shall have
the right to peaceably and quietly hold and enjoy the Premises for the Term
hereby demised, subject to all of the terms, covenants and conditions of this
Lease.
22. SUBORDINATION AND ATTORNMENT
(a) This Lease shall be subject and subordinate at all times to the
lien of all mortgages and deeds of trust securing any amount or amounts
whatsoever which may now exist or hereafter be placed on or against the
Building or on or against Landlord's interest or estate therein, all without
the necessity of having further instruments executed by Tenant to effect
such subordination. Notwithstanding the foregoing, in the event of a
foreclosure of any such mortgage or deed of trust or of any other action or
proceeding for the enforcement thereof, or of any sale thereunder, this Lease
shall not be terminated or extinguished, nor shall the rights and possession
of Tenant hereunder be disturbed, if no Event of Default then exists under
this Lease, and Tenant shall attorn to the person or entity that acquires
Landlord's interest hereunder through any such mortgage or deed of trust.
Tenant agrees to execute, acknowledge and deliver upon demand such further
instruments evidencing such subordination of this Lease to the lien of all
such mortgages and deeds of trust as may reasonably be required by Landlord.
(b) The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate
as an assignment to Landlord of any or all such subleases or subtenancies.
(c) If the original Landlord hereunder, or any successor owner of the
Building, sells or conveys the Building, all liabilities and obligations on
the part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the
new owner. Tenant agrees to attorn to such new owner.
23. TENANT'S CERTIFICATES
From time to time upon not less than ten (10) days' prior written notice
from Landlord, Tenant will execute and deliver to Landlord a certificate of
Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has
not done so, that Tenant has not accepted the Premises and specifying the
reasons therefor), (b) the Commencement and Expiration Dates of this Lease,
(c) that this Lease is unmodified and in full force and effect (or, that
there have been modifications), (d) whether or not there are then existing any
defenses against the enforcement of any of the obligations of Tenant under
this Lease (and, if so specifying same), (e) whether or not there are then
existing any defaults by Landlord in the performance of its obligations under
this Lease (and, if so, specifying same), (f) the dates, if any, to which the
Base Rental and Additional Charges under this Lease have been paid, and (g)
any other information that may reasonably be required by Landlord. It is
intended that any such certificate of Tenant delivered pursuant to this
Paragraph 23 may be relied upon by Landlord and any prospective purchaser or
mortgagee of the Building or any portion thereof. Tenant's failure to execute
and deliver such certificate to Landlord within ten (10) days of Landlord's
written notice shall constitute a certification by Tenant (i) that Tenant has
accepted the Premises, (ii) that there are no existing defenses against the
enforcement of the obligations of Tenant under the Lease, and (iii) that
there are no existing defaults by Landlord in the performance of its
obligations under the Lease. In addition, Tenant's failure to execute and
deliver such certificate to Landlord within ten (10) days of Landlord's
written notice shall constitute a certification by Tenant that the information
required in (b), (c), (f) and (g) of this Paragraph 23 to be included in the
certificate of Tenant is as indicated by Landlord in writing to any
prospective purchaser or mortgagee of any part of the Building or the land
upon which the Building is located, if such a writing is provided by Landlord
as a result of Tenant's failure to timely provide a tenant's certificate
pursuant to this Paragraph 23.
24. SUCCESSORS AND ASSIGNS
Subject to the provisions of Paragraph 12, the terms, covenants and
conditions contained in this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective legal and personal
representatives, successors and assigns.
25. ATTORNEYS' FEES
If either party defaults in the performance of any of the terms,
covenants and conditions of this Lease and by reason thereof the other party
employs the services of an attorney to enforce performance of the covenants,
or to perform any service based upon defaults, then in any of said events the
prevailing
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party shall be entitled to reasonable attorneys' fees and expenses and costs
incurred by the prevailing party pertaining thereto (including costs and fees
relating to any appeal) and in enforcement of any remedy.
26. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition contained herein. Furthermore, the acceptance of Base
Rental or Additional Charges by Landlord shall not constitute a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time
Landlord accepted such Base Rental or Additional Charges. Failure by Landlord
to enforce any of the terms, covenants or conditions of this Lease for any
length of time shall not be deemed to waive or to decrease the right of
Landlord to insist thereafter upon strict performance by Tenant. Waiver by
Landlord of any term, covenant or condition contained in this Lease may only
be made by a written document signed by Landlord.
27. SURRENDER OF PREMISES
At the end of the Term or sooner termination of this Lease, Tenant will
peaceably deliver to Landlord possession of the Premises, together with all
improvements or additions upon or belonging to same, by whomsoever made, in
the same condition as received or first installed, damage by fire,
earthquake, Act of God, or the elements alone excepted. Upon the termination
of this Lease, Tenant shall repair any damage caused by such removal.
Property not so removed shall be deemed abandoned by Tenant, and title to the
same shall thereupon pass to Landlord.
28. HOLDING OVER
Any holding over after the expiration of the Term with the consent of
Landlord shall be construed to be a tenancy from month to month at a monthly
Base Rental equal to one hundred fifty percent (150%) of the Base Rental for
last month of the Term of this Lease, and shall otherwise be on the terms and
conditions herein specified specified so far as applicable. Any holding over
without Landlord's consent shall constitute an Event of Default and entitle
Landlord to recover possession of the Premises in accordance with applicable
law.
29. LIMITATION OF LIABILITY
Tenant agrees to look only to the equity of Landlord in the Premises and
not to Landlord personally with respect to any obligations or payments due or
which may become due from Landlord hereunder, and no other property or assets
of Landlord or any partner, joint venturer, officer, director, shareholder,
agent, or employee of Landlord, disclosed or undisclosed, shall be subject to
levy, execution or other enforcement procedure for the satisfaction of
Tenant's claims under or with respect to this Lease, and no partner, officer,
director, agent or employee of Landlord shall be personally liable in any
manner or to any extent under or in connection with this Lease. If at any
time the holder of Landlord's interest hereunder is a partnership or joint
venture, a deficit in the capital account of any partner or joint venturer
shall not be considered an asset of such partnership or joint venture.
30. SIGNS
Landlord, at Landlord's sole cost and expense, shall install building
standard signage in the directory in the lobby of the Building. Tenant,
shall have a non-exclusive right to install, at Tenant's sole cost and
expense, a sign on the facade of the Building. The size, color, style,
materials, location and manner of installation of the sign shall be subject
to the prior written approval of Landlord which shall not be unreasonably
withheld. The exterior sign shall comply with all regulations of the City and
County of San Francisco and Tenant shall provide Landlord with confirmation
of such compliance. Tenant shall maintain the sign at its sole cost and
expense and upon the Expiration Date or the sooner termination of this Lease
shall remove the sign and restore the facade to the condition it was in prior
to its installation. The provisions governing alterations shall apply to the
installation, maintenance and removal of the exterior sign.
31. BROKERAGE
Tenant represents and warrants that it has dealt with no broker, agent
or other person in connection with this transaction and that no broker, agent
or other person brought about this transaction, other than the broker set
forth in the BASIC LEASE INFORMATION attached hereto and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with
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regard to this leasing transaction. The provisions of this paragraph shall
survive the expiration or termination of this Lease.
32. INVALIDITY OF PROVISION
If any term, provision, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of
such term, provision, covenant or condition to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby and each term, provision, covenant or condition of this
Lease shall be valid and be enforceable to the fullest extent permitted by
law. This Lease shall be construed in accordance with the laws of the State
of California.
33. TIME OF ESSENCE
It is understood and agreed between the parties that time is of the
essence of all the terms, provisions, covenants and conditions of this Lease.
34. ENTIRE AGREEMENT
This Lease contains the entire agreement between the parties hereto and
all previous negotiations leading thereto, and it may be modified only by an
agreement in writing signed by Landlord and Tenant. No surrender of the
Premises shall be valid unless accepted by Landlord in writing. Tenant
acknowledges and agrees that Tenant has not relied upon any statement,
representation, prior written or prior or contemporaneous oral promises,
agreements or warranties except such as are expressed herein.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LANDLORD: TENANT:
ICHI JUU ICHI, LLC SNAP TECHNOLOGIES, INC. a California
a California limited liability company corporation
By: /s/ Ronaldo Cianciarulo By: /s/ Howard A. Berman
----------------------------------- ---------------------------------
Its: President Its: EVP, COO
---------------------------------- --------------------------------
HOWARD A. BERMAN
<PAGE>
EXHIBIT A
[INTENTIONALLY DELETED]
<PAGE>
[LETTERHEAD]
EXHIBIT B
February 23, 1999
Mr. John Jenson
Grubb & Ellis Brokerage
255 California Street, 14th Floor
San Francisco, CA 94111
RE: PROPOSED COLLEGEEDGE IMPROVEMENTS (111 TOWNSEND STREET)
Dear John:
As per our conversation, the following tenant improvements will be required
by CollegeEdge (the "Tenant") for the 2nd and 3rd floors of 111 Townsend
Street in San Francisco (the "Property"). I spoke with Keith Hooks of Hooks
Design & Architecture regarding the measurements for the proposed conference
rooms and offices per our requirements. The following should accurately
reflect the Tenant's proposed TIs for the purpose of a cost estimate by your
contractor.
1. SECOND FLOOR
In the locations shown on the attached a. One (1) Conference
Room--(12 Ft. x 20 Ft.) Finished to Building Standards
In the locations shown on the attached b. Two (2) Offices--(10 Ft.
x 12 Ft.) Finished to Building Standards
c. Industrial Grade Carpeting.
d. Fluorescence Lighting.
2. THIRD FLOOR
In the locations shown on the attached a. One (1) Conference
Room--(14 Ft. x 24 Ft.) Finished to Building Standards
In the locations shown on the attached b. Two (2) Offices--(10 Ft.
x 12 Ft.) Finished to Building Standards
c. Industrial Grade Carpeting.
Please submit the above tenant improvement requirements to your contractor
for cost estimate at your earliest convenience. I look forward to your prompt
response in this matter.
3. All bathrooms shall have privacy dividers
4. Repair damaged or missing fiberglass insulation in ceiling of third
floor
Sincerely,
THE CAC GROUP
/s/ Bruce A. Wilson
Bruce A. Wilson
Vice President
cc: Howard Berman
<PAGE>
Exhibit B
[3rd Floor Plan]
<PAGE>
Exhibit B
[2nd Floor Plan]
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is entered into as of
May 27, 1999, by and between Ichi Juu Ichi, LLC ("Landlord") and Snap
Technologies, Inc. ("Tenant") with reference to the following facts:
A. Pursuant to that certain Lease (the "Lease") dated March 4, 1999,
Landlord leased to Tenant 11,920 rentable square feet of space (the
"Premises") on the second and third floor of the building located at 111
Townsend Street, San Francisco, California (the "Building").
B. Landlord and Tenant desire to (i) expand the Premises to include
approximately 6,000 additional rentable square feet of space located on the
ground floor of the Building ("Ground Floor Premises") and approximately
4,000 rentable square feet of space located on the lower level of the
Building ("Basement Premises") (collectively, the Ground Floor Premises and
the Basement Premises shall be referred to as the "Expansion Premises") (the
Expansion Premises are more particularly shown on the floor plan attached
hereto as EXHIBIT A), and (ii) extend the term of the Lease so the term for
the Premises together with the Expansion Premises expires as of June 14, 2002
("New Expiration Date").
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows (capitalized terms
used herein but not herein defined shall have the meaning ascribed to them in
the Lease):
1. TERM. The term of the Lease is hereby extended until the New
Expiration Date.
2. EXPANSION OF PREMISES. Commencing upon June 15, 1999 (the "Expansion
Commencement Date"), the Premises shall be expanded to include the Expansion
Premises. From and after the Expansion Commencement Date, all references in the
Lease to the "Premises" shall be deemed to refer to the Expansion Premises,
unless the context clearly requires otherwise.
3. MEASUREMENT OF EXPANSION PREMISES. Promptly following execution of
the First Amendment, the parties hereby agree to measure the Expansion Premises
in accordance with the American National standard method of measuring floor
area in office buildings of the Building Owners and Managers Association
(ANSI Z65.1-1996). In the event the Expansion Premises are larger or smaller
than specified herein, the parties shall enter into an agreement acknowledging
the actual square footage of the Expansion Premises.
4. BASE RENT. From and after the Expansion Commencement Date, Tenant
shall pay as Base Rent for the Expansion Premises the following:
Ground Floor Premises: $29.50 per rentable square foot per year
(i.e., $14,750.00 per month)
Basement Premises: $27.50 per rentable square foot per year
(i.e., $9,166.67 per month)
<PAGE>
5. TENANT'S SHARE. From and after the Expansion Commencement Date,
Tenant's Share with respect to the Premises shall be 100%.
6. IMPROVEMENT OF EXPANSION PREMISES. Prior to the Expansion
Commencement Date, Landlord will perform the work outlined on EXHIBIT B
attached hereto.
7. YARD PREMISES. Commencing upon June 15, 1999, Tenant shall lease
the rear yard area of the Building ("Yard Premises"), as shown on the floor
plans attached as EXHIBIT A. Tenant shall pay rent in the amount of $750.00
per month for the Yard Premises through the New Expiration Date, upon all the
same terms and conditions of the Lease. Landlord shall provide a chain link
fence enclosing such yard area, basic landscaping and a 100 square foot wood
deck. Tenant shall provide, at its cost, all other amenities, subject to the
prior approval of Landlord.
8. SECURITY DEPOSIT. Concurrently with the execution of this Lease by
Tenant, Tenant shall increase the amount of the letter of credit currently
held by Landlord to a total amount of $250,000, which shall be held pursuant
to the terms of Section 5(b) of the Lease.
9. FINANCIAL STATEMENTS. Within ten (10) days after written request
therefor, Tenant shall deliver to Landlord a copy of the financial statements
(including at least a year end balance sheet and a statement of profit and
loss, tax returns, history of company, corporate officers, capital backers,
and any other financial commitment to lease) of Tenant for each of the three
most recently completed years, prepared in accordance with generally accepted
accounting principles (and, if such is Tenant's normal practice, audited by
an independent certified public accountant), all then available subsequent
interim statements, and such other financial information as may reasonably be
requested by Landlord or required by any mortgagee of Landlord.
10. BROKERAGE. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, and Tenant
agrees to indemnify and hold Landlord harmless from and against any claims by
any other broker, agent or other person claiming a commission or other form
of compensation by virtue of having dealt with Tenant with regard to this
leasing transaction. The provisions of this paragraph shall survive the
expiration or termination of this Lease.
11. STATUS OF LEASE. Except as amended by this First Amendment, the
Lease is unchanged and, as amended by this First Amendment, the Lease remains
in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment as of the date first set forth above.
TENANT: LANDLORD:
SNAP TECHNOLOGIES, INC. ICHI JUU ICHI, LLC
By: /s/ Howard A. Berman By: /s/ Ronaldo Cianciarulo
-------------------------------- --------------------------------
Its: EVP/COO Its: President
------------------------------- -------------------------------
<PAGE>
EXHIBIT B
Ground Floor front lobby at passenger elevator:
New painted wood door with glass front door to replace existing door.
Linoleum flooring to be agreed with Tenant.
Installation of lights on order for lobby and stairwell.
Ground Floor base building and Tenant Improvements:
Space in its as is painted and sandblasting condition.
Lights, plugs and wiring similar to second and third floor. Tenant to
provide a layout of requirements within 5 days of mutual execution of
Lease. If requirements are in excess of the 2nd and 3rd floor, Tenant
to be notified of addition charges to Tenant if necessary.
Heaters to be provided for the basement and first floor.
Carpet of Tenant's choice to be provided similar to second and third
floor.
Conference rooms similar to 2nd floor.
A toilet stall will be removed and a shower installed to the ground
floor bathroom so each ground floor bathroom has a shower.
The roll up door will remain as is with Landlord sealing to eliminate dust.
All cost required changing in the roll up door to windows or an entry
including architecture, permits, sidewalk repair if necessary for entry,
would be shared by Landlord and Tenant.
Signage - Tenant shall have exterior signage, at Tenant cost, subject to City
and County of S.F. ordinances and Landlord approval, not unreasonably
withheld.
<PAGE>
Exhibit 10.6
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, JANUARY 25, 1996, is
made by and between 101 Townsend Associates, a California limited partnership
(herein called "Lessor") and Stephen Chen, an individual and Jung Shin, an
individual dba SNAP Technologies, Inc. (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Francisco State of
California, commonly known as 101 Townsend Street and described as a portion of
the third (3rd) floor as outlined an attached Exhibit "A". Said real property
including the land and all improvements therein, is herein called "the
Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Two (2) years commencing on
February 1, 1996 and ending on January 31, 1998 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee 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 Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $1,750.00, in advance, on the 1st day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $1,267.35 as rent for
pro-rated from February 9, 1996 through February 29, 1996. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the monthly installment. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$1,750.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor 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 Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 The Premises shall be used and occupied only for general office or any
other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the
Premises in any manner that will tend to create waste or a nuisance or, if
there shall be more than one tenant in the building containing the Premises,
shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on Lease commencement date (unless Lessee is already in possession) and Lessor
further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of the Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6, 7.2,
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage. Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessable to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and
- -C-American Industrial Real Estate Association 1980 GROSS
<PAGE>
maintain, at Lessee's expense, an air conditioning system maintenance contract)
ventilating, electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surface of exterior walls,
ceilings, windows, doors, plate glass, and skylights, located within the
Premises, and all landscaping, driveways, parking lots, fences and signs located
in the Premises and all sidewalks and parkways adjacent to the Premises. Lessee
expressly waives the benefit of any statute now or hereinafter in effect which
would otherwise afford Lessee the right to make repairs at Lessor's expense or
to terminate this Lease because of Lessor's failure to keep the Premises in
good order, condition and repair.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at
Lessor's option enter upon the Premises after 10 days' prior written notice to
Lessee (except in the case of emergency, in which case no notice shall be
required), perform such obligations on Lessee's behalf and put the Premises in
good order, condition and repair, and the cost thereof together with interest
thereon at the maximum rate then allowable by law shall be due and payable as
additional rent to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of its trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall
be deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises,
upon the condition that if Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, shall
remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c)
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $ annual premium. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's
liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which
the Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best Insurance Guide." Lessee shall deliver
to Lessor copies of policies of liability insurance required under Paragraph 8.1
or certificates evidencing the existence and amounts of such insurance. No such
policy shall be cancellable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against under
paragraph 8.3, which perils occur in, on or about the Premises, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the same damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee, Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction to
the Premises to the extent that the cost of repair is less than 50% of the fair
market value of the Premises immediately prior to such damage or destruction.
"Premises Building Partial Damage" shall herein mean damage or destruction to
the building of which the Premises are a part to the extent that the cost of
repair is less than 50% of the fair market value of such building as a whole
immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or
more of the fair market value of the Premises immediately prior to such damage
or destruction. "Premises Building Total Destruction" shall herein mean damage
or destruction to the building of which the Premises are a part to the extent
that the cost of repair is 50% or more of the fair market value of such
building as a whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of Paragraphs
9.4, 9.5, and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense), Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this lease, as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there is
damage, whether or not an Insured Loss, (including destruction required by any
authorized public authority), which falls into the classification of Premises
Total Destruction or Premises Building Total Destruction, this Lease shall
automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than 20 days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 day period, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said 20 day period, then Lessor may at Lessor's option terminate and
cancel this Lease as of the expiration of said 20 day period by giving written
notice to Lessee of Lessor's election to do so within 10 days after the
expiration of said 20 day period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1995 to 1996. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
Improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other Improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax", or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the real property taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
of any part of Lessee's interest in this Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LEASE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease. Any such assignment shall not, in
any way, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
GROSS -3-
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13. DEFAULTS; REMEDIES
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice hereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. #Section# 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor
by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of
them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have abandoned the Premises. In
such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor,
if Lessor shall so request, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount
in excess of such severance damages required to complete such repair.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there is not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
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(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15. In the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate or rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor or the right of first refusal to purchase other property of Lessor or the
right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any
-5-
<PAGE>
Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein
granted to Lessee are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period
prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date
that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d), or 13.1(e)
(without any necessity of Lessor to give notice of such default to Lessee), or
(iv) Lessor gives to Lessee three or more notices of default under paragraph
13.1(b), where a late charge becomes payable under paragraph 13.4 for each such
default, or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide
by, keep and observe all reasonable rules and regulations which Lessor may
make from time to time for the management, safety, care, and cleanliness of
the building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants of
the building. The violations of any such rules and regulations shall be deemed
a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easement, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so longs as such
easements, rights, dedications. Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
N/A through N/A which constitutes a part of this Lease.
47. Lessee agrees to pay his prorata share of janitorial, utilities, garbage and
elevator maintenance.
ATTACHMENTS: EXHIBIT A - PREMISES
EXHIBIT B - TENANT IMPROVEMENTS
EXHIBIT C - RULES AND REGULATIONS
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
"LESSOR" "LESSEE"
101 TOWNSEND ASSOCIATES, a Stephen Chen, an individual and
California limited partnership Jung Shin, an individual dba
SNAP Technologies, Inc.
By: Lalanne Babcock & Brown Company, a
California limited partnership
By: /s/ Stephen Chen
----------------------------
By: Lalanne Babcock & Brown Company, Inc., Stephen Chen
a California corporation
Its General Partner
By: /s/ Jung Shin
----------------------------
Jung Shin
/s/Robert J. Lalanne
------------------------------- ----------------------------
By: Robert J. Lalanne
Its President
<PAGE>
EXHIBIT A
[Graphic of Floor Plan of Leased Space]
<PAGE>
EXHIBIT B
TENANT IMPROVEMENT
1. Lessor at Lessor's expense shall paint and carpet the premises. Paint
color will be Old Oyster White and carpet color to be chosen by lessee and
approved by Lessor.
2. Patch and paint large side wall adjacent to window area. Paint ceiling
discoloration areas.
3. Install hinge and lock on roof access door.
4. Replace all glass panes that are broken/missing/not clear.
5. Repair ceiling lights to operable condition and replace all burnt out
bulbs.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the building without the written consent of Landlord first hand and
obtained and landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
2. All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved by Landlord.
3. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
building standard window covering at all exterior windows. Tenant shall not
without prior written consent of landlord cause or otherwise sunscreen any
window.
4. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
5. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
6. The toilet rooms, urinals, wash bowls and other apparatus shall 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 the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees, shall have caused it.
7. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof. No furniture, freight or equipment of any
kind shall be brought into the Building without the prior notice to Landlord and
all moving of the same into or out of the Building shall be done at such time
and in such manner as Landlord shall designate. Landlord shall have the right
to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the times and manner of moving the
same in and out of the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property from any cause and all damage
done to the Building by moving or maintaining any such safe or other property
shall repaired at the expense of Tenant.
8. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
9. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
10. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Landlord.
<PAGE>
11. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the premises shall be subject to the
approval of Landlord.
12. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the Rules and Regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
16. Tenant shall not disturb, solicit, or canvass any occupant of the building
and shall cooperate to prevent same.
17. Without the written consent of landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
18. Landlord shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning, as
well as facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally.
19. All entrance doors in the Premises shall be left locked when the Premises
are not is use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
<PAGE>
FIRST AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 25th day of February, 1998, by and
between CIVITAS EQUITY FUND I, LLC, A California Limited Liability Company,
hereinafter called Lessor, and SNAP Technologies, Inc., hereinafter called
Lessee.
WITNESSETH
THAT WHEREAS, on the 25th day of January, 1996, the Lessee entered into a
Lease covering those certain premises, situated in the City and County of
San Francisco, State of California, and more particularly described as follows:
101 Townsend Street, San Francisco, CA 94107 which consists of a portion of
the third (3rd) floor commonly referred to as Suite 333 ("Premises").
NOW THEREFORE, in consideration of the premises and agreements herein
contained, it is hereby agreed as follows:
PREMISES: The Lessee shall add to his space approximately 2173 sq. ft. of
space in Suite 308 for a total space of approximately 3615 sq. ft.
TERM: The term of this Lease shall be extended through June 30, 1999
RENT: The Rent for the Premises shall be:
April 15th, 1998 through June 30, 1999: $4,375.35
With the exception of the aforementioned items, all other terms and
conditions of the Lease shall remain unchanged.
IN WITNESS WHEREOF, the said Lessor and Lessee have executed this Amendment
to Lease the day and year first above written.
LESSEE: LESSOR:
CIVITAS EQUITY FUND I, LLC SNAP TECHNOLOGIES
By: By: /s/ Howard A. Berman
-------------------------- --------------------------
Douglas P. Dahlin Howard A. Berman
Vice President
<PAGE>
[STAMP]
SECOND AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 21ST day of September, 1998, by
and between CIVITAS EQUITY FUND I, LLC, A California Limited Liability
Company, hereinafter called Lessor, and SNAP Technologies, Inc., hereinafter
called Lessee.
WITNESSETH
THAT WHEREAS, on the 25th day of January, 1996, the Lessee entered into a
Lease covering those certain premises, situated in the City and County of
San Francisco, State of California, and more particularly described as follows:
101 Townsend Street, San Francisco, CA 94107 which consists of a portion of
the third (3rd) floor commonly referred to as Suite 333 ("Premises").
NOW THEREFORE, in consideration of the premises and agreements herein
contained, it is hereby agreed as follows:
PREMISES: The Lessee shall add to his space approximately 965 sq. ft. of
space in Suite 210 for a total space of approximately 4580 sq. ft.
TERM: The term of this Lease shall be extended through June 30, 1999
RENT: The Rent for Suite 210 shall be:
October 15, 1998 through June 30, 1999: $1,334.40/month
With the exception of the aforementioned items, all other terms and
conditions of the Lease shall remain unchanged.
IN WITNESS WHEREOF, the said Lessor and Lessee have executed this Amendment
to Lease the day and year first above written.
LESSEE: LESSOR:
CIVITAS EQUITY FUND I, LLC SNAP TECHNOLOGIES
By: /s/ Douglas P. Dahlin By: /s/ Howard A. Berman
-------------------------- --------------------------
Douglas P. Dahlin Howard A. Berman
Vice President
<PAGE>
THIRD AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 22nd day of February, 1999, by and
between CIVITAS EQUITY FUND I, LLC, A California Limited Liability Company,
hereinafter called Lessor, and SNAP Technologies, Inc., hereinafter called
Lessee.
WITNESSETH
THAT WHEREAS, on the 25th day of January, 1996, the Lessee entered into a
Lease covering those certain premises, situated in the City and County of
San Francisco, State of California, and more particularly described as follows:
101 Townsend Street, San Francisco, CA 94107 which consists of a portion of
the third (3rd) floor commonly referred to as Suite 333 ("Premises").
NOW THEREFORE, in consideration of the premises and agreements herein
contained, it is hereby agreed as follows:
TERM: The term of this Lease shall be extended through December 31, 2000
RENT: The Rent for the Premises shall be:
July 1, 1999 through December 31, 2000: $4,792.05
With the exception of the aforementioned items, all other terms and
conditions of the Lease shall remain unchanged.
IN WITNESS WHEREOF, the said Lessor and Lessee have executed this Amendment
to Lease the day and year first above written.
LESSOR: LESSEE:
CIVITAS EQUITY FUND I, LLC SNAP TECHNOLOGIES
By: /s/ Douglas P. Dahlin By: /s/ Howard A. Berman
-------------------------- --------------------------
Douglas P. Dahlin Howard A. Berman
Ex. Vice President, C.O.O.
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 22nd day of February, 1999, by
and between CIVITAS EQUITY FUND I, LLC, A California Limited Liability
Company, hereinafter called Lessor, and SNAP Technologies, Inc., hereinafter
called Lessee.
WITNESSETH
THAT WHEREAS, on the 25th day of January, 1996, the Lessee entered into a
Lease covering those certain premises, situated in the City and County of
San Francisco, State of California, and more particularly described as follows:
101 Townsend Street, San Francisco, CA 94107 which consists of a portion of
the second (2nd) floor commonly referred to as Suite 210 ("Premises").
NOW THEREFORE, in consideration of the premises and agreements herein
contained, it is hereby agreed as follows:
PREMISES: Suite 210
TERM: The term of this Lease shall be extended through December 31, 2000
RENT: The Rent for Suite 210 shall be:
July 1, 1999 through December 31, 2000: $1,390.00/month
With the exception of the aforementioned items, all other terms and
conditions of the Lease shall remain unchanged.
IN WITNESS WHEREOF, the said Lessor and Lessee have executed this Amendment
to Lease the day and year first above written.
LESSOR: LESSEE:
CIVITAS EQUITY FUND I, LLC SNAP TECHNOLOGIES
By: /s/ Douglas P. Dahlin By: /s/ Howard A. Berman
-------------------------- --------------------------
Douglas P. Dahlin Howard A. Berman
Ex. Vice President, C.O.O.
<PAGE>
FIFTH AMENDMENT TO LEASE
THIS AGREEMENT made and entered into this 27th day of September 1999, by
and between CIVITAS EQUITY FUND I, LLC, A California Limited Liability
Company, hereinafter called Lessor, and Embark.com, hereinafter
called Lessee.
WITNESSETH
THAT WHEREAS, on the 25th day of January, 1996, the Lessee entered into a
Lease covering those certain premises, situated in the City and County of
San Francisco, State of California, and more particularly described as follows:
101 Townsend Street, San Francisco, CA 94107 which consists of a portion of
the third (3rd) floor commonly referred to as Suite 333 ("Premises").
NOW THEREFORE, in consideration of the premises and agreements herein
contained, it is hereby agreed as follows:
PREMISES: Suite 207
TERM: The term of this Lease shall be October 1, 1999 through
December 31, 2000
RENT: The Rent for Suite 207 shall be:
October 1, 1999 through December 31, 2000: $4,686.00/month
With the exception of the aforementioned items, all other terms and
conditions of the Lease shall remain unchanged.
IN WITNESS WHEREOF, the said Lessor and Lessee have executed this Amendment
to Lease the day and year first above written.
LESSOR: LESSEE:
CIVITAS EQUITY FUND I, LLC Embark.com
By: /s/ Douglas P. Dahlin By: /s/ Howard Berman
-------------------------- --------------------------
Douglas P. Dahlin Howard Berman
Chief Operating Officer
<PAGE>
Suite 207
101 TOWNSEND ST. - SUITE 207
- ----------------------------
CAM CHARGES
TOTAL GROSS SQ.FT./THREE FLOORS - 33,964.
SUITE 207 - 2904 SQ. FT. NET x 1.1526 LOAD FACTOR = 3347 SQ. FT. x
1.40/SQ.FT. = $4,686.01
TOTAL BUILDING GROSS SQ. FT. LESS SQ. FT. OF SUITES SEPARATELY METERED:
<TABLE>
<CAPTION>
62.50/MO. + REPAIRS 1008.67/MO. 625./MO. + SUPPLIES
- ---------------------------------------------------------------------------------------------------
ELECTRICAL WATER ELEVATOR GARBAGE JANITORIAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
33,964 33,964 33,964 33,964 33,964
6,751 West Marine 6,751 West Marine 6,751 West Marine
1,838 Mega News
4,649 Cycle Gear 4,649 Cycle Gear
23,375 33,964 22,564 33,964 22,564
13.19% 9.85% 14.83% 9.85% 14.83%
</TABLE>
THESE PERCENTAGES REPRESENT PROPORTIONAL SHARE OF UTILITIES
<PAGE>
Exhibit 10.7
RENTAL AGREEMENT
THIS RENTAL AGREEMENT is executed on this 11th day of August 1998, by and
between CIVITAS EQUITY FUND I, LLC, (Owner) and SNAP TECHNOLOGIES, INC.,
(Occupant), for the purpose of leasing certain space hereinafter described.
DESCRIPTION OF PREMISES: Owner leases to Occupant approximately 337 sq. ft.
in the basement of 101 Townsend Street, San Francisco, CA 94107 for storage
purposes. Occupant has examined the Premises and acknowledges and agrees that
the Premises and common areas are satisfactory for all purposes for which
Occupant shall use the Premises or common areas.
TERM: This lease is written on a month-to-month basis. Either Lessor or
Lessee may terminate lease with a 30 day written notice from either party.
RENT: Occupant shall pay Owner as a monthly rent the sum of $.65 per square
foot, for a total of $219.00 commencing August 15, 1998. Rent is due on the
first of each month. In the event Occupant fails to pay the rent by the 10th
day of the month, Occupant shall pay a 6% late charge.
USE OF PREMISES: Occupant shall store only personal property that Occupant
owns and will not store property that is claimed by another or in which
another has any right, title, or interest. Occupant shall not store food or
perishable goods, flammable materials, explosives or other inherently
dangerous material, nor perform any welding. Occupant shall not store any
property on the Premises which would result in the violation of any law or
regulation of any governmental authority, including all laws and regulations
relating to Hazardous Materials and waste disposal. Occupant shall not use
the Premises in any manner that will constitute nuisance or unreasonable
annoyance to other occupants in the Premises. Occupant acknowledges that the
premises may be used for storage only, and that the use of the Premises to
conduct business or for human or animal habitation is prohibited. Provisions
have been made to prevent access to the basement via the freight elevator to
anyone other than Lessor or Lessee.
ALTRATIONS: Occupant shall not make or allow alterations of any kind to the
Premises without the prior written consent of the Owner.
INSURANCE: All property is stored by Occupant at Occupant's sole risk.
Insurance is Occupant's sole responsibility. Occupant must obtain insurance,
covering damage by fire, extended coverage perils, vandalism, burglary, and
all other risks of any nature, for the full value of Occupant's property.
Such insurance will carry an "Additional Insured-Lessor of Premises"
endorsement-Civitas Equity Fund I, LLC, shall be named as an additional
insured.
LIMITATION OF OWNER'S LIABILITY; INDEMNITY: Owner and Owner's Agents will
have no responsibility to Occupant or to any other person for any loss,
liability, claim, expense, damage to property or injury to persons from any
cause, unless the loss is directly caused by Owner's fraud, willful injury,
or willful violation of law.
1.
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Occupant's signature below acknowledges that he has read and understands the
provisions of this lease.
Executed on August 11th 1998
BY: LESSOR BY: LESSEE
CIVITAS EQUITY FUND I, LLC SNAP TECHNOLOGIES, INC.
By: By:
/s/ Douglas P. Dahlin /s/ Howard A. Berman
- ------------------------------- -------------------------------
Douglas P. Dahlin Howard A. Berman
Manager VP, Sales and Marketing
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Exhibit 10.8
SENIOR LOAN AND SECURITY AGREEMENT NO. 6182
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 6182 (this "Security Agreement") is
dated as of October 1, 1998 between SNAP TECHNOLOGIES, INC., a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $500,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles,
including but not limited to high end computers, peripherals, workstations,
servers, routers, hubs, RAID's, office and phone equipment and furniture and
also certain custom use equipment, installation and delivery costs, purchase
tax, toolings, software and other items generally considered fungible or
expendable "Soft Costs" whether now owned by Borrower or hereafter acquired, and
all substitutions and replacements of and additions, improvements, accessions
and accumulations to said equipment, machinery and fixtures and other items,
together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such monthly payment amounts and other sums, are absolute and unconditional
and are not subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment due or alleged to be due to, or by reason of, any past, present or
future claims which Borrower may have against Lender, any assignee, the
manufacturer or seller of the Collateral, or against any person for any reason
whatsoever.
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SECTION 3. LENDER COMMITMENT. (a) GENERAL TERMS. Subject to the terms and
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of time, or both, could become
an Event of Default has occurred, Lender hereby agrees to make one or more
senior secured Loans to Borrower, subject to the following conditions: (i) each
Loan shall be evidenced by a Note; (ii) the total principal amount of the Loans
shall not exceed $500,000 in the aggregate (the "Commitment") provided that no
more than 20% of the amount of the utilized Commitment may be used to finance
Soft Costs; (iii) at the time of each Loan, no Event of Default or event which
with the giving of notice or passage of time, or both, could become an Event of
Default shall have occurred and be continuing, as reasonably determined by
Lender, and certified by Borrower; (iv) the amount of each Loan shall be at
least $25,000 except for a final Loan which may be less than $25,000; (v) Lender
shall not be obligated to make a Loan after July 31, 1999; (vi) for each Loan,
Borrower shall present to lender a list of proposed Collateral for approval by
lender in its sole discretion; (vii) for each Loan, Borrower shall have provided
Lender with each of the closing documents described in Exhibit A hereto (which
documents shall be in form and substance reasonably acceptable to Lender);
(viii) Borrower is performing according to its business plan referred to as
"Snap Technologies, Inc. Income and Cash Flow Projections" viable only through
December 31, 1999 and as may be amended from time to time in form and substance
reasonably acceptable to Lender (the "Business Plan"); (ix) there shall be no
material adverse change in Borrower's condition, financial or otherwise, that
would materially impair the ability of borrower to meet its payment and other
obligations under this Loan (a "Material Adverse Effect") as reasonably
determined by Lender, and Borrower so certifies, from (yy) the date of the most
recent financial statements delivered by Borrower to Lender to (zz) the date of
the proposed Loan; (x) Borrower shall use the proceeds of all Loans hereunder to
purchase or reimburse the purchase of Collateral; (xi) at the time of each Loan,
Borrower has reimbursed Lender for all UCC filings and search costs, inspection
and labeling costs, and appraisal fees, if any; (xii) all Collateral has been
marked and labeled by Lender or Lender's agent; and (xiii) Lender has received
in form and substance acceptable to Lender: (a) Borrower's interim financial
statements signed by a financial officer of Borrower, (b) prior to the first
funding, evidence of Borrower's $1,650,000 cash position as of June 30, 1998;
and (c) complete copies of the Borrower's audit reports for its most recent
fiscal year, immediately upon availability, which shall include at least
Borrower's balance sheet as of the close of such year, and Borrower's statement
of income and retained earnings and of changes in financial position for such
year, prepared on a consolidated basis and certified by independent public
accountants. Such certificate shall not be qualified or limited because of
restricted or limited examination by such accountant of any material portion of
the company's records. Such reports shall be prepared in accordance with
generally accepted accounting principles and practices consistently applied.
(b) THE NOTES. Each Loan shall be evidenced by a Note. Each Note shall bear
interest and be payable at the times and in the manner provided therein.
Following payment of the Indebtedness related to each Note, Lender shall return
such Note, marked "cancelled," to Borrower. Borrower has the ability to prepay
all, but not fewer than all, outstanding Notes in whole but not in part upon at
least five (5) days prior written notice to Lender of Borrower's intention to
merge into, consolidate with or convey or transfer its properties substantially
as an entirety to any other person or entity, or if Borrower seeks Lender's
consent as required under Section 15, and Lender declines to consent to such
merger, consolidation, conveyance or transfer. The prepayment amount shall be
the sum of (i) and (ii) below, discounting the amounts in (ii) at a rate of 6%
per annum compounded monthly on the basis of a 360 day year: (i) all amounts
which may be then due or accrued to the payment date for all outstanding Notes;
(ii) as of such payment date, an amount equal to: (A) all remaining monthly
payments due under all outstanding Notes, and (B) 12 additional monthly payments
for all outstanding Notes, the amounts of which will be calculated in accordance
with Election No. 2 in Section 30. The prepayment conditions are as follows: (a)
Borrower must provide Lender with at least five (5) days' advance written notice
of its intention to prepay; and (b) the prepayment date must fall on a regular
monthly payment date.
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SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i)
the payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii)
the performance by Borrower of all of its other covenants now or hereafter
existing under the Notes, this Security Agreement and any other obligation owed
by the Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly quality during the
term of each Loan in each state where necessary to carry on its present business
and operations, including the jurisdiction(s) where the Collateral will be
located as specified on each Exhibit A to each Note, except where failure to be
so qualified would not have a Material Adverse Effect; (b) it has full authority
to execute and deliver this Security Agreement and the Notes and perform the
terms hereof and thereof, and this Security Agreement and the Notes have been
duly authorized, executed and delivered and constitute valid and binding
obligations of Borrower enforceable in accordance with their terms; (c) the
execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) to the
best of Borrower's knowledge, there is no action or proceeding pending or
threatened against Borrower before any court or administrative agency which
might have a Material Adverse Effect on the business, financial condition or
operations of Borrower; (f) at the time any Loan is made hereunder, Borrower
owns and will keep all of the Collateral; (g) at the time any Loan is made
hereunder, all Collateral has been received, installed and is ready for use and
is satisfactory in all respects for the purposes of this Security Agreement; (i)
the Collateral is, and will remain at all times under applicable law, removable
personal property, which is free and clear of any lien or encumbrance except in
favor of Lender, notwithstanding the manner in which the Collateral may be
attached to any real property; (j) all credit and financial information
submitted to Lender herewith or at any other time is and will at the time given
be true and correct in all material respects; and (k) the security interest
granted to Lender hereunder is a first priority security interest, and (l) on or
before January 1, 2000, Borrower's computer system shall be Year 2000
performance compliant and will thus be able to accurately process date data
from, into and between the years 1999 and 2000, including leap year
calculations.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent, which consent will
not be unreasonably withheld, which location shall in all events be within the
United States. All of the records regarding the Collateral shall be located at
101 Townsend Street, San Francisco, CA 94107, or such other location of which
Borrower has given notice to Lender in accordance with this Security Agreement.
Lender shall have the right to inspect Collateral, including records relating
thereto, and Borrower's books and records at any time (upon reasonable
notification) during regular business hours, such books and records to be
maintained in accordance with
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generally accepted accounting principles. Borrower shall be responsible for all
labor, material and freight charges incurred in connection with any removal or
relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. During Borrower's regular business hours and upon at least two days'
notice to Borrower, Lender or its agent shall mark and label Collateral, which
labels (to be provided by Lender) shall state that such Collateral is subject to
a security interest of Lender, and Borrower shall keep such labels on the
Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) GENERAL. Borrower will reasonably permit
Lender to inspect each item of Collateral and its maintenance records during
Borrower's regular business hours. Borrower will at its sole expense comply with
all applicable laws, rules, regulations, requirements and orders with respect to
the use, maintenance, repair, condition, storage and operation of each item of
Collateral. Any addition or improvement that is so required or cannot be so
removed will immediate become Collateral of Lender. (b) SERVICE AND REPAIR. With
respect to the Collateral, Borrower will at its sole expense maintain and
service and repair any damage to each items of Collateral in a manner consistent
with prudent industry practice and Borrower's own practice so that such item of
Collateral is at all times (i) in the same condition as when delivered to
Borrower, except for ordinary wear and tear, and (ii) in good operating order
for the function intended by its manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower, shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein, which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the first day payment is due on any Note following the Casualty
Occurrence, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of : (I) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note. The numerator of the fraction shall be the
collateral value (as set forth on the applicable Note) of the item and the
denominator shall be the aggregate collateral value of all items under the Note.
Upon the making of such payments, Lender shall release such item of Collateral
from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral (including, in the case of Collateral which is vehicles,
comprehensive and collision coverage) and in no event for less than the amount
payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage for personal injury, death or property damage in an
amount not less than $1,000,000 in the aggregate, (and in the case of Collateral
which is vehicles, in an amount of not less than $1,000,000 covering
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bodily injury and property damage in a combined single limit) naming Lender
and/or Lender's assignee as additional insured. Such insurance shall contain
insurer's agreement to give thirty (30) days' advance written notice to Lender
before cancellation or material change of any policy of insurance. Borrower will
provide Lender and any assignee of Lender with a certificate of insurance from
the insurer evidencing Lender's or such assignee's interest in the policy of
insurance. Such insurance shall cover any Casualty Occurrence to any unit of
Collateral. Notwithstanding anything in Section 9 or this Section 10 to the
contrary, this Security Agreement and Borrower's obligations hereunder shall
remain in full force and effect with respect to any unit of Collateral which is
not subject to a Casualty Occurrence. If Borrower fails to provide or maintain
insurance as required herein, Lender shall have the right, but shall not be
obligated, to obtain such insurance. In that event, Borrower shall pay to Lender
the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first a prior perfected
security interest; (d) furnish Lender with its annual audited financial
statements, when such reports are available, within one hundred twenty (120)
days following the end of Borrower's fiscal year, unaudited quarterly financial
statements within forty-five (45) days after the end of each fiscal quarter, and
which thirty (30) days of the end of each month a financial statement for that
month prepared by Borrower, and including an income statement and balance sheet,
all of which shall be certified by an officer of Borrower as true and correct
and shall be prepared in accordance with generally accepted accounting
principles consistently applied, and such other information as Lender may
reasonably request; and (e) promptly (but in no event more than (5) days after
the occurrence of such event) notify Lender of any change in Borrower's
condition during the commitment period which constitutes a Material Adverse
Effect; and of the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorney's fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
and approved by Lender. Borrower's obligations under this Section 12 shall
survive the payment in full of all the Indebtedness and the performance of all
obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender, and to indemnify and hold
Lender and any assignee harmless from, all fees
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(including, but not limited to, license, documentation, recording and
registration fees), and all sales, use, gross receipts, personal property,
occupational, value added or other taxes, levies, imports, duties assessments,
charges, or withholdings of any nature whatsoever, together with any penalties,
fines, additions to tax, or interest thereon (the foregoing collectively
"Impositions"), except same as may be attributable to Lender's income, arising
at any time prior to or during the term of any Notes or of this Security
Agreement, or upon termination or early termination of this Security Agreement
and levied or imposed upon Lender directly or otherwise by any Federal, state or
local government in the United States or by any foreign country or foreign or
international taxing authority upon or with respect to (a) the Collateral, (b)
the exportation, importation, registration, purchase, ownership, delivery,
leasing, financing, possession, use, operation, storage, maintenance, repair,
return, sale, transfer or title, or other disposition thereof, (c) the rentals,
receipts, or earnings arising from the Collateral, or any disposition of the
rights to such rentals, receipts, or earning, (d) any payment pursuant to this
Security Agreement or the Notes, or (e) this Security Agreement, the Notes or
any transaction or any part hereof or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT
TO A SUCCESSOR IS GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH
BY LENDER AND THE SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY
ACCEPTABLE TO LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY
AGREEMENT OR ITS SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF
THE ABOVE, IN WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES
WITHOUT NOTICE TO BORROWER. If Borrower is given notice of such assignment it
agrees to acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require at Lender's expense. Each such assignee and/or secured party
shall have all of the rights, but (expect as provided in this Section 15) none
of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Borrower's right to quietly enjoy
use of Collateral subject to the terms and conditions of this Security
Agreement. Subject to the foregoing, the Notes and this Security Agreement shall
inure to the benefit of, and are binding upon, the successor and assignees of
the parties hereto. Borrower acknowledges that any such assignment by Lender
will not change Borrower's duties or obligations under this Security Agreement
and the Notes or increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) EVENTS OF DEFAULT. Any of the following events or
conditions shall constitute and "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender
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hereunder or under any Note beyond the tenth (10th) day after the same is due;
(ii) Borrower's failure to comply with its obligations under Section 10 or
Section 15; (iii) any representation or warranty of Borrower made in this
Security Agreement or the Notes or in any other agreement, statement or
certificate furnished to Lender in connection with this Security Agreement or
the Notes shall prove to have been incorrect in any material respect when made
or given; (iv) Borrower's failure to comply with or perform any material term,
covenant or condition of this Security Agreement or any Note or under any other
agreement between Borrower and Lender or under any lease or mortgage or real
property covering the location of the Collateral if such failure to comply or
perform is not cured by Borrower within thirty (30) days after Borrower knows of
the noncompliance or nonperformance or notice from Lender or such longer period
that Borrower is diligently attempting to effect such cure; (v) seizure of any
of the Collateral under legal process; (vi) the filing by or against Borrower or
any guarantor under any guaranty executed in connection with this Security
Agreement ("Guarantor") of a petition for reorganization or liquidation under
the Bankruptcy Code or any amendment thereto or under any other insolvency law
providing for the relief of debtors; (vii) the voluntary or involuntary making
of an assignment of a substantial portion of its assets by Borrower or by any
Guarantor or for any of Borrower's or Guarantor's assets, the institution by or
against Borrower or any Guarantor of any formal or informal proceeding for
dissolution, liquidation, settlement of claims against or winding up of the
affairs of Borrower or any Guarantor provided that in the case of all such
involuntary proceedings, same are not dismissed within sixty (60) days after
commencement; or (viii) the making by Borrower or by any Guarantor of a transfer
of all or a material portion of Borrower's or Guarantor's assets or inventory
not in the ordinary course of business.
(b) REMEDIES. If any Event of Default has occurred, Lender may in its sole
discretion exercise one or more of the following remedies with respect to any or
all of the Collateral: (i) declare due any or all of the aggregate sum of all
remaining payments under the Notes, including the amount of any mandatory or
optional payment required or permitted to be paid by borrower to lender at the
maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court
action or actions either at law or in equity to enforce Borrower's performance
of the applicable covenants of the Notes and this Security Agreement or to
recover all damages and expenses incurred by Lender by reason of an Event of
Default; (iii) except as provided by law, without court order or prior demand,
enter upon the premises where the Collateral is located and taken immediate
possession of and remove it without liability of lender to Borrower or any other
person or entity; (iv) terminate this Security Agreement and sell the Collateral
at public or private sale, or otherwise dispose of, hold, use or lease any or
all of the Collateral in a commercially reasonable manner; or (v) exercise any
other right or remedy available to it under applicable law. If Lender has
declared due any or all of the Remaining Payments, Borrower will pay immediately
to Lender, without duplication, (A) the Remaining Payment, (B) all amounts which
may be then due or accrued, and (C) all other amounts due under this Security
Agreement and under the Notes (Lender's Return, as referred to below, means the
amounts described in clauses (A), (B) and (C) above). The net proceeds of any
sale or lease of such Collateral will be credited against Lender's Return. The
net proceeds of a sale of the collateral pursuant to this Section 16(b) is
defined as the sales price of the Collateral less selling expenses, including,
without limitation, costs of remarketing the Collateral and all refurbishing
costs and commissions paid with respect to such remarketing. The net proceeds of
a lease of the Collateral pursuant to this Section 16(b) is defined as the
amount equal to the monthly payments due under such lease (discounted at 6% per
annum compounded monthly on the basis of a 360 day year (the "Discount Rate")
plus the residual value of the Collateral at the end of the basis term of such
lease, as reasonably determined by Lender, and discounted at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security Agreement,
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including, but not limited to reasonable attorneys' fees and litigation expenses
and fees of collection agencies ("Remedy Expenses"). At Lender's request,
Borrower shall assemble the collateral and make it available to Lender at such
time and location as Lender may reasonably designate. Borrower waives any right
it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
In addition to the foregoing remedies, if an Event of Default hereunder shall
have occurred and be continuing, Lender shall have the right to cause its
representative or representatives to attend any meeting of Borrower's Board of
Directors or any committee thereof. In such case, Borrower shall provide Lender
with the same notice of any such Board or committee meeting that is given to the
members of Borrower's Board or committee thereof.
(c) APPLICATION OF PROCEEDS. The proceeds of any sale of all or any part of
the Collateral and the proceeds of any remedy afforded to lender by this
Security Agreement shall be paid to and applied as follows:
FIRST, to the payment of reasonable costs and expenses of suit or
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all expenses, liabilities and advances incurred or made
pursuant to this Security Agreement or any Note by Lender in connection with
foreclosure, suit, sale or enforcement of this Security Agreement or the Notes,
and taxes, assessments or liens superior to Lender's security interest granted
by this Security Agreement;
SECOND, to the payment of all other amounts not described in item THIRD
below due under this Security Agreement and all Notes;
THIRD, to pay Lender an amount equal to lender's Return, to the extend
not previously paid by Borrower; and
FOURTH, to the payment of any surplus to Borrower or to whomever may
lawfully be entitled to receive it.
(d) EFFECT OF DELAY; WAIVER, FORECLOSURE ON COLLATERAL. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENT. Borrower shall pay Lender a late charge of 10% of any
payment owed Lender by borrower which is not paid when due (taking into account
applicable grace periods), for
8
<PAGE>
every month such payment is not paid when due, but in no event any amount
greater than the highest rate permitted by applicable law. If such amounts have
not been received by Lender at Lender's place of business or by lender's
designated agent by the date such amounts are due under this Security Agreement
or the Notes, Lender shall bill Borrower for such charges. Borrower acknowledges
that invoices for amounts due hereunder or under the Notes are sent by Lender
for borrower's convenience only. Borrower's non-receipt of an invoice will not
relieve Borrower of its obligation to make payments hereunder or under the
Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENT. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements necessary to perfect and/or
give notice of Lender's security interest in any of the collateral.
Notwithstanding the above, borrower will, upon Lender's request, execute all
financing statements pursuant to the Uniform Commercial Code and all such other
documents reasonably requested by Lender to perfect Lender's security interests
hereunder. Borrower authorizes Lender to file financing statements signed only
by Lender (where such authorization is permitted by law) at all places where
Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including reasonable attorney" fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions, or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachment shall be made
to the Collateral without Lender's prior written consent, which shall not be
given for changes that will affect the reliability and utility of the Collateral
or which cannot be removed without damage to the Collateral, or which in any way
affect the value of the collateral for purposes of resale or lease. All
attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lessor.
9
<PAGE>
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
SECTION 25. STOCK WARRANT. Borrower agrees that it will issue to Lender upon
execution of this Security Agreement a Warrant in the form of the Warrant
Agreement attached hereto as Exhibit B. Borrower and Lender agree that the value
of the Warrant hereunder is ten dollars ($10.00).
SECTION 26. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $10,000. Up to $1,000 of the Fee shall be applied by Lender first to
reimburse Lender for all out-of-pocket UCC and other search costs, inspections
and labeling costs and appraisal fees, incurred by Lender, and the balance then
applied proportionally tot he first monthly payment for each Note hereunder in
the proportion that the Collateral value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such monthly
payments shall be non-refundable except if Lender defaults in its obligation to
fund Loans pursuant to Section 3.
SECTION 27. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at 101
Townsend Street, San Francisco, CA 94107, Attention: Jung Shin, V.P.
SECTION 28. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (e) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (f) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (g) If any provision of this Security
Agreement or any Note is held invalid, such invalidity shall not affect any
other provisions hereof or thereof. (h) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement and each Note until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (i) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
officer. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurance (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies.
10
<PAGE>
SECTION 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights duties of Lender and Borrower, shall
be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 30. ADDITIONAL INTEREST COMPENSATION. (a) GENERAL. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) END OF LOAN POSITION ELECTIONS. As Additional Interest Compensation,
borrower shall be required to:
ELECTION NO. 1: Make a final payment equal to 15% of the Note's original
principal amount.
ELECTION NO. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.5% of the Note's original principal amount.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED SNAP TECHNOLOGIES, INC.
By: /s/ Stephen E. Chen By: /s/ Young J. Shin
------------------------- --------------------------
Name: Stephen E. Chen Name (Print): Young J. Shin
----------------------- ----------------
Title: Vice President Title: President
--------------------- -----------------------
HEADQUARTERS LOCATIONS:
101 Townsend Street,
San Francisco, CA 94107
County of San Francisco
EXHIBITS AND SCHEDULES:
Exhibit A - Closing Memorandum
Exhibit B - Stock Warrant
11
<PAGE>
EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT
NO. 6182
DATED October 1, 1998
CLOSING MEMORANDUM
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of the
Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7.* Stock warrant.
8. UCC search (Lender will obtain).
9.* Payment of Commitment Fee.
10. Certificate of Chief Financial Officer stating that (i) there are no liens,
charges, security interests or other encumbrances that may affect Lender's
right, title and interest in the Collateral and there are no UCC-1
financing statements filed or in the process of being filed against any of
the Collateral, (ii) Borrower is performing according to Borrower's
business plan, (iii) no change which is a Material Adverse Effect has
occurred in the financial condition of Borrower, (iv) no default has
occurred, and (v) the representations and warranties in Section 5 of the
Senior Loan and Security Agreement are true and correct as if made on the
date of the Loan.
11.* Certificate from the Security of State of Borrower's state of
incorporation, and form the state in which Borrower's chief executive
officer is located, if different, stating the borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
12.* Borrower's Business Plan.
13. Borrower's most recent financial statements.
14. List of proposed Collateral.
15. Purchase documentation verifying Borrower's ownership of equipment.
16. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
17. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property, or
located in certain states.
12
<PAGE>
NOTE NO. 01
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6182
DATED AS OF OCTOBER 1, 1998
BETWEEN SNAP TECHNOLOGIES, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
$261,125.14 January 1, 1999
FOR VALUE RECEIVED, the undersigned, SNAP TECHNOLOGIES, INC., a California
corporation ("Borrower"), hereby promises to pay to the order of PHOENIX LEASING
INCORPORATED, or its assigns (the "Lender") the principal sum of Two Hundred
Sixty-One Thousand One Hundred Twenty-Five and 14/100 Dollars ($261,125.14),
together with interest thereon until the principal is fully repaid. Principal
and interest shall be payable in consecutive monthly installments, each of which
shall be equal to the percentage specified below of the principal sum and in the
amounts each month specified below.
<TABLE>
<CAPTION>
Month Payment Amount Percentage
----- -------------- ----------
<S> <C> <C>
1-12 $5,744.75 2.20%
13-42 $7,703.19 2.95%
</TABLE>
The first and last payments shall be due on the first day of the month
immediately following the date of this Note (unless the date of this Note is the
first day of the month in which case such payments are due on that day), and
each succeeding payment shall be made on the first day of each succeeding month.
An interim payment will be due on the same date as the first payment for the
period from the date Lender funds the principal amount of this Note until the
first day of the following month and shall be equal to 1/30 of the monthly loan
payment multiplied by the number of days, if any, between (and including) the
funding date and the first day of the following month.
Borrower's Additional Interest Compensation shall be due on the first day of the
forty-third (43rd) month as provided below: (a) GENERAL. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) END OF LOAN POSITION ELECTIONS. As Additional Interest Compensation,
Borrower shall be required to:
ELECTION NO. 1: Make a final payment equal to 15% of the Note's original
principal amount.
ELECTION NO. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.5% of the Note's original principal amount.
<PAGE>
NOTE NO. 01
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6182
DATED AS OF OCTOBER 1, 1998
BETWEEN SNAP TECHNOLOGIES, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
Borrower has the ability to prepay all, but not fewer than all, outstanding
Notes in whole but not in part upon at least five (5) days prior written
notice to Lender of Borrower's intention to merge into, consolidate with or
convey or transfer its properties substantially as an entirety to any other
person or entity, or if Borrower seeks Lender's consent as required under
Section 15, and Lender declines to consent to such merger, consolidation,
conveyance or transfer. The prepayment amount shall be the sum of (i) and
(ii) below, discounting the amounts in (ii) at a rate of 6% per annum
compounded monthly on the basis of a 360 day year: (i) all amounts which may
be then due or accrued to the payment date for all outstanding Notes; (ii) as
of such payment date, an amount equal to: (A) all remaining monthly payments
due under all outstanding Notes, and (B) 12 additional monthly payments for
all outstanding Notes, the amounts of which will be calculated in accordance
with Election No. 2 in Section 30. The prepayment conditions are as follows:
(a) Borrower must provide Lender with at least five (5) days' advance written
notice of its intention to prepay; and (b) the prepayment date must fall on a
regular monthly payment date.
Borrower shall pay Lender a late charge of 10% of any payment owed Lender by
Borrower which is not paid when due (taking into account applicable grace
periods), for every month such payment is not paid when due, but in no event an
amount greater than the highest rate permitted by applicable law.
Payments of principal and interest hereunder shall be made in lawful money of
the United States of America at the offices of Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, or such other place as the Lender shall designate
to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of
October 1, 1998 between Borrower and Lender (the "Security Agreement") and is
entitled to the benefits of the Security Agreement which contains, among other
things, provisions for (i) events of default and the Lender's rights and
remedies following an event of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Exhibit A, and (iii) other rights and
remedies of Lender.
This Note may be declared due prior to its expressed maturity date only in the
events, on the terms and in the manner provided in the Security Agreement.
This Note shall be construed and enforced in accordance with the laws of the
State of California, excluding principles of conflicts of laws. Borrower agrees
that any action or proceeding arising out of or relating to this Note shall be
in the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco.
<PAGE>
NOTE NO. 01
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6182
DATED AS OF OCTOBER 1, 1998
BETWEEN SNAP TECHNOLOGIES, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
SNAP TECHNOLOGIES, INC.
By: /s/ YOUNG SHIN
------------------
Name (Print): YOUNG SHIN
--------------
Title: CEO/PRESIDENT
-----------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated September 30, 1999, relating to the financial statements of
Embark.com, Inc., which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
San Francisco, California
September 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR YEAR 6-MOS
6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 JUN-30-1999
JUN-30-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 JAN-01-1999
JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 JUN-30-1999
JUN-30-1998
<CASH> 0 102 658 10,751
0
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 0 329 852 2,637
0
<ALLOWANCES> 0 (52) (239) (264)
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 403 1,330 13,214
0
<PP&E> 0 110 632 1,104
0
<DEPRECIATION> 0 (34) (125) (308)
0
<TOTAL-ASSETS> 0 482 1,839 14,224
0
<CURRENT-LIABILITIES> 0 861 2,060 4,475
0
<BONDS> 0 0 246 426
0
0 0 2,540 17,318
0
0 3 3 3
0
<COMMON> 0 7 7 8
0
<OTHER-SE> 0 2,174 3,156 5,756
0
<TOTAL-LIABILITY-AND-EQUITY> 0 482 1,839 14,224
0
<SALES> 141 427 1,632 1,245
331
<TOTAL-REVENUES> 141 427 1,632 1,245
331
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 0 0 0 0
0
<OTHER-EXPENSES> 1,024 1,471 4,662 6,394
1,473
<LOSS-PROVISION> 0 (52) (187) (25)
0
<INTEREST-EXPENSE> 0 (9) (14) (41)
(8)
<INCOME-PRETAX> 0 0 0 0
0
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> (880) (1,051) (3,034) (5,133)
(1,151)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (880) (1,051) (3,034) (5,133)
(1,151)
<EPS-BASIC> 1.55 0.26 0.49 0.73
0.21
<EPS-DILUTED> 1.55 0.26 0.49 0.73
0.21
</TABLE>
