<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
L90, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7310 95-4761069
(State or other jurisdiction (Primary standard industrial (IRS employer
of incorporation or organization) classification code number) identification number)
</TABLE>
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2020 Santa Monica Boulevard, Suite 400
Santa Monica, California 90404
(310) 315-1199
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
---------------
John C. Bohan
President & Chief Executive Officer
L90, Inc.
2020 Santa Monica Boulevard, Suite 400
Santa Monica, California 90404
(310) 315-1199
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Robert A. Miller, Jr., Esq. Richard A. Fink, Esq.
Peter M. Huie, Esq. Allen Z. Sussman, Esq.
Paul, Hastings, Janofsky & Walker LLP Michael W. Chou, Esq.
555 South Flower Street Brobeck, Phleger & Harrison LLP
Los Angeles, California 90071 550 South Hope Street
(213) 683-6000 Los Angeles, California 90071
(213) 489-4060
</TABLE>
---------------
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------
<CAPTION>
Proposed
Amount Maximum Amount of
Title of each Class of to be Aggregate Registration
Securities to be Registered Registered Offering Price Fee
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.001 par value per
share............................ $69,000,000(1) $19,182
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Common Stock, $.001 par value per
share............................ 3,218,234(2) $ 9,847,796(3) $ 2,738(3)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) This Registration Statement also covers the resale under a separate
prospectus by certain stockholders of the Registrant of up to 3,218,234
shares of Common Stock to be issued to such stockholders upon the exercise
of warrants and conversion of their Series C Preferred Stock.
(3) Maximum offering price and amount of registration fee is based on the
conversion price of Series C preferred stock and the exercise price of
warrants pursuant to Rule 457(i).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
Explanatory Note
This Registration Statement contains a prospectus to be used in connection
with the initial public offering of the Registrant's common stock through the
underwriters named on the cover page of that prospectus (the "IPO Prospectus").
The Registrant is contractually obligated to register on this Registration
Statement the resale of up to 3,218,234 shares (the "Registrable Securities")
of its common stock issuable upon (i) conversion of the Registrant's Series C
preferred stock upon the closing of the offering contemplated by the IPO
Prospectus into 1,307,190 shares of common stock, and (ii) the exercise of
warrants to acquire up to 1,911,044 shares of common stock. Consequently, this
Registration Statement contains a second prospectus to cover these possible
resales (the "Resale Prospectus") by certain of the Registrant's stockholders
(the "Selling Stockholders"). The IPO Prospectus and the Resale Prospectus are
substantively identical, except for the following principal points:
.they contain different outside and inside front covers;
.they contain different offering sections in the prospectus summaries;
.they contain different Use of Proceeds sections;
.the Dilution section is deleted from the Resale Prospectus;
.a Selling Stockholder section is included in the Resale Prospectus;
. references in the IPO Prospectus to the Resale Prospectus will be
deleted from the Resale Prospectus;
. the Underwriting section from the IPO Prospectus is deleted from the
Resale Prospectus and a Plan of Distribution is inserted in its place;
. the Legal Matters section in the Resale Prospectus deletes the reference
to counsel for the underwriters; and
. the outside back cover of the IPO Prospectus is deleted from the Resale
Prospectus.
The Registrant has included in this Registration Statement, after the
financial statements, alternate pages to reflect the foregoing differences.
Notwithstanding the Resale Prospectus, the Selling Stockholders have agreed
(i) that they will not sell any of the Registrable Securities until 180 days
after the commencement of the offering contemplated in the IPO Prospectus (the
"Commencement Date"), at which time they may sell up to one-half of their
Registrable Securities, and (ii) commencing 270 days after the Commencement
Date, they may sell all of their Registrable Securities. Therefore, the Resale
Prospectus contemplated hereby will not be used until at least six months after
the Commencement Date. The Registrant anticipates that, prior to that time, it
will file a post effective amendment covering the Resale Prospectus, or an
amended prospectus or prospectus supplement pursuant to Rule 424.
<PAGE>
[DESCRIPTION OF ARTWORK]
Images of the different screens from L90, Inc.
INSIDE FRONT COVER
The left side of the inside front cover of the prospectus will picture
twenty-four screens from Web sites containing previous advertising campaigns
served by us. The right side of the inside front cover will list several of our
Web publishing clients under the title: Network of Premium Web Properties
including .... The list will contain the following names: Ain't It Cool News,
Alloy Online, Athlete Direct, Big Yellow, CarPrices.com, click2send, eMachines,
Fitness Online, Freei.net, Hollywood.com, Infonautics Network, iWare,
JobsOnline, Kanoodle.com, LiquidAudio, MaMaMedia, Scoops Wrestling Network,
Small World, SpeedyClick.com, Sportspage.com, StarChefs, TargetMatch.com,
whatis.com and WinSite. Additionally, the inside front cover will list certain
of our advertising clients under the title: Over 450 Advertising Clients
Including .... This list will contain the following names: Amazon.com,
Ameritech, Charles Schwab, Dell, Excite@Home, Ford, FTD, IBM, Intel, iVillage,
LAUNCH, Levi's Strauss, Microsoft, OshKosh B'Gosh, Procter & Gamble, Sprint,
Starbucks, Tickets.com, United Airlines, Visa and Women.com. The upper left
corner of the inside front cover will contain the words: L90 Internet
Advertising Solutions, and the right top corner will contain the words:
admonitor. The back round of the inside front cover will contain a picture of
our logo.
INSIDE GATEFOLD (two pages)
The Gatefold describes and illustrates various of our client's Web pages
containing our advertising campaigns. The following text runs across the top of
both Gatefold pages:
Internet Advertising Solutions - L90 Internet Advertising Solutions go "beyond
the banner" to leverage the capabilities of the Internet by incorporating:
co-branding with premium Web sites, contextual sponsorships, targeting based
upon user interests and characteristics, rich media, real-time reporting and
campaign management.
[L90 Logo]
First Page of Gatefold
[Picture of OshKosh B'Gosh "Genuine Girl" Web page] with the following
description:
OshKosh B'Gosh "Genuine Girl"
An interactive solution created to promote the OshKosh B'Gosh "Genuine Girl"
brand on MaMaMedia. This custom tailored Stamps & Stamps activity allows
children to create their own "Genuine Girl" interactive stickers by dragging and
pasting rich media items, such as talking girls and fluttering butterflies on to
a virtual sticker.
<PAGE>
[Picture of tickets.com Web page] with the following description:
"The Big Game" with Tickets.com
An advertising solution developed to build brand awareness for Tickets.com,
generate ticket sales and acquire a qualified user database. The Tickets.com
sponsorship program incorporates a combination of content integration,
contextual offers, co-branded microsites and sweepstakes elements.
[Picture of iVillage.com Web page] with the following description:
iVillage Cross Promotional Print/Online Campaign
An integrated sponsorship created to help iVillage grow its user base and reach
a broad cross-section of women. The campaign incorporates placements in online
and offline media properties of Weider publications including Shape magazine,
Shape Online and Fitness Online.
Second Page of Gatefold
[Picture of Shop the Seasons Web page] with the following description:
Shop the Seasons Syndicated Sponsorship
A syndicated shopping guide and direct marketing solution that was designed,
developed and engineered by L90. Utilizing the reach of the L90 network, this
syndicated microsite features a selection of unique gift suggestions that are
optimized according to each advertiser's objectives. The shopping guide enables
advertisers to build a qualified database by offering consumers an opportunity
to submit their address and "opt-in" to receive future promotional offers.
[Picture of rock n'roll jeans factory Web page] with the following description:
Levi's Rock n'Roll Jeans Factory
An advertising vehicle created to roll out the Levi's e-commerce Web site to
Levi's target audience. This contextual sponsorship includes a co-branded
micro-store embedded within a leading e-commerce site's content.
[Picture of LAUNCH Free Trial Offer Web page] with the following description:
LAUNCH Trial Offer
A response-driven marketing solution designed to reach a diverse group of users
and offer them a trial subscription to LAUNCH on CD-ROM. The program utilizes
direct marketing components such as pop-up boxes, download interstitials,
sweepstakes and other opt-in opportunities, all of which are designed to invite
users to "opt-in" to receive three trial issues of LAUNCH on
<PAGE>
CD-ROM
[Picture of Visa on Music Boulevard Web page] with the following description:
Visa on Music Boulevard
A "beyond the banner" campaign designed to strengthen the Visa brand, reinforce
current customer loyalty and increase Visa's overall market share. This
"Preferred Card" sponsorship provides Visa with placement throughout this
e-commerce site, positions Visa as the default payment method and offers
customers a coupon for changing their payment method to Visa.
INSIDE BACK COVER
The inside back cover of the prospectus has a flow chart illustrating
our ad delivery and tracking technology using our adMonitor service. Across the
top of the page are the following words:
adMonitor - Ad serving and tracking technology
L90's robust, flexible and scaleable serving and tracking technology is the
platform for all L90 advertising solutions.
In the bottom left hand corner of the inside back cover is the L90 admonitor
logo.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1999
PROSPECTUS
Shares
[LOGO OF L90]
Common Stock
This is an initial public offering of common stock of L90, Inc. L90 expects
that the public offering price will be between $ and $ per share.
We have applied to have our common stock listed for trading and quotation on
the Nasdaq National Market under the symbol "LNTY."
Our business involves significant risks. These risks are described under the
caption "Risk Factors" beginning on page 6.
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.
--------------
<TABLE>
<CAPTION>
Per
Share Total
<S> <C> <C>
Public offering price............................................ $ $
Underwriting discounts and commissions........................... $ $
Proceeds, before expenses, to L90 ............................... $ $
</TABLE>
The underwriters may also purchase up to an additional shares of common
stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
--------------
SG COWEN
BANC OF AMERICA SECURITIES LLC
WIT CAPITAL CORPORATION
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Forward-Looking Statements.......... 16
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Data............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................ 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 42
Related Party Transactions................................................. 47
Principal Stockholders..................................................... 50
Description of Capital Stock............................................... 52
Shares Eligible for Future Sale............................................ 56
Certain U.S. Tax Consequences to Non-U.S. Holders.......................... 58
Underwriting............................................................... 62
Legal Matters.............................................................. 64
Experts.................................................................... 64
Where You Can Find More Information........................................ 64
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information from that
contained in this prospectus. We are offering to sell and seeking offers to buy
shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
------------------
Until , 1999 (25 days after commencement of this offering), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligations to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should carefully read the more detailed
information contained in this prospectus, including our financial statements
and related notes. Our business involves significant risks. You should
carefully consider the information under the heading "Risk Factors."
We are a leading provider of comprehensive online advertising and direct
marketing solutions for advertisers and Web publishers. We design, develop and
implement sophisticated "beyond the banner" advertising campaigns featuring
sponsorships, co-branding, content integration, rich media and other innovative
marketing techniques that we believe are more effective than traditional banner
ad campaigns. Our sales force and creative design team work closely with our
advertising clients to create dynamic marketing campaigns that enable them to
achieve their strategic objectives. Furthermore, our adMonitor technology
offers advertisers and Web publishers the ability to selectively target ads to
Web users based upon their specific interests and characteristics. adMonitor
also enables advertisers to track, measure and manage the effectiveness of
their ad campaigns in real time. We believe that our solutions enable:
. Advertisers to leverage the unique capabilities of the Internet to
communicate their messages, obtain high response rates and achieve a
higher return on ad spending; and
. Web publishers to realize increased ad sales, improved pricing for their
ad inventory and more efficient ad inventory management.
We represent a network of select Web publishers featuring sites with strong
online brand awareness and innovative content such as Alloy Online, Big Yellow,
Hollywood.com and Liquid Audio. Over 450 advertisers, including Ford Motor
Company, iVillage, Microsoft, Netscape, Procter & Gamble and Visa, have
utilized our solutions.
We believe that the growth of the Internet is driving advertisers to devote
an increasing portion of their overall advertising and marketing budgets to
online advertising and direct marketing. Forrester Research estimates that
worldwide Internet advertising spending was approximately $3.3 billion in 1998
and will increase to approximately $24.1 billion by 2003. Moreover, the Direct
Marketing Association estimates that worldwide expenditures for online direct
marketing campaigns will grow from $603 million in 1998 to approximately $5.3
billion in 2003. Online advertisers are increasingly demanding effective
advertising campaigns that go beyond traditional banner ads and incorporate
enhanced features such as sponsorships, co-branding, content integration and
rich media. eStats estimates that sponsorships will grow from approximately 40%
of total online advertising in 1998 to approximately 58% in 2001. We believe
that our focus on creating innovative sponsorship-driven advertising campaigns,
our in-depth industry knowledge and our robust adMonitor technology enable us
to provide our clients with fully-outsourced solutions that meet their complex
and evolving needs.
Our objective is to be the leading provider of comprehensive online
advertising and direct marketing solutions. The following are key elements of
our strategy:
. Capture a greater share of online advertising budgets;
. Grow our sales and marketing organization;
3
<PAGE>
. Selectively expand our network of Web publishers;
. Enhance and expand our adMonitor technology;
. Develop, deploy and leverage our library of creative marketing
solutions; and
. Expand our direct marketing capabilities.
Our business began in January 1997 as a proprietorship of one of our
founders, John C. Bohan. We changed our form of operations in May 1997 to a
California limited liability company known as John Bohan & Associates, LLC. We
initially conducted business under the name AdNet Strategies, and in January
1998, we incorporated under the name AdNet Strategies, Inc. in California and
elected S-corporation status. In December 1998, we changed our name to Latitude
90, Inc. and became a C-corporation. We reincorporated in Delaware as L90, Inc.
in September 1999. Our principal executive offices are located at 2020 Santa
Monica Boulevard, Suite 400, Santa Monica, California 90404. Our telephone
number at that location is (310) 315-1199. Our Web address is www.L90.com.
Information contained on our Web site does not constitute part of this
prospectus. References in this prospectus to "the Company," "L90," "we," "our,"
and "us" refer to L90, Inc. and its predecessor businesses and entities.
Unless otherwise indicated, all information in this prospectus:
. reflects the automatic conversion of all 2,000 shares of Series A
preferred stock, 4,107,044 shares of Series B preferred stock and
1,307,190 shares of Series C preferred stock into 7,914,234 shares of
common stock upon completion of this offering;
. reflects the cashless exercise of warrants to acquire shares of
common stock with a weighted average exercise price of $3.23 per share;
. excludes options and warrants outstanding as of August 31, 1999, to
purchase 3,962,490 shares of common stock with a weighted average
exercise price of $1.70 per share; and
. assumes no exercise of the underwriters' over-allotment option.
4
<PAGE>
The Offering
The following information excludes 3,962,490 shares of common stock issuable
upon the exercise of stock options and warrants outstanding as of August 31,
1999, with a weighted average exercise price of $1.70 per share.
<TABLE>
<C> <S>
Common Stock we are offering........................ shares
Common Stock to be outstanding after this offering.. shares
Underwriters' over-allotment option................. shares
Use of Proceeds..................................... We intend to use the net
proceeds of this offering
for general corporate
purposes, including
working capital,
information technology
investments, sales and
marketing efforts and
potential acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol.............. "LNTY"
</TABLE>
------------
Summary Financial Data
(in thousands, except per share data)
The following summary financial data is derived and qualified in its entirety
by our financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from
Inception
(January 5, Six Months
1997) through Year Ended Ended June 30,
December 31, December 31, --------------
1997 1998 1998 1999
------------- ------------ ------ -------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
System revenue...................... $4,210 $8,024 $3,376 $ 5,796
====== ====== ====== =======
Revenue............................. $1,160 $2,189 $ 921 $ 1,949
Gross profit........................ 1,160 2,189 921 1,640
Operating income (loss)............. 307 (306) 38 (1,897)
Net income (loss) attributable to
common stockholders................ $ 310 $ (313) $ 41 $(1,942)
====== ====== ====== =======
Pro forma basic and diluted net loss
per share(1)....................... $ $ $ $
====== ====== ====== =======
Weighted average shares outstanding
used in pro forma basic and diluted
per share calculation(1)...........
====== =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
---------------------
Pro Forma
Actual As Adjusted(1)
------ --------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 972 $
Current assets.......................................... 3,444
Total assets............................................ 3,933
Long-term capital lease obligations, net of current
portion................................................ 271
Total stockholders' equity ............................. 191
</TABLE>
- --------
(1) The foregoing table assumes no exercise of any stock options or warrants
outstanding as of June 30, 1999 (except the pro forma data, which assume
the cashless exercise of warrants to acquire shares of common stock).
As of June 30, 1999, there were options and warrants outstanding to
purchase a total of 2,052,890 shares of common stock with a weighted
average exercise price of $1.01 per share.
5
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. The risks and uncertainties described below are not the only
ones we may face. Additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occurs, our
business, results of operations and financial condition would likely suffer. In
such case, the trading price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
Our prospects are difficult to forecast because we have only been operating our
business since January 1997
We began our business in January 1997 and have a brief operating history.
Therefore, we lack sufficient historical financial and operating data on which
to adequately forecast future operating results. You should consider our
prospects in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving markets such as online
advertising. If we are unsuccessful in addressing these risks, our business,
results of operations and financial condition may suffer. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for more information.
We have a history of losses and expect to incur substantial losses in the
future
We incurred net losses of approximately $1.9 million for the six months ended
June 30, 1999 and $290,000 for the year ended December 31, 1998. We expect to
continue to incur substantial net losses for the foreseeable future due to a
high level of planned operating expenditures. We are making these expenditures
in anticipation of higher revenue, but there will be a delay in realizing
higher revenue even if we are successful. If we do not succeed in substantially
increasing our revenue, our losses may continue indefinitely and would likely
increase. In addition, we cannot assure you that we will return to
profitability. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more information.
Our quarterly operating results may fluctuate, which may make it difficult to
forecast our future performance and may result in volatility in our stock price
Although we intend to increase our spending and investment to support our
planned growth, our revenue, and some of our costs, will be much less
predictable. This unpredictability will likely result in significant
fluctuations in our quarterly results. Therefore, you should not rely on
quarter-to-quarter comparisons of results of operations as an indication of our
future performance. Because of our limited operating history and the emerging
nature of our industry, we anticipate that securities analysts may have
difficulty in accurately forecasting our results. If our operating results are
below market expectations, the price of our common stock will likely decline.
The following are among the factors that could cause significant fluctuations
in our operating results:
. market acceptance of the Internet as an advertising medium;
. delay or cancellation of advertising contracts;
. expiration or termination of contracts with Web publishers;
6
<PAGE>
. introduction of new or enhanced services by us or our competitors;
. system outages, delays in obtaining new equipment or problems with
upgrades;
. disruption or impairment of the Internet;
. changes in our pricing policies or those of our competitors;
. seasonality in the demand for advertising;
. changes in government regulation of the Internet; and
. general economic and market conditions, as well as economic and market
conditions specific to the Internet.
If we do not effectively manage our growth, our business, results of operations
and financial condition could suffer
Our success depends in part on our ability to manage our growth and
expansion. We have grown to 94 full-time and three part-time employees as of
August 31, 1999 from 33 full-time and three part-time employees as of December
31, 1998. We plan to continue to expand our sales, marketing, technology and
administrative organizations. This anticipated future expansion may place a
significant strain on our managerial, operational and financial resources. In
addition, we will need to continue to improve our financial and managerial
controls, enhance our reporting systems and procedures and expand, train and
manage our work force. Our business, results of operations and financial
condition may suffer if our growth and expansion is not effectively managed.
If we are unable to attract and retain sales and client service personnel, or
if we are unable to adequately train our sales personnel in a timely manner,
our business and future revenue growth could suffer
Our future success depends on our ability to identify, recruit, train,
integrate and retain qualified sales and marketing, managerial and technical
personnel. We anticipate the need to hire a significant number of personnel to
achieve our growth objectives. Competition for these personnel is intense. The
inability to attract, integrate and retain the necessary sales, marketing,
technical and administrative personnel could cause our business, results of
operations and financial condition to suffer.
If adMonitor is not effective, our relationships with our advertising clients
may be harmed
Because our adMonitor technology is relatively new, we cannot assure you that
the use of our adMonitor services will remain effective in serving, targeting
and tracking advertisements or other marketing and promotional activities. Our
revenue would be adversely affected if advertisers do not perceive that the use
of our adMonitor services will improve the effectiveness of their marketing
campaigns.
A small number of Web publishers accounts for a substantial percentage of our
advertising revenue
For the six months ended June 30, 1999, our top five Web publishers accounted
for approximately 50% of our revenue, and our top three Web publishers
accounted for approximately 35% of our revenue. For the year ended December 31,
1998 our top five Web publishers accounted for approximately 61% of our
revenue, and our top three Web publishers accounted for approximately 51% of
our revenue. Our contracts with Web publishers, including these top Web
7
<PAGE>
publishers, are generally one year in duration and can be terminated by either
party with as little as 30 days notice. We cannot assure you that any of our
Web publishers will continue their relationships with us. Additionally, we may
lose Web publishers as a result of acquisitions or as a result of the
discontinuation of operations of any of our Web publishers. For example,
Four11, Inc. terminated its contract with us after it was acquired by Yahoo!.
Furthermore, we cannot assure you that we would be able to replace a departed
or acquired Web publisher with another Web publisher with comparable traffic
patterns and demographics, if at all. Therefore, our failure to develop and
sustain long-term relationships with Web publishers or the reduction in traffic
of a current Web publisher in our network could limit our ability to generate
advertising revenue.
A limited number of advertisers accounts for a significant percentage of our
revenue
For the six months ended June 30, 1999, revenue from our five largest
advertisers accounted for 27.0% of our revenue. No single advertiser accounted
for over 10.0% of our revenue for the six months ended June 30, 1999 or for the
year ended December 31, 1998. However, our largest advertiser accounted for
17.4% of our revenue for the year ended December 31, 1997. Advertisers
typically purchase advertising under purchase order agreements that run for a
limited period of time. We cannot assure you that our top advertisers or our
other advertisers will continue their relationships with us. The loss of one or
more of the advertisers that represent a significant portion of our revenue
could cause our business, results of operations and financial condition to
suffer. In addition, our contracts with Web publishers require us to bear the
risk of non-payment of advertising fees from advertisers. Accordingly, the non-
payment or late payment of amounts due to us from a significant advertiser
could cause our financial condition to suffer.
Our business may suffer if the Internet is not increasingly accepted as an
effective advertising medium
If the online advertising market does not develop further, or develops more
slowly than expected, we may not generate enough advertising revenue to return
to profitability. Since we expect to derive substantially all of our revenue in
the foreseeable future from online advertising, our future success is highly
dependent on the increased use of the Internet as an advertising medium. Online
advertising is relatively new and rapidly evolving, and its effectiveness,
compared to traditional media, is uncertain. Widespread use of online
advertising depends upon businesses accepting a new way of marketing their
products and services. Businesses may view online advertising as undesirable or
less effective for promoting their products and services relative to
traditional advertising media. In addition, the widespread adoption of
technologies that permit Internet users to block advertisements on Web sites
could inhibit the growth of the Internet as an advertising medium.
If electronic commerce does not grow, or grows more slowly than expected, our
business may suffer
Our success depends in part on market acceptance of electronic commerce. A
number of factors outside of our control could prevent this acceptance,
including the following:
. the necessary network infrastructure for substantial growth in usage of
the Internet may not develop adequately;
. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
. negative publicity and consumer concern surrounding the security of
transactions could impede the growth of electronic commerce.
8
<PAGE>
If electronic commerce does not grow due to any of the above factors, or any
other factor, our business may he harmed.
Failure of our technology and computing systems could harm our business
The continuing and uninterrupted performance of our servers and networking
hardware and software infrastructure is critical to our business. Any system
failure that causes interruptions in our ability to service our customers,
including failures that affect our ability to deliver advertisements without
significant delay to the viewer, could reduce customer satisfaction and, if
sustained or repeated, could harm our business. Further, an increase in the
volume of advertising delivered through our servers could strain the capacity
of our hardware and software, which could lead to slower response times or
system failures. If we do not effectively address any capacity constraints, our
business, results of operations and financial condition may suffer.
We depend on a stable Web infrastructure
The Internet may not in the future be a viable commercial marketplace because
of inadequate development of the necessary infrastructure, slow development of
complementary products, including high speed modems, delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet activity or increased government regulation. To the extent that the
Internet continues to experience significant growth in the number of users and
the level of use, we cannot assure you that the Internet infrastructure will
continue to be able to support the demands placed on it by its users. If the
necessary infrastructure or complementary products are not developed, our
business, results of operations and financial condition may suffer.
We may be unable to respond to rapid changes in technology and the Internet
The market for online products and services is subject to rapid change and
characterized by evolving industry standards and frequent introductions of new
technological developments. These new standards and technological developments
could make our existing or future products or services obsolete. Keeping pace
with the introduction of new standards and technological developments could
result in significant additional costs or prove to be difficult or impossible
for us. Any failure to keep pace with the introduction of new standards and
technological developments on a cost-effective basis could harm our business,
results of operations and financial condition.
Many competitors have substantial competitive advantages that may make it more
difficult for us to retain our existing advertisers and Web publishers and to
attract new advertisers and Web publishers
The markets for online advertising, direct marketing and ad serving and
tracking technology are intensely competitive. We compete with television,
radio, cable and print for a share of advertisers' total advertising budgets.
We also compete with large Web publishers and Web search engine companies, such
as America Online, Excite@Home, Infoseek and Yahoo!, for the online advertising
budgets of advertisers. In addition, we compete with various Internet
advertising networks, such as 24/7 Media, DoubleClick and Flycast
Communications. In marketing our adMonitor products and services to Web
publishers and advertisers, we also compete with providers of ad serving
technology, database management and related services, including AdForce,
DoubleClick, Engage Technologies and NetGravity. Many of our current and
potential competitors enjoy competitive advantages over us, including
significantly greater financial, technical and marketing resources. They may
also enjoy
9
<PAGE>
significantly greater brand recognition and substantially larger bases of Web
site clients and advertisers. As a result, our competitors may be able to
respond more quickly than we can to new or emerging technologies and changes in
client requirements. Our competitors may also have a significantly greater
ability to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to potential employees,
strategic partners, advertisers and Web publishers. Further, we cannot assure
you that our competitors will not develop online products and services that are
equal to or superior to our products and services or that achieve greater
market acceptance than our products and services. We cannot assure you that we
will be able to compete successfully against existing or potential competitors
or that competitive pressures will not cause our business, results of
operations and financial condition to suffer. Please see "Business --
Competition."
We may not be successful in acquiring and integrating new technologies and
businesses
We intend to acquire and make investments in complementary businesses,
products, services or technologies. We cannot assure you that we will be able
to identify suitable acquisition or investment candidates. Even if we do
identify suitable candidates, we cannot assure you that we will be able to make
any potential acquisition or investment on commercially acceptable terms.
Moreover, we may have difficulty integrating any acquired businesses, products,
services or technologies into our operations. These difficulties could disrupt
our business, distract our management and employees and increase our expenses.
In addition, we may incur debt or issue equity securities to fund any future
acquisitions. The issuance of equity securities could be dilutive to existing
stockholders.
If we are unable to safeguard the security and privacy of our information, our
business may suffer
Our technical infrastructure is potentially vulnerable to physical or
electronic computer break-ins, viruses and similar disruptive problems.
Weaknesses or vulnerabilities in the Internet, a user's personal computer or in
our services could compromise the confidential nature of information
transmitted over the Internet. These factors could require us to devote
significant financial and human resources to protect against future breaches
and alleviate or mitigate problems caused by security breaches. Security
breaches could result in financial loss, litigation and other liabilities, any
of which could cause our business, results of operations and financial
condition to suffer.
Government regulation may affect our ability to gather, generate or use
information for profiles and may hinder our ability to conduct business
The legal and regulatory environment governing the Internet and the use of
information about Web users is uncertain and may change. Web sites typically
place small files of information, commonly known as cookies, on a Web user's
hard drive, generally without the user's knowledge or consent. Although it is
possible to modify a Web user's Internet browser software to prevent the
placement of cookies, few users currently choose to do so. Our adMonitor
tracking technology currently uses cookies to collect data about a Web user's
movement through the Internet. Some Internet commentators and privacy advocates
have suggested limiting or eliminating the use of cookies and restricting the
collection of personal data through the use of cookies. United States
legislators in the past have introduced a number of bills aimed at regulating
the collection and use of personal data from Internet users and additional
similar bills are being considered during the current congressional session.
The European Union has recently adopted a directive addressing data privacy
that may result in limitations on the collection and the use of specific
personal information regarding
10
<PAGE>
Internet users. In addition, Germany and other European Union member countries
have imposed their own laws protecting data that can become personally
identifiable through subsequent processing. Other countries have enacted, or
are considering, limitations on the use of personal data as well. The
effectiveness of our technology could be impaired by any limitation in the use
of cookies or the collection of personal data, and consequently, our business,
results of operations and financial condition could be harmed.
A number of laws and regulations have been, and in the future may be, adopted
covering issues such as pricing, acceptable content, taxation and quality of
products and services on the Internet. This legislation could inhibit the
growth in the use of the Internet and decrease the acceptance of the Internet
as a communications and commercial medium. In addition, due to the global
accessibility of the Internet, it is possible that multiple federal, state or
foreign jurisdictions might inconsistently regulate our activities and our
customers. Any of these developments could cause our business, results of
operations and financial condition to suffer.
Any failure by us to protect our intellectual property could harm our business
and competitive position
We generally protect our intellectual property through a combination of
trademark, trade secret and copyright laws, confidentiality agreements with our
employees and third parties, and license agreements with consultants, vendors
and clients. We have filed applications for several trademarks in the United
States. We cannot assure you that any of our trademark applications will be
approved. Even if these applications are approved, the trademarks may be
successfully challenged by others or invalidated. In addition, despite our
efforts to protect our intellectual property, unauthorized parties may attempt
to copy aspects of our services or to obtain and use information that we regard
as proprietary. We may not have adequate remedies for any breach of
confidentiality agreements, and our trade secrets may otherwise become known or
independently developed by competitors. Please see "Business -- Intellectual
Property Rights" for more information.
DoubleClick was recently awarded a patent on certain aspects of its ad
delivery technology. The DoubleClick patent may cover technology we use in our
advertising solutions. If we are unable to distinguish our technology from the
technology covered under the DoubleClick patent or if the DoubleClick patent is
not invalidated, we may be limited in our ability to use our technology or may
be required to license the use of technology from DoubleClick. If this
situation were to occur, we cannot assure you that we would be able to enter
into a licensing agreement with DoubleClick on commercially reasonable terms,
if at all. Furthermore, other third parties may have or may in the future be
granted patents that cover our technology. We may be limited in our ability to
use our technology without licenses from these third parties, which may not be
available on commercially reasonable terms, if at all.
We may be liable for content available or posted on the Web sites of our
publishers
We may be liable to third parties for content in the advertising we serve if
the music, artwork, text or other content involved violates the copyright,
trademark or other intellectual property rights of such third parties or if the
content is defamatory. Any claims or counterclaims could be time-consuming,
result in costly litigation or divert management's attention.
11
<PAGE>
Our planned international expansion may be affected by factors beyond our
control
We are currently evaluating the initiation of operations in selected
international markets. This potential expansion could occur through internal
growth, acquisition, or both. To date, we have not deployed international
versions of our products and services. Expansion into international markets
will require substantial resources and attention from management. We have no
experience in international operations and may not be able to compete
effectively in international markets. We may face numerous risks inherent in
conducting business internationally, such as:
. the impact of recessions in economies outside the United States;
. changes in domestic regulatory requirements, as well as differences
between domestic and foreign regulatory requirements;
. export restrictions, including export controls relating to encryption
technology;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences;
. difficulties and costs of staffing and managing foreign operations;
. problems associated with any acquisitions we might pursue;
. foreign political and economic instability;
. tariffs and other trade barriers;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity.
Our failure to address these risks adequately may cause our business, results
of operations and financial condition to suffer.
Our business may suffer if we lose key employees
Our performance and future success is substantially dependent on the
continued service of our executive officers and other key employees, all of
whom are employed on an at-will basis. Given our early stage of development, we
are dependent on our ability to retain and motivate highly qualified personnel,
especially our management, technical and business development executives and
other key employees. The loss of the services of one or more of our executive
officers or other key employees would likely cause our business, results of
operations and financial condition to suffer. Please see "Management."
Projections in this prospectus relating to the growth of e-commerce and the
Internet are based on assumptions that could turn out to be incorrect, and
actual results could be materially different from these expected results
This prospectus contains various third-party data and projections, including
those relating to revenue generated by e-commerce, the number of Internet users
and the amount spent on Internet advertising and direct marketing. These data
and projections have been included in studies prepared by independent market
research firms, and the projections are based on surveys, financial reports and
models used by these firms. Actual results or circumstances may be materially
different from the projections. Any difference could cause our business,
results of operations and financial condition to suffer. These data and
projections are inherently imprecise and investors are cautioned not to place
undue reliance on them.
12
<PAGE>
Potential Year 2000 risks may adversely affect our business
We may have substantial exposure to the Year 2000 problem, both with our own
systems and with systems we do not control. The Year 2000 problem is the result
of many computer systems and software programs having been designed to use two
digits rather than four to define the applicable year. Date-sensitive hardware
and software may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruptions of operations.
With respect to our internal systems, we have been working with our
technology personnel during the research and development stage of such systems
and during the ordinary course of our business to identify any exposure to the
Year 2000 problem. Any Year 2000 problem discovered may require us to upgrade
our systems at a substantial cost. We also rely on third party vendors to
provide network services, maintain our databases and support and operate our
systems. We are in the process of contacting these third party vendors to
assess their plans and progress in addressing the Year 2000 problem. Failures
or interruptions of any of the systems of these third parties because of the
Year 2000 problem could seriously damage our business, results of operations
and financial condition. Furthermore, we cannot assure you that we will be
successful in our efforts to identify and remedy by the end of this year all
Year 2000 problems that may affect our systems.
Our business is dependent upon the availability of our publishers' Web sites.
We are in the process of identifying any potential Year 2000 problem at the Web
sites of our publishers, but we cannot assure you that Year 2000 problems will
not materialize at any of these sites. Moreover, our publishers' Web sites rely
on a wide array of hardware and software, as well as numerous Internet service
providers, in order to reach the Internet and maintain their Web sites.
Failures or interruptions of any of the systems associated with our Web
publishers due to Year 2000 problems could result in significant damage to our
business and harm our results of operations and financial condition. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of the Year 2000" for detailed information on our state of
readiness, costs, potential risks and contingency plans regarding the Year 2000
problem.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price of our common stock to decline
A substantial number of shares of common stock will be available for sale in
the public market following this offering, which could adversely affect the
market price of our common stock. This includes up to 3,218,234 shares of
common stock registered concurrently with this offering which may be offered
from time to time by two of our current stockholders, but are subject to at
least a 180-day lock-up from the date of commencement of this offering. See
"Shares Eligible for Future Sale" for a more detailed description of the
eligibility of shares of our common stock for future sale.
We will have broad discretion with respect to the use of proceeds from this
offering
As of the date of this prospectus, we cannot specify any of the particular
uses of the net proceeds we will receive from this offering. Our management
will have significant flexibility in applying the net proceeds of this
offering. If our management does not apply these funds effectively, our
business, results of operations and financial condition could suffer. Please
see "Use of Proceeds."
13
<PAGE>
Our executive officers and directors will exercise significant control over us
following this offering
Following the offering, we anticipate that our executive officers and
directors, in the aggregate, will beneficially own or control approximately
% of the outstanding shares of common stock and % of the outstanding
shares of common stock if the underwriters' over-allotment option is exercised
in full. Our officers, directors and their affiliates will have the ability to
control the election of our board of directors and the outcome of corporate
actions requiring stockholder approval, including merger and other changes of
corporate control, going private transactions and other extraordinary
transactions and terms thereof. Please see "Principal Stockholders."
We may need additional capital in the future to operate our business
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months. We may need to raise additional funds in the
future, which may include the net proceeds from this offering, to fund our
operations, to enhance or expand the range of products and services we offer or
to respond to competitive pressures or perceived opportunities. We cannot
assure you that additional financing will be available on terms favorable to
us, or at all. If adequate funds are not available or not available when
required or on acceptable terms, our business, results of operations and
financial condition may suffer.
We are subject to anti-takeover provisions, which may make it difficult for a
third party to acquire us
We are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's voting stock. Please see "Description of Capital Stock."
There has been no prior market for our common stock and our stock price may
experience extreme price and volume fluctuations
Prior to this offering, there has been no public market for our common stock.
We cannot assure you that an active trading market will develop or be sustained
or that the market price of our common stock will not decline. Even if an
active trading market does develop, the market price of our of common stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as:
. actual or anticipated variations in our revenue;
. earnings and cash flow;
. announcements of new service offerings;
. technological innovations;
. competitive developments with respect to patents, copyrights or
proprietary rights;
14
<PAGE>
. changes in financial estimates by securities analysts;
. conditions and trends in the Internet and electronic commerce
industries;
. adoption of new accounting standards affecting our industry; and
. general market conditions.
Further, the stock markets, and in particular the Nasdaq National Market,
have experienced extreme price and volume fluctuations that have affected the
market prices of equity securities of many technology companies and that often
have been unrelated or disproportionate to the operating performance of these
companies. These market fluctuations, as well as general economic, political
and market conditions such as recessions, interest rate changes or
international currency fluctuations, may cause our stock price to fall. In the
past, following periods of volatility in a company's stock price, securities
class action litigation has often been instituted against a company. This
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would cause our business, results
of operations and financial condition to suffer.
Investors in this offering will experience an immediate and substantial
dilution in the book value of their investment
The initial public offering price of our common stock is substantially higher
than what the net tangible book value per share of the common stock will be
immediately after this offering. Investors purchasing our common stock in this
offering will incur immediate dilution of approximately $ in the net tangible
book value per share of our common stock from the price paid for our common
stock. For purposes of this calculation we have assumed an initial public
offering price of $ per share. See "Dilution." The exercise of outstanding
options and warrants may result in further dilution.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "may," "will," "should,"
"potential," "continue," "expects," "anticipates," "estimates," "intends,"
"plans," "believes" and any similar expressions are intended to identify
forward- looking statements. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of other factors,
as more fully described in the "Risk Factors" section and elsewhere in this
prospectus. You should not rely on forward-looking statements because they are
inherently uncertain.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock in the offering will be approximately $ million, assuming an
initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million. We intend to use the net
proceeds from the offering for general corporate purposes, including working
capital, information technology investments, sales and marketing expansion, new
products and services and potential acquisitions. We have no current intentions
to acquire any businesses, products, services or technologies. Pending these
uses, the proceeds will be invested in short-term, investment grade, interest-
bearing securities.
DIVIDEND POLICY
Other than a total of $50,000 that we distributed to our common stockholders
during the year ended December 31, 1998, we have not declared or paid cash
dividends on our common stock since our incorporation. Holders of our Series A
preferred stock are entitled to receive cumulative dividends that accrue at an
annual rate of $40.00 per share. Holders of our Series B preferred stock are
entitled to receive cumulative dividends that accrue at an annual rate of $0.14
per share. Holders of Series C preferred stock are entitled to receive
cumulative dividends that accrue at an annual rate of $0.18 per share. These
dividends are expected to be paid in cash at the closing of this offering upon
conversion of the Series A, Series B, and Series C preferred stock into common
stock. The aggregate amount of these dividend payments is expected to be
$ . We otherwise currently intend to retain any future earnings for use
in our business and do not anticipate paying any additional cash dividends in
the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to give effect to:
. the completion in September 1999 of our private placements of
4,107,044 shares of Series B preferred stock and 1,307,190 shares of
Series C preferred stock;
. the automatic conversion upon the closing of this offering of all
outstanding shares of preferred stock into shares of common stock;
. the issuance upon the closing of this offering of an aggregate of
shares of our common stock upon the cashless exercise of
warrants at a weighted average exercise price of $3.23 per share;
and
. on a pro forma as adjusted basis to give effect to the sale of, and the
application of the net proceeds from, shares of common stock
in this offering, assuming an initial public offering price of $ per
share.
This information should be read in conjunction with our financial statements
and the notes relating to these statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
June 30, 1999
---------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------ -----------
(unaudited)
(in thousands, except per
share data)
<S> <C> <C> <C>
Long-term capital lease obligations, net of
current portion.................................. $ 271 $ $
Stockholders' equity:
Preferred stock, $.001 par value; 15,000,000
shares authorized:
Series A preferred stock; 2,000 shares
authorized; 2,000 shares issued and outstanding
on an actual basis; 2,000 shares issued and
none outstanding on a pro forma basis; and no
shares issued or outstanding on a pro forma as
adjusted basis................................. 2,000 --
Series B preferred stock; 5,000,000 shares
authorized; no shares issued and outstanding on
an actual basis; 4,107,044 shares issued and
none outstanding on a pro forma basis; and no
shares issued or outstanding on a pro forma as
adjusted basis................................. -- --
Series C preferred stock; 3,000,000 shares
authorized; no shares issued and outstanding on
an actual basis; 1,307,190 shares issued and
none outstanding on a pro forma basis; and no
shares issued or outstanding on a pro forma as
adjusted basis................................. -- --
Common stock, $.001 par value; 80,000,000 shares
authorized; 10,000,000 shares issued and
outstanding on an actual basis; shares
issued and outstanding on a pro forma basis; and
shares issued and outstanding on a
pro forma as adjusted basis...................... 10
Additional paid-in capital........................ 47
Notes receivable for common stock................. (44)
Accumulated deficit............................... (1,822)
------- ------ ------
Total stockholders' equity........................ 191
------- ------ ------
Total capitalization.............................. $ 462 $ $
======= ====== ======
</TABLE>
The foregoing table assumes no exercise of any stock options or warrants
outstanding as of June 30, 1999 (except the pro forma data, which assume the
cashless exercise of warrants to acquire shares of common stock). As of
June 30, 1999, there were options and warrants outstanding to purchase a total
of 2,052,890 shares of common stock with a weighted average exercise price of
$1.01 per share.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999, after giving
effect, upon the closing of this offering, to:
. the automatic conversion of all outstanding shares of preferred stock
into common stock; and
. the cashless exercise of certain warrants to acquire shares of common
stock
was $ , or $ per share of common stock.
Pro forma net tangible book value per share is equal to the amount of our
total tangible assets, reduced by the amount of our total liabilities, divided
by shares of common stock outstanding, on a pro forma basis, as of June
30, 1999. Assuming the sale of the shares offered hereby at an initial
public offering price of $ per share, and after deducting the underwriting
discounts and commissions and estimated offering expenses, and the application
of the estimated net proceeds therefrom, our pro forma net tangible book value
as of June 30, 1999 would have been $ , or $ per share of common
stock. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price per share.............................. $
Pro forma net tangible book value per share as of June 30, 1999....
Pro forma increase attributable to new investors...................
Pro forma net tangible book value per share after the offering.......
Pro forma dilution per share to new investors........................
</TABLE>
The following table summarizes the total number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid by existing stockholders and by new investors before deduction of
estimated discounts and commissions and estimated offering expenses payable by
us, on a pro forma basis as of June 30, 1999, after giving effect to:
. the automatic conversion of all outstanding shares of preferred stock
into common stock; and
. the cashless exercise of certain warrants to acquire shares of common
stock.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price Per
Number Percent Amount Percent Share
-------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... $ $
New investors...........
Total.................
</TABLE>
The foregoing tables assume no exercise of any stock options or warrants
outstanding as of June 30, 1999 (except the pro forma data, which assume the
cashless exercise of warrants to acquire shares of common stock). After the
closing of this offering, no shares of preferred stock will be issued or
outstanding. There will be shares of common stock outstanding after the
offering. As of June 30, 1999, there were options and warrants outstanding to
purchase a total of 2,052,890 shares of common stock with a weighted average
exercise price of $1.01 per share.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The statement of operations data for the period from
inception through the year ended December 31, 1997 and the year ended December
31, 1998 and the balance sheet data as of June 30, 1998 and 1999 are derived
from our Financial Statements that are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception Six Months
(January 5, 1997) Ended June 30,
through Year Ended --------------
December 31, 1997 December 31, 1998 1998 1999
----------------- ------------------- ------ -------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
System revenue........... $4,210 $8,024 $3,376 $ 5,796
====== ====== ====== =======
Revenue.................. $1,160 $2,189 $ 921 $ 1,949
Cost of revenue.......... -- -- -- 309
------ ------ ------ -------
Gross profit............. 1,160 2,189 921 1,640
Operating expenses:
Sales and marketing.... 550 1,362 553 1,806
Research and
development........... -- 138 27 392
General and
administrative........ 303 995 303 1,339
------ ------ ------ -------
Total operating
expenses................ 853 2,495 883 3,537
------ ------ ------ -------
Operating income (loss).. 307 (306) 38 (1,897)
Interest income
(expense), net.......... 3 17 3 (5)
------ ------ ------ -------
Net income (loss) before
provision for income
taxes................... 310 (289) 41 (1,902)
Provision for income
taxes................... -- 1 -- --
------ ------ ------ -------
Net income (loss)........ $ 310 $ (290) $ 41 $(1,902)
====== ====== ====== =======
Cumulative dividends on
participating preferred
stock................... -- (23) -- (40)
------ ------ ------ -------
Net income (loss)
attributable to common
stockholders............ $ 310 $ (313) $ 41 $(1,942)
====== ====== ====== =======
Pro forma basic and
diluted net loss
per share(1)............ $ $ $ $
====== ====== ====== =======
Weighted average shares
outstanding used in pro
forma basic and diluted
per share
calculation(1)..........
====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
------------ -------------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $235 $2,112 $ 972
Working capital......................... 470 1,996 (28)
Total assets............................ 970 3,936 3,933
Convertible preferred stock............. -- 2,000 2,000
Total stockholders' equity.............. 495 2,133 191
</TABLE>
- --------
(1) The foregoing table assumes no exercise of any stock options or warrants
outstanding as of June 30, 1999 (except the pro forma data, which assume
the cashless exercise of warrants to acquire shares of common stock).
As of June 30, 1999, there were options and warrants outstanding to
purchase a total of 2,052,890 shares of common stock with a weighted
average exercise price of $1.01 per share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with the financial statements and the notes to
financial statements included elsewhere in this prospectus. This discussion
contains forward-looking statements based on our current expectations,
assumptions, estimates and projections about us and our industry. These
forward-looking statements involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, as more fully described in the "Risk
Factors" section and elsewhere in this prospectus.
Overview
We are a leading provider of comprehensive online advertising and direct
marketing solutions for advertisers and Web publishers. We began our business
in January 1997 as a proprietorship of one of our founders, John C. Bohan. We
changed our form of operations in May 1997 to a California limited liability
company known as John Bohan & Associates, LLC. We initially conducted business
under the name AdNet Strategies. In January 1998, we incorporated under the
name AdNet Strategies, Inc. in California and elected S-corporation status. In
December 1998, we changed our name to Latitude 90, Inc. and became a C-
corporation. We reincorporated in Delaware as L90, Inc. in September 1999.
Since inception, substantially all of our revenue has been derived from
online advertising sales, and we expect this to continue for the foreseeable
future. We offer advertisements primarily priced on a cost per thousand ad
impressions, or CPM, basis. We also offer direct marketing programs which may
be priced on a cost per action basis, such as cost for each new user
registration. In January 1999, we began to charge our customers for the use of
our adMonitor technology.
Revenue from ad sales is earned under commission-based and service fee-based
contracts. For commission-based contracts, we receive commissions from Web
publishers for the sale of their ad inventory. Revenue earned from commission-
based contracts reflects only the amount of the commission earned without any
associated cost of revenue. We recognize commissions ratably over the term of
an advertising campaign, which typically ranges from one to twelve months. For
service fee-based contracts, we are obligated to pay a service fee to Web
publishers for ads placed on their Web sites. Additionally, under service fee-
based contracts, we bear the risk of loss from the non-collection of fees
payable by advertisers for ads sold. Consequently, revenue earned from service
fee-based contracts reflects the full value of the ads sold. System revenue
represents the full value of ads sold under either commission-based contracts
or service fee-based contracts.
In the second quarter of 1999, we began the process of amending our
commission-based contracts with Web publishers to provide that we will sell
their ad inventory on a best efforts basis to our advertising clients and remit
to Web publishers, as a service fee, a percentage of the resulting advertising
revenue. We are attempting to amend all of our existing commission-based
contracts with Web publishers to convert these contracts into service fee-based
contracts. Until all of our commission-based contracts with Web publishers are
amended, revenue will include a mix of commissions received under our
commission-based contracts and total billings to our advertising clients under
our service fee-based contracts. As our amended contracts are phased in, we
expect that revenue will increase disproportionately from prior periods as a
result of the recognition of total billings to our advertising clients as
revenue.
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The financial statements included elsewhere in this prospectus include
references to system revenue. We believe system revenue provides a consistent
basis for reporting revenue from period to period, regardless of the change in
contract type, as discussed above. System revenue represents the full value of
ads sold under either commission-based contracts or service fee-based
contracts. The discussion found below in the "Results of Operations" includes
an analysis of profitability as a percentage of system revenue, which we
believe provides a more meaningful comparison of our relative profitability
from period to period. We believe that period to period comparisons of
operating results are not always meaningful and that the results for any period
should not be relied upon as an indication of future performance.
We expect that revenue generated from the delivery of advertisements on our
network of Web sites will continue to account for a substantial portion of our
revenue for the foreseeable future. Our five largest advertising customers
accounted for 27.0% of revenue for the six months ended June 30, 1999, 24.0% of
revenue for the year ended December 31, 1998 and 32.0% for the period ended
December 31, 1997. Our largest advertising customer accounted for less than
10.0% of revenue for the six months ended June 30, 1999, less than 10.0% for
the year ended December 31, 1998 and 17.4% for the period ended December 31,
1997.
We typically enter into one-year contracts with the Web publishers in our
network. These agreements usually may be terminated by either party by giving
30 to 120 days prior written notice. Additionally, these agreements are usually
automatically renewable for successive one-year terms. Ads delivered on the top
five Web sites in our network accounted for 49.5% of our revenue for the six
months ended June 30, 1999, 61.4% of our revenue for the year ended
December 31, 1998 and 85.6% for the period ended December 31, 1997.
Cost of revenue includes service fees paid to our Web publishers under our
service fee-based contracts. Beginning in the first quarter of 1999, cost of
revenue also includes Internet connectivity and bandwidth costs associated with
ad serving. We expect cost of revenue to increase on an absolute dollar basis
in future periods as we increase the number of our Web publishing clients and
as more of the contracts with these Web publishers become service fee-based.
Results of Operations
Six Months Ended June 30, 1999 and 1998
Revenue. Revenue increased 112% to $1.9 million for the six months ended June
30, 1999 from $921,000 for the six months ended June 30, 1998. This was due to
an increase in the number of advertising customers, an increase in the number
of ads delivered, our adoption of service fee-based contracts and the
initiation of our charging service fees to customers for the use of adMonitor.
System revenue increased 71.7% to $5.8 million for the six months ended June
30, 1999 from $3.4 million for the six months ended June 30, 1998.
Gross Profit. Gross profit was $1.6 million for the six months ended June 30,
1999 and $921,000 for the six months ended June 30, 1998. During the six months
ended June 30, 1998, because all revenue was derived solely from advertising
sales commissions, there was no associated cost of revenue. Therefore, gross
profit for this period equals the revenue for the period. Gross profit as a
percentage of system revenue was 28.3% for the six months ended June 30, 1999,
compared to 27.3% for the six months ended June 30, 1998. This increase was due
to our ability to retain a higher percentage of revenue generated by the sale
of ad inventory on behalf of Web publishers and their increased use of
adMonitor.
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Sales and Marketing. Sales and marketing expenses include salaries,
commissions, travel, advertising, trade show costs and marketing materials
expense. Sales and marketing expenses were $1.8 million, or 31.2% of system
revenue, for the six months ended June 30, 1999, and $553,000, or 16.4% of
system revenue, for the six months ended June 30, 1998. This increase was
primarily due to an increase in the number of sales and marketing personnel.
Our sales and marketing organization has grown to 59 employees as of August 31,
1999 from six employees as of January 1, 1998. We expect sales and marketing
expenses to increase on an absolute dollar basis in future periods as we hire
additional personnel in sales and marketing, expand into new markets and
continue to promote our advertising solutions.
Research and Development. Research and development expenses consist primarily
of compensation, consulting expenses and expenses for hardware, software and
materials associated with the development and improvement of our adMonitor
technology. To date, all research and development costs have been expensed as
incurred. Research and development expenses were $392,000, or 6.8% of system
revenue, for the six months ended June 30, 1999, and $27,000, or 0.8% of system
revenue, for the six months ended June 30, 1998. This increase was due
primarily to an increase in expenses associated with the deployment and
enhancement of our adMonitor technology. We expect research and development
expenses to increase significantly on an absolute dollar basis in future
periods.
General and Administrative. General and administrative expenses consist
primarily of compensation and professional service fees. General and
administrative expenses were $1.3 million, or 23.1% of system revenue, for the
six months ended June 30, 1999, and $303,000, or 9.0% of system revenue, for
the six months ended June 30, 1998. This increase was primarily due to an
increase in personnel, professional service fees and facility expenses
necessary to support our growth. We expect general and administrative expenses
to increase on an absolute dollar basis as we hire additional personnel and
incur additional costs related to the growth of our business and our operation
as a public company.
Interest Income (Expense), Net. Interest income (expense), net primarily
consists of interest earned on cash balances, offset by interest expense
incurred with respect to our capital leases and equipment financing
obligations. Net interest expense was $5,000 for the six months ended June 30,
1999. Net interest income was $3,000 for the six months ended June 30, 1998.
Year Ended December 31, 1998 and the Period Ended December 31, 1997
Revenue. Revenue increased 88.8%, to $2.2 million for the year ended December
31, 1998 from $1.2 million for the period ended December 31, 1997. This
increase was mainly attributable to an increase in the number of advertisers
using our solutions, as well as the number of ads delivered. System revenue
increased 90.6%, to $8.0 million for the year ended December 31, 1998 from
$4.2 million for the period ended December 31, 1997.
Gross Profit. Gross profit was $2.2 million for the year ended December 31,
1998, and $1.2 million for the period ended December 31, 1997. During both
periods, all revenue was derived solely from advertising sales commissions and
there was no associated cost of revenue. Gross profit for both periods equals
the respective revenue for each period. Gross profit as a percentage of system
revenue remained relatively consistent at approximately 27.3% for the year
ended December 31, 1998, compared to approximately 27.5% for the period ended
December 31, 1997.
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Sales and Marketing. Sales and marketing expenses were $1.4 million, or 17.0%
of system revenue, for the year ended December 31, 1998, and $550,000, or 13.1%
of system revenue, for the period ended December 31, 1997. This increase was
primarily due to an increase in the number of sales and marketing personnel.
Research and Development. Research and development expenses were $138,000, or
1.7% of system revenue, for the year ended December 31, 1998. Research and
development expenses consisted primarily of expenses associated with the
development and deployment of our adMonitor technology. There were no research
and development expenses for the period ended December 31, 1997.
General and Administrative. General and administrative expenses were
$995,000, or 12.4% of system revenue, for the year ended December 31, 1998, and
$303,000, or 7.2% of system revenue, for the period ended December 31, 1997.
The increase was primarily due to an increase in personnel, professional
service fees and facility expenses necessary to support our growth.
Interest Income (Expense), Net. Net interest income was $17,000 for the year
ended December 31, 1998, and $3,000 for the period ended December 31, 1997.
Quarterly Results of Operations
The following tables set forth unaudited quarterly statement of operations
data for the quarters ended June 30, 1999 in dollars and as a percentage of
system revenue. In the opinion of management, this information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited quarterly results of operations. The quarterly
data should be read in conjunction with our audited financial statements and
the notes to the financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
Mar. June Sept. Dec. Mar. June
31, 30, 30, 31, 31, 30,
1998 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
System revenue........... $ 1,466 $ 1,910 $ 2,064 $ 2,583 $ 2,539 $ 3,257
======= ======= ======= ======= ======= =======
Revenue.................. $ 404 $ 516 $ 545 $ 724 $ 756 $ 1,193
Cost of revenue.......... -- -- -- -- 2 307
------- ------- ------- ------- ------- -------
Gross profit............. 404 516 545 724 754 886
Operating expenses:
Sales and marketing.... 313 239 322 487 803 1,003
Research and
development........... 7 20 34 77 139 252
General and
administrative........ 116 187 275 417 528 812
------- ------- ------- ------- ------- -------
Total operating
expenses................ 436 446 631 981 1,470 2,067
------- ------- ------- ------- ------- -------
Operating income (loss).. (32) 70 (86) (257) (716) (1,181)
Interest income
(expense), net.......... 3 -- 3 10 11 (16)
------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes................... (29) 70 (83) (247) (705) (1,197)
Provision for income
taxes................... -- -- -- 1 -- --
------- ------- ------- ------- ------- -------
Net income (loss)........ $ (29) $ 70 $ (83) $ (248) $ (705) $(1,197)
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of
System Revenue:
System revenue.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 27.6 27.0 26.4 28.0 29.6 27.2
Operating expenses:
Sales and marketing... 21.3 12.5 15.6 18.8 31.6 30.8
Research and
development.......... 0.5 1.0 1.6 3.0 5.5 7.7
General and
administrative....... 7.9 9.8 13.3 16.1 20.7 24.9
----- ----- ----- ----- ------ -----
Total operating
expenses............... 29.7 23.3 30.5 37.9 57.8 63.4
----- ----- ----- ----- ------ -----
Operating income
(loss)................. (2.1) 3.7 (4.1) (9.9) ( 28.2) (36.2)
Interest income
(expense), net......... 0.2 0.0 0.1 0.4 0.4 (0.5)
----- ----- ----- ----- ------ -----
Income (loss) before
provision for income
taxes.................. (1.9) 3.7 (4.0) (9.5) (27.8) (36.7)
Provision for income
taxes.................. -- -- -- -- -- --
----- ----- ----- ----- ------ -----
Net income (loss)....... (1.9)% 3.7% (4.0)% (9.5)% (27.8)% (36.7)%
===== ===== ===== ===== ====== =====
</TABLE>
Our system revenue increased during each quarter of 1998. Quarterly system
revenue increased 30.3% from the first to second quarter, 8.1% from the second
to third quarter and 25.2% from the third to fourth quarter of 1998. Quarterly
system revenue decreased 1.7% from the fourth quarter of 1998 to the first
quarter of 1999 due to seasonal factors. Quarterly system revenue increased
28.3% from the first quarter to the second quarter of 1999. Quarterly growth
was due to increases in the number of advertisers and the number of ads
delivered.
Gross profit increased during each of the last six quarters. During this time
period, gross profit as a percentage of system revenue has fluctuated due to
the mix of various service fees negotiated with Web publishers. Increases in
total operating expenses were due primarily to the addition of sales, technical
and administrative personnel needed to sustain our growth and further develop
our infrastructure.
Our revenue has historically been, and we expect it to continue to be,
subject to seasonal fluctuations because advertisers generally place fewer
advertisements during the first and third calendar quarters of each year.
Additionally, expenditures by advertisers tend to be cyclical, reflecting
overall economic conditions, as well as budgeting and buying patterns.
Moreover, our results of operations may fluctuate significantly in the future
as the result of a variety of factors, many of which are beyond our control.
Liquidity and Capital Resources
From our inception through September 1998, we financed our operations
primarily through internally generated cash flow. In September 1998, we
completed a private placement of equity securities to an individual investor
and received $1.9 million in net proceeds. In September 1999, we completed two
private placements of equity securities and received $12.9 million in net
proceeds. The net proceeds from these private placements are being used to
expand our business operations, to hire additional personnel, to provide
additional services and for general corporate purposes related to the expansion
of our business.
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Net cash used by operating activities was $2.0 million for the six months
ended June 30, 1999. Net cash provided by operating activities was $1,000 for
the year ended December 31, 1998 and $259,000 for the period ended December 31,
1997. Cash used in operating activities for the six months ended June 30, 1999
resulted from net losses and increases in accounts receivable, partially offset
by increases in accounts payable and accrued expenses. Cash provided by
operating activities for the year ended December 31, 1998 resulted from
increases in accounts payable and accrued liabilities, partially offset by net
losses and increases in accounts receivable. Cash provided by operating
activities for the period ended December 31, 1997 resulted from net income and
increases in accounts payable and accrued liabilities, partially offset by
increases in accounts receivable.
Net cash used in investing activities was $244,000 for the six months ended
June 30, 1999, $323,000 for the year ended December 31, 1998 and $19,000 for
the period ended December 31, 1997. Cash used in investing activities was
primarily related to purchases of property and equipment.
Net cash provided by financing activities was $1.1 million for the six months
ended June 30, 1999 and $2.2 million for the year ended December 31, 1998. Net
cash used by financing activities was $5,000 for the period ended December 31,
1997, resulting from a withdrawal of capital. Cash provided by financing
activities for the six months ended June 30, 1999 resulted primarily from a
$1.0 million dollar short-term loan, which was repaid with the proceeds from
our private placement of equity securities. Cash provided by financing
activities for the year ended December 31, 1998 resulted primarily from the
sale of Series A preferred stock, partially offset by distributions to
stockholders.
Although we do not have any material commitments for capital expenditures, we
anticipate that we will experience a substantial increase in our capital
expenditures consistent with our anticipated growth in operations,
infrastructure and personnel. We currently anticipate that we will continue to
experience significant growth in operating expenses for the foreseeable future.
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months.
Impact of the Year 2000
Our business could be significantly harmed if the systems on which we are
dependent to conduct our operations are not Year 2000 compliant. The Year 2000
problem is the result of many computer systems and programs having been
designed to use two digits rather than four to define the applicable year.
Date-sensitive hardware and software may recognize a date using "00" as the
year 1900 rather than the year 2000.
State of Readiness
Because we believe our internal information systems are Year 2000 compliant,
we have not engaged any third parties to independently verify our readiness
with respect to the Year 2000 problem. We have conducted our own initial
assessment of Year 2000 compliance for both our information and non-information
technology. Based on our initial assessment, we believe all non-information
technology, including security and phone systems, upon which we are materially
dependent, is Year 2000 compliant. We have evaluated our internally developed
software, including our adMonitor technology, during its research and
development process and during the ordinary course of our business. Although we
have not discovered any material Year 2000 problems with our internal
information technology to date, we may in the future.
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We believe that the third party hardware and software that we use is Year
2000 compliant. Prior to the purchase of third party hardware or software, we
typically seek assurance from the vendor that the hardware or software is Year
2000 compliant. We also typically test the hardware or software for Year 2000
compliance upon its installation. Moreover, our hardware and software is
subject to evaluation during the operation of our business. We cannot assure
you, however, that we will not experience unanticipated negative consequences,
including material costs caused by undetected errors or defects in the
technology used in our internal systems.
We do not currently have complete information concerning the Year 2000
compliance status of our advertising or Web publishing clients. We have begun
contacting most of these clients to review their Year 2000 compliance efforts
and the potential effects of the Year 2000 problem on their systems and to
gauge their Year 2000 compliance. To date, we have not discovered any problems
with our advertising and Web publishing clients that could harm our business.
However, we cannot assure you that we will be successful in collecting
information from the remainder of our advertising and Web publishing clients,
nor can we assure you that all of them have adequately addressed the Year 2000
problem.
Costs
We expect to resolve any Year 2000 compliance problems that arise primarily
through normal upgrades or, when necessary, through replacement of existing
software with Year 2000 compliant products. We do not anticipate the costs of
these upgrades and replacements to exceed $100,000. To date, we have not
incurred any material expenditures in connection with our Year 2000 compliance
efforts. However, if we discover any Year 2000 issue, the costs of remediating
the problem could be higher than we anticipated and could harm our business,
results of operations and financial condition.
Risks
We are not currently aware of any significant Year 2000 compliance problems
relating to our software, our information technology systems or our other
systems that would materially harm our business, results of operations or
financial condition. During our ongoing assessment, we may discover Year 2000
compliance problems in our proprietary software that may require substantial
repair or replacement which could cause our business to suffer. Moreover,
software or hardware failures of products supplied to us by third party
vendors, or interruptions or failures in service provided to us by third party
vendors due to the Year 2000 problem, could cause significant harm to our
business. We also depend on the uninterrupted availability of the Internet
infrastructure to conduct our ad serving and tracking business. Furthermore, we
depend on the continued operations of our Web publishers. Year 2000 problems
affecting the Internet or our Web publishers could result in significant harm
to our business, results of operations and financial condition.
Contingency Plans
We are currently in the process of developing a contingency plan to deal with
the worst-case scenario involving Year 2000-related failures of technologies on
which we are dependent. We expect to complete our Year 2000 contingency plan by
November 1, 1999. If our present efforts to address the Year 2000 compliance
issues are not successful, or if our Web publishers, suppliers and other third
parties do not successfully address these issues, our business, results of
operations and financial condition could be harmed.
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BUSINESS
Overview
We are a leading provider of comprehensive online advertising and direct
marketing solutions for advertisers and Web publishers. We design, develop and
implement sophisticated "beyond the banner" advertising campaigns featuring
sponsorships, co-branding, content integration, rich media and other innovative
marketing techniques that we believe are more effective than traditional banner
ad campaigns. Our sales force and creative design team work closely with our
advertising clients to create dynamic marketing campaigns that enable them to
achieve their strategic objectives. Furthermore, our adMonitor technology
offers advertisers and Web publishers the ability to selectively target ads to
Web users based upon their specific interests and characteristics. adMonitor
also enables advertisers to track, measure and manage the effectiveness of
their ad campaigns in real time. We believe that our solutions enable:
. Advertisers to leverage the unique capabilities of the Internet to
communicate their messages, obtain high response rates and achieve a
higher return on ad spending; and
. Web publishers to realize increased ad sales, improved pricing for their
ad inventory and more efficient ad inventory management.
We represent a network of select Web publishers featuring sites with strong
online brand awareness and innovative content such as Alloy Online, Big Yellow,
Hollywood.com and Liquid Audio. Over 450 advertisers, including Ford Motor
Company, iVillage, Microsoft, Netscape, Procter & Gamble and Visa have utilized
our solutions.
Industry Background
Emergence of the Internet as an Advertising and Direct Marketing Medium
The Internet has rapidly emerged as an important medium for facilitating
communication, disseminating information and conducting commerce. International
Data Corporation, or IDC, estimates that the number of worldwide Internet users
exceeded 142 million in 1998 and will grow to approximately 502 million by
2003. IDC also estimates that worldwide commerce over the Internet will grow
from approximately $50.4 billion in 1998 to approximately $1.3 trillion by
2003.
As the Internet has grown, advertisers have devoted increasing portions of
their advertising and marketing budgets to online advertising and direct
marketing. Forrester Research estimates that worldwide Internet advertising
spending will grow from approximately $3.3 billion in 1998 to approximately
$24.1 billion in 2003. Moreover, worldwide expenditures for online direct
marketing, as estimated by the Direct Marketing Association, will grow from
approximately $603 million in 1998 to approximately $5.3 billion in 2003.
Advantages of Online Advertising and Direct Marketing Over Traditional Media
Unlike traditional broadcast media, the Internet allows advertisers to
selectively target advertisements to individual consumers based upon their
specific interests and characteristics. The interactivity of the Internet also
enables advertisers and marketers to reach the consumer at the point of sale
and to receive immediate feedback on their ad campaigns. Moreover, the Internet
provides
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advertisers with the ability to monitor and measure the effectiveness of their
campaigns and track the resulting transactions. This timely feedback enables
advertisers to continually optimize ad campaigns, thereby increasing their
returns on advertising spending. We believe that online advertising and direct
marketing campaigns generally are more cost effective and easier to develop and
implement than advertising and direct marketing campaigns in traditional media.
Progression of Online Advertising and Marketing
Early online advertising was generally limited to placing banner
advertisements on highly trafficked, individual Web sites with the intent of
maximizing reach. As online advertising evolved, advertisers began to run
banners across categories of Web sites, such as sports or technology, to reach
consumers in general interest groups. Currently, advertisers are looking to use
more powerful targeting techniques and technology to direct ads to individual
users based on specific characteristics derived from their demographic and
behavioral data. Further, advertisers are increasingly demanding effective
advertising campaigns that go beyond traditional banner ads and incorporate
enhanced features such as sponsorships, co-branding, content integration and
rich media, as well as innovative direct marketing techniques. eStats estimates
that sponsorships will grow from approximately 40% of total online advertising
in 1998 to approximately 58% in 2001. Additionally, the response rates achieved
by advertising campaigns incorporating rich media, as measured by the number of
users clicking through to the Web site promoted by an advertisement, commonly
known as the click-through rate, are significantly higher than response rates
achieved by simple banner advertisements. These developments in online
advertising and marketing have led to increased differentiation in the pricing
of online advertising. We believe that online advertisers increasingly will pay
premium prices for more effective campaigns.
[Performance Bar Graph]
[Bar chart entitled Percent of Online Advertising Dollars, by Ad Format]
The bottom of the page contains a bar chart presenting the percentages of
online advertising dollars, by ad format. The horizontal axis of the chart
represents time and is labeled from left to right: 1998, 1999, 2000 and 2001.
The vertical axis represents percentage and is labeled top to bottom: 60%, 50%,
40%, 30%, 20%, 10% and 0%. Three categories of ad format are represented in the
bar chart. A legend at the bottom of the chart specifies that banners are
represented by a white bar, sponsorships are represented by a black bar and
other ad formats are represented by a striped bar.
For 1998, the chart shows banners at 52%, sponsorships at 40% and other ad
formats at 8%. For 1999, the chart shows banners at 46%, sponsorships at 45%
and other ad formats at 9%. For 2000, the chart shows banners at 37%,
sponsorships at 52% and other ad formats at 11%. For 2001, the chart shows
banners at 26%, sponsorships at 58% and other ad formats at 16%.
The bottom of the chart contains the following footnote: The foregoing
chart has been produced based on information contained in the eAdvertising
Report, Vol. I, April 1999, published by eMarketer.
The foregoing chart has been produced based on information contained
in the eAdvertising Report, Vol. I, April 1999, published by eMarketer.
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Challenges for Online Advertisers
Online advertisers seek to continually enhance the effectiveness of their
advertising campaigns. They face several significant challenges, including:
. Complicated Media Buy. Low barriers to entry and easy-to-use Web site
authoring software have resulted in a proliferation of Web sites and Web
pages. eStats estimates that the number of Web sites in the United
States has grown to 3.6 million in 1999. As a result, advertisers are
faced with an increasingly complex and fragmented environment in which
to construct, purchase and implement their advertising campaigns.
. Lack of Technical and Creative Expertise. Advertisers are increasingly
seeking solutions that enable them to achieve their goals by integrating
sponsorships, rich media and other dynamic marketing techniques into
their online advertising campaigns. Implementing sophisticated online
solutions requires higher levels of technical and creative expertise.
. Engaging the Online User. Because Web users exercise control over their
online experience, online advertisers face greater difficulties in
engaging a user's attention than do advertisers utilizing broadcast
media who rely on the passive reception of their messages. The impact of
traditional banner ad campaigns is limited. As a result, online
advertisers have focused increasingly on developing campaigns that
engage online users and encourage their interaction with the
advertisements.
. Compiling Data and Extracting Value. In order to create effective
advertising campaigns, advertisers seek to gather relevant information
about Web users through various means, such as tracking technology and
data mining, and quickly analyze this information to continually refine
campaign strategies. Most advertisers do not have the technical
expertise to compile and analyze campaign performance data and, as a
result, require a third party solution.
. Execution. Once advertisers have compiled and analyzed the information
gathered about Web users, they must be able to capitalize on the value
of this information to create tailored advertising campaigns and direct
these campaigns to specific groups of Web users. To maximize the
effectiveness of their campaigns, advertisers must be able to implement
changes in their strategies on a timely basis.
Challenges for Web Publishers
Web publishers seek to maximize the value realized from their ad inventory.
They face several significant challenges, including:
. Lack of Sales Expertise. Many Web publishers lack sufficient experienced
personnel to effectively sell ad space on their Web sites.
. Difficulty in Differentiation. The number of Web sites has increased
dramatically due in part to growth in the number of Web users, the
advent of easy-to-use Web site authoring software and the continuing
growth of electronic commerce. As a result, Web publishers increasingly
face difficulty in differentiating themselves to prospective advertisers
and in gaining access to advertising decision makers.
. Lack of Sophisticated Ad Serving and Tracking Technology. Given the pace
and scale in which new ad serving and tracking technology is evolving,
many Web publishers cannot afford to develop and maintain the technology
necessary for sophisticated and targeted Web advertising.
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. Inventory Management. Maximizing the value of a Web publisher's ad
inventory requires efficient inventory management. It is difficult for
Web publishers to maintain price consistency with their premium ad
packages while monetizing their unsold ad inventory.
The L90 Solution
Our solution is designed to enable advertisers and Web publishers to take
advantage of the Internet as a marketing medium. We offer advertisers creative
campaign development and design services, strategic sales solutions and a
network of Web sites on which to place their ads. Our adMonitor technology
provides them with ad serving, real-time campaign management, measurement,
reporting and transaction tracking capabilities. We offer Web publishers the
opportunity to focus on their core businesses while we provide online
advertising sales, ad inventory management and back office operational support.
Our comprehensive advertising solution combines our high value-added, strategic
ad campaign development services, an extensive knowledge of our Web publishers
and our adMonitor technology. This combination enables us to obtain premium
pricing by maximizing the value of the ad inventory of our Web publishers.
Benefits to Advertisers
. Strategic Advertising Sales Approach. Our highly skilled sales force
consults closely with advertisers and advertising agencies to determine
their needs and to construct effective advertising solutions that enable
them to realize their online advertising objectives. Utilizing this
consultative approach, we develop dynamic campaigns that are intended to
achieve higher response rates in a fragmented and crowded Web publishing
marketplace.
. Design and Marketing Expertise. Our extensive design, creative
development and marketing expertise provides our clients with cost
savings and time-to-market advantages in the development and deployment
of their advertising campaigns. Our skilled staff has significant
expertise in creating sophisticated advertising campaigns that employ
leading-edge technologies and techniques. Further, our extensive library
of pre-tested solutions offers clients "plug and play" functionality
with accelerated time to market.
. Sponsorship Advertising. We have created unique sponsorship advertising
solutions that enable our advertising clients to develop sophisticated
campaigns that go beyond traditional banner advertising. Our highly
targeted solutions utilize value-added features such as content
integration, premium placement, co-branding, rich media and innovative
campaign structures such as promotions and sweepstakes. We believe that
our sponsorship solutions enable advertisers to place their ads in a
more relevant, targeted and trusted context. We believe these placements
generate higher returns by leveraging the existing relationship between
the Web user and the Web site.
. Powerful Ad Serving and Tracking Technology. Our adMonitor technology
delivers sophisticated advertising campaigns incorporating rich media,
interactivity and dynamic ad targeting. We aggregate information about
Web users in our proprietary databases that can be used on a standalone
basis or in conjunction with other data sources to deliver highly
targeted advertising messages to users across our entire network of Web
sites. Additionally, advertisers can access adMonitor through a Web
browser, enabling them to view their campaigns and obtain real-time
reports. adMonitor also enables advertisers to execute valuable testing
programs, such as simultaneously running a number of different
campaigns, and to obtain real-time performance feedback that assesses
their relative effectiveness.
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. Highly Targeted Advertising. The combination of our network of Web
sites, category sales specialists and adMonitor technology empowers us
to structure highly targeted campaigns for advertisers. Advertisers can
target delivery based on the Web user's demographic, psychographic or
behavioral data, or on more complex parameters, such as future buying
prospects.
. Direct Marketing Capabilities. We have considerable expertise in
creating innovative direct marketing campaigns that incorporate creative
promotional offers and easy-to-use interfaces in order to realize
increased click-through rates and greater participation by Web users.
Our direct marketing campaigns include components such as pop-up boxes,
interstitials, sweepstakes, targeted e-mails and other techniques
designed to encourage specific actions by consumers or to collect
valuable customer data.
Benefits to Web Publishers
. Outsourced Advertising Sales. Participants in our network benefit from
the services of our skilled sales force. By outsourcing online
advertising sales, Web publishers are able to focus on their core
competencies and avoid the significant investment and distraction of
developing an in-house sales force.
. Improved Pricing. Based on our ability to deliver highly effective
campaigns, advertisers are willing to pay premium prices for the ad
inventory on our network. We believe the average CPM rate realized by
our Web publishers is substantially higher than the industry average.
. Efficient Inventory Management. adMonitor provides Web publishers with a
sophisticated inventory management tool that generates useful real-time
reports on current and expected ad inventory. By monitoring each active
ad campaign, adMonitor continuously updates available inventory to
properly deliver ads on schedule and to ensure that Web publishers
achieve a superior revenue yield from their ad inventory. We seek to
optimize yield by selling packages that emphasize high CPM advertising
campaigns, including sponsorships, sweepstakes, promotions and content
integration.
. Creating Network Scale. Through the aggregation of online ad inventory
from the Web sites we represent, our Web site network attracts the
attention of major advertisers. Inclusion in our premium network
provides Web publishers with access to a larger number of major
advertisers.
. Web-Hosted Ad Serving and Tracking. adMonitor provides Web publishers
with centralized ad serving, targeting and tracking capabilities to
execute, manage and optimize advertising campaigns incorporating rich
media and sponsorships. Outsourcing this technology enables Web
publishers to avoid the significant investments associated with
developing this capability in-house.
. Flexible, Adaptable Technology Platform. Our adMonitor technology is a
modular platform that is designed to be easily modified to incorporate
new technologies in order to meet the needs and demands of Web
publishers and advertisers. adMonitor's robust and flexible technology
also provides a platform for additional direct marketing applications
such as e-mail campaign management and loyalty programs.
. Rapid Implementation. We can implement adMonitor quickly and simply to
begin serving ads for new Web publishing clients, typically within 24
hours. As a result, these clients can begin to generate revenue from the
sale of their ad inventory in a highly efficient manner.
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Strategy
Our objective is to be the leading provider of comprehensive online
advertising and direct marketing solutions. The following are the key elements
of our strategy:
Capture a Greater Share of Online Advertising Budgets
We plan to capture a greater share of online advertising budgets by
continuing to strengthen our close relationships with advertisers and their
agencies and to provide comprehensive, innovative solutions that offer
advertisers a broad range of options. Due to the creative and strategic
emphasis of our advertising solutions, our sales executives typically work
directly with senior advertising executives in developing and implementing
their campaigns.
Grow Our Sales and Marketing Organization
In order to broaden our market coverage and expand our service offerings, we
intend to continue to grow our sales and marketing organization. We believe
that executing our strategy requires a knowledgeable and experienced sales and
marketing organization. We intend to complement our current staff of trained
professionals with additional qualified personnel, including increasing the
number of category sales specialists and hiring international specialists.
Selectively Expand Our Network of Web Publishers
By enhancing and selectively expanding our network of Web publishers, we
believe our marketing and sales solutions will become an increasingly
attractive choice for online advertisers and Web publishers. We intend to
expand our network by selectively adding new Web publishers that offer
attractive demographics, innovative and quality content, strong management,
brand name recognition and growing traffic. We strive to ensure that our
network of Web publishers will continue to provide the desired audiences for
advertisers.
Enhance and Expand Our adMonitor Technology
We intend to continue to enhance the performance and functionality of our
adMonitor technology. adMonitor has enabled us to become a leading provider of
centralized, outsourced advertising and direct marketing solutions. We believe
that the ability of our technology infrastructure to incorporate new devices,
technologies and targeting techniques, as well as its ability to scale as the
Internet grows, will continue to provide us with significant competitive
advantages.
Develop, Deploy and Leverage Our Library of Creative Marketing Solutions
Our design, technical and creative capabilities enable us to continually
develop new and innovative interactive marketing techniques and solutions. Once
designed and implemented, these unique marketing and advertising solutions can
be modified and adapted to create new campaigns for multiple advertisers and
Web sites. We intend to enhance our design and creative capabilities and
leverage our library of pre-tested solutions in order to provide our
advertising clients with time-to-market advantages in the development and
deployment of their advertising campaigns.
Expand Our Direct Marketing Capabilities
Our adMonitor technology facilitates online direct marketing by aggregating
demographic and psychographic information about Web users from both our
proprietary databases and external sources. We are testing a new service
through which users visiting our publishers' Web sites can
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voluntarily provide personal data in exchange for personalized ads and
merchandise rewards. We intend to expand these capabilities with the goal of
enabling true one-to-one targeting.
Products and Services
We offer products and services designed to provide our advertisers and our
Web publishers with comprehensive, customized online advertising solutions.
Advertising Solutions
In designing an advertising solution, we offer the following primary
advertising programs:
<TABLE>
<CAPTION>
Advertising Programs Description
- -------------------------------------------------------------------------------
<C> <S>
L90Premium . L90Premium leverages the strengths and
demographics of each of our premium Web
sites through advertising programs
featuring innovative and sophisticated
advertising components, such as co-
branding, content integration, contextual
sponsorship, rich media and targeted
banners, as well as innovative promotions
and sweepstakes. We specialize in providing
three types of sponsorship opportunities:
. turnkey sponsorships, which are pre-
packaged programs that can be easily
and quickly implemented to meet the
objectives of the advertiser;
. customized sponsorships, which are
original programs specifically created
for, and based upon the marketing
objectives of, a specific advertiser;
and
. syndicated sponsorships, which are
genre-specific programs that run
across a selection of our premium Web
sites.
- -------------------------------------------------------------------------------
L90Targeted . L90Targeted enables an advertiser to run
ads across 12 distinct interest categories,
such as automotive, sports and technology.
Our category sales specialists possess in-
depth knowledge and understanding of their
respective categories and can assist
advertising clients in developing
sophisticated ad campaigns that address
audiences in these categories.
- -------------------------------------------------------------------------------
L90R&E . L90R&E offers broad distribution across our
(Reach and Efficiency Network) entire network of Web sites for advertisers
interested in attaining the greatest reach
for the lowest and most efficient cost.
- -------------------------------------------------------------------------------
L90D.m. . L90D.m. opportunities include:
(Direct Marketing)
. L90Opt-in, which is a data-driven
research tool and rewards program,
enables us to develop detailed
profiles of consumers by providing
them with special promotions and
rewards in return for sharing insight
into their behaviors and interests.
. L90Link, which is a viral marketing
tool that uses the entire L90 network,
our adMonitor technology, and the
power of word-of-mouth marketing to
generate customer acquisitions.
L90Link rewards users for taking
advantage of promotional offers and
forwarding these offers to friends and
colleagues.
</TABLE>
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Ad Serving and Tracking Technology
Through our Web-hosted adMonitor technology, we offer advertisers and Web
publishers the ability to selectively target and deliver ad campaigns that
incorporate rich media and other sophisticated features. In addition, adMonitor
enables advertisers to track, measure and manage the effectiveness of their ad
campaigns and receive real-time reports and updates from any Web browser.
. Ad Serving. adMonitor delivers targeted advertising campaigns quickly,
consistently and on schedule. In addition, because adMonitor is a
centrally served technology platform, our Web publishing clients are not
required to purchase additional hardware, software or back-up systems to
implement or utilize our adMonitor services. Our adMonitor system is
scalable and is able to deliver sophisticated, targeted and specialized
advertising campaigns virtually instantaneously. In addition, because
adMonitor is capable of delivering rich media content, advertisers have
the freedom to develop sophisticated advertising solutions.
. Tracking. adMonitor allows our clients to track their advertising
audience's behavior and collect this information to build proprietary
databases. adMonitor tracks Web users' online behavior after they enter
one of our Web publisher's sites. As a result, we are able to construct
databases of user interests and purchasing habits based on their online
behavior. By applying analytical tools to our databases, we are able to
offer advertisers valuable demographic and psychographic information for
targeting campaigns.
. Targeting. adMonitor enables our advertising clients to target their
campaigns using a wide range of parameters, including domain, content
area, keyword, geography and user-profile data. By utilizing adMonitor's
advanced targeting capabilities, advertisers are able to direct their
campaigns at Web users who are most likely to respond.
. Monitoring. adMonitor provides advertisers with comprehensive
performance reports and the ability to adjust media plans, all in real-
time. Advertisers are able to track the progress of their campaigns from
their Web browsers. These reports contain detailed information such as
the Web sites included in an advertising campaign, the number of
impressions served, the click-through rates and the resulting sales, as
well as other performance measures. In addition, they provide the
information that advertisers need to actively manage their campaigns to
maximize effectiveness. adMonitor is fully Web-hosted and gives
advertisers the ability to optimize in real time the performance of
their advertising campaigns.
. Inventory Management. We provide our Web publishers and advertisers with
detailed, real-time information about current and future ad inventory.
adMonitor automatically monitors each advertising campaign in progress,
adjusts the delivery of ads for variations in site traffic and updates
available ad inventory based upon current advertising campaigns. Our
system ensures that advertising campaigns are optimally scheduled and
delivered and that our Web publishers maximize the value of their ad
inventory.
Our Network of Web Publishers
We currently represent approximately 60 Web publishers, 25 of which are in
our premium category. Our premium Web publishers represent sites in our network
that we believe have high brand recognition, highly innovative content,
desirable demographics and high traffic volume. Our other Web publishers are
generally newer Web sites that we believe have high growth potential. The
decision to accept a Web publisher for representation is based on a number of
criteria, including the demographics of the Web site's users, the Web site's
content quality and brand name recognition, the level of existing and projected
traffic on the Web site, and sponsorship opportunities.
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The following table identifies our premium Web publishers as of August 31,
1999:
Premium Web Sites
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------------------------------------------------------
Company Web Address Company Web Address
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C>
Alloy Online, Inc. www.alloy.com Liquid Audio, Inc. www.liquidaudio.com
- ------------------------------------------------------ ------------------------------------------------------
AutoFusion, Inc. www.carprices.com MaMaMedia, Inc. www.mamamedia.com
(includes 13 shadow sites) ------------------------------------------------------
- ------------------------------------------------------ Onion, Inc. www.theonion.com
Bell Atlantic www.BigYellow.com ------------------------------------------------------
Electronic Small World, Inc. www.baseball.smallworld.com
Commerce www.football.smallworld.com
Services, Inc. www.golf.smallworld.com
- ------------------------------------------------------ www.hockey.smallworld.com
Broadband Sports, Inc. www.athletedirect.com www.hoops.smallworld.com
- ------------------------------------------------------ www.tennis.smallworld.com
click2send.com, Inc. www.click2send.com ------------------------------------------------------
- ------------------------------------------------------ Speedyclick Corp. www.speedyclick.com
eMachines, Inc. www.e4me.com ------------------------------------------------------
- ------------------------------------------------------ Sportspage.com, Inc. www.sportspage.com
Extreme Interactive www.scoopswrestling.com ------------------------------------------------------
Media, Inc. Starchefs www.starchef.com
- ------------------------------------------------------ ------------------------------------------------------
Freei Network, Inc. www.go.freei.net TargetMatch & www.datingclub.com
- ------------------------------------------------------ NetMatch www.jobmatch.com
Hollywood.com, Inc. www.hollywood.com www.matchonline.com
- ------------------------------------------------------ www.open4assistance.com
IMS, Inc. www.kanoodle.com www.singlesmonthly.com
- ------------------------------------------------------ www.travelmatch.com
Infonautics Corp. www.companysleuth.com ------------------------------------------------------
www.elibrary.com Weider Publications www.fitnessonline.com
www.encyclopedia.com www.jumponline.com
www.jobsleuth.com www.shapeonline.com
www.researchpaper.com ------------------------------------------------------
www.sportssleuth.com Whatis.com, Inc. www.whatis.com
- ------------------------------------------------------ ------------------------------------------------------
iware, inc. www.iwareinc.com The WinSite www.winsite.com
- ------------------------------------------------------ Group, Inc.
Jameson/Gold LLC www.aint-it-cool-news.com ------------------------------------------------------
- ------------------------------------------------------
JobsOnline, LLC www.jobsonline.com
- ------------------------------------------------------
</TABLE>
Our entire network of Web publishers is organized into 12 categories. We
determine the category of a Web site based on the primary content that it
contains. Advertisers may choose to target their ads on sites within one or
more of these categories. Some of our Web sites may fall into multiple
categories if they provide a broad range of content.
Web Site Categories
<TABLE>
<S> <C> <C>
. Automotive . E-Commerce . Sports
. Business/Finance . Entertainment . Technology
. College . Health/Fitness . Travel
. Directories/Portals . Kids/Teens . Women
</TABLE>
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Our Advertising Clients
In connection with the representation of our Web publishers, we have
developed relationships with, and continue to focus our sales and marketing
efforts on, online advertisers and advertising agencies. Since inception, over
450 advertisers from a variety of industries have utilized our services. Our
experienced sales and marketing organization works closely with advertisers and
advertising agencies to enhance the effectiveness of their online advertising
campaigns.
Set forth below is a list of the top 20 advertisers during the six month
period ended June 30, 1999:
Top 20 L90
Advertisers
<TABLE>
<S> <C>
Amazon.com Microsoft
Ameritech MotherNature.com
CDP Entertainment Netscape
Deluxe Entertainment Procter & Gamble
Dynamic Telecommunications Talk City
EMI Communications Target Match
FTD U.S. West Dex
Galaxi World Visa
Improvenet VR Services
iVillage Wired Solutions
</TABLE>
Selected Customer Applications
The following customer case studies showcase our success and expertise in
addressing and delivering advertising solutions that meet our clients'
objectives.
Tickets.com--Brand Building, Ticket Sales and Database Generation
Tickets.com is a premier online resource for event information and tickets,
updating traditional ticketing distribution practices with today's Internet
technology. Tickets.com required an online advertising and marketing solution
that would generate brand awareness, increase market share, drive traffic to
their Web site and build a targeted database.
Working closely with Tickets.com, our marketing and creative teams designed
an integrated sponsorship program that is featured on three of our premium
entertainment and sports Web sites. Our advertising solution places Tickets.com
in contextually-relevant content and positions Tickets.com as the premier
ticket buying and information resource. Specifically, the Tickets.com
sponsorship program utilizes a combination of content integration, contextual
offers, co-branded micro-sites, and sweepstakes elements to generate brand
awareness for Tickets.com and drive users to the Tickets.com Web site. For
example, we created a "Take Me to the Big Game" sweepstakes on Small World's
Web sites that offers visitors the opportunity to win tickets to premier
sporting events, including the championships of the four major professional
sports.
Additionally, our adMonitor technology enables Tickets.com to capture
registration details at the Web sites on which this sponsorship is featured, as
well as collect the clickstream behavior of visitors to the Web sites.
Tickets.com uses this information to create user profiles based on declared and
inferred behavioral data. By building this growing database of individual user
profiles, Tickets.com intends to
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provide customized offers, such as local sports or special interest tickets,
targeted to individual Web users or groups of users. This campaign demonstrates
our expertise at developing multi-pronged solutions that meet an advertiser's
objective and highlights adMonitor's targeting and database building
capabilities.
Visa--Preferred Card Placement, Market Share Penetration and Card Usage
Visa, one of the premier brand names in electronic payment methods, sought a
solution that would take advantage of the Internet as a new commerce vehicle.
Visa's goals were to strengthen their brand recognition, reinforce current
customer loyalty and increase their overall credit card market share.
We leveraged Music Boulevard's niche as a leading e-commerce site to create a
customized sponsorship for Visa. The sponsorship included static "Visa, the
Preferred Card" placements throughout the Music Boulevard site, static "Visa,
the Preferred Card" placements on all checkout pages of the site, and Visa
sponsorship of Rocktropolis' AllStar Column, Classical Insites' Hall of Fame
and Jazz Central Stations' Events on Music Boulevard. In addition, Visa was
featured as the default payment choice on each checkout page on Music
Boulevard. Moreover, if a user attempted to use another payment choice, the
user was presented with a $2 coupon for use on future Music Boulevard
purchases, provided that the user switched to Visa as the form of payment. Due
to the success of the Visa campaign in increasing Visa's marketshare over its
competitors, this campaign, which was originally scheduled to run for six
months, was extended for an additional six months.
iVillage--Integrated Sponsorship Across Online and Print Media
iVillage, the leading women's community site, offers women's health and
fitness information, parenting advice, financial insight, e-mail, chat rooms
and personal homepages. iVillage required an advertising campaign that would
grow its market share and reach a broad demographic cross-section of women.
Our marketing and creative teams designed an innovative campaign that takes
advantage of both the online and offline media properties of Weider
Publications, which produces both print magazines, such as Shape, Men's Fitness
and Muscle & Fitness, and Web sites, such as Fitness Online and Shape Online.
Using our adMonitor technology, we serve targeted banner placements throughout
Shape Online and the women-centric areas of Fitness Online, as well as run-of-
site banners throughout Fitness Online. In addition to the online components,
the iVillage campaign includes recurring print ads in Shape magazine. These
print ads are used to build brand awareness for iVillage, to drive readers to
the iVillage Web site and to promote new offerings at iVillage. This campaign
has been running for over nine months and receives an average click-through
rate that is twice as high as the industry average. This integrated sponsorship
demonstrates our ability to couple the attributes of online and offline media
properties to build an effective advertising campaign.
Privacy Concerns
We are committed to maintaining the privacy of Web users visiting the Web
sites of our publishers. In implementing any service or program designed to
gather personal data about Web users, we are always mindful of our continuing
commitment to uphold the privacy principles of the Direct Marketing
Association. We keep all personal information obtained about these users
confidential.
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Sales and Marketing
Our sales and marketing staff is trained to work strategically with our Web
publishers and advertisers to develop innovative advertising solutions. We
believe that advertisers desire sponsorship opportunities that go beyond the
banner to include content integration, contextual sponsorships, promotions,
sweepstakes, e-mail sponsorships, interstitials, custom content and other
highly effective advertising tools. We have assembled a sales and marketing
staff that possesses the marketing, media, creative and advertising skills
required to develop these types of large, sophisticated advertising campaigns.
We have close relationships with, and detailed knowledge of, our Web
publishers. Consequently, we are able to work with advertisers in developing
customized and effective advertising solutions.
We sell our advertising solutions in the United States through a sales and
marketing team consisting of a total of 59 employees as of August 31, 1999. Our
sales and marketing team is organized in a matrix fashion and includes account
executives, who sell all of our Web site ad inventory, and category sales
specialists, who focus on a specific field of content. Currently, our sales and
marketing team is organized according to five geographic regions.
Our experienced Web publisher and advertiser sales and marketing personnel
use a variety of marketing programs to generate demand for our products and
services, build market awareness, develop customer leads and establish business
relationships. Our marketing activities include public relations, print
advertisements, online advertisements and direct marketing, Web advertising
seminars, trade shows, special events, sponsorships and ongoing customer
communications programs.
Technology Platform
We have developed a powerful, centralized ad serving and tracking system.
adMonitor is a modular, scalable and versatile system with the ability to adapt
to specific advertiser and Web publisher needs. Complex and sophisticated ad
campaigns can be quickly developed and implemented using our technology.
adMonitor supports most leading Web tools and technologies, including JAVA,
Java Script, RealAudio, Enliven and VRML and is capable of delivering
sophisticated advertising campaigns containing rich media, interstitials and
pop-up boxes. Moreover, adMonitor is compatible with most leading host servers.
adMonitor functions on a fully redundant, high performance system built with
an emphasis on capacity and speed. We use a combination of products from Sun
Microsystems, Cisco Systems, Microsoft, Oracle, 3Com and F5 Labs to support
adMonitor's scalability and reliability. adMonitor is deployed on hardware
resident in multiple, secure data centers located across the United States in
three facilities operated by Exodus Communications, where technical support is
provided 24 hours a day, seven days a week.
Competition
The online advertising market is extremely competitive. We believe that our
ability to compete depends upon many factors both within and beyond our
control, including the following:
. the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
. the continued and increasing acceptance by advertisers of the Internet
as an effective and cost-efficient means of advertising;
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. the ability to adapt to the rapidly changing trends of the Internet;
. our customer service and support efforts;
. our sales and marketing efforts;
. our ability to adapt and scale our technology as customer needs change
and grow; and
. the ease of use, performance, price and reliability of solutions
developed either by us or our competitors.
As we expand the scope of our Web services, we may face greater competition
from a number of Web sites and other media companies across a wide range of
different Web services, including in vertical markets where competitors may
have advantages in expertise, brand recognition and other factors. Several
companies offer competitive products or services through Web advertising
networks, including 24/7 Media, DoubleClick and Flycast Communications. Our
business may also encounter competition from providers of advertising inventory
and database management products and related services, including AdForce,
DoubleClick, Engage Technologies and NetGravity. In addition, we may face
potential competition from a number of large Web publishers and Web search
engine companies, such as America Online, Excite@Home, Infoseek and Yahoo!. We
also compete with television, radio, cable and print for a share of the overall
advertising budgets of advertisers.
Many of our existing competitors, as well as a number of potential new
competitors, have greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
This may allow them to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. It may also allow them to
devote greater resources than we can to develop, promote and sell their
products and services. These competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, strategic partners, advertisers and Web
sites. Our competitors may develop products or services that are equal or
superior to our solutions or that achieve greater market acceptance than our
solutions. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share. We may not be able to compete
successfully, and competitive pressures may cause our business, results of
operations and financial condition to suffer.
Intellectual Property Rights
Our success and ability to compete are substantially dependent on our
internally developed technologies, including adMonitor, and trademarks that we
protect through a combination of intellectual property laws. We have applied to
register trademarks in the United States. We cannot guarantee that any of our
trademark registrations will be approved. Even if they are approved, these
trademarks might be successfully challenged by others or invalidated.
Furthermore, if our trademark registrations are not approved because third
parties own these trademarks, our use of these trademarks will be restricted
unless we enter into arrangements with these third parties. We cannot assure
you that we can enter into arrangements with these third parties on
commercially reasonable terms.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite these efforts, unauthorized parties may
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attempt to disclose, obtain or use our advertising solutions or technologies.
Our precautions may not prevent misappropriation of our advertising solutions
or technologies, particularly in foreign countries where laws or law
enforcement practices may not protect our rights as fully as in the United
States.
Our technology collects and utilizes data derived from user activity on the
Internet. This information is used for targeting advertising and predicting
advertising performance. Although we believe that we generally have the right
to use this information and to compile it in our database, we cannot assure you
that any trade secret, copyright or other protection will be available for this
information. In addition, others may claim rights to this information.
Furthermore, we cannot guarantee that any of our other intellectual property
rights will be viable or valuable in the future since the validity,
enforceability and scope of protection of intellectual property rights in
Internet related industries is uncertain and still evolving. In addition, third
parties may assert infringement claims against us. Any claims could subject us
to significant liability for damages and could result in the invalidation of
our intellectual property rights. In addition, any claims could result in
litigation, which would be time-consuming and expensive to defend, and divert
our time and attention. Even if we prevail, this litigation could cause our
business, results of operations and financial condition to suffer. Any claims
or litigation from third parties may also result in limitations on our ability
to use the intellectual property subject to these claims or litigation unless
we enter into arrangements with the third parties responsible for these claims
or litigation, which could be unavailable on commercially reasonable terms. We
believe that factors such as the technological and creative skills of our
personnel, new service offerings, brand recognition and reliable customer
service are more essential to establishing and maintaining our position in the
marketplace, rather than the legal protection of our technology. There can be
no assurance that others will not develop technologies that are similar or
superior to our technology.
DoubleClick was recently awarded a patent on certain aspects of its ad
delivery technology. The DoubleClick patent may cover some of the technology we
use in our advertising solutions. We have not received any notification from
DoubleClick alleging that our technology infringes on its patent. We are
currently evaluating the merits and validity of the DoubleClick patent as it
pertains to our technology. We cannot assure you that the options available to
us will be reasonably available, adequate or cost effective. Moreover, if we
are unable to distinguish our technology from the technology covered under the
DoubleClick patent or if the DoubleClick patent is not invalidated, we may be
limited in our ability to use our technology or may be required to license the
use of our technology from DoubleClick. We cannot assure you that we can enter
into a licensing agreement with DoubleClick on commercially reasonable terms,
if at all.
Employees
As of August 31, 1999, we had 94 full-time employees, including 59 in sales
and marketing, 22 in engineering and product development and 13 in accounting,
human resources, business operations and administration. In addition, we had
three part-time employees. We are not subject to any collective bargaining
agreements and believe that our employee relations are excellent. Our future
success depends in part on our ability to attract, retain, integrate and
motivate highly-skilled employees. Competition for employees in the industry is
intense.
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Legal Proceedings
We may become subject to legal proceedings from time to time in the ordinary
course of our business. We are not currently involved in any litigation which
we believe will materially and adversely affect us.
Facilities
Our principal executive offices are located in Santa Monica, California,
where we lease approximately 11,000 square feet under a lease that expires on
December 31, 2000. We also lease approximately 6,000 square feet of space in
another facility in Santa Monica, California. In addition, we lease space for
our sales and marketing efforts in Chicago; Franklin, Michigan; New York; and
San Francisco. Our adMonitor ad serving and tracking software and hardware is
housed in Irvine and Santa Clara, California and Sterling, Virginia. These
three facilities provide us with a secure area to store and operate our
computer systems and capacity for communications links and Internet
connectivity systems. We are continually evaluating our facility requirements.
We believe that our existing leased space is more than adequate for our current
operations, and that suitable replacement and additional space will be
available in the future on commercially reasonable terms.
41
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their positions and ages, as of
August 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William M. Apfelbaum........... 52 Chairman of the Board of Directors
John C. Bohan.................. 34 President, Chief Executive Officer and
Director
Thomas A. Sebastian............ 34 Senior Vice President, Chief Financial
Officer and Assistant Secretary
Mark D. Roah................... 30 Senior Vice President of Business
Development and Director
Christopher J. Cardinali....... 35 Vice President of Northwestern Sales,
Secretary and Director
Frank A. Addante............... 23 Chief Technology Officer
Peter G. Diamandis............. 67 Director
Peter E. Ligeti................ 44 Director
Glenn S. Meyers................ 38 Director
G. Bruce Redditt............... 48 Director
Peter Sealey................... 59 Director
</TABLE>
William M. Apfelbaum has served as our Chairman of the Board and a director
since September 1998. Mr. Apfelbaum has been the President and Chief Executive
Officer of TDI Worldwide, a wholly-owned subsidiary of CBS, since 1989. Mr.
Apfelbaum is also the founder of CBS Plus which oversees advertising sales
across all seven of CBS's media divisions, including their Internet-based
properties. Mr. Apfelbaum graduated with a B.A. from New York University. He
has guest lectured at the Harvard Business School, the London Business School
and New York University's Stern School of Business.
John C. Bohan has served as our President and Chief Executive Officer and a
director since our inception. Mr. Bohan is a co-founder of L90. From April 1995
to December 1996, he was Executive Vice President for Screaming Media, formerly
known as Interactive Connection. From August 1994 until March 1995, Mr. Bohan
served as an advertising sales Account Executive for USA Networks. Mr. Bohan
worked as a cable advertising sales Account Executive for Landmark
Communications in both New York City and Los Angeles from February 1990 to
August 1994. Mr. Bohan graduated with a B.A. in Economics from Middlebury
College.
Thomas A. Sebastian has served as Chief Financial Officer, Senior Vice
President and Assistant Secretary of L90 since July 1999. Between June 1997 and
June 1999, Mr. Sebastian served as Vice President of Finance of Fair, Isaac &
Company. Between May 1996 and May 1997, he was a Vice President, Corporate
Finance, at Volpe, Brown, Whelan & Company. Between June 1994 and May 1996,
Mr. Sebastian worked as Corporate Finance Manager at Hewlett-Packard Company.
Mr. Sebastian graduated with a B.S. in Computer Science from the University of
Virginia and an M.B.A. from the Anderson School at UCLA.
Mark D. Roah has served as our Senior Vice President of Business Development
since April 1999 and has served as a director of L90 since our inception. Mr.
Roah is a co-founder of L90. From January 1997 to April 1999, he served as our
Vice President of Southwestern Sales. Between January 1996 and December 1996,
Mr. Roah worked as an Account Executive at Screaming Media, formerly
42
<PAGE>
known as Interactive Connection. From August 1992 until November 1994, Mr. Roah
worked as a Financial Analyst at Shaman Pharmaceuticals and between November
1994 and December 1995 he was a Marketing Manager for ICS Communications. Mr.
Roah graduated with a B.S. in Finance from San Francisco State University.
Christopher J. Cardinali has served as our Vice President of Northwestern
Sales and Secretary and has served as a director since our inception. Mr.
Cardinali is a co-founder of L90. Between January 1996 and December 1996, Mr.
Cardinali worked as an Account Executive at Screaming Media, formerly known as
Interactive Connection. Between June 1995 and December 1995, he was a
consultant for Halo Interactive. Mr. Cardinali graduated with a B.A. in
Economics and Philosophy from Boston College and also received an M.B.A. from
the Anderson School at UCLA.
Frank A. Addante has served as our Chief Technology Officer since February
1998. Between January 1995 and February 1998, Mr. Addante served as Vice
President of ReaXions, Inc., an Internet advertising and e-commerce technology
development company. Between January 1997 and February 1998, ReaXions provided
technology consulting services to L90, during which time Mr. Addante served as
our primary contact within ReaXions. Prior to January 1995, Mr. Addante
attended the Illinois Institute of Technology.
Peter G. Diamandis has served as one of our directors since August 1999. Mr.
Diamandis is currently a managing member of DigaComm, L.L.C., a private
investment firm. Between February 1991 and September 1996, he served as Vice
Chairman of DM Holdings, Inc., the parent company of Donnelley Marketing, Inc.
Mr. Diamandis was also the founder or publisher of several popular magazines,
including Self Magazine, New York and Mademoiselle. Mr. Diamandis serves on the
board of directors of Big Flower Press Holdings, Inc. Mr. Diamandis graduated
with a B.S. in Finance from Bucknell University.
Peter E. Ligeti has served as a director of L90 since August 1999. Since
1988, Mr. Ligeti has been a General Partner of Keystone Venture Capital, a
Philadelphia-based venture capital firm, where he has managed many of
Keystone's technology-related investments and provided financing to emerging
growth companies. Mr. Ligeti has represented Keystone on the boards of such
companies as Solbright, Nettech, BATNET, Hollywood Stock Exchange, Integrated
Circuit Systems, Paradigm Software Technologies, Ansoft, Infonautics and
National Medical Technologies. Mr. Ligeti graduated with a B.A. from Harvard
University and an M.B.A. from the Wharton School at the University of
Pennsylvania.
Glenn S. Meyers has served as one of our directors since September 1999.
Since April 1998, Mr. Meyers has served as a director and the President and
Chief Executive Officer of Rare Medium Group, Inc. Mr. Meyers has also served
as a director and Chief Executive Officer of Rare Medium, Inc. since September
1995. Prior to September 1995, Mr. Meyers served as President of Brookridge
Capital Management, an Internet venture capital firm. Mr. Meyers graduated with
a B.S. from the University of Florida School of Business Administration.
G. Bruce Redditt has served as one of our directors since September 1999.
Since May 1998, Mr. Redditt has served as Executive Vice President of Omnicom
Group Inc. His duties include overseeing Communicade, a division of Omnicom
Group that holds investment positions in companies specializing in Web-based,
interactive media services. Between July 1995 and April 1998, Mr. Redditt
served as Executive Vice President of Sony Pictures Entertainment. Between July
1986 and June 1995, Mr. Redditt held a number of communication positions within
GTE Corporation, last as Corporate Vice President. Mr. Redditt graduated with a
B.S. from Florida State University.
43
<PAGE>
Peter Sealey has served as one of our directors since August 1999. Dr. Sealey
has been a Lecturer and an Adjunct Professor of Marketing at the Haas School of
Business at the University of California, Berkeley since 1994. In addition,
during the same period Dr. Sealey has been self-employed as a management
consultant. Dr. Sealey was employed by the Coca-Cola Company for 24 years,
where he held a series of senior management positions, including Senior Vice
President, Global Marketing. Dr. Sealey serves on the board of directors of
Autoweb.com, Cybergold, Inc. and USWeb Corporation. Dr. Sealey graduated with a
B.S. from the University of Florida, an M.I.A. from Yale University, and an
M.A. and a Ph.D. from Claremont Graduate University.
Composition of the Board
Our board of directors has nine authorized members. Pursuant to our
certification of incorporation and a stockholders agreement to which
substantially all our stockholders are a party, one director is to be elected
by the holders of the Series A preferred stock, three are to be elected by the
holders of the Series B preferred stock, one is to be elected by the holders of
the Series C preferred stock (which member is to be designated by Rare Medium
Group, Inc.) and four are to be elected by the holders of the common stock, one
of whom is to be nominated by the other eight directors. These election rights
of the Series A, Series B preferred and Series C preferred stockholders will
expire upon the closing of this offering upon conversion of their preferred
stock into common stock. The stockholders agreement will also expire at that
time. Thereafter, all directors will be elected by the holders of common stock.
Members of the board of directors will be elected each year at our annual
meeting of stockholders, and serve until the following annual meeting of
stockholders or until their respective successors have been elected and
qualified.
Board Committees
We have established an audit committee, comprised of Mr. Ligeti and Mr.
Diamandis, and a compensation committee, comprised of Mr. Apfelbaum and Mr.
Sealey. The audit committee reviews our internal accounting procedures and
consults with and reviews the results and scope of the audit and other services
provided by our independent accountants. The compensation committee administers
our stock option plans and reviews and approves the compensation and benefits
for our key executive officers. This committee also establishes and reviews
general policies relating to compensation and benefits of our employees.
Director Compensation
Other than reimbursing directors for customary and reasonable expenses of
attending board and committee meetings, we do not currently compensate our non-
employee directors.
Employment Agreements
In September 1999, we entered into at-will employment agreements with each of
Messrs. Bohan, Sebastian, Roah, Cardinali and Addante. These agreements provide
for annual base salaries of $58,000, $130,000, $15,000, $60,000 and $60,000,
respectively. In addition, these agreements provide for sales commissions for
Messrs. Bohan, Cardinali and Roah in accordance with our policy in effect from
time to time. Each agreement provides for an initial two-year term, and is
automatically renewed for successive one-year terms, unless otherwise
terminated in writing by us or the employee prior to 30 days before the
expiration of the initial term or any successive term. These agreements provide
for customary benefits and for the ongoing payment to each of these employees
of their base salaries for the balance of the initial term or any successive
term if he is terminated without cause.
44
<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid
to our Chief Executive Officer and the other executive officers whose cash
compensation exceeded $100,000 in 1998 for services rendered to L90 in all
capacities during 1998 (collectively, the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
Name and Principal ------------ Other Annual Shares Underlying All Other
Position Salary Compensation(1) Options Compensation
- ------------------ ------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
John C. Bohan.......... $60,000 $242,000 -- --
President and Chief
Executive Officer
Christopher J.
Cardinali............. $60,000 $ 63,000 200,000 $400(2)
Vice President of
Northwestern Sales
Mark D. Roah........... $15,000 $109,000 200,000 $400(2)
Senior Vice President
of Business
Development
</TABLE>
- --------
(1) The amounts listed in "Other Annual Compensation" is comprised solely of
sales commissions.
(2) This amount represents a vehicle allowance.
Option Grants in 1998
The following table sets forth information regarding options granted to the
Named Executives during the year ended December 31, 1998. We have not granted
any stock appreciation rights. Options were granted at an exercise price equal
to the fair market value of the common stock at the date of the grant. In
determining the fair market value of the common stock, the board of directors
considered various factors, including recent arms' length transactions, our
financial condition and business prospects, operating results, the absence of a
market for the common stock and the risks normally associated with investments
in companies engaged in similar businesses. The term of each option granted is
generally 10 years from the date of grant. Options may terminate before their
expiration dates, if the optionee's status as an employee is terminated or upon
the optionee's death or disability.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(1)
-------------------------------------------------- ----------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Price Expiration
Name Granted in 1998 Per Share Date 5% 10%
- ---- ---------- ---------- -------------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
John C. Bohan........... -- -- -- -- -- --
Christopher J.
Cardinali.............. 200,000 41.25 $0.25 Dec. 31, 2007 $81,444 $129,687
Mark D. Roah............ 200,000 41.25 $0.25 Dec. 31, 2007 $81,444 $129,687
</TABLE>
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted based upon the
fair market value on the date of grant. These assumptions are not intended
to forecast future appreciation of our stock price. The amounts reflected
in the table may not be achieved.
45
<PAGE>
1998 Year-Ended Option Values
The following table sets forth for each of the Named Executives certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options as of December 31, 1998. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding options and the fair market value of
our common stock as of December 31, 1998. None of the Named Executives
exercised any options in 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End(1)
-------------------------- -------------------------
Name Exerciseable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
John C. Bohan........... -- -- -- --
Christopher J.
Cardinali.............. 100,000 100,000 $75,000 $75,000
Mark D. Roah............ 100,000 100,000 $75,000 $75,000
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option as of December 31, 1998 ($1.00 per
share as determined by the Board of Directors) and the exercise price of
the Named Executive's options. In determining the fair market value of
L90's common stock, the board of directors considered various factors,
including L90's financial condition and business prospects, its operating
results, the absence of a market for its common stock and the risks
normally associated with technology companies.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan was adopted by the board of directors on April
30, 1999, and provides for awards or sales of shares and options (including
incentive stock options and nonstatutory stock options). A total of 2,500,000
shares of common stock has been reserved for issuance under our 1999 Stock
Incentive Plan.
Our 1999 Stock Incentive Plan is administered by our compensation committee
of the board of directors. The board of directors may amend our 1999 Stock
Incentive Plan as it desires without further action by our stockholders except
as required by applicable law. Our 1999 Stock Incentive Plan will remain in
effect until terminated by the board or for a term of 10 years from its
original adoption date, whichever is earlier.
The consideration for each award under our 1999 Stock Incentive Plan will be
established by the administrator, but in no event will the option price for any
award be less than 100% of the fair market value of the stock on the date of
the grant. In the event that an employee recipient of incentive stock options
under our 1999 Stock Incentive Plan holds 10% or more of our outstanding common
stock on the date of the grant, the option price for these options may not be
less than 110% of the fair market value of the stock on the date of the grant.
Awards will have such terms and be exercisable in such manner and at such times
as the administrator may determine. However, each option must expire within a
period of not more than 10 years from the date of grant.
Our 1999 Stock Incentive Plan provides that, in the event of a change in our
capitalization, outstanding options, restricted shares and options available
for grant under the 1999 Stock Incentive Plan will be subject to adjustment in
the discretion of the administrator.
As of August 31, 1999, options to purchase up to 2,184,600 shares of common
stock had been granted under our 1999 Stock Incentive Plan. These options have
an exercise price of $2.35 per share and were held by 91 persons.
46
<PAGE>
RELATED PARTY TRANSACTIONS
Founder Transactions
Beginning in January 1998, we sold an aggregate of 10,000,000 shares of
common stock to founders and key executive officers at a value of $0.25 per
share. These purchasers were John C. Bohan (9,025,000 shares), Mark Roah
(300,000 shares), C.J. Cardinali (300,000 shares), Todd Taplin (200,000
shares), Frank Addante (100,000 shares) and Neal Weinberg (75,000 shares). The
consideration tendered by Messrs. Bohan, Roah, Cardinali and Taplin was the
contribution of the operating business of John Bohan & Associates, LLC. Messrs.
Addante and Weinberg tendered promissory notes in consideration for their
shares.
Preferred Stock Financings
We used the funds raised in each of the preferred stock financings described
below:
. to expand our business operations;
. to hire additional personnel;
. to provide additional services; and
. for other general corporate purposes related to the expansion of our
business.
Series A Preferred Stock Financing
On September 16, 1998, in a private placement transaction, we issued 2,000
shares of Series A preferred stock to William Apfelbaum at $1,000 per share,
convertible into common stock at the conversion price per share of $0.80. The
number of shares of common stock into which the Series A preferred stock will
convert is an aggregate of 2,500,000 shares. In connection with sale of Series
A preferred stock, Mr. Apfelbaum was granted a right upon the occurrence of
certain events to require us to repurchase the Series A preferred stock and any
shares of common stock issued upon conversion of the Series A preferred stock
held by Mr. Apfelbaum. Mr. Apfelbaum irrevocably waived his right to exercise
this right in August, 1999. Mr. Apfelbaum, our chairman, was issued a warrant
to purchase up to 657,890 shares of our common stock at a price per share of
$1.14. The holder of the Series A preferred stock is entitled to incidental
registration rights regarding the shares of common stock issued or issuable
upon conversion and upon exercise of the warrant. See "Description of Capital
Stock--Registration Rights." The holder of the outstanding shares of Series A
preferred stock is entitled to receive, upon conversion of shares of Series A
preferred stock into common stock, a dividend in cash accruing from September
16, 1998, at an annual rate of $40 per share of Series A preferred stock so
converted. The holder of Series A preferred stock has the right to elect one
member of the board of directors. To date, the holder of the Series A preferred
stock has designated William Apfelbaum to the board of directors. All shares of
Series A preferred stock will automatically convert into shares of common stock
upon the closing of the offering.
Series B Preferred Stock Financing
In a private placement transaction, which closed in September 1999, we issued
a total of 4,107,044 shares of Series B preferred stock at $2.35 per share
convertible into common stock at a one-to-one ratio. The principal purchasers
of the Series B preferred stock included DigaComm (L90), L.L.C. and Keystone
Venture V, L.P. DigaComm (L90), L.L.C. also purchased a warrant to acquire up
to 530,946 shares of our common stock at a price per share of $3.53. Unless
previously exercised, this warrant will automatically be exercised on a
cashless basis into shares of common stock upon the closing of the
offering. The holders of the Series B preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion. See "Description of Capital Stock--Registration Rights." The
holders of the outstanding shares of
47
<PAGE>
Series B preferred stock are entitled to receive, upon conversion of shares of
Series B preferred stock into common stock, a dividend in cash accruing from
August 6, 1999, at an annual rate of $0.14 per share of Series B preferred
stock so converted. The holders of Series B preferred stock collectively have
the right to elect three members of the board of directors. To date, the
holders of the Series B preferred stock have designated Peter Diamandis, Peter
Ligeti and Peter Sealey to the board of directors. All shares of Series B
preferred stock will automatically convert into shares of common stock upon the
closing of the offering.
Series C Preferred Stock Financing
In a private placement transaction, which closed in September 1999, we issued
a total of 1,307,190 shares of Series C preferred stock at $3.06 per share
convertible into common stock at a one-to-one ratio. The purchasers of the
Series C preferred stock were Development Ventures (Two) Inc. and Rare Medium
Group, Inc. Development Ventures (Two) Inc. purchased a warrant to acquire up
to an additional 1,011,044 shares of our common stock at a price of $3.06. Rare
Medium Group, Inc. purchased a warrant to acquire up to an additional 900,000
shares of our common stock at a price of $3.06. Unless previously exercised,
both warrants will automatically be exercised on a cashless basis into
shares of common stock upon the closing of this offering. The holders of
Series C preferred stock have registered the re-sale of the shares of common
stock issued or issuable upon conversion of the Series C preferred stock and
exercise of their warrants on the registration statement of which this
prospectus is a part. However, these stockholders have agreed not to sell any
of these shares for at least 180 days after commencement of this offering, and
one-half of their shares until 270 days after commencement of this offering.
See "Description of Capital Stock--Registration Rights." The holders of the
outstanding shares of Series C preferred stock are entitled to receive, upon
conversion of shares of Series C preferred stock into common stock, a dividend
in cash accruing from September 22, 1999, at an annual rate of $0.18 per share
of Series C preferred stock so converted. The holders of Series C preferred
stock collectively have the right to elect one member of the board of
directors, which member shall be designated by Rare Medium for so long as it
and its affiliates hold at least 50 percent of the outstanding shares of Series
C preferred stock. Rare Medium has designated Glenn S. Meyers to the board of
directors. All shares of Series C preferred stock will automatically convert
into shares of common stock upon the closing of the offering.
Warrants
On June 7, 1999, we issued to The Roman Arch Fund L.P. and The Roman Arch
Fund II, L.P. four warrants to purchase up to an aggregate of 500,000 shares of
common stock, later adjusted to an aggregate of 225,000 shares of common stock,
at an initial purchase price of $1.60 per share, subject to adjustment. These
warrants may be exercised on a cashless basis. These warrants expire on the
earlier of June 7, 2005, or the fifth anniversary of this offering. Warrants to
purchase up to 125,000 shares of common stock, to the extent not previously
exercised, may be exchanged at the election of the holder within 180 days of
the closing of this offering for warrants to purchase up to 250,000 shares of
common stock.
On August 13, 1999, we issued to William Apfelbaum a warrant to purchase up
to 530,946 shares of common stock, at an exercise price of $3.53 per share.
This warrant will automatically convert into the right to receive 530,946
shares of common stock immediately prior to the closing of the offering.
48
<PAGE>
Shareholders Agreement
In connection with the financings described above, substantially all of our
stockholders entered into an agreement with us which provides for specified
voting for our board of directors and requires that certain corporate
activities be approved by our stockholders. This agreement also contains
various other rights. However, the provisions of this agreement will terminate
upon the closing of this offering and with the conversion at that closing of
all of our preferred stock into common stock.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of September 22, 1999, and as adjusted to
reflect this offering and the conversion of the preferred stock into common
stock, and the cashless exercise of certain warrants, upon the closing of this
offering, for each of the following persons:
. each person or entity who we know to beneficially own 5% or more of the
outstanding common stock,
. each of the Named Executives,
. each of our directors, and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed below
is c/o L90, Inc., 2020 Santa Monica Boulevard, Suite 400, Santa Monica,
California 90404.
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 or warrants held by that person that
are currently exercisable or exercisable, within 60 days of August 31, 1999,
are deemed outstanding. Such 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 under applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name.
<TABLE>
<CAPTION>
Shares Bneficially
Shares Beneficially Owned After
Owned Prior to Offering Offering
---------------------------------------------
Number Percent Number Percent
--------------- --------------------- -------
<S> <C> <C> <C> <C>
Named executive officers and
directors:
John C. Bohan (1)........... 9,025,000 9,025,000
William M. Apfelbaum (2).... 3,688,836 3,688,836
Peter E. Ligeti (3)......... 1,699,028 1,699,028
Glenn S. Meyers (4)......... 1,653,595 1,653,595
Peter G. Diamandis (5)...... 1,380,460 1,380,460
Christopher J. Cardinali
(6)........................ 500,000 500,000
Mark D. Roah (7)............ 500,000 500,000
Thomas A. Sebastian......... -- --
Frank A. Addante (8)........ 600,000 600,000
Peter Sealey................ 40,000 40,000
Gerald B. Redditt........... -- --
Other 5% Stockholders:
Keystone Venture V, L.P.
(9)........................ 1,699,028 1,699,028
1601 Market Street, Suite
2500
Philadelphia, PA 19103
Development Ventures (Two)
Inc. (10).................. 1,664,639 1,664,639
51 Twin Pond Lane, New
Canaan, CT 06840
Rare Medium Group, Inc.
(11)....................... 1,553,595 1,553,595
44 West 18th Street, New
York, NY 10011
DigaComm (L90), L.L.C.
(12)....................... 1,380,460 1,380,460
400 North Michigan Avenue,
Suite 520
Chicago, IL 60611
All directors and executive
officers as a group
(11 persons)................ 19,086,919 19,086,919
</TABLE>
50
<PAGE>
- --------
(1) Includes 855,000 shares on which Mr. Bohan has granted options to other
key employees of L90.
(2) Includes (i) 2,500,000 shares issuable upon conversion of 2,000 shares of
Series A preferred stock, (ii) 657,890 shares issuable upon conversion of
a warrant at an exercise price of $1.14 per share, and (iii) 530,946
shares issuable upon exercise of a warrant at an exercise price of $3.53
per share.
(3) Reflects 1,699,028 shares beneficially owned by Keystone Venture V, L.P.,
of which Mr. Ligeti is a general partner.
(4) Includes (i) 1,553,595 shares beneficially owned by Rare Medium Group,
Inc., of which Mr. Meyers serves as President and Chief Executive Officer,
and (ii) 100,000 shares issuable upon exercise of stock options at a price
of $3.06 per share, which are presently exercisable or will become
exercisable within 60 days from August 31, 1999.
(5) Reflects 1,380,460 shares beneficially owned by DigaComm (L90), L.L.C.,
the parent of which Mr. Diamandis is a managing member.
(6) Includes 200,000 shares issuable upon exercise of stock options at a price
of $.25 per share, which are presently exercisable or will become
exercisable within 60 days from August 31, 1999.
(7) Includes 200,000 shares issuable upon exercise of stock options at a price
of $.25 per share, which are presently exercisable or will become
exercisable within 60 days from August 31, 1999.
(8) Includes 500,000 shares issuable upon exercise of stock options at a price
of $2.35 per share, which are presently exercisable or will become
exercisable within 60 days from August 31, 1999.
(9) Includes 1,699,028 shares issuable upon conversion of a like number of
shares of Series B preferred stock.
(10) Includes (i) 653,595 shares issuable upon conversion of a like number of
shares of Series C preferred stock, and (ii) 1,011,044 shares issuable
upon exercise of a warrant at an exercise price of $3.06 per share.
(11) Includes (i) 653,595 shares issuable upon conversion of a like number of
shares of Series C preferred stock, and (ii) 900,000 shares issuable upon
exercise of a warrant at an exercise price of $3.06 per share.
(12) Includes (i) 849,514 shares issuable upon conversion of a like number of
shares of Series B preferred stock, and (ii) 530,946 shares issuable upon
exercise of a warrant at an exercise price of $3.53 per share.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following descriptions of our capital stock and relevant provisions of
our certificate of incorporation and our bylaws are summaries and are qualified
by reference to our certificate of incorporation and our bylaws, which are
included as exhibits to the registration statement of which this prospectus is
a part.
We are authorized to issue up to 80,000,000 shares of common stock, par value
$.001 per share, and 15,000,000 shares of preferred stock, par value $.001 per
share.
Common Stock
As of August 31, 1999, there were 10,000,000 shares of common stock
outstanding held of record by six stockholders. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of an aggregate
of shares of common stock to reflect:
. the offering;
. the conversion of all outstanding preferred stock; and
. the cashless exercise of certain warrants,
there will be approximately shares of common stock outstanding upon
the closing of this offering.
All outstanding shares of common stock are fully paid and nonassessable, and
the shares of common stock to be issued upon completion of the offering will be
fully paid and nonassessable. Holders of common stock are entitled to one vote
per share in all matters to be voted on by the stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to
receive ratably those dividends, if any, as may be declared by the board of
directors out of funds legally available therefor, subject to any preferential
dividend rights of any outstanding preferred stock. In the event of a
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
after prior distribution rights of shares of preferred stock then outstanding,
if any. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock.
Preferred Stock
Under our certificate of incorporation, the board of directors is authorized,
without further stockholder approval, to issue up to 15,000,000 shares of
preferred stock in one or more series and to designate and alter all rights
(including voting rights), preferences, privileges and qualifications,
limitations, restrictions granted to or imposed upon any wholly unissued series
of stock. Our board of directors is also authorized to determine the number of
shares constituting any such series and to increase or decrease (but not below
the number of shares of such series then outstanding) the number of shares of
any series. Our board of directors may authorize the issuance of preferred
stock with voting, conversion or other rights that are senior to the rights of
the holders of common stock. To date, 8,002,000 shares of preferred stock have
been designated as Series A, Series B and Series C preferred stock, leaving
6,998,000 shares available for designation in the future.
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<PAGE>
Preferred stock could thus be issued quickly with terms calculated to delay
or prevent a change in control of L90 or to make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock, and may adversely affect the
voting and other rights of the holders of common stock. Upon the closing of the
offering, no shares of preferred stock will be outstanding and we have no
current plans to issue any of the preferred stock. See "Related Party
Transactions."
Registration Rights
The Stock Purchase and Stockholders Agreement dated September 16, 1998, among
L90 and the holders of 12,500,000 shares of common stock and securities
convertible into common stock, provides that the holder of the Series A
preferred stock is entitled to certain registration rights.
. Piggyback registration rights. The holder of our Series A preferred
stock may request to have its shares registered under the Securities Act
any time we file a registration statement to register any of our
securities for our own account or the account of any of our
stockholders. The number of times such rights may be exercised is
unlimited, but the number of shares that can be registered at any one
time is subject to limitations that an underwriter may impose. The
holder has waived his registration rights in connection with this
offering.
The Registration Agreement dated August 6, 1999, among L90 and the holders of
4,107,044 shares of our Series B preferred stock, provides that the holders are
entitled to certain registration rights.
. Demand registration rights. Commencing 270 days after the closing of
this offering, the holders of a majority of the shares issued upon
conversion of our Series B preferred stock have the right to demand that
we register their shares under the Securities Act. The holders may
exercise their demand registration rights up to two times on Form S-1
and an unlimited number of times on Form S-3, provided that the value of
the shares to be registered is at least $5,000,000.
. Piggyback registration rights. The holders of the shares issued upon
conversion of our Series B preferred stock may request to have their
shares registered under the Securities Act any time we file a
registration statement to register any of our securities for our own
account or the account of any of our stockholders. The number of times
such rights may be exercised is unlimited, but the number of shares that
can be registered at any one time is subject to limitations that an
underwriter may impose. The holders have waived their registration
rights in connection with this offering.
The Series C Registration Agreement dated September 22, 1999, among L90 and
the holders of 1,307,190 shares of Series C preferred stock, provides that the
holders are entitled to have their shares of common stock issuable upon
conversion of the Series C preferred stock, as well as the common stock
issuable upon exercise of their warrants, registered on the same registration
statement of which this prospectus is a part. The total number of these shares
is 3,218,234 and they are included in a separate resale prospectus. However,
these holders have agreed not to sell any of these shares until 180 days after
commencement of this offering, at which time they may sell one-half of their
shares. These holders have also agreed that they will not sell the other one-
half of their shares until 270 days after commencement of this offering.
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<PAGE>
Anti-Takeover Effects of Certain Provisions of Delaware Law and L90's
Certificate of Incorporation and Bylaws
We are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. Generally, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
Upon completion of the offering, there will be approximately
shares of common stock and 6,998,000 shares of preferred stock available for
future issuance. Delaware law does not require stockholder approval for the
issuance of authorized shares, or to designate price, rights, preferences,
privileges and restrictions, including voting rights, of the preferred stock.
The additional shares may be used for a variety of corporate purposes. The
issuance of common stock or preferred stock may have the effect of delaying,
deferring or preventing a change in control by making it more difficult for a
third party to acquire a majority of our outstanding voting stock.
Indemnification of Directors, Officers and Agents and Limitation of Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors, officers and agents for monetary damages
for breach of fiduciary duty as a director, officer or agent, except:
. for any breach of the director's, officer's or agent's duty of loyalty
to us or our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful dividends and stock purchases under section 174 of the
Delaware General Corporation Law; or
. for any transaction from which the director, officer or agent derived an
improper personal benefit.
Our bylaws provide that:
. we must indemnify our directors, officers and agents to the fullest
extent permitted by Delaware law, subject to very limited exceptions;
. we must advance expenses, as incurred, to our directors, officers and
agents in connection with any legal proceeding to the fullest extent
permitted by Delaware law, subject to limited exceptions.
The limitation of liability and indemnification provisions in our certificate
of incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty. These provisions may also
have the effect of reducing the likelihood of stockholder derivative litigation
against directors, officers and agents, even though a derivative action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors, officers and agents
under these indemnification provisions.
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We have entered into an agreement with each of our directors and officers
that, among other things, indemnifies him or her for certain expenses,
including attorneys' fees and associated legal expenses, judgments and fines
and amount paid in settlement, actually and reasonably incurred by him or her
in connection with any action, suit or proceeding arising out of his or her
services as our director or officer. We believe that these agreements are
necessary to attract and retain qualified directors and officers. Our bylaws
also permit us to secure insurance on behalf of any director, officer, employee
or agent for any liability arising out of his or her actions on our behalf,
regardless of whether Delaware law would permit indemnification. We have
obtained liability insurance for our directors and officers.
At present, there is no pending litigation or proceeding involving any of our
directors, officers or agents for which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services. Its telephone number for such purposes is (213) 553-9700.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "LNTY."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect market prices prevailing from time to time. 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, other than the cashless
exercise of warrants to acquire shares of common stock upon the closing
of this offering. Of these shares, the shares sold in the offering
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our "affiliates," as that
term is defined in Rule 144 of the Securities Act, may generally only be sold
in compliance with the limitations of rule 144 described below. All other
outstanding shares not sold in this offering will be deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below. Subject to the lock-up agreements described below
and the provisions of Rules 144 and 701, additional shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
Approximate Number of
Shares Eligible For
Future Sale Date
--------------------- ----
<C> <S>
................... After the date of this prospectus, freely tradeable
shares sold in this offering.
1,609,117............... After 180 days from the date of this prospectus, a
180-day lock-up is released and these shares are
freely tradeable.
................... After 180 days from the date of this prospectus, a
180-day lock-up is released and these shares are
saleable under Rule 144 (subject, in some cases, to
volume limitations) or Rule 701.
................... After 180 days from the date of this prospectus,
restricted securities that are held for less than one
year and are not yet saleable under Rule 144.
1,609,117............... After 270 days from the date of this prospectus, a
270-day lock-up is released and these shares are
freely tradeable.
</TABLE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares of our common stock for at least one year
(including the holding period of any prior owner, except if the prior owner was
one of our affiliates) would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding (which
will equal approximately shares immediately after this
offering); or
. the average weekly trading volume of our common stock on the Nasdaq
National Market 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 certain manner of sale provisions and
notice requirements and to the availability of current public information about
L90.
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
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<PAGE>
for at least two years (including the holding period of any prior owner except
one of our affiliates), is entitled to sell the shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144; therefore, unless otherwise restricted, 144(k) shares could be
sold immediately upon the completion of this offering.
Under Rule 701 of the Securities Act as currently in effect, any of our
employees, consultants or advisors who purchased shares from us in connection
with a compensatory stock or option plan or other written agreement is eligible
to resell these shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144. However, because all
shares that we have issued under Rule 701 are subject to lock-up agreements,
they will only become eligible for sale when the 180-day lock-up agreements
expire. As a result, they may be sold 90 days after this offering only if the
holder obtains the prior written consent of SG Cowen Securities Corporation.
All of our officers, directors, and other existing stockholders have agreed
not to sell, transfer, offer, or otherwise dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of SG Cowen
Securities Corporation for a period of 180 days after the date of this
prospectus.
Upon completion of this offering, the holders of certain shares of our common
stock, or their transferees, will be entitled to certain rights with respect to
the registration of their shares under the Securities Act. See "Description of
Capital Stock-Registration Rights." Registration of these shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by our
affiliates) immediately upon the effectiveness of a registration. Furthermore,
the resale of up to 3,218,234 shares issuable to two of our stockholders upon
conversion of their Series C preferred stock and exercise of their warrants
have been registered on the same registration statement of which this
prospectus is a part. However, these stockholders have agreed not to sell any
of these shares until 180 days after commencement of this offering, and not to
sell one-half of these shares until 270 days after commencement of this
offering.
We intend to file a registration statement under the Securities Act covering
shares of our common stock reserved for issuance upon exercise of options
granted under our 1999 Stock Incentive Plan and options granted outside of this
Plan. See "Management-1999 Stock Incentive Plan." This registration statement
is expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under this
registration statement will, subject to the 180-day lock-up period and to Rule
144 volume limitations applicable to our affiliates, be available for sale in
the open market, unless these shares are subject to vesting restrictions with
us. A total of 3,395,000 shares have been reserved for issuance upon exercise
of options granted under our 1999 Stock Incentive Plan and options granted
outside of this Plan. As of August 31, 1999, options to purchase 3,079,600
shares of our common stock were issued and outstanding. As of that date,
601,666 of these options had vested and were therefore exercisable.
As of August 31, 1999, we had outstanding warrants to purchase 1,944,781
shares of common stock. If these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144. However, warrants to purchase 2,972,936 shares are subject to a
cashless exercise provision upon the closing of this offering which would
result in the issuance of shares of common stock. These shares would be
saleable under Rule 144 one year after the issuance of the warrants.
57
<PAGE>
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
Following is a general discussion of the material U.S. federal income and
estate tax consequences of the ownership and disposition of the common stock
applicable to non-U.S. holders of common stock. For purposes of this
discussion, a non-U.S. holder is any holder of common stock that, for U.S.
federal income tax purposes, is not a U.S. person (as defined below). This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant in light of a non-U.S. holder's particular facts
and circumstances, such as being a U.S. expatriate, and does not address any
tax consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. L90, Inc.
has not and will not seek a ruling from the Internal Revenue Service with
respect to the U.S. federal income and estate tax consequences described below,
and as a result, there can be no assurance that the Internal Revenue Service
will not disagree with or challenge any of the conclusions set forth in this
discussion.
For purposes of this discussion, the term U.S. person means:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or any political
subdivision thereof that is subject to U.S. federal income tax on a net
basis in respect of income or gain with respect to the common stock of
L90, Inc.;
. an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
Dividends
A dividend paid to a non-U.S. holder generally will be subject to U.S.
withholding tax either at a rate of 30% of the gross amount of the dividend or
such lower rate as may be specified by an applicable income tax treaty.
Dividends received by a non-U.S. holder that are effectively connected with a
U.S. trade or business conducted by the non-U.S. holder or a "permanent
establishment" or fixed base in the United States of such non-U.S. holder are
exempt from that withholding tax. However, those effectively connected
dividends, net of certain deductions and credits, are taxed at the same
graduated rates applicable to U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. holder that are effectively connected with a U.S. trade or
business of the corporate non-U.S. holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty.
A non-U.S. holder that is eligible for a reduced rate of withholding tax
pursuant to an applicable income tax treaty may be required to submit forms or
other documentation to avail itself of that treaty and may be able to obtain a
refund of any excess amounts withheld by L90, Inc. by filing an appropriate
claim for refund with the Internal Revenue Service.
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Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax on
any gain realized upon the sale or other disposition of common stock unless:
. the gain is effectively connected with a U.S. trade or business of the
non-U.S. holder (which gain, in the case of a corporate non-U.S. holder,
must also be taken into account for branch profits tax purposes) or, in
the case of inapplicable income tax treaty, the gain is attributable to
a "permanent establishment" of the non-U.S. holder or of a U.S.
partnership, limited liability company or trust or estate in which the
non-U.S. holder is a partner, member or beneficiary;
. the non-U.S. holder is an individual who holds his or her common stock
as a capital asset within the meaning of Section 1221 of the Code
(generally, an asset held for investment purposes) and who is present in
the United States for a period or periods aggregating 183 days or more
during the calendar year in which the sale or disposition occurs and
certain other conditions are met;
. L90 is or has been a "United States real property holding corporation"
for U.S. federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or the holder's holding
period for its common stock. L90 believes that, as of the date of this
prospectus, it is not and does not expect that it will become a "United
States real property holding corporation" for U.S. federal income tax
purposes; or
. the non-U.S. holder is a U.S. expatriate subject to tax pursuant to the
provisions of U.S. law.
Generally, a corporation is a "United States real property holding
corporation" if the fair market value of its "United States real property
interests" equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business. However, even if we were to become a "United States real
property holding corporation," any gain realized by a non-U.S. holder still
would not be subject to United States federal income tax if our shares are
"regularly traded" (within the meaning of the applicable regulations) on an
established securities market (for example, New York Stock Exchange or NASDAQ
Stock Market). We believe that our common stock will be "regularly traded on an
established securities market." If, however, our common stock is not so traded,
on a sale or disposition by a non-U.S. holder of the common stock the
transferee of such stock will be required to withhold 10% of the proceeds
unless we certify that either we are not, nor have we been, a United States
real property holding company or another exemption from withholding applies. If
a non-U.S. holder who is an individual is subject to tax under clauses (1) or
(4) above, such individual generally will be taxed on the net gain derived from
a sale of common stock under regular graduated United States federal income tax
rates. If an individual non-U.S. holder is subject to tax under clause
(2) above, such individual generally will be subject to a flat 30% tax on the
gain derived from a sale, which may be offset by certain United States capital
losses (notwithstanding the fact that such individual is not considered a
resident alien of the United States). Thus, individual non-United States
holders who have spent (or expect to spend) more than a de minimis period of
time in the United States in the taxable year in which they contemplate a sale
of common stock are urged to consult their tax advisers prior to the sale
concerning the United States federal income tax consequences of such sale.
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<PAGE>
Backup Withholding and Information Reporting
Generally, L90 would be required to report annually to the Internal Revenue
Service the amount of dividends, if any, paid on the common stock, the name and
address of the recipient, and the amount, if any, of tax withheld. A similar
report would be sent to the recipient. Pursuant to applicable income tax
treaties or other agreements, the Internal Revenue Service may make its reports
available to tax authorities in the recipient's country of residence.
Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the non-U.S. holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to non-U.S. holders at
an address outside the United States on or prior to December 31, 2000 unless
the payer has knowledge that the payee is a U.S. person. Under recently
finalized Treasury Department regulations regarding withholding and information
reporting, payment of dividends to non-U.S. holders at an address outside the
United States after December 31, 2000 may be subject to backup withholding at a
rate of 31% unless such non-U.S. holder satisfies various certification
requirements. These regulations generally presume that a non-U.S. holder is
subject to backup withholding at the 31% rate and information reporting unless
L90 receives certification of such holder's non-U.S. status. Backup withholding
at the 31% rate also generally will not apply to dividends paid to non-U.S.
holders that are subject to the 30% withholding on gross dividends, or a lower
rate specified by an applicable income tax treaty, as discussed above.
Under current Treasury Department regulations, the payment of the proceeds of
the disposition of common stock to or through the U.S. office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of the proceeds of
the disposition by a non-U.S. holder of common stock outside the United States
to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is:
. a U.S. person;
. a "controlled foreign corporation" for U.S. federal income tax purposes;
or
. a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a U.S. trade or business
unless the broker has documentary evidence in its files of the holders' non-
U.S. status and certain other conditions are met, or the non-U.S. holder
otherwise establishes an exemption.
In the case of the payment of proceeds from the disposition of common stock
effected by a foreign office of a broker that is a United States person or a
"United States related person", existing regulations require information
reporting on the payment unless (1) the broker receives a statement from the
owner, signed under penalty of perjury, certifying its non-United States status
or the broker has documentary evidence in its files as to the non-U.S. holder's
foreign status, and the broker has no actual knowledge to the contrary, and
other United States federal tax law conditions are met or (2) the beneficial
owner otherwise establishes an exemption. For this purpose, a "United States
related person" is either (1) a "controlled foreign corporation" for United
States federal income tax purposes; or (2) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the
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period that the broker has been in existence) is derived from activities that
are effectively connected with the conduct of a United States trade or
business. After December 31, 1999, the Final Regulations will impose
information reporting and backup withholding on payments of the gross proceeds
from the sales or redemptions of common stock that are effected through foreign
offices of brokers having any of a broader class of specified connections with
the United States. Such information reporting and backup withholding may be
avoided, however, if the applicable IRS certification requirements are complied
with. Prospective investors should consult with their own tax advisers
regarding the Final Regulations and in particular with respect to whether the
use of a particular broker would subject the investor to these rules.
In general, the recently finalized Treasury Department regulations, described
above, do not significantly alter substantive withholding and information
reporting requirements but would alter procedures for claiming benefits of an
income tax treaty and change the certification procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-U.S. holders should consult their tax advisors
regarding the effect, if any, of those final Treasury Department regulations on
an investment in the common stock. Those final Treasury Department regulations
are generally effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
Estate Tax
An individual non-U.S. holder who owns common stock at the time of his or her
death or had made certain lifetime transfers of an interest in common stock
will be required to include the value of that common stock in his or her gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Therefore, the value of such stock may be subject to
U.S. federal and state estate tax.
The foregoing discussion is a summary of the principal U.S. federal income
and estate tax consequences of the ownership, sale or other disposition of
common stock by non-U.S. holders. Accordingly, investors are urged to consult
their own tax advisors with respect to the income and estate tax consequences
of the ownership and disposition of common stock, including the application and
effect of the laws of any state, local, foreign or other taxing jurisdiction.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated ,
1999, the underwriters named below, through their representatives SG Cowen
Securities Corporation, Banc of America Securities LLC and Wit Capital
Corporation, have severally agreed to purchase from us the number of shares of
common stock set forth opposite their names at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
SG Cowen Securities Corporation....................................
Banc of America Securities LLC.....................................
Wit Capital Corporation............................................
---
Total............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets and may also be terminated
upon the occurrence of the events specified in the underwriting agreement. The
underwriters are severally committed to purchase all of the common stock being
offered by L90 if any of such shares are purchased (other than those covered by
the over-allotment option described below).
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to some dealers at that price less a
concession not in excess of $ per share. Dealers may reallow a concession
not in excess of $ per share to some other dealers. After the shares of
common stock are released for sale to the public, the underwriters may vary the
offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to 30 days
after the date of this prospectus, to purchase up to additional shares of
common stock at the public offering price set forth on the cover of this
prospectus to cover over-allotments, if any. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed, subject to
limited conditions, to purchase approximately the same percentage thereof that
the number of shares of common stock to be purchased by each of them, as shown
in the foregoing table, bears to the common stock offered hereby.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement,
all dealers purchasing shares from Wit Capital in the offering similarly have
agreed to make a prospectus in electronic format available on Web sites
maintained by each of the e-Dealers.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect thereof.
L90, our directors and officers and existing stockholders who hold an
aggregate of shares, together with the holders of options to purchase
shares of common stock and holders of warrants to purchase shares of
common stock, have agreed that for a period of at least 180 days following the
date of this prospectus, without the prior written consent of
62
<PAGE>
SG Cowen Securities Corporation, they will not directly or indirectly, offer,
sell, assign, transfer, pledge, contract to sell, or otherwise dispose of,
other than by operation of law, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (including,
without limitation, common stock which may be deemed to be beneficially owned
in accordance with rules and regulations promulgated under the Securities Act).
Except for holders of 3,218,234 shares of common stock, the resale of which is
registered on the same registration statement of which this prospectus is a
part, all holders of demand or incidental registration rights have waived these
rights with respect to this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"). 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 syndicate covering transaction to cover syndicate short
positions. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to some limitations, make
bids for or purchases of the common stock until the time, if any, at which a
stabilizing bid is made. 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
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales in
excess of 5% of the common stock offered hereby to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market of the common stock.
Consequently, the initial public offering price will be determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and
the underwriters believe to be comparable to us, estimates of our business
potential, our results of operations in recent periods, the present state of
our development and other factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $1,000,000.
Wit Capital, a member of the National Association of Securities Dealers, Inc.
will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 125 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with L90 or any of its founders or significant stockholders.
63
<PAGE>
LEGAL MATTERS
Certain matters relating to this offering are being passed upon for us by
Paul, Hastings, Janofsky & Walker LLP, Los Angeles, California. Brobeck,
Phleger & Harrison LLP, Los Angeles, California will act as counsel for the
underwriters.
EXPERTS
Our financial statements, included in this prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission in Washington,
D.C., a registration statement on Form S-1 under the Securities Act with
respect to the to the common stock offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. Certain items are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
L90 and the common stock offered hereby, reference is made to the registration
statement and the exhibits filed as a part thereof. Statements contained in
this prospectus as to the contents of any contract or other document filed as
an exhibit to the registration statement are, in each case, qualified in all
respects by reference to such exhibit. Upon completion of the offering, we will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith, will file reports and other
information with the SEC. The registration statement, including exhibits
thereto, as well as reports and other information which we filed with the SEC,
may be inspected without charge at the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
at Seven World Trade Center, 13th Floor, New York, NY 10048, and Citicorp
Center, 500 West Madison Street, Chicago, IL 60661. Copies of such materials
can also be obtained at prescribed rates from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Electronic filings
made through the Electronic Data Gathering Analysis and Retrieval System are
publicly available through the SEC's Web Site at http://www.sec.gov.
We will issue to our stockholders annual reports and, upon request, will make
available unaudited quarterly reports for the first three quarters of each
fiscal year. Annual reports will include audited financial statements and
reports of our independent accountants with respect to the examination of these
financial statements.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
L90, Inc.
Report of Independent Public Accountants................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(unaudited)............................................................. F-3
Statements of Operations for the period ended December 31, 1997, for the
year ended December 31, 1998 and for the six months ended June 30, 1998
and 1999 (unaudited).................................................... F-4
Statements of Stockholders' Equity for the period ended December 31,
1997, for the year ended December 31, 1998 and for the six months ended
June 30, 1999 (unaudited)............................................... F-5
Statements of Cash Flows for the period ended December 31, 1997, for the
year ended December 31, 1998 and for the six months ended June 30, 1998
and 1999 (unaudited).................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
L90, Inc.:
We have audited the accompanying balance sheets of L90, Inc. (a Delaware
Corporation) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the period from January 5,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of L90, Inc. as of December 31,
1997 and 1998, and the results of its operations and its cash flows for the
period from January 5, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Los Angeles, California
September 15, 1999
F-2
<PAGE>
L90, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1997 1998 1999
-------- ---------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $235,189 $2,111,852 $ 971,713
Accounts receivable (net of allowances of
$69,860 and $142,952 at December 31, 1997
and 1998, respectively, and $218,992 at
June 30, 1999)............................ 684,037 1,310,457 1,930,657
Prepaid expenses and other assets.......... 25,325 196,562 541,247
-------- ---------- ----------
Total current assets....................... 944,551 3,618,871 3,443,617
Property and equipment:
Equipment................................ 24,455 320,567 534,539
Furniture and fixtures................... 7,417 15,720 40,074
Leasehold improvements................... -- 18,347 23,801
-------- ---------- ----------
31,872 354,634 598,414
Less--Accumulated depreciation and
amortization............................ (6,455) (37,340) (108,714)
-------- ---------- ----------
Property and equipment, net................ 25,417 317,294 489,700
-------- ---------- ----------
Total assets............................... $969,968 $3,936,165 $3,933,317
======== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities:
Accounts payable........................... $344,000 $1,177,950 $1,892,903
Accrued expenses........................... 100,240 300,670 438,052
Current portion of long-term capital lease
obligations............................... -- 68,025 78,035
Deferred revenues.......................... 30,418 53,417 --
Accrued dividends.......................... -- 23,233 62,904
Note payable to investor................... -- -- 1,000,000
-------- ---------- ----------
Total current liabilities.................. 474,658 1,623,295 3,471,894
Long-term capital lease obligations, net of
current portion............................. -- 180,362 270,529
-------- ---------- ----------
Total liabilities.......................... 474,658 1,803,657 3,742,423
Stockholders' Equity:
Series A preferred stock, $.001 par value,
2,000 shares authorized, issued and
outstanding, including paid-in capital of
$1,999,980................................ -- 2,000,000 2,000,000
Common stock, $0.001 par value, 80,000,000
shares authorized, 10,000,000 shares
issued and outstanding.................... -- 10,000 10,000
Additional paid-in capital................. -- 46,818 46,818
Notes receivable for common stock.......... -- (43,750) (43,750)
Capital contributions, net of shareholders
draws..................................... 8,068 -- --
Retained earnings.......................... 487,242 119,440 (1,822,174)
-------- ---------- ----------
Total stockholders' equity................. 495,310 2,132,508 190,894
-------- ---------- ----------
Total liabilities and stockholders'
equity.................................... $969,968 $3,936,165 $3,933,317
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
L90, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period Ended Year Ended Six Months Ended
December 31, December 31, June 30,
------------ ------------ ------------------------
1997 1998 1998 1999
------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Revenue (derived from
system revenue of
$4,210,080 and $8,023,501
at December 31, 1997 and
1998, respectively, and
$3,376,341 and $5,795,829
at June 30, 1998 and 1999,
respectively)............. 1,159,764 2,189,433 $ 920,600 $ 1,949,003
Cost of revenue............ -- -- -- 308,951
---------- ----------- ----------- ------------
Gross profit............... 1,159,764 2,189,433 920,600 1,640,052
Operating expenses:
Sales and marketing...... 549,805 1,361,856 553,199 1,805,973
Research and
development............. -- 138,402 26,839 391,658
General and
administrative.......... 302,776 995,435 302,954 1,339,555
---------- ----------- ----------- ------------
Total operating expenses... 852,581 2,495,693 882,992 3,537,186
---------- ----------- ----------- ------------
Operating income (loss).... 307,183 (306,260) 37,608 (1,897,134)
Interest income (expense),
net....................... 2,601 17,491 3,550 (4,809)
---------- ----------- ----------- ------------
Income (loss) before
provision for income
taxes..................... 309,784 (288,769) 41,158 (1,901,943)
Provision for income
taxes..................... -- 800 -- --
---------- ----------- ----------- ------------
Net income (loss).......... $ 309,784 $ (289,569) $ 41,158 $ (1,901,943)
========== =========== =========== ============
Cumulative dividends on
participating preferred
stock..................... -- (23,233) -- (39,671)
---------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders.............. $ 309,784 $ (312,802) $ 41,158 $ (1,941,614)
========== =========== =========== ============
Net income (loss) per
share:
Basic/Diluted.............. $ -- $ (0.03) $ 0.00 $ (0.19)
========== =========== =========== ============
Weighted average number of
common shares outstanding:
Basic/Diluted............ -- 10,000,000 10,000,000 10,000,000
========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
L90, INC
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Receivable
Additional for
Preferred Capital Common Paid-in Common Retained
Stock Account Stock Capital Stock Earnings Total
---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, at January 1,
1997................... $ -- $ 13,068 $ -- $ -- $ -- $ 177,458 $ 190,526
Withdrawal of capital... -- (5,000) -- -- -- -- (5,000)
Net income.............. -- -- -- -- -- 309,784 309,784
---------- ---------- ---------- ---------- ---------- ----------- ----------
BALANCE at December 31,
1997................... -- 8,068 -- -- -- 487,242 495,310
Net loss................ -- -- -- -- -- (289,569) (289,569)
Issuance of preferred
stock.................. 2,000,000 -- -- -- -- -- 2,000,000
Issuance of common
stock.................. -- -- -- 43,750 (43,750) -- --
Distributions to
shareholders........... -- -- -- -- -- (50,000) (50,000)
Conversion to
C-corporation.......... -- (8,068) 10,000 3,068 -- (5,000) --
Accrual of cumulative
dividends on
participating preferred
stock.................. -- -- -- -- -- (23,233) (23,233)
---------- ---------- ---------- ---------- ---------- ----------- ----------
BALANCE at December 31,
1998................... 2,000,000 -- 10,000 46,818 (43,750) 119,440 2,132,508
Net loss (unaudited).... -- -- -- -- -- (1,901,943) (1,901,943)
Accrual of cumulative
dividends on
participating preferred
stock.................. -- -- -- -- -- (39,671) (39,671)
---------- ---------- ---------- ---------- ---------- ----------- ----------
BALANCE at June 30, 1999
(unaudited)............ $2,000,000 $ -- $ 10,000 $ 46,818 $ (43,750) $(1,822,174) $ 190,894
========== ========== ========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
L90, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Ended Year Ended Six Months Ended
December 31, December 31, June 30,
------------ ------------ -----------------------
1997 1998 1998 1999
------------ ------------ ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ 309,784 $ (289,569) $ 41,158 $(1,901,943)
Adjustments to reconcile net
loss to cash used in
operating activities--
Depreciation and
amortization............. 5,800 30,885 4,615 71,373
Changes in assets and
liabilities:
Increase in accounts
receivable............... (489,637) (626,420) (60,007) (620,200)
Increase in prepaid
expenses and other
assets................... (25,325) (171,237) (64,262) (344,685)
Increase in accounts
payable.................. 327,237 833,950 334,658 714,953
Increase in accrued
expenses................. 100,240 200,430 23,785 61,397
Increase (decrease) in
deferred revenues........ 30,418 22,999 (29,133) 22,569
---------- ---------- ---------- -----------
Net cash provided by
(used in) operating
activities.............. 258,517 1,038 250,814 (1,996,536)
---------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................. (18,876) (322,762) (13,862) (243,780)
---------- ---------- ---------- -----------
Net cash used in
investing activities.... (18,876) (322,762) (13,862) (243,780)
---------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings
(repayments) under
capital lease
obligations.............. -- 248,387 -- 100,177
Loan proceeds.............. -- -- 200,000 1,000,000
Withdrawal of capital...... (5,000) -- -- --
Distribution to
Shareholder............... -- (50,000) -- --
Preferred stock............ -- 2,000,000 -- --
---------- ---------- ---------- -----------
Net cash provided by
(used in) financing
activities.............. (5,000) 2,198,387 200,000 1,100,177
---------- ---------- ---------- -----------
Net increase (decrease) in
cash....................... 234,641 1,876,663 436,952 (1,140,139)
Cash and cash equivalents
beginning of period........ 548 235,189 235,189 2,111,852
---------- ---------- ---------- -----------
Cash and cash equivalents
end of period.............. $ 235,189 $2,111,852 $ 672,141 $ 971,713
========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period
for:
Interest................... $ -- $ 15,555 $ -- $ --
========== ========== ========== ===========
Income taxes............... $ -- $ -- $ -- $ 800
========== ========== ========== ===========
SUMMARY OF NON-CASH
FINANCING ACTIVITIES:
Notes receivable for common
stock..................... $ -- $ (43,750) $ -- $ (43,750)
========== ========== ========== ===========
Accrued dividends.......... $ -- $ 23,233 $ -- $ 39,671
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of the Business
L90, Inc., (the "Company") is an internet-based provider of online
advertising and direct marketing solutions for advertisers and Web
publishers. The Company provides fully-outsourced ad sales, as well as ad
serving and tracking technology. The Company develops targeted advertising
campaigns that leverage the capabilities of the internet. The Company's
adMonitor technology platform provides Web publishers, advertisers and ad
agencies with the ability to target, deliver, measure and analyze their
marketing campaigns.
The Company commenced operations in January 1997 as a sole
proprietorship. In May 1997, the Company became a California limited
liability company and changed its name to John Bohan and Associates, LLC.
At that time, the Company did business as AdNet Strategies. In January
1998, the Company incorporated in California, elected S-corporation status
and changed its name to AdNet Strategies, Inc. In December 1998, the
Company became a California C-corporation under the name Latitude 90, Inc.
In September 1999, the Company reincorporated in Delaware as L90, Inc.
2. Summary of Significant Accounting Policies
a. Unaudited Interim Financial Information
The financial information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited, but in management's opinion
includes all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair representation of the Company's financial
position at June 30, 1999 and for the six months ended June 30, 1998 and
1999. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of results that may be expected for the entire year.
b. Revenue Recognition
Revenue from ad sales is earned under commission-based and service fee-
based contracts. For commission-based contracts, the Company receives
commissions from Web Publishers for the sale of their ad inventory. Revenue
earned from commission-based contracts reflects only the amount of the
commission earned without any associated cost of revenue. The Company
recognizes commissions ratably over the term of the advertising campaigns,
which usually range from one to twelve months. For service fee-based
contracts, the Company is obligated to pay a service fee to the Web
publishers for ads placed on their Web sites. Additionally, under service
fee-based contracts, the Company must collect and bear the risk of loss
from the advertiser for ads sold. Consequently, revenue earned from service
fee-based contracts reflects the full value of the ads sold, or the
Company's credit risk exposure on service fee-based sales.
System revenue represents the full value of ads sold under either
commission-based or service fee-based contracts. Although not a measure of
revenue under Generally Accepted Accounting Principles, system revenue
provides a consistent basis for reporting ads sold from period to period,
regardless of contract type.
c. Current Vulnerability Due to Certain Concentrations
The Company sells advertising space to its customers. For the period
ended December 31, 1997, approximately 17 percent of system revenue was to
one advertising customer. For the
F-7
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
year ended December 31, 1998 and the six months ended June 30, 1999, there
were no advertising customers that comprised greater than 10 percent of
system revenue. No other advertising customer accounted for 10 percent or
more of system revenue.
The Company purchases advertising space from its Web site partners. For
the period ended December 31, 1997, approximately 76 percent of system
revenue was generated from advertising space from three Web site partners.
For the year ended December 31, 1998, approximately 48 percent of system
revenue was generated from advertising space from two Web site partners.
For the six months ended June 30, 1999, approximately 17 percent
(unaudited) of system revenue was generated from advertising space from one
Web site partner. No other Web site partner accounted for 10 percent or
more of the advertising space sold to generate system revenue. The loss of
the largest advertising customer or any of the largest Web site partners
could have an adverse effect on the Company's operations.
d. Cash and Cash Equivalents
For purposes of the balance sheets and statements of cash flows, cash and
cash equivalents includes all cash instruments due on demand or with an
original maturity of 90 days or less.
e. Accounts Receivable
The Company has receivables due from advertisers and from Web publishers
resulting from the sales of ads. These receivables relate to both
commission-based and service fee-based contracts. The Company's credit
exposure on commission-based contracts is limited to the net amount of cash
to be received by the Company from ad sales. The Company's credit exposure
on service fee-based contracts is the full amount of the ad sales as the
Company is obligated to pay the Web publishers for ads sold on their Web
sites irrespective of receiving payment from the advertisers.
The Company extends credit to its customers, who are located in the
United States. The ability of these customers to meet their obligations to
the Company is dependent on their economic health, as well as their
industry and other factors. The Company maintains an allowance for doubtful
accounts which represents management's estimate of expected losses on
specific accounts and inherent losses on other as yet unidentified accounts
included in accounts receivable. In estimating the potential losses on
specific accounts, management performs ongoing credit evaluations of its
customers based on management analysis and reviews of available public
documents. The amounts the Company will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the
allowance for doubtful accounts reported in the financial statement.
f. Property and Equipment
Property and equipment are recorded at cost and depreciated over the
estimated useful life of the asset, using the straight-line method of
depreciation. Leasehold improvements are amortized over the shorter of the
estimated useful life of the asset or the term of the lease. Property,
equipment and leasehold improvements have estimated useful lives ranging
from three to five years.
F-8
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
g. Equipment Under Capital Leases
Equipment under capital leases is recorded at the lower of the present
value of the minimum lease payments or the fair value of the leased
property at the inception of the lease. Amortization of leased property is
computed using the straight-line method over the term of the lease.
h. Income Taxes
The Company provides for income taxes in accordance with the asset and
liability method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using the enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
i. Deferred Revenue
Deferred revenue primarily represents advertising campaign revenue to be
recognized over the period of the campaign subsequent to the respective
year-end. This revenue will be recognized ratably over the term of the
advertising campaign, which usually ranges from one to twelve months.
j. Stock-Based Compensation
Generally Accepted Accounting Principles permit companies to use either
of two alternative accounting methods to recognize employee stock-based
compensation. Under the first accounting method, if options are granted at
an exercise price equal to the market value of the stock at the time of the
grant, no compensation expense is recognized. The Company follows this
accounting method, which it believes better reflects the motivation for its
issuance of stock options, namely, that they are incentives for future
performance rather than compensation for past performance. Under the second
accounting method, issuers record compensation expense over the period they
are expected to be outstanding prior to exercise, expiration, or
cancellation. The amount of compensation expense recognized over this term
is the "fair value" of the options at the time of the grant as determined
by an option pricing model. The option pricing model attributes fair value
to the options based upon the length of their term, the volatility of the
stock price in past periods, and other factors. Under this method, the
issuer recognizes compensation expense regardless of whether the officer or
director exercised the options. Pro forma disclosures of net income under
this method are presented in Note 6.
k. 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 at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
F-9
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
l. New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires all
costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as
incurred. Costs incurred during the application development stage are
required to be capitalized and amortized over the estimated useful life of
the software. SOP 98-1 is effective for the Company's fiscal year ending
December 31, 1999. Adoption is not expected to have a material effect on
the Company's financial statements as the Company's policies are
substantially in compliance with SOP 98-1.
3. Equity
On April 29, 1999, the Board of Directors of the Company authorized a
stock split converting each share of common stock into ten shares of common
stock. This stock split increased the total number of common stock shares
authorized from 1,800,000 to 18,000,000. The effect of this stock split is
retroactively reflected in these financial statements and accompanying
notes to the financial statements.
a. Series A Preferred Stock Financing
On September 16, 1998, in a private placement transaction, the Company
issued 2,000 shares of Series A preferred stock to William Apfelbaum at
$1,000 per share, convertible into common stock at the conversion price per
share of $0.80. The number of shares of common stock into which the Series
A preferred stock will convert is an aggregate of 2,500,000 shares. Mr.
Apfelbaum, the Company's chairman, was issued a warrant to purchase up to
657,890 shares of the Company's common stock at a price per share of $1.14.
The holder of the Series A preferred stock is entitled to registration
rights regarding the shares of common stock issued or issuable upon
conversion and upon exercise of the warrant. The holder of the outstanding
shares of Series A preferred stock is entitled to receive, upon conversion
of shares of Series A preferred stock into common stock, a dividend in cash
accruing from September 16, 1998, at an annual rate of $40 per share of
Series A preferred stock so converted. The holder of Series A preferred
stock has the right to elect one member of the board of directors. To date,
the holder of the Series A preferred stock has designated William Apfelbaum
to the board of directors. All shares of Series A preferred stock will
automatically convert into shares of common stock upon the closing of an
initial public offering of the Company's common stock.
b. Series B Preferred Stock Financing
Commencing on August 6, 1999, in a private placement transaction, the
Company issued a total of 4,107,044 shares of Series B preferred stock at
$2.35 per share convertible into common stock at a one-to-one ratio. The
principal purchasers of the Series B preferred stock included DigaComm
(L90), L.L.C. and Keystone Venture V, L.P. DigaComm (L90), L.L.C. also
purchased a warrant to acquire up to 530,946 shares of common stock of the
Company at a price per share of $3.53. Unless previously exercised this
warrant will be automatically exercised on a cashless basis into shares of
common stock, with a fair value equivalent to the intrinsic value of
F-10
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the warrant, upon the closing of an initial public offering of the
Company's common stock. The holders of the Series B preferred stock are
entitled to registration rights regarding the shares of common stock issued
or issuable upon conversion and upon exercise of the warrant. The holders
of the outstanding shares of Series B preferred stock are entitled to
receive, upon conversion of shares of Series B convertible preferred stock
into common stock, a dividend in cash accruing from August 6, 1999, at an
annual rate of $0.141 per share of Series B preferred stock so converted.
The holders of Series B preferred stock collectively have the right to
elect three members of the board of directors. All shares of Series B
preferred stock will automatically convert into shares of common stock upon
the closing of an initial public offering of the Company's common stock.
c. Warrants
On June 7, 1999, the Company issued to The Roman Arch Fund L.P. and The
Roman Arch Fund II, L.P. four warrants to purchase up to an aggregate of
500,000 shares of common stock, later adjusted to an aggregate of 225,000
shares of common stock, at an initial purchase price of $1.60 per share,
subject to adjustment. These warrants may be exercised on a cashless basis.
These warrants expire on the earlier of (i) June 7, 2005 or (ii) the fifth
anniversary of an initial public offering with gross proceeds of at least
$20,000,000. One hundred twenty-five thousand of these warrants, to the
extent not previously exercised, may be exchanged at the election of the
holder within 180 days of the closing of an initial public offering of the
Company's common stock with gross proceeds of at least $20,000,000.
On August 13, 1999, the Company issued to William Apfelbaum a warrant to
purchase up to 530,946 shares of common stock, at an exercise price of
$3.53 per share. This warrant will automatically convert into the right to
receive 530,946 shares of common stock immediately prior to the closing of
an initial public offering of the Company's common stock.
4. Debt
On June 7, 1999, the Company entered into two senior promissory note
agreements in the aggregate principal amount of $1,000,000 and warrants to
purchase an aggregate of up to 500,000 shares of common stock. These notes
bear interest at 9% through June 7, 2000, and 12% thereafter until paid in
full. During August 1999, the Company paid in full its obligations under
these two senior promissory note agreements and issued the warrants in
aggregate of 225,000 shares of common stock.
5. Income Taxes
During 1997, the Company was a sole proprietorship and limited liability
corporation. In 1998, the Company was an S-corporation and the federal and
state taxes were the responsibility of stockholders rather than the
Company. Effective November 30, 1998, the Company became a C-corporation
for income tax purposes. Pursuant to this election, such taxes will be the
responsibility of the Company rather than stockholders.
Deferred income taxes arise as a result of temporary differences in the
methods used to determine income for financial reporting purposes versus
income for tax reporting purposes. These differences result primarily from
accruals, reserves and net operating losses carrying forward.
F-11
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The provision (benefit) for income taxes for December 31, 1998 and the
six months ended June 30, 1999 (unaudited) consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Current
Federal.......................................... $ -- $ --
State............................................ 800 800
------- -------
800 800
Deferred......................................... 136,600 869,000
------- -------
137,400 869,800
Less: Valuation allowance......................... 136,600 869,000
------- -------
$ 800 $ 800
======= =======
</TABLE>
The components of the net deferred income tax asset at December 31, 1998
and June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Deferred tax assets.............................. $ 136,600 $ 869,000
Less: Valuation allowance........................ (136,600) (869,000)
--------- ---------
$ -- $ --
========= =========
</TABLE>
At December 31, 1998 and June 30, 1999, the Company provided a valuation
allowance for net deferred tax assets which management determined were
"more likely than not" to be unrealizable. As a result, no deferred tax
assets have been recorded by the Company.
6. Stock Options and Warrants
a. Stock Options
During 1998, the Company issued 973,000 nonqualified stock options at an
exercise price equal to the then current fair market value of the stock, as
determined by the Company's Board of Directors. These options vest between
two to three years after the grant date and expire no later than ten years
after the grant date.
During February 1999, the Company granted 70,000 stock options to
employees with a strike price of $1.00 vesting ratably through March 1,
2003. These options are dependent upon continued employment with the
Company.
During April 1999, the Company adopted an employee stock option plan
authorized by the Board of Directors to grant up to an aggregate of
2,500,000 options to purchase common stock shares. These shares may be
comprised of authorized but unissued shares or shares previously issued but
reacquired by the Company. The price of these options will be not less than
the fair market value of the shares, or greater than 110 percent of the
fair market value of the shares, at the date of grant. This plan will
terminate ten years from the adoption date and may be amended by the Board
of Directors with stockholder approval.
F-12
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
No options were issued by the Company prior to 1998. Employee
transactions during the year ended December 31, 1998 and for the six months
ended June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------ ------------------------
(unaudited)
Weighted Weighted
average Average
Employee stock options Shares exercise price Shares exercise price
---------------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................. -- $ -- 873,000 $0.57
Granted.................. 973,000 0.59 70,000 1.00
Exercised................ -- -- -- --
Forfeited................ (100,000) 0.80 (48,000) 1.05
-------- --------
Outstanding at end of
year.................... 873,000 0.57 895,000 0.58
======== ========
Options exercisable at
end of year............. --
Weighted-average fair
value of options granted
during the year......... $ 0.40 $ 0.20
</TABLE>
The following table summarizes information about employee stock options
outstanding at June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Weighted average Weighted
Number remaining average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- --------------
<S> <C> <C> <C>
$0.25.......................... 400,000 8.51 years $0.25
$0.80-1.00..................... 495,000 9.07 years $0.84
------- ---------- -----
895,000
=======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plan. No compensation cost has been recognized for its
employee stock option grants, which are fixed in nature, as the options
have been granted with an exercise price equal to the then current fair
market value of the Company's stock as determined by the Company's Board of
Directors. Had compensation cost for the Company's stock-based compensation
plan been determined based on the fair value at the grant dates for awards
under this plan consistent with the method of Financial Accounting
Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss for the year ended December 31, 1998
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Six months
Year ended ended
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Net loss as reported............................ $289,569 $1,901,943
Pro forma adjustment............................ 137,769 275,041
-------- ----------
Pro forma loss.................................. $427,338 $2,176,984
======== ==========
</TABLE>
F-13
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the year ended December 31, 1998:
dividend yield of 0 percent; expected volatility of 0 percent; risk-free
interest rates of 5.9 percent; and an expected life of five years.
b. Common Stock Warrants
On September 16, 1998, the Company entered into a Series A preferred
stock agreement which included a warrant to purchase 657,890 shares of
common stock at a strike price of $1.14 per share. In August 1999, the
Company issued another warrant to this holder of Series A preferred stock
to purchase 530,946 shares of common stock at a strike price of $3.53 per
share.
On June 7, 1999, the Company issued warrants, in association with the
senior promissory notes, to purchase an aggregate of up to 500,000 shares
of common stock, later adjusted to an aggregate of 225,000 shares of common
stock. These warrants may be exercised on a cashless basis. These warrants
are exercisable at a price equal to $1.60 per share at any time or from
time to time commencing on the earliest of (i) December 7, 1999, (ii) the
closing of a qualified initial public offering as defined, (iii) the
closing of a qualified private placement as defined and prior to 5:00 p.m.,
Los Angeles, California time, on the earlier of (i) June 7, 2005 or (ii)
the fifth anniversary of the commencement of trading of the Company's
common stock in connection with an initial public offering with gross
proceeds of at least $20,000,000.
In August, 1999, in association with the Series B Convertible Preferred
Stock issuance, the Company issued a warrant to purchase 530,946 shares of
the Company's common stock at a price of $3.53 per share expiring August
2004. To the extent not previously exercised, this warrant will be
automatically exercised on a cashless basis into shares of common stock
immediately upon the closing of an initial public offering of the Company's
common stock. The holder of the warrant is entitled to registration rights
regarding the shares of common stock issued or issuable upon conversion and
upon exercise of the warrant.
7. Commitments and Contingencies
a. Litigation
The Company may become subject to legal proceeding from time to time in
the normal course of business. The Company is not currently involved in any
litigation that management believes will have a material adverse effect on
the Company's financial position or results of operations.
b. Lease Commitments
The Company is committed under noncancellable operating and capital lease
obligations for certain facilities and equipment. The equipment related to
capital leases has an original cost of approximately $0 and $274,000 at
December 31, 1997 and 1998, respectively, and $421,000 (unaudited) at June
30, 1999, with accumulated depreciation of approximately $0, $11,000, and
F-14
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$45,000 (unaudited), respectively. Rent expense under operating leases was
approximately $24,000 and $163,000 for December 31, 1997 and 1998,
respectively, and $224,000 (unaudited) for June 30, 1999.
Minimum annual payments under noncancellable operating and capital leases
are as follows as of December 31, 1998:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1999.................................................. $163,355 $ 371,614
2000.................................................. 172,219 535,537
2001.................................................. 156,931 206,379
2002.................................................. 43,546 161,378
Thereafter............................................ -- 1,123,083
-------- ----------
536,051 $2,397,991
==========
Less--Amounts representing interest................... 140,490
--------
395,561
Less--Current portion................................. 68,025
--------
$327,536
========
</TABLE>
8. Related Party Transactions
During 1998, the Company received $43,750 in notes receivable for common
stock from employees for the issuance of 175,000 shares of common stock
with a par value of $0.001 per share. These notes bear interest at a rate
equal to 5.28 percent per annum and mature at the earliest of cessation of
maker's employment by the Company for any reason or May 18, 2004. In
addition, during 1998, the Company issued an aggregate of 9,825,000 shares
of common stock with a par value of $.001 per share to certain other
employees and a former employee in exchange for their contribution of the
operating business of John Bohan & Associates, LLC, which was valued at
$2,456,250.
During 1998, the Company entered into an agreement with a stockholder to
purchase 2,000 shares of preferred stock for $2,000,000 and a warrant to
purchase 657,890 shares of common stock at a strike price of $1.14 per
share.
9. Unaudited Subsequent Events
Series C Preferred Stock Financing
On September 22, 1999, in a private placement transaction, the Company
issued 1,307,190 shares of Series C preferred stock to Development Ventures
(Two) Inc. and Rare Medium Group, Inc. at $3.06 per share, convertible into
common stock at a one-to-one ratio. The holders of the outstanding shares
of Series C preferred stock are entitled to receive, upon conversion of the
Series C preferred stock into common stock, a dividend in cash accruing
from September 22, 1999, at an annual rate of $0.18 per share of Series C
preferred stock so converted. Development Ventures (Two) Inc. also
purchased a warrant to acquire up to 1,011,044 shares of common
F-15
<PAGE>
L90, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock of the Company at a price per share of $3.06. Rare Medium Group, Inc.
also purchased a warrant to acquire up to 900,000 shares of common stock of
the Company at a price per share of $3.06. Unless previously exercised,
both warrants will automatically be exercised on a cashless basis into
shares of common stock upon the closing of an initial public offering. The
holders of Series C preferred stock are entitled to have their shares of
common stock issuable upon conversion of the Series C preferred stock, as
well as the common stock issuable upon exercise of their warrants,
registered on the same registration statement. The holders of Series C
preferred stock have the right to elect one member of the board of
directors, which member shall be designated by Rare Medium for so long as
it and its affiliates hold at least 50 percent of the outstanding shares of
Series C preferred stock. Rare Medium has designated Glenn S. Meyers to the
board of directors. All shares of Series C preferred stock will
automatically convert into shares of common stock upon the closing of an
initial public offering of the Company's common stock.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
[LOGO OF L90]
Common Stock
------------------------
PROSPECTUS
------------------------
SG COWEN
BANC OF AMERICA SECURITIES LLC
WIT CAPITAL CORPORATION
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1999
PROSPECTUS
3,218,234 Shares
Common Stock
This prospectus relates to the offering of up to an aggregate of 3,218,234
shares (the "Shares") of L90, Inc. common stock which may be offered from time
to time by the persons named in this prospectus under the caption "Selling
Stockholders."
The Shares being offered hereby are resales of shares (i) acquired by the
Selling Stockholders upon their conversion of our Series C preferred stock upon
the closing of our initial public offering, and (ii) which may be acquired by
the Selling Stockholders upon the exercise of certain warrants. The Selling
Stockholders purchased their Series C preferred stock from us in September 1999
at a price of $3.06 per share. The warrants were purchased for $.001 per
warrant and are exercisable for a purchase price of $3.06 per share. The Shares
may be offered for sale from time to time by each Selling Stockholder acting as
principal for its own account or in brokerage transactions at prevailing market
prices or in transactions at negotiated prices. No representation is made that
any Shares will or will not be offered for sale. The Company will not receive
any proceeds from the sale of the Shares. It is not possible at the present
time to determine the price to the public in any sale of the Shares by the
Selling Stockholders and each Selling Stockholder reserves the right to accept
or reject, in whole or in part, any proposed purchase of Shares. Accordingly,
the public offering price and the amount of any applicable underwriting
discounts and commissions will be determined at the time of such sale by the
Selling Stockholders. We are paying all costs, expenses and fees incurred in
connection with the registration of the Shares, estimated to be approximately
$ . However, all selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders. See "Plan of
Distribution."
The Selling Stockholders, and the brokers through whom sales of the Shares
are made, may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, as amended. In addition, any profits
realized by the Selling Stockholders or such brokers on the sale of the Shares
may be deemed to be underwriting commissions.
We have applied to have our common stock listed for trading and quotation on
the Nasdaq National Market under the symbol "LNTY."
Our business involves significant risks. These risks are described under the
caption "Risk Factors" beginning on page 7.
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.
--------------
, 1999
<PAGE>
[Alternate Page]
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Forward-Looking Statements.......... 16
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Data............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................ 27
Management.......................... 42
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Related Party Transactions................................................. 47
Principal Stockholders..................................................... 49
Selling Stockholders....................................................... 49A
Description of Capital Stock............................................... 51
Shares Eligible for Future Sale............................................ 55
Certain U.S. Tax Consequences to Non-U.S. Holders.......................... 57
Plan of Distribution....................................................... 61
Legal Matters.............................................................. 63
Experts.................................................................... 63
Where You Can Find More Information........................................ 63
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information from that
contained in this prospectus. The Selling Stockholders are offering to sell and
seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
2
<PAGE>
[ALTERNATE PAGE]
The Offering
The Shares being offered hereby include shares which (i) were issued to the
Selling Stockholders upon their conversion of our Series C preferred stock upon
the closing of our initial public offering, and (ii) may be issued from time to
time to the Selling Stockholders upon their exercise of warrants. The Selling
Stockholders have agreed not to sell any of these shares until 180 days after
commencement of this offering, at which time they may sell one-half of their
shares. These holders have also agreed that they will not sell the other one-
half of their shares until 270 days after commencement of this offering. We
will not receive any proceeds from the sale of shares of common stock by the
Selling Stockholders.
<TABLE>
<S> <C>
Proposed Nasdaq National Market Symbol..... "LNTY"
</TABLE>
------------
Summary Financial Data
(in thousands, except per share data)
The following summary financial data is derived and qualified in its entirety
by our financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from
Inception
(January 5, Six Months
1997) through Year Ended Ended June 30,
December 31, December 31, --------------
1997 1998 1998 1999
------------- ------------ ------ -------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
System revenue...................... $4,210 $8,024 $3,376 $ 5,796
====== ====== ====== =======
Revenue............................. $1,160 $2,189 $ 921 $ 1,949
------ ------ ------ -------
Gross profit........................ 1,160 2,189 921 1,640
------ ------ ------ -------
Operating income (loss)............. 307 (306) 38 (1,897)
------ ------ ------ -------
Net income (loss) attributable to
common stockholders................ $ 310 $ (313) $ 41 $(1,942)
====== ====== ====== =======
Pro forma basic and diluted net loss
per share(1)....................... $ $ $ $
====== ====== ====== =======
Weighted average shares outstanding
used in pro forma basic and diluted
per share calculation(1)...........
====== =======
</TABLE>
- --------
(1) The foregoing table assumes no exercise of any stock options or warrants
outstanding as of June 30, 1999 (except the pro forma data, which assume
the cashless exercise of warrants to acquire shares of common stock).
As of June 30, 1999, there were options and warrants outstanding to
purchase a total of 2,052,890 shares of common stock with a weighted
average exercise price of $1.01 per share.
5
<PAGE>
[Alternate Page]
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "may," "will," "should,"
"potential," "continue," "expects," "anticipates," "estimates," "intends,"
"plans," "believes" and any similar expressions are intended to identify
forward- looking statements. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of other factors,
as more fully described in the "Risk Factors" section and elsewhere in this
prospectus. You should not rely on forward-looking statements because they are
inherently uncertain.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of common stock by
The Selling Stockholders.
DIVIDEND POLICY
Other than a total of $50,000 that we distributed to our common stockholders
during the year ended December 31, 1998, we have not declared or paid cash
dividends on our common stock since our incorporation. Holders of our Series A
preferred stock are entitled to receive cumulative dividends that accrue at an
annual rate of $40.00 per share. Holders of our Series B preferred stock are
entitled to receive cumulative dividends that accrue at an annual rate of
$0.141 per share. Holders of Series C preferred stock are entitled to receive
cumulative dividends that accrue at an annual rate of $0.18 per share. These
dividends are expected to be paid in cash at the closing of this offering upon
conversion of the Series A, Series B, and Series C preferred stock into common
stock. The aggregate amount of these dividend payments is expected to be
$ . We otherwise currently intend to retain any future earnings for use
in our business and do not anticipate paying any additional cash dividends in
the foreseeable future.
16
<PAGE>
[Alternate Page]
SELLING STOCKHOLDERS
The Shares being offered hereby include shares which (i) were issued to the
Selling Stockholders upon their conversion of our Series C preferred stock upon
the closing of our initial public offering, and (ii) may be issued to the
Selling Stockholders from time to time for their exercise of warrants. The
Selling Stockholders purchased their Series C preferred stock from us in
September 1999 at a price of $3.06 per share, and purchased the warrants for
$.001 per warrant. The warrants are exercisable at a price of $3.06 per share,
but may be exercised on a cashless basis. The Selling Stockholders have agreed
not to sell any of these shares until 180 days after commencement of this
offering, at which time they may sell one-half of their shares. These holders
have also agreed that they will not sell the other one-half of their shares
until 270 days after commencement of this offering.
The following table sets forth as of September , 1999, and upon completion
of the offering described in this prospectus, information with regard to the
beneficial ownership of our common stock by the Selling Stockholders. The
Selling Stockholders may not have a present intention of selling the Shares and
may offer less than the amount of shares indicated.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------------------------------
Shares
Shares Beneficially Shares Beneficially
Owned Before to be Owned After
Offering(1) Offered(2) Offering(3)
----------------------- ---------- -----------------
Name Number Percentage Number Number Percentage
- ---- --------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Development Ventures
(Two) Inc. ............. 1,664,639(4) % 1,664,639 0 0%
Rare Medium Group,
Inc. ................... 1,553,595(5) 1,553,595 0 0
</TABLE>
- --------
(1) The persons named in the above table have sole voting and investment power
with respect to all shares beneficially owned by them. Information with
respect to beneficial ownership is based upon the Company's stock records
and data supplied to us by the Selling Stockholders.
(2) The Selling Stockholders may offer less than the amount of Shares
indicated. No representation is made that any Shares will or will not be
offered for sale.
(3) This assumes that all Shares owned by the Selling Stockholders which are
offered hereby are sold. The Selling Stockholders reserve the right to
accept or reject, in whole or in part, any proposed purchase of Shares.
(4) Includes (i) 653,595 shares issuable upon conversion of a like number of
Series C preferred stock, and (ii) 1,011,044 shares issuable upon exercise
of a warrant at an exercise price of $3.06 per share.
(5) Includes (i) 653,595 shares issuable upon conversion of a like number of
Series C preferred stock, and (ii) 900,000 shares issuable upon exercise of
a warrant at an exercise price of $3.06 per share. Mr. Glenn Meyers, a
director of L90, serves as President and Chief Executive Officer of this
Selling Stockholder.
49
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by the Selling
Stockholders. These sales may be made on one or more exchanges or in the over-
the-counter market (including NASDAQ National Market System) or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by each of
the Selling Stockholders acting as principal for its own account or in ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, broker-dealers engaged by the Selling
Stockholders may arrange for other broker-dealers to participate in the
resales.
Broker-dealers or agents may receive compensation in the form of commissions,
discounts or concessions from Selling Stockholders in amounts to be negotiated
in connection with the sale. These broker-dealers and any other participating
broker-dealers may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with these sales, and any such commission,
discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus.
It is not possible at the present time to determine the price to the public
in any sale of the common stock by the Selling Stockholders. Accordingly, the
public offering price and the amount of any applicable underwriting discounts
and commissions will be determined at the time of such sale by the Selling
Stockholders. The aggregate proceeds to the Selling Stockholders from the sale
of the common stock will be the purchase price of the Common Stock sold less
all applicable commissions and underwriters' discounts, if any. We will pay
substantially all the expenses incident to the registration, offering and sale
of the common stock to the public by Selling Stockholders (currently estimated
to be $ ), other than fees, discounts and commissions of underwriters,
dealers or agents, if any, and transfer taxes.
61
<PAGE>
[Alternate Page]
LEGAL MATTERS
Certain matters relating to this offering are being passed upon for us by
Paul, Hastings, Janofsky & Walker LLP, Los Angeles, California.
EXPERTS
Our financial statements, included in this prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission in Washington,
D.C., a registration statement on Form S-1 under the Securities Act with
respect to the to the common stock offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. Certain items are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
L90 and the common stock offered hereby, reference is made to the registration
statement and the exhibits filed as a part thereof. Statements contained in
this prospectus as to the contents of any contract or other document filed as
an exhibit to the registration statement are, in each case, qualified in all
respects by reference to such exhibit. Upon completion of the offering, we will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith, will file reports and other
information with the SEC. The registration statement, including exhibits
thereto, as well as reports and other information which we filed with the SEC,
may be inspected without charge at the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
at Seven World Trade Center, 13th Floor, New York, NY 10048, and Citicorp
Center, 500 West Madison Street, Chicago, IL 60661. Copies of such materials
can also be obtained at prescribed rates from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Electronic filings
made through the Electronic Data Gathering Analysis and Retrieval System are
publicly available through the SEC's Web Site at http://www.sec.gov.
We will issue to our stockholders annual reports and, upon request, will make
available unaudited quarterly reports for the first three quarters of each
fiscal year. Annual reports will include audited financial statements and
reports of our independent accountants with respect to the examination of these
financial statements.
63
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the Common Stock being registered, all of which will be paid by the
Registrant.
<TABLE>
<C> <S> <C>
Registration fee............................................ $21,866
NASD filing fee............................................. 8,385
Nasdaq National Market listing fee..........................
* Blue Sky fees and expenses..................................
* Accounting fees and expenses................................
* Legal fees and expenses.....................................
* Transfer agent and registrar fees...........................
* Printing and engraving expenses.............................
* Miscellaneous expenses......................................
Total....................................................... $
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. The Certificate eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL and provides that the Registrant shall fully indemnify 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 such person is or
was a director or officer of the Registrant, or is or was serving at the
request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws.
II-1
<PAGE>
Section 145 of the DGCL empowers a corporation to indemnify its directors and
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Registrant has obtained liability insurance for its officers and directors, and
has entered into indemnification agreements with each of its officers and
directors and intends to enter into indemnification agreements with each of its
future officers and directors. Pursuant to such indemnification agreements, the
Registrant has agreed to indemnify its officers and directors against certain
liabilities, including liabilities arising out of the offering made by this
registration statement.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate or any indemnification agreement.
The Registrant is not aware of any threatened litigation or proceeding that may
result in a claim for such indemnification.
Item 15. Recent Sales of Unregistered Securities
The Registrant has sold and issued the following securities since January
1997 (inception):
Beginning in January 1998, we sold an aggregate of 10,000,000 shares of
common stock to founders and key executive officers at a value of $0.25 per
share. These purchasers were John C. Bohan (9,025,000 shares), Mark Roah
(300,000 shares), C.J. Cardinali (300,000 shares), Todd Taplin (200,000
shares), Frank Addante (100,000 shares) and Neal Weinberg (75,000 shares). The
consideration tendered by Messrs. Bohan, Roah, Cardinali and Taplin was the
contribution of the operating business of John Bohan & Associates, LLC. Messrs.
Addante and Weinberg tendered promissory notes in consideration for their
shares. Such shares were sold in reliance upon an exemption from registration
under the Securities Act of 1933 pursuant to Section 4(2) thereof.
In November 1998, the Registrant sold 2,000 shares of its Series A
Convertible Preferred Stock, par value $0.01 per share, and a warrant to
William Apfelbaum in exchange for $2,000,000 in cash. Such shares of Series A
Convertible Preferred Stock will convert into an aggregate of 2,500,000 shares
of Common Stock on the closing of the Registrant's initial public offering. The
warrant issued to William Apfelbaum was for the purchase of up to 657,890
shares of Common Stock at an exercise price of $1.14 per share. These
securities were sold in reliance upon the exemption provided for by Section
4(2) of the Securities Act.
In August and September 1999, the Registrant sold 4,107,044 shares of its
Series B Convertible Preferred Stock, par value $.001 per share to (i) DigaComm
(L90), L.L.C. in exchange for $2,000,000 in cash, (ii) Keystone Venture V, L.P.
in exchange for $4,000,000 in cash, (iii) The Roman Arch Fund L.P. and The
Roman Arch Fund II L.P. in exchange for $500,000 in cash, (iv) Remtula and
Shinin Suleman, co-trustees for Trust dated 9/10/93 for the benefit of Trevor
F. Suleman and Miles L. Suleman in exchange for $500,000 in cash, (v) Lawrence
Haut in exchange for $117,500 in cash, (vi) Donald and Cathy Allman in exchange
for $100,000 in cash, (vii) Seymour Zises in exchange for $25,000 in cash,
(viii) Matthew Ludmer in exchange for $30,000 in cash, (ix) Jodi Yegelwel in
exchange for $50,000 in cash, (x) Lewis Katz in exchange for $200,000 in
II-2
<PAGE>
cash, (xi) Herb Corbin in exchange for $50,000 in cash, (xii) Paul Konigsberg
in exchange for $40,000 in cash, (xiii) Dime Capital Partners, Inc. in exchange
for $1,000,000 in cash, (xiv) James Stern in exchange for $500,000 in cash,
(xv) Cambridge Lat 90 Associates, LLC in exchange for $500,000 in cash and
(xvi) Harley Greenfield in exchange for $50,000 in cash. Such shares of
Series B Convertible Preferred Stock will automatically convert into shares of
Common Stock on a one-for-one basis on the closing of the Registrant's initial
public offering. In addition, the Registrant sold to (i) DigaComm (L90), L.L.C.
a warrant for the purchase of up to 530,946 shares of Common Stock at an
exercise price of $3.53 per share and (ii) William Apfelbaum a warrant for the
purchase of up to 530,946 shares of Common Stock at an exercise price of $3.53
per share. These securities were sold in reliance upon the exemption provided
for by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
In September 1999, the Registrant sold 1,307,190 shares of its Series C
Convertible Preferred Stock, par value $0.001 per share, to (i) Development
Ventures (Two) Inc. in exchange for $2,000,000 in cash and (ii) Rare Medium
Group, Inc. in exchange for $2,000,000 in cash. Such shares of Series C
Convertible Preferred Stock will automatically convert into shares of Common
Stock on a one-for-one basis on the closing of the Registrant's initial public
offering. In addition, the Registrant sold to (i) Development Ventures (Two)
Inc. a warrant for the purchase of up to 1,011,044 shares of Common Stock at an
exercise price of $3.06 per share and (ii) Rare Medium Group, Inc. a warrant
for the purchase of up to 900,000 shares of Common Stock at an exercise price
of $3.06 per share. These securities were sold in reliance upon the exemption
provided for by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement of Merger dated September 15, 1999.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Bylaws of the Registrant defining the
rights of holders of Common Stock of the Registrant.
4.2 Stock Purchase and Stockholders Agreement dated September 14, 1998.
4.3 Registration Agreement dated August 6, 1999.
4.4 Series C Registration Agreement dated September 22, 1999.
5.1* Opinion of Paul, Hastings, Janofsky & Walker LLP.
10.1 1999 Stock Incentive Plan.
10.2 Stock Purchase and Stockholders Agreement dated September 14, 1998. See
Exhibit 4.2
10.3 Sublease dated May 21, 1999 between Widom, Wein, Cohen, O'Leary,
Terasawa and Latitude 90.
10.4 Representation Agreement dated April 24, 1997 between AdNet Strategies,
Inc. and Four11 Corporation.
10.5 Representation Agreement dated September 12, 1997 between John Bohan &
Associates, L.L.C. and N2K, Inc.
10.6 National Sales Representation Agreement dated March 10, 1998 between
Zip2 Corp. and AdNet Strategies, Inc.
10.7 Representation Agreement dated December 31, 1998 between Latitude 90,
Inc. and Go2Net, Inc.
10.8 Advertising Sales Agency Agreement dated January 1, 1999 between
Latitude 90, Inc. and Bell Atlantic Electronic Commerce Services, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.9 Equipment Lease dated December 2, 1998 between AdNet Strategies, Inc.
and Premier Capital Corporation.
10.10 Shareholders Agreement dated August 6, 1999 (as amended).
10.11 Amended and Restated Shareholders Agreement dated September 22, 1999.
10.12 Series B Preferred Stock Purchase Agreement dated August 6, 1999
between the Registrant and the holders of Series B preferred stock (as
amended).
10.13 Series C Preferred Stock Purchase Agreement dated September 22, 1999
between the Registrant and the holders of Series C preferred stock.
10.14 Warrant dated September 16, 1998 issued to William Apfelbaum.
10.15 Stock Purchase Warrant dated August 16, 1999 issued to DigaComm, L.L.C.
10.16 Stock Purchase Warrant dated August 16, 1999 issued to William
Apfelbaum.
10.17 Stock Purchase Warrant dated September 22, 1999 issued to Development
Ventures (Two) Inc.
10.18 Stock Purchase Warrant dated September 22, 1999 issued to Rare Medium
Group, Inc.
10.19 Promissory Note in the original principal amount of $600,000, made June
7, 1999 by the Registrant in favor of The Roman Arch Fund L.P.
10.20 Promissory Note in the original principal amount of $400,000, made June
7, 1999 by the Registrant in favor of The Roman Arch Fund II L.P.
10.21 Warrant No. PP-99-1 dated June 7, 1999 issued to The Roman Arch Fund
L.P.
10.22 Warrant No. PP-99-2 dated June 7, 1999 issued to The Roman Arch Fund II
L.P.
10.23 Warrant No. IPO-99-1 dated June 7, 1999 issued to The Roman Arch Fund
L.P.
10.24 Warrant No. IPO-99-2 dated June 7, 1999 issued to The Roman Arch Fund
II L.P.
10.25 Assignment and Assumption Agreement dated September 17, 1999.
10.26 Assignment and Assumption Agreement dated September 17, 1999.
10.27 Form of Indemnification Agreement entered into between the Registrant
and each of its directors and executive officers.
10.28 Form of Employment Agreement entered into between the Registrant and
certain of its executive officers.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit
5.1).
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(b)Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts.
Item 17. Undertakings
(a) The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being
II-4
<PAGE>
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed 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 the Commission declared it
effective.
(2) 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 such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on September 22, 1999.
L90, INC.
/s/ John C. Bohan
By __________________________________
John C. Bohan
President and Chief Executive
Officer
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John C. Bohan and Thomas A. Sebastian, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and any other regulatory authority,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ John C. Bohan President, Chief Executive September 22, 1999
---------------------------- Officer and Director
John C. Bohan (Principal Executive
Officer)
/s/ Thomas A. Sebastian Chief Financial Officer and September 22, 1999
---------------------------- Senior Vice President
Thomas A. Sebastian (Principal Financial and
Accounting Officer)
/s/ William M. Apfelbaum September 22, 1999
---------------------------- Chairman of the Board
William M. Apfelbaum and Director
/s/ Mark D. Roah Senior Vice President of September 22, 1999
---------------------------- Business Development and
Mark D. Roah Director
/s/ Christopher J. Cardinali Vice President of September 22, 1999
---------------------------- Northwestern Sales
Christopher J. Cardinali and Director
/s/ Peter G. Diamandis September 22, 1999
---------------------------- Director
Peter G. Diamandis
/s/ Peter E. Ligeti September 22, 1999
---------------------------- Director
Peter E. Ligeti
/s/ Peter Sealey September 22, 1999
---------------------------- Director
Peter Sealey
September , 1999
---------------------------- Director
Glenn S. Meyers
/s/ G. Bruce Redditt September 22, 1999
---------------------------- Director
G. Bruce Redditt
</TABLE>
II-7
<PAGE>
AGREEMENT OF MERGER
AGREEMENT OF MERGER (this "Merger Agreement") made and entered into this
----------------
15th day of September, 1999 by and between LATITUDE 90, INC., a California
corporation ("Latitude California"), and L90, INC., a Delaware corporation ("L90
------------------- ---
Delaware");
- --------
WITNESSETH:
WHEREAS, L90 Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, Latitude California is a corporation duly organized and existing
under the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, L90 Delaware has authority
to issue (i) 80,000,000 shares of common stock, par value $.001 per share (which
class of shares is herein called the "Delaware Common Stock"), of which 10,000
---------------------
shares are issued and outstanding and owned by Latitude California, and (ii)
10,000,000 shares of preferred stock, par value $.001 per share, of which (A)
2,000 shares have been designated Series A Convertible Preferred Stock (the
"Delaware Series A Preferred"), of which none are issued and outstanding, (B)
- ----------------------------
5,000,000 shares have been designated Series B Convertible Preferred Stock (the
"Delaware Series B Preferred"), of which none are issued and outstanding, and
---------------------------
(C) 4,998,000 shares remain undesignated and are not issued or outstanding;
WHEREAS, on the date of this Merger Agreement, Latitude California has
authority to issue (i) 40,000,000 shares of common stock, par value $.01 per
share (the "California Common Stock"), of which 10,000,000 are issued and
-----------------------
outstanding, and (ii) 10,000,000 shares of preferred stock, of which (A) 2,000
shares have been designated Series A Convertible Preferred Stock (the
"California Series A Preferred"), of which 2,000 are issued and outstanding, (B)
- ------------------------------
5,000,000 shares have been designated Series B Convertible Preferred Stock (the
"California Series B Preferred"), of which 4,107,044 shares are issued and
-----------------------------
outstanding, and (C) 4,998,000 shares remain undesignated and are not issued or
outstanding;
WHEREAS, the respective boards of directors of L90 Delaware and Latitude
California have determined that, for the purpose of effecting the
reincorporation of Latitude California in the State of Delaware, it is advisable
and to the advantage of said two corporations and their shareholders and sole
stockholder, respectively, that Latitude California merge with and into L90
Delaware upon the terms and conditions herein provided; and
WHEREAS, the respective boards of directors of L90 Delaware and Latitude
California have approved this Merger Agreement and the board of directors of
Latitude California and L90 Delaware have directed that this Merger Agreement be
submitted to a vote of their shareholders and sole stockholder, respectively;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Latitude California and L90 Delaware hereby agree to merge as
follows:
(1) Merger. Latitude California shall be merged with and into L90
Delaware, and L90 Delaware shall survive the merger ("Merger"), effective
------
upon
<PAGE>
the date when this Merger Agreement is made effective in accordance with
the Delaware General Corporation Law (the "Effective Date").
--------------
(2) Directors and Officers and Governing Documents. The directors and
officers of L90 Delaware shall be the same upon the Effective Date as they
are immediately prior thereto. The certificate of incorporation of L90
Delaware, as amended and in effect on the Effective Date, shall continue to
be the certificate of incorporation of L90 Delaware as the surviving
corporation without change or amendment until further amended in accordance
with the provisions thereof and applicable laws. The bylaws of L90
Delaware, as amended and in effect on the Effective Date, shall continue to
be the bylaws of L90 Delaware as the surviving corporation without change
or amendment until further amended in accordance with the provisions
thereof and applicable laws.
(3) Succession. On the Effective Date, L90 Delaware shall succeed to
Latitude California in the manner of and as more fully set forth in Section
259 of the General Corporation Law of the State of Delaware and Section
1107 of the General Corporation Law of the State of California.
(4) Further Assurances. From time to time, as and when required by
L90 Delaware or by its successors and assigns, there shall be executed and
delivered on behalf of Latitude California such deeds and other
instruments, and there shall be taken or caused to be taken by it such
further and other action, as shall be appropriate or necessary in order to
vest, perfect or confirm, of record or otherwise, in L90 Delaware the title
to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Latitude
California, and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of L90 Delaware are fully
authorized in the name and on behalf of Latitude California or otherwise to
take any and all such action and to execute and deliver any and all such
deeds and other instruments.
(5) Conversion of Stock of Latitude California.
(a) Common Stock of Latitude California. Upon the Effective
Date, by virtue of the Merger and without any action on the part of
the holder thereof, each share of the California Common Stock
outstanding immediately prior thereto shall be changed and converted
into one fully paid and nonassessable share of Delaware Common Stock.
(b) Series A Preferred of Latitude California. Upon the
Effective Date, by virtue of the Merger and without any action on the
part of the holder thereof, each share of the California Series A
Preferred outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of Delaware
Series A Preferred.
(c) Series B Preferred of Latitude California. Upon the
Effective Date, by virtue of the Merger and without any action on the
part of the holder thereof, each share of the California Series B
Preferred outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of Delaware
Series B Preferred.
2
<PAGE>
(6) Stock Certificates.
(a) On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of California
Common Stock shall for all purposes evidence ownership of and
represent the shares of Delaware Common Stock into which the shares of
California Common Stock represented by such certificates have been
converted as herein provided. The registered owner on the books and
records of L90 Delaware or its transfer agent of any such outstanding
stock certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to L90 Delaware or
its transfer agent, have and be entitled to exercise any voting and
other rights with respect to and to receive any dividend and other
distributions upon the shares of Delaware Common Stock evidenced by
such outstanding certificate as above provided.
(b) On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of California
Series A shall for all purposes evidence ownership of and represent
the shares of Delaware Series A into which the shares of California
Series A represented by such certificates have been converted as
herein provided. The registered owner on the books and records of L90
Delaware or its transfer agent of any such outstanding stock
certificate shall, until such certificate shall have been surrendered
for transfer or otherwise accounted for to L90 Delaware or its
transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other
distributions upon the shares of Delaware Series A evidenced by such
outstanding certificate as above provided.
(c) On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of California
Series B shall for all purposes evidence ownership of and represent
the shares of Delaware Series B into which the shares of California
Series B represented by such certificates have been converted as
herein provided. The registered owner on the books and records of L90
Delaware or its transfer agent of any such outstanding stock
certificate shall, until such certificate shall have been surrendered
for transfer or otherwise accounted for to L90 Delaware or its
transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other
distributions upon the shares of Delaware Series B evidenced by such
outstanding certificate as above provided.
(7) Stock Options and Warrants.
(a) Forthwith upon the Effective Date, each (i) outstanding
option to purchase shares of California Common Stock granted under the
Latitude California 1999 Stock Incentive Plan (the "Plan") and (ii)
----
outstanding option to purchase California Common Stock not granted
under the Plans, shall be converted into and become an option to
purchase the same number of shares of Delaware Common Stock at the
same option price per share as in effect on the Effective Date and, in
the case of options
3
<PAGE>
granted under the Plan (collectively, the "Plan Options"), upon the
------------
same terms and subject to the same conditions as set forth in the
Plan, and, in the case of all options not granted under the Plan
(collectively, the "Non-Plan Options"), upon the same
----------------
terms and subject to the same conditions as set forth in the
agreements or instruments that govern the Non-Plan Options. A number
of shares of Delaware Common Stock shall be reserved for purposes of
the Plan equal to the number of shares of California Common Stock so
reserved as of the Effective Date. As of the Effective Date, L90
Delaware hereby assumes all obligations of Latitude California under
the Plan, the outstanding Plan Options or portions thereof granted
pursuant to the Plan and all Non-Plan Options.
(b) Forthwith upon the Effective Date, each outstanding warrant
to purchase shares of California Common Stock (each, a "Warrant")
-------
shall be converted into and become a warrant to purchase the same
number of shares of Delaware Common Stock at the same exercise price
per share as in effect on the Effective Date and upon the same terms
and subject to the same conditions as set forth in the agreements or
instruments that govern such Warrant. A number of shares of Delaware
Common Stock shall be reserved for the exercise of warrants equal to
the number of shares of California Common Stock so reserved as of the
Effective Date. As of the Effective Date, L90 Delaware hereby assumes
all obligations of Latitude California under each outstanding Warrant.
(8) Other Employee Benefit Plans. As of the Effective Date, L90
Delaware hereby assumes all obligations of Latitude California under any
and all employee benefit plans in effect as of said date or with respect to
which employee rights or accrued benefits are outstanding as of said date.
(9) Common Stock of L90 Delaware. Forthwith upon the Effective Date,
the 10,000 shares of Delaware Common Stock presently issued and outstanding
in the name of Latitude California shall be canceled and retired and resume
the status of authorized and unissued shares of Delaware Common Stock, and
no shares of Delaware Common Stock or other securities of L90 Delaware
shall be issued in respect thereof.
(10) Covenants of L90 Delaware. L90 Delaware covenants and agrees that
it will, on or before the Effective Date:
(a) Qualify to do business as a foreign corporation in the State
of California, and in connection therewith irrevocably appoint an
agent for service of process as required under the provisions of
Section 2105 of the California Corporations Code.
(b) File any and all documents with the California Franchise Tax
Board necessary to the assumption by L90 Delaware of all of the
franchise tax liabilities of Latitude California.
(11) Book Entries. As of the Effective Date, entries shall be made
upon the books of L90 Delaware in accordance with the following:
4
<PAGE>
(a) The assets and liabilities of Latitude California shall be
recorded at the amounts at which they were carried on the books of
Latitude California immediately prior to the Effective Date, with
appropriate adjustments to reflect the retirement of the 10,000 shares
of Delaware Common Stock presently issued and outstanding.
(b) There shall be credited to the common stock account of L90
Delaware the aggregate amount of the par value of all shares of
Delaware Common Stock resulting from the conversion of the outstanding
California Common Stock pursuant to the Merger.
(c) There shall be credited to the capital surplus account of L90
Delaware the aggregate of the amounts shown in the common stock and
capital surplus accounts of Latitude California immediately prior to
the Effective Date, less the amount credited to the common stock
account of L90 Delaware pursuant to Paragraph (b) above.
(d) There shall be credited to the retained earnings account of
L90 Delaware an amount equal to that carried in the retained earnings
account of Latitude California immediately prior to the Effective
Date.
(12) Amendment. At any time before or after approval and adoption by
the shareholders of Latitude California, this Merger Agreement may be
amended in any manner (except that Paragraph (5) may not be amended without
the approval of the shareholders of Latitude California), as may be
determined in the judgment of the respective boards of directors of L90
Delaware and Latitude California to be necessary, desirable or expedient in
order to clarify the intention of the parties hereto or to effect or
facilitate the purposes and intent of this Merger Agreement.
(13) Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the board of
directors of either Latitude California or L90 Delaware with the approval
of the board of directors of the other corporation, notwithstanding
approval of this Merger Agreement by the stockholders of L90 Delaware or
the shareholders of Latitude California or both.
(14) Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly
approved by resolution of the boards of directors of Latitude California and L90
Delaware, is hereby executed on behalf of each said two corporations by their
respective officers thereunto duly authorized.
L90, INC.,
a Delaware corporation
By: /s/John C. Bohan
-------------------------------------
Its: Chief Executive Officer
-----------------------------------
LATITUDE 90, INC.
a California corporation
By: /s/John C. Bohan
-------------------------------------
Its: Chief Executive Officer
-----------------------------------
6
<PAGE>
CERTIFICATE OF THE ASSISTANT SECRETARY OF L90, INC.
I, Thomas A. Sebastian, Assistant Secretary of L90, INC., a Delaware
corporation, ("L90 Delaware"), do hereby certify, as such Assistant Secretary,
in accordance with the General Corporation Law of the State of Delaware, that
the Agreement of Merger to which this Certificate is attached, after having been
first duly adopted and executed by L90 Delaware and Latitude 90, Inc., a
California corporation, was duly submitted to the sole stockholder of L90
Delaware at a special meeting of stockholders called for the purpose of acting
on said Agreement of Merger, notice of the time, place and purpose of said
meeting having been waived by the sole stockholder of L90 Delaware, and that at
said meeting the Agreement of Merger was considered and a vote taken for its
adoption or rejection and that at said meeting all of the outstanding stock of
L90 Delaware entitled to vote thereon was voted for the adoption of said
Agreement of Merger and that thereby said Agreement of Merger was at said
meeting duly adopted as the act of the stockholders of L90 Delaware and as the
agreement and act of L90 Delaware.
IN WITNESS WHEREOF, the undersigned has executed this certificate this 15th
day of September, 1999.
/s/ Thomas A. Sebastian
-----------------------------------------------
Thomas A. Sebastian, Assistant Secretary
<PAGE>
CERTIFICATE OF THE ASSISTANT SECRETARY OF LATITUDE 90, INC.
I, Thomas A. Sebastian, Assistant Secretary of Latitude 90, Inc., a
California corporation ("Latitude California"), do hereby certify, as such
Assistant Secretary, in accordance with the General Corporation Law of the State
of California, that the Agreement of Merger (the "Merger Agreement") to which
this Certificate is attached, after having been first duly adopted and executed
by Latitude California and L90, Inc., a Delaware corporation, was duly submitted
to the shareholders for approval by written consent in the manner provided under
the provisions of Section 603 of the California Corporations Code. The Merger
Agreement was duly approved by the required vote of shareholders in accordance
with Section 603 of the California Corporations Code. The Corporation has two
classes of capital stock, designated as "Common Stock" and "Preferred Stock,"
respectively, with each outstanding share entitled to one vote (except when all
shares vote together as a single class, in which case, each outstanding share of
preferred stock is entitled to the number of votes equal to the number of shares
of Common Stock into which it can be converted). The Corporation has Ten
Million Forty Thousand (10,040,000) shares of Common Stock issued and
outstanding and Four Million One Hundred Nine Thousand Forty-Four (4,109,044)
shares of Preferred Stock issued and outstanding, (i) Two Thousand (2,000)
shares of which are designated Series A Convertible Preferred Stock and (ii)
Four Million One Hundred Seven Thousand Forty-Four (4,107,044) shares of which
are designated Series B Convertible Preferred Stock. The number of shares of
Common Stock voting in favor of the Merger Agreement exceeded the majority vote
required for approval by the outstanding shares of Common Stock, voting as a
single class; the number of shares of Series A Convertible Preferred Stock
voting in favor of the Merger Agreement exceeded the majority vote required for
approval by the outstanding shares of Series A Convertible Preferred Stock,
voting as a single class; the number of shares of Series B Convertible Preferred
Stock voting in favor of the Merger Agreement exceeded the majority vote
required for approval by the outstanding shares of Series B Convertible
Preferred Stock, voting as a single class; and the number of the outstanding
shares of Common Stock, Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock voting in favor of the Merger Agreement (with each
share of Series A and Series B Convertible Preferred Stock voting on an "as
converted" basis) exceeded the majority vote required for approval by the
outstanding shares of Common Stock, Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, the undersigned has executed this certificate this 15th
day of September, 1999.
/s/ Thomas A. Sebastian
--------------------------------------------------
Thomas A. Sebastian, Assistant Secretary
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
L90, INC.
L90, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation") hereby certifies as follows:
FIRST: The Corporation's present name is L90, Inc., which is the
name under which the corporation was originally incorporated; and the date of
filing the original certificate of the Corporation with the Secretary of State
of the State of Delaware is September 14, 1999.
SECOND: This Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 228, 242 and
Section 245 of the General Corporation Law of the State of Delaware and amends
and restates the provisions of the existing Certificate of Incorporation of the
Corporation.
THIRD: The text of the Corporation's Certificate of Incorporation
is hereby amended and restated to read in its entirety as set forth in Exhibit
A.
In WITNESS WHEREOF, L90, Inc. has caused this Amended and Restated
Certificate of Incorporation to be executed by Thomas A. Sebastian, the Vice
President and Chief Financial Officer of the Corporation, on the 20th day of
September, 1999.
/s/ Thomas A. Sebastian
_______________________________________
Thomas A. Sebastian, Vice President
<PAGE>
Chief Financial Officer
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
L90, INC.
I.
The name of this Corporation is L90, INC.
II.
The address of the registered office of the Corporation in the State
of Delaware is c/o the Corporation Service Company, 1013 Centre Road, New Castle
County, Wilmington, Delaware 19805, and the name of the registered agent at that
address is Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
IV.
(a) The Corporation is authorized to issue two classes of shares of
stock designated as "Common Stock" and "Preferred Stock," respectively. The
------------ ---------------
number of shares of Common Stock which the Corporation is authorized to issue is
eighty million (80,000,000) and the number of shares of Preferred Stock which
the Corporation is authorized to issue is fifteen million (15,000,000). The par
value of the
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<PAGE>
Common Stock and the Preferred Stock shall be $0.001 per share.
(b) Except as provided in subparagraph (d) below, or except as may be
determined by the Board in designating the rights, privileges, preferences and
restrictions applying to any series of Preferred Stock pursuant to subparagraph
(c) below or as otherwise provided by law, the holders of the Common Stock shall
have the right to notice of stockholders' meetings and voting rights and powers.
(c) Except with respect to the shares of Preferred Stock whose
designation and rights, privileges, preferences and restrictions are set forth
in subparagraph (d) below, the Board is authorized to designate that the
Preferred Stock be divided into any number of series, and it is authorized to
determine the designation of any such series and to fix the number of shares in
any such series and may, as to any such series, within the limits and
restrictions stated in any resolution or resolutions of the Board originally
fixing the number of shares constituting any series, increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of the shares of that series.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares in such
series. The Board may determine or alter the rights, privileges, preferences
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock.
(d) Of the fifteen million (15,000,000) shares of Preferred Stock the
Corporation is authorized to issue as set forth in subparagraph (a) of Article
IV hereof, two thousand (2,000) of such shares of Preferred Stock are designated
"Series A Convertible Preferred Stock," five million (5,000,000) of such shares
------------------------------------
of Preferred Stock are designated "Series B Convertible Preferred Stock" and
------------------------------------
three million (3,000,000) of such shares of Preferred Stock are designated
"Series C Convertible Preferred Stock." The rights, preferences, privileges and
- -------------------------------------
restrictions granted
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<PAGE>
to and imposed upon the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock are as
follows:
Section 1. Definitions. For purposes of this Article IV the
-----------
following definitions shall apply:
"Board" shall mean the Board of Directors of the Corporation.
-----
"Business Day" shall mean any day excluding Saturday, Sunday and
------------
any day which shall be in the State of Delaware a legal holiday or a day on
which banking institutions are authorized by law to close.
"Series A Commitment Date" shall mean September 16, 1998.
------------------------
"Series B Commitment Date" shall mean August 6, 1999.
------------------------
"Series C Commitment Date" shall mean the date immediately prior
------------------------
to the date of original issuance of the Series C Convertible Preferred Stock.
"Common Stock" shall mean the Common Stock of the Corporation.
------------
"Common Stock's Fair Market Value" shall mean the fair market
--------------------------------
value of a share of Common Stock, as determined in good faith by the Board for
the purpose of granting stock options or issuing shares to employees of the
Corporation or any Subsidiary and determined as of the most recent date that
such determination has been made within one year of the applicable date or, if
no such determination has been made during such period, the fair market value of
such stock, as determined in good faith by the Board as of the applicable date.
"Corporation" shall mean this corporation.
-----------
"Junior Stock" shall mean the Common Stock and all other shares
------------
of the Corporation, whether presently
-4-
<PAGE>
outstanding or hereafter issued, other than Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock, the Series C Convertible
Preferred Stock and any series of Preferred Stock (with rights, preferences or
privileges on parity with or superior to those of the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock) that may from time to time come into existence.
"Preferred Stock" shall mean the Preferred Stock of the
---------------
Corporation.
"Series A Convertible Preferred Stock" shall mean the Series A
------------------------------------
Convertible Preferred Stock of the Corporation.
"Series B Convertible Preferred Stock" shall mean the Series B
------------------------------------
Convertible Preferred Stock of the Corporation.
"Series C Convertible Preferred Stock" shall mean the Series C
------------------------------------
Convertible Preferred Stock of the Corporation.
"Subsidiary" shall mean any corporation a majority of the Voting
----------
Stock of which is, at the time as of which any determination is being made,
owned by the Corporation either directly or through one or more Subsidiaries.
"Voting Stock" shall mean any shares having general voting power
------------
in electing the Board of Directors (irrespective of whether or not at the time
stock of any other class or classes has or might have voting power by reason of
the happening of any contingency). The Common Stock, the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock are Voting Stock.
Section 2. Dividends.
---------
(a) Right to Dividends. The holders of the then outstanding
------------------
Series A Convertible Preferred Stock shall
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<PAGE>
be entitled to receive, out of any funds legally available therefor, cumulative
cash dividends (the "Series A Dividends") at the annual rate of four percent
------------------
(4%) of the Series A Original Issue Price (as defined below) on each outstanding
share of Series A Convertible Preferred Stock (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares). The Series A Dividends shall accrue monthly, commencing the Series
A Commitment Date, and shall be payable upon conversion of the Series A
Preferred Stock into Common Stock. The "Series A Original Issue Price" shall be
-----------------------------
One Thousand Dollars ($1,000.00). The holders of the then outstanding Series B
Convertible Preferred Stock shall be entitled to receive, out of any funds
legally available therefor, cumulative dividends (the "Series B Dividends") at
------------------
the annual rate of six percent (6%) of the Series B Original Issue Price (as
defined below) on each outstanding share of Series B Convertible Preferred Stock
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares). The Series B Dividends shall accrue
between the Series B Commitment Date and ending on December 31, 1999, and on
each December 31 thereafter, and shall be payable upon conversion of the Series
B Preferred Stock into Common Stock. The "Series B Original Issue Price" shall
-----------------------------
be Two Dollars and Thirty-Five Cents ($2.35). The holders of the then
outstanding Series C Convertible Preferred Stock shall be entitled to receive,
out of any funds legally available therefor, cumulative dividends (the "Series C
--------
Dividends") at the annual rate of six percent (6%) of the Series C Original
- ---------
Issue Price (as defined below) on each outstanding share of Series C Convertible
Preferred Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Series C
Dividends shall accrue between the Series C Commitment Date and ending on
December 31, 1999, and on each December 31 thereafter, and shall be payable upon
conversion of the Series C Preferred Stock into Common Stock. The "Series C
--------
Original Issue Price" shall be Three Dollars and Six Cents ($3.06). No dividend
- --------------------
may be declared, or paid or set apart, on the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock or the Series C Convertible
Preferred Stock unless a dividend is declared, and paid or
-6-
<PAGE>
set apart, on each of the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock,
ratably in proportion to the respective dividend amounts specified above. The
Corporation at its option may make any dividend payment on the Series B
Convertible Preferred Stock in shares of Series B Convertible Preferred Stock or
cash, or a combination of both, with each such share of Series B Convertible
Preferred Stock being valued for this purpose at the Series B Original Issue
Price. The Corporation at its option may make any dividend payment on the Series
C Convertible Preferred Stock in shares of Series C Convertible Preferred Stock
or cash, or a combination of both, with each such share of Series C Convertible
Preferred Stock being valued for this purpose at the Series C Original Issue
Price. The Series A Dividends, the Series B Dividends and the Series C Dividends
shall accumulate and accrue on each share of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock, as the case may be, from the respective date set forth herein, whether or
not earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current dividend period, at the rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully paid before
any dividend or other distribution shall be paid or declared and set apart for
the Common Stock or any other Junior Stock. Any accumulation of dividends on the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
or the Series C Convertible Preferred Stock shall not bear interest.
(b) Priority. Subject to the right of any series of Preferred Stock
--------
that may from time to time come into existence, unless full dividends on the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
and the Series C Convertible Preferred Stock for all past dividend periods and
the then current dividend period shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (1) no dividend whatsoever (other
than a dividend payable solely in Common Stock) shall be paid or declared, and
no distribution shall be made, on any Junior Stock, and (2) no shares of Junior
-7-
<PAGE>
Stock shall be purchased, redeemed or acquired by the Corporation and no monies
shall be paid into or set aside or made available for a sinking fund for the
purchase, redemption or acquisition thereof; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock from
directors or employees of or consultants or advisers to the Corporation or any
Subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares upon the termination of employment by or service to the
Corporation or any Subsidiary.
Section 3. Liquidation Rights of the Series A Convertible Preferred
--------------------------------------------------------
Stock, the Series B Convertible Preferred Stock and the Series C Convertible
- ----------------------------------------------------------------------------
Preferred Stock.
- ---------------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, whether voluntary or involuntary, subject to the
right of any series of Preferred Stock that may from time to time come into
existence, the holders of the Series A Convertible Preferred Stock, the holders
of the Series B Convertible Preferred Stock and the holders of the Series C
Convertible Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of the Junior Stock, an amount equal to the Series A Original Issue Price per
share of Series A Convertible Preferred Stock held by them, an amount equal to
the Series B Original Issue Price per share of Series B Convertible Preferred
Stock held by them and an amount equal to the Series C Original Issue Price per
share of Series C Convertible Preferred Stock held by them, plus in each case an
amount equal to all accrued and unpaid dividends thereon (whether or not earned
or declared), and no more. If upon any liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series A Convertible Preferred Stock, the
holders of the Series B Convertible Preferred Stock and the holders of the
Series C
-8-
<PAGE>
Convertible Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts aforesaid, subject to the right of
any series of Preferred Stock that may from time to time come into existence,
then all of the assets of the Corporation to be distributed shall be distributed
among the holders of the Series A Convertible Preferred Stock, the holders of
the Series B Convertible Preferred Stock and the holders of the Series C
Convertible Preferred Stock, ratably in accordance with their respective
liquidation preferences.
(b) Remaining Assets. After the payment or distribution to the
----------------
holders of the Series A Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock and the holders of the Series C Convertible
Preferred Stock of the full preferential amounts aforesaid and any other
distribution that may be required with respect to any series of Preferred Stock
that may from time to time come into existence, the holders of the Junior Stock
then outstanding shall be entitled to receive ratably all remaining assets of
the Corporation to be distributed.
(c) Consent to Certain Transactions. Each holder of shares of Series
-------------------------------
A Convertible Preferred Stock, each holder of shares of Series B Convertible
Preferred Stock and each holder of shares of Series C Convertible Preferred
Stock shall, by virtue of its acceptance of a stock certificate evidencing
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock, as the case may be, be treated as having
consented, for purposes of the Delaware General Corporation Law, or otherwise,
to distributions made by the Corporation by the repurchase of shares of Common
Stock from directors or employees of or consultants or advisers to the
Corporation or any Subsidiary upon the termination of employment by or service
to the Corporation or any Subsidiary or otherwise if such repurchase is made in
accordance with the repurchase agreements referred to in Section 2(b) hereof and
such repurchases are not prohibited by such Section.
Section 4. Merger, Consolidation.
---------------------
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<PAGE>
(a) At any time, in the event of:
(1) any consolidation or merger of the Corporation with or
into any other corporation or other entity or person, or any other corporate
reorganization or transaction or series of related transactions by the
Corporation in which in excess of 50% of the Corporation's voting power is
transferred, excluding any consolidation or merger effected exclusively to
change the domicile of the Corporation, or
(2) a sale or other disposition of all or substantially all
of the assets of the Corporation, then:
(A) subject to the right of any series of Preferred
Stock that may from time to time come into existence, holders of the Series A
Convertible Preferred Stock, the holders of the Series B Convertible Preferred
Stock and the holders of the Series C Convertible Preferred Stock shall receive
in cash or in securities (including, without limitation, debt securities)
received from the acquiring corporation an amount equal to the Series A Original
Issue Price per share of Series A Convertible Preferred Stock held by them, an
amount equal to the Series B Original Issue Price per share of Series B
Convertible Preferred Stock held by them and an amount equal to the Series C
Original Issue Price per share of Series C Convertible Preferred Stock held by
them, plus in each case an amount equal to all accrued and unpaid dividends
thereon (whether or not earned or declared) and no more; and
(B) after the payment or distri bution to the
holders of the Series A Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock and the holders of the Series C Convertible
Preferred Stock of the full preferential amounts stated in Section 4(a)(2)(A)
hereof and any other distribution that may be required with respect to any
series of Preferred Stock that may from time to time come into existence, the
remaining proceeds of such transaction shall be distributed ratably to the
holders of Junior Stock.
-10-
<PAGE>
Such payments shall be made with respect to the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock, the Series C
Convertible Preferred Stock, Junior Stock and any series of Preferred Stock that
may from time to time come into existence by (i) redemption or purchase of such
shares by the Corporation or (ii) purchase or acquisition of such shares by the
surviving or acquiring corporation, entity or person or by the Corporation.
Subject to the rights of any series of Preferred Stock that may from time to
time come into existence, before any payment or distribution is made to the
holders of the Junior Stock, the full preferential amount stated in Section
4(a)(2)(A) hereof shall first be paid to the holders of the Series A Convertible
Preferred Stock, the holders of the Series B Convertible Preferred Stock and the
holders of the Series C Convertible Preferred Stock. In the event the full
amount of such payment is not paid to the holders of the Series A Convertible
Preferred Stock, the holders of the Series B Convertible Preferred Stock and the
holders of the Series C Convertible Preferred Stock upon or immediately prior to
such transaction in accordance herewith, subject to the right of any series of
Preferred Stock that may from time to time come into existence, then all cash
and securities (including, without limitation, debt securities) to be
distributed in respect of the proposed transaction shall be distributed ratably
among the holders of the Series A Convertible Preferred Stock, the holders of
the Series B Convertible Preferred Stock and the holders of the Series C
Convertible Preferred Stock, ratably in accordance with their respective
liquidation preferences.
(b) Any securities or other property to be delivered to the
holders of the Series A Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock or the holders of the Series C Convertible Preferred
Stock pursuant to Section 4(a) hereof shall be valued as follows:
(1) Securities shall be valued as follows:
(A) If traded on a securities exchange, the value shall
be deemed to be the average of the
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<PAGE>
closing prices of the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined by the Board.
(2) All other property shall be valued at the fair market
value thereof, as determined by the Board.
Section 5. [Reserved]
Section 6. Voting Rights.
-------------
(a) Series A Convertible Preferred Stock, Series B Convertible
----------------------------------------------------------
Preferred Stock and Series C Convertible Preferred Stock. Except as otherwise
- --------------------------------------------------------
expressly provided for herein or as required by law, each holder of shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock shall be entitled to the number of votes
equal to the largest number of full shares of Common Stock into which such
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock or Series C Convertible Preferred Stock, as the case may be, could be
converted, pursuant to the provisions of Section 7 hereof, at the record date
for the determination of the stockholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken, and
except as required by law or as otherwise provided herein, shall have voting
rights and powers equal to the voting rights and powers of the Common Stock.
Except as required by law and as otherwise provided in this Section 6, the
holders of the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock, the Series C Convertible Preferred Stock and the Common Stock
shall vote together and not as separate classes. The holders of the Series A
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<PAGE>
Convertible Preferred Stock, the holders of the Series B Convertible Preferred
Stock and the holders of the Series C Convertible Preferred Stock shall be
entitled to notice of any stockholders' meeting in accordance with applicable
law. Fractional voting shall not, however, be permitted and any fractional
voting rights resulting from the above formula shall be rounded to the nearest
whole number (with one-half being rounded upward).
(b) Common Stock. Each holder of shares of Common Stock shall be
------------
entitled to one vote for each share thereof held.
(c) Election of the Board. For so long as at least one thousand
---------------------
(1,000) shares of Series A Convertible Preferred Stock remain outstanding
(subject to adjustment for any stock split, reverse stock split or similar event
affecting the Series A Convertible Preferred Stock), the holders of Series A
Convertible Preferred Stock, voting as a separate class, shall be entitled to
elect one (1) member of the Corporation's Board at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director; for so long as at least eight
hundred forty-nine thousand five hundred (849,500) shares of Series B
Convertible Preferred Stock remain outstanding (subject to adjustment for any
stock split, reverse stock split or similar event affecting the Series B
Convertible Preferred Stock), the holders of Series B Convertible Preferred
Stock, voting as a separate class, shall be entitled to elect three (3) members
of the Corporation's Board at each meeting or pursuant to each consent of the
Corporation's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death or
removal of such director; for so long as at least two hundred sixty-one thousand
four hundred thirty-eight (261,438) shares of Series C Convertible Preferred
Stock remain outstanding (subject to adjustment for any stock split, reverse
stock split or similar event affecting the Series C Convertible Preferred
Stock), the holders of Series C Convertible Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) member of
-13-
<PAGE>
the Corporation's Board at each meeting or pursuant to each consent of the
Corporation's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death or
removal of such director, provided that so long as Rare Medium Group, Inc. and
its affiliates own at least 50% of the outstanding Series C Convertible
Preferred Stock, such member shall be designated by Rare Medium Group, Inc.; and
the holders of Common Stock, voting as a separate class, shall be entitled to
elect the remaining members of the Board at each meeting or pursuant to each
consent of the Corporation's stockholders for the election of directors, and to
remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors.
(d) Protective Provisions for Series A Convertible Preferred
--------------------------------------------------------
Stock. Subject to the rights of any series of Preferred Stock which may from
time to time come into existence, for so long as at least one thousand (1,000)
shares of Series A Convertible Preferred Stock remain outstanding (subject to
adjustment for any stock split, reverse stock split or similar event affecting
the Series A Convertible Preferred Stock), the Corporation shall not without the
prior approval (by vote or written consent) of the holders of a majority of the
Series A Convertible Preferred Stock, voting or consenting as a separate class:
(1) Amend, alter or repeal any provision of the Certificate
of Incorporation or Bylaws of the Corporation (including any filing of a
Certificate of Designation) that alters or changes the rights, preferences or
privileges of the shares of the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock or the Series C Convertible Preferred Stock so as
to adversely affect such shares;
(2) Create any new class or series of stock having a
preference superior to or on parity with the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock or the Series C Convertible
Preferred Stock with respect to dividends or upon liquidation;
-14-
<PAGE>
(3) Increase or decrease the authorized number of shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
the Series C Convertible Preferred Stock;
(4) Merge or consolidate the Corporation with or into any
other corporation or corporations, or merge any other corporation or
corporations into the Corporation, or sell all or substantially all of the
assets of the Corporation, or effect any other corporate reorganization; or
(5) Effect an initial underwritten public offering registered
under the Securities Act of 1933, as amended, of shares of the Corporation's
Common Stock.
(e) Protective Provisions for Series B Convertible Preferred Stock.
--------------------------------------------------------------
Subject to the rights of any series of Preferred Stock which may from time to
time come into existence, for so long as at least eight hundred forty-nine
thousand five hundred (849,500) shares of Series B Convertible Preferred Stock
remain outstanding (subject to adjustment for any stock split, reverse stock
split or similar event affecting the Series B Convertible Preferred Stock), the
Corporation shall not without the prior approval (by vote or written consent) of
the holders of a majority of the Series B Convertible Preferred Stock, voting or
consenting as a separate class:
(1) Amend, alter or repeal any provision of the Certificate
of Incorporation or Bylaws of the Corporation (including any filing of a
Certificate of Designation) that alters or changes the rights, preferences or
privileges of the shares of the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock or the Series C Convertible Preferred Stock so as
to adversely affect such shares;
(2) Create any new class or series of stock having a
preference superior to or on parity with the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock or the Series C Convertible
-15-
<PAGE>
Preferred Stock with respect to dividends or upon liquidation;
(3) Increase or decrease the authorized number of shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
the Series C Convertible Preferred Stock;
(4) Merge or consolidate the Corporation with or into any
other corporation or corporations, or merge any other corporation or
corporations into the Corporation, or sell all or substantially all of the
assets of the Corporation, or effect any other corporate reorganization; or
(5) Effect an initial underwritten public offering registered
under the Securities Act of 1933, as amended, of shares of the Corporation's
Common Stock.
(f) Protective Provisions for Series C Convertible Preferred Stock.
--------------------------------------------------------------
Subject to the rights of any series of Preferred Stock which may from time to
time come into existence, for so long as at least two hundred sixty-one thousand
four hundred thirty-eight (261,438) shares of Series C Convertible Preferred
Stock remain outstanding (subject to adjustment for any stock split, reverse
stock split or similar event affecting the Series C Convertible Preferred
Stock), the Corporation shall not without the prior approval (by vote or written
consent) of the holders of a majority of the Series C Convertible Preferred
Stock, voting or consenting as a separate class:
(1) Amend, alter or repeal any provision of the Certificate
of Incorporation or Bylaws of the Corporation (including any filing of a
Certificate of Designation) that alters or changes the rights, preferences or
privileges of the shares of the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock or the Series C Convertible Preferred Stock so as
to adversely affect such shares;
(2) Create any new class or series of stock having a
preference superior to or on parity with
-16-
<PAGE>
the Series A Convertible Preferred Stock, the Series B Convertible Preferred
Stock or the Series C Convertible Preferred Stock with respect to dividends or
upon liquidation;
(3) Increase or decrease the authorized number of shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
the Series C Convertible Preferred Stock;
(4) Merge or consolidate the Corporation with or into any
other corporation or corporations, or merge any other corporation or
corporations into the Corporation, or sell all or substantially all of the
assets of the Corporation, or effect any other corporate reorganization; or
(5) Effect an initial underwritten public offering registered
under the Securities Act of 1933, as amended, of shares of the Corporation's
Common Stock.
Section 7. Conversion. The holders of Series A Convertible Preferred
----------
Stock, the holders of Series B Convertible Preferred Stock and the holders of
Series C Convertible Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of Series A Convertible
----------------
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock shall be convertible, at any time at the option of the holder
thereof, into fully paid and nonassessable shares of Common Stock.
(b) Conversion Price. The Series A Convertible Preferred Stock,
----------------
the Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock shall be convertible into the number of shares of Common Stock which
results from dividing the Conversion Price (as hereinafter defined) of the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
or the Series C Convertible Preferred Stock, as the case may be, in effect at
the time of conversion into One Thousand Dollars
-17-
<PAGE>
($1,000.00) for each share of Series A Convertible Preferred Stock being
converted, into Two Dollars and Thirty-Five Cents ($2.35) for each share of
Series B Convertible Preferred Stock being converted and into Three Dollars and
Six Cents($3.06) for each share of Series C Convertible Preferred Stock being
converted. The initial Conversion Price per share shall be Eighty Cents ($0.80)
for the Series A Convertible Preferred Stock, Two Dollars and Thirty-Five Cents
($2.35) for the Series B Convertible Preferred Stock and Three Dollars and Six
Cents ($3.06) for the Series C Convertible Preferred Stock, and in each case,
such initial Conversion Price shall be subject to adjustment from time to time
as provided below (the "Conversion Price").
----------------
(c) Mechanics of Conversion. Each holder of Series A Convertible
-----------------------
Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock who desires to convert the same into shares of Common Stock
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock, the Series C
Convertible Preferred Stock or Common Stock, and shall give written notice to
the Corporation at such office that such holder elects to convert the same and
shall state therein both the number of shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock being converted and the name or names in which the holder wishes the
certificate or certificates for shares of Common Stock to be issued. Thereupon
the Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled and shall, as soon as
practicable, pay in cash or, if the Corporation so elects or is legally or
financially unable to pay such dividends in cash, Common Stock (valued at the
Common Stock's Fair Market Value at the time of surrender), all accrued and
unpaid dividends on the shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock, as the case
may be, being converted, whether or not earned or declared, to and including the
time of conversion. Such conversion
-18-
<PAGE>
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate representing the shares of Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock, as the case may be, to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
(d) Adjustment for Stock Splits and Combi nations. If the Corporation
---------------------------------------------
at any time or from time to time after the Series C Commitment Date effects a
subdivision of the outstanding Common Stock, the Conversion Prices then in
effect immediately before that subdivision shall be proportionately decreased,
and conversely, if the Corporation at any time or from time to time after the
Series C Commitment Date combines the outstanding shares of Common Stock into a
smaller number of shares, the Conversion Prices then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this subsection (d) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the
--------------------------------------------------
Corporation at any time or from time to time after the Series C Commitment Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Prices then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Prices then in effect by a fraction (1) the numerator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock
-19-
<PAGE>
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Prices
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Prices shall be adjusted pursuant to this
subsection (e) as of the time of actual payment of such dividends or
distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Corporation at any time or from time to time after the Series C Commitment
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Series A
Convertible Preferred Stock, the holders of Series B Convertible Preferred Stock
and the holders of the Series C Convertible Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation which they
would have received had their Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock, as the case
may be, been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 7 with respect to the rights of the holders of the Series A
Convertible Preferred Stock, the holders of the Series B Convertible Preferred
Stock and the holders of the Series C Convertible Preferred Stock.
(g) Adjustment for Reclassification, Exchange and Substitution. In
----------------------------------------------------------
the event that at any time or from time to time after the Series C Commitment
Date, the Common Stock issuable upon the conversion of the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock or the Series C
Convertible Preferred Stock
-20-
<PAGE>
is changed into the same or a different number of shares of any class or classes
of stock, whether by recapitalization, reclassification or otherwise (other than
a subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section
7), then and in any such event each holder of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock, as the case may be, shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change, by holders of the
maximum number of shares of Common Stock into which such shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock, as the case may be, could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
-----------------------------------------------------------
at any time or from time to time after the Series C Commitment Date there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 7) or a merger or consolidation of the Corporation
with or into another corporation, or the sale of all or substan tially all of
the Corporation's properties and assets to any other person, then, as a part of
such reorganization, merger, consolidation or sale, provision shall be made so
that the holders of the Series A Convertible Preferred Stock, the holders of the
Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock or the
Series C Convertible Preferred Stock, as the case may be, the number of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the appli-
-21-
<PAGE>
cation of the provisions of this Section 7 with respect to the rights of the
holders of the Series A Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock and the holders of the Series C Convertible
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 7 (including adjustment of the
Conversion Prices then in effect and the number of shares purchasable upon
conversion of the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock or the Series C Convertible Preferred Stock, as the case may be)
shall be applicable after that event and be as nearly equivalent as may be
practicable.
-22-
<PAGE>
(i) Sale of Shares Below Conversion Price.
-------------------------------------
(1) If at any time or from time to time after the Series C
Commitment Date, the Corporation issues or sells, or is deemed by the express
provisions of this Section 7(i) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in subsection (e) above and other
than upon a subdivision or combination of shares of Common Stock as provided in
subsection (d) above, for an Effective Price (as hereinafter defined) less than
the then existing Series A Convertible Preferred Stock Conversion Price, then
and in each such case such then existing Series A Convertible Preferred Stock
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, to the issue price per share of such Additional Shares of
Common Stock. The Corporation shall not issue, without prior approval of the
Board, Additional Shares of Common Stock for an Effective Price that is less
than the then existing Series A Convertible Preferred Stock Conversion Price.
(2) If at any time or from time to time after the Series C
Commitment Date, the Corporation issues or sells, or is deemed by the express
provisions of this Section 7(i) to have issued or sold, Additional Shares of
Common Stock, other than as a dividend or other distribution on any class of
stock as provided in subsection (e) above and other than upon a subdivision or
combination of shares of Common Stock as provided in subsection (d) above, for
an Effective Price (as hereinafter defined) less than the then existing Series B
Convertible Preferred Stock Conversion Price, then and in each such case such
then existing Series B Convertible Preferred Stock Conversion Price shall be
reduced, as of the opening of business on the date of such issue or sale, to a
price determined by multiplying that Conversion Price of the Series B
Convertible Preferred Stock by a fraction (i) the numerator of which shall be
(A) the number of shares of Common Stock outstanding at the close of business on
the day next preceding the date of such issue or sale, plus (B) the number of
shares of Common Stock which the aggregate consideration received (or by the
express
-23-
<PAGE>
provisions hereof deemed to have been received) by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price, plus (C) the number of shares of Common Stock into which the
outstanding shares of all Series A Convertible Preferred Stock, all Series B
Convertible Preferred Stock and all Series C Convertible Preferred Stock are
convertible at the close of business on the date next preceding the date of such
issue or sale, plus (D) the maximum number of shares of Common Stock issuable
upon the exercise or conversion of all other options, rights, warrants, or stock
or other securities convertible into the Corporation's Common Stock outstanding
at the close of business on the date next preceding the date of such issue or
sale, and (ii) the denominator of which shall be (A) the number of shares of
Common Stock outstanding at the close of business on the date of such issue or
sale after giving effect to such issue of Additional Shares of Common Stock,
plus (B) the number of shares of Common Stock into which the outstanding shares
of all Series A Convertible Preferred Stock, all Series B Convertible Preferred
Stock and all Series C Convertible Preferred Stock are convertible at the close
of business on the date next preceding the date of such issue or sale, plus (C)
the maximum number of shares of Common Stock issuable upon the exercise or
conversion of all other options, rights, warrants, or stock or other securities
convertible into the Corporation's Common Stock outstanding at the close of
business on the date next preceding the date of such issue or sale.
(3) If at any time or from time to time after the Series C Commitment
Date, the Corporation issues or sells, or is deemed by the express provisions of
this Section 7(i) to have issued or sold, Additional Shares of Common Stock,
other than as a dividend or other distribution on any class of stock as provided
in subsection (e) above and other than upon a subdivision or combination of
shares of Common Stock as provided in subsection (d) above, for an Effective
Price (as hereinafter defined) less than the then existing Series C Convertible
Preferred Stock Conversion Price, then and in each such case such then existing
Series C Convertible Preferred Stock Conversion Price shall be reduced, as of
the opening of business on the date of such
-24-
<PAGE>
issue or sale, to a price determined by multiplying that Conversion Price of the
Series C Convertible Preferred Stock by a fraction (i) the numerator of which
shall be (A) the number of shares of Common Stock outstanding at the close of
business on the day next preceding the date of such issue or sale, plus (B) the
number of shares of Common Stock which the aggregate consideration received (or
by the express provisions hereof deemed to have been received) by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, plus (C) the number of shares of Common
Stock into which the outstanding shares of all Series A Convertible Preferred
Stock, all Series B Convertible Preferred Stock and all Series C Convertible
Preferred Stock are convertible at the close of business on the date next
preceding the date of such issue or sale, plus (D) the maximum number of shares
of Common Stock issuable upon the exercise or conversion of all other options,
rights, warrants, or stock or other securities convertible into the
Corporation's Common Stock outstanding at the close of business on the date next
preceding the date of such issue or sale, and (ii) the denominator of which
shall be (A) the number of shares of Common Stock outstanding at the close of
business on the date of such issue or sale after giving effect to such issue of
Additional Shares of Common Stock, plus (B) the number of shares of Common Stock
into which the outstanding shares of all Series A Convertible Preferred Stock,
all Series B Convertible Preferred Stock and all Series C Convertible Preferred
Stock are convertible at the close of business on the date next preceding the
date of such issue or sale, plus (C) the maximum number of shares of Common
Stock issuable upon the exercise or conversion of all other options, rights,
warrants, or stock or other securities convertible into the Corporation's Common
Stock outstanding at the close of business on the date next preceding the date
of such issue or sale.
(4) For the purpose of making any adjustment required under this
Section 7(i), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash be computed at
the amount of cash received by the Corporation, (B) to the extent it consists of
property other than cash,
-25-
<PAGE>
be computed at the fair value of that property as determined in good faith by
the Board, (C) if Additional Shares of Common Stock, Convertible Securities (as
hereinafter defined) or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together with other
stock or securities or other assets of the Corporation for a consideration which
covers both, be computed as the portion of the consideration so received that
may be reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or options,
and (D) be computed after reduction for all expenses payable by the Corporation
in connection with such issue or sale.
(5) For the purpose of the adjustment required under this Section
7(i), if the Corporation issues or sells any rights or options for the purchase
of, or stock or other securities convertible into or exchangeable for,
Additional Shares of Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to as "Convertible Securities") and if the
----------------------
Effective Price of such Additional Shares of Common Stock is less than the
Conversion Price then in effect, then in each case the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange thereof. No further adjustment of the Conversion Price, adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options
-26-
<PAGE>
or the conversion or exchange of any such Convertible Securities. If any such
rights or options or the conversion or exchange privilege represented by any
such Convertible Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion or exchange of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted or
exchanged, plus the consideration, if any, actually received by the Corporation
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such Convertible
Securities.
(6) For the purpose of the adjustment required under this Section
7(i), if the Corporation issues or sells, or is deemed by the express provisions
of this subsection to have issued or sold, any rights or options for the
purchase of Convertible Securities and if the Effective Price of the Additional
Shares of Common Stock underlying such Convertible Securities is less than the
Conversion Price then in effect, then in each such case the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options the
maximum number of Additional Shares of Common Stock issuable upon conversion or
exchange of the total amount of Convertible Securities covered by such rights or
options and to have received as consideration for the issuance of such
Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Corporation for the issuance of such
rights or options, plus the minimum amounts of consideration, if any, payable to
the Corporation upon the exercise of such rights or options and plus the minimum
amount of consid-
-27-
<PAGE>
eration, if any, payable to the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion or exchange of such Convertible Securities. No further adjustment of
the Conversion Price, adjusted upon the issuance of such rights or options,
shall be made as a result of the actual issuance of the Convertible Securities
upon the exercise of such rights or options or upon the actual issuance of
Additional Shares of Common Stock upon the conversion or exchange of such
Convertible Securities. The provisions of paragraph (5) above for the
readjustment of the Conversion Price upon the expiration of rights or options or
the rights of conversion or exchange of Convertible Securities shall apply
mutatis mutandis to the rights, options and Convertible Securities referred to
- ------- --------
in this paragraph (6).
(7) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued by the Corporation after the Series C Commitment Date,
whether or not subsequently reacquired or retired by the Corporation, other than
(i) shares of Common Stock issued upon conversion of the Series A Convertible
Preferred Stock, (ii) shares of Common Stock issued upon conversion of the
Series B Convertible Preferred Stock, (iii) shares of Common Stock issued upon
conversion of the Series C Convertible Preferred Stock, (iv) shares of Common
Stock and/or options, warrants or other Common Stock purchase rights and the
Common Stock issued pursuant to such options, warrants or other rights issued to
employees or directors of or consultants and advisers to the Corporation or any
Subsidiary pursuant to stock purchase or stock option plans or other
arrangements, that are approved by the Board, (v) shares of Common Stock issued
pursuant to the exercise of Convertible Securities outstanding as of the Series
C Commitment Date, (vi) shares of Common Stock issued and/or options, warrants
or other Common Stock purchase rights, and the Common Stock issued pursuant to
such options, warrants or other rights for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business combination
approved by the Board, and (vii) shares of Common Stock issued pursuant to any
equipment leasing arrangement, or debt financing from a bank or similar
financial institution approved by the Board. The "Effective Price" of
---------------
Additional
-28-
<PAGE>
Shares of Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed to have
been issued or sold by the Corporation under this Section 7(i), into the
aggregate consideration received, or deemed to have been received, by the
Corporation for such issue under this Section 7(i), for such Additional Shares
of Common Stock.
(j) Accountants' Certificate of Adjustment. Upon the occurrence of
--------------------------------------
each adjustment or readjustment of the Conversion Price or Conversion Prices
pursuant to this Section 7, the Corporation shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and shall prepare
and furnish to each holder of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock, as the case
may be, a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of holders of at least
two-thirds (2/3) of the outstanding shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock, as the case may be, furnish or cause to be furnished to all such holders
of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock, as the case may be, a like certificate
setting forth (1) such adjustments and readjustments, (2) the Conversion Price
or Conversion Prices in effect at the time, and (3) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Series A Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock.
(k) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or any right to subscribe for, purchase or
acquire any shares of stock or other securities of the Corporation, the
Corporation shall mail to each holder of Series A Convertible Preferred Stock,
each holder of Series
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<PAGE>
B Convertible Preferred Stock and each holder of Series C Convertible Preferred
Stock at least twenty (20) days prior to the record date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right.
(l) Automatic Conversion.
--------------------
(1) Each share of Series A Convertible Preferred Stock shall
automatically be converted into shares of Common Stock based on the then
effective Series A Convertible Preferred Stock Conversion Price (A) immediately
upon the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offering and sale of Common Stock for the account of the Corporation in
which the aggregate gross proceeds received by the Corporation at the public
offering price equals or exceeds Twenty Million Dollars ($20,000,000) with price
per share equal to or exceeding the product of 2.5 times the then existing
Series B Convertible Preferred Stock Conversion Price, and the obligation of the
underwriters with respect to which is that if any of the securities being
offered are purchased, all such securities must be purchased (a "Qualified
---------
Public Offering"); or (B) upon the receipt by the Corporation of a written
- ---------------
notice from the holders of a majority of the shares of Series A Convertible
Preferred Stock electing unconditionally to convert their shares of Series A
Convertible Preferred Stock.
(2) Upon the occurrence of an event specified in paragraph
(1) above the outstanding shares of Series A Convertible Preferred Stock shall
be converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series A Convertible Preferred Stock are either
delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that
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<PAGE>
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon the occurrence of such
automatic conversion of the Series A Convertible Preferred Stock, the holders of
Series A Convertible Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Series A Convertible Preferred Stock or Common Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A Convertible Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred, and the Corporation shall, as soon as
practicable thereafter, pay in cash or Common Stock (taken at the Common Stock's
Fair Market Value as of the date of such conversion), or both, all accrued and
unpaid dividends on the shares of Series A Convertible Preferred Stock being
converted, whether or not earned or declared, to and including the date of such
conversion.
(3) Each share of Series B Convertible Preferred Stock shall
automatically be converted into shares of Common Stock based on the then
effective Series B Convertible Preferred Stock Conversion Price (A) immediately
upon the closing of a Qualified Public Offering; or (B) upon the receipt by the
Corporation of a written notice from the holders of a majority of the shares of
Series B Convertible Preferred Stock electing unconditionally to convert their
shares of Series B Convertible Preferred Stock.
(4) Upon the occurrence of an event specified in paragraph (3) above
the outstanding shares of Series B Convertible Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless
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<PAGE>
the certificates evidencing such shares of Series B Convertible Preferred Stock
are either delivered to the Corporation or its transfer agent as provided below,
or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon the occurrence of such
automatic conversion of the Series B Convertible Preferred Stock, the holders of
Series B Convertible Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Series B Convertible Preferred Stock or Common Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series B Convertible Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred, and the Corporation shall, as soon as
practicable thereafter, pay in cash or Common Stock (taken at the Common Stock's
Fair Market Value as of the date of such conversion), or both, all accrued and
unpaid dividends on the shares of Series B Convertible Preferred Stock being
converted, whether or not earned or declared, to and including the date of such
conversion.
(5) Each share of Series C Convertible Preferred Stock shall
automatically be converted into shares of Common Stock based on the then
effective Series C Convertible Preferred Stock Conversion Price (A) immediately
upon the closing of a Qualified Public Offering; or (B) upon the receipt by the
Corporation of a written notice from the holders of a majority of the shares of
Series C Convertible Preferred Stock electing unconditionally to convert their
shares of Series C Convertible Preferred Stock.
(6) Upon the occurrence of an event specified in paragraph (5) above
the outstanding shares of Series C Convertible Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing
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<PAGE>
such shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series C Convertible Preferred Stock are
either delivered to the Corporation or its transfer agent as provided below, or
the holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Series C Convertible Preferred Stock, the holders of Series C
Convertible Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for the Series C
Convertible Preferred Stock or Common Stock. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C
Convertible Preferred Stock surrendered were convertible on the date on which
such automatic conversion occurred, and the Corporation shall, as soon as
practicable thereafter, pay in cash or Common Stock (taken at the Common Stock's
Fair Market Value as of the date of such conversion), or both, all accrued and
unpaid dividends on the shares of Series C Convertible Preferred Stock being
converted, whether or not earned or declared, to and including the date of such
conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock or the Series C Convertible Preferred Stock. In lieu
of any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the fair market value of one share of Common Stock on the date of conversion, as
determined in good faith by the Board.
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<PAGE>
(n) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the Series C Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock and the Series C Convertible
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(o) Notices. Any notice required or permitted by this Section 7 or
-------
any other provision of this Article IV to be given to a holder of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock, as the case may be, or to the Corporation shall be
in writing and be deemed given upon the earlier of actual receipt or three (3)
days after the same has been deposited in the United States mail, by certified
or registered mail, return receipt requested, postage prepaid, and addressed (1)
to each holder of record at the address of such holder appearing on the books of
the Corporation, or (2) to the Corporation at its then principal executive
offices, or (3) to the Corporation or any holder, at any other address specified
in a written notice given to the other for the giving of notice.
Section 8. No Reissuance of Series A Convertible Preferred Stock,
------------------------------------------------------
Series B Convertible Preferred Stock or Series C Convertible Preferred Stock.
- ----------------------------------------------------------------------------
No share or shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock
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<PAGE>
acquired by the Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Coporation shall be authorized to issue.
V.
The number of directors which shall constitute the whole Board shall
be fixed by, or in the manner provided in, the Bylaws of the Corporation.
VI.
In furtherance and not in limitation of the powers conferred by
statute, the Board is expressly authorized to make, repeal, alter, amend and
rescind the Bylaws of the Corporation.
VII.
Election of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
VIII.
A director shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined. No amendment or repeal of this provision shall deprive
a director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
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<PAGE>
IX.
The Corporation shall, to the fullest extent permitted by the Delaware
General Corporation Law, as it may be amended and supplemented from time to
time, indemnify any and all persons whom it shall have the power to indemnify
under such law against any expenses, liabilities or other matter referred to in
or covered by that section. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
X.
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, and all rights conferred on stockholders
herein are granted subject to this reservation.
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<PAGE>
AMENDED AND RESTATED
BYLAWS
of
L90, Inc.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Offices
Section 1.01 Registered Office 1
Section 1.02 Principal Office 1
Section 1.03 Other Offices 1
ARTICLE II - Meetings of Stockholders
Section 2.01 Annual Meetings 1
Section 2.02 Special Meeting 1
Section 2.03 Place of Meetings 2
Section 2.04 Notice of Meetings 2
Section 2.05 Quorum 3
Section 2.06 Voting 3
Section 2.07 List of Stockholders 5
Section 2.08 Inspector of Election 5
Section 2.09 Stockholder Action Without
Meetings 5
Section 2.10 Record Date 6
ARTICLE III - Board of Directors
Section 3.01 General Powers 6
Section 3.02 Number and Term 6
Section 3.03 Election of Directors 7
Section 3.04 Resignation and Removal 7
Section 3.05 Vacancies 7
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3.06 Place of Meeting; Telephone
Conference Meeting 8
Section 3.07 First Meeting 8
Section 3.08 Regular Meetings 8
Section 3.09 Special Meetings 8
Section 3.10 Quorum and Action 9
Section 3.11 Action by Consent 9
Section 3.12 Compensation 9
Section 3.13 Committees 9
Section 3.14 Officers of the Board 10
ARTICLE IV - Officers
Section 4.01 Officers 10
Section 4.02 Election and Term 10
Section 4.03 Subordinate Officers 10
Section 4.04 Removal and Resignation 11
Section 4.05 Vacancies 11
Section 4.06 President 11
Section 4.07 Chairman of the Board 11
Section 4.08 Vice President 11
Section 4.09 Secretary 12
Section 4.10 Chief Financial Officer 12
Section 4.11 Compensation 13
ARTICLE V - Contracts, Checks, Drafts Bank Accounts, Etc.
Section 5.01 Execution of Contracts 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.02 Checks, Drafts, Etc. 13
Section 5.03 Deposit 14
Section 5.04 General and Special Bank Accounts 14
ARTICLE VI - Shares and Their Transfer
Section 6.01 Certificates for Stock 14
Section 6.02 Transfer of Stock 15
Section 6.03 Regulations 15
Section 6.04 Lost, Stolen, Destroyed and
Mutilated Certificates 16
Section 6.05 Representation of Shares
of Other Corporations 16
ARTICLE VII - Indemnification
Section 7.01 Actions Other Than By or In
the Right of the Corporation 16
Section 7.02 Actions By or In the Right of the
Corporation 17
Section 7.03 Determination of Right of
Indemnification 17
Section 7.04 Indemnification Against
Expenses of Successful Party 18
Section 7.05 Advance of Expenses 18
Section 7.06 Other Rights and Remedies 18
Section 7.07 Insurance 18
Section 7.08 Constituent Corporations 19
Section 7.09 Employee Benefit Plans 19
Section 7.10 Broadest Lawful Indemnification 19
Section 7.11 Term 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 7.12 Severabillity 21
Section 7.13 Amendments 21
ARTICLE VIII - Miscellaneous
Section 8.01 Seal 22
Section 8.02 Waiver of Notices 22
Section 8.03 Loans and Guaranties 22
Section 8.04 Gender 22
Section 8.05 Amendments 22
</TABLE>
<PAGE>
AMENDED AND RESTATED
BYLAWS
of
L90, INC.
a Delaware Corporation
ARTICLE I
OFFICES
-------
Section 1.01 REGISTERED OFFICE. The registered office of L90, Inc.
(hereinafter called the "Corporation") shall be at such place in the State of
Delaware as shall be designated by the Board of Directors (hereinafter called
the "Board").
Section 1.02 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
Section 1.03 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders
of the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board which has been duly designated by the
Board and whose powers and authority, as provided in a resolution of the Board
or in the Bylaws, include the power to call such meetings, but such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the General Corporation Law of the State of Delaware (or its successor
statute as in effect from time to time hereafter), then such special meeting may
also be called by the person or persons, in the manner, at the time and for the
purposes so specified.
<PAGE>
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meetings and specified in the respective notices or waivers of notice thereof.
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his address last known to the
Secretary, or by transmitting a notice thereof to him at such address by
telegraph, cable or wireless. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the stockholders shall be required.
Every notice of a meeting of the stockholders shall state the place, date and
hour of the meeting, and, in the case of a special meeting shall also state the
purpose or purposes for which the meeting is called. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
Whenever notice is required to be given 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 have been taken or held without
notice to such person shall 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.
No notice need be given to any person with whom communication is
unlawful, nor shall there be any duty to apply for any permanent or license to
give notice to any such person.
Section 2.05 QUORUM. Except as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. In the absence of a quorum at
any meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at or to act as secretary of such meeting may adjourn such
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<PAGE>
meeting from time to time. At any such adjourned meeting at which a quorum is
present any business may be transacted which might have been transacted at the
meeting as originally called.
Section 2.06 VOTING.
(a) At each meeting of the stockholders, each stockholder shall be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation which has voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (A) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (B) if notice of the meeting shall be waived, at the
close of business on the day next preceding the day on which the meeting shall
be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the General Corporation Law of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon. The stockholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. The vote at any meeting of the stockholders on any question need not be
by ballot, unless so directed by the chairman of
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<PAGE>
the meeting. On a vote by ballot, each ballot shall be signed by the stockholder
voting, or by his proxy if there be such proxy, and it shall state the number of
shares voted.
Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the entire duration thereof, and may be inspected by any stockholder who
is present.
Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the
stockholders a vote by written ballot shall be taken on any question, the
chairman of such meeting may appoint an inspector or inspectors of election to
act with respect to such vote. Each inspector so appointed shall first
subscribe an oath faithfully to execute the duties of an inspector at such
meeting with strict impartiality and according to the best of his ability. Such
inspectors shall decide upon the qualification of the voters and shall report
the number of shares represented at the meeting and entitled to vote on such
question, shall conduct and accept the votes, and, when the voting is completed,
shall ascertain and report the number of shares voted respectively for and
against the question. Reports of the inspectors shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation.
Inspectors need not be stockholders of the Corporation, and any officer of the
Corporation may be an inspector on any question other than a vote for or against
a proposal in which he shall have a material interest.
2.09 STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law of the State of Delaware 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. 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.
Section 2.10 RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board 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 and which record date: (i) in the case
of determination of stockholders entitled to vote at any meeting of stockholders
or
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<PAGE>
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting; (ii) in the case
of determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board; and (iii)
in the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed: (i) 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; (ii) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board is required by 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 in
accordance with applicable law, or, if prior action by the Board is required by
law, shall be at the close of business on the day on which the Board adopts the
resolution taking such prior action; and (iii) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. 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 may fix a new record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by or under the direction of the Board, which
may exercise all of the powers of the Corporation, except such as are by the
Certificate of Incorporation, by these Bylaws or by law conferred upon or
reserved to the stockholders.
Section 3.02 NUMBER AND TERM. The authorized number of directors of
the Corporation shall not be less than five (5) and not more than nine (9)
until changed by an amendment of this Section 3.02. Directors need not be
stockholders of the Corporation. Each director shall hold office until a
successor is elected and qualified or until the director resigns or is removed.
Until changed, the number of directors shall be set at nine (9). For so long as
at least one thousand (1,000) shares of Series A Convertible Preferred Stock
remain outstanding (subject to adjustment for any stock split, reverse stock
split or similar event affecting the Series A Convertible Preferred Stock), the
holders of Series A Convertible Preferred Stock, voting as a separate class,
shall be entitled to elect one (1) member of the Corporation's Board at each
meeting or pursuant to each consent of the Corporation's stockholders for the
election of directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director; for so
long as at least eight hundred forty-nine thousand five hundred (849,500) shares
of Series B Convertible Preferred Stock remain outstanding (subject to
adjustment for any stock split, reverse stock split or similar event affecting
the Series B Convertible Preferred Stock), the holders of Series B Convertible
Preferred Stock, voting as a separate class, shall be entitled to elect three
(3)
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<PAGE>
members of the Corporation's Board at each meeting or pursuant to each consent
of the Corporation's stockholders for the election of directors, and to remove
from office such director and to fill any vacancy caused by the resignation,
death or removal of such director; for so long as at least two hundred sixty-one
thousand four hundred thirty-eight (261,438) shares of Series C Convertible
Preferred Stock remain outstanding (subject to adjustment for any stock split,
reverse stock split or similar event affecting the Series C Convertible
Preferred Stock), the holders of Series C Convertible Preferred Stock, voting as
a separate class, shall be entitled to elect one (1) member of the Corporation's
Board at each meeting or pursuant to each consent of the Corporation's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director, provided that so long as Rare Medium Group, Inc. and its
affiliates own at least 50% of the outstanding Series C Convertible Preferred
Stock, such member shall be designated by Rare Medium Group, Inc.; and the
holders of Common Stock, voting as a separate class, shall be entitled to elect
the remaining members of the Board at each meeting or pursuant to each consent
of the Corporation's stockholders for the election of directors, and to remove
from office such directors and to fill any vacancy caused by the resignation,
death or removal of such directors.
Section 3.03 ELECTION OF DIRECTORS. The directors shall be elected
by the stockholders of the Corporation, and at each election the persons
receiving the greatest number of votes, up to the number of directors then to be
elected, shall be the persons then elected. The election of directors is
subject to any provisions contained in the Certificate of Incorporation relating
thereto, including any provisions for a classified board.
Section 3.04 RESIGNATION AND REMOVAL. Any director of the
Corporation may resign at any time by giving written notice to the Board or to
the Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein, or, if the time is not specified, it shall take effect
immediately upon its receipt; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Except as otherwise provided by the Certificate of Incorporation or by
law, any director or the entire board of directors may be removed, with or
without cause, by the holders of a majority of shares then entitled to vote at
an election of directors.
Section 3.05 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation or in Section 3.02 hereof, any vacancy in the
Board, whether because of death, resignation, disqualification, an increase in
the number of directors, or any other cause, may be filled by vote of the
majority of the remaining directors, although less than a quorum, or by a sole
remaining director. Each director so chosen to fill a vacancy shall hold office
until his successor shall have been elected and shall qualify or until he shall
resign or shall have been removed. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
Except as otherwise provided in the Certificate of Incorporation or in
Section 3.02 hereof, upon the resignation of one or more directors from the
Board,
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effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the 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 as provided hereinabove in the filling of other vacancies.
Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The
Board may hold any of its meetings at such place or places within or without the
State of Delaware as the Board may from time to time by resolution designate or
as shall be designated by the person or persons calling the meeting or in the
notice or waiver of notice of any such meeting. Directors may participate in
any regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating in
the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
Section 3.07 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day which is not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board or the President or by any two
(2) directors, to be held at the principal office of the Corporation, or at such
other place or places, within or without the State of Delaware, as the person or
persons calling the meeting may designate.
Notice of the time and place of special meetings shall be given to
each director either (i) by mailing or otherwise sending to him a written notice
of such meeting, charges prepaid, addressed to him at his address as it is shown
upon the records of the Corporation, or if it is not so shown on such records or
is not readily ascertainable, at the place in which the meetings of the
directors are regularly held, at least seventy-two (72) hours prior to the time
of the holding of such meeting; or (ii) by orally communicating the time and
place of the special meeting to him at least forty-eight (48) hours prior to the
time of the holding of such meeting. Either of the notices as above provided
shall be due, legal and personal notice to such director.
Section 3.10 QUORUM AND ACTION. Except as otherwise provided in
these Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time
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to time until a quorum shall be present. Notice of any adjourned meeting need
not be given. The directors shall act only as a Board, and the individual
directors shall have no power as such.
Section 3.11 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or such committee. Such
action by written consent shall have the same force and effect as the unanimous
vote of such directors.
Section 3.12 COMPENSATION. No stated salary need be paid to
directors, as such, for their services but, as fixed from time to time by
resolution of the Board, the directors may receive directors' fees, compensation
and reimbursement for expenses for attendance at directors' meetings, for
serving on committees and for discharging their duties; provided that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 3.13 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the 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 place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board 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.
Unless the Board otherwise provides, each committee designated by the
Board may make, alter and repeal rules for conduct of its business. In the
absence of such rules each committee shall conduct its business in the same
manner as the Board conducts its business pursuant to these Bylaws. Any such
committee shall keep written minutes of its meetings and report the same to the
Board when required.
Section 3.14 OFFICERS OF THE BOARD. A Chairman of the Board or a
Vice Chairman may be appointed from time to time by the Board and shall have
such powers and duties as shall be designated by the Board.
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ARTICLE IV
OFFICERS
--------
Section 4.01 OFFICERS. The officers of the Corporation shall be a
President, a Secretary or a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board, a Chairman of the Board, a Chief Executive
Officer, one or more Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers and such other
officers as may be appointed in accordance with the provisions of Section 4.03
of these Bylaws. One person may hold two or more offices, except that the
Secretary may not also hold the office of President.
Section 4.02 ELECTION AND TERM. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 4.03 or Section 4.05 of these Bylaws, shall be chosen annually by the
Board, and each shall hold his office until he shall resign or shall be removed
or otherwise disqualified to serve, or until his successor shall be elected and
qualified.
Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may
authorize the Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall have such authority
and perform such duties as are provided in these Bylaws or as the Board or the
President from time to time may specify, and shall hold office until he shall
resign or shall be removed or otherwise disqualified to serve.
Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed,
with or without cause, by a majority of the directors at the time in office, at
any regular or special meeting of the Board, or, except in case of an officer
chosen by the Board, by the Chief Executive Officer upon whom such power of
removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for the regular appointments to such office.
Section 4.06 PRESIDENT. The President of the Corporation shall,
subject to the control of the Board, have general supervision, direction and
control of the business and affairs of the Corporation. He shall preside at all
meetings of stockholders and, if there is no Chairman, the Board. He shall have
the general powers and duties of management usually vested in the chief
executive officer of a corporation, and shall have such other powers and duties
with respect to the administration of the business and affairs of the
Corporation as may from time to time be assigned to him by the Board or as
prescribed by the Bylaws.
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Section 4.07 CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at all meetings of the Board and exercise and perform such
other powers and duties with respect to the administration of the business and
affairs of the Corporation as may from time to time be assigned to him by the
Board or as is prescribed by the Bylaws.
Section 4.08 VICE PRESIDENT. The Vice President(s), if any, shall
exercise and perform such powers and duties with respect to the administration
of the business and affairs of the Corporation as from time to time may be
assigned to each of them by the President, by the Chairman of the Board, if any,
by the Board or as is prescribed by the Bylaws. In the absence or disability of
the President, the Vice Presidents, in order of their rank as fixed by the
Board, or if not ranked, the Vice President designated by the Board, shall
perform all of the duties of the President and when so acting shall have all of
the powers of and be subject to all the restrictions upon the President.
Section 4.09 SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes at the principal office for the transaction of the
business of the Corporation, or such other place as the Board may order, of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and if special, how authorized and the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at stockholders' meetings and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal office
for the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board required by these Bylaws or by law
to be given, and he shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board or these Bylaws. If for any reason the Secretary shall fail to
give notice of any special meeting of the Board called by one or more of the
persons identified in Section 3.09 of these Bylaws, or if he shall fail to give
notice of any special meeting of the stockholders called by one or more of the
persons identified in Section 2.02 of these Bylaws, then any such person or
persons may give notice of any such special meeting.
Section 4.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares. Any surplus, including earned surplus,
paid-in surplus and surplus arising from a reduction of capital, shall be
classified according to source and shown in a separate account. The books of
account at all reasonable times shall be open to inspec tion by any director.
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The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board. He shall disburse the funds of
the Corporation as may be ordered by the Board, shall render to the President,
to the Chief Executive Officer and to the directors, whenever they request it,
an account of all of his transactions as Chief Financial Officer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board or these Bylaws.
Section 4.11 COMPENSATION. The compensation of the officers of the
Corporation, if any, shall be fixed from time to time by the Board.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in these Bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, 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 in any amount.
Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such person shall give such bond, if any, as
the Board may require.
Section 5.03 DEPOSIT. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, attorney or attorneys, of the Corporation to whom such power shall have
been delegated by the Board. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, the President, the Chief
Executive Officer, any Vice President or the Chief Financial Officer (or any
other officer or officers, assistant or assistants, agent or agents, or attorney
or attorneys of the Corporation who shall be determined by the Board from time
to time) may endorse, assign and deliver checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation.
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time
to time may authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by an officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules
and regulations with
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respect to such bank accounts, not inconsistent with the provisions of these
Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
-------------------------
Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number and class of shares of
the stock of the Cor poration owned by him. The certificates representing
shares of such stock shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Corporation by the Chairman of the
Board, the President or a Vice President and by the Secretary or an Assistant
Secretary or by the Chief Financial Officer or an Assistant Treasurer. Any or
all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon any such certificate shall thereafter have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of the respective names
of the persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04 of these Bylaws.
Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be stated
expressly in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
Section 6.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. The Board may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
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Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper to do so.
Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any Vice President and the Secretary or any Assistant Secretary of
this Corporation are authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to all shares of any other corporation or
corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any person authorized
so to do by proxy or power of attorney duly executed by said officers.
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body, against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another
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corporation, partnership, joint venture, trust or other enterprise, or as a
member of any committee or similar body, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VII, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VII. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other Sections
of this Article VII shall not be deemed exclusive and are declared expressly to
be nonexclusive of any other rights to which those seeking indemnification or
advancements of expenses may be entitled under any bylaw, 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 such
office.
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Section 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII.
Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this
Article VII, references to "the Corporation" 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 or as a member of any committee or similar body shall
stand in the same position under the provisions of this Article VII with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this
Article VII, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to any 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 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 Article VII.
Section 7.10. BROADEST LAWFUL INDEMNIFICATION. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of indemnification
than is permitted to the Corporation prior to such amendment or change),
indemnify each 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 officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. In addition, the Corporation shall, to the broadest
and maximum extent permitted by
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Delaware law, as the same may exist from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of payment of
expenses incurred in advance of the final disposition of an action, suit or
proceeding than is permitted to the Corporation prior to such amendment or
change), pay to such person any and all expenses (including attorneys' fees)
incurred in defending or settling any such action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer, to repay such amount if
it shall ultimately be determined by a final judgment or other final
adjudication that he is not entitled to be indemnified by the Corporation as
authorized in this Section 7.10. The first sentence of this Section 7.10 to the
contrary notwithstanding, the Corporation shall not indemnify any such person
with respect to any of the following matters: (i) remuneration paid to such
person if it shall be determined by a final judgment or other final adjudica
tion that such remuneration was in violation of law; or (ii) any accounting of
profits made from the purchase or sale by such person of the Corporation's
securities within the meaning 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; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active and deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he was not entitled, in the event that a final judgment or other final
adjudication adverse to such person establishes that such person in fact gained
such personal profit or other advantage to which he was not entitled; or (v) any
matter in respect of which a final decision by a court with competent
jurisdiction shall determine that indemnification is unlawful; provided,
however, that the Corporation shall perform its obligations under the second
sentence of this Section 7.10 on behalf of such person until such time as it
shall be ultimately determined by a final judgment or other final adjudication
that he is not entitled to be indemnified by the Corporation as authorized by
the first sentence of this Section 7.10 by virtue of any of the preceding
clauses (i), (ii), (iii), (iv) or (v).
Section 7.11. TERM. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VII shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7.12 SEVERABILITY. If any part of this Article VII shall be
found, in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular officer, director, employee or agent to be
unenforceable, ineffective or invalid for any reason, the enforceability, effect
and validity of the remaining parts or of such parts in other circumstances
shall not be affected, except as otherwise required by applicable law.
Section 7.13 AMENDMENTS. The foregoing provisions of this Article
VII shall be deemed to constitute an agreement between the Corporation and each
of the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or
-16-
<PAGE>
otherwise adversely affects the scope of indemnification or rights of any
such persons hereunder shall, as to such persons, apply only to claims arising,
or causes of action based on actions or events occurring, after such amendment
and delivery of notice of such amendment is given to the person or persons so
affected. Until notice of such amendment is given to the person or persons whose
rights hereunder are adversely affected, such amendment shall have no effect on
such rights of such persons hereunder. Any person entitled to indemnification
under the foregoing provisions of this Article VII shall, as to any act or
omission occurring prior to the date of receipt of such notice, be entitled to
indemnification to the same extent as had such provisions continued as Bylaws of
the Corporation without such amendment.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.01 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and showing the year of incorporation.
Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be
given under any provision of these bylaws, the Certificate of Incorporation or
by law, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when a person attends a meeting for the express purpose of
objecting at the beginning of the meeting, to the trans action of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless required by the Certificate of
Incorporation.
Section 8.03 LOANS AND GUARANTIES. The Corporation may lend money
to, or guarantee any obligation of, and otherwise assist any officer or other
employee of the Corporation or of its subsidiaries, including any officer who is
a director, whenever, in the judgment of the Board, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty, or other assistance may be with or without interest, and may be
unsecured or secured in such manner as the Board shall approve, including,
without limitation, a pledge of shares of stock of the Corporation.
Section 8.04 GENDER. All personal pronouns used in these Bylaws
shall include the other genders, whether used in the masculine, feminine or
neuter gender, and the singular shall include the plural, and vice versa,
whenever and as often as may be appropriate.
Section 8.05 AMENDMENTS. These Bylaws, or any of them, may be
rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the
Board, by vote of a majority of the number of directors then in office as
directors, acting at any
-17-
<PAGE>
meeting of the Board or (ii) by the stockholders, by the vote of a majority of
the outstanding shares of voting stock of the Corporation, at an annual meeting
of stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting; provided, however,
that Section 2.02 of these Bylaws can only be amended if that Section as amended
would not conflict with the Corporation's Certificate of Incorporation. Any
Bylaw made or altered by the stockholders may be altered or repealed by the
Board or may be altered or repealed by the stockholders.
-18-
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY
The undersigned certifies:
(1) That the undersigned is duly elected and acting Assistant
Secretary of L90, Inc., a Delaware corporation; and
(2) That the foregoing Bylaws constitute the Bylaws of the
Corporation as duly adopted by unanimous written consent of the Board of
Directors dated the ______ day of September, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of the Corporation this 20th day of September, 1999.
/s/ Thomas A. Sebastian
________________________________________
Thomas A. Sebastian, Assistant Secretary
-19-
<PAGE>
STOCK PURCHASE
AND
STOCKHOLDERS AGREEMENT
THIS STOCK PURCHASE AND STOCKHOLDERS AGREEMENT (the "Agreement") is made as
---------
of September 14, 1998, among AdNet Strategies, Inc., a California corporation
(the "Company"), William Apfelbaum, a New York resident (the "Investor"), and
------- --------
the Persons listed as Stockholders on the signature pages hereto, as amended
from time to time (such Persons, together with the Investor, being collectively
referred to herein as the "Stockholders"). Except as otherwise indicated,
------------
capitalized terms used herein are defined in Section 9 hereof.
WHEREAS, the Company is a duly organized and existing corporation under the
laws of the State of California;
WHEREAS, the Company wishes to issue and sell to the Investor, and the
Investor wishes to purchase from the Company, (i) 2,000 shares (the "Shares") of
------
Preferred Stock, and (ii) a warrant (the "Warrant") to purchase up to 65,789
-------
shares (the "Warrant Shares") of Common Stock; and
--------------
WHEREAS, the Company and the Stockholders desire that the business of the
Company be advantageously conducted for the mutual benefit of the Stockholders
and the sustained prosperity of the Company and to such end deem it necessary to
make certain provisions for the regulation of the Company's affairs and the
rights of the Stockholders.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter set forth, the parties hereto agree as follows:
1. Closing and Pre-Closing Matters.
-------------------------------
1A. Filing of Restated Articles of Incorporation. Immediately prior to the
--------------------------------------------
Closing, the Company shall execute a Restated Articles of Incorporation,
substantially in the form attached hereto as Exhibit A (the "Articles of
--------- -----------
Incorporation"), and shall cause the same to be filed with the Secretary of
- -------------
State of California.
1B. Purchase of Preferred Stock. At the Closing, subject to the terms and
---------------------------
conditions set forth herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase from the Company, all of the Shares for an
aggregate purchase price of $2,000,000 (the "Purchase Price"). The Purchase
--------------
Price shall be paid by the Investor by certified check or by wire transfer to an
account designated by the Company on the Closing Date.
1C. Issuance of Warrant. At the Closing, subject to the terms and
-------------------
conditions hereof, the Company shall issue to the Investor the Warrant, in
substantially the form attached hereto as Exhibit B.
---------
<PAGE>
2. Closing Date. The closing of the transactions contemplated herein
------------
(the "Closing", and the date of which is the "Closing Date") shall take place at
------- ------------
the offices of the Company, 36 West 44/th/ Street, Suite 1412, New York, New
York 10036 on the date hereof, or at such later date as is mutually agreed upon
by the Company and the Investor.
3. Conditions to the Closing.
-------------------------
3A. Conditions to the Investor's Obligations at the Closing. The
-------------------------------------------------------
obligation of the Investor to perform its obligations set forth in Section 1 is
subject to the satisfaction as of the Closing of the following conditions:
(i) Articles of Incorporation. The Company's Restated Articles of
-------------------------
Incorporation shall be in full force and effect as of the Closing.
(ii) Directors. The Company shall have taken all necessary action to
---------
ensure that, immediately after the Closing, the Board of Directors of the
Company (the "Board") shall consist of the four directors set forth on the
-----
Schedule of Directors, and the Investor (or his designee), upon written notice
and at his option, shall be elected as a director or the Chairman of the Board.
(iii) Warrant. The Company shall have executed and delivered the Warrant
-------
to the Investor, and the Warrant shall be in full force and effect as of the
Closing.
(iv) S Corporation Status. The Company shall have elected to terminate
--------------------
its status as a Subchapter "S" Corporation.
(v) Closing Documents. The Company shall have delivered to the Investor
-----------------
all of the following documents:
(a) copies of resolutions duly adopted by the Board authorizing
the execution, delivery and performance of this Agreement, the Warrant, the
issuance of the Shares and each of the other agreements contemplated hereby
(collectively, the "Transaction Documents"), and the consummation of all
---------------------
other transactions contemplated by this Agreement; and
(b) copies of the Articles of Incorporation, certified by the
Secretary of State of California, and the Bylaws, certified by the
Company's Secretary, as in effect at the Closing.
4. Covenants.
---------
4A. Negative Covenants. Except as specifically provided by this
------------------
Agreement, from the date of this Agreement until the earlier to occur of (1) the
closing date of an Initial Public Offering and (2) the date on which the
Investor's Percentage Interest is less than 8% (provided that the decrease in
the Investor's Percentage Interest is not due to an Exempt Issuance), the
Company shall not, without the prior consent of the Investor, which shall not be
unreasonably withheld:
<PAGE>
(i) redeem, purchase or otherwise acquire any Equity Securities;
(ii) authorize, create or issue any Equity Securities, except for an
Exempt Issuance;
(iii) increase the compensation of any of its key officers above the
levels in existence as of the Closing Date, except that Bohan's total annual
compensation, including salary plus bonus, may be $300,000;
(iv) incur or create any long-term debt or indebtedness for borrowed
money having a present value in excess of $250,000;
(v) enter into any agreement or arrangement out of the ordinary course
of business;
(vi) enter into any transaction between the Company, on the one hand, and
any Affiliate of the Company, on the other hand;
(vii) amend the Articles of Incorporation or By-laws in any manner;
(viii) increase the number of members of the Board beyond five persons;
(ix) declare any dividend or other distribution in respect of any of its
capital stock;
(x) amend, modify, supplement or waive, or consent to the amendment,
modification, supplementation or waiver of, any of the provisions of this
Section 4;
(xi) change in any material respect the nature of the business conducted
by the Company on the date hereof;
(xii) make itemized expenditures in excess of 15% of the estimated amounts
for such items set forth in the annual budget (which annual budget shall be
approved by the Investor if the budget varies by more than 25% from the previous
year); or
(xiii) use any proceeds from the Purchase Price for items other than (a)
ongoing operating expenses, (b) working capital and capital expenditures, (c)
acquisitions approved by the Board, and (d) repayment of all principal and
interest under the loan from Bert and Linda Fornaciari in the original principal
amount of $200,000.
4B. Affirmative Covenants. Except as specifically provided by this
---------------------
Agreement, from the date of this Agreement until the earlier to occur of (1) the
closing date of an Initial Public Offering and (2) the date on which the
Investor's Percentage Interest is less than 8% (provided that the decrease in
the Investor's Percentage Interest is not due to an Exempt Issuance), the
Company shall, unless the Company has obtained the prior written consent of
the Investor:
(i) submit on a timely basis each annual budget of the Company to the
Board; and
<PAGE>
(ii) at all times remain a corporation duly organized and validly
existing under the laws of the State of California.
4C. Financial Statements and Other Information. The Company will
------------------------------------------
deliver to the Investor:
(i) within 45 days after the end of each fiscal quarter of the Company,
an unaudited statement of income and cash flow of the Company for such fiscal
quarter, and a balance sheet of the Company as of the end of such fiscal
quarter, and all such statements will be prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP");
----
(ii) within 90 days after the end of each fiscal year of the Company,
commencing with the fiscal year 1999, an audited statement of income and cash
flow of the Company for such year, and the balance sheet of the Company as of
the end of such year, and all such statements will be prepared in accordance
with GAAP; and
(iii) such other information as reasonably requested by the Investor which
the Company has in its possession or can acquire without reasonable effort or
expense.
5. Purchase, Sale and Delivery of Equity Securities.
------------------------------------------------
5A. Executive Stock Options. Upon delivering written notice to the
-----------------------
Investor, the Company shall have the right to issue to executive officers,
directors and/or employees of the Company from time to time, solely at the
discretion of the Board, stock options ("Stock Options") to purchase shares of
-------------
Common Stock in an aggregate amount not exceeding 10% of the Total Company
Shares on the Closing Date. It shall be a condition to the issuance of any
shares of Common Stock pursuant to a Stock Option that the holder thereof
provide a written agreement to be bound by and subject to this Agreement. If any
such Stock Option is terminated by reason of any termination of employment and
any or all of the shares of Common Stock issuable thereunder are not vested and
issued in accordance with the terms thereof, the Company shall have the right to
issue one or more Stock Options as provided herein for that number of shares of
Common Stock which equal the number of shares that were not vested and issued
pursuant to such terminated Stock Option at the time of such termination.
5B. Investor Put Option. Commencing upon the earliest to occur of (i)
-------------------
the second anniversary of the Closing Date, (ii) the sale, merger,
consolidation, conveyance, exchange, transfer or other disposition of all or
substantially all of the Company's assets (a "Capital Transaction"), or (iii) an
-------------------
Initial Public Offering, upon written notice (the "Put Notice") by the Investor
----------
to the Company of his desire to sell all, but not less than all, of the Investor
Shares held by the Investor, the Company shall be obligated to purchase from the
Investor all of the Investor Shares requested to be sold by the Investor at a
cash purchase price per share equal to the Stated Value per share, together with
all cumulated but unpaid dividends on such Investor Shares. The purchase of such
Investor Shares by the Company shall be completed (i) on the date of the closing
of the Capital Transaction or the Initial Public Offering, if applicable, or
(ii) within six months of the date of receipt of the Put Notice, in all other
events; provided that the Investor has given the Company at least fifteen (15)
days written notice prior to its exercise of the put option.
<PAGE>
Any purchase by the Company of the Investor Shares pursuant to this Section 5B
shall be effected by delivery by the Investor of the certificate for all such
shares (properly endorsed for transfer) to the Company upon tender by the
Company of the purchase price for such Investor Shares by a wire transfer to
that account of the Investor that account of the Investor. In the event the
Company fails to consummate the purchase of such Investor Shares in accordance
with this Section 5B, the Majority Shareholder and the other Stockholders shall
cause the Company to reconstitute the Board, such that the Company shall
nominate two directors, and the Investor shall nominate three directors. The
Company shall provide at least thirty (30) days written notice to the Investor
prior to a Capital Transaction or an Initial Public Offering.
5C. Certain Limitations on Transfer. Except for (i) an Exempt Transfer,
-------------------------------
(ii) upon the sale of the Investor Shares pursuant to the registration of the
Investor Shares under the Securities Act or a Capital Transaction, or (iii) a
Transfer of the Shares at least three years from the date hereof, in order to
assure that the Company will continue to benefit from the valuable support,
expertise and industry knowledge provided by the Investor, without the prior
written consent of the Majority Shareholder, the Investor shall not Transfer any
Investor Shares to any Person.
5D. First Refusal Rights for Common Stock Issued by the Company.
-----------------------------------------------------------
(i) Except for the issuance of Common Stock in connection with an Exempt
Issuance, if the Company authorizes the issuance and sale to any Person of any
shares of Common Stock or any securities containing options, warrants or rights
to acquire any shares of Common Stock (excluding shares issued in an Exempt
Issuance, other than shares issued in clause (i)(B) of such definition)(the
"First Refusal Securities"), the Company will first offer to sell to the
------------------------
Investor all of the First Refusal Securities (the "First Refusal Amount");
--------------------
provided, however, that the Investor shall have no rights to purchase any First
Refusal Securities pursuant to this Section 5D if, as a result of the Investor's
purchase of such First Refusal Securities, the Investor's Percentage Interest,
together with his Transferees, shall be 45% or more. The Investor will be
entitled to purchase the First Refusal Securities at the same price per share
and on the same terms as the First Refusal Securities are to be offered to such
other Person.
(ii) The Investor must exercise his purchase rights hereunder within 30
days after receipt of written notice from the Company describing in reasonable
detail the First Refusal Securities being offered, the purchase price per share
thereof, the payment terms and such Investor's Percentage Interest and First
Refusal Amount.
(iii) Upon the expiration of the offering periods described above, the
Company will be free to sell such First Refusal Securities which the Investor
has not elected to purchase during the 60 days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to the Investor. Any First Refusal Securities to be offered or sold by
the Company after such 60-day period must be reoffered to the Investor pursuant
to the terms of this Section 5D.
(iv) The parties hereto recognize that from time to time the Company shall
desire to issue First Refusal Securities in connection with the formation of
strategic alliances, acquisitions
<PAGE>
and joint ventures. In this capacity, the Company shall be entitled to request a
written waiver from the Investor of his rights under this Section 5D.
5E. Right of First Offer for Common Stock Transferred by Shareholders.
-----------------------------------------------------------------
(i) Except for a Transfer of shares of capital stock in connection with
an Exempt Transfer, no Shareholder will Transfer any interest in shares of
capital stock, directly or indirectly, without complying with the terms of this
Section 5E. At least 60 days prior to making any Transfer other than an Exempt
Transfer, any Shareholder desiring to Transfer any or all of the shares of
capital stock held by such Shareholder will deliver a written notice (the "Sale
----
Notice") to the Company. The Sale Notice will disclose the terms and conditions
- ------
of the proposed Transfer including the number of shares of capital stock to
be Transferred (the "Offered Securities") and the cash price per share (the
------------------
"Offered Price"). Such Sale Notice shall constitute an offer to sell to the
-------------
Company the Offered Securities at the Offered Price.
(ii) Upon receipt of such Sale Notice from any such Shareholder, the
Company shall be entitled to accept such offer and to purchase all of the
Offered Securities at a purchase price equal to the proposed transfer price. In
the event the Company does not exercise its right to purchase within 30 days
after its receipt of the Sale Notice, such Offered Securities may than be
Transferred to the proposed Transferee at a price not less than the price, and
upon terms no more favorable to the purchaser, than those stated in the Sale
Notice within the next 30 days following the end of the 30 day offering period.
Any shares to be offered or sold by the Shareholder after such 60-day period
must be reoffered to the Company pursuant to the terms of this Section 5E.
(iii) If any Shareholder proposes to sell or otherwise transfer any of his
interest in the Offered Securities pursuant to this Section 5E, such Shareholder
shall cause any proposed Transferee (including without limitation any Transferee
receiving such shares in an Exempt Transfer) to agree as a condition to such
Transfer to be bound by the provisions of this Agreement and such Transferee
shall enter into such agreement as the Company requests in order to give effect
to this undertaking.
6. Representations and Warranties. The Company represents and warrants to
------------------------------
the Investor that:
6A. Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
California and is qualified to do business in every jurisdiction in which the
failure to so qualify might reasonably be expected to have a Material Adverse
Effect. The Company has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and to carry
out the transactions contemplated by this Agreement to be performed by it.
6B. Capital Stock and Related Matters with Respect to the Company.
-------------------------------------------------------------
Schedule 6B attached hereto sets forth the capitalization of the Company as of
- -----------
the Closing and immediately thereafter. Other than as set forth in Schedule 6B,
-----------
the Company will not have outstanding any other stock or securities convertible
into or exchangeable for any shares of its capital stock, nor will it have
outstanding any rights or warrants to subscribe for or to purchase its capital
stock or
<PAGE>
any stock or securities convertible into or exchangeable for its capital stock.
Other than as set forth in this Agreement, the Company will not be subject to
any obligation to repurchase or otherwise acquire or retire any shares of its
capital stock.
6C. Subsidiaries of the Company. The Company does not have any
---------------------------
subsidiaries. The Company does not own or hold directly or indirectly any rights
to acquire any shares of stock or any other equity security or interest in any
other Person.
6D. Authorization; No Breach. The execution, delivery and performance of
------------------------
the Transaction Documents have been duly authorized by the Company. The
Transaction Documents each constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditor's rights and by general principles of equity. The execution,
delivery and performance by the Company of the Transaction Documents and the
consummation of the other transactions contemplated by this Agreement to be
performed by the Company do not and will not (i) constitute a violation of the
Articles of Incorporation or By-laws, (ii) conflict with, result in the breach
of, or constitute a default under, any of the Transaction Documents or any
agreement which is material to the Company to which or by which the Company is a
party or to which any of its properties or assets are subject, (iii) require the
authorization, consent, permit or approval of, or declaration to or filing with,
any court, regulatory or public body or governmental authority not already
obtained or made, or (iv) result in the creation of any lien, security interest,
charge or encumbrance upon the capital stock or assets of the Company other than
as expressly assumed or imposed hereby or thereby.
6E. Issuance of Shares and Warrant. At the Closing, the Investor will
------------------------------
acquire good and marketable title to the Shares, and upon the conversion of the
Warrant will acquire good and marketable title to the Warrant Shares, free and
clear of all liens, charges, encumbrances and restrictions except for
restrictions on transfer under applicable securities laws and pursuant to this
Agreement.
6F. Financial Statements. The Company has provided to the Investor true
--------------------
and complete copies of (i) the balance sheet for the Company as of July 31, 1998
and the statements of income for the Company for year ended June 30, 1998 and
for the one-month period ended June 30, 1998 (the "Financial Statements"). The
--------------------
Financial Statements have been prepared in conformity with the Company's
accounting principles, consistent with past practice, and fairly present, in all
material respects, the financial position of the Company as of such dates and
the results of operations and cash flows of the Company for such periods then
ended. Since the date of the Financial Statements, there exists no facts or
circumstances which, to the knowledge of the Company, materially and adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company.
6G. Litigation. There are no actions or claims pending, or to the
----------
Company's knowledge threatened, against the Company or its properties or assets,
at law or in equity or before or by any governmental department, commission,
board, bureau, agency or instrumentality.
<PAGE>
6H. Compliance with Laws. The Company is not in violation of any law or
--------------------
any regulation or requirement which violation might reasonably be expected to
have a Material Adverse Effect.
6I. Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement which are for the account of the Company.
6J. Personal Property. The Company has good title to all of its
-----------------
properties, assets and other rights that do not constitute real property, free
and clear of all liens and encumbrances. The Company owns, or has valid
leasehold interests in or valid contractual rights to use, all of the assets,
tangible and intangible, used by, or necessary for the conduct of the business
of, the Company.
6K. Real Property. Schedule 6K lists all real property owned or leased by
------------- -----------
the Company and describes all such property on which the Company has given a
mortgage. The Company enjoys peaceful and undisturbed possession under all
leases to which it is a party or under which it is operating. All such leases
are valid and subsisting an no default by the Company exists under any of them.
6L. Taxes. The Company has filed all material tax returns which are
-----
required to be filed and has paid all taxes required to be paid in respect of
all periods for which returns have been filed or are due (whether or not shown
as being due on any tax return).
6M. Veracity of Statements. Neither this Agreement nor the representations
----------------------
and warranties by the Company contained herein or in any documents, instruments,
certificates or schedules furnished pursuant hereto or in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements or facts
contained herein and therein not misleading. There is no fact which has a
material effect, or in the future may have a material adverse effect (to the
knowledge of the Company) on the business, operations, affairs, condition or
prospects of the Company, its assets or its business, which has not been set
forth in this Agreement.
6N. Fully Paid and Non-Assessable. The Shares, the shares of Common Stock
-----------------------------
issuable upon conversion of the Shares and the Warrants, when issued and
delivered, will be duly and validly authorized and issued, fully paid and
non-assessable and will not subject the holders thereof to any liability at the
time of such issuance by reason of being such holders.
6O. No Default. The Company is not in default, in any material respect, in
----------
the performance or observance of any material agreement, indenture, mortgage,
deed of trust or other material instrument of which it is a party or by which it
or its property is bound.
6P. Issuance of Common Stock. All shares of Common Stock which may be
------------------------
issued in connection with the conversion of the Shares will, upon issuance by
the Company, be validly issued, fully paid and non-assessable and free from all
taxes, liens or charges with respect thereto, and will not be subject to any
sinking fund provision. The Company shall pay any and all documentary stamp or
similar issue or transfer taxes that may be payable in respect of any
<PAGE>
issue or delivery of shares of Common Stock on conversion of the Shares. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that in which the Shares so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such transfer has paid to the Company the amount of any such
tax or has established to the satisfaction of the Company that such tax has been
paid or that no such tax is payable. The Company shall adjust the amount of
dividends paid or accrued so as to indemnify the Investor against any
withholding or similar tax in respect of such dividends.
7. Additional Agreements.
---------------------
7A. Election of Directors.
---------------------
(i) Subject to Sections 5B, each Stockholder agrees that in all elections
of directors of the Company such Stockholder will vote all shares for which it
has voting power (x) for the maintaining of a number of directors equal to four
and (y) for the election of a slate of directors so that at all times four
directors shall be designated by the Company, provided, however, that if the
Investor gives the Company notice of his desire to designate an additional
director to the Board, including a statement whether such director will act as
Chairman of the Board, each Stockholder will vote all shares for which it has
voting power (x) for the maintaining of a number of directors equal to five and
(y) for the election of a slate of directors so that at all times four directors
shall be designated by the Company and one director shall be designated by the
Investor and shall act as Chairman of the Board. The Shareholders agree that the
initial directors shall be those set forth in the Schedule of Directors attached
hereto.
(ii) In the event that the Company or the Investor desires to remove one
or more of the directors appointed by it, each of the other Stockholders will
vote all shares for which it has voting power at any meeting of stockholders of
the Company, or will execute a written consent in lieu thereof, in favor of such
removal.
(iii) Upon the approval by Bohan and the Investor, each Stockholder agrees
to elect two additional directors to the Board, one of which is nominated by
Bohan and the other which is nominated by the Investor.
(iv) For as long as the Investor's Percentage Interest is not less than 8%
(provided that the decrease in the Investor's Percentage Interest is not due to
an Exempt Issuance), (i) the Investor or his designee shall have the right to
attend all meetings of the Board, (ii) receive all notices and other
correspondence and communications sent by the Company to members of its Board,
and (iii) receive compensation equal to the entitlement of other non-officer
directors, provided that the Investor (or his designee) is a director on the
Board.
(v) No director of the Company shall be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or (iii) for any transaction from which the director derived an improper
personal benefit. The Company shall indemnify and hold the Investor (or his
designee) harmless against any and
<PAGE>
all actions, claims, damages and losses arising solely out of the Investor's (or
his designee's) performance as a director of the Company, provided such losses
are not caused by, result from or arise out of actions described in clauses (i),
(ii) or (iii) of the preceding sentence. In addition, any indemnification
payments shall be reduced by any payment actually made to the Investor (or his
designee) under a valid and collectible insurance policy.
7B. Indemnification by the Company for Breaches. The Company hereby agrees
-------------------------------------------
to defend, indemnify and hold harmless the Investor from and against any and all
losses arising out of (a) any breach of a representation or warranty hereunder
on the part of the Company or (b) any failure by the Company to perform or
otherwise fulfill any undertaking or other agreement or obligation hereunder.
7C. Indemnification by the Investor for Breaches. The Investor hereby
--------------------------------------------
agrees to defend, indemnify and hold harmless the Company from and against any
and all losses arising out of (a) any breach of a representation or warranty
hereunder on the part of the Investor or (b) any failure by the Investor to
perform or otherwise fulfill any undertaking or agreement or obligation
hereunder.
7D. Sale of the Company (Drag Along). If the Company desires to cause the
--------------------------------
sale to a prospective non-Affiliate purchaser (the "Company Purchaser"), whether
-----------------
pursuant to a merger or otherwise, of all of the outstanding shares of the
Company pursuant to a bona fide offer from the Company Purchaser, the Company
shall notify each Shareholder in writing of such offer and its terms and
conditions, provided that the purchase price is greater than the Stated Value,
plus the accrued and unpaid dividends on the Shares. Each Shareholder and each
Transferee of such Shareholder, within 15 days of the receipt of such notice (or
such longer period of time as the Company shall designate in such notice), shall
cause all of his or its Equity Securities to be sold to the Company Purchaser on
the same terms and conditions as the shares being sold by the Company to the
Company Purchaser.
7E. Right to Sell (Tag Along). If, at any time, pursuant to a bona fide
-------------------------
offer by a prospective non-Affiliate purchaser (the "Buyer"), the Company
-----
desires to cause the sale of such number of shares so that after giving effect
to the transaction such Buyer would own at least 51% of the outstanding shares,
the Company shall (i) prior to the acceptance by it of such offer, give notice
to the Buyer of the provisions of this Section 7E, (ii) (A) require, pursuant to
the terms of any agreement, instrument or other document effecting such sale to
the Buyer, that the Buyer offer to purchase all of the shares held by each
Shareholder and each Transferee, or (B) condition its acceptance of such offer
on the receipt of an agreement of the Buyer to offer to purchase all of the
shares held by each Shareholder and each Transferee on the same terms and
conditions as are applicable to the sale of the shares by the Company to the
Buyer, and (iii) notify each Shareholder in writing of such offer and its terms
and conditions. Each Shareholder and each Transferee of such Shareholder, within
the Tag Along Notice Period (as defined below) may, at his or its Warrant, cause
all of his or its shares to be sold to the Buyer on terms and conditions set
forth in such notice. As used herein, the term "Tag Along Notice Period" shall
-----------------------
mean 30 days after the receipt of the notice described in clause (iii) above (or
such longer period of time as the Company shall designate in such notice).
<PAGE>
7F. Exercise of Voting Rights. Each party hereto shall take all necessary
-------------------------
acts and will use its best efforts in order to have all the Company's corporate
resolutions that may be necessary to implement and give effect to the provisions
contained herein approved as soon as possible after having been so requested by
the other party, by, inter alia, attending the Company's validly called
Shareholders' and Board of Directors' meetings and voting in favor of the
necessary resolutions.
7G. Non-competition. For purposes of this Section 7G, "Relevant Period"
--------------- ---------------
with respect to each Shareholder shall mean a period commencing on the date
hereof and ending on the date three years following the date on which such
Shareholder ceases to be an employee, director or officer of the Company
(unless, in the case of an employee, such employee was terminated without
"cause" in which case the Relevant Period shall end on the date on which such
employee was terminated). During the Relevant Period each Shareholder shall not
in any way, directly or indirectly (i) own, manage, operate, control, hold an
interest (in the case of a publicly traded (listed) company an interest of 5% or
more of the voting capital of such company) in or actively participate in as a
director, officer, employee or shareholder, or in any other capacity (including
as a consultant) in (A) any enterprise which primarily engages in the business
of internet advertising sales representation (i.e., Double Click and 24/7 Media)
or (B) the internet advertising sales representation division of another
enterprise, provided, however, that nothing contained in clause (B) herein shall
prevent any Shareholder from working for such enterprise in any capacity other
than internet advertising sales representation, in each case in any market where
the Company is doing business in competition with the Company or (ii) solicit
for employment, employ or hire any employee of the Company or any person who was
an employee of the Company within the twelve months prior to such solicitation,
employment or hiring. The restrictions of this Section 7G shall terminate upon a
Capital Transaction or the sale of all the outstanding shares of Common Stock to
a non-Affiliate third party. For purposes hereof, "cause" shall mean a breach of
any employment agreement with the Company or any other duty to the Company,
dishonesty, fraud or failure to abide by any published ethical standards or
other policies of the Company. This Section 7G shall not apply to the Investor.
7H. Confidentiality.
---------------
(i) Each Shareholder and the Company hereby undertakes to the other,
except as required by Applicable Law or regulations of any stock exchange, not
to divulge or otherwise disclose to any third party, except its Affiliates,
representatives, employers or advisors, any information concerning this
Agreement, except that the Investor may disclose such investment and his
directorship to CBS, Inc. or its Affiliates. Each Shareholder agrees that it
will impose the same obligations as now mentioned upon any Affiliate and any
Transferee to which this Agreement has been disclosed.
(ii) Each party hereto acknowledges that it will receive confidential
information ("Confidential Information") from each other in connection with this
------------------------
Agreement, and with the ongoing business of the Company. It is further agreed
that the parties hereto will hold such Confidential Information in the same
confidence as they maintain their own information and that they will use the
Confidential Information solely for purposes of the matters contemplated herein,
except as otherwise required by Applicable Law. Confidential Information shall
be
<PAGE>
identified as confidential at the time of its disclosure. Information is not
confidential if it is (a) published or otherwise made publicly available other
than by the parties hereto, or (b) rightfully received from a third party not
subject to a confidentiality obligation.
(iii) The confidentiality obligations identified herein shall remain
binding for three years following the termination of this Agreement.
(iv) Other than as required by Applicable Law or the regulations of any
applicable stock exchange, each of the parties hereto shall refrain from making
any sort of public announcements, press releases or interviews with regard to
their collaboration and with regard to the actions contemplated herein, unless
the other party has consented in writing to such public announcements, press
releases or interviews, both in respect of the contents of the information and
the media.
(v) Upon termination of this Agreement, all Confidential Information
provided by any party hereto to the other parties shall be returned to it.
7I. Access to Information. The Company agrees that until the earlier of
---------------------
(i) an Initial Public Offering or (ii) the date on which the Investor's
Percentage Interest is less than 8% (provided that the decrease in the
Investor's Percentage Interest is not due to an Exempt Issuance), the Investor
shall have reasonable access to the premises, books, records and business
affairs of the Company during regular business hours and with reasonable prior
notice. The Investor will hold and will cause its representatives to hold in
strict confidence all documents and information concerning the Company furnished
to the Investor and all documents and information.
7J. Liability Insurance. The Company shall obtain and maintain
-------------------
directors' and officers' liability insurance in an amount not less than
$10,000,000, as long as the Investor is a director of the Company.
8. Registration Rights of Investor. The Investor shall have the
-------------------------------
following registration rights:
8A. Piggyback Registration.
----------------------
(i) Right to Piggyback. If the Company at any time proposes to register
------------------
any securities under the Securities Act (other than registrations on Form S-4 or
S-8 or the equivalent thereof) with respect to an underwritten public offering
or otherwise and the form of Registration Statement to be used may be used for
the registration of Registrable Securities, the Company will give prompt written
notice to the Investor of its intent to do so. Within 20 days after receipt of
such notice, the Investor may, by written notice to the Company, request the
registration by the Company under the Securities Act of his Registrable
Securities in connection with such proposed registration by the Company under
the Securities Act (a "Piggyback Registration"). Such written notice to the
----------------------
Company shall specify the Registrable Securities intended to be disposed of by
such Investor and the intended method of distribution thereof. Upon receipt of
such request, the Company will use its best efforts to register under the
Securities Act all Registrable Securities
<PAGE>
which the Company has been so requested to register, to the extent required to
permit the disposition of the Registrable Securities so to be registered;
provided, however, that if at any time after giving notice of its intent to
- -------- -------
register securities and before the effective date of the Registration Statement
filed in connection with such Piggyback Registration, the Company determines for
any reason not to register or to delay registration of such securities, the
Company may, at its election, give notice of such determination to the Investor
requesting such Piggyback Registration, and, thereupon, (a) in the case of a
determination not to register, the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration (but not from its obligation to pay registration expenses pursuant
to Section 8C hereof) without prejudice, however, to the rights of the Investor
under this Section 8A, and (b) in the case of a determination to delay
registering, the Company may delay registering any Registrable Securities for
the same period as the delay in registering such other securities.
(ii) Selection of Underwriters. The underwriters of any offering pursuant
-------------------------
to a Piggyback Registration shall be one or more nationally-recognized
investment banking firms selected by the Company.
(iii) Priority in Piggyback Registrations. If the managing underwriter
-----------------------------------
informs the Company in writing of its judgment that including the Registrable
Securities in the Piggyback Registration creates a substantial risk that the
proceeds or price per unit to be received from such offering might be reduced or
that the number of Registrable Securities to be registered is too large to be
reasonably sold, then the Company will include in such Piggyback Registration,
to the extent of the number of shares which the Company is so advised that can
be sold in such offering: first, all securities proposed by the Company to be
sold for its own account; and second, such Registrable Securities requested by
the Investor to be included in such Piggyback Registration.
(iv) Termination of Piggyback Rights. The provisions set forth in this
-------------------------------
Section 8A shall terminate on the date in which the Investor's Percentage
Interest is less than 8% (provided that the decrease in the Investor's
Percentage Interest is not due to an Exempt Issuance).
8B. Registration Procedures.
-----------------------
(i) Company Covenants. Whenever the Company is hereunder required to use
-----------------
its best efforts to effect the registration under the Securities Act of any
Registrable Securities as provided in Section 8A, the Company will:
(a) prepare and file with the Commission not later than ninety (90)
days of the request therefor the requisite Registration Statement to effect
such registration and thereafter use its best efforts to cause such
Registration Statement to become effective, provided that the Company may
discontinue any registration of its securities which are not Registrable
Securities (and, under the circumstances specified in Section 8A, its
securities which are Registrable Securities) at any time prior to the
effective date of the Registration Statement relating thereto;
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith 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 until, in the case of any Piggyback
Registration, the earlier of (1) such time as all such securities have been
disposed of in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement and (2) the
expiration of nine months from the date such Registration Statement first
becomes effective), at which time the Company shall have the right to
deregister any of such securities which remain unsold;
(c) furnish to each seller of Registrable Securities covered by such
Registration Statement such number of conformed copies of the Registration
Statement, and of each amendment and supplement thereto, such number of
copies of the prospectus contained in such Registration Statement and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request;
(d) use its best efforts to register or qualify all securities
covered by such Registration Statement under such other securities or blue
sky laws of jurisdictions as each seller thereof shall reasonably request,
to keep such registration or qualification in effect for so long as the
Registration Statement remains in effect, and to take any other action
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be
required to (a) qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not be obligated to be so qualified
but for the requirements of this subsection; (b) subject itself to taxation
in any such jurisdiction; or (c) consent to general service of process in
any such jurisdiction;
(e) at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, notify each seller of Registrable
Securities covered by such Registration Statement promptly after the
Company discovers that 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 under which they were made,and at the request of any such
seller promptly prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(f) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and
<PAGE>
(g) use its best efforts to list all Registrable Securities covered
by such Registration Statement on a securities exchange or inter-dealer
quotation system on which similar securities issued by the Company are then
listed or quoted (and, if no such securities are then listed or quoted, on
each securities exchange and inter-dealer quotation system requested by the
selling Investor and consented to by the Company (which consent shall not
be unreasonably withheld)), and shall take any other action necessary or
advisable to facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
request. Any Person participating in any Piggyback Registration must, in the
case of an underwritten offering, (a) agree to sell their securities on the
basis provided in the underwriting agreement and (b) complete and execute all
documents required under this Agreement or the underwriting agreement.
Each holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
subsection (e) of this Section 8B(i), such holder will discontinue immediately
such holder's disposition of securities pursuant to the Registration Statement
until such holder receives copies of the supplemented or amended prospectus
contemplated by such subsection (e) and, if so directed by the Company, will
deliver to the Company all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
(ii) Underwriting Agreements. In the case of an underwritten offering, the
-----------------------
Company will enter into an underwriting agreement with the underwriters for any
offering pursuant to a Piggyback Registration if requested by the underwriters
so to do. The underwriting agreement will contain such representations and
warranties by the Company and such other terms as are generally prevailing at
such time in underwriting agreements. The holders of Registrable Securities to
be distributed by the underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations, warranties, and other agreements by the Company to and for the
benefit of the underwriters also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities.
(iii) Holdback Agreement. The Company agrees not to effect any public sale
------------------
or distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven days
prior to and the 120 days after any Piggyback Registration for an underwritten
offering has become effective, except as part of such Piggyback Registration, as
the case may be, and except pursuant to registrations on Form S-4, S-8 or any
successor or similar forms thereto.
(iv) Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each Registration Statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities to be registered under such Registration Statement, the underwriters
and their respective counsel and accountants, the opportunity to
<PAGE>
participate in preparing the Registration Statement. The Company will also give
each of such Persons such access to its books and records and opportunities to
discuss the business of the Company with the Company's officers and independent
public accountants who have certified the Company's financial statements as
shall, in the opinion of such holders' and such underwriters' receptive counsel,
be necessary to conduct a reasonable investigation within the meaning of the
Securities Act.
8C. Registration Expenses. The Company will bear all expenses incident to
---------------------
the Company's performance of or compliance with Section 8 of this Agreement,
including, without limitation, all registration, filing and NASD fees, all
securities and blue sky compliance fees and expenses, all word processing
expenses, duplicating expenses, printing expenses, engraving expenses, messenger
and delivery expenses, all Company general and administrative expenses, all
Company counsel and accountants fees and disbursements, all special audit,
financial statement and reconstruction costs, all comfort letter costs, all
underwriter fees and disbursements customarily paid by issuers or sellers of
securities (including fees paid to a "qualified independent underwriter"
required by the rules of the NASD in connection with a distribution), all "road
show" expenses and allocations and the expense for other Persons retained by the
Company ("Registration Expenses"), but excluding discounts, commissions or fees
---------------------
of underwriters, selling brokers, dealer managers, sales agents or similar
securities industry professionals relating to the distribution of Registrable
Securities and applicable transfer taxes, if any, which shall be borne by the
sellers of the Registrable Securities being registered in all cases.
8D. Indemnification.
---------------
(i) Indemnification by the Company. In the event of any Piggyback
------------------------------
Registration of any Registrable Securities under the Securities Act, the Company
shall, and hereby does, indemnify and hold harmless each seller of any
Registrable Securities covered by the Registration Statement with respect
thereto, such seller's partners, directors and officers, each underwriter
(including any "qualified independent underwriter" required by the rules of the
NASD) of the offering or sale of such securities, and each Person who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities to which such seller, partner, director,
officer, underwriter or controlling Person, as the case may be, may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of material fact contained in the
Registration Statement under which such Registrable Securities were sold or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such indemnified Person for expenses reasonably
incurred by it in connection with defending such loss, claim, damage, liability,
action or proceeding; provided that the Company shall not be liable in any such
case for any losses, claims, damages, liabilities (or actions or proceedings in
respect thereof) or expenses which arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made by
the Company in such Registration Statement in reliance upon information
furnished to the Company by such Person through an instrument duly executed by
such Person specifically stating that it is for use in the preparation thereof;
and provided further that the Company shall not be liable to
<PAGE>
and does not indemnify any underwriter in the offering or sale of Registrable
Securities, or any Person who controls an underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person, if such statement or omission was corrected in such final prospectus.
This indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an indemnified party, and shall survive
the transfer of such Registrable Securities by the seller thereof.
(ii) Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any Registration Statement,
that the Company receive an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subsection (i) of this
Section 8D) the Company, its directors, its officers, and each other Person who
controls the Company within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or alleged omission from such
Registration Statement, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation of such
Registration Statement. The prospective sellers' obligation to indemnify will be
several, not joint and several, among such sellers and the liability of each
such seller of Registrable Securities shall be in proportion to and limited to
the net amount received by such seller from the sale of Registrable Securities
pursuant to such Registration Statement. This indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company, its directors, officers or controlling Persons, and shall survive the
transfer of such Registrable Securities by the seller thereof.
(iii) Notices of Claims, Etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 8D(i) or (ii), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action. The failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 8D, except to the extent that the indemnifying party is prejudiced by
the failure to give such notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified party and the indemnifying parties
may exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable for any settlement
made by the indemnified party without its consent (which consent will not be
unreasonably withheld) or for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall,
<PAGE>
without the consent of the indemnified party, consent to entry of any judgement
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 a liability in respect to such claim or litigation.
(iv) Other Indemnification. Indemnification similar to that specified in
---------------------
the preceding subdivisions of this Section 8D (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority other than
the Securities Act.
(v) Indemnification Payments. The indemnification required by this Section
------------------------
8D shall be may be periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(vi) Contribution. If the indemnification provided for in this Agreement is
------------
for any reason unavailable or insufficient to indemnify an indemnified party
under Section 8D(i), (ii) or (iv) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, or referred to therein, then
each indemnifying party shall, in lieu of indemnifying such party contribute to
the amount payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, in a proportion which
reflects the relative fault with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, on the one hand of the Company and on the other hand of the holders of
the Registrable Securities included in the offering, as well as any other
relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact of or material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by the holders of the Registrable
Securities; the intent of the parties; he parties' relative knowledge; the
parties' access to information; and the parties' opportunity to correct or
prevent such statement or omission. The Company and the Stockholder agree that
it would not be just and equitable if contribution pursuant to this Section 8D
is determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to in this
Section 8D(vi) shall be deemed to include, for purposes of this Section 8D(vi),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of "fraudulent misrepresentation" within the meaning of Section 11 of
the Securities Act shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. Definitions. For the purposes of this Agreement, the following terms
-----------
have the meaning set forth below:
<PAGE>
"Affiliate" of any Person means a Person which directly or indirectly
---------
through one or more intermediaries controls, or is controlled by, or is under
common control with, such first Person.
"Applicable Law" means, with respect to any Person, all provisions
--------------
applicable to such Person of all (i) constitutions, statutes, orders, rules and
regulations of governmental bodies, (ii) decisions, decrees, judgments and
orders of courts and arbitrators and (iii) governmental approvals, permits,
consents, exemptions and licenses.
"Bohan" refers to John Bohan, in his capacity as a Shareholder of the
-----
Company.
"Business Day" means a day of the year on which commercial banks are not
------------
required or authorized to close in New York, New York.
"Commission" means the United States Securities and Exchange Commission and
----------
any governmental body or agency succeeding to the functions thereof.
"Common Stock" means common stock, par value $0.01 per share, of the
------------
Company.
"Common Stock Equivalents" means all securities convertible into or
------------------------
exchangeable for, and all warrants, options and other rights exercisable for,
shares of Common Stock.
"Equity Securities" means shares of capital stock, securities convertible
-----------------
into or exchangeable for, and Warrants, rights and warrants to purchase, capital
stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
-----------
any similar federal law then in force.
"Exempt Issuance" shall mean (i) the issuance of shares of Common Stock or
---------------
any securities convertible into or exercisable for shares of Common Stock in
connection with (A) an Initial Public Offering or (B) a private placement in
which such shares are sold for not less than $25.00 per share, (ii) the issuance
of shares of Common Stock pursuant to the conversion of outstanding Warrants,
options or the Stock Options, (iii) the issuance of the Stock Options described
in Section 5A, (iv) other issuances of shares of Common Stock which are approved
by the Investor and (v) and any other issuance of Equity Securities as expressly
provided by this Agreement.
"Exempt Transfer" shall mean the Transfer of Equity Securities by any
---------------
Shareholder to his wife, his lineal descendants or an Affiliate.
"Initial Public Offering" means the closing of an underwritten public
-----------------------
offering of Common Stock registered with the Commission under the Securities
Act.
"Investors Shares" means the aggregate of all shares of Preferred Stock,
----------------
Common Stock and securities convertible into or exercisable for shares of Common
Stock, owned by the Investor and his Affiliates.
<PAGE>
"Majority Shareholder" means the Shareholder having a Percentage Interest
-------------------
equal to or greater than 51%.
"Material Adverse Effect" means a material adverse effect on the financial
-----------------------
condition, assets, results of operation, business or business prospects of the
Company and its Subsidiaries, if any, taken as a whole.
"NASD" means the National Association of Securities Dealers, Inc. and any
----
successor organization.
"Percentage Interest" means, with respect to any Stockholder, the
-------------------
percentage obtained by dividing the number of shares of Common Stock and shares
underlying Common Stock Equivalents owned by such Stockholder by the total
number of shares of Common Stock and shares underlying Common Stock Equivalents
outstanding.
"Person" shall mean an individual, a partnership, a corporation, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Stock" means preferred stock, par value $0.01 per share, of the
---------------
Company.
"Registrable Securities" means shares of Common Stock, including shares of
----------------------
Common Stock issuable upon the conversion of the Shares or the exercise of the
Warrant, which are owned by any Stockholder and have not ceased to be Restricted
Securities; provided that any shares of Common Stock which cease to be
Restricted Securities solely because they have become eligible for transfer
pursuant to Rule 144 (or any similar rule then in force) will not cease to be
Registrable Securities until they have actually been sold to the public in
compliance with Rule 144 (or any similar rule then in force).
"Registration Statement" means a registration statement provided for in
----------------------
Section 5 of the Securities Act under which securities are registered under the
Securities Act, together with any preliminary, final or summary prospectus
contained therein, any amendment or supplement thereto, and any document
incorporated by reference therein.
"Restricted Securities" means (i) the Investor Shares issued as
---------------------
contemplated hereby or other shares of Common Stock outstanding on or prior to
the Closing, and (ii) any securities issued with respect to the Common Stock
referred to in (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities will cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (b) become eligible for sale
pursuant to Rule 144 without restriction on volume or manner as provided in Rule
144(k) (or any similar provision then in force) under the Securities Act.
"Rule 144A" means 144A promulgated under the Securities Act, or any similar
---------
federal rule then in force.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Stated Value" means $1,000 per share of Preferred Stock, provided that, if
------------
such shares of Preferred Stock have been converted to shares of Common Stock,
the Stated Value shall be $8 per share of Common Stock.
"Stockholders" or "Shareholders" means the Investor and any other holders
------------------------------
of the Company's capital stock which from time to time agree to be bound by and
subject to the terms of this Agreement.
"Total Company Shares" means, on the Closing, the total number of shares of
--------------------
Common Stock issued and outstanding on the Closing Date, plus the shares of
Common Stock to be issued to the Investor upon the conversion of the Preferred
Stock, plus the shares of Common Stock to be issued to the Investor pursuant to
the exercise of the Warrant and any other options or warrants outstanding on the
Closing Date.
"Transfer" means any sale, assignment, mortgage, pledge, gift or other
--------
transfer or disposal, whether effected directly or indirectly.
10. Miscellaneous.
-------------
10A. Expenses. The Company and the Investor will bear their own expenses in
--------
connection with the preparation, negotiation, execution, delivery and
performance of this Agreement and the transactions and documents contemplated
herein; provided that the Company shall reimburse the Investor for all
--------
reasonable expenses incurred subsequent to the Closing and relating solely to
the Investor's actions taken on behalf of the Company; and further provided that
------- --------
the Investor receives the prior consent of Bohan for any individual expenditure
greater than $750.
10B. Stockholder's Representations. Each Stockholder hereby severally
-----------------------------
represents and warrants that (a) it has the power and authority and has taken
all action necessary to execute and deliver this Agreement and any other
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby and (b) this Agreement and any other Transaction
Document to which it is a party have been duly and validly executed and
delivered by it and are enforceable against it in accordance with their
respective terms, except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditor's rights
and by general principles of equity.
10C. Investor's Representations. The Investor hereby represents that he is
--------------------------
an "accredited investor" as defined in Regulation D under the Securities Act,
that he will not cause the Company to be disqualified from Regulation D under
the Securities Act, and that he is acquiring the Restricted Securities purchased
for his own account with the present intention of holding such securities for
purposes of investment, and that he has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws. The Investor represents that he is a resident
of the State of New York. Each
<PAGE>
certificate for Restricted Securities will be imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE ISSUER (THE "COMPANY") RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF
THE SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO
SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK PURCHASE AND STOCKHOLDERS
AGREEMENT AMONG THE COMPANY AND CERTAIN INVESTORS (THE "AGREEMENT") AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF THE
AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
10D. Term of Agreement
-----------------
(i) This Agreement shall have an initial term ending on the tenth
anniversary of the date hereof (with the exception of the Investor's rights
under Section 5B), which term shall be automatically renewed for successive
periods of five years thereafter unless notice of non-renewal is given by a
party hereto at least six months prior to any such renewal date in which case
this Agreement shall terminate with respect to such party on such renewal date.
This Agreement shall also terminate with respect to any Shareholder at the time
that such Shareholder and its Transferees cease to hold any legal or beneficial
interest in the Company, such termination being without prejudice to the rights
of the parties hereto in respect of any breach of the terms of this Agreement
occurring prior to such early termination.
(ii) This Agreement may also be terminated by any Shareholder with respect
to the Company or by the Company with respect to any Shareholder in the event
that a declaration or bankruptcy or an application for the suspension of
payments of the Company or such Shareholder, as the case may be, is filed with
the Courts, or if the Company or such Shareholder, as the case may be, makes a
composition with its creditors or otherwise is found to be insolvent, provided
that such termination shall be without prejudice to the put Warrant granted
hereunder. This early termination shall be made through a written notice served
on the Company or such Shareholder, as the case may be.
<PAGE>
10D. Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended and any provision hereof may be waived, only if such amendment or waiver
is set forth in writing executed by the Company and the Investor.
10E. Assignment; Entire Agreement. All of the provisions hereof bind and
-----------------------------
benefit the parties hereto. Neither this Agreement nor any of the rights,
interests or obligations hereunder can be assigned except as provided herein.
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
10F. Survival of Representation and Warranties. All representations and
-----------------------------------------
warranties made by the Company and the Investor in Section 10 (except for
Section 10F) and Sections 6A, 6C, 6F, 6G, 6H, 6I, 6J, 6K, 6M and 6O) shall
survive the closing and continue in full force and effect for a period of two
years from the Closing Date. All representations and warranties made by the
Company in Sections 6L and 6P shall survive the Closing until six months after
the expiration of the relevant statute of limitations (including any extensions
thereof). All other representations and warranties including those made in
Sections 10F, 6B, 6D and 6E shall survive the Closing and shall continue in full
force and effect without limits as to time.
10G. Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, and whether or not any express assignment has been made, except as
otherwise expressly provided herein, the provisions of this Agreement which bind
and inure to the benefit of any Stockholder will also bind and inure to the
benefit of, and be enforceable against and by, any subsequent holder of capital
stock, provided such subsequent holder has executed and delivered to the Company
its agreement to be bound by the terms of this Agreement. Furthermore, each
Stockholder agrees that, prior to any transfer of Common Stock by it, except for
transfers pursuant to a registered public offering or pursuant to Rule 144 under
the Securities Act, it shall obtain and cause to be delivered to the Company the
proposed transferees' written agreement, in form and substance reasonably
satisfactory to the Company, to be bound by and subject to the provisions
hereof.
10H. Governing Law. All questions concerning the construction, validity and
-------------
interpretation of this Agreement and the Exhibits and Schedules hereto will,
pursuant to New York General Obligations Law Section 5-1401, be governed by the
law of the State of New York.
10I. Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under Applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under Application Law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
10J. Descriptive Headings and Construction. The descriptive headings of
-------------------------------------
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
<PAGE>
10K. Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent by telecopy, to the recipient. Such notices, demands and other
communications will be sent at the addresses indicated below:
If to the Company:
AdNet Strategies, Inc.
5959 West Century Boulevard
Los Angeles, CA 90045
Attention: John Bohan
If to the Investor:
William Apfelbaum
c/o T.D.I.
275 Madison Avenue
New York, New York 10016
with a copy to:
Geoffry Handler
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
Any party may change its address for the purpose of notice by giving notice in
accordance with the provisions of this Section 10K.
10L. Performance During Breach. If any party to this Agreement breaches an
-------------------------
obligation to deliver money or securities in accordance with this Agreement, the
other parties hereto, if not otherwise in default of this Agreement, shall not
be required to perform their respective obligations to the defaulting party
under this Agreement until the default is cured. This right shall be in addition
to any other rights a non-defaulting party is entitled to under this Agreement
or at law.
10M. Third Party Beneficiaries. The parties hereto agree that this
-------------------------
Agreement shall not create any third party beneficiaries.
10N. Counterparts. This Agreement may be executed in two or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ADNET STRATEGIES, INC.
By: /s/ John Bohan
-------------------------
John Bohan
President
STOCKHOLDERS
------------
/s/ John Bohan
----------------------------
John Bohan
/s/ Christopher Cardinal
----------------------------
Christopher Cardinal
/s/ Mark Roah
----------------------------
Mark Roah
/s/ Frank Addante
----------------------------
Frank Addante
/s/ Neal Weinberg
----------------------------
Neal Weinberg
____________________________
Todd Taplin
/s/ William Apfelbaum
----------------------------
William Apfelbaum
<PAGE>
LATITUDE 90, INC.
REGISTRATION AGREEMENT
----------------------
THIS AGREEMENT is made as of August 6, 1999, among Latitude 90, Inc.,
a California corporation (the "Company"), and the purchasers (each an
"Investor," and collectively, the "Investors") of shares of Series B Preferred
Stock of the Company pursuant to the Series B Preferred Stock Purchase Agreement
of even date herewith (the "Purchase Agreement").
The parties to this Agreement are parties to the Purchase Agreement.
In order to induce the Investors to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. Subject to the other provisions
-------------------------
herein, at any time after 270 days after the Company has completed a firm
commitment underwritten initial public offering led by an investment bank with a
national reputation of its Common Stock under the Securities Act (the "Initial
Public Offering"), the holders of at least a majority of the Registrable
Securities may request registration under the Securities Act of all or any
portion of their Registrable Securities on Form S-1 or any similar long-form
registration ("Long-Form Registrations"), and the holders of at least a majority
of the Registrable Securities may request registration under the Securities Act
of all or any portion of their Registrable Securities on Form S-3 ("Short-Form
Registrations") if available. All registrations requested pursuant to this
paragraph 1(a) are referred to herein as "Demand Registrations". Each request
for a Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price range
for such offering. Within ten days after receipt of any such request, the
Company shall give written notice of such requested registration to all other
holders of Registrable Securities and, subject to the terms of paragraph (d)
hereof, shall include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 15 days after the receipt of the Company's notice.
<PAGE>
(b) Long-Form Registrations. The holders of Registrable Securities
-----------------------
shall be entitled to request two (2) Long-Form Registrations in which the
Company shall pay all Registration Expenses (defined below); provided that the
aggregate offering value of the Registrable Securities requested to be
registered in any Long-Form Registration must equal at least $5,000,000. A
registration shall not count as one of the permitted Long-Form Registrations
until it has become effective.
(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to paragraph 1(b), the holders of Registrable
Securities shall be entitled to request an unlimited number of Short-Form
Registrations in which the Company shall pay all Registration Expenses; provided
that the aggregate offering value of the Registrable Securities requested to be
registered in any Short-Form Registration must equal at least $5,000,000. Demand
Registrations shall be Short-Form Registrations whenever the Company is
permitted to use any applicable short form, unless the managing underwriters (if
any) refuse, in good faith, to the use of a Short-Form Registration. After the
Company has become subject to the reporting requirements of the Securities
Exchange Act, the Company shall use its best efforts to make Short-Form
Registrations available for the sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company shall not include
--------------------------------
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company shall include in such registration prior to the inclusion
of any securities which are not Registrable Securities the number of Registrable
Securities requested to be included which in the opinion of such underwriters
can be sold without adversely affecting the marketability of the offering, pro
rata among the respective holders thereof on the basis of the amount of
Registrable Securities owned by each such holder.
(e) Restrictions on Demand Registrations. The Company shall not be
------------------------------------
obligated to effect any Demand Long-Form Registration within 180 days after the
effective date of a previous registration statement for a public offering of its
Common Stock under the Securities Act. The Company may postpone for up to 180
days the filing or the effectiveness of a registration statement for a Demand
Registration if the Company's board of directors determines in its reasonable
good faith judgment that such Demand Registration would reasonably be expected
to have a material adverse effect on any proposal or plan by the Company or any
of its Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided that in such event, the holders
of Registrable Securities initially requesting
2
<PAGE>
such Demand Registration shall be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration shall not count as one of the
permitted Demand Registrations hereunder and the Company shall pay all
Registration Expenses in connection with such registration. The Company may
delay a Demand Registration hereunder only once in any twelve-month period.
(f) Selection of Underwriters. In any Demand Registration, the
-------------------------
Company shall have the right to select the investment banker(s) and manager(s)
to administer the offering.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
------------------
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
shall give prompt written notice (in any event within three business days after
its receipt of notice of any exercise of demand registration rights other than
under this Agreement) to all holders of Registrable Securities of its intention
to effect such a registration and, subject to the terms of paragraphs 2(c) and
2(d) hereof, shall include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 20 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company shall include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, the Registrable
Securities and the other securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities and such
other securities on the basis of the number of shares owned by each such holder.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company shall include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration and (ii) second, the Registrable
Securities and the other securities requested to be included in such
registration, pro rata among the holders of such Registrable
3
<PAGE>
Securities and such other securities on the basis of the number of shares owned
by each such holder.
3. Holdback Agreements.
-------------------
(a) Each holder of Registrable Securities shall not effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to and the 120-day
period beginning on the effective date of the Company's Initial Public Offering
(except for sales of securities as part of such underwritten registered offering
and as permitted under Rule 144(k), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to and during the 120-
day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of at least 5% (on a fully-
diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use commercially reasonable efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use
commercially reasonable efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents shall be subject to the review and comment of such counsel);
4
<PAGE>
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use commercially reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use commercially
reasonable efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange
Commission or, failing that, to secure NASDAQ authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the NASD;
5
<PAGE>
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
reasonable judgment (upon the advice of its counsel), might be deemed to be an
underwriter or a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use commercially reasonable efforts promptly to
obtain the withdrawal of such order.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel
6
<PAGE>
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions which shall be borne pro rata by the
holders of Registrable Securities included in such registration) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), shall be borne as provided in this Agreement, except
that the Company shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees (not exceeding $15,000 for
each registration) and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration.
(c) To the extent Registration Expenses are not required to be paid by
the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing
7
<PAGE>
such information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify shall be individual, not joint
and several, for each holder and shall be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder
8
<PAGE>
of Registrable Securities included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution) or to undertake any indemnification obligations to the Company or
the underwriters with respect thereto, except as otherwise provided in paragraph
6 hereof.
8. Definitions.
-----------
(a) "Registrable Securities" means (i) any Common Stock issued upon
----------------------
conversion of any Series B Preferred Stock issued pursuant to the Purchase
Agreement and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when they
have been (i) distributed to the public pursuant to a offering registered under
the Securities Act, (ii) sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or any similar rule
then in force) or (iii) in the case of securities held by the Investor,
distributed by the Investor to its partners and the Investor, in connection with
such distribution, has notified the Company in writing of its election to
terminate the status of such securities as Registrable Securities. For purposes
of this Agreement, a Person shall be deemed to be a holder of Registrable
Securities, and the Registrable Securities shall be deemed to be in existence,
whenever such Person has the right to acquire directly or indirectly such
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected, and such Person shall be entitled to exercise the
rights of a holder of Registrable Securities hereunder.
(b) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that, in addition to any other rights and
remedies existing in its favor, any party shall be entitled to specific
performance
9
<PAGE>
and/or other injunctive relief from any court of law or equity of competent
jurisdiction (without posting any bond or other security) in order to enforce or
prevent violation of the provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(i) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
Schedule of Investors and to the Company at the address indicated below:
10
<PAGE>
Latitude 90, Inc.
2020 Santa Monica Blvd.
Suite 400
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
(j) Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached as Exhibit G to the Purchase Agreement.
---------
* * * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
LATITUDE 90, INC.
By: /s/ John C. Bohan
______________________________
Name: John C. Bohan
Title:
INVESTORS:
DigaComm, L.L.C.
By: /s/ Peter W. Smith
______________________________
Name: Peter W. Smith
Title: Managing Member
[Signature page to Registration Agreement]
<PAGE>
L90, INC.
SERIES C REGISTRATION AGREEMENT
-------------------------------
THIS AGREEMENT is made as of September 22, 1999, among L90, Inc., a
Delaware corporation (the "Company"), and the purchasers (each an "Investor,"
and collectively, the "Investors") of shares of Series C Preferred Stock of the
Company pursuant to the Series C Preferred Stock Purchase Agreement of even date
herewith (the "Purchase Agreement").
The parties to this Agreement are parties to the Purchase Agreement.
In order to induce the Investors to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
paragraph 8 hereof.
The parties hereto agree as follows:
1. Required Registration at Initial Public Offering. When the
------------------------------------------------
Company files a registration statement (the "Registration Statement") in
connection with a firm commitment underwritten initial public offering of its
Common Stock, led by an investment bank with a national reputation, under the
Securities Act (the "Initial Public Offering"), the Company shall include
therein all of the Registrable Securities so as to allow the Investors to effect
re-sales of their Registrable Securities. Following the effectiveness of the
Registration Statement, the Company may, at any time, suspend the effectiveness
of the Registration Statement for up to 30 days, as appropriate (a "Suspension
Period"), by giving notice to each Investor, if the Company shall have
determined, through the good faith determination of the Board, that the Company
may be required to disclose any material corporate development which disclosure
may have a material adverse effect on the Company. Notwithstanding the
foregoing, no more than two Suspension Periods may occur in any continuous 12-
month period. The period of any such suspension of the Registration Statement
shall be added to the period of time the Company agrees to keep the Registration
Statement effective as provided in Section 4(b). The Company shall use its best
efforts to limit the duration and number of any Suspension Periods. Each
Investor agrees that, upon receipt of any notice from the Company of a
Suspension Period, such Investor shall forthwith discontinue disposition of
Registrable Securities covered by the Registration Statement or prospectus until
such Investor (i) is advised in writing by the Company that the use of the
applicable prospectus may be resumed, (ii) has received copies of a supplemental
or amended prospectus, if applicable, and (iii) has received copies of any
additional or supplemental filings which are incorporated or deemed to be
incorporated by reference in such prospectus.
2. Management of Process; Selection of Underwriters. The Company
------------------------------------------------
shall have the exclusive right to determine when and whether to file the
Registration Statement and shall have
<PAGE>
the exclusive right to select the investment banker(s) and manager(s) to
administer the Initial Public Offering.
3. Holdback Agreements. Notwithstanding that its Registrable Securities
-------------------
are included in the Registration Statement, each Investor agrees that it shall
not effect any sale or distribution or other disposition of equity securities of
the Company, including any Registrable Securities, or any securities convertible
into or exchangeable or exercisable for such equity securities, during the
period beginning the 30 days prior to the filing of the Registration Statement
and ending 180 days after the date of the commencement of the Initial Public
Offering. During the period between 181 days and 270 days after the date of the
commencement of the Initial Public Offering, each Investor may sell up to one-
half ( 1/2) of the Registrable Securities it then holds, and beginning 271 days
after the date of the commencement of the Initial Public Offering, the Investors
may sell all of their Registrable Securities. This holdback covenant is for the
benefit of the Company and the underwriters of the Initial Public Offering, and
may be enforced by any of them, including the seeking and obtaining of equitable
relief. Nothing herein is intended, nor shall be deemed, to negate or affect the
Investors' obligations under the antifraud provisions of applicable federal and
state securities laws.
4. Registration Procedures. In connection with its obligations
-----------------------
hereunder, the Company shall do the following:
(a) before filing the Registration Statement or prospectus therein or
any amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities copies of
all such documents proposed to be filed, which documents shall be subject to the
expeditious review and comment of such counsel with respect to the Investors and
their Registrable Securities;
(b) notify each holder of Registrable Securities of the effectiveness
of the Registration Statement and prepare and file with the Securities and
Exchange Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective for a period of not less than two
years and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by the Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in the Registration Statement; provided that upon the date
that is one year from the Initial Public Offering, the Company may, in its
discretion and so long as it is eligible, amend the Registration Statement to
Form S-3;
(c) furnish to each seller of Registrable Securities such number of
copies of the Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
2
<PAGE>
(d) use commercially reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use commercially
reasonable efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange
Commission or, failing that, to secure NASDAQ authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of the Registration Statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably
3
<PAGE>
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
reasonable judgment (upon the advice of its counsel), might be deemed to be an
underwriter or a controlling person of the Company, to participate in the
preparation of the Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use commercially reasonable efforts promptly to
obtain the withdrawal of such order.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions which shall be borne pro rata by the holders of Registrable
Securities included in such registration) and other Persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne as provided in this Agreement, except that the Company shall, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed or on the NASD automated quotation system.
(b) To the extent Registration Expenses are not required to be paid by
the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any
4
<PAGE>
Registration Expenses not so allocable shall be borne by all sellers of
securities included in such registration in proportion to the aggregate selling
price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in the
Registration Statement, prospectus or preliminary prospectus included therein or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
Registration Statement or prospectus included therein or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with the Registration Statement, each such holder
shall furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with the Registration
Statement or prospectus therein and, to the extent permitted by law, shall
indemnify the Company, its directors and officers and each Person who controls
the Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact contained in the Registration Statement,
prospectus or preliminary prospectus therein or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify shall be individual, not joint
and several, for each holder and shall be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to the
Registration Statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the
5
<PAGE>
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution) or to undertake any indemnification obligations to the Company or
the underwriters with respect thereto, except as otherwise provided in paragraph
6 hereof.
8. Definitions.
-----------
(a) "Registrable Securities" means (i) any Common Stock issued upon
----------------------
conversion of any Series C Preferred Stock or upon exercise of the Warrants
issued pursuant to the Purchase Agreement and (ii) any Common Stock issued or
issuable with respect to the securities referred to in clause (i) above by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when they have been (i) distributed to the public
pursuant to a offering registered under the Securities Act, or (ii) sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person shall be deemed to be a holder of Registrable
Securities, and the Registrable Securities shall be deemed to be in existence,
whenever such Person has the right to acquire directly or indirectly such
Registrable Securities upon conversion.
6
<PAGE>
(b) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that, in addition to any other rights and
remedies existing in its favor, any party shall be entitled to specific
performance and/or other injunctive relief from any court of law or equity of
competent jurisdiction (without posting any bond or other security) in order to
enforce or prevent violation of the provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and permitted assigns of the parties
hereto whether so expressed or not. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company is not the surviving corporation unless the proposed surviving
corporation, prior to the merger, consolidation or reorganization, agrees in
writing to assume the obligations of the Company under this Agreement, and for
that purpose references herein to "Registrable Securities" shall be deemed to be
references to the securities to which holders of Registrable Securities would be
entitled to receive in exchange for Registrable Securities in any such merger,
consolidation or reorganization unless such securities were registered under the
Securities Act in connection with the merger, consolidation or reorganization.
(e) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7
<PAGE>
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(i) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
Schedule of Investors and to the Company at the address indicated below:
L90, Inc.
2020 Santa Monica Blvd., Suite 400
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
(j) Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached as Exhibit F to the Purchase Agreement.
---------
* * * * *
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
L90, INC.
---------
By: /s/ John C. Bohan
_________________________________
Name: John C. Bohan
Title: President and CEO
INVESTORS:
RARE MEDIUM GROUP, INC.
By: /s/ Robert Lewis
_________________________________
Name: Robert Lewis
Title: Vice President
DEVELOPMENT VENTURES (TWO) INC.
By: /s/ Randall Weisenburger
__________________________________
Name: Randall Weisenburger
Title: Chief Financial Officer
[Signature page to Series C Registration Agreement]
9
<PAGE>
STOCK INCENTIVE PLAN
OF
LATITUDE 90, INC.
As adopted by the Board of Directors on
August 6, 1999
and by the shareholders on
August 6, 1999
<PAGE>
STOCK INCENTIVE PLAN
OF
LATITUDE 90, INC.
1. Purpose of the Plan. This Stock Incentive Plan of Latitude 90, Inc.
adopted on this ____ day of _______, 1999, is intended to encourage officers,
directors and key employees of the Company and its Subsidiaries to acquire or
increase their ownership of common stock of the Company on reasonable terms, to
provide compensation opportunities for superior financial results and
outstanding personal performance, to foster in participants a strong incentive
to put forth maximum effort for the continued success and growth of the Company
and its Subsidiaries, and to assist in attracting and retaining the best
available individuals to the Company and its Subsidiaries.
2. Definitions. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Administrator" means the Board or the Committee, whichever shall
be administering the Plan from time to time in the discretion of the Board, as
described in Section 4 of the Plan.
2.2 "Affiliate" means, with respect to any specified person or
entity, a person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.3 "Applicable Taxes" means any Federal, state, local or other
taxes, including transfer taxes, required by law to be withheld in connection
with the exercise or payment of an Award.
2.4 "Award" means an Option, a Restricted Stock Award, a Performance
Share, a Performance Unit, a Performance Award, or any or all of them.
2.5 "Award Agreement" means a written agreement in such form as may
from time to time be hereafter approved by the Committee, which Award Agreement
shall set forth the terms and conditions of an Award under the Plan, and be duly
executed by the Company and the Employee.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Cause" for Cessation of Employment means engaging in conduct
that constitutes a significant criminal offense or that reflects adversely on
the Company's reputation, conviction of a felony, misappropriation of assets of
the Company or any Subsidiary, continued or repeated insobriety, illegal use of
drugs, continued or repeated absence from service during the usual working hours
of the Participant's position for reasons other than Disability or sickness, or
refusal to carry out the reasonable direction of the Board or of the chief
executive officer of the Company or of any other person designated by such chief
executive officer.
<PAGE>
2.8 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and reference to any specific provisions of the Code shall refer
to the corresponding provisions of the Code as it may hereafter be amended or
replaced.
2.9 "Committee" means the committee of the Board appointed by the
Board and which is vested by the Board with responsibility for the
administration of the Plan.
2.10 "Company" means Latitude 90, Inc., a California corporation.
2.11 "Employees" means officers (including officers who are members
of the Board), directors, consultants and other key salaried employees of the
Company or any of its Subsidiaries.
2.12 "Fair Market Value" shall mean the value of one (1) Share,
determined as follows:
2.12.1 If the Shares are traded on an exchange or over-the-
counter on the National Market System (the "NMS") of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), (A) if listed on
an exchange, the closing price as reported for composite transactions on the
business day immediately prior to the date of valuation or, if no sale occurred
on that date, then the mean between the closing bid and asked prices on such
exchange on such date, and (B) if traded on the NMS, the last sale price on the
business day immediately prior to the date of valuation or, if no sale occurred
on such date, then the mean between the highest bid and lowest asked prices as
of the close of business on the business day immediately prior to the date of
valuation, as reported in the NASDAQ system;
2.12.2 If the Shares are not traded on an exchange or the NMS
but are otherwise traded over-the-counter, the mean between the highest bid and
lowest asked prices quoted in the NASDAQ system as of the close of business on
the business day immediately prior to the date of valuation or, if on such day
such security is not quoted in the NASDAQ system, the mean between the
representative bid and asked prices on such date in the domestic over-the-
counter market as reported by the National Quotation Bureau, Inc., or any
similar successor organization; and
2.12.3 If neither Section 2.12.1 nor 2.12.2 above applies, the
fair market value as determined by the Administrator in good faith its sole
discretion, which determination shall be final and binding on all persons.
2.13 "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422 of the Code.
2.14 "Nonstatutory Stock Option" means an Option other than an
Incentive Stock Option.
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<PAGE>
2.15 "Option" means the right to purchase, at a price and for a term
fixed by the Committee in accordance with the Plan, and subject to such other
limitations and restrictions as the Plan and the Committee impose, the number of
Shares specified by the Committee. An Option may be either an Incentive Stock
Option or a Nonstatutory Stock Option.
2.16 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the Company if
each of the corporations other than the employer corporation owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
2.17 "Participant" means any individual to whom a grant of an Award
has been made and is outstanding under the Plan.
2.18 "Performance Award" means Performance Units, Performance Shares
or either or both of them.
2.19 "Performance Objectives" means the specific targets and
objectives established by the Committee considering the following four factors:
earnings per share of the Company's common stock, return on average
stockholders' equity, return on capital, and total stockholder returns of the
Company compared to a peer group of comparable companies established by the
Committee. Earnings per share, return on average stockholders' equity, return on
capital and total Company stockholder returns shall be measured in accordance
with generally accepted accounting principles.
2.20 "Performance Period" means a period of time established by the
Committee for which Performance Objectives have been established, of not less
than one nor more than ten consecutive Company fiscal years.
2.21 "Performance Share" means a right, granted to a Participant
under Section 11 of the Plan, that may be paid out as a Share.
2.22 "Performance Unit" means a right, granted to a Participant under
Section 11 of the Plan, that may be paid entirely in cash, entirely in Shares,
or such combination of cash and Shares as the Committee in its sole discretion
shall determine.
2.23 "Plan" means this Stock Incentive Plan.
2.24 "Restricted Stock Award" means the right to receive Shares, but
subject to forfeiture and/or other restrictions set forth in the related Award
Agreement and the Plan. Restricted Stock Awards may be subject to restrictions
which lapse over time with or without regard to Performance Objectives as the
Committee in its sole discretion shall determine.
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<PAGE>
2.25 "Securities Act" means the Securities Act of 1933, as amended
from time to time, and reference to any specific provisions of the Securities
Act shall refer to the corresponding provisions of the Securities Act as it may
hereafter be amended or replaced.
2.26 "Share" or "Shares" means a share or shares of the Company's
Common Stock, any security of the Company issued in lieu of or in substitution
of such common stock or, if by reason of the adjustment provisions contained
herein any rights under an Award under the Plan pertain to any other security,
such other security.
2.27 "Subsidiary" or "Subsidiaries" means any corporation other than
the employer corporation in an unbroken chain of corporations beginning with the
employer corporation if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.28 "Successor" means the legal representative of the estate of a
deceased Employee or the person or persons who shall acquire the right to
exercise an Award by bequest or inheritance or by reason of the death of the
Employee.
2.29 "Tax Offset Right" means a right to receive cash amounts equal
or approximately equal to any Applicable Taxes.
2.30 "Ten-Percent Stockholder" means an individual who "owns," as
defined in Section 425 of the Code, stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of: (i) the Company,
(ii) if applicable, a Subsidiary, or (iii) if applicable, the Parent.
2.31 "Term" means the period during which a particular Award may be
exercised.
3. Stock Subject to the Plan.
3.1 Maximum Number of Shares to be Awarded. The aggregate number of
Shares with respect to which Awards may be granted under this Plan shall be Two
Million Five Hundred Thousand (2,500,000). Such Shares may be in whole or in
part, as the Board shall from time to time determine, authorized but unissued
Shares, or issued Shares which shall have been reacquired by the Company. The
number of Units payable in cash under the Plan shall be counted when computing
the total number of Shares available for Awards under the Plan to the extent
they are paid out in cash.
3.2 Shares Underlying Expired, Cancelled or Unexercised Awards. Any
Shares subject to issuance upon exercise of an Option, but which are not issued
because of a surrender, lapse, expiration or termination of any such Option
prior to issuance of the Shares, shall once again be available for issuance in
satisfaction of Awards. Similarly, any Shares issued or issuable pursuant to a
Restricted Stock Award or Performance Award which are subsequently forfeited or
not issued pursuant to the terms of the grant shall once again be available for
issuance in satisfaction of Awards.
-4-
<PAGE>
4. Administration of the Plan. The Plan may be administered either by the
Board or the Committee. If the Board chooses to have the Administrator be the
Committee,the Board shall appoint the Committee. Subject to the provisions of
the Plan, the Administrator shall have full authority, in its discretion, to
determine the Employees to whom Awards shall be granted, the number of Shares or
units to be covered by each of the Awards, and the terms (including
restrictions) of any such Award; to amend or cancel Awards (subject to Section
20 of the Plan); to accelerate the vesting of Awards; to require the
cancellation or surrender of any options, units or restricted stock awards (to
the extent the restrictions have not yet lapsed) previously granted under this
Plan or any other plans of the Company as a condition to the granting of an
Award; to interpret the Plan; and to prescribe, amend, and rescind rules and
regulations relating to it, and generally to interpret and determine any and all
matters whatsoever relating to the administration of the Plan and the granting
of Awards hereunder. The Board may, from time to time, appoint members to the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Committee. The Administrator shall
make such rules and regulations for the conduct of its business as it shall deem
advisable. All determinations and decisions by the Committee in the exercise of
its powers shall be final, binding and conclusive. No member of the Board or the
Committee shall be liable, in the absence of bad faith, for any act or omission
with respect to his service on the Board or the Committee.
5. Employees to Whom Awards May Be Granted. Awards may be granted in each
year or portion thereof while the Plan is in effect to such of the Employees as
the Administrator, in its discretion, shall determine. In determining the
Employees to whom Awards shall be granted, the amount of the Award, and the
number of Shares to be granted or subject to purchase under such Awards, the
Administrator shall take into account the duties of the respective Employees,
their present and potential contributions to the success of the Company and its
Subsidiaries, and such other factors as the Administrator shall deem relevant in
connection with accomplishing the purposes of the Plan. No Award shall be
granted to any member of the Committee so long as his or her membership on the
Committee continues.
6. Stock Options.
6.1 Types of Options. Options granted under this Plan may be (i)
Incentive Stock Options, (ii) Nonstatutory Stock Options, or (iii) a combination
of the foregoing. The Award Agreement shall designate whether an Option is an
Incentive Stock Option or a Nonstatutory Stock Option. Any Option which is
designated as a Nonstatutory Stock Option shall not be treated by the Company or
the Participant to whom the Option is granted as an Incentive Stock Option for
federal income tax purposes.
6.2 Option Price. The option price per share of any Option granted
under the Plan shall not be less than the Fair Market Value of the Shares
covered by the Option on the date the Option is granted. Notwithstanding
anything herein to the contrary, in the event an Incentive Stock Option is
granted to an Employee who, at the time such Incentive Stock Option is granted,
is a Ten-Percent Stockholder, then the option price per Share of such Incentive
Stock Option shall not be less than one hundred ten percent (110%) of the Fair
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<PAGE>
Market Value of the Shares covered by the Incentive Stock Option on the date the
Incentive Stock Option is granted.
6.3 Term of Options. Options granted hereunder shall be exercisable
for a Term of not more than ten (10) years from the date of grant and shall be
subject to earlier termination as hereinafter provided. Each Award Agreement
issued hereunder shall specify the Term of the Option, which Term shall be
determined by the Administrator in accordance with its discretionary authority
hereunder. Notwithstanding anything herein to the contrary, in the event an
Incentive Stock Option is granted to an Employee who, at the time such Incentive
Stock Option is granted, is a Ten-Percent Stockholder, then such Incentive Stock
Option shall not be exercisable more than five (5) years from the date of grant
and shall be subject to earlier termination as hereinafter provided.
7. Limit on Fair Market Value of Incentive Stock Options. In any calendar
year, no Employee may be granted an Incentive Stock Option hereunder to the
extent that the aggregate fair market value (such fair market value being
determined as of the date of grant of the Option in question) of the stock with
respect to which Incentive Stock Options first become exercisable by the
Employee during any calendar year (under all such plans of the Employee's
employer corporation, its Parent, if any, and its Subsidiaries, if any) exceeds
the sum of One Hundred Thousand Dollars ($100,000). For purposes of the
preceding sentence, options shall be taken into account in the order in which
they were granted. Any Option granted under the Plan which is intended to be an
Incentive Stock Option, but which exceeds the limitation set forth in this
Section 7, shall be a Nonstatutory Stock Option to the extent that a portion of
the Option exceeds this limitation.
8. Exercise of Rights Under Option Awards.
8.1 Notice of Exercise. An Employee entitled to exercise an Option
may do so by delivery of a written notice to that effect specifying the number
of Shares with respect to which the Option is being exercised and any other
information the Administrator may prescribe. Except as provided in Section 8.2
below, the notice shall be accompanied by payment in full of the purchase price
of any Shares to be purchased, which payment may be made in cash or, with the
Administrator's approval, in Shares valued at Fair Market Value at the time of
exercise or, with the Administrator's approval, a combination thereof. No Shares
shall be issued upon exercise of an Option until full payment has been made
therefor. All notices or requests provided for herein shall be delivered to the
Company as determined by the Administrator.
8.2 Cashless Exercise Procedures. The Administrator, in its sole
discretion, may establish procedures whereby an Employee, subject to the
requirements of federal income tax laws, and other federal, state and local tax
and securities laws, can exercise an Option or a portion thereof without making
a direct payment of the option price to the Company. If the Administrator so
elects to establish a cashless exercise program, the Administrator shall
determine, in its sole discretion, and from time to time, such administrative
procedures and policies as it deems appropriate and such procedures and policies
shall be binding on any Employee wishing to utilize the cashless exercise
program.
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<PAGE>
9. Rights of Option Holders. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
issuance under such Award, except to the extent that one or more certificates
for such Shares shall be delivered to the holder upon due exercise of the
Option.
10. Restricted Stock Awards. Restricted Stock Awards granted under the
Plan shall be subject to such terms and conditions as the Administrator may, in
its discretion, determine. Restricted Stock Awards issued under the Plan shall
be evidenced by an Award Agreement in such form as the Administrator may from
time to time determine. Restricted Stock Awards may be subject to restrictions
which lapse over time with or without regard to Performance Objectives for a
specific Performance Period.
10.1 Receipt of Shares. Each Award Agreement shall set forth the
number of Shares issuable under the Restricted Stock Award evidenced thereby.
Subject to the restrictions of Sections 10.2, 10.3 and 10.4 of the Plan and as
set forth in the related Award Agreement, the number of Shares granted under a
Restricted Stock Award shall be issued to the recipient Employee thereof on the
date of grant of such Restricted Stock Award or as soon as may be practicable
thereafter and deposited into escrow, if applicable. If the Administrator
determines that a Restricted Stock Award shall be subject to the attainment of
Performance Objectives, then such specific Performance Objectives shall be
established prior to the grant of the Restricted Stock Award. In establishing
the Performance Objective or Performance Objectives, the Administrator shall
also establish a schedule or schedules setting forth the portion of the
Performance Award which will be earned or forfeited based on the degree of
achievement of the Performance Objectives actually achieved or exceeded as
determined by the Administrator. The Administrator may at any time adjust the
Performance Objectives and any schedules and portions of payments related
thereto, adjust the way Performance Objectives are measured, or shorten any
Performance Period if it determines that conditions or the occurrence of events
warrants such actions. The Administrator shall have the right to reduce or
eliminate the Restricted Stock Award payable upon the attainment of a
Performance Objective, but shall not have the discretion to increase an Award
upon the attainment of a Performance Objective.
10.2 Rights of Recipient Participants. Shares received pursuant to
Restricted Stock Awards shall be duly issued or transferred to the Participant,
and a certificate or certificates for such Shares shall be issued in the
Participant's name. Subject to the restrictions in Section 10.3 of the Plan and
as set forth in the related Award Agreement, the Participant shall thereupon be
a stockholder with respect to all the Shares represented by such certificate or
certificates and shall have all the rights of a stockholder with respect to such
Shares, including any voting rights incident to such Shares and to receive
dividends and other distributions paid with respect to such Shares. As a
condition to issuing Shares, the Administrator may require a Participant to
execute an escrow agreement and any other documents which the Administrator may
determine. In aid of such restrictions, certificates for Shares awarded
hereunder, together with a suitably executed stock power signed by each
recipient Participant, shall be held by the Company in its control for the
account of such Participant (i) until the restrictions determined by the
Administrator, in its discretion, and as set forth in the related Award
Agreement, lapse pursuant to the Plan or the agreement, at which time a
certificate for the appropriate number of Shares (free of all
-7-
<PAGE>
restrictions imposed by the Plan or the Award Agreement except those established
by the Administrator at the time of grant of the Award) shall be delivered to
the Participant, or (ii) until such Shares are forfeited to the Company and
cancelled as provided by the Plan or the Award Agreement.
10.3 Non-Transferability of Restricted Stock Awards. Until such time
as the restrictions determined by the Administrator or otherwise set forth in
the related Award Agreement have lapsed, the Shares awarded to a Participant and
held by the Company pursuant to Section 10.2 of the Plan, and any right to vote
such Shares or receive dividends on such Shares, may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of; provided, however,
that, if so provided in the Award Agreement, such Shares may be transferred upon
the death of the Participant to such of his legal representatives, heirs and
legatees as may be entitled thereto by will or the laws of intestacy.
10.4 Restrictions. Shares received pursuant to Restricted Stock
Awards shall be subject to the terms and conditions as the Administrator may
determine, including, without limitation, restrictions on the sale, assignment,
transfer or other disposition of such Shares and the requirement that the
Participant forfeit such Shares back to the Company upon termination of
employment for any reason or for specified reasons.
11. Performance Awards.
11.1 Performance Periods. The Administrator shall establish
Performance Periods applicable to Performance Awards. There shall be no
limitation on the number of Performance Periods established by the Administrator
and more than one Performance Period may encompass the same fiscal year.
11.2 Performance Objectives. The Administrator shall establish one or
more specific Performance Objectives for a Performance Period and such
Performance Objectives shall be established prior to the grant of any
Performance Awards with respect to such period. In establishing the Performance
Objective or Performance Objectives, the Administrator shall also establish a
schedule or schedules setting forth the portion of the Performance Award which
will be earned or forfeited based on the degree of achievement of the
Performance Objectives actually achieved or exceeded as determined by the
Administrator. The Administrator may at any time adjust the Performance
Objectives and any schedules and portions of payments related thereto, adjust
the way Performance Objectives are measured, or shorten any Performance Period
if it determines that conditions or the occurrence of events warrant such
actions. The Administrator shall have the right to reduce or eliminate the
compensation or Award payable upon the attainment of a Performance Objective but
shall not have the discretion to increase an Award upon the attainment of a
Performance Objective.
11.3 Grants of Performance Awards. Performance Awards may be granted
under the Plan in such form and to such Employees as the Administrator may from
time to time approve. Performance Awards may be granted alone, in addition to,
or in tandem with other Awards under the Plan. Subject to the terms of the Plan,
the Administrator shall determine the amount or number of Performance Awards to
be granted
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<PAGE>
to a Participant, and the Administrator may impose different terms and
conditions on any particular Performance Award granted to any Participant. Each
grant of a Performance Award shall be evidenced by a written instrument stating
the number of Performance Shares or Performance Units granted, the Performance
Period, the Performance Objective or Performance Objectives, the proportion of
payments for performance between the minimum and full performance levels, if
any, restrictions applicable to Shares receivable in settlement, if any, and any
other terms, conditions, restrictions and rights with respect to such grant as
determined by the Administrator. The Administrator may determine that the
Participant forfeit such Performance Awards back to the Company upon termination
of employment for any reason or for specified reasons. The Administrator may
provide, in its sole discretion, that during a Performance Period, a Participant
shall be paid cash amounts, with respect to each Performance Share or
Performance Unit held by such individual in the same manner, at the same time,
and in the same amount paid, as a dividend on any Share.
11.4 Nontransferability of Performance Awards. Until such time as the
Performance Objectives as determined by the Administrator have been met and
until any restrictions upon the Shares issued pursuant to any Performance Awards
have lapsed, Performance Awards and any rights related thereto may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of by any
Participant.
11.5 Payment of Awards. As soon as practicable after the end of the
applicable Performance Period as determined by the Administrator, the
Administrator shall determine the extent to which the Performance Objectives
have been met and the extent to which Performance Awards are payable. Payment in
settlement of a Performance Award shall be as follows:
(a) In the case of Performance Shares, one or more stock
certificates representing the number of Shares payable shall be
delivered to the Participant, free of all restrictions except those
established by the Administrator at the time of the grant of the
Performance Shares; and
(b) In the case of Performance Units, entirely in cash,
entirely in Shares, or in such combination of Shares and cash as the
Administrator may determine, in its discretion, at any time prior to
such payment. If payment is to be made in the form of cash, the amount
payable for each unit earned shall be equal to the dollar value of
each unit (as determined by the Administrator) times the number of
earned units.
12. Award Terms and Conditions. Each Award Agreement setting forth an
Award shall contain such other terms and conditions not inconsistent herewith as
shall be approved by the Board or by the Committee. The Administrator shall from
time to time adopt policies and procedures applicable to Awards that will govern
the lapse or non-lapse of restrictions and the rights of Participants and
beneficiaries in the event of death, disability, termination of employment, or
retirement of Participants or upon the occurrence of any other event determined
by the Administrator, in its sole discretion, to be appropriate. The
Administrator shall have authority to define disability and retirement and other
terms, and the Administrator's policies and procedures may differ with respect
to Awards granted at
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<PAGE>
different times. A Participant's rights in the event of death, disability,
termination of employment, retirement, or such other events shall be set forth
in the Award Agreement that evidences an Award to the Participant.
13. Nontransferability of Awards. No Award under the Plan and no rights
and interests therein, including the right to any amounts or Shares payable, may
be assigned, pledged, hypothecated or otherwise transferred by a Participant
except, in the event of a Participant's death, to his or her designated
beneficiary or, in the absence of such designation, by will or the laws of
descent and distribution. During the lifetime of a Participant, Options are
exercisable only by, and payments in settlement of Awards will be payable only
to, the Participant or his or her legal representative.
14. Vesting of Awards. The Administrator may, in its sole discretion,
grant Awards which vest over time and/or are based upon satisfaction of
Performance Objectives. The Administrator may, in its discretion, modify or
change any Performance Objectives concerning any Award or accelerate the vesting
of any Award.
15. Adjustments Upon Changes in Capitalization. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, exchanges of shares,
separations, reorganizations or liquidations or similar events or in the event
of extraordinary cash or non-cash dividends being declared with respect to
outstanding Shares or other similar transactions, the number and class of Shares
available under the Plan in the aggregate, the number and class of Shares
subject to Awards theretofore granted, applicable purchase prices, applicable
performance objectives for the Performance Periods not yet completed and
performance levels and portion of payments related thereto, and all other
applicable provisions, shall, subject to the provisions of the Plan, be
equitably adjusted by the Administrator. The foregoing adjustment and the
manner of application of the foregoing provisions shall be determined by the
Administrator in its sole discretion. Any such adjustment may provide for the
elimination of any fractional Share which might otherwise become subject to an
Award.
16. Possible Company Call Right. At the discretion of the Administrator,
any Award Agreement (or any supplemental or other agreement or instrument to
which the Company is a party) may provide that the Company will have the right
and option to repurchase any Shares issued to a Participant whose employment by
the Company or any Subsidiary has been terminated, and such repurchase shall be
upon such terms and conditions as may be established by the Administrator from
time to time and are set forth or otherwise provided for in such Award Agreement
(or such supplemental agreement or instrument); provided, that the purchase
price of any such Shares shall not exceed the Fair Market Value of the Shares as
of the date of such termination. Without limiting the discretion of the
Administrator, the terms of repurchase may include deferred payment terms, the
deferred payments may bear interest at such rate or rates as may be selected by
the Administrator, and the Company's obligation to pay the principal of or
interest on any repurchase obligation may be subject to such conditions and may
be subordinated to the Company's obligations to any creditor or creditors or
other persons or entities, as determined by the Administrator in its sole
discretion.
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<PAGE>
17. Form of Awards. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall
constitute the granting of any Award. An Award shall be granted hereunder at
such date or dates as the Administrator may determine, subject to the Plan.
Whenever the Administrator determines to grant an Award, the Secretary or the
President of the Company, or such other person as the Administrator appoints,
shall send notice thereof to the Employee, in such form as the Administrator
approves, stating the number of Shares or units subject to the Award, its Term,
and the other provisions, restrictions and conditions thereof. The notice shall
be accompanied by a written Award Agreement (and, in the case of a Restricted
Stock Award, by a blank stock power and/or escrow agreement for execution by the
Employee) which shall have been duly executed by or on behalf of the Company. If
the surrender of previously issued Awards is made a condition of the grant, the
notice shall set forth the pertinent details of such condition. Execution of an
Award Agreement by the recipient in accordance with the provisions of the Plan
shall be a condition precedent to the exercise or settlement of any Award.
18. Taxes.
18.1 Company's Right to Payment for Taxes Required to be Withheld.
The Company shall have the right, before any payment is made or a certificate
for any Shares is delivered or any Shares are credited to any brokerage account,
to deduct or withhold from any payment under the Plan any Applicable Taxes or to
require the Participant or his beneficiary or estate, as the case may be, to pay
any amount, or the balance of any amount, so required to be withheld. The
Company may elect to deduct such taxes from any amounts payable then or any time
thereafter in cash or Shares or otherwise to the Employee. If the Employee
disposes of Shares acquired pursuant to an Incentive Stock Option in any
transaction considered to be a disqualifying transaction under Sections 421 and
422 of the Code, the Employee must give the Company written notice of such
transfer and the Company shall have the right to deduct any taxes required by
law to be withheld from any amounts otherwise payable to the Employee.
18.2 Employee Election to Withhold Shares. The Administrator may
permit an Employee to satisfy his or her tax liability with respect to the
exercise, vesting or settlement of an Award by having the Company withhold
Shares otherwise isssuable upon the exercise, vesting or settlement of the
Award.
18.3 Tax Offset Rights. Whenever the Administrator deems it
appropriate, Tax Offset Rights may be granted in connection with the grant of an
Award. Tax Offset Rights shall be evidenced in writing as part of the Award
Agreement to which they pertain. Tax Offset Rights shall, upon (i) exercise of
all or any part of a Nonstatutory Stock Option, (ii) payment of a Performance
Award, or (iii) lapse of restrictions on Shares received pursuant to a
Restricted Stock Award, entitle the Participant granted such rights to receive
in cash from the Company an amount equal to or approximating any Applicable
Taxes in connection with such above-listed event. The Administrator may, in its
sole discretion, limit the amount any Participant will be entitled to receive in
connection with a Tax Offset Right.
-11-
<PAGE>
19. Termination of Plan. The Plan shall terminate ten (10) years from the
date hereof, and an Award shall not be granted under the Plan after that date
although the terms of any Awards may be amended at any date prior to the end of
its Term in accordance with the Plan. Any Awards outstanding at the time of
termination of the Plan shall continue in full force and effect according to the
terms and conditions of the Award and this Plan.
20. Amendment of the Plan. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if (i) stockholder approval under
Section 422 of the Code would be required, (ii) the amendment would increase the
number of Shares that may be issued under the Plan or (iii) the amendment would
materially increase the benefits that would accrue to the Participants under the
Plan. Notwithstanding the discretionary authority granted to the Administrator
in Section 4 of the Plan, no amendment of the Plan or any Award granted under
the Plan shall impair any of the rights of any Participant, without his or her
consent, under any Award theretofore granted under the Plan.
21. Governing Law; Regulations and Approvals.
21.1 Governing Law. This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance of the laws of the
State of California without giving effect to the conflicts of laws principles
thereof, except to the extent that such laws are preempted by federal law.
21.2 Delivery of Shares. The obligation of the Company to issue, sell
and deliver Shares with respect to any Awards granted under this Plan shall be
subject to all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Administrator.
21.3 Securities Act Requirements. No award shall be granted and no
certificates for Shares pursuant to the grant or exercise of an Award shall be
delivered pursuant to this Plan if the grant or delivery would, in the opinion
of counsel for the Company, violate the Securities Act or any other Federal or
state statutes having similar requirements as may be in effect at that time. As
a condition of the issuance of any Shares pursuant to the grant or exercise of
an Award under this Plan, the Administrator may require the recipient to furnish
a written representation that he or she is acquiring the shares for investment
and not with a view to distribution to the public. In the event that the
disposition of Shares acquired pursuant to the Plan is not covered by a then
current registration statement under the Securities Act, as amended, and is not
otherwise exempt from such registration, such Shares shall be restricted against
transfer to the extent required by the Securities Act and Rule 144 of the
Securities Act or the regulations thereunder.
21.4 Listing and Regulatory Requirements. Each Award is subject to
the further requirements that, if at any time the Administrator shall determine,
in its discretion, that the listing, registration or qualification of the Shares
subject to the Award is required by any securities exchange or under any
applicable law or the rule of any regulatory body, or is necessary or desirable
as a condition of, or in connection with, the granting of
-12-
<PAGE>
such Award or the issuance of Shares thereunder, such Award will not be granted
or exercised and the Shares may not be issued unless and until such listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Administrator.
22. Deferral Elections. The Administrator may permit any Participant
receiving an Award to elect to defer his or her receipt of a payment of cash or
the delivery of Shares that would be otherwise due such individual by virtue of
the exercise, settlement, vesting or lapse of restrictions regarding any Award
made under the Plan. If any such election is permitted, the Administrator shall
establish rules and procedures for such payment deferrals, including the
possible payment or crediting of reasonable interest on such deferred amounts
credited in cash and the payment or crediting of dividend equivalents with
respect to deferrals credited in Shares.
23. Miscellaneous.
23.1 Employment Rights. Neither the Plan nor any action taken
hereunder shall be construed as giving any Employee the right to participate
under the Plan, and a grant of an Award under the Plan shall not be construed as
giving any recipient of the grant any right to be retained in the employ of the
Company.
23.2 No Trust or Fund Created. Neither the Plan nor any grant made
hereunder shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company and any recipient of a
grant of an Award or any other person. To the extent that any person acquires a
right to receive payments from the Company pursuant to a grant under the Plan,
such right shall be no greater than the right of any unsecured general creditor
of the Company. Nothing herein shall prevent or prohibit the Company from
establishing a trust or other arrangement for the purpose of providing for the
payment of the benefits payable under the Plan.
23.3 Fees and Costs. The Company shall pay all original issue taxes
on the exercise of any Award granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
23.4 Awards to Foreign Nationals. Without amending the Plan, Awards
may be granted to participants who are foreign nationals or who are employed
outside the United States or both, on such terms and conditions different than
those specified in the Plan as may, in the judgment of the Administrator, be
necessary or desirable to further the purpose of the Plan.
23.5 Other Provisions. As used in the Plan, and in Awards and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such Awards and other documents
prepared in implementation of the Plan are for convenience only and shall not
affect the meaning of any provision hereof or thereof.
-13-
<PAGE>
24. Effectiveness of the Plan. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of all
shares represented at a meeting duly held in accordance with California law
within twelve (12) months after being approved by the Board, the Plan and all
Awards made under it shall be void and of no force and effect.
To record the adoption of the Plan by the Board on ______, 1999, the
Company has caused its authorized officer to affix the corporate name hereto.
LATITUDE 90, INC.
By: _____________________
John C. Bohan,
Chief Executive Officer
-14-
<PAGE>
Sublease
[LOGO OF CB RICHARD ELLIS APPEARS HERE]
CB Richard Ellis, Inc.
Licensed Real Estate Broker
1. PARTIES.
This Sublease, dated May 21, 1999, is made between Widom, Wein, Cohen,
O'Leary, Terasawa, a California Corporation ("Sublessor"), and Latitude 90
("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated August 29, 1988,
wherein Koll Santa Monica Associates One ("Lessor") leased to Sublessor the
real property located in the City of Santa Monica, County of Los Angeles,
State of California, described as approximately 10,656 rentable square feet
in Suite 400 on the 4/th/ floor at 2020 Santa Monica Boulevard, ("Master
Premises"). Said lease has been amended by the following amendments First
Amendment, Second Amendment said lease and amendments are herein
collectively referred to as the "Master Lease" and are attached hereto as
Exhibit "A".
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 10,656 rentable square feet per Second Amendment.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM
The Term of this Sublease shall commence on June 15, 1999 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end on
December 31, 2000 ("Termination Date"), unless otherwise sooner terminated
in accordance with the provisions of this Sublease. In the event the Term
commences on a date other than the Commencement Date, Sublessor and
Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possession to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth
an effective date for such cancellation which shall be at least ten (10)
days after delivery of said notice to Sublessor. If Sublessor delivers
Possession to Sublessee on or before such effective date, this Sublease
shall remain in full force and effect. If Sublessor fails to deliver
Possession to Sublessee on or before such effective date, this Sublease
shall be cancelled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or effect,
and Sublessor shall have no further liability to Sublessee on account of
such delay or cancellation. If Sublessor permits Sublessee to take
Possession prior to the commencement of the Term, such early Possession
shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of
rent. In the event that Sublessor has not delivered the Premises on or
before July 15, 1999, Sublessee shall have the right to cancel this
Sublease by giving Sublessor five (5) days prior written notice of its
intent to terminate the Sublease.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice or demand, at Widom, Wein, Cohen,
O'Leary, Terasawa, 3130 Wilshire Boulevard, Santa Monica, CA 90403 or
at such other place as Sublessor shall designate from time to time by
notice to Sublessee, the sum of Twenty Two Thousand Nine Hundred Ten
and 40/100 Dollars ($22,910.40) per month, in advance on the first day
of each month of the Term. Sublessee shall pay to Sublessor upon
execution of this Sublease the sum of Eleven Thousand Four Hundred
Fifty Five and 20/100 Dollars ($11,455.20) as rent for June 15, 1999-
June 30, 1999. If the Term begins or ends on a day other than the
first or last day of a month, the rent for the partial months shall be
prorated on a per diem basis. Additional provisions:__________________
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent one hundred
percent (100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term over and above a 1999 Base Year. Such
additional rent shall be payable as and when Operating Costs are
payable by Sublessor to Lessor. If the Master Lease provides for the
payment by Sublessor of Operating Costs on the basis of an estimate
thereof, then as and when adjustments between estimated and actual
Operating Costs are made under the Master Lease, the obligations
<PAGE>
of Sublessor and Sublessee hereunder shall be adjusted in a like manner;
and if any such adjustment shall occur after the expiration or earlier
termination of the Term, then the obligations of Sublessor and Sublessee
under this Subsection 6.2 shall survive such expiration or termination.
Sublessor shall, upon request by Sublessee, furnish Sublessee with
copies of all statements submitted by Lessor of actual or estimated
Operating Costs during the Term.
7 SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Seventy-five Thousand and 00/100 ($75,000) Dollars as security for
Sublessee's faithful performance of Sublessee's obligations hereunder
("Security Deposit"). If Sublessee fails to pay rent or other charges when
due under this Sublease, or fails to perform any of its other obligations
hereunder, Sublessor may use or apply all or any portion of the Security
Deposit for the payment of any rent or other amount then due hereunder and
unpaid, for the payment of any other sum for which Sublessor may become
obligated by reason of Sublessee's default or breach, or for any loss or
damage sustained by Sublessor as a result of Sublessee's default or breach.
If Sublessor so uses any portion of the Security Deposit, Sublessee shall,
within ten (10) days after written demand by Sublessor, restore the
Security Deposit to the full amount originally deposited, and Sublessee's
failure to do so shall constitute a default under this Sublease. Sublessor
shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. In the event Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (10) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee
or to the last assignee, if any, of Sublessee's interest hereunder.
Provided Sublessee is not in default on any of its obligations hereunder,
$22,910.40 of said Security Deposit shall be credited towards the payment
of rent for the month of November 2000 and $22,910.40 shall be credited
towards the payment of rent for the month of December 2000.
8. USE OF PREMISES.
The Premises shall be used and occupied only for Per Master Lease, and for
no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease), which shall not be unreasonably withheld or delayed.
10 OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises; except for the following: None. Sublessor shall deliver the
Premises to Sublessee in "broom clean" condition. Sublessee assumes and
agrees to perform the lessee's obligations under the Master Lease during
the Term to the extent that such obligations are applicable to the
Premises, except that the obligation to pay rent to Lessor under the Master
Lease shall be considered performed by Sublessee to the extent and in the
amount rent is paid to Sublessor in accordance with Section 6 of this
Sublease. Sublessee shall not commit or suffer any act or omission that
will violate any of the provisions of the Master Lease. Sublessor shall
exercise due diligence in attempting to cause Lessor to perform its
obligations under the Master Lease for the benefit of Sublessee. If the
Master Lease terminates, this Sublease shall terminate and the parties
shall be relieved of any further liability or obligation under this
Sublease, provided however, that if the Master Lease terminates as a result
of a default or breach by Sublessor or Sublessee under this Sublease and/or
the Master Lease, then the defaulting party shall be liable to the non-
defaulting party for the damage suffered as a result of such termination.
Notwithstanding the foregoing, if the Master Lease gives Sublessor any
right to terminate the Master Lease in the event of the partial or total
damage, destruction, or condemnation of the Master Premises or the building
or project of which the Master Premises are a part, the exercise of such
right by Sublessor shall not constitute a default or breach hereunder.
11 ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12 AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB RICHARD
ELLIS, INC., who represents Widom Wein, Cohen, O'Leary, Terasawa, a
California Corporation and Beitler Commercial Realty Services, who
represents Latitude 90. In the event that CB RICHARD ELLIS, INC. represents
both Sublessor and Sublessee, Sublessor and Sublessee hereby confirm that
they were timely advised of the dual representation and that they consent
to the same, and that they do not expect said broker to disclose to either
of them the confidential information of the other party.
13 COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of Per separate agreement Per separate
agreement Dollars ($___), for services rendered in effecting this Sublease.
Broker is hereby made a third party beneficiary of this Sublease for the
purpose of enforcing its rights to said commission.
2
<PAGE>
14 NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from time to time designate in a notice to the Sublessor. All notices and
demands by the Sublessee to Sublessor shall be sent by United States Mail,
postage prepaid, addressed to the Sublessor at the address set forth
herein, and to such other person or place as the Sublessor may from time to
time designate in a notice to the Sublessee.
To Sublessor: Widom Wein, Cohen, O'Leary, Terasawa. Attention: Rick
------------------------------------------------------------
Fivekiller, 3130 Wilshire Boulevard, #600, Santa Monica, CA 90403
--------------------------------------------------------------------------
To Sublessee: Latitude 90: 1447 Cloverfield Blvd., Ste. 100, Santa Monica,
------------------------------------------------------------
CA 90405
--------------------------------------------------------------------------
Attn: Peter Bryant
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendment thereto, the Foreign Investment In Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and
The Americans with Disabilities Act.
Sublessor: Widom, Wein, Cohen, O'Leary, Sublessee: Latitude 90
------------------------------------- ---------------------
Terasawa, a California Corporation
- ----------------------------------------------- By:____________________________
By:____________________________________________ Title:_________________________
Title:_________________________________________ By:____________________________
By:____________________________________________ Title:_________________________
Title:_________________________________________ Date:__________________________
Date:__________________________________________
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach or any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor:________________________________________
By:____________________________________________
Title:_________________________________________
By:____________________________________________
Title:_________________________________________
Date:__________________________________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Richard Ellis, Inc.
as to the legal sufficiency or tax consequences of this document or the
transaction to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
<PAGE>
AdNet Strategies
Representation Agreement
------------------------
THIS REPRESENTATION AGREEMENT (the "Agreement") is made as of April 24, 1997
("Effective Date") by Four11 Corporation ("Four11") with their principal place
of business located at 1370 Willow Rd., Suite 200, Menlo Park, CA 94025 and
AdNet Strategies ("AdNet") with their principal place of business located at
5959 West Century Blvd., Suite 756, Los Angeles, CA 90045.
Four11 and AdNet agree as follow:
1. Engagement of Services. AdNet agrees to preform services for Four11 as
----------------------
follows:
a. Adnet shall provide advertising sales representation and consultation.
Adnet shall represent Four11 for the accounts and territories outlined in
Exhibit A, which may change from time to time upon mutual agreement by both
parties.
b. AdNet will update Four11 on the progress and demand of the Internet
advertising marketplace, while Four11 will update AdNet on new
opportunities with its site.
c. AdNet will inform Four11 of the tracking statistics required by Internet
advertisers.
d. AdNet will highlight Four11 in its Website and within its media kit. Four11
will have final approval of this marketing material before AdNet presents
it to any potential clients.
2. Four11 support. Four11 shall support AdNet by providing the following.
--------------
a. The parties agree to define a "Monthly Tracking Report", which shall be
provided to AdNet by the tenth calendar day of each month. The Tracking
Report will include, but not be limited to page views for the entire site
and primary sections.
b. The parties agree to define a "Weekly Tracking Report", which shall be
provided to AdNet by the end of each business Monday. The Weekly Tracking
Report will include, but not be limited to banner impressions and click
through for each active advertiser.
c. Four11 agrees to provide AdNet with promotional material to sell
advertising on Four11.
d. Four11 will place a hyperlink on the Advertising Home Page of Four11's
website that links to the sales executive contact page of Adnet Strategies'
website.
e. Four11 will run a minimum of 250,000 banner impressions for AdNet
Strategies during each month of this contract.
1
<PAGE>
3. Term and Termination
--------------------
a. Term. The term of this Agreement shall be from the effective date until
----
December 31, 1997, unless terminated in accordance with the terms hereof.
Thereafter, the Agreement shall automatically be renewed on January 1 for
successive twelve (12) month terms.
b. Either party can terminate this Agreement on ninety (90) days written
notice.
c. Four11 reserves the right to terminate this Agreement on thirty (30) days
written notice in the event that revenues from AdNet falls below the
"Minimum Threshold" line of Exhibit B for two consecutive months or two out
of any three months.
d. For three months after the date of termination, AdNet will continue to call
on all the clients that it has previously booked for Four11 during the
term of this agreement. AdNet shall continue to receive commissions for all
accounts booked during this period, as outlined in Section 7.
4. Account Booking
---------------
a. Account and Schedule Details. Once AdNet books an account, it will e-mail
----------------------------
the account and schedule details to Four11 including: account name and
contact information, order amount in dollars, banner advertising placement,
link URL, start and stop dates, impression targets, and billing information
including billing contact, billing address, and a contact telephone number.
b. Insertion Orders. AdNet will also provide Four11 with a copy of all
----------------
insertion orders, which shall include Four11's standard billing terms.
5. Client List
-----------
a. Four11 sales executives will not call on any of AdNet's clients listed in
Attachment A. All correspondence with these clients and agencies is the
sole responsibility of AdNet.
6. Expenses
--------
a. AdNet will be solely responsible for all its expenses, including telephone
and fax costs, travel, and those expenses related to client entertainment.
2
<PAGE>
7. Compensation
------------
a. Base Compensation. Four11 shall pay AdNet twenty five (25%) percent of all
-----------------
advertising booked by AdNet.
b. Quarterly Bonus. Four11 shall pay AdNet a bonus of 5% on all sales in the
---------------
quarter for reaching the target quarterly revenue goals as identified in
Exhibit B.
c. Annual Bonus. Subject to approval by Four11's Board of Directors, Four11
------------
shall provide AdNet with an incentive stock option of 10,000 shares upon
reaching the target 1997 revenue goal as identified in Exhibit B.
8. Invoicing and Payment
---------------------
a. Invoicing. Four11 will invoice and collect all advertising schedules that
---------
AdNet books for Four11. Invoices will be mailed out within two weeks of the
completion of a schedule.
b. Invoicing Reporting. By the 5/th/ business day of each month, Four11 will
-------------------
provide AdNet with a monthly status regarding all outstanding invoices.
The status report shall include at a minimum the account name, invoice
date, status of payment, and amounts outstanding.
c. Payment. By the 5/th/ business day of each month Four11 will mail AdNet a
-------
commission check for twenty-five percent (25%) of all AdNet revenue that
Four11 received during the preceding month.
d. Bad Debt. Both AdNet and Four11 shall use reasonable commercial efforts to
--------
collect invoice amounts. In the case an invoice amount is determined to be
considered bad debt. Four11 will not hold AdNet responsible for these
amounts. Four11 shall not owe AdNet any commissions, bonuses or other
compensation for such bad debt.
3
<PAGE>
9. General
-------
a. Confidential Information. Contractor agrees during the term of this
------------------------
Agreement and thereafter to take all steps reasonably necessary to hold in trust
and confidence information which he knows or has reason to know is considered
confidential by Four11 ("Confidential Information"), Contractor agrees to use
the Confidential Information solely to perform the project hereunder.
Confidential Information includes, but is not limited to, technical and business
information relating to Four11's inventions or products, research and
development, manufacturing and engineering processes, and future business plans.
Contractor's obligations with respect to the Confidential Information also
extend to any third party's proprietary or confidential information disclosed to
Contractor in the course of providing services to Four11. This obligation shall
not extend to any information which becomes generally known to the public
without breach of this Agreement. This obligation shall survive the termination
of this Agreement.
b. No Conflict of Interest. Contractor agrees during the term of this
-----------------------
Agreement not to accept work or enter into a contract or accept an obligation,
inconsistent or incompatible with Contractor's obligations or the scope of
services rendered for Four11 under this Agreement.
c. Successors and Assigns. Contractor may not assign its rights or obligations
----------------------
arising under this Agreement without Four11's prior written consent. Four11 may
assign its rights and obligations under this Agreement. This Agreement will be
for the benefit of Four11's successors and assigns, and will be binding on
Contractor's heirs, legal representatives and permitted assignees.
d. Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
e. Legal fees. If any action at law or in equity is necessary to enforce or
----------
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
f. Independent Contractor. Four11 and AdNet acknowledge and agree that AdNet
----------------------
is an independent contractor to Four11 and not an employee, agent, joint
venture of Four11. AdNet is an independent contractor and is solely responsible
for all taxes, withholdings, and other similar statutory obligations, including,
but not limited to, Workers' Compensation Insurance.
4
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g. Professional Standards. The performance of AdNet and Four11 under this
----------------------
Agreement shall be conducted with due diligence and in full compliance with the
highest professional standards of practice in the industry.
h. AdNet Indemnity. AdNet will indemnify and hold Four11 harmless, and will
---------------
defend Four11 against any and all loss, liability, damage, claims, demands or
suits and related costs and expenses to persons or property that arise, directly
or indirectly, from acts or omissions of AdNet, or breach of any term or
condition of this Agreement.
i. Four11 Indemnity. Four11 will indemnify and hold AdNet harmless, and will
----------------
defend AdNet against any and all loss, liability, damage, claims, demands or
suits and related costs and expenses to persons or property that arise, directly
or indirectly, from acts or omissions of Four11, or breach of any term or
condition of this Agreement.
j. Entire Agreement. This Agreement constitutes the entire understanding
----------------
between the parties, and supersedes all prior negotiations or understandings
between the parties concerning the subject matter contained in this Agreement.
ADNET STRATEGIES: FOUR11 CORP.
By: /s/ John C. Bohan By: /s/ Stephen J. Victorino
---------------------- ------------------------------
John C. Bohan Stephen J. Victorino
President Vice President
By: /s/ Mike Santullo
------------------------------
Mike Santullo
President
5
<PAGE>
AdNet Strategies
Representation Agreement
------------------------
THIS REPRESENTATION AGREEMENT (the "Agreement") is made as of September 12, 1997
by John Bohan & Associates, L.L.C. (d.b.a. AdNet Strategies) with their
principal place of business located at 5959 West Century Blvd., Suite 756, Los
Angeles, CA 90045 and N2K, Inc. (N2K) with their principal place of business
located at 55 Broad St., 10/th/ Floor, New York, NY 10004.
N2K and AdNet agree to the following:
1. Engagement of Services
a. AdNet will provide advertising sales representation and consultation for
N2K's websites located on the World Wide Web at
http://www.jazzcentralstation.com, http://www.classicalinsites.com,
--------------------------------- -------------------------------
http://www.rocktropolis.com, http://www.musicblvd.com.
--------------------------- ------------------------
b. AdNet will update N2K on the progress and demand of the Internet advertising
marketplace, while N2K will update AdNet on new opportunities with its site.
c. AdNet will inform N2K of tracking statistics required by Internet
advertisers.
d. AdNet will represent N2K on an exclusive basis for the client list specified
in Attachment A. All correspondence with these clients and agencies is the
sole responsibility of AdNet. N2K will provide written approval for any
additions to this list.
2. N2K Support
a. By the tenth calender day of each month, N2K will provide AdNet with a
tracking report that lists total number of page views and estimated visitors.
b. By the end of each business Monday, N2K will provide AdNet with a tracking
report to AdNet that lists daily banner impressions and click throughs (by
banner) for each of AdNet's active advertisers that ran in the prior week.
3. Term and Termination
a. The Term of this Agreement shall be from the effective date until March 31,
1998, unless terminated in accordance with the terms hereof. In the event
that the parties fail to create a new contract prior to March 31, 1998, this
agreement shall automatically be renewed on April 1, 1998, for a successive
12 months.
1
<PAGE>
b. Either party can terminate this Agreement on sixty (60) days written
notice.
c. For the three months after the date of termination, AdNet will continue to
call on all the clients that it has previously booked for N2K during the
term of this agreement. AdNet shall continue to receive commissions for all
accounts booked during this period, as outlined in section 7.
4. Account Booking
a. Once AdNet books an account, it will fax N2K a copy of the insertion order
as well as any pertinent schedule details not listed on the insertion order
such as production contact information, banner advertising placement, and
URL link.
6. Expenses
a. AdNet will be solely responsible for all its expenses, including telephone
and fax, costs, travel, and those expenses related to client entertainment.
7. Compensation
a. For the term of this contract AdNet will be paid thirty percent (30%) for
all advertising revenue that it books for N2K.
8. Invoicing and Payment
a. AdNet will invoice and collect all advertising schedules that AdNet books
for N2K.
b. By the 10/th/ of each month AdNet will mail N2K a commission check for
seventy percent (70%) of all N2K revenue that AdNet received during the
prior month.
c. While both parties will endeavor to collect all past due bills, neither
party is responsible for any bad debt incurred from the clients.
d. AdNet agrees to state explicitly in any contract between it and an
advertiser, with respect to advertising it books on behalf of N2K, that N2K
is a beneficiary of said contract.
9. Confidential Information
a. AdNet agrees during the term of this Agreement and thereafter to take all
steps reasonably necessary to hold in trust and confidence information
which they know or have reason to know is considered confidential by N2K.
2
<PAGE>
b. N2K agrees during the term of this Agreement and thereafter to take all
steps reasonably necessary to hold in trust and confidence information
which they know or have reason to know is considered confidential by AdNet.
10. Arbitration
a. In the event of any dispute or claim arising out of our relationship or the
termination thereof, Adnet Strategies and N2K agree that all such disputes
shall be fully, finally and exclusively resolved by binding arbitration
conducted by the American Arbitration Association in New York, New York to
have such disputes tried by a court or jury.
11. General
a. Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the United States and the State of New York.
b. Legal Fees. If any action at law or in equity is necessary to enforce or
----------
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements,
in addition to any other relief to which the party may be entitled.
c. Independent Contractor. N2K and AdNet acknowledge and agree that AdNet is
----------------------
an independent contractor to N2K and not an employee, agent, or joint
venture of N2K. AdNet is an independent contractor and is solely
responsible for all taxes, withholdings, and other similar statutory
obligations, including, but not limited to, Workers' Compensation
Insurance.
d. Professional Standards. The performance of AdNet and N2K under this
----------------------
Agreement shall be conducted with due diligence and in full compliance with
the highest professional standards of practice in the industry.
e. AdNet Indemnity. AdNet will indemnify and hold N2K harmless, and will
---------------
defend N2K against any and all loss, liability, damage, claims, demands, or
suits and related costs and expenses to persons or property that arise,
directly or indirectly, from acts or omissions of AdNet, or breach any term
or condition of this Agreement.
f. N2K Indemnity. N2K will indemnify and hold AdNet harmless, and will defend
-------------
AdNet against any and all loss, liability, damage, claims, demands, or
suits and related costs and expenses to persons or property that arise,
directly or indirectly, from acts or omissions of N2K, or breach any term
or condition of this Agreement.
3
<PAGE>
g. Entire Agreement. This Agreement constitutes the entire understanding
----------------
between the parties, and supersedes all prior negotiations or
understandings between the parties concerning the subject matter contained
in this Agreement.
JOHN BOHAN & ASSOCIATES, L.L.C.: THE N2K GROUP, INC.
By: /s/ John C. Bohan By: /s/ Deborah Newman
------------------------ --------------------------
John C. Bohan Deborah Newman
President Vice President, Marketing
Advertising & Sales
Date: 10/7/97 Date: 10/10/97
---------------------- -------------------------
4
<PAGE>
NATIONAL ADVERTISING SALES REPRESENTATION AGREEMENT
Effective Date: March 10, 1998
This Agreement is made by and between Zip2 Corp. having a principal place
of business at 444 Castro Street, Mountain View, California 94041 ("Zip2"), and
AdNet Strategies, Inc., a corporation having a principal place of business at
5959 West Century Blvd., Suite 756, Los Angeles, CA 90045 ("AdNet").
1. Engagement of Services. AdNet will serve as Zip2's representative to
----------------------
sell Banner Advertising for Zip2's Web Site located on the World Wide Web at the
URL http://www.zip2.com or such other URL designated in writing by Zip2. "Banner
-------------------
Advertising" means specific third party advertisements consisting of
billboard-like graphics displayed in a specific location on the City Guide and
other online Zip2 Services ("Zip2 Services"). AdNet will update Zip2 on the
progress and demand of the Internet advertising marketplace, while Zip2 will
update AdNet on new opportunities with Zip2's Web Site.
2. Compensation. Zip2 will pay AdNet a commission of twenty five percent
------------
(25%) of the revenues received by AdNet from Banner Advertising sold by AdNet.
Zip2 and AdNet will also meet to discuss the creation of a bonus package
designed to provide AdNet with increased incentive to maximize Zip2's
advertising revenue.
3. Invoicing and Payment. AdNet will be responsible for invoicing and
---------------------
collecting all revenues from Banner Advertising sold by AdNet on behalf of Zip2.
Zip2 shall have sole discretion to set the prices for all Banner Advertising. By
the tenth (10/th/) day of each month. AdNet will remit to Zip2 a check for
seventy five per cent (75%) of all revenues received by AdNet for Zip2 Banner
Advertising that AdNet sold during the previous month. In the event that AdNet
is unable for any reason to collect the Banner Advertising revenue within one
hundred twenty days (120) days after invoice, Zip2 may collect such Banner
Advertising revenue directly. If Zip2 collects such late paying Banner
Advertising revenues directly, Zip2 will remit to AdNet a check for twenty five
(25%) of all late paying Zip2 Banner Advertising revenues that Zip2 collects.
4. Implementation. Within fourteen (14) days after each sale, AdNet will
--------------
fax Zip2 a copy of the insertion order as well as any pertinent schedule details
not listed on the insertion order (i.e., production contact information, banner
advertising placement, and production materials such as text, logos, graphics,
URL links, etc.). AdNet shall provide all pertinent schedule details and
production materials in a format specified by Zip2. Zip2 will use commercially
reasonable efforts to ensure that the Banner Advertising is accessible to end
users promptly after receiving complete insertion orders and production
materials from AdNet. Zip2 reserves the right to reject or remove any Banner
Advertising from Zip2 Services in its sole discretion at any time.
5. Expenses. AdNet will be solely responsible for all expenses,
--------
including but not limited to telephone, fax, and all travel and entertainment
costs.
6. Account Directors. Zip2 and AdNet will appoint account directors. As
-----------------
of the Effective Date, the Zip2 account director will be Keith Lorizio and the
AdNet account director will be John Bohan. Either party may change its account
director by providing the other written notice.
7. Reporting. By the fifteenth calendar day of each month, Zip2 will
---------
provide AdNet with a tracking report that lists total number of page views
during the previous month. Each Monday afternoon, Zip2 will endeavor to provide
a weekly tracking report to AdNet that lists daily banner impressions and
click-throughs (by banner) for each advertising creative that ran in the prior
week. Zip2 will work with AdNet's programmers to export the banner tracking
results to AdNet electronically. All information received in connection with
such reports shall be deemed to be "Confidential Information" in accordance with
the terms of Section 10.2 ("Confidential Information").
8. Audits. With ten (10) days notification. Zip2 shall have the right to
------
inspect and audit the revenue records of AdNet, which inspection and audit shall
be conducted during regular business hours at the offices of AdNet in such a
manner as not to interfere with AdNet's normal activities. If such audit shows
that any of AdNet's
1
<PAGE>
reports understated the actual due to Zip2 by more than five percent (5%), then
AdNet shall pay to Zip2 all reasonable costs and expenses which may be incurred
by Zip2 in conducting such audit and collecting such underpayment (including,
without limitation, the fees of Zip2's independent certified accountants, if
any). All information received in connection with such audits, and the results
thereof, will be deemed to be "Confidential Information" in accordance with the
terms of Section 9.2 ("Confidential Information").
9. Independent Contractor Relationship. AdNet's relationship with Zip2 is
-----------------------------------
that of an independent contractor, and nothing in this Agreement is intended to,
or should be construed to, create a partnership, agency, joint venture or
employment relationship. AdNet will not be entitled to any of the benefits which
Zip2 may make available to its employees, including, but not limited to, group
health or life insurance, profit-sharing or retirement benefits. AdNet is not
authorized to make any representation, contract or commitment on behalf of Zip2
unless specifically requested or authorized in writing to do so by a Zip2
manager. AdNet is solely responsible for, and will file, on a timely basis, all
tax returns and payments required to be filed with, or made to, any federal,
state or local tax authority with respect to the performance of services and
receipt of fees under this Agreement. AdNet is solely responsible for, and must
maintain adequate records of, expenses incurred in the course of performing
services under this Agreement. No part of AdNet's compensation will be subject
to withholding by Zip2 for the payment of any social security, federal, state or
any other employee payroll taxes. Zip2 will regularly report amounts paid to
AdNet by filing Form 1099-MISC with the Internal Revenue Service as required by
law.
10. Intellectual Property Rights.
----------------------------
10.1 Ownership and Assignment.
------------------------
Zip2 shall own all intellectual property rights in and to any
artwork, documents, inventions or ideas developed by AdNet in connection with
the services AdNet is providing specifically for Zip2 under this Agreement.
AdNet hereby assigns and agrees to assign to Zip2 any right, title or interest
worldwide in all intellectual property and any associated intellectual property
rights. AdNet agrees to execute upon Zip2's request a signed transfer of
ownership to Zip2 for all such documents and works subject to protection. If
Zip2 is unable for any reason to secure AdNet's signature to any document
required to apply for or execute any intellectual property right, AdNet hereby
irrevocably designates and appoints Zip2 as its agent and attorney-in-fact to
act for and in its behalf and instead of AdNet for such purposes.
10.2 Confidential Information.
------------------------
(a) Definition of Confidential Information. "Confidential
--------------------------------------
Information" as used in this Agreement shall mean any and all technical and non-
technical information and proprietary information, including without limitation,
techniques, sketches, drawings, models, inventions, Intellectual Property,
patent applications, know-how, processes, apparatus, equipment, algorithms,
software programs, software source documents, and formulae related to the
current, future and proposed products and services of Zip2 and/or AdNet, its
suppliers and customers. Zip2's and AdNet's information concerning research,
experimental work, development, design details and specifications, engineering
information, financial information, procurement requirements, purchasing and
manufacturing information, customer lists, business forecasts, sales and
merchandising and marketing plans and information.
(b) AdNet Nondisclosure and Nonuse Obligations. AdNet will
------------------------------------------
use the Confidential Information solely to perform Project Assignment(s) for the
benefit of Zip2, AdNet agrees that its shall treat all Confidential Information
of Zip2 with the same degree of care as it accords to its own Confidential
Information, and AdNet represents that it exercise reasonable care to protects
its own Confidential Information. AdNet agrees that it shall disclose
Confidential Information only to those employees who need to know such
information and certifies that such employees have previously agreed, either as
a condition of employment or in order to obtain the Confidential Information, to
be bound by terms and conditions substantially similar to those of this
Agreement, AdNet agrees not to communicate any information to Zip2 in violation
of the proprietary rights of any third party. AdNet will immediately give notice
to Zip2 of any unauthorized use or disclosure of the Confidential Information.
AdNet agrees to assist Zip2 in remedying any such unauthorized use or disclosure
of the Confidential Information.
<PAGE>
(c) Zip2 Nondisclosure and Nonuse Obligations. Zip2 agrees that
-----------------------------------------
it shall treat all Confidential Information of AdNet with the same degree of
care as it accords to its own Confidential Information, and Zip2 represents that
it exercises reasonable care to protects its own Confidential Information. Zip2
agrees that it shall disclose Confidential Information only to those employees
who need to know such information and certifies that such employees have
previously agreed, either as a condition of employment or in order to obtain the
Confidential Information, to be bound by terms and conditions substantially
similar to those of this Agreement. Zip2 agrees not to communicate any
information to AdNet in violation of the proprietary rights of any third party.
Zip2 will immediately give notice to AdNet of any unauthorized use or disclosure
of the Confidential Information. Zip2 agrees to assist AdNet in remedying any
such unauthorized use or disclosure of the Confidential Information.
(d) AdNet's Exclusions from Nondisclosure Obligations. AdNet's
-------------------------------------------------
obligations under Paragraph 10.2(b) ("Nondisclosure") with respect to
Confidential Information shall terminate when AdNet can document that: (a) the
information was in the public domain at or subsequent to the time it was
communicated to AdNet by the disclosing party through no fault of AdNet; (b) the
information was rightfully in AdNet's possession free of any obligation of
confidence at or subsequent to the time it was communicated to AdNet by the
disclosing party; or (c) the information was developed by employees or agents of
AdNet independently of and without reference to any information communicated to
AdNet by the disclosing party. If AdNet is required to disclose the Confidential
Information in response to a valid order by a court or other government body, or
as otherwise required by law or as necessary to establish the rights of either
party under this Agreement, AdNet agrees to provide Zip2 with prompt written
notice so as to provide Zip2 with a reasonable opportunity to protect such
Confidential Information.
(e) Zip2's Exclusions from Nondisclosure Obligations. Zip2's
------------------------------------------------
obligations under Paragraph 10.2(b) ("Nondisclosure") with respect to
Confidential Information shall terminate when Zip2 can document that: (a) the
information was in the public domain at or subsequent to the time it was
communicated to Zip2 by the disclosing party through no fault of Zip2; (b) the
information was rightfully in AdNet's possession free of any obligation of
confidence at or subsequent to the time it was communicated to Zip2 by the
disclosing party; or (c) the information was developed by employees or agents of
Zip2 independently of and without reference to any information communicated to
Zip2 by the disclosing party. If Zip2 is required to disclose the Confidential
Information in response to a valid order by a court or other government body, or
as otherwise required by law or as necessary to establish the rights of either
party under this Agreement, Zip2 agrees to provide AdNet with prompt written
notice so as to provide AdNet with a reasonable opportunity to protect such
Confidential Information.
(f) Disclosure of Third Party Information. Neither party shall
-------------------------------------
communicate any information to the other in violation of the proprietary rights
of any third party.
10.3 Return of Zip2's Property. All materials furnished to AdNet by
-------------------------
Zip2, whether delivered to AdNet by Zip2 or made by AdNet in the performance of
services under this Agreement (collectively referred to as the "Zip2 Property")
are the sole and exclusive property of Zip2 and/or its suppliers or customers.
Upon termination of this Agreement by either party for any reason, AdNet agrees
to promptly deliver to Zip2 or destroy, at Zip2's option, the original and any
copies of the Zip2 Property. Within five (5) days after the termination of this
Agreement, AdNet agrees to certify in writing that AdNet has so returned or
destroyed all such Zip2 Property.
11. No Conflict of Interest. During the term of this Agreement, AdNet
-----------------------
will not accept work or enter into an arrangement with any other city guide
providers (including, without limitation, Microsoft Sidewalk and AOL Digital
Cities). AdNet warrants that, to the best of its knowledge, there is no other
contract or duty on AdNet's part which conflicts with or is inconsistent with
this Agreement.
12. Term and Termination.
--------------------
12.1 Term. This Agreement is effective as of the Effective Date set
----
forth above and will terminate on February 28, 1999 unless terminated earlier as
set forth below.
12.2 Termination by Zip2. Zip2 may terminate this Agreement, with or
-------------------
without cause, at any time upon sixty (60) days prior written notice to AdNet.
Zip2 also may terminate this Agreement immediately in its sole discretion upon
AdNet's material breach of Section 10 ("Intellectual Property Rights"), Section
13
3
<PAGE>
("Noninterference with Business") and/or upon any acts of gross misconduct by
AdNet. If Zip2 terminates without cause, AdNet may continue to call, up to sixty
(60) days after the termination date, all the advertisers that AdNet previously
invoiced for Zip2 during the term of this Agreement. AdNet will continue to
receive its commission for all Banner Advertising sold by AdNet to such
advertisers, including all Banner Advertising that it sells for Zip2 during the
term of this Agreement and invoiced during this 60-day period, that run past the
termination date, as set forth in Section 2 ("Compensation").
12.3 Termination by AdNet. AdNet may terminate this Agreement, with or
--------------------
without cause, at any time upon sixty (60) days prior written notice to Zip2.
AdNet may continue to call, up to thirty (30) days after the termination date,
all the advertisers that AdNet previously invoiced for Zip2 during the term of
this Agreement, and will continue to receive commissions for all Banner
Advertising by such advertisers invoiced during this period, as set forth in
Section 2 ("Compensation").
12.4 Effects of Termination; Survival. In the event of the termination
--------------------------------
of this Agreement, all payments due shall accelerate and become due upon the
effective date of termination to the extent that they have been earned. These
remedies are in addition to any other remedies that may be available to the
parties at equity or under law. The rights and obligations contained in Sections
10 ("Intellectual Property Rights"), 12 (Term and Termination), 15 (Governing
Law; Jurisdiction) and 18 (Injunctive Relief for Breach) will survive any
termination or expiration of this Agreement.
13. Successors and Assigns. AdNet may not subcontract or otherwise
----------------------
delegate its obligations under this Agreement without Zip2's prior written
consent. Subject to the foregoing, this Agreement will be for the benefit of
Zip2's successors and assigns, and will be binding on AdNet's assignees.
14. Notices. Any legal notice required or permitted by this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally; (ii) by
overnight courier upon written verification of receipt; (iii) by telecopy or
facsimile transmission upon acknowledgement of receipt of electronic
transmission; or (iv) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
above or such other address as either party may specify in writing.
15. Governing Law; Jurisdiction. This Agreement shall be governed in all
---------------------------
respects by the laws of the United States of America and by the laws of the
State of California, as such laws are applied to agreements entered into and to
be performed entirely within California between California residents. The
parties irrevocably submit to the non-exclusive jurisdiction of the Superior
Court of the State of California, San Francisco County and the United States
District Court for the Northern District of California, San Francisco Branch, in
any action to enforce this Agreement.
16. Severability. Should any provisions of this Agreement be held by a
------------
court of law to be illegal, invalid or unenforceable, the legality, validity
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby.
17. Waiver. The waiver by Zip2 of a breach of any provision of this
------
Agreement by AdNet shall not operate or be construed as a waiver of any other or
subsequent breach by AdNet. The waiver by AdNet of a breach of any provision of
this Agreement by Zip2 shall not operate or be construed as a waiver of any
other or subsequent breach by Zip2.
18. Injunctive Relief for Breach. Either party's breach of the obligations
----------------------------
contained in Sections 10 ("Intellectual Property Rights") and 11 ("No Conflict
of Interest") will entitle the other party to injunctive relief and/or a decree
for specific performance, and such other and further relief as may be proper
(including monetary damages if appropriate).
19. Legal Fees. If any action at law or in equity is necessary to enforce
----------
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
4
<PAGE>
20. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relating to this subject matter and supersedes all prior or
contemporaneous oral or written agreements concerning such subject matter. The
terms of this Agreement will govern all Project Assignments and services
undertaken by AdNet for Zip2. This Agreement may only be changed by mutual
agreement of authorized representatives of the parties in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"Zip2" "AdNet"
ZIP2 CORP. AdNet Strategies, Inc.
By: /s/ Michael W. Brickler By: /s/ John Bohan
---------------------------- ----------------------------------
Name: Michael W. Brickler Name: John Bohan
-------------------------- --------------------------------
Title: Vice President Title: President
------------------------- -------------------------------
5
<PAGE>
Latitude 90, Inc.
Representation Agreement
------------------------
THIS REPRESENTATION AGREEMENT (the "Agreement") is made as of December 31, 1998
by and between Latitude 90, Inc. (Latitude 90), with its principal place of
business located at 5959 West Century Blvd., Suite 756, Los Angeles, CA 90045,
Web 21 (Company), with its principal place of business located at 354
California, Suite 3, Palo Alto, CA 90045, and Go2Net, Inc. (Go2Net), with its
principal place of business located at 999 Third Avenue, Suite 4700, Seattle, WA
98104.
Latitude 90 and Company agree to the following:
1. Engagement of Services
a. Latitude 90 will provide advertising sales representation and consultation
for Company's website, located on the World Wide Web at
http://www.100hot.com and other interactive marketing vehicles such as
---------------------
Surfboard and My100Hot.
b. Latitude 90 will update Company on the progress and demand of the Internet
advertising marketplace.
2. Sales & Marketing Support
a. Company and Latitude 90 will write and distribute press releases for any
worthy advertising programs that are developed and sold by Latitude 90 and
Company. Latitude 90 will not distribute press releases without the consent
of Go2Net, which shall not be reasonably withheld.
b. Latitude 90 will provide Company with the following Sales and Marketing
Support:
I. Latitude 90 will highlight Company in its media kit and Web site as one
of its Premium Web site Partners including detailed information in both
its "Web site" and "Beyond the Banner" sections.
II. Latitude 90's Sales executives will work with Company to orchestrate
programs that increase Company's overall revenue stream.
c. Company will provide Latitude 90 with the following Sales and Marketing
Support:
I. Company will allocate appropriate budgets to develop advertising sales
material for general media kit purposes and for special advertising
programs.
<PAGE>
II. On Company's Advertising information page, Company will refer to
Latitude 90 as its exclusive third-party Advertising Sales
Representation firm and will link to a customized page on Company's
site that provides Latitude 90 Sales contact information.
III. Company agrees to provide Latitude 90 with the necessary sales and
marketing resources reasonably required to support new advertising
recommendations and demonstrations.
3. Schedule Serving & Tracking
a. Excluding all Reach & Efficiency campaigns, Company will use its best
efforts to serve and track all banner schedules that Latitude 90 books for
Company within four months of the execution of this agreement. Until such
time, serving and tracking will continue under the system used by Company
and Latitude 90 as of the date of this agreement. Once Company begins to
handle serving and tracking, Company will use its best efforts to provide
Latitude 90 with online tracking results that list daily impression and
click data for each banner creative.
b. Latitude 90 will serve and track all of Company's Reach & Efficiency
schedules (network buys) that are sold by Latitude 90 sales executives.
Latitude 90 will provide online tracking results that will list impression
and click data for each banner creative. Reach & Efficiency schedules are
defined as those schedules that are booked as part of a network buy, where
Latitude 90 sells a number of its sites as one buy.
c. Company acknowledges that it is Latitude 90's preference to serve and track
all of Web21's advertising schedules. The parties agree to discuss the
possibility of transferring all of Company's serving & tracking management
to Latitude 90.
d. To the extent that Latitude 90 serves and tracks non-Reach & Efficiency
campaigns (for example rich media deals that the current system or the
Company system will not support), the commission to Latitude 90 will be
negotiated on a case-by-case basis.
4. Sales Management
a. To maximize revenues for all Company properties (including 100hot.com,
Surfboard, and My 100hot), the parties agree to utilize both Latitude 90
and Go2Net's sales staff. Both parties are sensitive to the possibility of
client confusion and sales conflict and as a result, each sales staff will
adhere to the following guidelines:
I. 100hot.com Sales - Go2Net will have the opportunity to run advertising
through 100hot.com's inventory to fill Go2Net's run of site schedule
commitments. Go2Net will not sell 100hot on an individual site basis
nor will it sell specific categories, sections or keywords as part of
an overall Go2Net buy.
<PAGE>
II. Surfboard Sales - Latitude 90 will continue to sell Company's
"Surfboard Technology" under its current name. Go2Net may sell this
technology under another name and will refer to Go2Net (not Company)
as the provider of this service.
III. My 100hot Sales - Latitude 90 will sell Web21's "My 100hot Service"
under its current name. Go2Net may sell this technology under another
name and will refer to Go2Net (not Company) as the provider of this
service.
The parties agree to work together on an ongoing basis to develop new and
innovative methods to maximize revenue.
5. Term and Termination
a. This Agreement will begin on the execution of this contract and run through
December 31, 1999. If either party wants to terminate this contract on
December 31, 1999, it will provide the other party with a written request
for termination by October 1, 1999. If a termination request it not
submitted by October 1, 1999, this contract will continue through March 31,
2000, subject to Paragraph 5(b).
b. Company can terminate this agreement on thirty (30) days written notice if,
over any trailing 90-day period, Latitude 90 fails to deliver to Company a
combined minimum of $600,000 in recognized advertising revenue, revenue
share dollars and sponsorship dollars for Company's Web site, surfboard
technology and My 100hot technology.
c. If Company terminates this agreement, all then-current advertisers with
solid payment histories shall be run through the end of their then-current
campaigns.
d. If Company terminates this agreement, Latitude 90 shall have 60 days from
the date of termination to book advertising campaigns on Company
properties.
e. Exclusivity. If Latitude 90 becomes the sales rep firm for a search
directory service (such as Looksmart, Mining Company or GoTo.com), Company
shall have the right to terminate Latitude 90 on 90 days notice.
6. Account Booking
a. When Latitude 90 books on account, it will fax G02Net (attn: Accounting
Dept) a copy of the insertion order as well as any pertinent schedule
details not listed on the insertion order such as production contact
information, banner advertising placement, and URL link. Latitude 90 will
also fax a copy of a completed credit form (for all non-Reach & Efficiency
deals), so that Go2Net may establish the credit terms for the advertiser.
Latitude 90 understands that all advertisers must sign an insertion order
form that has been approved by Go2Net. Go2Net and Latitude 90 shall work
together to finalize this standard insertion order form by January 15,
1999.
<PAGE>
b. When Go2Net books an account for 100hot.com, Surfboard of My 100hot, it
will provide Latitude 90 with pricing and flight details.
7. Price List
a. Within five business days of the execution of this Agreement, Latitude 90
shall provide Go2Net with a Price List (with an explanation of the
parameters given to Latitude 90 sales people to give discounts), which must
be approved by Go2Net. Go2Net and Latitude shall work together to finalize
this Price List by January 15, 1999. Latitude 90 understands that all sales
must be according to this Price List, unless otherwise approved by Go2Net.
8. Collections
a. All collections of non-Reach and Efficiency campaigns will be handled by
Go2Net. Therefore Go2Net shall establish credit terms to be granted (if any) to
each advertiser signed by Latitude 90. Latitude 90 shall provide reasonable
assistance to Go2Net to collect any overdue amounts owned by advertisers. To the
extent that an advertiser is delinquent in paying their outstanding invoices,
Go2Net reserves the right to terminate such campaign(s) and turn the account
over to a collection agency.
9. Expenses
a. Latitude 90 will be solely responsible for all its expenses, including
telephone and fax, costs, travel, and those expenses related to client
entertainment.
10. Compensation
a. During the term of this contract Latitude 90 will be paid 25% commission
for all advertising, revenue-share, name acquisition, sponsorship and
interactive marketing dollars that (i) runs in Company's Web site and were (ii)
derived from advertising or other transactions booked by Latitude 90. Latitude
90 will also be paid a 25% commission on the sale of all advertising revenue,
revenue-share dollars, and sponsorship dollars that are booked by Latitude 90
for Company's "Surfboard" and "My 100hot" products. Latitude 90 and Company
agree to define a monthly bonus structure that is based upon Latitude 90
achieving certain performance thresholds.
b. Definitions
Advertising Revenue refers to advertising banners that run on Company Web site.
Revenue-Share Dollars are defined as those orders where Company receives a
percentage of the revenue retained from the sale of a product.
Name Acquisition Revenue refers to schedules where Company is paid to increase
an advertiser's database of consumer names and addresses.
<PAGE>
Sponsorship Revenue refers to revenue that is generated from advertisers that
run schedules that go beyond banner advertising placement. These schedules may
include, but are not limited to, static advertising in specific sections,
co-branded jump pages, endorsement icons, and advertisements sent via Company
e-mail.
Interactive Advertising Vehicles refers to any digital media or digital tools
created for the purpose of online advertising. These may include, but are not
limited to products such as surfboard and my100hot.
11. Invoicing and Payment
a. Company will invoice and collect all advertising, revenue-share, name
acquisition, sponsorship and interactive marketing schedules. Latitude 90 will
provide reasonable assistance to the company in invoicing and collecting these
schedules. By the 30/th/ of each month, Company will mail Latitude 90 its
commission for all Latitude 90 revenue collected in the prior month.
b. Latitude 90 will invoice and collect all revenue for reach and efficiency
schedules. By the 30/th/ of each month Latitude 90 will mail Company its share
of all Company and Go2Net monies received by Latitude 90 in the prior month.
Reach & Efficiency schedules are defined as those schedules that are booked as
part of a network buy, where Latitude 90 sells a number of sites.
c. Latitude 90 is not liable for any debt incurred during the term of this
contract.
12. Confidential Information
a. Latitude 90 agrees during the term of this Agreement and thereafter to take
all steps reasonably necessary to hold in trust and confidence information
which they know or have reason to know is considered confidential by
Company as demonstrated by their signing the Company's NDA.
b. Company agrees during the term of this Agreement and thereafter to take all
steps reasonably necessary to hold in trust and confidence information
which they know or have reason to know is considered confidential by
Latitude 90 as demonstrated by their signing the Latitude 90's NDA.
13. General
a. Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the United States and the State of Washington.
b. Legal Fees. If any action at law or in equity is necessary to enforce or
----------
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements,
in addition to any other relief to which the party may be entitled.
<PAGE>
c. Independent Contractor - Company and Latitude 90 acknowledge and agree that
----------------------
Latitude 90 is an independent contractor to Company and not an employee,
agent, or joint venture of Company. Latitude 90 is an independent
contractor and is solely responsible for all taxes, withholdings, and
other similar statutory obligations, including, but not limited to,
Workers' Compensation Insurance.
d. Professional Standards. The performance of Latitude 90 and Company under
----------------------
this Agreement shall be conducted with due diligence and in full compliance
with the highest professional standards of practice in the industry.
e. Latitude 90 Indemnity. Latitude 90 will indemnify and hold Company
---------------------
harmless, and will defend Company against any and all loss, liability,
damage, claims, demands, or suits and related costs and expenses to persons
or property that arise, directly or indirectly, from acts or omissions of
Latitude 90, or breach any term or condition of this Agreement.
f. Company Indemnity. Company will indemnify and hold Latitude 90 harmless,
-----------------
and will defend Latitude 90 against any and all loss, liability, damage,
claims, demands, or suits and related costs and expenses to persons or
property that arise, directly or indirectly, from acts or omissions of
Company, or breach any term or condition of this Agreement.
g. Entire Agreement. This Agreement constitutes the entire understandings
----------------
between the parties, and supersedes all prior negotiations or
understandings between the parties concerning the subject matter contained
in this Agreement.
LATITUDE 90, INC.: COMPANY:
By: /s/ John C. Bohan By: /s/ Bert Fornaciari
---------------------------- ---------------------------------
John C. Bohan Bert Fornaciari
President & CEO President & CEO
Date: 12/31/98 Date: 1/12/99
-------------------------- -------------------------------
GO2NET, INC.:
By: /s/ John Keister
----------------------------
John Keister
Chief Operating Officer
Date: 1/12/99
--------------------------
<PAGE>
ADVERTISING SALES AGENCY AGREEMENT
This Agency Agreement dated January 1, 1999 ("Effective Date") by and between:
Latitude 90, Inc. a corporation with principal offices at 5959 West
Century Blvd., Suite 756, Los Angeles, CA 90045 ("Agent"); and
Bell Atlantic Electronic Commerce Services, Inc., a corporation with an
office at 35 Village Road, Middleton, MA 01949 ("BAECS").
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT
1.1. BAECS appoints Agent as a non-exclusive agent to provide sales
representation and consultation for the sale of advertising as defined in
Attachment A ("Advertising") to be placed on BAECS's Big Yellow website
located on the World Wide Web at http://www.bigyellow.com or related
sites ("BAECS Sites").
1.2. Agent agrees to accept such appointment.
2. AGENT'S RESPONSIBILITIES
2.1. Agent will highlight BAECS in its media kit and websites as one of its
Premium Website Partners including detailed information in both its
"Website" and "Beyond the Banner" sections.
2.2. Agent will also provide BAECS with the opportunity to participate in its
co-op advertising campaign, which is designed to stimulate additional
Advertising revenue. This campaign will use direct mail, electronic mail
and print advertising to build the brand awareness of Agent's Premium
Partners as well as well specific marketing programs such as BAECS's "Hot
Commerce".
2.3. Agent's sale executives will work with BAECS's sales, marketing and
business development departments to orchestrate programs that increase
the overall effectiveness of programs and revenue stream of BAECS.
2.4. Agent will use its reasonable and diligent efforts to market and sell
Advertising as set forth in this Agreement.
2.5. Agent will use only those promotional materials provided or approved in
advance by BAECS, will document all sales using only Insertion Orders,
contracts and applications and materials provided by BAECS, and will
market Advertising in a manner consistent with the law and with BAECS
standards, including those BAECS specifies as necessary to protect
trademarks or trade names.
2.6. Agent will make only such representations concerning any BAECS Sites as
have been approved by BAECS. Agent will notify BAECS immediately upon
notice to it of any cancellation of any Insertion Order.
2.7. Agent will obtain from the customer signed Insertion Orders, contracts
and applications for Advertising and shall submit them to BAECS as
required by BAECS.
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2.8. Agent will cooperate fully with BAECS in resolving any customer
complaints. At BAECS's request, Agent will represent BAECS's interest
taking into consideration the interests of the customer in negotiating
adjustments of customer's accounts and claims involving BAECS's alleged
errors and omissions. BAECS will have the right, in its sole discretion,
(i) to approve or disapprove any adjustment or other arrangement proposed
by Agent unless such adjustment or other arrangement is made at Agent's
sole expense, and (ii) to make any customer account adjustment it deems
appropriate.
2.9. Agent will perform its obligations under this Agreement, including
creative design, in accordance with the highest industry standards and to
BAECS's reasonable satisfaction.
2.10. Agent will cooperate fully in the collection, compilation and maintenance
of date required to be reported by BAECS pursuant to any federal or state
statute, regulation or order.
2.11. Agent will perform other functions reasonable requested by BAECS. If
Agent incurs any material additional expenses in the performance of
additionally requested functions, then performance will be determined by
mutual agreement of BAECS and Agent.
2.12. Agent may, at its option and neither pursuant to this Agreement nor as
agent to BAECS, provide creative design assistance to customers in order
to develop more effective campaigns. Such design assistance shall be by
separate agreement between Agent and the customer, and under separate
charges. Agent shall not represent that BAECS is a party to such design
work or that such design work is provided pursuant to customer's
Agreement or Insertion Order with BAECS, and BAECS shall not be liable in
any manner for any such design assistance provided by Agent. Agent is
responsible for all billing and collection of charges for design fees.
3. BAECS RIGHTS AND RESPONSIBILITIES
3.1. BAECS will, at its sole discretion allocate appropriate budgets to
develop sales and promotional material for general media kit purposes and
for special programs for Advertising.
3.2. Each month Agent and BAECS will conduct joint account management planning
to discuss and coordinate sales calls and business partnering
initiatives.
3.3. Agent will promptly forward its recommendations and requests regarding
Advertising to BAECS. BAECS will respond within two (2) business days of
the request with a go/no go on the recommendation. It is the
responsibility of Agent to define not only the revenue opportunity and
any technical requirements that the opportunity is contingent upon.
3.4. BAECS at its discretion will provide Agent with the necessary sales and
marketing resources to support new Advertising recommendations and
demonstrations.
3.5. BAECS agrees to provide such promotional literature and contractual
documentation to Agent, as BAECS deems appropriate. BAECS further agrees
to keep Agent informed of any regulatory, product or business changes
that will impact Agent's performance under this Agreement, and to change
materials as necessary.
3.6. BAECS will perform all billing and collection functions for the
Advertising sold by Agent under this Agreement. Early payment discounts,
if any, will not effect Agent's commission. For quality control and
customer service reasons, BAECS may contact any existing customer at any
time. Before contacting any existing customer for sales and marketing for
Advertising, BAECS shall
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<PAGE>
contact Agent to assist in joint marketing activities. Should Agent
choose to participate in such joint marketing activities, any Advertising
sales resulting from such joint marketing efforts shall be deemed to be
eligible for compensation under this Agreement.
3.7. By the twelfth calendar day of each month, BAECS will provide Agent with
a tracking report that lists total number of page views and estimated
visitors for the site as well as total page views by each section listed
on the Navigational Bars of the BAECS Sites. BAECS will use reasonable
efforts to deliver tracking reports by close of business each Monday.
3.8. On a weekly basis, BAECS will provide weekly tracking reports to Agent
that list daily impressions and click-throughs for each Advertising
creative that ran in the prior week. For all banner advertisements that
Agent serves for BAECS, it will provide an online weekly tracking report
that also provides banner impressions and click-throughs (by banner) for
each Advertisement that ran in the prior calendar week.
4. ACCEPTANCE OF ORDERS; COMPENSATION; REVENUE OBJECTIVES
4.1. Agent will submit separate Insertion Orders, contracts and applications
for Advertising, which BAECS may accept or reject at its sole discretion.
Agent is not authorized to accept, approve, execute on behalf of BAECS or
amend any Insertion Order or Application for Advertising and will take no
action or make any representation to the contrary to any person. No
Insertion Orders, contracts and applications for the sale of any
Advertising will be binding on BAECS unless accepted by BAECS by
publication pursuant to such Order. BAECS may delete any Advertising from
the BAECS Sites at any time for any reason.
4.2. In full compensation for the services performed under this Agreement
BAECS agrees to pay Agent commissions as described in Attachment B. Agent
will pay all expenses it incurs in performing services under this
Agreement. BAECS has the right to set off against any payment due Agent
under this Agreement any amounts owed to it by Agent under this Agreement
or under any other agreement.
4.3. BAECS reserves the right to change the Commission Rates for any renewal
Term effective at the beginning of the renewal Term upon thirty (30) days
prior written notice.
4.4. If customers are represented by advertising agencies or if Agent
subcontracts any of its responsibilities in accordance with Section 12,
Agent will be solely responsible for paying any compensation to the
agencies and subcontractors without recourse to BAECS.
4.5. BAECS will pay commissions due to Agent on a monthly basis within forty-
five days of the end of the particular month, based on applicable amounts
collected by BAECS. BAECS will provide Agent with a monthly statement
listing all sales of Advertising and for which Agent is being paid, as
well as al outstanding accounts that are due an payable, including
Insertion Order numbers.
4.6. Agent will assist BAECS in collecting all past due bills, as requested by
BAECS.
4.7. To avoid duplication of efforts, Agent and BAECS will coordinate on a
monthly basis with regard to all accounts that are being pursued by each
party in connection with this Agreement.
5. TERM; TERMINATION; AGENT'S DEFAULTS
5.1. This Agreement will remain in effect for one year after the Effective
Date ("Term"). The Term will
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<PAGE>
be automatically renewed for successive one-year periods unless
terminated by either party as provided below.
5.2. BAECS may terminate this Agreement immediately upon written notice under
the following circumstances: (i) in response to regulatory or legal
actions or concerns; and (ii) for cause. "For cause" means: (a) failure
to perform or other breach of any of Agent's obligations, representations
or warranties under this Agreement, provided that, BAECS first provides
Agent written notice of breach and an opportunity to cure such breach
within ten (10) days; or (b) the failure to pay its subcontractors or
employees providing services under this Agreement; or (c) a change in
ownership or control, liquidation, bankruptcy or insolvency of Agent.
5.3. Either party may terminate this Agreement for any reason upon one hundred
and twenty (120) days written notice.
5.4. Upon termination or expiration of this Agreement for any reason: (i) the
rights and duties that each party has accrued before termination will
continue in full force and effect; (ii) Agent will not be entitle to any
commissions for any Advertising for which Insertion Orders are submitted
to BAECS after the date of termination or expiration or ordered by Agent
or any customers served by Agent after the date of termination or
expiration; (iii) Agent acknowledges and agrees that it will not
interfere with BAECS's contractual relationship or prospective
contractual relationship with the customers served by Agent under this
Agreement; (iv) Agent immediately will return to BAECS all materials,
including sales contracts, software, promotional or marketing materials,
demonstration materials, and all other materials supplied to it by BAECS
or relating to its performance of services under this Agreement; and (v)
Agent will continue to receive its commission share for all orders
accepted by BAECS prior to the termination or expiration date including
those schedules that actually run after the termination or expiration
date. All material and software existing on Agent's word processing or
computing equipment, servers, email systems (including all back up
systems), will be destroyed or deleted by Agent within ten (10) days of
the date of termination or expiration, and Agent will provide BAECS with
written confirmation that all such material and software has been
destroyed or deleted.
6. LICENSE TO USE BAECS TRADE NAMES AND TRADEMARKS.
6.1. Subject to the terms and conditions specified in this Agreement, BAECS
hereby grants to Agent, for the term of this Agreement, a limited non-
exclusive, non-assignable license to use the trade names, trademarks and
service marks (hereinafter "Licensed Marks") for purposes of selling
Advertising.
6.2. BAECS will provide Agent with the specifications and restrictions on
using the Licensed Marks. Agent may use these Licensed Marks solely as
depicted in graphic configurations to be provided by BAECS.
6.3. Agent shall not use the Licensed Marks in any format other than the most
recent graphic configurations as provided by BAECS. Agent shall not use
any of the Licensed Marks as part of its corporate name, trade name or
business name. Agent further agrees to abide by such policies, standards
and practices regarding the use of the Licensed Marks as BAECS may
establish and provide written notice of from time to time.
6.4. Agent shall submit to BAECS for prior review and approval, all
advertising, including, without limitations, sales brochures, promotional
materials, business cards, letterhead, press releases, Internet and other
electronic listings, and other items or materials in which the Licensed
Marks are used. Agent shall not publish, distribute or use any such
advertising without the prior written
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<PAGE>
approval of BAECS.
6.5. In order to comply and continue in compliance with applicable trademark
law, including the U.S. Trademark Act of 1946, 15 U.S.C. Section 1051, et
seq., with respect to control by BAECS of the nature and quality of the
Advertising for sale by Agent with the Licensed Marks;
6.6. Agent shall ensure that all advertising under Section 2 performed by
Agent in connection with the Licensed Marks complies with all applicable
Federal, State, and Local laws and regulations.
6.7. Agent shall comply with all guidelines outlined by BAECS and such other
quality control policies, standards and practices related to the Licensed
Marks as BAECS may adopt and provide written notice of from time to time.
6.8. BAECS shall have the right, at all reasonable times, to conduct an
examination of the facilities of Agent in conjunction with Agent's use of
any Licensed Marks to determine whether Agent's obligations under Section
2 comply with this Agreement and the BAECS policies, standards and
practices for the use of the Licensed Marks.
6.9. If at any time Agent fails to comply with this Agreement or with BAECS
policies with respect to the advertising permitted under Section 2,
standards and practices for such advertising, or Agent's use of the
Licensed Marks fails to comply with this Agreement or with BAECS'
policies, standards and practices, BAECS may suspend or terminate Agent's
license to use the Licensed Marks and/or terminate this Agreement.
6.10. Agent acknowledges the value of the Licensed Marks and the goodwill
associated therewith and acknowledges that such goodwill is a property
right belonging to BAECS or to BAECS' parent or affiliated companies and
that BAECS or BAECS' parent or affiliated companies are the owners of all
trademarks, service marks, trade names, and other rights in the Licensed
Marks. Agent acknowledges that nothing contained in this Agreement is
intended as an assignment or grant to Agent of any right, title or
interest in or to the Licensed Marks and that this Agreement does not
confer any right or license to grant sublicenses to third paries,
including but not limited to Agent's representatives, agents, or
subcontractors, to use any Licensed Mark. Agent shall not challenge the
title or any right of BAECS or BAECS' parent or affiliated companies in
and to the Licensed Marks or benefit therefrom, or make any claim or take
any action adverse to BAECS or BAECS' parent or affiliated company's
ownership of the Licensed Marks. All rights, if any, that may be acquired
by use of the Licensed Marks by Agent shall inure to the benefit of and
be on behalf of BAECS and BAECS' parent and affiliated companies. Agent
shall not adopt, use (other than as authorized herein), register or seek
to register any trade name, trademark or service mark anywhere in the
world which is identical to any Licensed Mark or which is so similar
thereto as to constitute a deceptive colorable imitation thereof or to
suggest or imply some association, sponsorship or endorsement by BAECS or
BAECS' parent or affiliated companies. BAECS warrants that it is the
owner of the Licensed Marks or has the right to grant the rights with
respect to the Licensed Marks.
6.11. Agent agrees to notify BAECS of any unauthorized use of the Licensed
Marks by others promptly as it comes to Agent's attention. BAECS and its
parent and affiliated companies shall have the sole right to engage in
infringement or unfair competition proceedings involving the Licensed
Marks.
6.12. Upon termination or expiration of this Agreement, the license to use the
Licensed Marks granted hereunder shall cease to exist and Agent shall
immediately cease any use of such Licensed Marks. Agent shall also
promptly destroy or return to BAECS all materials in possession or
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control displaying the Licensed Marks.
6.13. Agent shall not, without the prior written approval of BAECS, use in
any items or materials in which the Licensed Marks are used
(including, but not limited to communicational materials in which the
Licensed Marks are used), directly or by inference or implication, the
name or brand of any person or entity other than Agent or the Bell
Atlantic companies. Agent shall notify BAECS in advance of the
proposed use of the name or brand of a person or entity other than
Agent or the Bell Atlantic companies in items or materials in which
the Licensed Marks will be used. BAECS shall have forty-five (45) days
after being notified of such proposed use to approve or disapprove of
the proposed use. BAECS approval or disapproval of the proposed use
shall be at BAECS's sole discretion and the proposed use may be
disapproved by BAECS without cause. Any items or materials in which
the Licensed Marks are used and which use the name or brand of a
person or entity other than Agent or the Bell Atlantic Companies shall
also be subject to review.
7. INDEPENDENT CONTRACTOR STATUS.
The status of Agent to BAECS will be that of an Independent contractor
with a limited power of agency to represent BAECS for the sole
purposes of selling the Advertising and only to the extent explicitly
provided for in this Agreement. Agent will not make any representation
to the contrary to any person. In particular, Agent acknowledges that
all persons providing services under this Agreement are agents,
servants, contractors or employees solely of Agent and that they are
not agents, servants or employees of BAECS. Agent will not to bind, or
attempt to bind, BAECS to any obligation with any third party, it
being intended that BAECS and Agent each will be responsible for its
own actions. Persons providing services under this Agreement will not
be entitled to any benefits that BAECS provides its own employees.
8. ASSIGNMENT.
Agent will not assign any of its rights or duties under this Agreement
without the prior written consent of BAECS. Any attempted assignment
or delegation in contravention of the above provision will be void and
ineffective. BAECS may freely assign all or any part of this
Agreement.
9. INFORMATION; PUBLICITY.
9.1. Any BAECS information disclosed to Agent under this Agreement shall
remain BAECS property. All copies of such information in written,
graphic or other tangible form shall be returned to BAECS at its
request. Upon termination or expiration of this Agreement, BAECS
Information shall be destroyed or returned to BAECS at BAECS' sole
option. No copies shall be made of any documents or other media or
software provided by BAECS without the prior written consent of BAECS.
Unless such information was previously known to Agent free of any
obligation to keep confidential, or has been or is subsequently made
public by BAECS or a third party without breach of any agreement,
Agent agrees to keep such information strictly confidential. Such
information shall be used only in performing services under this
Agreement, and may not be used for other purpose unless agreed upon
between Agent and BAECS in writing. Agent shall required all parties
accessing BAECS information, including its employees, agents and
representatives, to sign a separate written agreement protecting BAECS
information substantially in the form of this provision.
9.2 BAECS and Agent will jointly own all information collected by cookie
data and other technologies from Agent's serving BAECS Advertising.
Agent agrees to provide such information to BAECS at its request.
10. GOVERNMENT LAWS AND REGULATIONS.
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Agent agrees, in connection with the performance of services hereunder, to
comply with all applicable federal, state or local laws, rules,
regulations, executive orders and other orders. Agent agrees that it will
not discriminate against any employee or applicant for employment on
account of race, color, religion, sex, disability or national origin.
11. RECORDS.
Agent agrees to maintain records of its activities under this Agreement in
accordance with recognized General Accounting Practices ("GAP"). BAECS will
have the right to audit or review the records of Agent relating to the work
performed, and any expenses incurred, in connection with this Agreement.
All compensation shall be subject to adjustment based on the results of
such audit.
12. SUBCONTRACTORS.
Agent may subcontract any portion of the work under this Agreement provided
that the subcontractor agrees to all the terms and conditions of this
Agreement. Agent will be liable for the conduct of such subcontractor to
the same extent as Agent's liability under this Agreement. Agent will
immediately terminate any such subcontractor upon BAECS's written request.
13. INDEMNIFICATION.
Each party agrees to indemnify and hold the other party and its parent
company, its subsidiaries and affiliates ("Indemnified Party") harmless
against any losses, damages, liabilities, claims or demands by any person
(including all costs, expenses and reasonable attorneys' fees on account
thereof or in connection with any investigation or preparation related
thereto or the enforcement of the indemnification provisions of this
Agreement) (collectively, the "Indemnified Amounts") arising from this
Agreement or that may be made as a result of either party's actual or
alleged acts or omissions, including any actual or alleged breach of any of
its obligations under this Agreement or any warranty or representation made
in this Agreement. The Indemnified Party agrees to notify the other party
promptly of any written claims or demands against the Indemnified Party for
which the other party is responsible and the Indemnified Party will be
entitled, at its option, to assume the defense or settlement of any such
claim, provided that no settlement shall be reached without the consent of
that party. The Indemnified Party will promptly be reimbursed by the other
party for Indemnified Amounts as they are incurred.
14. INSURANCE.
Agent will secure and maintain at its expense during the term of this
Agreement (i) statutory workers' compensation insurance and (ii) Commercial
General Liability insurance for a combined single limit of at least
$250,000 per occurrence for bodily injury and property damage with a
minimum policy aggregate of $500,000. Agent shall deliver a certificate of
insurance on which BAECS is named as an additional insured with reference
to (ii) above. Furthermore, BAECS must receive at least ten (10) days'
notice of cancellation or modification of the above insurance.
15. LIMITED LIABILITY.
Each party agrees that no party nor any parent, affiliate or subsidiary
companies shall be liable for any consequential, special, indirect,
incidental, punitive or exemplary damages for any acts or failure to act
under this Agreement.
16. PRESS RELEASES.
BAECS and Agent expect to issue press releases for certain Advertising
programs developed and sold under this Agreement.
17. NOTICES.
All notices to a party under this Agreement will be in writing and will be
sent by registered or
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certified mail, return receipt requested, or delivered by hand, by
overnight courier or by facsimile to such party's place of business noted
below or to such other address as may be designated in writing by either
party in accordance with this section.
Notices to Agent:
Latitude 90, Inc.
5959 West Century Blvd.
Suite 756
Los Angeles, CA 90045
Attention: ________________
Notices to BAECS:
Bell Atlantic Electronic Commerce Services, Inc.
35 Village Road
Middleton, MA 01949
Attention: Legal Department
18. CHOICE OF LAW.
This Agreement will be governed by, and construed in accordance, with the
laws of the State of New York applicable to agreements made and to be
performed within such state without regard to the principles of conflicts
of law.
19. AMENDMENTS.
Unless otherwise provided for in this Agreement, no modification,
alteration or amendment of this Agreement will be effective unless
contained in a writing signed by both parties and specifically referring to
this Agreement.
20. NON-WAIVER.
No course of dealing or failure of either party to strictly enforce the
terms and conditions of this Agreement will be construed as a waiver of the
future performance of that term or condition.
21. SEVERABILITY.
In the event that one or more provisions contained in this Agreement are
for any reason held to be unenforceable in any respect under the laws of
the jurisdiction governing the Agreement, such unenforceability will not
affect any other term or condition of this Agreement and this Agreement
will be construed as if the unenforceable provision was not contained in
this Agreement.
22. SURVIVAL OF OBLIGATIONS.
Agent's obligations under this Agreement, which by their nature would
continue beyond the termination will survive termination, cancellation or
expiration of this Agreement.
23. FORCE MAJEURE.
Neither party will be liable for delays due to accidents, acts of God,
fire, strikes, embargo, acts of the Government, or other similar causes
("Force Majeure Event") beyond its control and that are not due to its acts
or failure to act. If a Force Majeure Event occurs, the party delayed will
promptly give notice to the other party. The party affected by the other
party's delay may elect to: (a) suspend performance and extend the time for
performance for the duration of the Force Majeure Event or (b) cancel all
or any part of the unperformed part of this Agreement.
Page 8
<PAGE>
24. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement and understanding between
the parties with respect to the subject matter hereof and merges and
supersedes all prior discussions and writings with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
effective as of the date and year first above written.
BELL ATLANTIC ELECTRONIC COMMERCE LATITUDE 90, INC
SERVICES, INC.
By: /s/ Michael W. Souder By: /s/ John C. Bohan
------------------------------ ----------------------------
Name: Michael W. Souder Name: John C. Bohan
---------------------------- --------------------------
Title: VP - ECS Title: CEO
--------------------------- -------------------------
Date: December 23, 1998 Date: December 28, 1998
---------------------------- --------------------------
Page 9
<PAGE>
<TABLE>
<S> <C>
# of
Post-it(R) Fax Note 7671 Date 12-2-98 pages 2
------------------------ -------------------------
To Peter Bryant From Kristie
------------------------ -------------------------
Co./Dept. Co.
- ------------------------------------------------------------- ------------------------ -------------------------
LESSEE Phone # Phone #
- ------------------------------------------------------------- ------------------------ --------------------------
COMPANY NAME: Fax # 310 649-6520 Fax #
Adnet Strategies, Inc. ------------------------ --------------------------
- -------------------------------------------------------------
ADDRESS:
5959 West Century Blvd. Suite 756 SUPPLIER
- ------------------------------------------------------------- -------------------------------------------------------------
CITY: STATE: ZIP: COUNTY: COMPANY NAME
Los Angeles CA 90045 CVSI, Inc.
- ------------------------------------------------------------- --------------------------------------------------------------
CONTACT NAME: TITLE: ADDRESS
4G Crosby Drive
- ------------------------------------------------------------- --------------------------------------------------------------
PHONE: CITY STAGE: ZIP: COUNTY:
310-649-4200 Bedford MA 01730
- -------------------------------------------------------------- --------------------------------------------------------------
EQUIPMENT LOCATION (IF DIFFERENT FROM ABOVE) STREET ADDRESS: CONTACT NAME: TITLE:
- -------------------------------------------------------------- --------------------------------------------------------------
CITY: STATE: ZIP: COUNTY: PHONE: FAX:
781-275-2699 781-275-6810
- -------------------------------------------------------------- --------------------------------------------------------------
CHECK ONE: [x] CORPORATION [_] PARTNERSHIP [_] PROPRIETORSHIP [_] LIMITED LIABILITY COMPANY [_] NOT FOR PROFIT [_] STATE/LOCAL GOVT
- -----------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT DESCRIPTION [x] SEE ATTACHED ADDENDUM
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY: MAKE/MODEL: SERIAL NUMBER:
- --------- ------------------------------------------------------------------------------ -------------------------------
- --------- ------------------------------------------------------------------------------ -------------------------------
- --------- ------------------------------------------------------------------------------ -------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF MONTHLY LEASE PAYMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
LEASE TERM NUMBER OF AMOUNT OF TOTAL EQUAL TO 2 MONTH(S): $ 8,189.56
PAYMENTS PAYMENT PLUS ------------- -----------------
(MONTHS) $ APPLICABLE ADVANCE USE TAX ON ADVANCE: $ Incl.
48 TAXES -----------------
48 AT 3,782.71 LEASE ONE-TIME DOCUMENTATION FEE: $ 100.00
------ --------- ----------------
PAYMENT TOTAL INITIAL PAYMENT: $ 8,289.56
----------------
- ----------------------------------------------------- ---------------------------------------------------------------
ADDITIONAL PROVISIONS END OF LEASE PURCHASE OPTION
- ----------------------------------------------------- ---------------------------------------------------------------
End of lease purchase option shall be 10% of the Total Lease
- ----------------------------------------------------- Base or Fair Market Value (whichever is greater) or unless
another purchase option has been checked.
- ----------------------------------------------------- [_] $1.00 Purchase Option [_] Other
---------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS (continued on page 2)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. AGREEMENT. Lessee agrees that: (a) Lessee has read and understands the terms
and conditions on page 1 and page 2 of this Lease; (b) this Lease cannot be
canceled and Lessee has an unconditional obligation to make all payments due
under this Lease without reduction, withholding or off-set; (c) the person
signing this Lease has the authority to do so and to grant the power of attorney
set forth in paragraph 10 of this Lease; (d) this Lease is a commercial
transaction and not a consumer transaction; (e) Lessee has reviewed and approved
the supply contract covering the purchase of this Equipment from the supplier;
and (f) this Lease will be governed by the laws of the Commonwealth of
Massachusetts and Lessee consents to the jurisdiction of any court located
within the Commonwealth. Lessor and Lessee both waive any rights to trial by
jury.
2. LEASE. Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor the Equipment described above and in any addendum to this Lease. Lessor
may charge Lessee a documentation fee to cover lease documentation and
investigative costs. The Lease will commence on the date when the Equipment is
received by Lessee.
3. DELIVERY AND ACCEPTANCE OF EQUIPMENT. Upon delivery of the Equipment to the
location identified above, Lessee will inspect the Equipment and the Equipment
will be deemed irrevocably accepted by Lessee upon the earlier of: a) five (5)
days after delivery of the Equipment; or b) delivery to Lessor of a signed
Delivery and Acceptance Receipt. ONCE LESSEE SIGNS THIS LEASE AND LESSOR ACCEPTS
IT, THIS LEASE WILL BE NONCANCELLABLE FOR THE FULL LEASE TERM.
4. LEASE PAYMENTS. Lessee agrees to pay to Lessor the monthly Lease payments and
for the number of months as shown above. Any Advance Lease payments will be used
for the first Lease payment and any balance will be used for the last Lease
payment(s). Unless otherwise indicated above, the first Lease payment is due on
or before the Equipment is delivered to Lessee. Remaining Lease payments will be
due on the day of each subsequent month (or such other time period specified
above) designated by Lessor. Lessee authorizes Lessor to adjust the Lease
Payment by not more than 10% if the actual Total Lease Base differs from the
estimated Total Lease Base. The Total Lease Base is the amount Lessor has paid
in connection with the purchase, delivery and installation of the Equipment,
including any trade-up or buyout amounts. If any part of a payment is more than
five (5) days late, Lessee shall pay a late charge of up to 10% of the payment,
all or a portion of which is late (or such lesser rate as is the maximum rate
allowable under applicable law).
5. DISCLAIMER OF WARRANTIES. Lessor is leasing the Equipment to Lessee "AS-IS."
LESSEE ACKNOWLEDGES THAT LESSOR DOES NOT REPRESENT THE MANUFACTURER OR THE
SUPPLIER, LESSEE HAS SELECTED THE EQUIPMENT AND SUPPLIER BASED UPON ITS OWN
JUDGMENT. LESSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE. LESSEE
AGREES THAT ANY CLAIMS RELATIVE TO THE EQUIPMENT SHALL BE MADE SOLELY AGAINST
THE MANUFACTURER OR SUPPLIER, AND IN NO EVENT SHALL LESSOR BE LIABLE FOR
DAMAGES ARISING DIRECTLY OR INDIRECTLY FROM THE EQUIPMENT, WHETHER
CONSEQUENTIAL, DIRECT, SPECIAL, OR INDIRECT. LESSOR TRANSFERS TO LESSEE ANY
WARRANTIES BY THE MANUFACTURER OR SUPPLIER REGARDING THE EQUIPMENT.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------ ------------------------------------------------------
Lessee hereby agrees that either . or its wholly
---------------- LESSEE: AdNet Strategies, Inc.
owned subsidiary is to be the Lessor under this -----------------------------------------------
----------------------- (FULL LEGAL NAME OF LESSEE)
Lease as identified by the check mark next to its name. This Lease is Signature: John C. Bohan
not binding until accepted by Lessor --------------------------------------------
Title: President Date Accepted: 9/14/98
LESSOR : [x] Premier Capital Corporation ------------------------- ---------
------------------------------------------------------
[_]
By:
------------------------------------------------------------------
Title: VP Sales Date Accepted: 9-15-98
---------------------------------- ----------------
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
ADDITIONAL LEASE TERMS AND CONDITIONS
1. AGREEMENT. Lessee agrees that: (a) Lessee has read and understands the
terms and conditions on the front and back of this Lease; (b) this lease cannot
be canceled; (c) that the person signing this Lease has the authority to do so;
(d) this Lease will be governed by the laws of the Commonwealth of Massachusetts
and Lessee consents to the jurisdiction of any court located within the
Commonwealth; (e) Lessee has reviewed and approved the supply contract covering
the purchase of the Equipment from the supplier; and (f) Lessor is relying on
Lessee's representation that the Lease is legible.
2. LEASE. Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor the Equipment described on the front of this Lease and in any schedule
("Schedule") incorporating this Lease by reference. Lessor may charge Lessee a
document fee to cover lease documentation and investigative costs. The lease of
Equipment described in this Lease and the lease of Equipment described in each
Schedule shall constitute separate leasing transactions, each of which is
referred to herein as a Lease. The Lease will commence on the date when the
Equipment is received by Lessee.
3. DELIVERY AND ACCEPTANCE OF EQUIPMENT. Upon delivery of the Equipment to
the location identified on the front of the Lease, Lessee will inspect the
Equipment and the Equipment will be deemed accepted by Lessee five (5) days
after delivery of the Equipment. ONCE LESSEE SIGNS THIS LEASE AND LESSOR
ACCEPTS IT, THIS LEASE WILL BE NONCANCELLABLE FOR THE FULL LEASE TERM.
4. LEASE PAYMENTS. Lessee agrees to pay to Lessor the monthly Lease payments
and for the number of months as shown on the front of this Lease and in any
Schedule. Any Advance Lease payments will be used for the first Lease payment
and any balance will be used for the last payment(s). Lessee authorizes Lessor
to adjust the Lease Payment by not more than 10% if the actual Total Purchase
Price differs from the estimated Total Purchase Price. If any part of a payment
is more than five (5) days late, Lessee shall pay a late charge of up to 10% of
the payment, all or a portion of which is late (or such lesser rate as is the
maximum rate allowable under applicable law). The obligation of Lessee to make
Lease payments is unconditional.
5. DISCLAIMER OF WARRANTIES. Lessor is leasing the Equipment to lessee "AS-
IS." LESSEE ACKNOWLEDGES THAT LESSOR DOES NOT REPRESENT THE MANUFACTURER NOR
THE SUPPLIER. LESSEE HAS SELECTED THE EQUIPMENT AND SUPPLIER BASED UPON ITS OWN
JUDGMENT. LESSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE. LESSEE
AGREES THAT ANY CLAIMS RELATIVE TO THE EQUIPMENT SHALL BE MADE SOLELY AGAINST
THE MANUFACTURER OR SUPPLIER. LESSOR TRANSFERS TO LESSEE ANY WARRANTIES BY THE
MANUFACTURER OR SUPPLIER REGARDING THE EQUIPMENT.
6. LOCATION AND USE OF EQUIPMENT. Lessee will use the Equipment for business
purposes and keep it in good condition. Lessee agrees not to change the
location of the Equipment without the written consent of Lessor. Lessee will
keep the equipment in compliance with manufacturer's requirements and in good
condition except for ordinary wear and tear. The equipment will not have any
alterations, additions or replacements to it, without prior written consent. At
the end of the Lease term (or any other renewal term), or if the Lease is
terminated for any reason, Lessee, at its expense, will return the Equipment to
any place designated by Lessor, freight prepaid, in the same condition it was
delivered except for ordinary wear and tear. Lessee, at its own expense, will
insure the Equipment for its full replacement value during shipping and naming
the Lessor as a "Loss Payee."
7. TAXES AND FEES. Lessee shall pay all taxes, fees and charges imposed on
the ownership, possession, or use of the Equipment during the term of the Lease.
Lessor will file all personal property, use or other tax returns (unless Lessor
notifies Lessee otherwise) and Lessee agrees to pay Lessor a fee for making such
filings. Lessor does not have to contest any taxes, fines or penalties. Lessee
will pay estimated taxes with each Lease payment or as invoiced by Lessor.
8. INSURANCE; RISK OF LOSS. Lessee,at its own expense, shall keep insurance
against all risks of loss, theft, damage, or destruction of the Equipment for
the full replacement value thereof. Lessee shall furnish Lessor with a
certificate of insurance which shall: (a) name Lessor as "Loss Payee," and (b)
not be canceled except upon thirty (30) days written notice to Lessor. If Lessee
fails to provide Lessor of evidence of insurance,then Lessor may at its option
obtain the insurance. If Lessor purchases insurance, Lessee will cooperate with
Lessor's insurance agent with respect to the placement of insurance and the
processing of claims. Lessee also acknowledges that Lessor is not required to
procure or maintain any insurance, and that Lessor will not be liable to lessee
if such insurance coverage is discontinued. Lessee agrees to pay to Lessor the
Lessor's charges for such insurance. Lessee shall bear all risk of loss, theft,
damages or destruction of the Equipment ("Loss") from any cause whatsoever and
any such Loss shall not relieve Lessee from any obligation under the Lease
including to make Lease payments. Lessee also at its expense shall maintain
public liability and third party property insurance naming Lessor as an
additional insured and to be in such form, amount and with companies acceptable
to Lessor. Lessee shall upon request from lessor provide a certificate or other
evidence of such insurance.
9. TITLE; PERSONAL PROPERTY. The Equipment is and at all times shall remain
the sole property of the Lessor. No right, title or interest in the Equipment
shall pass to Lessee other than the right to maintain possession and use of the
Equipment for the full Lease term, conditioned upon Lessee's compliance with the
terms and conditions of the Lease. Lessor may charge Lessee a fee to cover
termination costs. Lessee agrees to keep the Equipment free and clear of all
liens, claims and encumbrances. Lessor may inspect the equipment at any
reasonable time.
10. UCC FILINGS. Lessee agrees that a carbon or photographic copy of this
Lease or any Schedule may be filed as a financing statement under the Uniform
Commercial Code ("Code"). Such recording shall not be deemed a factor whether
or not the Lease is intended as security under the Code. Lessee gives Lessor
authority to sign for the Lessee any Code forms or other documents to protect
the Lessor's interest in the Equipment. If requested, the Lessee will forward
signed financing statements or other documents to protect the Lessor's interest
in the Equipment. Lessee authorizes Lessor to file a copy of this lease as a
financing statement and appoints Lessor or Lessor's Designee as Lessee's
attorney-in-fact to execute and file, on Lessee's behalf, financing statements
covering the equipment. Lessee shall pay Lessor a documentation fee regarding
the forgoing.
11. STATUTORY FINANCE LEASE. LESSEE AGREES THAT IT IS THE INTENT OF BOTH
PARTIES TO THE LEASE THAT IT QUALIFY AS A STATUTORY FINANCE LEASE UNDER ARTICLE
2A OF THE CODE. BY SIGNING THE LEASE, LESSEE AGREES THAT LESSEE HAS SELECTED
BOTH (A) THE EQUIPMENT AND (B) THE SUPPLIER FROM WHICH LESSOR IS TO PURCHASE THE
EQUIPMENT. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ALL RIGHTS
AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A. LESSEE MAY HAVE RIGHTS UNDER
THE SUPPLY CONTRACT EVIDENCING THE LESSOR'S PURCHASE OF THE EQUIPMENT FROM THE
SUPPLIER CHOSEN BY THE LESSEE SHOULD CONTACT THE SUPPLIER FOR A DESCRIPTION OF
ANY SUCH RIGHTS.
12. DEFAULT. Lessee shall be in default if Lessee: (a) fails to make any lease
payment within five (5) days after the date the payment is due; (b) fails to
allow Lessor to inspect the Equipment during regular business hours; (c) fails
to provide Lessor with certificate of insurance; (d) fails to maintain the
Equipment; (e) assigns or otherwise transfers the Lease or the Equipment without
written approval; (f) moves the Equipment from the address set forth herein
without Lessor's written approval; (g) any guarantor of this Lease dies or does
not perform its obligations under the guaranty (h) fails to return the Equipment
to the Lessor upon termination of the Lease, or (i) files a petition in
bankruptcy or seeks similar relief.
13. REMEDIES. If a default occurs, Lessor may do one or more of the
following: (a) cancel this Lease and all other Leases that Lessor has entered
into with Lessee;(b) require Lessee to immediately pay Lessor, as compensation
for loss of our bargain and not as a penalty, a sum equal to (1) the present
value of all unpaid Lease payments for the remainder of the Lease term plus the
present value of the anticipated residual interest in the Equipment, each
discounted at 5% per year, compounded monthly, plus (2) all other amounts due
or that become due under the Lease; (c) require Lessee to deliver the Equipment
to Lessor; (d) take peaceful possession of the Equipment with or without court
order; and (e) exercise any other right or remedy available at law or in equity.
Each right and remedy shall be cumulative and may be exercised singly or in
combination. If Lessor takes possession of the Equipment, Lessor may sell or
otherwise dispose of the Equipment with our without notice, at a public or
private sale, and Lessor will apply the net proceeds (after Lessor has deducted
all costs related to the sale or disposition of the Equipment) to the amounts
that Lessee owes Lessor. Lessee will remain responsible for any amount still
owed to Lessor.
14. ASSIGNMENT. Lessee shall not assign, subject, lend, transfer, or pledge
the Lease or the Equipment without Lessor's prior written approval. Lessor may
assign, transfer, pledge or sell Lessor's interest in the Lease and Equipment.
Upon notification of such assignment, Lessee shall remit Lease payments directly
to Assignee.
15. PURCHASE OPTION. Upon expiration of the Lease term, provided Lessee is
not in default, Lessee shall have the option to purchase the Equipment under the
terms set forth on the front side of the Lease. Lessor will use its reasonable
judgment to determine the Equipment's fair market value. Lessor may charge
Lessee a release fee to cover its costs in releasing its interest in the
Equipment. Upon payment of the Lessor's fee and the Purchase Option price, plus
applicable taxes, Lessor shall transfer its interest in the Equipment to Lessee
"AS IS WHERE IS." For the purpose of Fair Market Value at the end of the lease
term, the value of the Equipment shall be determined by a mutually acceptable
independent third party appraiser. The appraisal shall be in writing and
delivered to Lessor at least 60 days prior to the expiration of the initial
lease term. All fees and expenses of the appraiser shall be paid by the Lessee.
16. RETURN OF EQUIPMENT; AUTOMATIC RENEWAL. Excluding the Lessee exercising
the option to purchase the Equipment if Lessee fails to return the Equipment at
the expiration of the Lease term, this Lease will automatically renew for an
additional 12 month term and thereafter renew for successive 12 month terms
until Lessee returns the Equipment at the end of the renewal term. Lessee shall
pay the monthly lease payments.
17. LESSEE'S EXPENSES. If costs are incurred to protect Lessor's interest due
to nonperformance of any of the Lessee's obligations under this Lease, Lessee
shall pay Lessor's costs and expenses. This may include reasonable attorney's
fees, incurred by Lessor in exercising its rights hereunder.
18. AUTHORIZATION. Lessee authorizes Lessor to obtain credit reports from time
to time and make other credit inquiries at Lessor's sole discretion. Upon
Lessee's request, Lessor will inform Lessee whether Lessor had requested a
credit report and the name and address of the credit reporting agency that
furnished the report.
19. INDEMNITY. Lessee shall indemnify Lessor against, and hold Lessor harmless
from, any and all claims, actions, suits, proceedings, cost expenses, damages
and liabilities, including reasonable attorney's fees, arising out of, connected
with, or resulting from the Lease or the Equipment without limitation.
20. NON-WAIVER. Lessor's failure to require performance by Lessee of any
provisions of the Lease shall not be a waiver thereof.
21. SEVERABILITY. If any provision of the Lease be declared invalid, such
provision is deemed omitted, but the remaining provisions shall remain in force
and effect.
22. MODIFICATION. The Lease shall not be changed except for written agreement
executed by the parties.
23. STATEMENT. This Lease is a commercial transaction. Lessee hereby
authorizes Lessor to fill in dates and make minor corrections in the Lease, and
Lessee further acknowledges that this lease is a COMMERCIAL transaction and not
a CONSUMER transaction.
24. FACSIMILE COPY. Lessee agrees that a signed facsimile copy of the Lease
shall be deemed to be of the same force and effect as an original signed Lease.
25. DISCLOSURE. If Lessee's application for credit is denied, Lessee has the
right to a written statement of the specific reasons for the denial. For the
Lessee to obtain the statement, Lessee should contact Lessor at address on the
front of this Lease within 60 days from the date the Lessee is notified of
Lessor's decision. Lessor will send Lessee a written statement of reason(s) for
the denial within 30 days of receiving Lessee's request for the statement.
If facsimile copy, Lessee sign here:______________________________ Date:_______
<PAGE>
LATITUDE 90, INC.
SHAREHOLDERS AGREEMENT
----------------------
THIS AGREEMENT is made as of August 6, 1999, among LATITUDE 90, INC.,
a California corporation (the "Company"), the purchasers of shares of Series B
Preferred Stock of the Company (the "Purchasers") pursuant to the Series B
Preferred Stock Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") and each of the investors listed on the Schedule of Investors
attached hereto (together with the Purchasers, the "Investors"). The Investors
are sometimes collectively referred to herein as the "Shareholders" and
individually as a "Shareholder." Capitalized terms used herein are defined in
paragraph 6 hereof.
The Company and the Shareholders desire to enter into this Agreement
for the purposes, among others, of establishing the composition of the Company's
Board of Directors (the "Board") and limiting the manner and terms by which the
Shareholders' shares may be transferred. The execution and delivery of this
Agreement is a condition to the Purchasers' purchase of the Company's shares
pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
------------------
(a) From and after the Closing (as defined in the Purchase Agreement)
and until the provisions of this paragraph 1 cease to be effective, each holder
of Shareholder Shares shall vote all of his Shareholder Shares (as defined in
paragraph 6 hereof) which are voting shares and any other voting securities of
the Company over which such holder has voting control and shall take all other
reasonably necessary or desirable actions within his control (whether in his
capacity as a shareholder, director, member of a board committee or officer of
the Company or otherwise, and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings, to the extent not in conflict with his
fiduciary duties to the Company), and the Company shall take all necessary or
desirable actions within its control (including, without limitation, calling
special board and stockholder meetings), so that:
(i) The authorized number of directors on the Board shall be
established at seven (7) directors;
(ii) the following individuals shall be elected to the Board
<PAGE>
(A) one (1) representative designated by the holders of the
Company's Series A Preferred Stock, determined by a vote of such holders
owning a majority of such shares (the "Series A Director");
(B) three (3) representatives, designated by the holders of
the Company's Series B Preferred Stock, determined by a vote of such
holders owning a majority of such shares (the "Series B Directors"); and
(C) three (3) representatives designated by the holders of
the Common Stock, determined by a vote of such holders owning a majority of
such shares (the "Common Directors");
(iii) the removal from the Board (with or without cause) of any
representative(s) designated pursuant to paragraphs 1(a)(ii)(A),
1(a)(ii)(B) and 1(a)(ii)(C), shall be at the holders' of the Series A
Preferred Stock, holders' of the Series B Preferred Stock and the holders'
of the Common Stock written request, respectively, but only upon such
written request and under no other circumstances (in each case, determined
on the basis of a vote of the holders of a majority of such shares held by
such groups of Persons); and
(iv) in the event that any representative(s) designated pursuant
to paragraphs 1(a)(ii)(A), 1(a)(ii)(B) and 1(a)(ii)(C) ceases to serve as a
member of the Board during his term of office, the resulting vacancy on the
Board shall be filled by a representative designated by the holders' of the
Series A Preferred Stock, holders' of the Series B Preferred Stock and the
holders' of the Common Stock respectively, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
and any committee thereof.
(c) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon the first to occur of (i) the tenth
anniversary of the date hereof unless extended by the parties hereto in
accordance with the laws of the State of California or (ii) a Public Offering
(as defined in paragraph 6 hereof).
(d) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's bylaws and applicable law; provided that, such person may later be
removed pursuant to paragraph 1(a)(iii) above.
2. Representations and Warranties. Each Shareholder, on its own
------------------------------
behalf and not severally or jointly, represents and warrants that (i) such
Shareholder is the record owner of
2
<PAGE>
the number of Shareholder Shares set forth opposite its name on the Schedule of
Investors attached hereto, (ii) this Agreement has been duly authorized,
executed and delivered by such Shareholder and constitutes the valid and binding
obligation of such Shareholder, enforceable in accordance with its terms, except
as such enforceability is limited by bankruptcy, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally, and by general
equitable principles, and (iii) such Shareholder has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement. No holder of
Shareholder Shares shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement.
3. Restrictions on Transfer of Shareholder Shares.
----------------------------------------------
(a) Transfer of Shareholder Shares. No holder of Shareholder Shares
------------------------------
shall sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law) any interest in his Shareholder Shares (a "Transfer"), except pursuant
to the provisions of this paragraph 3 or pursuant to a Public Sale. No
Shareholder shall consummate any Transfer (other than a Public Sale) until 30
days after the delivery to the Company of such Shareholder's Offer Notice,
unless the parties to the Transfer have been finally determined pursuant to this
paragraph 3 prior to the expiration of such 30-day period (the "Election
Period").
(b) First Offer Right. At least 30 days prior to making any Transfer
-----------------
of any Shareholder Shares (other than a Public Sale or a Transfer permitted
under paragraph 3(c) below), the transferring Shareholder (the "Transferring
Shareholder") shall deliver a written notice (an "Offer Notice") to the Company.
The Offer Notice shall disclose in reasonable detail the proposed number of
Shareholder Shares to be transferred, the proposed terms and conditions of the
Transfer and the identity of the prospective transferee(s) (if known). The
Company may elect to purchase all (but not less than all) of the Shareholder
Shares specified in the Offer Notice at the price and on the terms specified
therein by delivering written notice of such election to the Transferring
Shareholder as soon as practical but in any event within ten days after the
delivery of the Offer Notice. If the Company has elected to purchase
Shareholder Shares from the Transferring Shareholder, the transfer of such
shares shall be consummated as soon as practical after the delivery of the
election notice(s) to the Transferring Shareholder, but in any event within 15
days after the expiration of the Election Period. To the extent that the
Company has not elected to purchase all of the Shareholder Shares being offered,
the Transferring Shareholder may, within 90 days after the expiration of the
Election Period, transfer such Shareholder Shares to one or more third parties
at a price no less than 95% of the price per share specified in the Offer Notice
and on other terms no more favorable to the transferees thereof than offered to
the Company in the Offer Notice. Any Shareholder Shares not transferred within
such 90-day period shall be reoffered to the Company under this paragraph 3(b)
prior to any subsequent Transfer. The purchase price specified in any Offer
Notice shall be payable solely in cash at the
3
<PAGE>
closing of the transaction or in installments over time, and no Shareholder
Shares may be pledged.
(c) Permitted Transfers. The restrictions set forth in this paragraph
-------------------
3 shall not apply with respect to any Transfer of Shareholder Shares by any
Shareholder (i) pursuant to applicable laws of descent and distribution or among
such Shareholder's Family Group or among its Affiliates (provided that the
restrictions contained in this paragraph 3 shall continue to be applicable to
the Shareholder Shares after any such Transfer and provided further that the
transferees of such Shareholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Shareholder Shares so
transferred) and (ii) to any person set forth on the Schedule of Permitted
Transferees attached hereto (collectively, the persons to whom transfers are
permitted pursuant to this section, are referred to herein as "Permitted
Transferees"). For purposes of this Agreement, "Family Group" means a
Shareholder's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of the Shareholder and/or the Shareholder's spouse and/or
descendants, and "Affiliate" of an Investor means any other Person, directly or
indirectly controlling, controlled by or under common control with such Investor
and any partner of an Investor which is a partnership.
(d) Termination of Restrictions. The restrictions set forth in this
---------------------------
paragraph 3 shall continue with respect to each Shareholder Share until the
earlier of (i) the date on which such Shareholder Share has been transferred in
a Public Sale, (ii) the date on which such Shareholder Share has been
transferred pursuant to this paragraph 3 (other than pursuant to subparagraph
3(c)) or (iii) the consummation of a Public Offering. Notwithstanding anything
herein to the contrary, the first offer right set forth in this paragraph 3(b)
shall only be applicable to the Company's Series B Preferred Stock and not to
the Common Stock issued or issuable upon conversion of such Series B Preferred
Stock.
4. Legend. Each certificate evidencing Shareholder Shares and each
------
certificate issued in exchange for or upon the transfer of any Shareholder
Shares (if such shares remain Shareholder Shares after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate are subject
to a Shareholders Agreement dated as of August 6, 1999,
among the issuer of such securities (the "Company") and
certain of the Company's shareholders, as amended and
modified from time to time. A copy of such Shareholders
Agreement shall be furnished without charge by the Company
to the holder hereof upon written request."
The Company shall imprint such legend on certificates evidencing Shareholder
Shares outstanding as of the date hereof. The legend set forth above shall be
removed from the
4
<PAGE>
certificates evidencing any shares which cease to be Shareholder Shares in
accordance with paragraph 6 hereof.
5. Transfer. Prior to transferring any Shareholder Shares (other
--------
than a Public Sale) to any Person, the transferring holders of Shareholder
Shares shall cause the prospective transferee to be bound by this Agreement and
to execute and deliver to the Company and the holders of Shareholder Shares a
counterpart of this Agreement.
6. Other Definitions.
-----------------
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Company's Series A Preferred Stock and
---------------
Series B Preferred Stock.
"Public Offering" means the sale in an underwritten public offering
---------------
registered under the Securities Act of shares of the Company's Common Stock.
"Public Sale" means any sale of Shareholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Shareholder Shares" means (i) any Preferred Stock or Common Stock
------------------
purchased, acquired or beneficially owned by any Shareholder, including those
shares issued or issuable upon exercise of the Warrant (as defined in the
Purchase Agreement), (ii) any Common Stock issued or issuable directly or
indirectly upon conversion of the Preferred Stock and (iii) any Preferred Stock
or Common Stock issued or issuable with respect to the securities referred to in
clauses (i) and (ii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, any Person who holds
Preferred Stock shall be deemed to be the holder of the Shareholder Shares
issuable directly or indirectly upon conversion of the Preferred Stock in
connection with the transfer thereof or otherwise and regardless of any
restriction or limitation on the conversion thereof. As to any particular
Shareholder Shares, such shares shall cease to be Shareholder Shares when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (b) distributed to
the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities Act (or any similar provision then in force).
5
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the limited liability company, partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing director or general partner
of such limited liability company, partnership, association or other business
entity.
7. Protective Provisions
---------------------
(a) The Company shall not, without the prior written consent or
affirmative vote of the holders of record of (i) at least a majority of the
outstanding Series A Preferred Stock (voting as a separate class on an as-
converted basis) and (ii) at least a majority of the outstanding Series B
Preferred Stock (voting as a separate class on an as-converted basis) effect:
(i) a merger or consolidation of the Company with or into any other
corporation or corporations, or the merger of any other corporation or
corporations into the Company, or the sale of all or substantially all of
the assets of the Company, or any other corporate reorganization;
(ii) an initial Public Offering; and
(iii) any issuance (other than (i) to The Roman Arch Fund L.P. or The
Roman Arch Fund II L.P. pursuant to the terms of the letter agreement with the
Company dated as of June 7, 1999 and (ii) for payment in kind dividends to the
holder of Series B Preferred Stock) of Series B Preferred Stock that would
result in more than 3,293,819 (subject to any stock split, stock dividend,
recapitalization or otherwise) of such shares being outstanding.
(b) The provisions of this paragraph 7 shall terminate and be of no
further force or effect upon the earlier of (i) the date on which there are no
shares of Preferred Stock and (ii) upon the closing of an initial Public
Offering.
8. Sale of the Company.
--------------------
6
<PAGE>
(a) If the Company's board of directors (the "Board") and (i) the holders
of a majority of the shares of Series A Preferred Stock (voting as a separate
class on an as-converted basis) then outstanding and (ii) the holders of a
majority of the shares of Series B Preferred Stock (voting as a separate class
on an as-converted basis) then outstanding approve a sale of all or
substantially all of the Company's assets determined on a consolidated basis or
a sale of all or substantially all of the Company's outstanding capital stock
(whether by merger, recapitalization, consolidation, reorganization, combination
or otherwise) to any other person or entity (collectively, and "Approved Sale"),
each holder of Shareholder Shares shall vote for, consent to and raise no
objections against such Approved Sale. If the Approved Sale is structured as a
(i) merger or consolidation, each holder of Shareholder Shares shall waive any
dissenters rights, appraisal rights or similar rights in connection with such
merger or consolidation or (ii) sale of stock, each holder of Shareholder Shares
shall agree to sell all of his shares of Shareholders Shares and rights to
acquire shares of Shareholders Shares on the terms and conditions approved by
the Board, the holders of a majority of the Series A Preferred Stock then
outstanding and the holders of a majority of the Series B Preferred Stock then
outstanding. Each holder of Shareholder Shares shall take all necessary or
desirable actions in connection with the consummation of the Approved Sale as
requested by the Company.
(b) The obligations of the holders of Shareholder Shares with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of a class of Shareholder Shares shall receive the same form of
consideration and the same amount of consideration as every other holder of such
class of Shareholder Shares as set forth in paragraph 9 below; (ii) if any
holders of a class of Shareholder Shares are given an option as to the form and
amount of consideration to be received, each holder of such class of Shareholder
Shares shall be given the same option; and (iii) each holder of then currently
exercisable rights to acquire shares of a class of Shareholder Shares shall be
given an opportunity to either (A) exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as a holder of
such class of Shareholder Shares or (B) upon the consummation of the Approved
Sale, receive in exchange for such rights consideration equal to the amount
determined by multiplying (1) the same amount of consideration per share of a
class of Shareholder Shares received by holders of such class of Shareholder
Shares in connection with the Approved Sales less the exercise prices per share
of such class of Shareholder Shares of such rights to acquire such class of
Shareholder Shares by (2) the number of shares of such class of Shareholder
Shares represented by such rights.
9. Distribution upon Sale of the Company. In the event of sale or
--------------------------------------
exchange by the Shareholders of all or substantially all of the Shareholder
Shares held by the Shareholders (whether by sale, merger, recapitalization,
reorganization, consolidation, combination or otherwise), each holder of a class
of Shareholder Shares shall receive in exchange for the shares of such class of
Shareholder Shares held by such holder the same portion of the aggregate
consideration from such sale or exchange that such holder would have received if
such aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights
7
<PAGE>
and preferences set forth in the Company's articles of incorporation as in
effect immediately prior to such sale or exchange. Each holder of Shareholder
Shares shall take all necessary or desirable actions in connection with the
distribution of the aggregate consideration from such sale or exchange as
requested by the Company.
10. Initial Public Offering. In the event that the Board and (i) the
-----------------------
holders of a majority of the shares of Series A Preferred Stock (voting as a
separate class on an as-converted basis) then outstanding and (ii) the holders
of a majority of the shares of Series B Preferred Stock (voting as a separate
class on an as-converted basis) then outstanding approve an initial Public
Offering, the holders of Shareholder Shares shall take all necessary or
desirable actions in connection with the consummation of such public offering.
In the event that the managing underwriters advise the Company in writing that
in their opinion the capital structure would adversely affect the marketability
of the offering, each holder of Shareholders Shares shall consent to an vote for
a recapitalization, reorganization and/or exchange of the Shareholder Shares
into securities that the managing underwriters, the Board, the holders of a
majority of the shares of Series A Preferred Stock then outstanding and the
holder of a majority of the shares of Series B Preferred Stock then outstanding
find acceptable and shall take all necessary or desirable actions in connections
with the consummation of the recapitalization, reorganization and/or exchange;
provided that the resulting securities reflect and are consistent with the
rights and preferences set forth in the Company's articles of incorporation as
in effect immediately prior to such public offering.
11. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Shareholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Shareholder Shares as the owner
of such shares for any purpose.
12. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Company or the holders of at
least a majority of the Shareholder Shares, respectively. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
13. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdic-
8
<PAGE>
tion, but this Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.
14. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
15. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Shareholders and any subsequent
holders of Shareholder Shares and the respective successors and assigns of each
of them, so long as they hold Shareholder Shares.
16. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
17. Remedies. The Company and the Investors shall be entitled to
--------
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company and any Investor may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the provisions
of this Agreement.
18. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Shareholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Latitude 90, Inc.
2020 Santa Monica Blvd.
Suite 400
9
<PAGE>
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
19. Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforceability of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
20. Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief-executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
21. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
22. Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached as Exhibit G to the Purchase Agreement.
---------
* * * *
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
LATITUDE 90, INC.
By: __________________________
Name:
Title:
INVESTORS:
By: __________________________
Name:
Title:
[Signature page to Shareholders Agreement]
<PAGE>
LATITUDE 90, INC.
Amendment No. 1 to
------------------
Series B Preferred Stock
------------------------
Stock Purchase Agreement
------------------------
This Amendment No. 1 (the "Amendment") is made as of August __, 1999 to the
Series B Preferred Stock Purchase Agreement (the "Agreement") made and entered
into on August 6, 1999, among Latitude 90, Inc., a California corporation (the
"Company"), and the persons listed on the Schedule of Purchasers attached
thereto (the "Purchasers").
Recitals
--------
WHEREAS, the Company has entered into the Agreement, which among other
things, provided for the sale and issuance of the Company's Series B Preferred
Stock and a warrant to purchase shares of the Company's Common Stock to the
Purchasers;
WHEREAS, it was the original intention of the Company, the Purchasers and
William Apfelbaum to have the Company and William Apfelbaum enter into a
Securities Purchase Agreement (the "Apfelbaum Agreement") concurrently with the
Initial Closing (as defined in the Agreement) under the Agreement;
WHEREAS, pursuant to the Apfelbaum Agreement, the Company would issue and
sell a warrant (the "Apfelbaum Warrant") to purchase 530,946 shares of the
Company's Common Stock at a purchase price for the Apfelbaum Warrant of
$5,309.46; and
WHEREAS, in connection with the Apfelbaum Agreement and the issuance of the
Apfelbaum Warrant thereunder, the Company and the Purchasers have determined
that the Agreement requires certain amendments.
NOW, THEREFORE, the Company and Purchasers agree as follows:
Agreement
---------
1. Amendment to Agreement.
----------------------
(a) Effective as of the Initial Closing (as defined in the Agreement), the
parties agree that Sections 1A and 1B of the Agreement is amended and restated
in its entirety as follows:
"1A. Authorization of the Preferred Stock, Warrant and Note. The
------------------------------------------------------
Company shall authorize the issuance and sale of (i) up to 3,398,054
shares of its Series B Preferred Stock, par value $.01 per share (the
"Series B Preferred"), at a purchase price of $2.35 per share, having the
rights and preferences set forth in Exhibit A attached hereto,
---------
<PAGE>
(ii) a warrant (the "Warrant") to purchase 530,946 shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), at a purchase
price of $0.01 per share, in the form attached hereto as Exhibit B, and
---------
(iii) a promissory note (the "Note"), in the form attached hereto as
Exhibit C. The Series B Preferred is convertible into shares of the Common
---------
Stock.
1B. Purchase and Sale of the Preferred Stock, Warrant and Note. At
----------------------------------------------------------
the applicable Closing (as defined below), the Company shall sell to each
Purchaser and, subject to the terms and conditions set forth herein, each
Purchaser shall purchase from the Company (i) the number of shares of
Series B Preferred set forth opposite such Purchaser's name on the Schedule
of Purchasers attached hereto at a cash price of $2.35, (ii) the Warrant
which shall permit such Purchaser to initially purchase a number of shares
of Common Stock set forth opposite such Purchaser's name on the Schedule of
Purchasers, at an exercise price of $3.53 per share, and (iii) the Note in
the amount set forth opposite such Purchaser's name on the Schedule of
Purchasers for the Note Closing (as defined below). The sale of the Series
B Preferred, the Warrant and the Note to each Purchaser shall constitute a
separate sale hereunder."
(b) Effective as of the Initial Closing (as defined in the
Agreement), the parties agree that the first sentence of Sections 1C(iii) of the
Agreement is amended and restated in its entirety as follows:
"At any time on or before the date ninety (90) days from the date
hereof, the Company may sell up to an additional 2,548,540 shares of Series
B Preferred for a purchase price of $2.35 per share."
2. Replacement of Attachments. Effective as of the Initial Closing (as
--------------------------
defined in the Agreement), the parties agree that the original Exhibit A,
Exhibit B and the Schedule of Purchasers for the Initial Closing attached to the
Agreement shall be replaced in their entirety by the Exhibit A, Exhibit B and
the Schedule of Purchasers for the Initial Closing attached hereto.
3. General Provisions.
------------------
(a) Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware.
(b) Full Force and Effect. Except as amended hereby, the Agreement
---------------------
shall remain in full force and effect.
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute on instrument.
(d) Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first written above.
COMPANY:
Latitude 90, Inc.
By: ____________________
Name:
Title:
PURCHASERS:
Keystone Venture V, L.P.
By: ____________________
Name:
Title:
[Signature Page to Amendment No. 1 to
Series B Preferred Stock Purchase Agreement]
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
Initial Closing as of August 6, 1999
<TABLE>
<CAPTION>
No. of Total Warrant
Shares Purchase for No. of Total
of Price for Shares of Purchase
Name and Series B Series B Common Price for
Addresses Preferred Preferred Stock Warrant
- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DigaComm, L.L.C. 849,514 $1,996,358 530,946 $5,309.46
400 North Michigan Ave.
Suite 520
Chicago, IL 60611
Attn: Kelly S. Moore
TOTAL 849,514 $1,996,358 530,946 $5,309.46
</TABLE>
<PAGE>
LATITUDE 90, INC.
Amendment No. 2 to
------------------
Series B Preferred Stock
------------------------
Stock Purchase Agreement
------------------------
This Amendment No. 2 (the "Amendment") is made as of September __, 1999 to
the Series B Preferred Stock Purchase Agreement (the "Agreement") made and
entered into on August 6, 1999, as amended, among Latitude 90, Inc., a
California corporation (the "Company"), and the persons listed on the Schedule
of Purchasers attached thereto (the "Purchasers").
Recitals
--------
WHEREAS, the Company has entered into the Agreement, which among other
things, provided for the sale and issuance of the Company's Series B Preferred
Stock (the "Series B Preferred") and a warrant to purchase shares of the
Company's Common Stock to the Purchasers;
WHEREAS, the Company now desires to sell and issue to additional investors
(each, a "Subsequent Sale") shares of the Series B Preferred in one or more
Subsequent Closings (as defined in the Agreement) under the Agreement;
WHEREAS, in connection with the contemplated Subsequent Sales and the
issuance of share of the Series B Preferred thereunder, the Company and the
Purchasers have determined that the Agreement requires certain amendments.
NOW, THEREFORE, the Company and Purchasers agree as follows:
Agreement
---------
1. Amendment to Agreement.
----------------------
(a) The parties agree that Section 1A of the Agreement shall be
amended and restated in its entirety as follows:
"1A. Authorization of the Preferred Stock, Warrant and Note. The
------------------------------------------------------
Company shall authorize the issuance and sale of (i) up to ________
shares of its Series B Preferred Stock, par value $.01 per share (the
"Series B Preferred"), at a purchase price of $2.35 per share, having the
rights and preferences set forth in Exhibit A attached hereto, (ii)
---------
warrants (the "Warrants") to purchase up to ________ shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), at a
purchase price of $0.01 per share, in the form attached hereto as Exhibit
-------
B, and (iii) a promissory note (the "Note"), in the form attached hereto as
-
Exhibit C. The Series B Preferred is convertible into shares of the Common
---------
Stock.
<PAGE>
(b) The parties agree that the first sentence of Sections 1C(iii) of
the Agreement is amended and restated in its entirety as follows:
"At any time on or before the date ninety (90) days from the date
hereof, the Company may sell up to an additional _________ shares of Series
B Preferred for a purchase price of $2.35 per share."
2. General Provisions.
------------------
(a) Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware.
(b) Full Force and Effect. Except as amended hereby, the Agreement
---------------------
shall remain in full force and effect.
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute on instrument.
(d) Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first written above.
COMPANY:
Latitude 90, Inc.
By: ____________________
Name:
Title:
PURCHASERS:
DigaComm, L.L.C.
By: ____________________
Name:
Title:
Keystone Venture V, L.P.
By: ____________________
Name:
Title:
[Signature Page to Amendment No. 2 to
Series B Preferred Stock Purchase Agreement]
<PAGE>
L90, INC.
Amendment No. 3 to
------------------
Series B Preferred Stock
------------------------
Stock Purchase Agreement
------------------------
This Amendment No. 3 (the "Amendment") is made as of September __, 1999 to
the Series B Preferred Stock Purchase Agreement (the "Agreement") made and
entered into on August 6, 1999, as amended, among L90, Inc., a Delaware
corporation (the "Company"), and the persons listed on the Schedule of
Purchasers attached thereto (the "Purchasers").
Recitals
--------
WHEREAS, the Company has entered into the Agreement, which among other
things, provided for the sale and issuance of the Company's Series B Preferred
Stock (the "Series B Preferred") and a warrant to purchase shares of the
Company's Common Stock to the Purchasers;
WHEREAS, the Company has determined that the disclosure schedules
previously provided by it in connection with the Agreement contained certain
inaccuracies that the parties now desire to correct;
WHEREAS, as a result of the foregoing, the Company and the Purchasers have
determined that the Agreement requires certain amendments.
NOW, THEREFORE, the Company and Purchasers agree as follows:
Agreement
---------
1. Amendment to Agreement.
----------------------
(a) The parties agree that the Contracts Schedule to the Agreement
shall be amended by deleting in their entirety the items numbered 1.nnn.,
1.ooo., 1.qqq., 1.rrr., 1.ttt. and 1.uuu.
(b) The parties agree that the Developments Schedule to the Agreement
shall be amended by deleting in their entirety the items numbered 1.a. and 1.c.
[(c) The parties agree that the attachments to the Financial
Statements Schedule to the Agreement shall be amended in their entirety by
substituting in their place those items attached hereto as Exhibit A.]
---------
<PAGE>
2. General Provisions.
------------------
(a) Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware.
(b) Full Force and Effect. Except as amended hereby, the Agreement
---------------------
shall remain in full force and effect.
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute on instrument.
(d) Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first written above.
COMPANY:
L90, Inc.
By: ____________________
Name:
Title:
PURCHASER:
_______________________
[Signature Page to Amendment No. 3 to
Series B Preferred Stock Purchase Agreement]
<PAGE>
L90, INC.
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of September 22, 1999, among L90, INC., a
Delaware corporation (the "Company"), the purchasers of shares of the Company's
Series B Preferred Stock (the "Series B Purchasers") pursuant to the Series B
Preferred Stock Purchase Agreement dated as of August 6, 1999, as amended (the
"Series B Purchase Agreement"), among the Company and the Series B Purchasers,
the purchasers of shares of the Company's Series C Preferred Stock (the "Series
C Purchasers" and together with the Series B Purchasers, the "Purchasers")
pursuant to the Series C Preferred Stock Purchase Agreement dated as of the date
hereof (the "Series C Purchase Agreement"), and each of the investors listed on
the Schedule of Investors attached hereto (together with the Purchasers, the
"Investors"). The Investors are sometimes collectively referred to herein as
the "Shareholders" and individually as a "Shareholder." Capitalized terms used
herein are defined in paragraph 6 hereof.
The Company and certain of the Investors have previously entered into
that certain Shareholders Agreement dated as of August 6, 1999, as amended (the
"Prior Shareholders Agreement"), for the purposes, among others, of establishing
the composition of the Company's Board of Directors (the "Board") and limiting
the manner and terms by which the Shareholders' shares may be transferred. The
parties to the Prior Shareholders Agreement now desire to amend and restate the
Prior Shareholders Agreement to provide for certain new provisions pertaining to
the Company's Series C Preferred Stock. The execution and delivery of this
Agreement is a condition to the Series C Purchasers' purchase of the Company's
Series C Preferred Stock pursuant to the Series C Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
------------------
(a) From and after the date hereof and until the provisions of this
paragraph 1 cease to be effective, each holder of Shareholder Shares shall vote
all of his Shareholder Shares (as defined in paragraph 6 hereof) which are
voting shares and any other voting securities of the Company over which such
holder has voting control and shall take all other reasonably necessary or
desirable actions within his control (whether in his capacity as a shareholder,
director, member of a board committee or officer of the Company or otherwise,
and including, without limitation, attendance at meetings in person or by proxy
for purposes of obtaining a quorum and execution
1
<PAGE>
of written consents in lieu of meetings, to the extent not in conflict with his
fiduciary duties to the Company), and the Company shall take all necessary or
desirable actions within its control (including, without limitation, calling
special board and stockholder meetings), so that:
(i) The authorized number of directors on the Board shall be
established at nine (9) directors;
(ii) the following individuals shall be elected to the Board
(A) one (1) representative designated by the holders of the
Company's Series A Preferred Stock, determined by a vote of such holders
owning a majority of such shares;
(B) three (3) representatives, designated by the holders of the
Company's Series B Preferred Stock, determined by a vote of such holders
owning a majority of such shares;
(C) one (1) representative, designated by the holders of the
Company's Series C Preferred Stock, determined by a vote of such holders
owning a majority of such shares, provided that so long as Rare Medium
Group, Inc. and its affiliates own at least 50% of the outstanding Series C
Preferred Stock, such member shall be designated by Rare Medium Group,
Inc.;
(D) one (1) representative, designated by the Board, which
individual must be an "independent director" (as defined under the rules
and regulations of the New York Stock Exchange); and
(E) three (3) representatives designated by the holders of the
Common Stock, determined by a vote of such holders owning a majority of
such shares;
(iii) the removal from the Board (with or without cause) of any
representative(s) designated pursuant to paragraphs 1(a)(ii)(A),
1(a)(ii)(B), 1(a)(ii)(C) and (1(a)(ii)(D), shall be at the holders' of the
Series A Preferred Stock, holders' of the Series B Preferred Stock,
holders' of the Series C Preferred Stock and the holders' of the Common
Stock written request, respectively, but only upon such written request and
under no other circumstances (in each case, determined on the basis of a
vote of the holders of a majority of such shares held by such groups of
Persons); and
(iv) in the event that any representative(s) designated pursuant
to paragraphs 1(a)(ii)(A), 1(a)(ii)(B), 1(a)(ii)(C) or 1(a)(ii)(D) ceases
to serve as a member of the Board during his term of office, the resulting
vacancy on the Board shall be filled as provided thereunder.
2
<PAGE>
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
and any committee thereof.
(c) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon the first to occur of (i) the tenth
anniversary of the date hereof unless extended by the parties hereto in
accordance with the laws of the State of Delaware or (ii) a Public Offering (as
defined in paragraph 6 hereof).
(d) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's bylaws and applicable law; provided that, such person may later be
removed pursuant to paragraph 1(a)(iii) above.
2. Representations and Warranties. Each Shareholder, on its own
------------------------------
behalf and not severally or jointly, represents and warrants that (i) such
Shareholder is the record owner of the number of Shareholder Shares set forth
opposite its name on the Schedule of Investors attached hereto, (ii) this
Agreement has been duly authorized, executed and delivered by such Shareholder
and constitutes the valid and binding obligation of such Shareholder,
enforceable in accordance with its terms, except as such enforceability is
limited by bankruptcy, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally, and by general equitable principles,
and (iii) such Shareholder has not granted and is not a party to any proxy,
voting trust or other agreement which is inconsistent with, conflicts with or
violates any provision of this Agreement. No holder of Shareholder Shares shall
grant any proxy or become party to any voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
3. Restrictions on Transfer of Shareholder Shares.
----------------------------------------------
(a) Transfer of Shareholder Shares. No holder of Shareholder Shares
------------------------------
shall sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law) any interest in his Shareholder Shares (a "Transfer"), except pursuant
to the provisions of this paragraph 3 or pursuant to a Public Sale. No
Shareholder shall consummate any Transfer (other than a Public Sale) until 30
days after the delivery to the Company of such Shareholder's Offer Notice,
unless the parties to the Transfer have been finally determined pursuant to this
paragraph 3 prior to the expiration of such 30-day period (the "Election
Period").
(b) First Offer Right. At least 30 days prior to making any Transfer
-----------------
of any Shareholder Shares (other than a Public Sale or a Transfer permitted
under paragraph 3(c) below), the transferring Shareholder (the "Transferring
Shareholder") shall deliver a written notice (an "Offer Notice") to the Company.
The Offer Notice shall disclose in reasonable detail
3
<PAGE>
the proposed number of Shareholder Shares to be transferred, the proposed terms
and conditions of the Transfer and the identity of the prospective transferee(s)
(if known). The Company may elect to purchase all (but not less than all) of the
Shareholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Shareholder as soon as practical but in any event within ten days
after the delivery of the Offer Notice. If the Company has elected to purchase
Shareholder Shares from the Transferring Shareholder, the transfer of such
shares shall be consummated as soon as practical after the delivery of the
election notice(s) to the Transferring Shareholder, but in any event within 15
days after the expiration of the Election Period. To the extent that the Company
has not elected to purchase all of the Shareholder Shares being offered, the
Transferring Shareholder may, within 90 days after the expiration of the
Election Period, transfer such Shareholder Shares to one or more third parties
at a price no less than 95% of the price per share specified in the Offer Notice
and on other terms no more favorable to the transferees thereof than offered to
the Company in the Offer Notice. Any Shareholder Shares not transferred within
such 90-day period shall be reoffered to the Company under this paragraph 3(b)
prior to any subsequent Transfer. The purchase price specified in any Offer
Notice shall be payable solely in cash at the closing of the transaction or in
installments over time, and no Shareholder Shares may be pledged.
(c) Permitted Transfers. The restrictions set forth in this paragraph
-------------------
3 shall not apply with respect to any Transfer of Shareholder Shares by any
Shareholder (i) pursuant to applicable laws of descent and distribution or among
such Shareholder's Family Group or among its Affiliates (provided that the
restrictions contained in this paragraph 3 shall continue to be applicable to
the Shareholder Shares after any such Transfer and provided further that the
transferees of such Shareholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Shareholder Shares so
transferred) and (ii) to any person set forth on the Schedule of Permitted
Transferees attached hereto (collectively, the persons to whom transfers are
permitted pursuant to this section, are referred to herein as "Permitted
Transferees"). For purposes of this Agreement, "Family Group" means a
Shareholder's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of the Shareholder and/or the Shareholder's spouse and/or
descendants, and "Affiliate" of an Investor means any other Person, directly or
indirectly controlling, controlled by or under common control with such Investor
and any partner of an Investor which is a partnership.
(d) Termination of Restrictions. The restrictions set forth in this
---------------------------
paragraph 3 shall continue with respect to each Shareholder Share until the
earlier of (i) the date on which such Shareholder Share has been transferred in
a Public Sale, (ii) the date on which such Shareholder Share has been
transferred pursuant to this paragraph 3 (other than pursuant to subparagraph
3(c)) or (iii) the consummation of a Public Offering. Notwithstanding anything
herein to the contrary, the first offer right set forth in this paragraph 3(b)
shall only be applicable to the Company's Series B Preferred Stock and Series C
Preferred Stock and not to the Common
4
<PAGE>
Stock issued or issuable upon conversion of such Series B Preferred Stock or
Series C Preferred Stock, as applicable.
4. Legend. Each certificate evidencing Shareholder Shares and each
------
certificate issued in exchange for or upon the transfer of any Shareholder
Shares (if such shares remain Shareholder Shares after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate are subject to an
Amended and Restated Shareholders Agreement dated as of September 22,
1999, among the issuer of such securities (the "Company") and certain
of the Company's shareholders, as amended and modified from time to
time. A copy of such Shareholders Agreement shall be furnished
without charge by the Company to the holder hereof upon written
request."
The Company shall imprint such legend on certificates evidencing Shareholder
Shares outstanding as of the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Shareholder Shares in accordance with paragraph 6 hereof.
5. Transfer. Prior to transferring any Shareholder Shares (other
--------
than a Public Sale) to any Person, the transferring holders of Shareholder
Shares shall cause the prospective transferee to be bound by this Agreement and
to execute and deliver to the Company and the holders of Shareholder Shares a
counterpart of this Agreement.
6. Other Definitions.
-----------------
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Company's Series A Preferred Stock, Series
---------------
B Preferred Stock and Series C Preferred Stock.
"Public Offering" means the sale in an underwritten public offering
---------------
registered under the Securities Act of shares of the Company's Common Stock.
"Public Sale" means any sale of Shareholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
5
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Shareholder Shares" means (i) any Preferred Stock or Common Stock
------------------
purchased, acquired or beneficially owned by any Shareholder, including those
shares issued or issuable upon exercise of the Warrant (as defined in the Series
B Purchase Agreement) and the Warrants (as defined in the Series C Purchase
Agreement), (ii) any Common Stock issued or issuable directly or indirectly upon
conversion of the Preferred Stock and (iii) any Preferred Stock or Common Stock
issued or issuable with respect to the securities referred to in clauses (i) and
(ii) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Preferred
Stock shall be deemed to be the holder of the Shareholder Shares issuable
directly or indirectly upon conversion of the Preferred Stock in connection with
the transfer thereof or otherwise and regardless of any restriction or
limitation on the conversion thereof. As to any particular Shareholder Shares,
such shares shall cease to be Shareholder Shares when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force).
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the limited liability company, partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing director or general partner
of such limited liability company, partnership, association or other business
entity.
7. Protective Provisions
---------------------
(a) The Company shall not, without the prior written consent or
affirmative vote of the holders of record of (i) at least a majority of the
outstanding Series A Preferred Stock (voting as a separate class on an as-
converted basis), (ii) at least a majority of the outstanding Series B Preferred
Stock (voting as a separate class on an as-converted basis) and (iii) at least a
majority of the outstanding Series C Preferred Stock (voting as a separate class
on an as-converted basis) effect:
6
<PAGE>
(i) a merger or consolidation of the Company with or into any other
corporation or corporations, or the merger of any other corporation or
corporations into the Company, or the sale of all or substantially all of
the assets of the Company, or any other corporate reorganization;
(ii) an initial Public Offering; and
(iii) any issuance (other than (i) to The Roman Arch Fund L.P. or The
Roman Arch Fund II L.P. pursuant to the terms of the letter agreement with the
Company dated as of June 7, 1999 and (ii) for payment in kind dividends to the
holder of Series B Preferred Stock) of Series B Preferred Stock that would
result in more than 4,107,044 (subject to any stock split, stock dividend,
recapitalization or otherwise) of such shares being outstanding; and
(iv) any issuance (other than (i) for payment in kind dividends to
the holder of Series C Preferred Stock) of Series C Preferred Stock that would
result in more than 1,307,190 (subject to any stock split, stock dividend,
recapitalization or otherwise) of such shares being outstanding.
(b) The provisions of this paragraph 7 shall terminate and be of no
further force or effect upon the earlier of (i) the date on which there are no
shares of Preferred Stock and (ii) upon the closing of an initial Public
Offering.
8. Sale of the Company.
--------------------
(a) If the Company's board of directors (the "Board") and (i) the holders
of a majority of the shares of Series A Preferred Stock (voting as a separate
class on an as-converted basis) then outstanding, (ii) the holders of a majority
of the shares of Series B Preferred Stock (voting as a separate class on an as-
converted basis) then outstanding and (iii) the holders of a majority of the
shares of Series C Preferred Stock (voting as a separate class on an as-
converted basis) then outstanding approve a sale of all or substantially all of
the Company's assets determined on a consolidated basis or a sale of all or
substantially all of the Company's outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise) to
any other person or entity (collectively, and "Approved Sale"), each holder of
Shareholder Shares shall vote for, consent to and raise no objections against
such Approved Sale. If the Approved Sale is structured as a (i) merger or
consolidation, each holder of Shareholder Shares shall waive any dissenters
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Shareholder Shares shall
agree to sell all of his shares of Shareholders Shares and rights to acquire
shares of Shareholders Shares on the terms and conditions approved by the Board,
the holders of a majority of the Series A Preferred Stock then outstanding, the
holders of a majority of the Series B Preferred Stock then outstanding and the
holders of a majority of the Series C Preferred Stock then outstanding. Each
7
<PAGE>
holder of Shareholder Shares shall take all necessary or desirable actions in
connection with the consummation of the Approved Sale as requested by the
Company.
(b) The obligations of the holders of Shareholder Shares with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of a class of Shareholder Shares shall receive the same form of
consideration and the same amount of consideration as every other holder of such
class of Shareholder Shares as set forth in paragraph 9 below; (ii) if any
holders of a class of Shareholder Shares are given an option as to the form and
amount of consideration to be received, each holder of such class of Shareholder
Shares shall be given the same option; and (iii) each holder of then currently
exercisable rights to acquire shares of a class of Shareholder Shares shall be
given an opportunity to either (A) exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as a holder of
such class of Shareholder Shares or (B) upon the consummation of the Approved
Sale, receive in exchange for such rights consideration equal to the amount
determined by multiplying (1) the same amount of consideration per share of a
class of Shareholder Shares received by holders of such class of Shareholder
Shares in connection with the Approved Sales less the exercise prices per share
of such class of Shareholder Shares of such rights to acquire such class of
Shareholder Shares by (2) the number of shares of such class of Shareholder
Shares represented by such rights.
9. Distribution upon Sale of the Company. In the event of sale or
--------------------------------------
exchange by the Shareholders of all or substantially all of the Shareholder
Shares held by the Shareholders (whether by sale, merger, recapitalization,
reorganization, consolidation, combination or otherwise), each holder of a class
of Shareholder Shares shall receive in exchange for the shares of such class of
Shareholder Shares held by such holder the same portion of the aggregate
consideration from such sale or exchange that such holder would have received if
such aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Company's
certificate of incorporation as in effect immediately prior to such sale or
exchange. Each holder of Shareholder Shares shall take all necessary or
desirable actions in connection with the distribution of the aggregate
consideration from such sale or exchange as requested by the Company.
10. Initial Public Offering. In the event that the Board and (i) the
-----------------------
holders of a majority of the shares of Series A Preferred Stock (voting as a
separate class on an as-converted basis) then outstanding, (ii) the holders of a
majority of the shares of Series B Preferred Stock (voting as a separate class
on an as-converted basis) then outstanding and (iii) the holders of a majority
of the shares of Series C Preferred Stock (voting as a separate class on an as-
converted basis) then outstanding approve an initial Public Offering, the
holders of Shareholder Shares shall take all necessary or desirable actions in
connection with the consummation of such public offering. In the event that the
managing underwriters advise the Company in writing that in their opinion the
capital structure would adversely affect the marketability of the offering, each
holder of Shareholders Shares shall consent to an vote for a recapitalization,
reorganization and/or
8
<PAGE>
exchange of the Shareholder Shares into securities that the managing
underwriters, the Board, the holders of a majority of the shares of Series A
Preferred Stock then outstanding, the holder of a majority of the shares of
Series B Preferred Stock then outstanding and the holder of a majority of the
shares of Series C Preferred Stock then outstanding find acceptable and shall
take all necessary or desirable actions in connections with the consummation of
the recapitalization, reorganization and/or exchange; provided that the
resulting securities reflect and are consistent with the rights and preferences
set forth in the Company's certificate of incorporation as in effect immediately
prior to such public offering.
11. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Shareholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Shareholder Shares as the owner
of such shares for any purpose.
12. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Company or the holders of at
least a majority of the Shareholder Shares, respectively. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
13. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
15. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Shareholders and any subsequent
holders of Shareholder Shares and the respective successors and assigns of each
of them, so long as they hold Shareholder Shares.
9
<PAGE>
16. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
17. Remedies. The Company and the Investors shall be entitled to
--------
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company and any Investor may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the provisions
of this Agreement.
18. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Shareholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
L90, Inc.
2020 Santa Monica Blvd.
Suite 400
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
19. Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforceability of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the
10
<PAGE>
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
20. Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief-executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
21. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
22. Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached as Exhibit F to the Series C Purchase
---------
Agreement.
* * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
L90, INC.
By: /s/ John C. Bohan
________________________________
Name: John C. Bohan
Title: President and CEO
RARE MEDIUM GROUP, INC.:
By: /s/ Robert Lewis
________________________________
Name: Robert Lewis
Title: Vice President
[Signature page to Series C Shareholders Agreement]
<PAGE>
SCHEDULE OF INVESTORS
---------------------
Name and Address Number of Shareholder Shares
- ---------------- ----------------------------
<PAGE>
SCHEDULE OF PERMITTED TRANSFEREES
---------------------------------
Omnicom Group Inc., a New York corporation, or any of its wholly owned
subsidiaries.
<PAGE>
Execution Copy
- --------------------------------------------------------------------------------
LATITUDE 90, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
DATED AS OF AUGUST 6, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization and Closing...................................... 1
1A. Authorization of the Preferred Stock, Warrant and Note......... 1
1B. Purchase and Sale of the Preferred Stock, Warrant and Note..... 1
1C. The Closing.................................................... 1
2. Conditions of Each Purchaser's Obligation at the Closing....... 2
2A. Representations and Warranties; Covenants...................... 2
2B. Articles of Incorporation...................................... 2
2C. Amendment of the Company's Bylaws.............................. 3
2D. Registration Agreement......................................... 3
2E. Shareholders Agreement......................................... 3
2F. Sale of Series B Preferred, Warrant and Note to Each Purchaser. 3
2G. Securities Law Compliance...................................... 3
2H. Opinion of the Company's Counsel............................... 3
2I. Initial Public Offering Proposal............................... 3
2J. Commitment of Chairman......................................... 3
2K. Conversion of Note............................................. 4
2L. Strategic Investors............................................ 4
2M. Waiver of Put Option........................................... 4
2N. Closing Documents.............................................. 4
2O. Proceedings.................................................... 4
2P. Compliance with Applicable Laws................................ 5
2Q. Due Diligence.................................................. 5
3. Covenants...................................................... 5
3A. Financial Statements and Other Information..................... 5
3B. Inspection of Property......................................... 7
3C. Expenses of Directors.......................................... 8
3D. Restrictions................................................... 8
3E. Affirmative Covenants.......................................... 10
3F. Compliance with Agreements..................................... 12
3G. Current Public Information..................................... 12
3H. Reservation of Common Stock.................................... 12
3I. Intellectual Property Rights................................... 12
3J. First Refusal Rights........................................... 13
3K. Public Disclosures............................................. 14
3L. Key Man Insurance.............................................. 14
4. Transfer of Restricted Securities.............................. 14
4A. General Provisions............................................. 14
4B. Opinion Delivery............................................... 14
4C. Rule 144A...................................................... 15
4D. Legend Removal................................................. 15
5. Representations and Warranties of the Company.................. 15
5A. Organization, Corporate Power and Licenses..................... 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5B. Capital Stock and Related Matters.............................. 15
5C. Subsidiaries; Investments...................................... 16
5D. Authorization; No Breach....................................... 16
5E. Financial Statements........................................... 17
5F. Absence of Undisclosed Liabilities............................. 17
5G. No Material Adverse Change..................................... 18
5H. Absence of Certain Developments................................ 18
5I. Assets......................................................... 19
5J. Tax Matters.................................................... 20
5K. Contracts and Commitments; Significant Customers............... 21
5L. Intellectual Property Rights................................... 23
5M. Litigation, etc................................................ 24
5N. Brokerage...................................................... 24
5O. Governmental Consent, etc...................................... 24
5P. Insurance...................................................... 25
5Q. Employees...................................................... 25
5R. ERISA.......................................................... 25
5S. Compliance with Laws........................................... 27
5T. Affiliated Transactions........................................ 27
5U. Web Site....................................................... 27
5V. Disclosure..................................................... 28
5W. Knowledge...................................................... 28
6. Definitions.................................................... 28
6A. Definitions.................................................... 28
7. Miscellaneous.................................................. 32
7A. Expense........................................................ 32
7B. Remedies....................................................... 32
7C. Purchaser's Investment Representations......................... 32
7D. Consent to Amendments.......................................... 33
7E. Survival of Representations and Warranties..................... 33
7F. Successors and Assigns......................................... 33
7G. Generally Accepted Accounting Principles....................... 33
7H. Severability................................................... 33
7I. Counterparts................................................... 34
7J. Descriptive Headings; Interpretation........................... 34
7K. Governing Law.................................................. 34
7L. Notices........................................................ 34
7M. No Strict Construction......................................... 35
7N. Arbitration.................................................... 35
</TABLE>
Schedules and Exhibits
Schedule of Purchasers
List of Exhibits
List of Disclosure Schedules
ii
<PAGE>
LATITUDE 90, INC.
SERIES B PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT is made as of August
6, 1999, among LATITUDE 90, INC., a California corporation (the "Company"), and
the Persons listed on the Schedule of Purchasers attached hereto (collectively
referred to herein as the "Purchasers" and individually as a "Purchaser").
Except as otherwise indicated herein, capitalized terms used herein are defined
in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Preferred Stock, Warrant and Note. The
------------------------------------------------------
Company shall authorize the issuance and sale of (i) up to 3,293,819 shares of
its Series B Preferred Stock, par value $.01 per share (the "Series B
Preferred"), at a purchase price of $2.43 per share, having the rights and
preferences set forth in Exhibit A attached hereto, (ii) a warrant (the
---------
"Warrant") to purchase 514,659 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), at a purchase price of $0.01 per share, in
the form attached hereto as Exhibit B, and (iii) a promissory note (the "Note"),
---------
in the form attached hereto as Exhibit C. The Series B Preferred is convertible
---------
into shares of the Common Stock.
1B. Purchase and Sale of the Preferred Stock, Warrant and Note. At
-----------------------------------------------------------
the applicable Closing (as defined below), the Company shall sell to each
Purchaser and, subject to the terms and conditions set forth herein, each
Purchaser shall purchase from the Company (i) the number of shares of Series B
Preferred set forth opposite such Purchaser's name on the Schedule of Purchasers
attached hereto at a cash price of $2.43 per share, (ii) the Warrant which shall
permit such Purchaser to initially purchase a number of shares of Common Stock
set forth opposite such Purchaser's name on the Schedule of Purchasers, at an
exercise price of $3.64 per share, and (iii) the Note in the amount set forth
opposite such Purchaser's name on the Schedule of Purchasers for the Note
Closing (as defined below). The sale of the Series B Preferred, the Warrant and
the Note to each Purchaser shall constitute a separate sale hereunder.
1C. The Closing. (i) The initial closing of the separate purchases
-----------
and sales of the Series B Preferred and the Warrant (the "Initial Closing") to
the Purchasers (the "Initial Purchasers") shall take place at the offices of
Kirkland & Ellis at 10:00 a.m. on (A) August 6, 1999, or (B) if later than such
date, the third business day following satisfaction or waiver of the conditions
set forth in Section 2 hereof, or (C) at such other place or on such other date
as may be mutually agreeable to the Company and each Initial Purchaser.
<PAGE>
(ii) At the Initial Closing, DigaComm L.L.C., one of the Purchasers,
shall deposit $2.0 million (the "Escrow Amount") into an escrow account held by
counsel for the Company. If all the conditions to closing set forth in Section
2 hereof are satisfied or waived prior to or on August 27, 1999, the Escrow
Amount shall be allocated toward the purchase and sale of the Note on the date
such conditions are satisfied or waived (the "Note Closing"); otherwise, the
Escrow Amount shall be released and returned to DigaComm, L.L.C. To the extent
that there are Subsequent Sales (as defined below) prior to August 27, 1999, the
Escrow Amount shall be reduced and released to DigaComm, L.L.C. to the extent of
such Subsequent Sales on a dollar-for-dollar basis.
(iii) At any time on or before the date ninety (90) days from the
date hereof, the Company may sell up to an additional 2,470,364 shares of Series
B Preferred for a purchase price of $2.43 per share. All such sales (the
"Subsequent Sales") shall be made on the terms and conditions set forth in this
Agreement. The shares sold in the Subsequent Sales shall also be "Series B
Preferred" for all purposes under this Agreement, and the purchasers thereof
shall also be deemed to be "Purchasers" for all purposes under this Agreement,
"Investors" for all purposes under the Registration Agreement (as defined below)
and "Investors" for all purposes under the Shareholders Agreement (as defined
below), and parties to such agreements upon execution thereof. Each closing of
the sale of the Series B Preferred, the Warrant or Note hereunder, including
the Initial Closing and Note Closing, shall be referred to herein as a
"Closing." At each Closing, the Company shall deliver to each Purchaser stock
certificates evidencing the Series B Preferred (if any) to be purchased by such
Purchaser, the Warrant (if any) to be purchased by such Purchaser and the Note
(if any) to be purchased by such Purchaser, registered in such Purchaser's or
its nominee's name, upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of immediately available funds to the
Company's account designated by the Company in writing to the Purchasers, in the
aggregate amount set forth opposite such Purchaser's name on the Schedule of
Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Series B Preferred,
the Warrant and the Note at the Closing is subject to the satisfaction as of the
Closing of the following conditions. Any condition specified in this Section 2
may be waived if consented to by each Purchaser; provided that no such waiver
shall be effective against any Purchaser unless it is set forth in a writing
executed by such Purchaser; provided, further, the Purchaser in the Initial
Closing hereby waives the conditions set forth in Sections 2I, 2L, 2M and 2Q.
2A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the Closing.
2
<PAGE>
2B. Articles of Incorporation. The Company shall have duly adopted,
-------------------------
executed and filed with the Secretary of State of California its Restated
Articles of Incorporation (the "Restated Articles") establishing the terms and
the relative rights and preferences of the Series B Preferred in the form set
forth in Exhibit A hereto, and the Company shall not have adopted or filed any
---------
other document designating terms, relative rights or preferences of its
preferred stock, except as expressly set forth therein. The Restated Articles
shall be in full force and effect as of the Closing under the laws of California
and shall not have been amended or modified.
2C. Amendment of the Company's Bylaws. The Company's bylaws shall
---------------------------------
have been duly amended to establish the size of the board at seven (7)
directors, one (1) to be designated by holders of Series A Preferred Stock,
three (3) to be designated by holders of Series B Preferred and three (3) to be
designated by holders of the Common Stock. The Company's bylaws shall be in
full force and effect as of the Closing as so amended and shall not have been
further amended or modified, except as contemplated herein.
2D. Registration Agreement. The Company and the Purchasers shall
----------------------
have entered into a registration agreement in form and substance as set forth in
Exhibit D attached hereto (the "Registration Agreement").
- ---------
2E. Shareholders Agreement. The Company, the Purchasers and holders
----------------------
of the Company's Series A Preferred Stock shall have entered into a shareholders
agreement in form and substance set forth in Exhibit E attached hereto (the
---------
"Shareholders Agreement").
2F. Sale of Series B Preferred, Warrant and Note to Each Purchaser.
--------------------------------------------------------------
The Company shall have simultaneously sold to each Purchaser the Series B
Preferred, the Warrant and the Note to be purchased by such Purchaser hereunder
at the applicable Closing and shall have received payment therefor in full.
2G. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Series B Preferred, the Warrant and the Note
pursuant to this Agreement in compliance with such laws.
2H. Opinion of the Company's Counsel. Each Purchaser shall have
--------------------------------
received from Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, an
opinion with respect to the matters set forth in Exhibit F attached hereto,
---------
which shall be addressed to each Purchaser, dated the date of the Closing and in
form and substance reasonably satisfactory to each Purchaser.
2I. Initial Public Offering Proposal. The Company shall have
--------------------------------
received a proposal for an initial public offering of the Common Stock from the
proposed lead underwriter in such offering, in a form and substance satisfactory
to each Purchaser.
3
<PAGE>
2J. Commitment of Chairman. The Company shall have obtained from
----------------------
William M. Apfelbaum a commitment to continue as the chairman of the Company, in
a form and substance reasonably satisfactory to each Purchaser.
2K. Conversion of Note. The Company shall have obtained from
------------------
Prudential Roman Arch Fund a written commitment to convert the fund's $1,000,000
loan advance into shares of Series B Preferred in a form and substance
satisfactory to each Purchaser, or the Company shall have paid in full such loan
advance.
2L. Strategic Investors. The Company shall have obtained a
-------------------
commitment from potential investors subscribing to a minimum of 823,455 shares
of the Series B Preferred for a purchase price of $2.43 per share, in a form and
substance reasonably satisfactory to each Purchaser.
2M. Waiver of Put Option. The Company shall have obtained a written
--------------------
waiver from William M. Apfelbaum regarding his put option referenced in
paragraph 4 (iii) of the "Capitalization Schedule" attached hereto.
2N. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A through
2M, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the Restated Articles, the
amendment to the Company's bylaws referred to in paragraph 2C, the issuance
and sale of the Series B Preferred, the issuance of the Warrant, the issuance
of the Note, the reservation for issuance upon conversion of the Series B
Preferred and exercise of the Warrant and the consummation of all other
transactions contemplated by this Agreement, and (b) the resolutions duly
adopted by the Company's shareholders adopting the Restated Articles;
(iii) certified copies of the Restated Articles and the Company's
bylaws, each as in effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder
4
<PAGE>
(including, without limitation, all blue sky law filings and waivers of all
preemptive rights and rights of first refusal);
2O. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2P. Compliance with Applicable Laws. The purchase of Series B
-------------------------------
Preferred, the Warrant and the Note by each Purchaser hereunder shall not be
prohibited by any applicable law or governmental rule or regulation and shall
not subject such Purchaser to any penalty or liability under or pursuant to any
applicable law or governmental rule or regulation, and the purchase of the
Series B Preferred, the Warrant and the Note by each Purchaser hereunder shall
be permitted by laws, rules and regulations of the jurisdictions and
governmental authorities and agencies to which such Purchaser is subject.
2Q. Due Diligence. Each Purchaser shall be fully satisfied in its
-------------
sole discretion with the results of its review of all of the disclosure
schedules and its review of and other due diligence investigations with respect
to, the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company, including without limitation, the Company's progress
in amending certain of its existing customer contracts so that the Company may
include such gross revenue as a reporting position.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser (so long as such Purchaser holds any Series B
Preferred or any Underlying Common Stock) and to each holder of at least 10% of
the outstanding Series B Preferred and each holder of at least 10% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Company's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
omitting footnotes and shall be certified by the Company's principal financial
officer;
5
<PAGE>
(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year, setting forth in each case comparisons to the Company's
annual budget and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of recognized
national standing and (b) a certificate from such accounting firm, addressed
to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that there
was any default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the material terms, covenants, provisions or conditions
of any material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any default by the Company or
any Subsidiary exists, a certificate specifying the nature and period of
existence thereof;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the Company
by its independent accountants (and not otherwise contained in other materials
provided hereunder);
(iv) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets, and within 30
days after any monthly period in which there is a material adverse deviation
from the annual budget, an Officer's Certificate explaining the deviation and
what actions the Company has taken and proposes to take with respect thereto;
(v) promptly (but in any event within five business days) after
the discovery or receipt of notice of any material default under any material
agreement to which it or any of its Subsidiaries is a party, any condition or
event which is reasonably likely to result in any material liability under any
federal, state or local statute or regulation relating to public health and
safety, worker health and safety or pollution or protection of the
environment or any other material adverse change, event or circumstance
affecting the Company or any Subsidiary (including, without limitation, the
filing of any material litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
6
<PAGE>
(vi) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files with the Securities and Exchange Commission or with any securities
exchange on which any of its securities are then listed, and copies of all
press releases and other statements made available generally by the Company to
the public concerning material developments in the Company's and its
Subsidiaries' businesses; and
(vii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, alone
or in the aggregate, be materially adverse to the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 3A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this paragraph 3A all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act;
provided that so long as any Series B Preferred remains outstanding, the Company
shall continue to deliver to each Purchaser (so long as such Purchaser holds any
Series B Preferred) and to each holder of at least 10% of the outstanding Series
B Preferred the information specified in subparagraphs 3A(ii) and 3A(v).
For purposes of paragraphs 3A and 3B hereof, the term "Purchaser" shall include
any partner of a Purchaser who received shares of Series B Preferred or
Underlying Common Stock pursuant to a distribution from or a liquidation of such
Purchaser.
3B. Inspection of Property. The Company shall permit any
----------------------
representatives designated by any Purchaser (so long as such Purchaser holds any
Series B Preferred or Underlying Common Stock) or any holder of at least 10% of
the outstanding Series B Preferred or at least 10% of the Underlying Common
Stock, upon reasonable notice and during normal business hours and at such other
times as any such holder may reasonably request, to (i) visit and inspect any of
the properties of the Company and its Subsidiaries, (ii) examine the corporate
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the
7
<PAGE>
affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by any
Purchaser or any such holder of Series B Preferred or Underlying Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Expenses of Directors. All reasonable out-of-pocket expenses of
---------------------
each board member, designated by the Series B Preferred pursuant to the Restated
Articles, incurred in connection with attending regular and special board
meetings and any meeting of any board committee shall be paid by the Company,
upon submission to the Company of appropriate documentation or receipts.
3D. Restrictions. So long as any Series B Preferred remains
------------
outstanding, the Company shall not, without the prior written consent of the
holders of a majority of the outstanding Series B Preferred:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities
other than the Series A Preferred (defined below) or the Series B Preferred
pursuant to the terms of the Restated Articles, except for dividends payable
in shares of Common Stock issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other rights
to acquire such capital stock or other equity securities) or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans; except
for repurchases of Common Stock from employees, directors, consultants or
advisors of the Company and its Subsidiaries upon termination of employment
pursuant to arrangements approved by the Company's board of directors;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other equity securities,
issued in connection with the issuance of capital stock or other equity
securities or containing profit participation features) or (b) any capital
stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are
senior to or on a parity with the Series B Preferred with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise;
8
<PAGE>
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Sub sidiary), except for (a) reasonable advances to
employees in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment in (1) obligations of the United States government or any agency
thereof or obligations guaranteed by the United States government, (2)
certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million or (3) commercial paper with a rating of at
least "Prime-1" by Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person or, except as
permitted by subparagraph (viii) below, permit any Subsidiary to merge or
consolidate with any Person (other than a Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 25% of the
consolidated assets of the Company and its Subsidiaries (computed on the basis
of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell or permanently dispose of any of its or
any Subsidiary's material Intellectual Property Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes);
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any company or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, unless the
transaction is approved by the Company's board of directors;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
business of the Company and any Subsidiary at Closing;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict (a) the right of any Subsidiary to make loans or
advances or pay dividends to, transfer property to,
9
<PAGE>
or repay any Indebtedness owed to, the Company or another Subsidiary or (b)
the Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Restated Articles or the Company's bylaws
(including, without limitation, provisions relating to the declaration and
payment of dividends on and conversions of the Series B Preferred);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Restated Articles or the Company's bylaws, or file any
resolution of the board of directors with the California Secretary of State
containing any provisions, which would increase the number of authorized
shares of the preferred stock of the Company or adversely affect or otherwise
impair the rights or the relative preferences and priorities of the holders of
the Series B Preferred or the Underlying Common Stock under this Agreement,
the Restated Articles, the Company's bylaws or the Registration Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees, shareholders or Affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such Person or individual owns a beneficial
interest, except for customary employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary, unless such action is approved by a
majority of disinterested directors of the Company's board of directors;
(xiv) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
exceeding $100,000 in the aggregate on a consolidated basis during any twelve-
month period, unless such actions are approved by the Company's board of
directors;
(xv) enter into any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) under which the amount
of the aggregate lease payments for all such agreements exceeds $100,000 on a
consolidated basis for any twelve-month period, unless such actions are
approved by the Company's board of directors;
(xvi) increase or decrease the authorized size of its board of
directors above or below seven (7) members;
10
<PAGE>
(xvii) use the proceeds from the sale of the Series B Preferred
other than for working capital and general corporate purposes and as set forth
on the attached "Use of Proceeds Schedule."
------------------------
3E. Affirmative Covenants. So long as any Series B Preferred remains
---------------------
outstanding, the Company shall, and shall cause each Subsidiary to:
(xviii) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(xix) maintain its assets so that its businesses may be
properly and advantageously conducted at all times;
(xx) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies
which if unpaid would by law become a Lien upon any of its property, unless
and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(xxi) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due, unless and to the extent that (A)
the same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto, or (B) the breach thereof would not reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxii) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxiii) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
11
<PAGE>
(xxiv) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with generally accepted
accounting principles, consistently applied; and
(xxv) enter into and maintain proprietary assignment and
information agreements with its key employees.
3F. Compliance with Agreements. The Company shall perform and
--------------------------
observe (i) all of its obligations to each holder of the Series B Preferred and
all of its obligations to each holder of the Underlying Common Stock set forth
in the Restated Articles and the Company's bylaws, (ii) all of its obligations
to each holder of the Warrant set forth therein, (iii) all of its obligations to
each holder of the Note set forth therein, (iv) all of its obligations to each
holder of Registrable Securities set forth in the Registration Agreement and (v)
all of its obligations set forth in the Shareholders Agreement.
3G. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3H. Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the Series B
Preferred and exercise of the Warrant, such number of shares of Common Stock
issuable upon the conversion of all outstanding Series B Preferred and exercise
of the outstanding Warrant. All shares of Common Stock and Series B Preferred
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such shares of
Common Stock and Series B Preferred may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which such shares may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
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3I. Intellectual Property Rights. The Company shall, and shall
----------------------------
cause each Subsidiary to, possess and maintain all material Intellectual
Property Rights necessary to the conduct of their respective businesses and own
all right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would infringe upon or misappropriate any rights of other Persons.
3J. First Refusal Rights.
--------------------
(i) Except for issuances of Common Stock or Series B Preferred
(a) to the Company's employees, directors, consultants and advisors for
incentive purposes, (b) upon the conversion of the Series A Preferred and the
Series B Preferred or upon the exercise of the Warrant, (c) in connection with
the acquisition of another company or business as contemplated by paragraph
3D(viii), (d) upon issuance of payment in kind dividends to the holders of the
Series B Preferred, (e) pursuant to the exercise of any other option, warrant,
right or convertible security outstanding on the date hereof or (f) pursuant to
a public offering registered under the Securities Act, if the Company authorizes
the issuance or sale of any shares of Common Stock or any securities containing
options or rights to acquire any shares of Common Stock (other than as a
dividend on the outstanding Common Stock), the Company shall first offer to sell
to each holder of Series B Preferred who is then an accredited investor (as
defined in Rule 501(a) under the Securities Act) a portion of such stock or
securities equal to the quotient determined by dividing (1) the number of shares
of Under lying Common Stock then held by such holder by (2) the sum of the total
number of shares of Underlying Common Stock and the number of shares of Common
Stock outstanding which are not shares of Underlying Common Stock and the number
of shares of Common Stock then issuable upon the exercise of all options,
warrants, rights or conversion rights then outstanding or reserved for issuance.
Each holder of shall be entitled to purchase such stock or securities at the
most favorable price and on the most favorable terms as such stock or securities
are to be offered to any other Persons. The purchase price for all stock and
securities offered to the holders of the Series B Preferred shall be payable in
cash.
(ii) In order to exercise its purchase rights hereunder, a holder
of Series B Preferred must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders of
Series B Preferred is not fully subscribed by such holders, the remaining stock
and securities shall be re-offered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such re-offer.
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(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Series B Preferred have not elected to purchase during the 90 days following
such expiration on terms and conditions no more favorable to the purchasers
thereof than those offered to such holders. Any stock or securities offered or
sold by the Company after such 90-day period must be re-offered to the holders
of Series B Preferred pursuant to the terms of this paragraph.
(iv) The rights of the holders of Series B Preferred under this
paragraph shall terminate upon the effectiveness of a registration statement
filed by the Company with the Securities and Exchange Commission under the
Securities Act with respect to an offering of Common Stock underwritten by an
investment bank with a national reputation; provided that if the registration
statement is withdrawn or abandoned before any shares of Common Stock are sold
thereunder, the provisions of this paragraph shall remain in effect.
3K. Public Disclosures. The Company shall not, nor shall it
------------------
permit any Subsidiary to, disclose any Purchaser's name or identity as an
investor in the Company in any press release or other public announcement or in
any document or material filed with any governmental entity, without the prior
written consent of such Purchaser (which consent shall not be unreasonably
withheld), unless such disclosure is required by applicable law or governmental
regulations or by order of a court of competent jurisdiction, in which case
prior to making such disclosure the Company shall give written notice to such
Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
3L. Key Man Insurance. The Company shall possess within thirty
-----------------
(30) days of the Initial Closing and maintain thereafter a $2,000,000 key man
insurance policy with respect to John C. Bohan (or his replacement) under which
such policy the Company is the beneficiary.
Section 4. Transfer of Restricted Securities.
---------------------------------
4A. General Provisions. Restricted Securities are transferable
------------------
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together
with, if reasonably requested by the Company, an opinion of Kirkland & Ellis or
other counsel which (to the Company's reasonable satisfaction) is knowledgeable
in securities law matters
14
<PAGE>
to the effect that such transfer of Restricted Securities may be effected
without registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Kirkland & Ellis or such other counsel that no subsequent transfer of
such Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in paragraph 7C. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this paragraph and paragraph 7C.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
---------
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
--------------
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities (accompanies by such documents or certificates as
the Company may reasonably request), remove the legend set forth in paragraph 7C
from the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Series B Preferred and the Warrant hereunder, the Company hereby represents
and warrants to the Purchasers that:
5A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of California and, except as set forth on the attached "Organization Schedule"
(which would not have a material adverse effect on the Company's business,
operating results or financial condition), is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company possesses all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 10,000,000 shares of preferred
stock, of which 2,000 shares shall
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<PAGE>
be designated as Series A Preferred (the "Series A Preferred") (of which 2,000
shares shall be issued and outstanding) and 5,000,000 shares shall be designated
as Series B Preferred (of which 823,455 shares shall be issued and outstanding)
and (b) 40,000,000 shares of Common Stock, of which 10,000,000 shares shall be
issued and outstanding and 2,500,000 shares shall be reserved for issuance upon
conversion of the Series A Preferred and 5,000,000 shares shall be reserved for
issuance upon conversion of the Series B Preferred or exercise of the Warrant.
As of the Closing, neither the Company nor any Subsidiary shall have outstanding
any stock or securities convertible or exchangeable for any shares of its
capital stock or containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable for its
capital stock or any stock appreciation rights or phantom stock plans, except
for the Series B Preferred and the Warrant and except as set forth on the
attached "Capitalization Schedule." The Capitalization Schedule accurately sets
forth the following information with respect to all outstanding options and
rights to acquire the Company's capital stock: the holder, the number of shares
covered, the exercise price and the expiration date. As of the Closing, neither
the Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, except as set forth on the Capitalization Schedule. As of the Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual shareholders' preemptive rights or rights of refusal with
respect to the issuance of the Series B Preferred or the Warrant hereunder, the
issuance of the Common Stock upon conversion of the Series B Preferred or upon
exercise of the Warrant. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Series B Preferred,
the Warrant or the Note hereunder do not require registration under the
Securities Act or any applicable state securities laws. To the best of the
Company's knowledge, there are no agreements between the Company's shareholders
with respect to the voting or transfer of the Company's capital stock or with
respect to any other aspect of the Company's affairs, except as set forth in the
Capitalization Schedule.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
-------------------------
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which its ownership of property or the
conduct of business requires it to qualify. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, full paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Lien and not subject to any option or right to
16
<PAGE>
purchase any such shares. Except as set forth on the Subsidiary Schedule,
neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person.
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Warrant, the Note, the Registration
Agreement, the Shareholders Agreement and all other agreements contemplated
hereby to which the Company is a party, the filing of the Restated Articles and
the amendment of the Company's bylaws have been duly authorized by the Company.
This Agreement, the Warrant, the Note, the Registration Agreement, the
Shareholders Agreement and all other agreements contemplated hereby to which the
Company is a party each constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforceability
is limited by bankruptcy, insolvency, moratorium or other laws affecting the
enforcement or creditors' rights generally, and by general equitable principles.
Except as set forth on the attached "Restrictions Schedule," the execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Shareholders Agreement and all other agreements contemplated hereby to which the
Company is a party, the offering, sale and issuance of the Series B Preferred,
the Warrant and the Note hereunder, the issuance of the Common Stock upon
conversion of the Series B Preferred, the issuance of Common Stock upon exercise
of the Warrant, the filing of the Restated Articles and the amendment of the
Company's bylaws and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of the Company or any Subsidiary as
in effect on the date hereof, or any law, statute, rule or regulation to which
the Company or any Subsidiary is subject, or any agreement, instrument, order,
judgment or decree to which the Company or any Subsidiary is subject. Except as
set forth on the Restrictions Schedule, none of the Subsidiaries are subject to
any restrictions upon making loans or advances or paying dividends to,
transferring property to, or repaying any Indebted ness owed to, the Company or
another Subsidiary.
5E. Financial Statements. Attached hereto as the "Financial
--------------------
Statements Schedule" are the following financial statements:
(i) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of December 31, 1998, and the related statements of
income and cash flows (or the equivalent) for the respective twelve-month
period then ended; and
17
<PAGE>
(ii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1999 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the six-
month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
material action or inaction at or prior to the Closing, or any state of material
facts existing at or prior to the Closing other than: (i) liabilities set forth
on the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
5G. No Material Adverse Change. Except as set forth on the attached
--------------------------
"Adverse Change Schedule," since the date of the Latest Balance Sheet, there has
been no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary have
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity securities;
18
<PAGE>
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course of
business;
(c) discharged or satisfied any Lien or paid any obligation or
liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any warrants, options or
other rights to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet due
and payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible assets;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with past
practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $10,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $10,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $10,000, whether or not covered by insurance;
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
19
<PAGE>
(n) entered into any other transaction other than in the
ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments or
other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule,"
------
the Company and each Subsidiary have good and marketable title to, or, to the
knowledge of the Company, a valid leasehold interest in, the properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all Liens, except for properties
and assets disposed of in the ordinary course of business since the date of the
Latest Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Liens for current property taxes not yet due
and payable. Other than ordinary wear and tear or except as described on the
Assets Schedule, the Company's and each Subsidiary's buildings, equipment and
other tangible assets are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company and each
Subsidiary own, or have a valid leasehold interest in, all assets necessary for
the conduct of their respective businesses as presently conducted and as
presently proposed to be conducted.
5J. Tax Matters.
-----------
(i) Except as set forth on the attached "Taxes Schedule": the
Company, each Subsidiary and each Affiliated Group have filed all Tax Returns
which they are required to file under applicable laws and regulations; all such
Tax Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all material
respects; the Company, each Subsidiary and each Affiliated Group in all material
respects have paid all Taxes due and owing by them (whether or not such Taxes
are required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company, any Subsidiary nor any Affiliated Group has waived
any statute of limitations with respect to any Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency; the accrual for Taxes
on the Latest Balance Sheet would be adequate to pay all Tax liabilities of the
Company and its Subsidiaries if their current tax year were treated as ending on
the date of the Latest Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); since
the date of the Latest Balance Sheet, the Company and its Subsidiaries have not
incurred any liability for Taxes other than in the ordinary course of business;
the assessment of any additional Taxes for periods for which Tax Returns have
been filed by the Company, each Subsidiary and each Affiliated Group shall not
exceed the recorded liability therefor on the Latest Balance Sheet (excluding
any amount recorded which is attributable solely to timing differences between
book and Tax income); no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
20
<PAGE>
respect to the Company, any Subsidiary or any Affiliated Group, no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority and no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority; and there are no material unresolved
questions or claims concerning the Company's, any Subsidiary's or any Affiliated
Group Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made an
election under (S)341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treas. Reg. (S) 1.1502-6
(or comparable provisions of state, local or foreign law), (b) as a transferee
or successor, (c) by contract or indemnity or (d) otherwise. Neither the
Company nor any Subsidiary is a party to any tax sharing agreement. The
Company, each Subsidiary and each Affiliated Group have disclosed on their
federal income Tax Returns any position taken for which substantial authority
(within the meaning of IRC (S)6662(d)(2)(B)(i)) did not exist at the time the
return was filed. Neither the Company nor any Subsidiary has made any payments,
is obligated to make payments or is a party to an agreement that could obligate
it to make any payments that would not be deductible under IRC (S)280G.
(iii) "Tax" or "Taxes" means federal, state, county, local, foreign
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof. "Affiliated Group" means any affiliated
group as defined in IRC (S)1504 that has filed a consolidated return for federal
income tax purposes (or any similar group under state, local or foreign law) for
a period during which any of the Company or any of its Subsidiaries was a
member.
5K. Contracts and Commitments; Significant Customers.
------------------------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profitsharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement,
or any collective bargaining agreement or any other contract with any labor
union, or severance agreements, programs, policies or arrangements;
21
<PAGE>
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other basis
or contract relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has
advanced or loaned any other Person any amounts;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation;
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property, real or personal,
owned by any other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed $5,000;
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any
Subsidiary;
(h) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves consideration
in excess of $5,000;
(i) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(j) warranty agreement with respect to its services rendered
or its products sold or leased;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
22
<PAGE>
(n) contract, agreement or other arrangement with any officer,
director, shareholder, employee or Affiliate, or any Affiliate of any officer,
director, shareholder or employee;
(o) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(p) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $5,000
annually.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in all material
respects against the Company in accordance with their respective terms and, to
the Company's knowledge the other parties thereto, except, in any case, as such
enforceability is limited bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally, and by general
equitable principles. The Company and each Subsidiary have performed all
material obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument; no event has occurred which with the passage
of time or the giving of notice or both would result in a material default,
breach or event of noncompliance by the Company or any Subsidiary under any
contract, agreement or instrument; neither the Company nor any Subsidiary has
any present expectation or intention of not fully performing all such
obligations; neither the Company nor any Subsidiary has knowledge of any breach
or anticipated breach by the other parties to any contract, agreement,
instrument or commitment; and neither the Company nor any Subsidiary is a party
to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
(iv) The attached "Significant Customers Schedule" sets forth a
complete and accurate list of all Significant Customers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during each of
the past four (4) fiscal quarters. Except to the extent set forth on the
Significant Customers Schedule, none of the Company's Significant Customers has
cancelled or substantially reduced or, to the knowledge of the Company, is
currently attempting or threatening to cancel or substantially reduce, any
purchases from the Company.
5L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) patented or registered Intellectual
Property Rights owned or used by the
23
<PAGE>
Company or any Subsidiary, (b) pending patent applications and applications for
registrations of other Intellectual Property Rights filed by the Company or any
Subsidiary, (c) unregistered trade names and corporate names owned or used by
the Company or any Subsidiary and (d) unregistered trademarks, service marks,
copyrights, mask works and computer software owned or used by the Company or any
Subsidiary. The Intellectual Property Schedule also contains a complete and
accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any Intellectual Property Rights
and all licenses and other rights granted by any third party to the Company or
any Subsidiary with respect to any Intellectual Property Rights, in each case
identifying the subject Intellectual Property Rights. Except as set forth on the
Intellectual Property Schedule, the Company or one of its Subsidiaries owns all
right, title and interest to, or has the right to use pursuant to a valid
license, all Intellectual Property Rights necessary for the operation of the
businesses of the Company and its Subsidiaries as presently conducted and as
presently proposed to be conducted, free and clear of all Liens. Except as set
forth on the Intellectual Property Schedule, to the Company's knowledge the loss
or expiration of any Intellectual Property Right or related group of
Intellectual Property Rights owned or used by the Company or any Subsidiary is
not threatened, pending or reasonably foreseeable.
(ii) Except as set forth on the Intellectual Property Schedule, (a)
the Company and its Subsidiaries own all right, title and interest in and to all
of the Intellectual Property Rights listed on such schedule, free and clear of
all Liens, (b) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
Intellectual Property Rights, and there are no grounds for the same, (c) neither
the Company nor any Subsidiary has received any notices of, and is not aware of
any facts which indicate a likelihood of, any infringement or misappropriation
by, or conflict with, any third party with respect to such Intellectual Property
Rights (including, without limitation, any demand or request that the Company or
any Subsidiary license any rights from a third party), (d) to the Company's
knowledge, the conduct of the Company's and each Subsidiary's business has not
infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons, nor would any future conduct as presently contemplated infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons and (e) to the best of the Company's knowledge, the Intellectual
Property Rights owned by or licensed to the Company or any Subsidiary have not
been infringed, misappropriated or conflicted by other Persons. Except as set
forth in the Intellectual Property Schedule, the transactions contemplated by
this Agreement shall have no material adverse effect on the Company's or any
Subsidiary's right, title and interest in and to the Intellectual Property
Rights listed on the Intellectual Property Schedule.
5M. Litigation, etc. Except as set forth on the attached "Litigation
---------------
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed
24
<PAGE>
business activities), or pending or threatened by the Company or any Subsidiary
against any third party, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality (including,
without limitation, any actions, suit, proceedings or investigations with
respect to the transactions contemplated by this Agreement); nor has there been
any such actions, suits, proceedings, orders, investigations or claims pending
against or affecting the Company or any Subsidiary during the past 3 years;
neither the Company nor any Subsidiary is subject to any arbitration proceedings
under collective bargaining agreements or otherwise or, to the best of the
Company's knowledge, any governmental investigations or inquiries (including,
without limitation, inquiries as to the qualification to hold or receive any
license or permit); and, to the best of the Company's knowledge, there is no
basis for any of the foregoing. Neither the Company nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency.
5N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
5O. Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached "Consents Schedule" and except as
expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
---------
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its obligations under any
insurance policy maintained by it, and neither the Company nor any Subsidiary
has been denied insurance coverage. The insurance coverage of the Company and
its Subsidiaries is customary for corporations of similar size engaged in
similar lines of business. Except as set forth on the Insurance Schedule, the
Company and its Subsidiaries do not have any self-insurance or co-insurance
programs, and the reserves set forth on the Latest Balance Sheet are adequate to
cover all anticipated liabilities with respect to any such self-insurance or co-
insurance programs.
5Q. Employees. Except as set forth on the attached "Employees
---------
Schedule," the Company is not aware that any executive or key employee of the
Company or any Subsidiary or any group of employees of the Company or any
Subsidiary has any plans to terminate employment with
25
<PAGE>
the Company or any Subsidiary. The Company and each Subsidiary have complied in
all material respects with all laws relating to the employment of labor
(including, without limitation, provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes), and the Company is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company, its Subsidiaries nor, to the best of
the Company's knowledge, any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for agreements between
the Company and its present and former employees.
5R. ERISA.
-----
(i) Multiemployer Plans. Except as set forth on the "Employee
-------------------
Benefits Schedule," the Company does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
(ii) Retiree Welfare Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(iii) Defined Benefit Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated.
(iv) Defined Contribution Plans. Except as set forth on the
--------------------------
"Employee Benefits Schedule," the Company does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a tax-
qualified "defined contribution plan" (as defined in Section 3(34) of ERISA)
(the"Profit Sharing Plan"), whether or not terminated.
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule, the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement,
26
<PAGE>
whether or not terminated. All plans and arrangements set forth on the "Employee
Benefits Schedule" are referred to as the "Plans."
(vi) The Company. For purposes of this paragraph 5R, the term
-----------
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
(vii) Payments and Accruals. With respect to the Plans, all required
---------------------
or recommended (in accordance with historical practices) payments, premiums,
contributions, reimbursements or accruals for all periods (or partial periods)
ending prior to or as of the Closing shall have been made or properly accrued on
the Latest Balance Sheet. None of the Plans has any material unfunded
liabilities which are not reflected on the Latest Balance Sheet.
(viii) Compliance. The Plans and all related trusts, insurance
----------
contracts and funds have been maintained, funded and administered in compliance
in all material respects with the applicable provisions of ERISA, the IRC and
other applicable laws. Neither the Company nor any trustee or administrator of
any Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which could subject any such party, to either
a civil penalty assessed pursuant to Section 502(i) of ERISA or the tax or
penalty on prohibited transactions imposed by Section 4975 of the IRC. No
actions, suits or claims with respect to the assets of the Plans (other than
routine claims for benefits) are pending or, to the Company's knowledge,
threatened which could result in or subject the Company to any liability, and,
to the Company's knowledge, there are no circumstances which could give rise to
or be expected to give rise to any such actions, suits or claims.
(ix) Correct Copies. The Company has provided the Purchasers with
--------------
true and complete copies of all documents pursuant to which the Plans are
maintained and administered and the most recent annual reports (Form 5500 and
attachments), if any, for the Plans.
5S. Compliance with Laws. Except as set forth on the attached
--------------------
"Compliance Schedule," neither the Company nor any Subsidiary is in violation of
any law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole, and neither the Company
nor any Subsidiary has received notice of any such violation. Except as set
forth on the Compliance Schedule, neither the Company nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any liability
(contingent or otherwise) or corrective or remedial obligation arising under any
federal, state, local or foreign law, rule or regulation (including the common
law) relating to or regulating health, safety, pollution or the protection of
the environment ("Environmental Laws"). Without limiting the generality of the
foregoing, (i) the Company and each
27
<PAGE>
Subsidiary have obtained all permits, licenses and authorizations required
under, and have complied in all respects with, all Environmental Laws, (ii) no
notice has been received by the Company or any Subsidiary regarding any
violation of, or any claim, liability or corrective or remedial obligation
under, any Environmental Laws and (iii) to the Company's knowledge, no facts or
circumstances exist with respect to the past or present operations or facilities
of the Company or any Subsidiary which would give rise to a liability or
corrective or remedial obligation under any Environmental Laws.
5T. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no officer, director, employee, shareholder
or Affiliate of the Company or any Subsidiary or, to the Company's knowledge,
any individual related by blood, marriage or adoption to any such individual or,
to the Company's knowledge, any entity in which any such Person or individual
owns any beneficial interest, is a party to any agreement, contract, commitment
or transaction with the Company or any Subsidiary or has any material interest
in any material property used by the Company or any Subsidiary.
5U. Web Site. To the Company's knowledge, the ownership, operation
--------
and use of the Web Site or any User Information by the Company and its
Subsidiaries has not violated any applicable laws or regulations and neither the
Company nor any of its Subsidiaries has breached any contractual or other legal
obligations relating to the Web Site or any User Information (including any
obligations to users of the Web Site). "Web Site" shall mean the web site
having the URL address "www.latitude90.com" and any other web site owned and
operated by the Company or any of its Subsidiaries, as such web sites may have
changed from time to time. "User Information" shall mean information of any
type regarding users of the Web Site (including, without limitation, information
supplied by such users).
5V. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, closing certificates or attachments hereto contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein, in light of the circumstances under which
it is made, not misleading. There is no fact which the Company has not disclosed
to the Purchasers in writing and of which any of its officers, directors or
general managers is aware and which has had or would reasonably be expected to
have a material adverse effect upon the financial condition, operating results,
assets, customer or supplier relations, employee relations or business prospects
of the Company and its Subsidiaries taken as a whole.
5W. Knowledge. As used in this Section 5, the terms "knowledge" or
---------
"aware" shall mean and include (i) the actual knowledge or awareness of the
Company and its Subsidiaries (which shall include the actual knowledge and
awareness of the officers, directors and the general managers of each facility
of the Company and its Subsidiaries) and (ii) the knowledge or awareness which a
prudent business person would have obtained in the conduct of his business after
making reasonable inquiry and reasonable diligence with respect to the
particular matter in question.
28
<PAGE>
Section 6. Definitions.
-----------
6A. Definitions. For the purposes of this Agreement, the following
-----------
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or
----------
indirect purchase or other acquisition by such Person of any notes, obligations
(other than trade payables or other
29
<PAGE>
liabilities incurred in the ordinary course of business payable within 90 days
of incurrence), instruments, stock, securities or ownership interest (including
partnership interests and joint venture interests) of any other Person and (ii)
any capital contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate is accurate and complete in all material respects.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with generally
accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation, unemployment
insurance, old age pensions or other social security obligations;
(iii) purchase money security interests in any property acquired by
the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted by
this Agreement;
30
<PAGE>
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value of
the assets of the Company and its Subsidiaries;
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Series B Preferred issued
---------------------
hereunder, (ii) the Warrant issued hereunder, (iii) the Note issued hereunder,
(iv) the Common Stock issued upon conversion of Series B Preferred or upon
exercise of the Warrant and (v) any securities issued with respect to the
securities referred to in clauses (i), (ii), (iii) or (iv) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) been distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or become eligible for sale pursuant to Rule 144(k) (or any
similar provision then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 7C have been delivered by the Company in accordance with
paragraph 4(ii). Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or
--------------
any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body
----------------------------------
or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
31
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
-----------------------
issuable upon conversion of the Series B Preferred or upon exercise of the
Warrant and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement only, any
Person who holds Series B Preferred or Warrant shall be deemed to be the holder
of the Underlying Common Stock obtainable upon conversion of the Series B
Preferred or exercise of the Warrants in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Series B Preferred or exercise of the Warrant, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by the Company or any Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
32
<PAGE>
Section 7. Miscellaneous.
-------------
7A. Expense. The Company and the Purchasers shall each bear their
-------
own fees, costs and expenses incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby and any amendments or waivers
thereto.
7B. Remedies. Each holder of Series B Preferred and Underlying
--------
Common Stock shall have all rights and remedies set forth in this Agreement,
Restated Articles and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
7C. Purchaser's Investment Representations. Each Purchaser hereby
--------------------------------------
represents that it is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act and that it is acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 4 hereof. Each
certificate or instrument representing Restricted Securities shall be imprinted
with a legend in substantially the following form:
"The securities represented by this certificate were originally issued on
August 6, 1999 and have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be transferred, sold or pledged
without registration under the Act, unless otherwise exempt from such
registration requirements. The transfer of the securities represented by
this certificate is subject to the conditions specified in the Purchase
Agreement, dated as of August 6, 1999 and as amended and modified from time
to time, between the issuer (the "Company") and certain investors, and the
Company reserves the right to refuse the transfer of such securities until
such conditions have been fulfilled with respect to such transfer. A copy
of such conditions shall be furnished by the Company to the holder hereof
upon written request and without charge."
7D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding Series B Preferred;
33
<PAGE>
provided that if there is no Series B Preferred outstanding, the provisions of
this Agreement may be amended and the Company may take any action herein
prohibited, only if the Company has obtained the written consent of the holders
of a majority of the Underlying Common Stock. No other course of dealing between
the Company and the holder of any Series B Preferred, Warrant, Note or
Underlying Common Stock or any delay in exercising any rights hereunder or under
the Restated Articles shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Series B Preferred or
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding.
7E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
7F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Series B Preferred, the Warrant, Note or Underlying
Common Stock are also for the benefit of, and enforceable by, any subsequent
holder of such Series B Preferred, such Warrant, such Note or such Underlying
Common Stock.
7G. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied.
7H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts (including facsimile copies), any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together shall constitute one and the same Agreement.
7J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this
34
<PAGE>
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation.
7K. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
7L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated on the
Schedule of Purchasers and to the Company at the address indicated below:
Latitude 90, Inc.
2020 Santa Monica Blvd.
Suite 400
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7M. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
7N. Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute
35
<PAGE>
arising between the parties arising out of or relating to this Agreement or its
breach, such dispute shall be resolved pursuant to the pre-dispute arbitration
agreement attached hereto as Exhibit G.
---------
* * * * * *
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
LATITUDE 90, INC.
By: /s/ John C. Bohan
___________________________
Name: John C. Bohan
Title: President and CEO
PURCHASERS:
By: ____________________________
Name:
Title:
[Signature Page to Purchase Agreement]
<PAGE>
LATITUDE 90, INC.
Amendment No. 1 to
------------------
Shareholders Agreement
----------------------
This Amendment No. 1 (the "Amendment") is made as of August __, 1999 to the
Shareholders Agreement (the "Agreement") made and entered into on August 6,
1999, among Latitude 90, Inc., a California corporation (the "Company"), and the
Investors (as defined in the Agreement) (the "Investors").
Recitals
--------
WHEREAS, the Company has entered into the Agreement, which among other
things, provided for the sale and issuance of the Company's Series B Preferred
Stock and a warrant to purchase shares of the Company's Common Stock to the
Purchasers named therein;
WHEREAS, it was the original intention of the Company, the Purchasers and
William Apfelbaum to have the Company and William Apfelbaum enter into a
Securities Purchase Agreement (the "Apfelbaum Agreement") concurrently with the
Initial Closing (as defined in the Agreement) under the Agreement;
WHEREAS, pursuant to the Apfelbaum Agreement, the Company would issue and
sell a warrant (the "Apfelbaum Warrant") to purchase 530,946 shares of the
Company's Common Stock at a purchase price for the Apfelbaum Warrant of
$5,309.46; and
WHEREAS, in connection with the Apfelbaum Agreement and the issuance of the
Apfelbaum Warrant thereunder, the Company and the Purchasers have determined
that the Agreement requires certain amendments.
NOW, THEREFORE, the Company and the Investors agree as follows:
Agreement
---------
1. Amendment to Agreement. Effective as of the Initial Closing (as
----------------------
defined in the Agreement), the parties agree that Section 7(a)(iii) of the
Agreement is amended and restated in its entirety as follows:
"(iii) any issuance (other than (i) to The Roman Arch Fund L.P. or
The Roman Arch Fund II L.P. pursuant to the terms of the letter agreement
with the Company dated as of June 7, 1999 and (ii) for payment in kind
dividends to the holder of Series B Preferred Stock) of Series B Preferred
Stock that would result in more than 3,398,054 (subject to any stock split,
stock dividend, recapitalization or otherwise) of such shares being
outstanding."
<PAGE>
2. General Provisions.
------------------
(a) Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware.
(b) Full Force and Effect. Except as amended hereby, the Agreement
---------------------
shall remain in full force and effect.
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute on instrument.
(d) Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first written above.
COMPANY:
Latitude 90, Inc.
By: ____________________
Name:
Title:
INVESTORS:
By: ____________________
Name:
Title:
[Signature Page to Amendment No. 1 to Shareholders Agreement]
<PAGE>
LATITUDE 90, INC.
Amendment No. 2 to
------------------
Shareholders Agreement
----------------------
This Amendment No. 2 (the "Amendment") is made as of September __, 1999 to
the Shareholders Agreement (the "Agreement") made and entered into on August 6,
1999, as amended, among Latitude 90, Inc., a California corporation (the
"Company"), and the Investors (as defined in the Agreement) (the "Investors").
Recitals
--------
WHEREAS, the Company has entered into the Agreement, which among other
things, provided for the sale and issuance of the Company's Series B Preferred
Stock and a warrant to purchase shares of the Company's Common Stock to the
Purchasers named therein;
WHEREAS, the Company now desires to sell and issue to additional investors
(each, a "Subsequent Sale") shares of the Series B Preferred in one or more
Subsequent Closings (as defined in the Agreement) under the Agreement;
WHEREAS, in connection with the contemplated Subsequent Sales and the
issuance of share of the Series B Preferred thereunder, the Company and the
Purchasers have determined that the Agreement requires certain amendments.
NOW, THEREFORE, the Company and the Investors agree as follows:
Agreement
---------
1. Amendment to Agreement. The parties agree that Section 7(a)(iii) of
----------------------
the Agreement is amended and restated in its entirety as follows:
"(iii) any issuance (other than (i) to The Roman Arch Fund L.P. or
The Roman Arch Fund II L.P. pursuant to the terms of the letter agreement
with the Company dated as of June 7, 1999 and (ii) for payment in kind
dividends to the holder of Series B Preferred Stock) of Series B Preferred
Stock that would result in more than _________ (subject to any stock split,
stock dividend, recapitalization or otherwise) of such shares being
outstanding."
2. General Provisions.
------------------
(a) Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware.
<PAGE>
(b) Full Force and Effect. Except as amended hereby, the Agreement
---------------------
shall remain in full force and effect.
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute on instrument.
(d) Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first written above.
COMPANY:
Latitude 90, Inc.
By: ____________________
Name:
Title:
INVESTORS:
By: ____________________
Name:
Title:
[Signature Page to Amendment No. 2 to Shareholders Agreement]
<PAGE>
Execution Copy
- --------------------------------------------------------------------------------
L90, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 21, 1999
- --------------------------------------------------------------------------------
<PAGE>
L90, INC.
SERIES C PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of
September 21, 1999, among L90, INC., a Delaware corporation (the "Company"),
and the Persons listed on the Schedule of Purchasers attached hereto
(collectively referred to herein as the "Purchasers" and individually as a
"Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Preferred Stock and Warrants. The Company
-------------------------------------------------
shall authorize the issuance and sale of (i) up to 3,000,000 shares of its
Series C Preferred Stock, par value $.001 per share (the "Series C Preferred"),
at a purchase price of $3.06 per share, having the rights and preferences set
forth in Exhibit A attached hereto and (ii) warrants (each, a "Warrant" and
---------
collectively, the "Warrants") to purchase an aggregate of 1,911,044 shares of
the Company's Common Stock, par value $0.001 per share (the "Common Stock"), at
a purchase price of $0.001 per share, in the form attached hereto as Exhibit B.
---------
The Series C Preferred is convertible into shares of the Common Stock.
1B. Purchase and Sale of the Preferred Stock and Warrants. At the
------------------------------------------------------
applicable Closing (as defined below), the Company shall sell to each Purchaser
and, subject to the terms and conditions set forth herein, each Purchaser shall
purchase from the Company (i) the number of shares of Series C Preferred set
forth opposite such Purchaser's name on the Schedule of Purchasers attached
hereto at a cash price of $3.06 per share and (ii) a Warrant which shall permit
such Purchaser to initially purchase a number of shares of Common Stock set
forth opposite such Purchaser's name on the Schedule of Purchasers, at an
exercise price of $3.06 per share. The sale of the Series C Preferred and
Warrant (if applicable) to each Purchaser shall constitute a separate sale
hereunder.
1C. The Closing. The closing of the separate purchases and
-----------
sales of the Series C Preferred and Warrants (the "Closing") to the Purchasers
shall take place at the offices of Paul, Hastings, Janofsky & Walker LLP at
10:00 a.m. on (A) September 21, 1999, or (B) if later than such date, the third
business day following satisfaction or waiver of the conditions set forth in
Section 2 hereof, or (C) at such other place or on such other date as may be
mutually agreeable to the Company and each Purchaser. At the Closing, the
Company shall deliver to each Purchaser stock certificates evidencing the Series
C Preferred to be purchased by such Purchaser and a Warrant to be purchased by
such Purchaser, registered in such Purchaser's or its nominee's name, upon
payment of the purchase price thereof by a cashier's or certified check, or by
wire transfer of immediately available funds to the Company's account designated
by the Company in writing to the
1
<PAGE>
Purchasers, in the aggregate amount set forth opposite such Purchaser's name on
the Schedule of Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Series C Preferred
and Warrant (if applicable) at the Closing is subject to the satisfaction as of
the Closing of the following conditions. Any condition specified in this
Section 2 may be waived if consented to by each Purchaser; provided that no such
waiver shall be effective against any Purchaser unless it is set forth in a
writing executed by such Purchaser.
2A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the Closing.
2B. Amended and Restated Certificate of Incorporation. The Company
-------------------------------------------------
shall have duly adopted, executed and filed with the Secretary of State of
Delaware its Amended and Restated Certificate of Incorporation (the
"Certificate") establishing the terms and the relative rights and preferences of
the Series C Preferred in the form set forth in Exhibit A hereto, and the
---------
Company shall not have adopted or filed any other document designating terms,
relative rights or preferences of its preferred stock, except as expressly set
forth therein. The Certificate shall be in full force and effect as of the
Closing under the laws of Delaware and shall not have been amended or modified.
2C. Amendment of the Company's Bylaws. The Company's bylaws shall
---------------------------------
have been duly amended to establish the size of the board at nine (9) directors,
one (1) to be designated by holders of Series A Preferred Stock, three (3) to be
designated by holders of Series B Preferred Stock, one (1) to be designated by
holders of the Series C Preferred (provided that so long as Rare Medium Group,
Inc. and its affiliates own at least 50% of the outstanding Series C Preferred,
the director to be designated by the Series C Preferred shall be designated by
Rare Medium Group, Inc.), and four (4) to be designated by holders of the Common
Stock (one of whom shall be an independent director nominated by the other eight
directors). The Company's bylaws shall be in full force and effect as of the
Closing as so amended and shall not have been further amended or modified,
except as contemplated herein.
2D. Registration Agreement. The Company and the Purchasers shall
----------------------
have entered into a Series C Registration Agreement in form and substance as set
forth in Exhibit C attached hereto (the "Registration Agreement").
---------
2E. Shareholders Agreement. The Company, the Purchasers, the holders
----------------------
of the Company's Series A Convertible Preferred Stock and the holders of the
Company's Series B Convertible Preferred Stock (collectively, the "Series B
Holders") shall have entered into a shareholders agreement in form and substance
set forth in Exhibit D attached hereto (the "Shareholders Agreement").
---------
2
<PAGE>
2F. Sale of Series C Preferred and Warrant to Each Purchaser.
--------------------------------------------------------
The Company shall have simultaneously sold to each Purchaser the Series C
Preferred and Warrant (if applicable) to be purchased by such Purchaser
hereunder at the applicable Closing and shall have received payment therefor in
full.
2G. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Series C Preferred and Warrants pursuant to this
Agreement in compliance with such laws.
2H. Opinion of the Company's Counsel. Each Purchaser shall have
--------------------------------
received from Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, an
opinion with respect to the matters set forth in Exhibit E attached hereto,
---------
which shall be addressed to each Purchaser, dated the date of the Closing and in
form and substance reasonably satisfactory to each Purchaser.
2I. Commitment of Chairman. The Company shall have obtained from
-----------------------
William M. Apfelbaum a commitment to continue as the chairman of the Company, in
a form and substance reasonably satisfactory to each Purchaser.
2J. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A through
2J, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the Certificate, the
amendment to the Company's bylaws referred to in paragraph 2C, the issuance
and sale of the Series C Preferred, the issuance of the Warrants, and the
reservation for issuance upon conversion of the Series C Preferred and
exercise of the Warrants and the consummation of all other transactions
contemplated by this Agreement, and (b) the resolutions duly adopted by the
Company's shareholders adopting the Certificate;
(iii) certified copies of the Certificate and the Company's
bylaws, each as in effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder
3
<PAGE>
(including, without limitation, all blue sky law filings and waivers of all
preemptive rights and rights of first refusal);
2K. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2L. Compliance with Applicable Laws. The purchase of Series C
-------------------------------
Preferred and Warrant (if applicable) by each Purchaser hereunder shall not be
prohibited by any applicable law or governmental rule or regulation and shall
not subject such Purchaser to any penalty or liability under or pursuant to any
applicable law or governmental rule or regulation, and the purchase of the
Series C Preferred and Warrant (if applicable) by each Purchaser hereunder shall
be permitted by laws, rules and regulations of the jurisdictions and
governmental authorities and agencies to which such Purchaser is subject.
2M. Due Diligence. Each Purchaser shall be fully satisfied in its
-------------
sole discretion with the results of its review of all of the disclosure
schedules and its review of and other due diligence investigations with respect
to, the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company, including without limitation, the Company's progress
in amending certain of its existing customer contracts so that the Company may
include such gross revenue as a reporting position.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser (so long as such Purchaser holds any Series C
Preferred or any Underlying Common Stock) and to each holder of at least 10% of
the outstanding Series C Preferred and each holder of at least 10% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Com pany's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied omitting footnotes and shall be certified
by the Company's principal financial officer;
4
<PAGE>
(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year, setting forth in each case comparisons to the Company's
annual budget and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of recognized
national standing and (b) a certificate from such accounting firm, addressed
to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that there
was any default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the material terms, covenants, provisions or conditions
of any material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any default by the Company or
any Subsidiary exists, a certificate specifying the nature and period of
existence thereof;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the Company
by its independent accountants (and not otherwise contained in other materials
provided hereunder);
(iv) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets, and within 30
days after any monthly period in which there is a material adverse deviation
from the annual budget, an Officer's Certificate explaining the deviation and
what actions the Company has taken and proposes to take with respect thereto;
(v) promptly (but in any event within five business days)
after the discovery or receipt of notice of any material default under any
material agreement to which it or any of its Subsidiaries is a party, any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating to
public health and safety, worker health and safety or pollution or protection
of the environ ment or any other material adverse change, event or
circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or any
Subsidiary or the existence of any dispute with any Person which involves a
reasonable likelihood of such litigation being commenced), an Officer's
Certificate specifying the nature and period of existence thereof and what
actions the Company and its Subsidiaries have taken and propose to take with
respect thereto;
5
<PAGE>
(vi) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files with the Securities and Exchange Commission or with any securities
exchange on which any of its securities are then listed, and copies of all
press releases and other statements made available generally by the Company to
the public concerning material developments in the Company's and its
Subsidiaries' businesses; and
(vii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, alone
or in the aggregate, be materially adverse to the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 3A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this paragraph 3A all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act;
provided that so long as any Series C Preferred remains outstanding, the
Company shall continue to deliver to each Purchaser (so long as such Purchaser
holds any Series C Preferred) and to each holder of at least 10% of the
outstanding Series C Preferred the information specified in subparagraphs 3A(ii)
and 3A(v).
For purposes of paragraphs 3A and 3B hereof, the term "Purchaser" shall include
any partner of a Purchaser who received shares of Series C Preferred or
Underlying Common Stock pursuant to a distribution from or a liquidation of such
Purchaser.
3B. Inspection of Property. The Company shall permit any
----------------------
representatives designated by any Purchaser (so long as such Purchaser holds any
Series C Preferred or Underlying Common Stock) or any holder of at least 10% of
the outstanding Series C Preferred or at least 10% of the Underlying Common
Stock, upon reasonable notice and during normal business hours and at such other
times as any such holder may reasonably request, to (i) visit and inspect any of
the properties of the Company and its Subsidiaries, (ii) examine the corporate
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the
6
<PAGE>
affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by any
Purchaser or any such holder of Series C Preferred or Underlying Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Expenses of Directors. All reasonable out-of-pocket expenses of
---------------------
each board member, designated by the Series C Preferred pursuant to the
Certificate, incurred in connection with attending regular and special board
meetings and any meeting of any board committee shall be paid by the Company,
upon submission to the Company of appropriate documentation or receipts.
3D. Restrictions. So long as any Series C Preferred remains
------------
outstanding, the Company shall not, without the prior written consent of the
holders of a majority of the outstanding Series C Preferred:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock or other equity
securities other than the Company's Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock or the Series C Preferred pursuant to the
terms of the Certificate, except for dividends payable in shares of Common
Stock issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other rights
to acquire such capital stock or other equity securities) or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans; except
for repurchases of Common Stock from employees, directors, consultants or
advisors of the Company and its Subsidiaries upon termination of employment
pursuant to arrangements approved by the Company's board of directors;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other equity securities,
issued in connection with the issuance of capital stock or other equity
securities or containing profit participation features) or (b) any capital
stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are
senior to or on a parity with the Series C Preferred with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise;
7
<PAGE>
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary), except for (a) reasonable advances to
employees in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment in (1) obligations of the United States government or any agency
thereof or obligations guaranteed by the United States government, (2)
certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million or (3) commercial paper with a rating of at
least "Prime-1" by Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person or, except as
permitted by subparagraph (viii) below, permit any Subsidiary to merge or
consolidate with any Person (other than a Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 25% of the
consolidated assets of the Company and its Subsidiaries (computed on the basis
of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell or permanently dispose of any of its or
any Subsidiary's material Intellectual Property Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes);
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any company or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, unless the
transaction is approved by the Company's board of directors;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
business of the Company and any Subsidiary at Closing;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict (a) the right of any Subsidiary to make loans or
advances or pay dividends to, transfer property to,
8
<PAGE>
or repay any Indebtedness owed to, the Company or another Subsidiary or (b)
the Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Certificate or the Company's bylaws (including,
without limitation, provisions relating to the declaration and payment of
dividends on and conversions of the Series C Preferred);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate or the Company's bylaws, or file any
resolution of the board of directors with the Delaware Secretary of State
containing any provisions, which would increase the number of authorized
shares of the preferred stock of the Company or adversely affect or otherwise
impair the rights or the relative preferences and priorities of the holders of
the Series C Preferred or the Underlying Common Stock under this Agreement,
the Certificate, the Company's bylaws or the Registration Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees, shareholders or Affiliates or with any
individual related by blood, marriage or adoption to any such indi vidual or
with any entity in which any such Person or individual owns a beneficial
interest, except for customary employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary, unless such action is approved by a
majority of disinterested directors of the Company's board of directors;
(xiv) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
exceeding $100,000 in the aggregate on a consolidated basis during any twelve-
month period, unless such actions are approved by the Company's board of
directors;
(xv) enter into any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consis tently applied) under which the amount
of the aggregate lease payments for all such agreements exceeds $100,000 on a
consolidated basis for any twelve-month period, unless such actions are
approved by the Company's board of directors;
(xvi) increase or decrease the authorized size of its board of
directors above or below nine (9) members;
9
<PAGE>
(xvii) use the proceeds from the sale of the Series C Preferred
other than for working capital and general corporate purposes and as set forth
on the attached "Use of Proceeds Schedule."
------------------------
3E. Affirmative Covenants. So long as any Series C Preferred remains
---------------------
outstanding, the Company shall, and shall cause each Subsidiary to:
(xviii) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(xix) maintain its assets so that its businesses may be
properly and advantageously conducted at all times;
(xx) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies
which if unpaid would by law become a Lien upon any of its property, unless
and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(xxi) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due, unless and to the extent that (A)
the same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto, or (B) the breach thereof would not reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxii) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxiii) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
10
<PAGE>
(xxiv) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with generally accepted
accounting principles, consistently applied; and
(xxv) enter into and maintain proprietary assignment and
information agreements with its key employees.
3F. Compliance with Agreements. The Company shall perform and
--------------------------
observe (i) all of its obligations to each holder of the Series C Preferred and
all of its obligations to each holder of the Underlying Common Stock set forth
in the Certificate and the Company's bylaws, (ii) all of its obligations to each
holder of the Warrant set forth therein, (iii) all of its obligations to each
holder of the Note set forth therein, (iv) all of its obligations to each holder
of Registrable Securities set forth in the Registration Agreement and (v) all of
its obligations set forth in the Shareholders Agreement.
3G. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3H. Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the Series C
Preferred and exercise of the Warrants, such number of shares of Common Stock
issuable upon the conversion of all outstanding Series C Preferred and exercise
of the outstanding Warrants. All shares of Common Stock and Series C Preferred
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such shares of
Common Stock and Series C Preferred may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which such shares may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
11
<PAGE>
3I. Intellectual Property Rights. The Company shall, and shall cause
----------------------------
each Subsidiary to, possess and maintain all material Intellectual Property
Rights necessary to the conduct of their respective businesses and own all
right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would infringe upon or misappropriate any rights of other Persons.
3J. First Refusal Rights.
--------------------
(i) Except for (A) issuances of Common Stock (a) to the Company's
-
employees, directors, consultants and advisors for incentive purposes, (b) upon
the conversion of the Series A Preferred, the Series B Preferred or the Series C
Preferred or upon the exercise of the Warrants, (c) in connection with the
acquisition of another company or business as contemplated by paragraph
3D(viii), (d) pursuant to the exercise of any other option, warrant, right or
convertible security outstanding on the date hereof, or (e) pursuant to a public
offering registered under the Securities Act, and (B) issuances of Series C
-
Preferred Stock upon issuance of payment in kind dividends to the holders of the
Series C Preferred, if the Company authorizes the issuance or sale of any shares
of Common Stock or any securities containing options or rights to acquire any
shares of Common Stock (other than as a dividend on the outstanding Common
Stock), the Company shall first offer to sell to each holder of Series C
Preferred who is then an accredited investor (as defined in Rule 501(a) under
the Securities Act) a portion of such stock or securities equal to the quotient
determined by dividing (1) the number of shares of Underlying Common Stock then
held by such holder by (2) the sum of the total number of shares of Underlying
Common Stock and the number of shares of Common Stock outstanding which are not
shares of Underlying Common Stock and the number of shares of Common Stock then
issuable upon the exercise of all options, warrants, rights or conversion rights
then outstanding or reserved for issuance. Each holder of shall be entitled to
purchase such stock or securities at the most favorable price and on the most
favorable terms as such stock or securities are to be offered to any other
Persons. The purchase price for all stock and securities offered to the holders
of the Series C Preferred shall be payable in cash.
(ii) In order to exercise its purchase rights hereunder, a
holder of Series C Preferred must within 15 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders of
Series C Preferred is not fully subscribed by such holders, the remaining stock
and securities shall be re-offered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such re-offer.
12
<PAGE>
(iii) Upon the expiration of the offering periods described
above, the Company shall be entitled to sell such stock or securities which the
holders of Series C Preferred have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be re-offered to
the holders of Series C Preferred pursuant to the terms of this paragraph.
(iv) The rights of the holders of Series C Preferred under
this paragraph shall terminate upon the effectiveness of a registration
statement filed by the Company with the Securities and Exchange Commission under
the Securities Act with respect to an offering of Common Stock underwritten by
an investment bank with a national reputation; provided that if the registration
statement is withdrawn or abandoned before any shares of Common Stock are sold
thereunder, the provisions of this paragraph shall remain in effect.
3K. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Purchaser's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such Purchaser (which consent shall not be unreasonably withheld),
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in which case prior to making
such disclosure the Company shall give written notice to such Purchaser
describing in reasonable detail the proposed content of such disclosure and
shall permit the Purchaser to review and comment upon the form and substance of
such disclosure.
3L. Key Man Insurance. The Company shall possess within thirty
-----------------
(30) days of the Closing and maintain thereafter a $2,000,000 key man insurance
policy with respect to John C. Bohan (or his replacement) under which such
policy the Company is the beneficiary.
Section 4. Transfer of Restricted Securities.
---------------------------------
4A. General Provisions. Restricted Securities are transferable only
------------------
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together
with, if reasonably requested by the Company, an opinion of counsel which (to
the Company's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such
13
<PAGE>
transfer of Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder of
the Restricted Securities delivers to the Company an opinion of counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7C. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this paragraph and paragraph 7C.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
---------
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
--------------
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities (accompanies by such documents or certificates as
the Company may reasonably request), remove the legend set forth in paragraph 7C
from the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Series C Preferred and the Warrant hereunder, the Company hereby represents
and warrants to the Purchasers that:
5A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and, except as set forth on the attached "Organization Schedule"
(which would not have a material adverse effect on the Company's business,
operating results or financial condition), is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company possesses all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
---------------------------------
14
<PAGE>
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 15,000,000 shares of preferred
stock, of which 2,000 shares shall be designated as Series A Preferred (the
"Series A Preferred") (of which 2,000 shares shall be issued and outstanding),
5,000,000 shares shall be designated as Series B Preferred (of which 4,107,044
shares shall be issued and outstanding) and 3,000,000 shares shall be designated
as Series C Preferred (of which 1,307,190 shall be issued and outstanding), and
(b) 80,000,000 shares of Common Stock, of which 10,040,000 shares shall be
issued and outstanding and 2,500,000 shares shall be reserved for issuance upon
conversion of the Series A Preferred, 5,000,000 shares shall be reserved for
issuance upon conversion of the Series B Preferred and 3,000,000 shares shall be
reserved for issuance upon conversion of the Series C Preferred. As of the
Closing, neither the Company nor any Subsidiary shall have outstanding any stock
or securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding any
rights or options to subscribe for or to purchase its capital stock or any stock
or securities convertible into or exchangeable for its capital stock or any
stock appreciation rights or phantom stock plans, except for the Series C
Preferred and the Warrants and except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets forth
the following information with respect to all outstanding options and rights to
acquire the Company's capital stock: the holder, the number of shares covered,
the exercise price and the expiration date. As of the Closing, neither the
Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, except as set forth on the Capitalization Schedule. As of the Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(ii) Except as shall have been waived prior to the Closing,
there are no statutory or, to the best of the Company's knowledge, contractual
shareholders' preemptive rights or rights of refusal with respect to the
issuance of the Series C Preferred or the Warrants hereunder, the issuance of
the Common Stock upon conversion of the Series C Preferred or upon exercise of
the Warrants. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Series C Preferred or the
Warrants hereunder do not require registration under the Securities Act or any
applicable state securities laws. To the best of the Company's knowledge, there
are no agreements between the Company's shareholders with respect to the voting
or transfer of the Company's capital stock or with respect to any other aspect
of the Company's affairs, except as set forth in the Capitalization Schedule.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
-------------------------
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own
15
<PAGE>
its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, full paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any Lien and
not subject to any option or right to purchase any such shares. Except as set
forth on the Subsidiary Schedule, neither the Company nor any Subsidiary owns or
holds the right to acquire any shares of stock or any other security or interest
in any other Person.
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Warrants, the Registration Agreement, the
Shareholders Agreement and all other agreements contemplated hereby to which the
Company is a party, the filing of the Certificate and the amendment of the
Company's bylaws have been duly authorized by the Company. This Agreement, the
Warrants, the Registration Agreement, the Shareholders Agreement and all other
agreements contemplated hereby to which the Company is a party each constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability is limited by bankruptcy, insolvency,
moratorium or other laws affecting the enforcement or creditors' rights
generally, and by general equitable principles. Except as set forth on the
attached "Restrictions Schedule," the execution and delivery by the Company of
this Agreement, the Registration Agreement, the Shareholders Agreement and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and issuance of the Series C Preferred and the Warrants, the
issuance of the Common Stock upon conversion of the Series C Preferred, the
issuance of Common Stock upon exercise of the Warrants, the filing of the
Certificate and the amendment of the Company's bylaws and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary as in effect on the date hereof, or any law,
statute, rule or regulation to which the Company or any Subsidiary is subject,
or any agreement, instrument, order, judgment or decree to which the Company or
any Subsidiary is subject. Except as set forth on the Restrictions Schedule,
none of the Subsidiaries are subject to any restrictions upon making loans or
advances or paying dividends to, transferring property to, or repaying any
Indebtedness owed to, the Company or another Subsidiary.
5E. Financial Statements. Attached hereto as the "Financial
--------------------
Statements Schedule" are the following financial statements:
16
<PAGE>
(i) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1998, and the related statements of income
and cash flows (or the equivalent) for the respective twelve-month period then
ended; and
(ii) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of June 30, 1999 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the six-
month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
material action or inaction at or prior to the Closing, or any state of material
facts existing at or prior to the Closing other than: (i) liabilities set forth
on the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
5G. No Material Adverse Change. Except as set forth on the attached
--------------------------
"Adverse Change Schedule," since the date of the Latest Balance Sheet, there has
been no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary have
17
<PAGE>
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course
of business;
(c) discharged or satisfied any Lien or paid any obligation
or liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any warrants, options
or other rights to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $10,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $10,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss
exceeding in the aggregate $10,000, whether or not covered by insurance;
18
<PAGE>
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other transaction other than in the
ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made
any payments for political contributions or made any bribes, kickback payments
or other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule,"
------
the Company and each Subsidiary have good and marketable title to, or, to the
knowledge of the Company, a valid leasehold interest in, the properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all Liens, except for properties
and assets disposed of in the ordinary course of business since the date of the
Latest Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Liens for current property taxes not yet due
and payable. Other than ordinary wear and tear or except as described on the
Assets Schedule, the Company's and each Subsidiary's buildings, equipment and
other tangible assets are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company and each
Subsidiary own, or have a valid leasehold interest in, all assets necessary for
the conduct of their respective businesses as presently conducted and as
presently proposed to be conducted.
5J. Tax Matters.
-----------
19
<PAGE>
(i) Except as set forth on the attached "Taxes Schedule": the
Company, each Subsidiary and each Affiliated Group have filed all Tax Returns
which they are required to file under applicable laws and regulations; all such
Tax Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all material
respects; the Company, each Subsidiary and each Affiliated Group in all material
respects have paid all Taxes due and owing by them (whether or not such Taxes
are required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company, any Subsidiary nor any Affiliated Group has waived
any statute of limitations with respect to any Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency; the accrual for Taxes
on the Latest Balance Sheet would be adequate to pay all Tax liabilities of the
Company and its Subsidiaries if their current tax year were treated as ending on
the date of the Latest Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); since
the date of the Latest Balance Sheet, the Company and its Subsidiaries have not
incurred any liability for Taxes other than in the ordinary course of business;
the assessment of any additional Taxes for periods for which Tax Returns have
been filed by the Company, each Subsidiary and each Affiliated Group shall not
exceed the recorded liability therefor on the Latest Balance Sheet (excluding
any amount recorded which is attributable solely to timing differences between
book and Tax income); no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company, any Subsidiary or any Affiliated Group, no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority and no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority; and there are no material unresolved
questions or claims concerning the Company's, any Subsidiary's or any Affiliated
Group Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made an
election under (S)341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treas. Reg. (S) 1.1502-6
(or comparable provisions of state, local or foreign law), (b) as a transferee
or successor, (c) by contract or indemnity or (d) otherwise. Neither the
Company nor any Subsidiary is a party to any tax sharing agreement. The
Company, each Subsidiary and each Affiliated Group have disclosed on their
federal income Tax Returns any position taken for which substantial authority
(within the meaning of IRC (S)6662(d)(2)(B)(i)) did not exist at the time the
return was filed. Neither the Company nor any Subsidiary has made any payments,
is obligated to make payments or is a party to an agreement that could obligate
it to make any payments that would not be deductible under IRC (S)280G.
(iii) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or
20
<PAGE>
other withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including any
schedules attached thereto and including any amendment thereof. "Affiliated
Group" means any affiliated group as defined in IRC (S)1504 that has filed a
consolidated return for federal income tax purposes (or any similar group under
state, local or foreign law) for a period during which any of the Company or any
of its Subsidiaries was a member.
5K. Contracts and Commitments; Significant Customers.
------------------------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement,
or any collective bargaining agreement or any other contract with any labor
union, or severance agreements, programs, policies or arrangements;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other basis
or contract relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has
advanced or loaned any other Person any amounts;
(d) agreement or indenture relating to borrowed money or
other Indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation;
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property, real or personal,
owned by any other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed $5,000;
21
<PAGE>
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any
Subsidiary;
(h) contract or group of related contracts with the same
party or group of affiliated parties the performance of which involves
consideration in excess of $5,000;
(i) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(j) warranty agreement with respect to its services rendered
or its products sold or leased;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is
not terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(n) contract, agreement or other arrangement with any
officer, director , shareholder, employee or Affiliate, or any Affiliate of
any officer, director, shareholder or employee;
(o) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(p) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $5,000
annually.
(ii) All of the contracts, agreements and instruments set forth
on the Contracts Schedule are valid, binding and enforceable in all material
respects against the Company in accordance with their respective terms and, to
the Company's knowledge the other parties thereto, except, in any case, as such
enforceability is limited bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally, and by general
equitable principles. The Company and each Subsidiary have performed all
material obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument; no event has occurred which with the passage
of time or the giving of notice or both would result in a material default,
breach or event of noncompliance by the Company or any Subsidiary under any
contract, agreement or instrument; neither the Company nor any Subsidiary has
any present expectation or intention of not fully performing all
22
<PAGE>
such obligations; neither the Company nor any Subsidiary has knowledge of any
breach or anticipated breach by the other parties to any contract, agreement,
instrument or commitment; and neither the Company nor any Subsidiary is a party
to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a
true and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
(iv) The attached "Significant Customers Schedule" sets forth a
complete and accurate list of all Significant Customers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during each of
the past four (4) fiscal quarters. Except to the extent set forth on the
Significant Customers Schedule, none of the Company's Significant Customers has
canceled or substantially reduced or, to the knowledge of the Company, is
currently attempting or threatening to cancel or substantially reduce, any
purchases from the Company.
5L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) patented or registered Intellectual
Property Rights owned or used by the Company or any Subsidiary, (b) pending
patent applications and applications for registrations of other Intellectual
Property Rights filed by the Company or any Subsidiary, (c) unregistered trade
names and corporate names owned or used by the Company or any Subsidiary and (d)
unregistered trademarks, service marks, copyrights, mask works and computer
software owned or used by the Company or any Subsidiary. The Intellectual
Property Schedule also contains a complete and accurate list of all licenses and
other rights granted by the Company or any Subsidiary to any third party with
respect to any Intellectual Property Rights and all licenses and other rights
granted by any third party to the Company or any Subsidiary with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. Except as set forth on the Intellectual Property Schedule, the
Company or one of its Subsidiaries owns all right, title and interest to, or has
the right to use pursuant to a valid license, all Intellectual Property Rights
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and as presently proposed to be conducted,
free and clear of all Liens. Except as set forth on the Intellectual Property
Schedule, to the Company's knowledge the loss or expiration of any Intellectual
Property Right or related group of Intellectual Property Rights owned or used by
the Company or any Subsidiary is not threatened, pending or reasonably
foreseeable.
(ii) Except as set forth on the Intellectual Property Schedule,
(a) the Company and its Subsidiaries own all right, title and interest in and to
all of the Intellectual Property Rights listed on such schedule, free and clear
of all Liens, (b) there have been no claims made against the
23
<PAGE>
Company or any Subsidiary asserting the invalidity, misuse or unenforceability
of any of such Intellectual Property Rights, and there are no grounds for the
same, (c) neither the Company nor any Subsidiary has received any notices of,
and is not aware of any facts which indicate a likelihood of, any infringement
or misappropriation by, or conflict with, any third party with respect to such
Intellectual Property Rights (including, without limitation, any demand or
request that the Company or any Subsidiary license any rights from a third
party), (d) to the Company's knowledge, the conduct of the Company's and each
Subsidiary's business has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons, nor would any future conduct as presently contemplated
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons and (e) to the best of the Company's knowledge, the Intellectual
Property Rights owned by or licensed to the Company or any Subsidiary have not
been infringed, misappropriated or conflicted by other Persons. Except as set
forth in the Intellectual Property Schedule, the transactions contemplated by
this Agreement shall have no material adverse effect on the Company's or any
Subsidiary's right, title and interest in and to the Intellectual Property
Rights listed on the Intellectual Property Schedule.
5M. Litigation, etc. Except as set forth on the attached "Litigation
---------------
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities), or pending or threatened by the
Company or any Subsidiary against any third party, at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); nor has there been any such actions, suits, proceedings, orders,
investigations or claims pending against or affecting the Company or any
Subsidiary during the past 3 years; neither the Company nor any Subsidiary is
subject to any arbitration proceedings under collective bargaining agreements or
otherwise or, to the best of the Company's knowledge, any governmental
investigations or inquiries (including, without limitation, inquiries as to the
qualification to hold or receive any license or permit); and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. Neither the
Company nor any Subsidiary is subject to any judgment, order or decree of any
court or other governmental agency.
5N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
24
<PAGE>
5O. Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached "Consents Schedule" and except as
expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
---------
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its obligations under any
insurance policy maintained by it, and neither the Company nor any Subsidiary
has been denied insurance coverage. The insurance coverage of the Company and
its Subsidiaries is customary for corporations of similar size engaged in
similar lines of business. Except as set forth on the Insurance Schedule, the
Company and its Subsidiaries do not have any self-insurance or co-insurance
programs, and the reserves set forth on the Latest Balance Sheet are adequate to
cover all anticipated liabilities with respect to any such self-insurance or co-
insurance programs.
5Q. Employees. Except as set forth on the attached "Employees
---------
Schedule," the Company is not aware that any executive or key employee of the
Company or any Subsidiary or any group of employees of the Company or any
Subsidiary has any plans to terminate employment with the Company or any
Subsidiary. The Company and each Subsidiary have complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
the Company is not aware that it or any Subsidiary has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge, any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for agreements between
the Company and its present and former employees.
5R. ERISA.
-----
(i) Multiemployer Plans. Except as set forth on the "Employee
-------------------
Benefits Schedule," the Company does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
25
<PAGE>
(ii) Retiree Welfare Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain or have any obligation to
contribute to (or any other lia bility with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(iii) Defined Benefit Plans. Except as set forth on the
---------------------
"Employee Benefits Schedule," the Company does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a tax-
qualified "defined benefit plan" (as defined in Section 3(35) of ERISA), whether
or not terminated.
(iv) Defined Contribution Plans. Except as set forth on the
--------------------------
"Employee Benefits Schedule," the Company does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a tax-
qualified "defined contribution plan" (as defined in Section 3(34) of ERISA)
(the"Profit Sharing Plan"), whether or not terminated.
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule, the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated. All plans and arrangements set forth on the "Employee Benefits
Schedule" are referred to as the "Plans."
(vi) The Company. For purposes of this paragraph 5R, the term
-----------
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
(vii) Payments and Accruals. With respect to the Plans, all
---------------------
required or recommended (in accordance with historical practices) payments,
premiums, contributions, reimbursements or accruals for all periods (or partial
periods) ending prior to or as of the Closing shall have been made or properly
accrued on the Latest Balance Sheet. None of the Plans has any material unfunded
liabilities which are not reflected on the Latest Balance Sheet.
(viii) Compliance. The Plans and all related trusts, insurance
----------
contracts and funds have been maintained, funded and administered in compliance
in all material respects with the applicable provisions of ERISA, the IRC and
other applicable laws. Neither the Company nor any trustee or administrator of
any Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which could subject any such party, to either
a civil penalty assessed pursuant to Section 502(i) of ERISA
26
<PAGE>
or the tax or penalty on prohibited transactions imposed by Section 4975 of the
IRC. No actions, suits or claims with respect to the assets of the Plans (other
than routine claims for benefits) are pending or, to the Company's knowledge,
threatened which could result in or subject the Company to any liability, and,
to the Company's knowledge, there are no circumstances which could give rise to
or be expected to give rise to any such actions, suits or claims.
(ix) Correct Copies. The Company has provided the Purchasers
--------------
with true and complete copies of all documents pursuant to which the Plans are
maintained and administered and the most recent annual reports (Form 5500 and
attachments), if any, for the Plans.
5S. Compliance with Laws. Except as set forth on the attached
--------------------
"Compliance Schedule," neither the Company nor any Subsidiary is in violation of
any law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole, and neither the Company
nor any Subsidiary has received notice of any such violation. Except as set
forth on the Compliance Schedule, neither the Company nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any liability
(contingent or otherwise) or corrective or remedial obligation arising under any
federal, state, local or foreign law, rule or regulation (including the common
law) relating to or regulating health, safety, pollution or the protection of
the environment ("Environmental Laws"). Without limiting the generality of the
foregoing, (i) the Company and each Subsidiary have obtained all permits,
licenses and authorizations required under, and have complied in all respects
with, all Environmental Laws, (ii) no notice has been received by the Company or
any Subsidiary regarding any violation of, or any claim, liability or corrective
or remedial obligation under, any Environmental Laws and (iii) to the Company's
knowledge, no facts or circumstances exist with respect to the past or present
operations or facilities of the Company or any Subsidiary which would give rise
to a liability or corrective or remedial obligation under any Environmental
Laws.
5T. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no officer, director, employee, shareholder
or Affiliate of the Company or any Subsidiary or, to the Company's knowledge,
any individual related by blood, marriage or adoption to any such individual or,
to the Company's knowledge, any entity in which any such Person or individual
owns any beneficial interest, is a party to any agreement, contract, commitment
or transaction with the Company or any Subsidiary or has any material interest
in any material property used by the Company or any Subsidiary.
5U. Web Site. To the Company's knowledge, the ownership, operation
--------
and use of the Web Site or any User Information by the Company and its
Subsidiaries has not violated any applicable laws or regulations and neither the
Company nor any of its Subsidiaries has breached any contractual or other legal
obligations relating to the Web Site or any User Information (including any
27
<PAGE>
obligations to users of the Web Site). "Web Site" shall mean the web site having
the URL address "www.L90.com" and any other web site owned and operated by the
Company or any of its Subsidiaries, as such web sites may have changed from time
to time. "User Information" shall mean information of any type regarding users
of the Web Site (including, without limitation, information supplied by such
users).
5V. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, closing certificates or attachments hereto contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein, in light of the circumstances under which
it is made, not misleading. There is no fact which the Company has not
disclosed to the Purchasers in writing and of which any of its officers,
directors or general managers is aware and which has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
5W. Knowledge. As used in this Section 5, the terms "knowledge" or
---------
"aware" shall mean and include (i) the actual knowledge or awareness of the
Company and its Subsidiaries (which shall include the actual knowledge and
awareness of the officers, directors and the general managers of each facility
of the Company and its Subsidiaries) and (ii) the knowledge or awareness which a
prudent business person would have obtained in the conduct of his business after
making reasonable inquiry and reasonable diligence with respect to the
particular matter in question.
Section 6. Definitions.
-----------
6A. Definitions. For the purposes of this Agreement, the following
-----------
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
28
<PAGE>
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" means all (i) patents, patent
-----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations (other
than trade payables or other liabilities incurred in the ordinary course of
business payable within 90 days of incurrence), instruments, stock, securities
or ownership interest (including partnership interests and joint venture
interests) of any other Person and (ii) any capital contribution by such Person
to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
29
<PAGE>
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate is accurate and complete in all material respects.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with generally
accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation, unemployment
insurance, old age pensions or other social security obligations;
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value of
the assets of the Company and its Subsidiaries;
30
<PAGE>
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
31
<PAGE>
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Series C Preferred issued
---------------------
hereunder, (ii) the Warrants issued hereunder, (iii) the Common Stock issued
upon conversion of Series C Preferred or upon exercise of the Warrants and
(iv) any securities issued with respect to the securities referred to in clauses
(i), (ii) or (iii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7C have been
delivered by the Company in accordance with paragraph 4(ii). Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
-----------
limited liability company, partnership, association or other business
entity of which (i) if a corporation, a majority of the total voting power
of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest
in a limited liability company, partnership, association or other business
entity if such Person or Persons shall be allocated a majority of limited
liability company, partnership, association or other business entity gains
or losses or shall be or control any managing
32
<PAGE>
director or general partner of such limited liability company, partnership,
association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
-----------------------
issuable upon conversion of the Series C Preferred or upon exercise of the
Warrants and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement only, any
Person who holds Series C Preferred or a Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon conversion of the Series C
Preferred or exercise of a Warrant in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Series C Preferred or exercise of the Warrant, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by the Company or any Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
-------------
7A. Expense. The Company and the Purchasers shall each bear their
-------
own fees, costs and expenses incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby and any amendments or waivers
thereto.
7B. Remedies. Each holder of Series C Preferred and Underlying
--------
Common Stock shall have all rights and remedies set forth in this Agreement,
Certificate and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting
33
<PAGE>
a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
7C. Purchaser's Investment Representations. Each Purchaser hereby
--------------------------------------
represents that it is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act and that it is acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 4 hereof. Each
certificate or instrument representing Restricted Securities shall be imprinted
with a legend in substantially the following form:
"The securities represented by this certificate were originally issued on
September __, 1999 and have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be transferred, sold or pledged
without registration under the Act, unless otherwise exempt from such
registration requirements. The transfer of the securities represented by
this certificate is subject to the conditions specified in the Purchase
Agreement, dated as of September __,1999 and as amended and modified from
time to time, between the issuer (the "Company") and certain investors, and
the Company reserves the right to refuse the transfer of such securities
until such conditions have been fulfilled with respect to such transfer. A
copy of such conditions shall be furnished by the Company to the holder
hereof upon written request and without charge."
7D. Consent to Amendments. Except as otherwise expressly
---------------------
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of a majority of the outstanding Series C Preferred;
provided that if there is no Series C Preferred outstanding, the provisions of
this Agreement may be amended and the Company may take any action herein
prohibited, only if the Company has obtained the written consent of the holders
of a majority of the Underlying Common Stock. No other course of dealing
between the Company and the holder of any Series C Preferred, Warrant or
Underlying Common Stock or any delay in exercising any rights hereunder or under
the Certificate shall operate as a waiver of any rights of any such holders.
For purposes of this Agreement, shares of Series C Preferred or Underlying
Common Stock held by the Company or any Subsidiaries shall not be deemed to be
outstanding.
7E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the
34
<PAGE>
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by any
Purchaser or on its behalf.
7F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Series C Preferred, a Warrant or Underlying Common Stock
are also for the benefit of, and enforceable by, any subsequent holder of such
Series C Preferred, such Warrant or such Underlying Common Stock.
7G. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied.
7H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts (including facsimile copies), any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together shall constitute one and the same Agreement.
7J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7K. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
7L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by
35
<PAGE>
reputable overnight courier service (charges prepaid) or mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid.
Such notices, demands and other communications shall be sent to each Purchaser
at the address indicated on the Schedule of Purchasers and to the Company at the
address indicated below:
L90, Inc.
2020 Santa Monica Blvd.
Suite 400
Santa Monica, CA 90404
Attn: Executive Financial Officer
with a copy to:
Paul Hastings Janofsky & Walker LLP
555 South Flower Street, 23/rd/ Floor
Los Angeles, CA 90071
Attn: Robert A. Miller, Jr.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7M. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
7N. Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between the parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached hereto as Exhibit F.
---------
* * * * * *
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
L90, INC.
By: /s/ John C. Bohan
----------------------------
Name: John C. Bohan
Title: President and CEO
RARE MEDIUM GROUP, INC.
By: /s/ Robert Lewis
----------------------------
Name: Robert Lewis
Title: Vice President
DEVELOPMENT VENTURES (TWO) INC.
By: /s/ Randall Weisenburger
----------------------------
Name: Randall Weisenburger
Title: Chief Financial Officer
[Signature Page to Series C Purchase Agreement]
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
Closing as of September 21, 1999
<TABLE>
<CAPTION>
No. of Total Warrant
Shares Purchase for No. of Total
of Price for Shares of Purchase
Names and Series C Series C Common Price for
Addresses Preferred Preferred Stock Warrant
---------- --------- ---------- ----- ---------
<S> <C> <C> <C> <C>
Development Ventures 653,595 $2,000,000.70 1,011,044 $1,011.04
(Two) Inc., a Delaware
corporation
Rare Medium Group, 653,595 $2,000,000.70 900,000 $ 900.00
Inc., a Delaware
corporation
TOTAL 1,307,190 $4,000,001.40 1,911,044 $1,911,04
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Certificate
Exhibit B - Warrant
Exhibit C - Registration Agreement
Exhibit D - Shareholders Agreement
Exhibit E - Opinion of Counsel
Exhibit F - Pre-Dispute Arbitration Agreement
<PAGE>
LIST OF DISCLOSURE SCHEDULES
----------------------------
Use of Proceeds Schedule
Organization Schedule
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Significant Customers Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Consents Schedule
Insurance Schedule
Employees Schedule
Employee Benefits Schedule
Compliance Schedule
Environmental Schedule
Affiliated Transactions Schedule
Customers Schedule
<PAGE>
AdNet Strategies, Inc.
Warrants for the Purchase of 65,789 Shares
of Common Stock, Par Value $.01 per share
No. 1 September 16, 1998
---
THIS CERTIFIES that, for value received, William Apfelbaum, (together
with all permitted assigns, the "Holder") is entitled to subscribe for, and
purchase from, AdNet Strategies, Inc., a California corporation (the "Company"),
upon the terms and conditions set forth herein, 65,789 shares of common stock of
the Company, par value $.01 per share ("Common Stock"). This Warrant shall
become exercisable on the date hereof (the "Initial Exercise Date"). The rights
to subscribe for and purchase shares of Common Stock pursuant to this Warrant
shall terminate upon the earliest to occur of (i) the date five years following
the date hereof, (ii) closing of an Initial Public Offering or (iii) a Capital
Transaction as such terms are defined in the Stock Purchase and Stockholders
Agreement of even date herewith among the Company, the Holder and the
stockholders of the Company (the "Stock Purchase Agreement"), provided that the
Company provides at least thirty (30) days prior written notice to the Holder of
such Initial Public Offering or Capital Transaction, as the case may be. Such
time period is referred to below as the "Exercise Period".
During the Exercise Period, this Warrant is exercisable at an exercise
price of $11.40 per share (the "Exercise Price"); provided, however, that upon
the occurrence of any of the events specified in Section 5 hereof, the rights
granted by this Warrant, including the number of shares of Common Stock to be
received upon such exercise, shall be adjusted as therein specified.
Section 1 Exercise of Warrant.
-------------------
(a) This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company, AdNet Strategies, Inc., at its office at
5959 West Century Blvd., Suite 756, Los Angeles, CA 90045, Attention: John
Bohan, or at such other place as is designated in writing by the Company,
together with a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price and the number
of Warrant Shares for which this Warrant is being exercised, provided however,
that the Holder shall be entitled to make the exercise of this Warrant
contingent upon an Initial Public Offering or a Capital Transaction in which
event, the Exercise Price shall be payable within five days of the Initial
Public Offering or the Capital Transaction, as the case may be. If on the date
of exercise of the Warrant, in whole or in part, the Stock Purchase Agreement
remains in effect and the Holder is not then a party thereto, it shall be a
condition to the exercise of the Warrant that the Holder hereof agrees to become
a party to the Stock Purchase agreement immediately upon such exercise.
<PAGE>
Section 2 Rights Upon Exercise; Delivery of Securities.
--------------------------------------------
Upon each exercise of the Holder's rights to purchase Warrant Shares, the
Holder shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing the Warrant Shares with respect to which this Warrant
was exercised shall not then have been actually delivered to the Holder. As soon
as practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a Warrant
evidencing the right of the Holder to purchase the balance of the aggregate
number of Warrant Shares purchasable hereunder as to which this Warrant has not
been exercised or assigned.
Section 3 Registration of Transfer and Exchange.
-------------------------------------
Any Warrants issued upon the transfer or exercise in part of this Warrant
shall be numbered and shall be registered in a warrant register (the "Warrant
Register") as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes, and shall not be bound to recognize any equitable or
other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration of transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. Except for an Exempt Transfer (as defined in the Stock Purchase
Agreement), the initial Holder of this Warrant shall not transfer this Warrant
or any portion hereof to any other person without the prior written consent of
the Company. If such written consent is obtained, this Warrant shall be
transferable on the books of the Company only upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his,
her, or its authority shall be produced. Upon any registration of transfer, the
Company shall deliver a new Warrant or Warrants to the person entitled thereto.
This Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act and the rules and regulations thereunder.
Section 4 Reservation of Shares.
---------------------
The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number
-2-
<PAGE>
of shares of Common Stock as shall, from time to time, be sufficient therefor.
The Company represents that all shares of Common Stock issuable upon exercise of
this Warrant are duly authorized and, upon receipt by the Company of the full
payment for such Warrant Shares, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership thereof
and will not be issued in violation of any preemptive or similar rights of
stockholders.
Section 5 Anti-dilution.
-------------
(a) In the event that the Company shall at any time after the Initial
Exercise Date: (i) declare a dividend on the outstanding Common Stock payable in
shares of its capital stock; (ii) subdivide the outstanding Common Stock; (iii)
combine the outstanding Common Stock into a smaller number of shares; or (iv)
issue any shares of its capital stock by reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then, in each case,
the Exercise Price per Warrant Share in effect at the time of the record date
for the determination of stockholders entitled to receive such dividend or
distribution or of the effective date of such subdivision, combination, or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying such Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action, and the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action. Such adjustment shall be
made successively whenever any event listed above shall occur and shall become
effective at the close of business on such record date or at the close of
business on the date immediately preceding such effective date, as applicable.
(b) In the event the Company shall at any time after the Initial Exercise
Date issue shares of its Common Stock for consideration below that of the
Exercise Price (other than in connection with shares of Common Stock issuable
upon (i) the exercise of options, warrants or conversion rights outstanding on
the date hereof, (ii) the exercise of stock options issuable pursuant to Section
5A of the Stockholders Agreement or (iii) the conversion of the Series A
Preferred Stock); the Exercise Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, of which the numerator shall be
the total number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares plus the number of shares of Common Stock
which the aggregate consideration received for the issuance of such additional
shares would purchase at the current Exercise Price, and of which the
denominator shall be the number of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(c) In the event the Company issues any securities convertible into or
exchangeable for its Common Stock for a consideration per share of Common Stock,
initially deliverable upon conversion or exchange of such securities, and the
conversion price is less than the Exercise Price in effect immediately prior to
the issuance of such securities (other than in connection with shares of Common
Stock issuable upon (i) the exercise of options, warrants or conversion rights
-3-
<PAGE>
outstanding on the date hereof, (ii) the exercise of stock options issuable
pursuant to Section 5A of the Stockholders Agreement or (iii) the conversion of
the Series A Preferred Stock), the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities plus the number of shares of Common
Stock which the aggregate consideration received for such securities would
purchase at the current Exercise Price, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the maximum number of shares of Common Stock of the Company
deliverable upon conversion of or in exchange for such securities at an initial
conversion or exchange price or rate. Such adjustment shall be made successively
whenever such an issuance is made. In the event that the securities convertible
into or exchangeable for its Common Stock for which an adjustment has been made
pursuant to this paragraph (c), expire unexercised, then such adjustment shall
be reversed to the extent of such unexercised convertible or exchangeable
securities.
(d) Whenever the Exercise Price is adjusted pursuant to paragraphs 5(a),
(b) or (c), the number of shares of Common Stock purchasable upon exercise of
this Warrant shall simultaneously be adjusted by multiplying the number of
shares of Common Stock issuable upon exercise of the Warrant by the Exercise
Price in effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(e) In any case in which this Section 5 shall require that an adjustment
in the number of Warrant Shares be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the Warrant Shares, if any, issuable upon such exercise over and
above the number of Warrant Shares issuable upon such exercise on the basis of
the number of share of Common Stock in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares of Common Stock upon the occurrence of the event requiring
such adjustment.
(f) Whenever there shall be an adjustment as provided in this Section 5,
the Company shall within 15 days thereafter cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable and
the Exercise Price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of the correctness of
any such adjustment absent manifest error.
(g) The Company shall not required to issue fractions of shares of Common
Stock or other capital stock of the Company upon the exercise of this Warrant.
If any fraction of a share of Common Stock above half (1/2) a share would be
issuable on the exercise of this Warrant (or specified portions thereof), the
Company shall issue an additional share of Common Stock to the Holder.
-4-
<PAGE>
(h) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.01; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
Section 6 Reclassification; Reorganization; Merger.
----------------------------------------
(a) In case of any capital reorganization, other than in the cases
referred to in Section 5, or the consolidation or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock or the conversion of
such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such Holder
shall be entitled to purchase in accordance with the foregoing provisions.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from a specified par value to no par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and
-5-
<PAGE>
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation, or merger by a holder of the
number of Warrant Shares for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
Section 7 Notice of Certain Events.
------------------------
In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the Company;
or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered mail, postage prepaid or by telefax, to the Holder
at the Holder's address as it shall appear in the Warrant Register, delivered at
least thirty (30) days prior to: (i) the date as of which the holders of record
of shares of Common Stock to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities are to be determined; (ii)
the date on which any such reclassification, change of outstanding shares of
Common Stock, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up is expected to become effective and the
date as of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange their shares for securities or other property, if
any, deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up; or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.
-6-
<PAGE>
Section 8 Charges and Taxes.
-----------------
The issuance of any shares or other securities upon the exercise of this
Warrant and the delivery of certificates or other instruments representing such
shares or other securities shall be made without charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
Section 9 Legend.
------
Until sold pursuant to the provisions of Rule 144 or otherwise registered
under the Securities Act, the Warrant Shares issued on exercise of the Warrants
shall be subject to a stop transfer order and the certificate or certificates
representing the Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1)
A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THE SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 10 Loss; Theft; Destruction; Mutilation.
------------------------------------
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction, or mutilation of any Warrant (and upon surrender of any Warrant if
mutilated), and upon receipt by the Company of reasonably satisfactory
indemnification, the Company shall execute and deliver to the Holder thereof a
new Warrant of like date, tenor, and denomination.
Section 11 Stockholder Rights.
------------------
The Holder of any Warrant shall not have, solely on account of such status,
any rights of a stockholder of the Company, either at law or in equity, or to
any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
-7-
<PAGE>
Section 12 Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
New York applicable to contracts made and performed within such State, without
regard to principles of conflicts of law.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first above written.
ADNET STRATEGIES, INC.
By: /s/ John Bohan
---------------------------
Name: John Bohan
Title: President
-8-
<PAGE>
The security represented by this certificate was originally issued on
August 16, 1999, and has not been registered under the Securities Act
of 1933, as amended (the "Act"), and may not be transferred, sold or
pledged without registration under the Act, unless otherwise exempt
from such registration requirements. The transfer of such security is
subject to the conditions specified in the Series B Preferred Stock
Purchase Agreement, dated as of August 6, 1999 as amended and modified
from time to time, between the issuer hereof (the "Company") and the
initial holder hereof, and the Company reserves the right to refuse
the transfer of such security until such conditions have been
fulfilled with respect to such transfer. Upon written request, a copy
of such conditions shall be furnished by the Company to the holder
hereof without charge.
LATITUDE 90, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: August 16, 1999 Certificate No. W-2
FOR VALUE RECEIVED, LATITUDE 90, INC., a California corporation (the
"Company"), hereby grants to DigaComm, L.L.C. or its registered assigns (the
"Registered Holder") the right to purchase from the Company 530,946 shares of
Common Stock, at a price per share of $3.53 (as adjusted from time to time in
accordance herewith, the "Exercise Price"). This Warrant (the "Warrant") is
issued pursuant to the terms of the Series B Preferred Stock Purchase
Agreement, dated as of August 6, 1999 (the "Purchase Agreement"), between the
Company and DigaComm, L.L.C. Certain capitalized terms used herein are defined
in Section 5 hereof. The amount and kind of securities obtainable pursuant to
the rights granted hereunder and the purchase price for such securities are
subject to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time after the Date of
Issuance to and including August 6, 2004 (the "Exercise Period").
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set forth
in Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount equal
to the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of the
Company having a Market Price equal to the Aggregate Exercise Price of the
Common Stock being purchased upon such exercise (provided that for purposes of
this subparagraph, the Market Price of any note or other debt security or any
preferred stock shall be deemed to be equal to the aggregate outstanding
principal amount or liquidation value thereof plus all accrued and unpaid
interest thereon or accrued or declared and unpaid dividends thereon) or (3) a
written notice (provided no such notice is required if there is an automatic
conversion pursuant to Section 3 hereof) to the Company that the Purchaser is
exercising the Warrant (or a portion thereof) by authorizing the Company to
withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Warrant which when multiplied by the Market Price of the
Common Stock is equal to the Aggregate Exercise Price (and such withheld
shares shall no longer be issuable under this Warrant) (a "Cashless
Exercise").
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be
2
<PAGE>
deemed for all purposes to have become the record holder of such Common Stock at
the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(vii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrant, such number of shares of Common Stock
issuable upon the exercise of the Warrant. All shares of Common Stock which are
so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges except those incurred
or imposed by the Registered Holder. The Company shall take all such actions as
may be reasonably necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value of the unissued Common Stock acquirable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price. The Company
shall not take any action which would cause the number of authorized but
unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state
3
<PAGE>
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be delivered. Such Exercise Agreement shall be dated the
actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Dilution Protection.
-------------------
2A. Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, options or in convertible securities
or (ii) to subscribe for or purchase Common Stock, options or convertible
securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2B. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
2C. Reorganization, Reclassification, Consolidation, Merger or Sale.
--------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance
4
<PAGE>
reasonably satisfactory to the Registered Holders of the Warrant representing a
majority of the Common Stock obtainable upon exercise of all of the Warrant then
outstanding) to insure that each of the Registered Holders of the Warrant shall
thereafter have the right to acquire and receive, in lieu of or addition to (as
the case may be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of such holder's Warrant had such Organic Change not
taken place. In any such case, the Company shall make appropriate provision (in
form and substance reasonbly satisfactory to the Registered Holders of the
Warrant representing a majority of the Common Stock obtainable upon exercise of
all Warrant then outstanding) with respect to such holders' rights and interests
to insure that the provisions of this Section 2 and Sections 3 and 4 hereof
shall thereafter be applicable to the Warrant (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment in the number of
shares of Common Stock acquirable and receivable upon exercise of the Warrant
based on the relative value of the Common Stock and the common stock of the
successor entity or purchasing entity). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance reasonably satisfactory to the Registered Holders of the
Warrant representing a majority of the Common Stock obtainable upon exercise of
all of the Warrant then outstanding), the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2D. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions or definition (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors in its reasonable judgment shall make an
appropriate adjustment in the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrant.
2E. Notices.
-------
(i) The Company shall give written notice to the Registered Holder
at least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(ii) The Company shall give written notice to the Registered Holders
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Automatic Conversion
--------------------
3A. This Warrant shall automatically be converted into shares of
Common Stock (based on a Cashless Exercise) immediately upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company in which the aggregate gross
proceeds received by the Company at the public offering price equals or exceeds
Twenty Million Dollars ($20,000,000) with price per share equal to or exceeding
the product of 2.5 times the then existing Series B Convertible Preferred Stock
Conversion Price (as defined in the Company's articles of incorporation), and
the obligation of the underwriters with respect to which
5
<PAGE>
is that if any of the securities being offered are purchased, all such
securities must be purchased (a "Qualified Public Offering").
3B. Upon the occurrence of a Qualified Public Offering, the Warrant
shall be converted automatically without any further action by the Registered
Holder and whether or not the Warrant is surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the Warrant is either delivered to the Company or its transfer
agent as provided below, or the holder notifies the Company or its transfer
agent that the Warrant has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with the Warrant. Upon the occurrence of such
automatic conversion of the Warrant, the Registered Holder shall surrender the
Warrant at the office of the Company or its transfer agent. Thereupon, there
shall be issued and delivered to such Registered Holder promptly at such office
and in its name as shown on such surrendered Warrant, a certificate or
certificates for the number of shares of Common Stock into which the Warrant
surrendered was convertible on the date on which such automatic conversion
occurred.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company; provided that with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, "Common Stock" means the Company's Common
Stock, par value $.01 per share.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on the principal domestic securities exchange on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on such exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of the Warrant representing a majority of the Common
Stock purchasable upon exercise of all of the Warrant then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period
6
<PAGE>
of time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of the Warrant representing a majority of
the Common Stock purchasable upon exercise of all of the Warrant then
outstanding. The determination of such appraiser shall be final and binding on
the Company and the Registered Holders of the Warrant, and the fees and expenses
of such appraiser shall be paid by the Company.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 5 No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6 Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
----------
Section 7 Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrant of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrant
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrant
representing portions of the rights hereunder are referred to herein as the
"Warrant."
Section 8 Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like
7
<PAGE>
kind representing the same rights represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 9 Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. Mail (i) to the Company, at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrant representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrant; provided that no such action may
change the Exercise Price of the Warrant or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrant representing at least a majority of the shares
of Common Stock obtainable upon exercise of the Warrant.
Section 11 Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
LATITUDE 90, INC.
By ____________________________
Name:
Title:
Attest:
- -------------------------
Secretary
9
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
The security represented by this certificate was originally issued on
August 16, 1999, and has not been registered under the Securities Act
of 1933, as amended (the "Act"), and may not be transferred, sold or
pledged without registration under the Act, unless otherwise exempt
from such registration requirements. The transfer of such security is
subject to the conditions specified in the Securities Purchase Agree
ment, dated as of August 16, 1999 as amended and modified from time to
time, between the issuer hereof (the "Company") and the initial holder
hereof, and the Company reserves the right to refuse the transfer of
such security until such conditions have been fulfilled with respect
to such transfer. Upon written request, a copy of such conditions
shall be furnished by the Company to the holder hereof without charge.
LATITUDE 90, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: August 16, 1999 Certificate No. W-3
FOR VALUE RECEIVED, LATITUDE 90, INC., a California corporation (the
"Company"), hereby grants to William Apfelbaum or its registered assigns (the
"Registered Holder") the right to purchase from the Company 530,946 shares of
Common Stock, at a price per share of $3.53 (as adjusted from time to time in
accordance herewith, the "Exercise Price"). This Warrant (the "Warrant") is
issued pursuant to the terms of the Securities Purchase Agreement, dated as of
August 16, 1999 (the "Purchase Agreement"), between the Company and William
Apfelbaum. Certain capitalized terms used herein are defined in Section 5
hereof. The amount and kind of securities obtainable pursuant to the rights
granted hereunder and the purchase price for such securities are subject to
adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time after the Date of
Issuance to and including August 6, 2004 (the "Exercise Period").
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph
1C below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set forth
in Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount
equal to the product of the Exercise Price multiplied by the number of shares
of Common Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of the
Company having a Market Price equal to the Aggregate Exercise Price of the
Common Stock being purchased upon such exercise (provided that for purposes of
this subparagraph, the Market Price of any note or other debt security or any
preferred stock shall be deemed to be equal to the aggregate outstanding
principal amount or liquidation value thereof plus all accrued and unpaid
interest thereon or accrued or declared and unpaid dividends thereon) or (3) a
written notice (provided no such notice is required if there is an automatic
conversion pursuant to Section 3 hereof) to the Company that the Purchaser is
exercising the Warrant (or a portion thereof) by authorizing the Company to
withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Warrant which when multiplied by the Market Price of the
Common Stock is equal to the Aggregate Exercise Price (and such withheld
shares shall no longer be issuable under this Warrant) (a "Cashless
Exercise"). (ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which
have not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be
2
<PAGE>
deemed for all purposes to have become the record holder of such Common Stock at
the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(vii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrant, such number of shares of Common Stock
issuable upon the exercise of the Warrant. All shares of Common Stock which are
so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges except those incurred
or imposed by the Registered Holder. The Company shall take all such actions as
may be reasonably necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value of the unissued Common Stock acquirable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price. The Company
shall not take any action which would cause the number of authorized but
unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state
3
<PAGE>
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be delivered. Such Exercise Agreement shall be dated the
actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Dilution Protection.
-------------------
2A. Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, options or in convertible securities
or (ii) to subscribe for or purchase Common Stock, options or convertible
securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscrip tion or purchase, as the case
may be.
2B. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
2C. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance reasonably
satisfactory to the Registered Holders of the Warrant representing a majority of
the Common Stock obtainable upon exercise of all of the Warrant then
outstanding) to insure that each of the Registered Holders of the Warrant shall
thereafter have the right to acquire and receive, in lieu of or addition to (as
the case may be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of such holder's Warrant had such Organic Change not
taken place. In any such case, the Company shall make appropriate provision (in
form and substance
4
<PAGE>
reasonbly satisfactory to the Registered Holders of the Warrant representing a
majority of the Common Stock obtainable upon exercise of all Warrant then
outstanding) with respect to such holders' rights and interests to insure that
the provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be
applicable to the Warrant (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon exercise of the Warrant based on the relative
value of the Common Stock and the common stock of the successor entity or
purchasing entity). The Company shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor entity (if
other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the Registered Holders of the Warrant representing a
majority of the Common Stock obtainable upon exercise of all of the Warrant then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
2D. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions or definition (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors in its reasonable judgment shall make an
appropriate adjustment in the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrant.
2E. Notices.
-------
(i) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(ii) The Company shall give written notice to the Registered Holders
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Automatic Conversion
--------------------
3A. This Warrant shall automatically be converted into shares of
Common Stock (based on a Cashless Exercise) immediately upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company in which the aggregate gross
proceeds received by the Company at the public offering price equals or exceeds
Twenty Million Dollars ($20,000,000) with price per share equal to or exceeding
the product of 2.5 times the then existing Series B Convertible Preferred Stock
Conversion Price (as defined in the Company's articles of incorporation), and
the obligation of the underwriters with respect to which
5
<PAGE>
is that if any of the securities being offered are purchased, all such
securities must be purchased (a "Qualified Public Offering").
3B. Upon the occurrence of a Qualified Public Offering, the Warrant
shall be converted automatically without any further action by the Registered
Holder and whether or not the Warrant is surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the Warrant is either delivered to the Company or its transfer
agent as provided below, or the holder notifies the Company or its transfer
agent that the Warrant has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with the Warrant. Upon the occurrence of such
automatic conversion of the Warrant, the Registered Holder shall surrender the
Warrant at the office of the Company or its transfer agent. Thereupon, there
shall be issued and delivered to such Registered Holder promptly at such office
and in its name as shown on such surrendered Warrant, a certificate or
certificates for the number of shares of Common Stock into which the Warrant
surrendered was convertible on the date on which such automatic conversion
occurred.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to partici pate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company; provided that with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, "Common Stock" means the Company's Common
Stock, par value $.01 per share.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on the principal domestic securities exchange on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on such exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of the Warrant representing a majority of the Common
Stock purchasable upon exercise of all of the Warrant then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period
6
<PAGE>
of time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of the Warrant representing a majority of
the Common Stock purchasable upon exercise of all of the Warrant then
outstanding. The determination of such appraiser shall be final and binding on
the Company and the Registered Holders of the Warrant, and the fees and expenses
of such appraiser shall be paid by the Company.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 5 No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6 Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
----------
Section 7 Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrant of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrant
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrant
representing portions of the rights hereunder are referred to herein as the
"Warrant."
Section 8 Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like
7
<PAGE>
kind representing the same rights represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 9 Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. Mail (i) to the Company, at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrant representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrant; provided that no such action may
change the Exercise Price of the Warrant or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrant representing at least a majority of the shares
of Common Stock obtainable upon exercise of the Warrant.
Section 11 Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
LATITUDE 90, INC.
By ____________________________
Name:
Title:
Attest:
- -------------------------
Secretary
9
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W- ), hereby agrees to subscribe for the purchase of
----
shares of the Common Stock covered by such Warrant and makes payment
- ------
herewith in full therefor at the price per share provided by such Warrant.
Signature
--------------------
Address
----------------------
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, hereby sells,
-----------------------------
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W- ) with respect to the number of shares of the
-----
Common Stock covered thereby set forth below, unto:
Names of Assigne Address No. of Shares
- ----------------- ------- -------------
Dated: Signature
-------------------------
Witness
--------------------------
<PAGE>
The security represented by this certificate was originally issued on
September 22, 1999, and has not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be transferred, sold
or pledged without registration under the Act, unless otherwise exempt
from such registration requirements. The transfer of such security is
subject to the conditions specified in the Series C Preferred Stock
Purchase Agreement, dated as of September 22, 1999 as amended and
modified from time to time, between the issuer hereof (the "Company")
and the initial holder hereof, and the Company re serves the right to
refuse the transfer of such security until such conditions have been
fulfilled with respect to such transfer. Upon written request, a copy
of such conditions shall be furnished by the Company to the holder
hereof without charge.
L90, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: September 22, 1999 Certificate No. W-C2
FOR VALUE RECEIVED, L90, INC., a California corporation (the
"Company"), hereby grants to Development Ventures (Two) Inc. or its registered
assigns (the "Registered Holder") the right to purchase from the Company
1,011,044 shares of Common Stock, at a price per share of $3.06 (as adjusted
from time to time in accordance herewith, the "Exercise Price"). This Warrant
(the "Warrant") is issued pursuant to the terms of the Series C Preferred Stock
Purchase Agreement, dated as of September 22, 1999 (the "Purchase Agreement"),
among the Company and the purchasers named therein. Certain capitalized terms
used herein are defined in Section 5 hereof. The amount and kind of securities
obtainable pursuant to the rights granted hereunder and the purchase price for
such securities are subject to adjustment pursuant to the provisions contained
in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant
<PAGE>
at any time and from time to time after the Date of Issuance to and including
September 22, 2004 (the "Exercise Period").
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set forth in
Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount equal
to the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of the
Company having a Market Price equal to the Aggregate Exercise Price of the
Common Stock being purchased upon such exercise (provided that for purposes of
this subparagraph, the Market Price of any note or other debt security or any
preferred stock shall be deemed to be equal to the aggregate outstanding
principal amount or liquidation value thereof plus all accrued and unpaid
interest thereon or accrued or declared and unpaid dividends thereon) or (3) a
written notice (provided no such notice is required if there is an automatic
conversion pursuant to Section 3 hereof) to the Company that the Purchaser is
exercising the Warrant (or a portion thereof) by authorizing the Company to
withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Warrant which when multiplied by the Market Price of the
Common Stock is equal to the Aggregate Exercise Price (and such withheld
shares shall no longer be issuable under this Warrant) (a "Cashless
Exercise").
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
<PAGE>
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(vii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrant, such number of shares of Common Stock
issuable upon the exercise of the Warrant. All shares of Common Stock which are
so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges except those incurred
or imposed by the Registered Holder. The Company shall take all such actions as
may be reasonably necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value of the unissued Common Stock acquirable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price. The Company
shall not take any action which would cause the number of authorized but
unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates
<PAGE>
for the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Dilution Protection.
-------------------
2A. Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, options or in convertible securities
or (ii) to subscribe for or purchase Common Stock, options or convertible
securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscrip tion or purchase, as the case
may be.
2B. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
2C. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance reasonably
satisfactory to the Registered Holders of the Warrant representing a majority of
the Common Stock obtainable upon exercise of all of the Warrant then
outstanding) to insure that each of the Registered Holders of the Warrant shall
thereafter have the right to acquire and receive, in lieu of or addition to (as
the case may be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with
<PAGE>
respect to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder's Warrant had
such Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Registered Holders of the Warrant representing a majority of the Common Stock
obtainable upon exercise of all Warrant then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this Section 2
and Sections 3 and 4 hereof shall thereafter be applicable to the Warrant
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment in the number of shares of Common Stock acquirable and receivable
upon exercise of the Warrant based on the relative value of the Common Stock and
the common stock of the successor entity or purchasing entity). The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form and substance reasonably satisfactory to the
Registered Holders of the Warrant representing a majority of the Common Stock
obtainable upon exercise of all of the Warrant then outstanding), the obligation
to deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
2D. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions or definition (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors in its reasonable judgment shall make an
appropriate adjustment in the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrant.
2E. Notices.
-------
(i) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(ii) The Company shall give written notice to the Registered Holders
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Automatic Conversion
--------------------
3A. This Warrant shall automatically be converted into shares of
Common Stock (based on a Cashless Exercise) immediately upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company in which the
<PAGE>
aggregate gross proceeds received by the Company at the public offering price
equals or exceeds Twenty Million Dollars ($20,000,000) with price per share
equal to or exceeding the product of 2.5 times the then existing Series B
Convertible Preferred Stock Conversion Price (as defined in the Company's
articles of incorporation), and the obligation of the underwriters with respect
to which is that if any of the securities being offered are purchased, all such
securities must be purchased (a "Qualified Public Offering"); provided however,
that, notwithstanding anything herein to the contrary, in connection with
automatic conversation based on such Cashless Exercise upon the closing of a
Qualified Public Offering, the Market Price of the Common Stock shall be deemed
to be the initial price to the public as set forth in the prospectus relating
thereto.
3B. Upon the occurrence of a Qualified Public Offering, the Warrant
shall be converted automatically without any further action by the Registered
Holder and whether or not the Warrant is surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the Warrant is either delivered to the Company or its transfer
agent as provided below, or the holder notifies the Company or its transfer
agent that the Warrant has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with the Warrant. Upon the occurrence of such
automatic conversion of the Warrant, the Registered Holder shall surrender the
Warrant at the office of the Company or its transfer agent. Thereupon, there
shall be issued and delivered to such Registered Holder promptly at such office
and in its name as shown on such surrendered Warrant, a certificate or
certificates for the number of shares of Common Stock into which the Warrant
surrendered was convertible on the date on which such automatic conversion
occurred.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, par value $.001 per
------------
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to partici pate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company; provided that with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, "Common Stock" means the Company's Common
Stock, par value $.001 per share.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on the principal domestic securities exchange on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on such exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting
<PAGE>
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day; provided that if such security is listed on any
domestic securities exchange the term "business days" as used in this sentence
means business days on which such exchange is open for trading. If at any time
such security is not listed on any domestic securities exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Market Price" shall
be the fair value thereof determined jointly by the Company and the Registered
Holders of the Warrant representing a majority of the Common Stock purchasable
upon exercise of all of the Warrant then outstanding; provided that if such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of the Warrant representing a majority of the Common
Stock purchasable upon exercise of all of the Warrant then outstanding. The
determination of such appraiser shall be final and binding on the Company and
the Registered Holders of the Warrant, and the fees and expenses of such
appraiser shall be paid by the Company.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 5 No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6 Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
----------
Section 7 Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrant of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrant
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrant
representing portions of the rights hereunder are referred to herein as the
"Warrant."
<PAGE>
Section 8 Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Section 9 Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three (3) days after being deposited in the U.S. Mail (i) to the Company, at
its principal executive offices and (ii) to the Registered Holder of this
Warrant, at such holder's address as it appears in the records of the Company
(unless otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrant representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrant; provided that no such action may
change the Exercise Price of the Warrant or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrant representing at least a majority of the shares
of Common Stock obtainable upon exercise of the Warrant.
Section 11 Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
L90, INC.
By /s/ John Bohan
_____________________________________________
Name: John Bohan
Title: Chief Executive Officer
Attest:
/s/ Lucrezia Bickerton
- ---------------------------
Assistant Secretary
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature _______________________
Address _______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
The security represented by this certificate was originally issued on
September 22, 1999, and has not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be transferred, sold
or pledged without registration under the Act, unless otherwise exempt
from such registration requirements. The transfer of such security is
subject to the conditions specified in the Series C Preferred Stock
Purchase Agreement, dated as of September 22, 1999 as amended and
modified from time to time, between the issuer hereof (the "Company")
and the initial holder hereof, and the Company reserves the right to
refuse the transfer of such security until such conditions have been
fulfilled with respect to such transfer. Upon written request, a copy
of such conditions shall be furnished by the Company to the holder
hereof without charge.
L90, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: September 22, 1999 Certificate No. W-C1
FOR VALUE RECEIVED, L90, INC., a California corporation (the
"Company"), hereby grants to Rare Medium Group, Inc. or its registered assigns
(the "Registered Holder") the right to purchase from the Company 900,000 shares
of Common Stock, at a price per share of $3.06 (as adjusted from time to time in
accordance herewith, the "Exercise Price"). This Warrant (the "Warrant") is
issued pursuant to the terms of the Series C Preferred Stock Purchase Agreement,
dated as of September 22, 1999 (the "Purchase Agreement"), among the Company and
the purchasers named therein. Certain capitalized terms used herein are defined
in Section 5 hereof. The amount and kind of securities obtainable pursuant to
the rights granted hereunder and the purchase price for such securities are
subject to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant
<PAGE>
at any time and from time to time after the Date of Issuance to and including
September 22, 2004 (the "Exercise Period").
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
----------
hereto evidencing the assignment of this Warrant to the Purchaser, in which
case the Registered Holder shall have complied with the provisions set forth
in Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount equal
to the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of the
Company having a Market Price equal to the Aggregate Exercise Price of the
Common Stock being purchased upon such exercise (provided that for purposes of
this subparagraph, the Market Price of any note or other debt security or any
preferred stock shall be deemed to be equal to the aggregate outstanding
principal amount or liquidation value thereof plus all accrued and unpaid
interest thereon or accrued or declared and unpaid dividends thereon) or (3) a
written notice (provided no such notice is required if there is an automatic
conversion pursuant to Section 3 hereof) to the Company that the Purchaser is
exercising the Warrant (or a portion thereof) by authorizing the Company to
withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Warrant which when multiplied by the Market Price of the
Common Stock is equal to the Aggregate Exercise Price (and such withheld
shares shall no longer be issuable under this Warrant) (a "Cashless
Exercise").
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
2
<PAGE>
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(vii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrant, such number of shares of Common Stock
issuable upon the exercise of the Warrant. All shares of Common Stock which are
so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges except those incurred
or imposed by the Registered Holder. The Company shall take all such actions as
may be reasonably necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value of the unissued Common Stock acquirable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price. The Company
shall not take any action which would cause the number of authorized but
unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates
3
<PAGE>
for the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Dilution Protection.
-------------------
2A. Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, options or in convertible securities
or (ii) to subscribe for or purchase Common Stock, options or convertible
securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2B. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
2C. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance reasonably
satisfactory to the Registered Holders of the Warrant representing a majority of
the Common Stock obtainable upon exercise of all of the Warrant then
outstanding) to insure that each of the Registered Holders of the Warrant shall
thereafter have the right to acquire and receive, in lieu of or addition to (as
the case may be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with
4
<PAGE>
respect to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder's Warrant had
such Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Registered Holders of the Warrant representing a majority of the Common Stock
obtainable upon exercise of all Warrant then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this Section 2
and Sections 3 and 4 hereof shall thereafter be applicable to the Warrant
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment in the number of shares of Common Stock acquirable and receivable
upon exercise of the Warrant based on the relative value of the Common Stock and
the common stock of the successor entity or purchasing entity). The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form and substance reasonably satisfactory to the
Registered Holders of the Warrant representing a majority of the Common Stock
obtainable upon exercise of all of the Warrant then outstanding), the obligation
to deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
2D. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions or definition (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors in its reasonable judgment shall make an
appropriate adjustment in the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrant.
2E. Notices.
-------
(i) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(ii) The Company shall give written notice to the Registered Holders
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Automatic Conversion
--------------------
3A. This Warrant shall automatically be converted into shares of
Common Stock (based on a Cashless Exercise) immediately upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company in which the
5
<PAGE>
aggregate gross proceeds received by the Company at the public offering price
equals or exceeds Twenty Million Dollars ($20,000,000) with price per share
equal to or exceeding the product of 2.5 times the then existing Series B
Convertible Preferred Stock Conversion Price (as defined in the Company's
articles of incorporation), and the obligation of the underwriters with respect
to which is that if any of the securities being offered are purchased, all such
securities must be purchased (a "Qualified Public Offering"); provided however,
that, notwithstanding anything herein to the contrary, in connection with
automatic conversation based on such Cashless Exercise upon the closing of a
Qualified Public Offering, the Market Price of the Common Stock shall be deemed
to be the initial price to the public as set forth in the prospectus relating
thereto.
3B. Upon the occurrence of a Qualified Public Offering, the Warrant
shall be converted automatically without any further action by the Registered
Holder and whether or not the Warrant is surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the Warrant is either delivered to the Company or its transfer
agent as provided below, or the holder notifies the Company or its transfer
agent that the Warrant has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with the Warrant. Upon the occurrence of such
automatic conversion of the Warrant, the Registered Holder shall surrender the
Warrant at the office of the Company or its transfer agent. Thereupon, there
shall be issued and delivered to such Registered Holder promptly at such office
and in its name as shown on such surrendered Warrant, a certificate or
certificates for the number of shares of Common Stock into which the Warrant
surrendered was convertible on the date on which such automatic conversion
occurred.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, par value $.001 per
------------
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company; provided that with respect to the shares of Common Stock issuable
upon the exercise of this Warrant, "Common Stock" means the Company's Common
Stock, par value $.001 per share.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on the principal domestic securities exchange on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on such exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting
6
<PAGE>
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day; provided that if such security is listed on any
domestic securities exchange the term "business days" as used in this sentence
means business days on which such exchange is open for trading. If at any time
such security is not listed on any domestic securities exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Market Price" shall
be the fair value thereof determined jointly by the Company and the Registered
Holders of the Warrant representing a majority of the Common Stock purchasable
upon exercise of all of the Warrant then outstanding; provided that if such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of the Warrant representing a majority of the Common
Stock purchasable upon exercise of all of the Warrant then outstanding. The
determination of such appraiser shall be final and binding on the Company and
the Registered Holders of the Warrant, and the fees and expenses of such
appraiser shall be paid by the Company.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 5 No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6 Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
----------
Section 7 Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrant of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrant
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrant
representing portions of the rights hereunder are referred to herein as the
"Warrant."
7
<PAGE>
Section 8 Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Section 9 Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three (3) days after being deposited in the U.S. Mail (i) to the Company, at
its principal executive offices and (ii) to the Registered Holder of this
Warrant, at such holder's address as it appears in the records of the Company
(unless otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrant representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrant; provided that no such action may
change the Exercise Price of the Warrant or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrant representing at least a majority of the shares
of Common Stock obtainable upon exercise of the Warrant.
Section 11 Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
L90, INC.
By /s/ John Bohan
___________________________________
Name: John Bohan
Title: Chief Executive Officer
Attest:
/s/ Lucrezia Bickerton
_____________________________
Assistant Secretary
9
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS
(1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
LATITUDE90, INC.
Senior Promissory Note
No. 99-1 June 7, 1999
$600,000.00
LATITUDE90, INC., a California corporation (the "Company"), for value
received, hereby promises to pay to The Roman Arch Fund L.P., with an address at
One New York Plaza, New York, New York 10292, or assigns (the "Holder"), the
principal amount of Six Hundred Thousand ($600,000) on the Maturity Date (as
defined below), and to pay interest on the unpaid principal balance hereof at
the rate (calculated on the basis of a 360-day year) of (a) 9% per annum from
the date hereof until the Maturity Date and (b) 12% from and after the Maturity
Date until the unpaid principal balance hereof is paid in full. Interest on the
unpaid principal balance hereof shall accrue and be compounded monthly, and
shall be payable on the Maturity Date. In no event shall any interest to be
paid hereunder exceed the maximum rate permitted by law. In any such event,
this Note shall automatically be deemed amended to permit interest charges at an
amount equal to, but no greater than, the maximum rate permitted by law.
1. Offering.
--------
This Note is one of two notes (the "Notes") issued by the Company on the
date hereof in the aggregate principal amount of $1,000,000. The Notes are
secured by, and entitled to the benefits of, the Pledge and Security Agreement
between John C. Bohan and The Roman Arch Fund L.P. and The
<PAGE>
Roman Arch Fund II L.P. The purchasers of the Notes are also being issued
Warrants (collectively, the "Warrants") to purchase an aggregate of up to
500,000 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock") at an initial exercise price per share equal to $1.60 (subject
to adjustment and/or partial cancellation upon the occurrence of certain
events).
2. Payments.
--------
(a) Principal of, and accrued interest on, this Note shall be due and
payable in full on the Maturity Date. The "Maturity Date" shall be the date
which is the earliest of (i) June 7, 2000, (ii) the date of the closing of a
private or public offering by the Company of debt or equity securities to one or
more independent third parties that raises gross proceeds to the Company of at
least $4,000,000, (iii) a consolidation or merger of the Company with or into
any other corporation or corporations (other than a subsidiary of the Company),
(iv) a sale, lease or transfer of all or substantially all of the assets of the
Company, (v) the sale of at least 51% of the outstanding equity of the Company
in any single transaction or series of related transactions or (vi) the date on
which John Bohan shall fail to own more than 51% of the Company's common equity
on a fully diluted basis (any of the events referred to in clauses (iii) through
(vi) being a "Change of Control").
(b) If the Maturity Date would fall on a day that is not a Business
Day (as defined below), the payment due on the Maturity Date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Maturity Date. "Business Day" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.
(c) The Company may, at its option, prepay all or any part of the
principal of this Note, without payment of any premium or penalty. All payments
on this Note shall be applied first to accrued interest hereon and the balance
to the payment of principal hereof.
(d) Payments of principal and interest on this Note shall be made by
check in United States dollars sent to the Holder's address set forth above or
to such other address as the Holder may designate for such purpose from time to
time by written notice to the Company.
(e) The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of non-
payment, notice of dishonor, protest, notice of protest, bringing of suit and
diligence in taking any action to collect any amount called for hereunder, and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for hereunder.
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<PAGE>
3. Ranking of Note. The Company, for itself, its successors and assigns,
---------------
covenants and agrees that the payment of the principal of and interest on this
Note shall rank senior to all indebtedness outstanding on the date hereof or
hereafter created, incurred, assumed, renewed or guaranteed by the Company,
other than trade payables incurred by the Company in the ordinary course of its
business consistent with past practices, it being understood that such trade
payables may rank equal in right of payment to the Notes.
4. Covenants.
---------
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Notes, unless the consent of the Holders a majority
of the unpaid principal amount of the Notes is obtained:
(a) the Company shall deliver to each Holder as soon as
practicable after the end of (i) each fiscal year, and in any event
within 90 days thereafter, audited annual financial statements, (ii)
the first, second and third quarterly accounting periods in each fiscal
year of the Company, and in any event, within 45 days thereafter,
quarterly unaudited financial statements, and (iii) each month, and in
any event within 20 days thereafter monthly unaudited financial
statements, and such other information as is customarily made available
to the Company's shareholders;
(b) the Company shall deliver to each Holder promptly after the
Company shall obtain knowledge of such, written notice of all material
legal or arbitration proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and each material
development in respect of such legal or other proceedings, affecting
the Company, except proceedings which, if adversely determined, would
not have a material adverse effect on the Company;
(c) the Company shall deliver to each Holder promptly after the
Company shall obtain knowledge of the occurrence of any Event of
Default (as hereinafter defined) or any event which with notice or
lapse of time or both would become an Event of Default (an Event of
Default or such other event being a "Default"), a notice specifying
that such notice is a "Notice of Default" and describing such Default
in reasonable detail, and, in such Notice of Default or as soon
thereafter as practicable, a description of the action the Company has
taken or proposes to take with respect thereto;
(d) the Company will duly and punctually pay the principal and
interest on each of the Notes at the place, at the respective times and
in the manner herein provided;
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<PAGE>
(e) the Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence,
rights and franchises;
(f) the Company will not declare or pay any dividend on, or make
any distribution to the holders of, any shares of capital stock of the
Company of any class (except in shares of capital stock or options,
warrants or rights to acquire shares of capital stock);
(g) neither the Company nor any corporation which may hereafter
become a subsidiary of the Company will purchase, redeem or otherwise
acquire for consideration any shares of capital stock of the Company
of any class, or any options, warrants or rights to acquire any shares
of capital stock (other than the repurchase of shares of Common Stock
of the Company from employees, officers, directors or advisors
pursuant to pre-existing agreements or arrangements); and
(h) the Company shall not (i) incur any indebtedness or other
obligations that rank senior or equal to the Notes in right of
payment, other than trade payables incurred in the ordinary course of
business which may rank equal in right of payment to the Notes and
(ii) enter into any transaction with a value greater than $50,000 with
any officer, director, employee or 5% shareholder of the Company, or
any person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Company; provided, however, that any transaction
permitted by this clause (ii) shall be on terms no less favorable to
the Company than could be obtained from a disinterested third party.
5. Events of Default.
-----------------
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal or interest on any Note,
when and as the same shall become due and payable.
(b) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note or in the related Pledge and Security
Agreement and continuance of such default or breach for a period of 10 days
after receipt of notice from the Holder as to such breach or after the Company
had or should have had knowledge of such breach.
(c) Any representation, warranty or certification made by the Company
pursuant to this Note shall prove to have been false or misleading as of the
date made in any material respect.
-4-
<PAGE>
(d) A default by the Company shall be declared under any indebtedness
which gives the holder thereof the right to declare such indebtedness due prior
to its stated maturity and such indebtedness is in fact declared due prior to
its stated maturity.
(e) A final judgment or judgments for the payment of money in excess
of $75,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitration tribunals or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and the Company shall
not, within such 30-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(f) The entry of a decree or order by a court having jurisdiction
adjudging the Company bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official for
the Company or for any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
(g) If John C. Bohan ceases to act as the full-time Chief Executive
Officer of the Company for any reason whatsoever.
6. Remedies Upon Default.
---------------------
Upon the occurrence and during the continuance of an Event of Default
referred to in Section 5 (other than an Event of Default pursuant to Section
5(f), upon which the Notes shall immediately become due and payable together
with interest accrued thereon, without action of the part of the Holder), the
Holder of this Note may, at its option, by notice in writing to the Company,
declare such Note to be due and payable together with interest accrued thereon,
without presentment, demand, protest or notice of any kind, all of which are
hereby waived by the Company. The Holder may institute such actions or
proceedings in law or equity as it shall deem expedient for the protection of
its rights hereunder.
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<PAGE>
7. Transfer.
--------
(a) The Company shall be entitled to treat the registered holder of
any Note as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other person. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Act and the rules and regulations
thereunder or any applicable state securities laws.
(b) The Holder acknowledges that it has been advised by the Company
that this Note has not been registered under the Act, that this Note is being
issued on the basis of the statutory exemption provided by Section 4(2) of the
Act or Regulation D promulgated thereunder, or both, relating to transactions by
an issuer not involving any public offering. The Holder acknowledges that it
has been informed by the Company of, or is otherwise familiar with, the nature
of the limitations imposed by the Act and the rules and regulations thereunder
on the transfer of securities. In particular, the Holder agrees that no sale,
assignment or transfer of this Note shall be valid or effective, and the Company
shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment or transfer of this Note is registered
under the Act, it being understood that this Note is not currently registered
for sale and that the Company has no obligation or intention to so register the
Notes, or (ii) this Note is sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this Note
for the sale of this Note and that there can be no assurance that Rule 144 sales
will be available at any subsequent time, or (iii) such sale, assignment, or
transfer is otherwise exempt from registration under the Act.
8. Representations and Warranties
------------------------------
The Company hereby represents and warrants to the Holders as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and
has all requisite corporate power to own its property and to carry on
its business as it is now being conducted, to issue and Notes and the
Warrants and to carry out the provisions hereof and thereof. The
Company does not own any shares of stock or any other securities of
any corporation or have any equity interest in any firm, partnership,
association or other entity.
(b) The Company is duly licensed or qualified to do business and
in good standing as a foreign corporation authorized to do business in
all jurisdictions
-6-
<PAGE>
wherein the properties owned or the activities conducted by it make
such license or qualification necessary, except where the failure to
be so licensed or qualified would not have a material adverse effect
on the Company.
(c) After giving effect to the Company's 10-for-1 stock split
effective May 19, 1999, the authorized capitalization of the Company
consists of 2,000 shares of preferred stock, $.01 par value, all of
which have been designated Series A Preferred Stock (the "Series A
Preferred") and all of which shares are issued and outstanding, and
18,000,000 shares of the Common Stock, $.01 par value, of which
10,000,000 shares are issued and outstanding on the date hereof. The
Company has reserved for issuance (i) 2,500,000 shares of Common Stock
under the Company's 1999 Stock Incentive Plan; (ii) 935,000 shares of
Common Stock for issuance upon exercise of stock options issued
outside of such Plan, (iii) 2,500,000 shares of Common Stock for
issuance upon conversion of the Series A Preferred and (iv) 657,890
shares for issuance upon the exercise of warrants (other than the
Warrants). Simultaneously herewith the Company is issuing the
Warrants. Except as set forth in the three immediately preceding
sentences, the Company has not heretofore issued or granted any
warrants or rights to purchase any shares of Common Stock, nor is the
Company a party to any contract or agreement pursuant to which the
Company has agreed or is obligated to issue any shares of Common Stock
or any securities exchangeable for or convertible into shares of
Common Stock.
(d) The execution, delivery and performance by the Company of
this Note and Warrant issued in connection herewith will not (A)
conflict with or result in a breach or violation of any of the terms
or provisions of, constitute a default or result in the acceleration
of any obligation under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or its subsidiaries pursuant to, the terms of any indenture,
mortgage, loan agreement, note or other evidence of indebtedness or
any other contract, agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets are
bound or affected, or (B) violate any applicable statute, law, rule,
code, administrative regulation, ordinance, judgment, order or decree
of any government, governmental instrumentality, court, arbitration
panel or other body having jurisdiction over the Company or its
subsidiaries (if any) or any of their respective properties or
obligations which, in any such case, would have a material adverse
effect on the Company or its financial condition.
(e) No consent, approval, authorization, license or order of or
from, or registration, qualification, declaration or filing with, any
federal, state, local, foreign or other governmental authority, court
administrative agency, tribunal or other body is required from or on
behalf of the Company for the consummation of the
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<PAGE>
transactions contemplated by this Note and the Warrant issued in
connection herewith.
(f) Except as otherwise previously disclosed to the Holder in
writing, there are no actions, suits or proceedings pending or, to the
Company's knowledge, threatened before or by any federal or state
court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, to which the Company, John C.
Bohan or Bill Apfelbaum is or may become a party or of which any
property of the Company is subject or affected that, if adversely
determined against the Company, John C. Bohan or Bill Apfelbaum might
individually or in the aggregate result in a material adverse effect
to the Company or its business, business prospects, financial
condition or properties.
(g) The Company is not (A) in violation of its Articles of
Incorporation or By-laws, (B) in violation of any statute, law, rule,
code, administrative regulation, ordinance, judgment, order or decree
of any government, governmental instrumentality, court, domestic or
foreign, or arbitration panel or other body applicable to it where
such violation would have a material adverse effect on the Company or
its business, business prospects, financial condition or properties or
(C) in default in the performance or observance of any contract where
such defaults, singly or in the aggregate, would have a material
adverse effect on the Company or its business, business prospects,
financial condition or properties.
(h) The Notes and the Warrants have been duly and validly
authorized, executed and delivered by the Company and constitute valid
and binding obligations of the Company duly enforceable against the
Company in accordance with their respective terms, except insofar as
the enforcement thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally,
or by general equitable principles.
(i) The Company has not incurred any indebtedness or other
obligations other than trade payables incurred in the ordinary course
of business.
9. Miscellaneous.
--------------
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 1447
Cloverfield Avenue, Suite 100, Santa Monica, California 90404, Attention:
President; Fax No. (310) 315-1369, (ii) if to the Holder, at its address set
forth on the first page hereof, Attention: Mr. Robert Willard; Fax No. (212)
778-4677,
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<PAGE>
or (iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 9(a). Any notice or
other communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 9(a) shall be deemed given at the time of
receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note (and upon surrender of this Note
if mutilated) and upon receipt of an affidavit and written indemnity acceptable
to the Company, the Company shall execute and deliver to the Holder a new Note
of like date, tenor and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of New
York and shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to principles governing conflicts of
law.
(f) The Company irrevocably consents to the jurisdiction of the courts
of the State and City of New York and of any federal court located in such State
and City in connection with any action or proceeding arising out of or relating
to this Note or the Warrant, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Note or the Warrant, or a breach
of this Note or the Warrant or any such document or instrument. In any such
action or proceeding, the Company waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 9(a).
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
LATITUDE90, INC.
By: /s/ John C. Bohan
________________________________
John C. Bohan,
Chief Executive Officer
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<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS
(1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
LATITUDE90, INC.
Senior Promissory Note
No. 99-2 June 7, 1999
$400,000.00
LATITUDE90, INC., a California corporation (the "Company"), for value
received, hereby promises to pay to The Roman Arch Fund II L.P., with an address
at One New York Plaza, New York, New York 10292, or assigns (the "Holder"), the
principal amount of Four Hundred Thousand ($400,000) on the Maturity Date (as
defined below), and to pay interest on the unpaid principal balance hereof at
the rate (calculated on the basis of a 360-day year) of (a) 9% per annum from
the date hereof until the Maturity Date and (b) 12% from and after the Maturity
Date until the unpaid principal balance hereof is paid in full. Interest on the
unpaid principal balance hereof shall accrue and be compounded monthly, and
shall be payable on the Maturity Date. In no event shall any interest to be
paid hereunder exceed the maximum rate permitted by law. In any such event,
this Note shall automatically be deemed amended to permit interest charges at an
amount equal to, but no greater than, the maximum rate permitted by law.
1. Offering.
--------
This Note is one of two notes (the "Notes") issued by the Company on the
date hereof in the aggregate principal amount of $1,000,000. The Notes are
secured by, and entitled to the benefits of, the Pledge and Security Agreement
between John C. Bohan and The Roman Arch Fund L.P. and The
<PAGE>
Roman Arch Fund II L.P. The purchasers of the Notes are also being issued
Warrants (collectively, the "Warrants") to purchase an aggregate of up to
500,000 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock") at an initial exercise price per share equal to $1.60 (subject
to adjustment and/or partial cancellation upon the occurrence of certain
events).
2. Payments.
--------
(a) Principal of, and accrued interest on, this Note shall be due and
payable in full on the Maturity Date. The "Maturity Date" shall be the date
which is the earliest of (i) June 7, 2000, (ii) the date of the closing of a
private or public offering by the Company of debt or equity securities to one or
more independent third parties that raises gross proceeds to the Company of at
least $4,000,000, (iii) a consolidation or merger of the Company with or into
any other corporation or corporations (other than a subsidiary of the Company),
(iv) a sale, lease or transfer of all or substantially all of the assets of the
Company, (v) the sale of at least 51% of the outstanding equity of the Company
in any single transaction or series of related transactions or (vi) the date on
which John Bohan shall fail to own more than 51% of the Company's common equity
on a fully diluted basis (any of the events referred to in clauses (iii) through
(vi) being a "Change of Control").
(b) If the Maturity Date would fall on a day that is not a Business
Day (as defined below), the payment due on the Maturity Date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Maturity Date. "Business Day" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.
(c) The Company may, at its option, prepay all or any part of the
principal of this Note, without payment of any premium or penalty. All payments
on this Note shall be applied first to accrued interest hereon and the balance
to the payment of principal hereof.
(d) Payments of principal and interest on this Note shall be made by
check in United States dollars sent to the Holder's address set forth above or
to such other address as the Holder may designate for such purpose from time to
time by written notice to the Company.
(e) The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of non-
payment, notice of dishonor, protest, notice of protest, bringing of suit and
diligence in taking any action to collect any amount called for hereunder, and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for hereunder.
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<PAGE>
3. Ranking of Note. The Company, for itself, its successors and assigns,
---------------
covenants and agrees that the payment of the principal of and interest on this
Note shall rank senior to all indebtedness outstanding on the date hereof or
hereafter created, incurred, assumed, renewed or guaranteed by the Company,
other than trade payables incurred by the Company in the ordinary course of its
business consistent with past practices, it being understood that such trade
payables may rank equal in right of payment to the Notes.
4. Covenants.
---------
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Notes, unless the consent of the Holders a majority
of the unpaid principal amount of the Notes is obtained:
(a) the Company shall deliver to each Holder as soon as
practicable after the end of (i) each fiscal year, and in any event
within 90 days thereafter, audited annual financial statements, (ii)
the first, second and third quarterly accounting periods in each
fiscal year of the Company, and in any event, within 45 days
thereafter, quarterly unaudited financial statements, and (iii) each
month, and in any event within 20 days thereafter monthly unaudited
financial statements, and such other information as is customarily
made available to the Company's shareholders;
(b) the Company shall deliver to each Holder promptly after the
Company shall obtain knowledge of such, written notice of all material
legal or arbitration proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and each material
development in respect of such legal or other proceedings, affecting
the Company, except proceedings which, if adversely determined, would
not have a material adverse effect on the Company;
(c) the Company shall deliver to each Holder promptly after the
Company shall obtain knowledge of the occurrence of any Event of
Default (as hereinafter defined) or any event which with notice or
lapse of time or both would become an Event of Default (an Event of
Default or such other event being a "Default"), a notice specifying
that such notice is a "Notice of Default" and describing such Default
in reasonable detail, and, in such Notice of Default or as soon
thereafter as practicable, a description of the action the Company has
taken or proposes to take with respect thereto;
(d) the Company will duly and punctually pay the principal and
interest on each of the Notes at the place, at the respective times
and in the manner herein provided;
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<PAGE>
(e) the Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence,
rights and franchises;
(f) the Company will not declare or pay any dividend on, or make
any distribution to the holders of, any shares of capital stock of the
Company of any class (except in shares of capital stock or options,
warrants or rights to acquire shares of capital stock);
(g) neither the Company nor any corporation which may hereafter
become a subsidiary of the Company will purchase, redeem or otherwise
acquire for consideration any shares of capital stock of the Company
of any class, or any options, warrants or rights to acquire any shares
of capital stock (other than the repurchase of shares of Common Stock
of the Company from employees, officers, directors or advisors
pursuant to pre-existing agreements or arrangements); and
(h) the Company shall not (i) incur any indebtedness or other
obligations that rank senior or equal to the Notes in right of
payment, other than trade payables incurred in the ordinary course of
business which may rank equal in right of payment to the Notes and
(ii) enter into any transaction with a value greater than $50,000 with
any officer, director, employee or 5% shareholder of the Company, or
any person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Company; provided, however, that any transaction
permitted by this clause (ii) shall be on terms no less favorable to
the Company than could be obtained from a disinterested third party.
5. Events of Default.
-----------------
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal or interest on any Note,
when and as the same shall become due and payable.
(b) A default in the performance, or a breach, of any other covenant
or agreement of the Company in this Note or in the related Pledge and Security
Agreement and continuance of such default or breach for a period of 10 days
after receipt of notice from the Holder as to such breach or after the Company
had or should have had knowledge of such breach.
(c) Any representation, warranty or certification made by the Company
pursuant to this Note shall prove to have been false or misleading as of the
date made in any material respect.
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<PAGE>
(d) A default by the Company shall be declared under any indebtedness
which gives the holder thereof the right to declare such indebtedness due prior
to its stated maturity and such indebtedness is in fact declared due prior to
its stated maturity.
(e) A final judgment or judgments for the payment of money in excess
of $75,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitration tribunals or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and the Company shall
not, within such 30-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(f) The entry of a decree or order by a court having jurisdiction
adjudging the Company bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official for
the Company or for any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
(g) If John C. Bohan ceases to act as the full-time Chief Executive
Officer of the Company for any reason whatsoever.
6. Remedies Upon Default.
---------------------
Upon the occurrence and during the continuance of an Event of Default
referred to in Section 5 (other than an Event of Default pursuant to Section
5(f), upon which the Notes shall immediately become due and payable together
with interest accrued thereon, without action of the part of the Holder), the
Holder of this Note may, at its option, by notice in writing to the Company,
declare such Note to be due and payable together with interest accrued thereon,
without presentment, demand, protest or notice of any kind, all of which are
hereby waived by the Company. The Holder may institute such actions or
proceedings in law or equity as it shall deem expedient for the protection of
its rights hereunder.
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<PAGE>
7. Transfer.
--------
(a) The Company shall be entitled to treat the registered holder of
any Note as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Note
on the part of any other person. This Note may be exchanged, at the option
of the Holder thereof, for another Note, or other Notes of different
denominations, of like tenor and representing in the aggregate a like
principal amount, upon surrender to the Company or its duly authorized
agent. Notwithstanding the foregoing, the Company shall have no obligation
to cause Notes to be transferred on its books to any person if, in the
opinion of counsel to the Company, such transfer does not comply with the
provisions of the Act and the rules and regulations thereunder or any
applicable state securities laws.
(b) The Holder acknowledges that it has been advised by the Company
that this Note has not been registered under the Act, that this Note is
being issued on the basis of the statutory exemption provided by Section
4(2) of the Act or Regulation D promulgated thereunder, or both, relating
to transactions by an issuer not involving any public offering. The Holder
acknowledges that it has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Act and the
rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment or transfer of this
Note shall be valid or effective, and the Company shall not be required to
give any effect to any such sale, assignment or transfer, unless (i) the
sale, assignment or transfer of this Note is registered under the Act, it
being understood that this Note is not currently registered for sale and
that the Company has no obligation or intention to so register the Notes,
or (ii) this Note is sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Act, it being
understood that Rule 144 is not available at the time of the original
issuance of this Note for the sale of this Note and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or
(iii) such sale, assignment, or transfer is otherwise exempt from
registration under the Act.
8. Representations and Warranties
------------------------------
The Company hereby represents and warrants to the Holders as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and
has all requisite corporate power to own its property and to carry on
its business as it is now being conducted, to issue and Notes and the
Warrants and to carry out the provisions hereof and thereof. The
Company does not own any shares of stock or any other securities of
any corporation or have any equity interest in any firm, partnership,
association or other entity.
(b) The Company is duly licensed or qualified to do business and
in good standing as a foreign corporation authorized to do business in
all jurisdictions
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<PAGE>
wherein the properties owned or the activities conducted by it make
such license or qualification necessary, except where the failure to
be so licensed or qualified would not have a material adverse effect
on the Company.
(c) After giving effect to the Company's 10-for-1 stock split
effective May 19, 1999, the authorized capitalization of the Company
consists of 2,000 shares of preferred stock, $.01 par value, all of
which have been designated Series A Preferred Stock (the "Series A
Preferred") and all of which shares are issued and outstanding, and
18,000,000 shares of the Common Stock, $.01 par value, of which
10,000,000 shares are issued and outstanding on the date hereof. The
Company has reserved for issuance (i) 2,500,000 shares of Common Stock
under the Company's 1999 Stock Incentive Plan; (ii) 935,000 shares of
Common Stock for issuance upon exercise of stock options issued
outside of such Plan, (iii) 2,500,000 shares of Common Stock for
issuance upon conversion of the Series A Preferred and (iv) 657,890
shares for issuance upon the exercise of warrants (other than the
Warrants). Simultaneously herewith the Company is issuing the
Warrants. Except as set forth in the three immediately preceding
sentences, the Company has not heretofore issued or granted any
warrants or rights to purchase any shares of Common Stock, nor is the
Company a party to any contract or agreement pursuant to which the
Company has agreed or is obligated to issue any shares of Common Stock
or any securities exchangeable for or convertible into shares of
Common Stock.
(d) The execution, delivery and performance by the Company of
this Note and Warrant issued in connection herewith will not (A)
conflict with or result in a breach or violation of any of the terms
or provisions of, constitute a default or result in the acceleration
of any obligation under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or its subsidiaries pursuant to, the terms of any indenture,
mortgage, loan agreement, note or other evidence of indebtedness or
any other contract, agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets are
bound or affected, or (B) violate any applicable statute, law, rule,
code, administrative regulation, ordinance, judgment, order or decree
of any government, governmental instrumentality, court, arbitration
panel or other body having jurisdiction over the Company or its
subsidiaries (if any) or any of their respective properties or
obligations which, in any such case, would have a material adverse
effect on the Company or its financial condition.
(e) No consent, approval, authorization, license or order of or
from, or registration, qualification, declaration or filing with, any
federal, state, local, foreign or other governmental authority, court
administrative agency, tribunal or other body is required from or on
behalf of the Company for the consummation of the
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<PAGE>
transactions contemplated by this Note and the Warrant issued in
connection herewith.
(f) Except as otherwise previously disclosed to the Holder in
writing, there are no actions, suits or proceedings pending or, to the
Company's knowledge, threatened before or by any federal or state
court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, to which the Company, John C.
Bohan or Bill Apfelbaum is or may become a party or of which any
property of the Company is subject or affected that, if adversely
determined against the Company, John C. Bohan or Bill Apfelbaum might
individually or in the aggregate result in a material adverse effect
to the Company or its business, business prospects, financial
condition or properties.
(g) The Company is not (A) in violation of its Articles of
Incorporation or By-laws, (B) in violation of any statute, law, rule,
code, administrative regulation, ordinance, judgment, order or decree
of any government, governmental instrumentality, court, domestic or
foreign, or arbitration panel or other body applicable to it where
such violation would have a material adverse effect on the Company or
its business, business prospects, financial condition or properties or
(C) in default in the performance or observance of any contract where
such defaults, singly or in the aggregate, would have a material
adverse effect on the Company or its business, business prospects,
financial condition or properties.
(h) The Notes and the Warrants have been duly and validly
authorized, executed and delivered by the Company and constitute valid
and binding obligations of the Company duly enforceable against the
Company in accordance with their respective terms, except insofar as
the enforcement thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally,
or by general equitable principles.
(i) The Company has not incurred any indebtedness or other
obligations other than trade payables incurred in the ordinary course
of business.
9. Miscellaneous.
-------------
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 1447
Cloverfield Avenue, Suite 100, Santa Monica, California 90404, Attention:
President; Fax No. (310) 315-1369, (ii) if to the Holder, at its address set
forth on the first page hereof, Attention: Mr. Robert Willard; Fax No. (212)
778-4677,
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<PAGE>
or (iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 9(a). Any notice or
other communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 9(a) shall be deemed given at the time of
receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note (and upon surrender of this Note
if mutilated) and upon receipt of an affidavit and written indemnity acceptable
to the Company, the Company shall execute and deliver to the Holder a new Note
of like date, tenor and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of New
York and shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to principles governing conflicts of
law.
(f) The Company irrevocably consents to the jurisdiction of the courts
of the State and City of New York and of any federal court located in such State
and City in connection with any action or proceeding arising out of or relating
to this Note or the Warrant, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Note or the Warrant, or a breach
of this Note or the Warrant or any such document or instrument. In any such
action or proceeding, the Company waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 9(a).
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
LATITUDE90, INC.
By: /s/ John C. Bohan
________________________________
John C. Bohan,
Chief Executive Officer
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<PAGE>
LATITUDE90, INC.
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. PP-99-1 240,000 Shares
June 7, 1999
FOR VALUE RECEIVED, LATITUDE90, INC., a California corporation (the
"Company"), hereby certifies that The Roman Arch Fund L.P. or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on the earliest of (i) December 7, 1999, (ii) the closing of a
"Qualified IPO" (as hereinafter defined) or (iii) the closing of a "Qualified
Private Placement" (as hereinafter defined) and prior to 5:00 P.M., Los Angeles,
California time, on the earlier of (i) June 7, 2005 or (ii) the fifth
anniversary of the commencement of trading of the Company's common stock in
connection with an initial public offering with gross proceeds to the Company of
at least $20,000,000 (a "Qualified IPO"), Two Hundred Forty Thousand (240,000)
fully paid and non-assessable shares of the common stock, $.01 par value per
share, of the Company for a purchase price equal to $1.60 per share; provided,
however, that (i) if, within six months of the date hereof, the Company closes a
private placement of equity securities to one or more independent third parties
that raises gross proceeds of at least $4,000,000 (a "Qualified Private
Placement"), the purchase price per share shall be adjusted to be equal to the
product of (A) the purchase price per share of common stock sold or the per
share price at which any convertible security is convertible into shares of
common stock and (B) 0.9; (ii) if no Qualified Private Placement shall close
within six months of the date hereof, but during such period the Company shall
close a Qualified IPO, the purchase price per share shall be adjusted to be
equal to the product of (A) the price per share in the Qualified IPO and (B)
0.5; and (iii) if during the six month period commencing on the date hereof the
Company closes neither a Qualified Private Placement nor a Qualified IPO, the
purchase price per share shall be $1.60 per share until a "Change of Control"
(as hereinafter defined) shall occur in which event the purchase price per share
shall be reduced, but not increased, to an amount equal to the product of (A)
the price per share received by stockholders of the Company in such Change of
Control transaction and (B) 0.5; provided, further, however that such price per
share shall not be reduced below $0.80 per share. All of the prices set forth
in the preceding sentence shall be subject to adjustment in accordance with
Section 3.
If, within the six months of the date hereof, the Company closes a
Qualified Private Placement or a Qualified IPO, upon such closing date and the
repayment by the Company of its obligation to the Roman Arch Fund, L.P. and the
Roman Arch Fund II, L.P. under the Senior Promissory Notes made as of June 7,
1999 (the "Notes"), the number of shares subject to this
<PAGE>
Warrant shall be adjusted to an amount equal to the product of (A) the number of
shares then subject to this Warrant and (B) 0.625.
If, within three months of the date hereof, the Company closes a Qualified
Private Placement or a Qualified IPO, and within two months of the date hereof
---
the Company had repaid its obligation to the Roman Arch Fund, L.P. and the Roman
Arch Fund II, L.P. under the Notes, the number of shares subject to this Warrant
shall be adjusted to an amount equal to the product of (A) the number of shares
then subject to this Warrant and (B) 0.3125.
Hereinafter, (i) said common stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price," (iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in exchange
or substitution for this Warrant or such similar Warrants are referred to as the
"Warrants" and (vi) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other Warrants or Warrant Shares issued
upon the exercise of any Warrant are referred to as the "Holders." "Change of
Control" shall mean (i) a consolidation or merger of the Company with or into
any corporation or corporations that are unaffiliated with the Company on the
date hereof, (ii) a sale, lease or transfer of all or substantially all of the
assets of the Company, (iii) the sale of at least 51% of the outstanding equity
of the Company in a single transaction or series of related transactions or (iv)
the date on which John C. Bohan shall fail to own more than 51% of the Company's
common equity on a fully diluted basis.
The Per Share Warrant Price is also subject to adjustment as hereinafter
provided in Section 3; in the event of any adjustment to the Per Share Warrant
Price pursuant to the provisions of Section 3, the number of Warrant Shares
shall be adjusted by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment. The Aggregate
Warrant Price shall not be adjusted as a result of the application of the
provisions of Section 3.
1. Exercise or Exchange of Warrant. (a) The Holder may exercise
-------------------------------
this Warrant, in whole or in part, as follows:
(i) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with the Subscription
Form annexed hereto (or a reasonable facsimile thereof) duly executed and
accompanied by payment of the Per Share Warrant Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company; or
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<PAGE>
(ii) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with a Cashless Exercise
Form annexed hereto (or a reasonable facsimile thereof) duly executed (a
"Cashless Exercise"). Such presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the
Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the then
current market price per share of the Common Stock and the Per Share
Warrant Price, and the denominator of which shall be the then current
market price per share of Common Stock. For purposes of any computation
under this Section 1(a)(ii), the then current market price per share of
Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing prices as reported by the Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("Nasdaq") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (i) issue a certificate or certificates, in such denominations
as are requested for delivery by the Holder, in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercisable in part, pursuant to the provisions of this
Warrant. The Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(c) Simultaneously with the issuance of this Warrant and an
identical Warrant to an affiliated holder for 160,000 shares of Common Stock, an
aggregate of 400,000 shares of Common Stock, the Company is also issuing to the
Holders of these Warrants warrants to purchase 100,000 shares of Common Stock
(the "Additional Warrants"). The Holder shall have the right, between the date
hereof and 180 days after the closing of a Qualified IPO, in its sole
discretion, to
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<PAGE>
exchange this Warrant for Additional Warrants to purchase a number of shares of
Common Stock equal to twice the number of shares subject to this Warrant at the
time of exchange.
2. Reservation of Warrant Shares; Listing. The Company agrees that,
--------------------------------------
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange or on Nasdaq, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing.
3. Protection Against Dilution. (a) In case the Company shall
---------------------------
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 3(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "Special Dividend"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the five
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by the Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by Nasdaq, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors)
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<PAGE>
of the evidences of indebtedness, cash, securities or property, or other assets
issued or distributed in such Special Dividend applicable to one share of Common
Stock and the denominator of which shall be such then current market price per
share of Common Stock. An adjustment made pursuant to this Subsection 3(b) shall
become effective immediately after the record date of any such Special Dividend.
(c) Except as provided in Subsection 3(e), in case the Company shall
hereafter issue or sell any shares of Common Stock for a consideration per share
less than the Per Share Warrant Price on the date of such issuance or sale, the
Per Share Warrant Price shall be adjusted as of the date of such issuance or
sale so that the same shall equal the price determined by dividing (i) the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale, including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable, multiplied by the Per Share
Warrant Price plus (B) the consideration received by the Company upon such
issuance or sale by (ii) the total number of shares of Common Stock outstanding
after such issuance or sale including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable.
(d) Except as provided in Subsections 3(b) and 3(e), in case the
Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into Common Stock entitling the holders thereof to
purchase Common Stock or to convert such securities into Common Stock at a price
per share (determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then current Per Share Warrant Price in effect on the date of such issuance
or sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale (including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable) multiplied by the Per Share
Warrant Price plus (B) the Total Consideration by (ii) the number of shares of
Common Stock outstanding on the date of such issuance or sale (including shares
of Common Stock issuable upon the exercise of options and warrants then
exercisable) plus the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities.
(e) No adjustment in the Per Share Warrant Price shall be required
in the case of (i) the issuance by the Company of options to purchase up to
2,500,000 shares of Common Stock reserved for issuance pursuant to the Company's
1999 Stock Incentive Plan (the "Plan"), and the exercise of such options, (ii)
the issuance by the Company of up to 935,000 shares of Common Stock upon the
exercise of options currently outstanding that were not granted under the Plan,
(iii) the issuance by the Company of up to 2,500,000 shares of Common Stock upon
the conversion of the Company's outstanding Series A Preferred Stock, (iv) the
issuance by the Company of up to 657,890
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<PAGE>
shares of Common Stock upon exercise of warrants currently outstanding (other
than the Warrants and the Additional Warrants), and (v) the issuance by the
Company of shares of the Common Stock pursuant to the exercise of the Warrants
or the Additional Warrants. The number of shares of Common Stock set forth in
this Subsection 3(e) is subject to adjustment in accordance with any anti-
dilution provisions existing on the date hereof under the terms of the
instruments governing their issuance.
(f) If the Company issues shares of Common Stock or securities
convertible or exchangeable for shares of Common Stock in connection with (a) a
strategic alliance or licensing agreement or (b) the acquisition (by merger or
otherwise) of all or substantially all of the capital stock or assets of another
entity or business organization, the issuance of shares of Common Stock in
connection with any such transaction shall require the adjustment of the Per
Share Warrant Price unless the value of the Company at the time of such
transaction, as determined in good faith by a committee comprised of the
independent directors of the Board of Directors or, if no such committee has
been appointed, in consultation with the Holder and a majority of the shares
held by shareholders who are not officers, directors or otherwise employees of
the Company, is equal to or greater than the Per Share Warrant Price.
(g) In case of any capital reorganization or reclassification, or
any consolidation or merger to which the Company is a party other than a merger
or consolidation in which the Company is the continuing corporation, or in case
of any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(g) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration
-6-
<PAGE>
consisting primarily of securities shall be deemed a consolidation or merger for
the foregoing purposes.
(h) In case any event shall occur as to which the other provisions
of this Section 3 are not strictly applicable but as to which 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, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(i) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided, however, that any adjustments which by
-------- -------
reason of this Subsection 3(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided further,
-------- -------
however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(i)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion the Company shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(j) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 3, the Company shall promptly obtain, at its
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) setting forth the Per Share Warrant Price and the number of Warrant
Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants.
(k) If the Board of Directors of the Company shall (i) declare any
dividend or other distribution with respect to the Common Stock, other than a
cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer
to the holders of shares of Common Stock any additional
-7-
<PAGE>
shares of Common Stock, any securities convertible into or exercisable for
shares of Common Stock or any rights to subscribe thereto, or (iii) propose a
dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(l) If, as a result of an adjustment made pursuant to this Section
3, the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(m) If the Per Share Warrant Price shall be adjusted as a result of
one of the events set forth in the first paragraph of this Warrant, the
provisions of this Section 3 shall be applied as if such adjusted Per Share
Warrant Price had been in effect since the initial issuance of this Warrant.
4. Tag Along Rights. The Company understands that its controlling
----------------
stockholder, John Bohan, has agreed to grant "tag along" rights to the Holder if
he shall sell more than one-third of his equity interest in the Company. The
Company agrees to place stop-transfer instructions on Mr. Bohan's shares in
order to enforce this tag along right on behalf of the Holder.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
-----------------------
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
6. Registration Under Securities Act of 1933
-----------------------------------------
(a) The Company agrees that if, at any time and from time to time
during the period commencing on the closing of a Qualified IPO and ending on
June 7, 2007, the Board of Directors of the Company shall authorize the filing
of a registration statement (any such registration statement being hereinafter
called a "Subsequent Registration Statement") under the Securities Act of 1933
(the "Act") (other than a registration statement on Form S-4, Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the
-8-
<PAGE>
general registration of securities) in connection with the proposed offer of any
of its securities by it, the Company will (i) promptly notify the Holder and
each of the Holders, if any, of other Warrants and/or Warrant Shares not
previously sold pursuant to this Section 6 that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are then held, and/or
which may be acquired upon the exercise of the Warrants, by the Holder and such
Holders, will, at the Holder's and such Holders' request, be included in such
Subsequent Registration Statement, (ii) upon the written request of a Holder
made within 15 days after the giving of such notice by the Company, include in
the securities covered by such Subsequent Registration Statement all Warrant
Shares which it has been so requested to include, (iii) use its best efforts to
cause such Subsequent Registration Statement to become effective as soon as
practicable and (iv) take all other action necessary under any Federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such Holders to effect the
proposed sale or other disposition.
(b) Notwithstanding any other provision of this Section 6, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Warrant Shares participating in such registration in writing that
in its good faith judgment the number of Warrant Shares and the other securities
requested to be registered exceeds the number of Warrant Shares and other
securities which can be sold in such offering, then (i) the number of Warrant
Shares and other securities so requested to be included in the offering shall be
reduced to that number of shares which in the good faith judgment of the
managing underwriter can be sold in such offering, except for shares to be
issued by the Company, which shall have priority over the Warrant Shares, and
(ii) such reduced number of shares shall be allocated among all participating
Holders of Warrant Shares and the holders of other securities in proportion, as
nearly as practicable, to the respective number of Warrant Shares and other
securities held by such Holders and other holders at the time of filing the
registration statement.
(c) Whenever the Company is required pursuant to the provisions of
this Section 6 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request (except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified) and (iii) take such other actions as may be reasonably necessary or
advisable to enable such Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in
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<PAGE>
which such Holders shall have reasonably requested that the Warrant Shares be
sold. Nothing contained in this Warrant shall be construed as requiring a Holder
to exercise its Warrant prior to the closing of an offering pursuant to a
registration statement referred to in Subsection 6(a).
(d) To the extent otherwise required and delivered pursuant to an
underwriting agreement, the Company shall furnish to each Holder participating
in an offering pursuant to a registration statement under this Section 6 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company dated the date of the
closing under the underwriting agreement, and (ii) a "comfort" letter dated the
effective date of such registration statement and a letter dated the date of the
closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(e) The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 6, including the reasonable fees and expenses of one counsel
representing the Holders of Warrant Shares included in any such registration
statement, other than underwriting discounts and applicable transfer taxes
relating to the Warrant Shares.
(f) The Company agrees to indemnify and hold harmless each selling
Holder of Warrant Shares and each person who controls any such selling Holder
within the meaning of Section 15 of the Act, and each and all of them, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several, to which any selling Holder of Warrant Shares or they or any of them
may become subject under the Act or otherwise and to reimburse the persons
indemnified as above for any reasonable legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation or threatened litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities or
actions arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
pursuant to which Warrant Shares were registered under the Act (hereinafter
called a "Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any application or
document filed in connection therewith) or document executed by the Company
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement contained in
any representation or warranty made by the Company in an underwriting agreement
relating to such registration statement, or (iii) the employment by the
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<PAGE>
Company of any device, scheme or artifice to defraud, or the engaging by the
Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the issuance and sale of any
of the Warrant Shares; provided, however, that the indemnity agreement contained
-------- -------
in this Section 6(f) shall not extend to any selling Holder of Warrant Shares if
any such losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was based upon and
made in conformity with information furnished in writing to the Company by a
selling Holder of Warrant Shares specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The Company
agrees to pay any legal and other expenses for which it is liable under this
Section 6(f) from time to time (but not more frequently than monthly) within 30
days after its receipt of a bill therefor.
(g) Each selling Holder of Warrant Shares, severally and not
jointly, will indemnify and hold harmless the Company, its directors, its
officers who shall have signed the registration statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Act to the
same extent as the foregoing indemnity from the Company set forth in Section
6(f) hereof, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from such registration
statement, any final prospectus, any preliminary prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing to
the Company by such selling Holder specifically for use in connection with the
preparation of the registration statement, any final prospectus or the
preliminary prospectus or any such amendment or supplement thereto; provided,
--------
however, that the obligation of any Holder of Warrant Shares to indemnify the
- -------
Company under the provision of this Section 6(g) shall be limited to the excess
------
of (1) the product of (A) the number of Warrant Shares being sold by the selling
- --
Holder and (B) the price at which such Warrant Shares are sold over (2) the
----
aggregate amount paid to the Company by such Holder in connection with the
issuance of such Warrant Shares. Each selling Holder of Warrant Shares agrees
to pay any legal and other expenses for which it is liable under this Section
6(g) from time to time (but not more frequently than monthly) within 30 days
after receipt of a bill therefor.
(h) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Sections 6(f) or (g) (an "indemnified
party") in respect of which indemnity may be sought against a person granting
indemnification (an "indemnifying party") pursuant to such Sections, such
indemnified party shall promptly notify such indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
of any such action shall not release the indemnifying party from any liability
it may have to such indemnified party otherwise than on account of the indemnity
agreement contained in Section 6(f) or (g) hereof. In case any such action is
brought against an indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim is to be
made will be entitled to participate therein at its own expense and, to the
extent that it may wish, to assume at its own
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<PAGE>
expense the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) if the defendants in any such
-------- -------
action include both the indemnified party and the indemnifying party, and the
indemnified party shall have reasonably concluded based upon advice of counsel
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party shall have the right to select
separate counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or parties and
(ii) in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the defense at
the expense of the indemnifying party. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel (which
approval shall not be unreasonably withheld), the indemnifying party will not be
liable to such indemnified party under the indemnification provisions of this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (x) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (y) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (z) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. An indemnified party shall not be liable for
any settlement of any action or proceeding effected without its written consent.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section 6(f) or
(g) hereof are unavailable in accordance with their respective terms, the
Company and any selling Holder of Warrant Shares shall contribute to the
aggregate losses, claims, damages and liabilities, of the nature contemplated by
said indemnity agreements, incurred by the Company and such selling Holder of
Warrant Shares, in such proportions as is appropriate to reflect the relative
fault of the Company on the one hand and of such selling Holder of Warrant
Shares on the other hand, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and such
selling Holder of Warrant Shares shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relate to
information supplied by the Company or such selling Holder of Warrant Shares and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that the
-------- -------
obligation of any Holder of Warrant Shares to contribute to the Company under
the provisions of this Section 6(i) shall be limited to the excess of (1) the
------ --
product of (A) the number of Warrant Shares being sold by the selling Holder and
(B) the price at which such Warrant Shares are sold over (2) the aggregate
----
amount paid to the Company by such Holder in connection with the issuance of
such Warrant Shares.
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<PAGE>
(j) The respective indemnity and contribution agreements by the
Company and the selling Holder of Warrant Shares in this Section 6 shall remain
operative and in full force and effect regardless of (i) any investigation made
by any selling Holder of Warrant Shares or by or on behalf of any person who
controls such selling Holder or by the Company or any controlling person of the
Company or the director or any officer of the Company, (ii) payment for any of
the Warrant Shares or (iii) any termination of this Agreement, and shall survive
the delivery of the Warrant Shares, and any successor of the Company, or of any
selling Holder of Warrant Shares, or of any person who controls the Company or
of any selling Holder of Warrant Shares, as the case may be, shall be entitled
to the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
Holder of Warrant Shares contained in this Section 6 shall be in addition to any
liability which the company and the selling Holder of Warrant Shares may
otherwise have.
7. Limited Transferability. This Warrant may not be sold,
-----------------------
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act. Furthermore, this Warrant may be sold, transferred,
assigned or hypothecated only to an officer, director or affiliate of The Roman
Arch Fund L.P., unless the Holder first obtains the prior written consent of the
Company (which shall not be unreasonably withheld). The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to
----------------------
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided
------------------------------
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
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<PAGE>
(a) if to the Company at1447 Cloverfield Avenue, Suite 100,
Santa Monica, California 90404, Att.: President, facsimile no. (310)
315-1369, or such other address as the Company has designated in
writing to the Holder, or
(b) if to the Holder at One New York Plaza, New York, New York
10292, Att.: Robert Willard, facsimile no. (212) 778-4677 or such
other address or facsimile number as the Holder has designated in
writing to the Company.
11. Headings. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed
--------------
in accordance with the law of the State of California without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, Latitude90, Inc. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 7th day of June, 1999.
LATITUDE90, INC.
By: /s/ John C. Bohan
______________________
John C. Bohan,
Chief Executive Officer
ATTEST:
/s/ C.J. Cardinali
_________________________
Secretary
[Corporate Seal]
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: _____________________________ Signature:___________________________
Address: _________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of _________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer that part of said Warrant on the books of
______________________________.
Dated: _____________________________ Signature:___________________________
Address: _________________________
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<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name ___________________________
(Please Print Name, Address and Social
Security No.)
Address ________________________
________________________
Social _________________________
Security Number
Signature ______________________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date____________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares to:
Name ___________________________
(Please Print Name, Address and Social
Security No.)
Address ________________________
________________________________
Social _________________________
Security Number
Signature ______________________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date____________________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
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<PAGE>
LATITUDE90, INC.
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. PP-99-2 160,000 Shares
June 7, 1999
FOR VALUE RECEIVED, LATITUDE90, INC., a California corporation (the
"Company"), hereby certifies that The Roman Arch Fund II L.P. or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on the earliest of (i) December 7, 1999, (ii) the closing of a
"Qualified IPO" (as hereinafter defined) or (iii) the closing of a "Qualified
Private Placement" (as hereinafter defined) and prior to 5:00 P.M., Los Angeles,
California time, on the earlier of (i) June 7, 2005 or (ii) the fifth
anniversary of the commencement of trading of the Company's common stock in
connection with an initial public offering with gross proceeds to the Company of
at least $20,000,000 (a "Qualified IPO"), One Hundred Sixty Thousand (160,000)
fully paid and non-assessable shares of the common stock, $.01 par value per
share, of the Company for a purchase price equal to $1.60 per share; provided,
however, that (i) if, within six months of the date hereof, the Company closes a
private placement of equity securities to one or more independent third parties
that raises gross proceeds of at least $4,000,000 (a "Qualified Private
Placement"), the purchase price per share shall be adjusted to be equal to the
product of (A) the purchase price per share of common stock sold or the per
share price at which any convertible security is convertible into shares of
common stock and (B) 0.9; (ii) if no Qualified Private Placement shall close
within six months of the date hereof, but during such period the Company shall
close a Qualified IPO, the purchase price per share shall be adjusted to be
equal to the product of (A) the price per share in the Qualified IPO and (B)
0.5; and (iii) if during the six month period commencing on the date hereof the
Company closes neither a Qualified Private Placement nor a Qualified IPO, the
purchase price per share shall be $1.60 per share until a "Change of Control"
(as hereinafter defined) shall occur in which event the purchase price per share
shall be reduced, but not increased, to an amount equal to the product of (A)
the price per share received by stockholders of the Company in such Change of
Control transaction and (B) 0.5; provided, further, however that such price per
share shall not be reduced below $0.80 per share. All of the prices set forth
in the preceding sentence shall be subject to adjustment in accordance with
Section 3.
If, within the six months of the date hereof, the Company closes a
Qualified Private Placement or a Qualified IPO, upon such closing date and the
repayment by the Company of its obligation to the Roman Arch Fund, L.P. and the
Roman Arch Fund II, L.P. under the Senior Promissory Notes made as of June 7,
1999 (the "Notes"), the number of shares subject to this
<PAGE>
Warrant shall be adjusted to an amount equal to the product of (A) the number of
shares then subject to this Warrant and (B) 0.625.
If, within three months of the date hereof, the Company closes a Qualified
Private Placement or a Qualified IPO, and within two months of the date hereof
---
the Company had repaid its obligation to the Roman Arch Fund, L.P. and the Roman
Arch Fund II, L.P. under the Notes, the number of shares subject to this Warrant
shall be adjusted to an amount equal to the product of (A) the number of shares
then subject to this Warrant and (B) 0.3125.
Hereinafter, (i) said common stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price," (iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in exchange
or substitution for this Warrant or such similar Warrants are referred to as the
"Warrants" and (vi) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other Warrants or Warrant Shares issued
upon the exercise of any Warrant are referred to as the "Holders." "Change of
Control" shall mean (i) a consolidation or merger of the Company with or into
any corporation or corporations that are unaffiliated with the Company on the
date hereof, (ii) a sale, lease or transfer of all or substantially all of the
assets of the Company, (iii) the sale of at least 51% of the outstanding equity
of the Company in a single transaction or series of related transactions or (iv)
the date on which John C. Bohan shall fail to own more than 51% of the Company's
common equity on a fully diluted basis.
The Per Share Warrant Price is also subject to adjustment as hereinafter
provided in Section 3; in the event of any adjustment to the Per Share Warrant
Price pursuant to the provisions of Section 3, the number of Warrant Shares
shall be adjusted by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment. The Aggregate
Warrant Price shall not be adjusted as a result of the application of the
provisions of Section 3.
1. Exercise or Exchange of Warrant. (a) The Holder may exercise
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this Warrant, in whole or in part, as follows:
(i) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with the Subscription
Form annexed hereto (or a reasonable facsimile thereof) duly executed and
accompanied by payment of the Per Share Warrant Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company; or
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<PAGE>
(ii) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with a Cashless Exercise
Form annexed hereto (or a reasonable facsimile thereof) duly executed (a
"Cashless Exercise"). Such presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the
Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the then
current market price per share of the Common Stock and the Per Share
Warrant Price, and the denominator of which shall be the then current
market price per share of Common Stock. For purposes of any computation
under this Section 1(a)(ii), the then current market price per share of
Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing prices as reported by the Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("Nasdaq") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (i) issue a certificate or certificates, in such denominations
as are requested for delivery by the Holder, in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercisable in part, pursuant to the provisions of this
Warrant. The Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(c) Simultaneously with the issuance of this Warrant and an
identical Warrant to an affiliated holder for 240,000 shares of Common Stock, an
aggregate of 400,000 shares of Common Stock, the Company is also issuing to the
Holders of these Warrants warrants to purchase 100,000 shares of Common Stock
(the "Additional Warrants"). The Holder shall have the right, between the date
hereof and 180 days after the closing of a Qualified IPO, in its sole
discretion, to
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<PAGE>
exchange this Warrant for Additional Warrants to purchase a number of shares of
Common Stock equal to twice the number of shares subject to this Warrant at the
time of exchange.
2. Reservation of Warrant Shares; Listing. The Company agrees that,
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prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange or on Nasdaq, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing.
3. Protection Against Dilution. (a) In case the Company shall
---------------------------
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 3(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "Special Dividend"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the five
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by the Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by Nasdaq, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors)
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<PAGE>
of the evidences of indebtedness, cash, securities or property, or other assets
issued or distributed in such Special Dividend applicable to one share of Common
Stock and the denominator of which shall be such then current market price per
share of Common Stock. An adjustment made pursuant to this Subsection 3(b) shall
become effective immediately after the record date of any such Special Dividend.
(c) Except as provided in Subsection 3(e), in case the Company shall
hereafter issue or sell any shares of Common Stock for a consideration per share
less than the Per Share Warrant Price on the date of such issuance or sale, the
Per Share Warrant Price shall be adjusted as of the date of such issuance or
sale so that the same shall equal the price determined by dividing (i) the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale, including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable, multiplied by the Per Share
Warrant Price plus (B) the consideration received by the Company upon such
issuance or sale by (ii) the total number of shares of Common Stock outstanding
after such issuance or sale including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable.
(d) Except as provided in Subsections 3(b) and 3(e), in case the
Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into Common Stock entitling the holders thereof to
purchase Common Stock or to convert such securities into Common Stock at a price
per share (determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then current Per Share Warrant Price in effect on the date of such issuance
or sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale (including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable) multiplied by the Per Share
Warrant Price plus (B) the Total Consideration by (ii) the number of shares of
Common Stock outstanding on the date of such issuance or sale (including shares
of Common Stock issuable upon the exercise of options and warrants then
exercisable) plus the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities.
(e) No adjustment in the Per Share Warrant Price shall be required in
the case of (i) the issuance by the Company of options to purchase up to
2,500,000 shares of Common Stock reserved for issuance pursuant to the Company's
1999 Stock Incentive Plan (the "Plan"), and the exercise of such options, (ii)
the issuance by the Company of up to 935,000 shares of Common Stock upon the
exercise of options currently outstanding that were not granted under the Plan,
(iii) the issuance by the Company of up to 2,500,000 shares of Common Stock upon
the conversion of the Company's outstanding Series A Preferred Stock, (iv) the
issuance by the Company of up to 657,890
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<PAGE>
shares of Common Stock upon exercise of warrants currently outstanding (other
than the Warrants and the Additional Warrants), and (v) the issuance by the
Company of shares of the Common Stock pursuant to the exercise of the Warrants
or the Additional Warrants. The number of shares of Common Stock set forth in
this Subsection 3(e) is subject to adjustment in accordance with any anti-
dilution provisions existing on the date hereof under the terms of the
instruments governing their issuance.
(f) If the Company issues shares of Common Stock or securities
convertible or exchangeable for shares of Common Stock in connection with (a) a
strategic alliance or licensing agreement or (b) the acquisition (by merger or
otherwise) of all or substantially all of the capital stock or assets of another
entity or business organization, the issuance of shares of Common Stock in
connection with any such transaction shall require the adjustment of the Per
Share Warrant Price unless the value of the Company at the time of such
transaction, as determined in good faith by a committee comprised of the
independent directors of the Board of Directors or, if no such committee has
been appointed, in consultation with the Holder and a majority of the shares
held by shareholders who are not officers, directors or otherwise employees of
the Company, is equal to or greater than the Per Share Warrant Price.
(g) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(g) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassifi cation, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration
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<PAGE>
consisting primarily of securities shall be deemed a consolidation or merger for
the foregoing purposes.
(h) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which 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, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(i) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided, however, that any adjustments which by
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reason of this Subsection 3(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided further,
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however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(i)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion the Company shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(j) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 3, the Company shall promptly obtain, at its
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) setting forth the Per Share Warrant Price and the number of Warrant
Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants.
(k) If the Board of Directors of the Company shall (i) declare any
dividend or other distribution with respect to the Common Stock, other than a
cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer
to the holders of shares of Common Stock any additional
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<PAGE>
shares of Common Stock, any securities convertible into or exercisable for
shares of Common Stock or any rights to subscribe thereto, or (iii) propose a
dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(l) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(m) If the Per Share Warrant Price shall be adjusted as a result of
one of the events set forth in the first paragraph of this Warrant, the
provisions of this Section 3 shall be applied as if such adjusted Per Share
Warrant Price had been in effect since the initial issuance of this Warrant.
4. Tag Along Rights. The Company understands that its controlling
----------------
stockholder, John Bohan, has agreed to grant "tag along" rights to the Holder if
he shall sell more than one-third of his equity interest in the Company. The
Company agrees to place stop-transfer instructions on Mr. Bohan's shares in
order to enforce this tag along right on behalf of the Holder.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
-----------------------
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
6. Registration Under Securities Act of 1933
-----------------------------------------
(a) The Company agrees that if, at any time and from time to time
during the period commencing on the closing of a Qualified IPO and ending on
June 7, 2007, the Board of Directors of the Company shall authorize the filing
of a registration statement (any such registration statement being hereinafter
called a "Subsequent Registration Statement") under the Securities Act of 1933
(the "Act") (other than a registration statement on Form S-4, Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the
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<PAGE>
general registration of securities) in connection with the proposed offer of any
of its securities by it, the Company will (i) promptly notify the Holder and
each of the Holders, if any, of other Warrants and/or Warrant Shares not
previously sold pursuant to this Section 6 that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are then held, and/or
which may be acquired upon the exercise of the Warrants, by the Holder and such
Holders, will, at the Holder's and such Holders' request, be included in such
Subsequent Registration Statement, (ii) upon the written request of a Holder
made within 15 days after the giving of such notice by the Company, include in
the securities covered by such Subsequent Registration Statement all Warrant
Shares which it has been so requested to include, (iii) use its best efforts to
cause such Subsequent Registration Statement to become effective as soon as
practicable and (iv) take all other action necessary under any Federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such Holders to effect the
proposed sale or other disposition.
(b) Notwithstanding any other provision of this Section 6, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Warrant Shares participating in such registration in writing that
in its good faith judgment the number of Warrant Shares and the other securities
requested to be registered exceeds the number of Warrant Shares and other
securities which can be sold in such offering, then (i) the number of Warrant
Shares and other securities so requested to be included in the offering shall be
reduced to that number of shares which in the good faith judgment of the
managing underwriter can be sold in such offering, except for shares to be
issued by the Company, which shall have priority over the Warrant Shares, and
(ii) such reduced number of shares shall be allocated among all participating
Holders of Warrant Shares and the holders of other securities in proportion, as
nearly as practicable, to the respective number of Warrant Shares and other
securities held by such Holders and other holders at the time of filing the
registration statement.
(c) Whenever the Company is required pursuant to the provisions of
this Section 6 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request (except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified) and (iii) take such other actions as may be reasonably necessary or
advisable to enable such Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in
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<PAGE>
which such Holders shall have reasonably requested that the Warrant Shares be
sold. Nothing contained in this Warrant shall be construed as requiring a Holder
to exercise its Warrant prior to the closing of an offering pursuant to a
registration statement referred to in Subsection 6(a).
(d) To the extent otherwise required and delivered pursuant to an
underwriting agreement, the Company shall furnish to each Holder participating
in an offering pursuant to a registration statement under this Section 6 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company dated the date of the
closing under the underwriting agreement, and (ii) a "comfort" letter dated the
effective date of such registration statement and a letter dated the date of the
closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(e) The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 6, including the reasonable fees and expenses of one counsel
representing the Holders of Warrant Shares included in any such registration
statement, other than underwriting discounts and applicable transfer taxes
relating to the Warrant Shares.
(f) The Company agrees to indemnify and hold harmless each selling
Holder of Warrant Shares and each person who controls any such selling Holder
within the meaning of Section 15 of the Act, and each and all of them, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several, to which any selling Holder of Warrant Shares or they or any of them
may become subject under the Act or otherwise and to reimburse the persons
indemnified as above for any reasonable legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation or threatened litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities or
actions arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
pursuant to which Warrant Shares were registered under the Act (hereinafter
called a "Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any application or
document filed in connection therewith) or document executed by the Company
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement contained in
any representation or warranty made by the Company in an underwriting agreement
relating to such registration statement, or (iii) the employment by the
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<PAGE>
Company of any device, scheme or artifice to defraud, or the engaging by the
Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the issuance and sale of any
of the Warrant Shares; provided, however, that the indemnity agreement contained
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in this Section 6(f) shall not extend to any selling Holder of Warrant Shares if
any such losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was based upon and
made in conformity with information furnished in writing to the Company by a
selling Holder of Warrant Shares specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The Company
agrees to pay any legal and other expenses for which it is liable under this
Section 6(f) from time to time (but not more frequently than monthly) within 30
days after its receipt of a bill therefor.
(g) Each selling Holder of Warrant Shares, severally and not jointly,
will indemnify and hold harmless the Company, its directors, its officers who
shall have signed the registration statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act to the same
extent as the foregoing indemnity from the Company set forth in Section 6(f)
hereof, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from such registration
statement, any final prospectus, any preliminary prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing to
the Company by such selling Holder specifically for use in connection with the
preparation of the registration statement, any final prospectus or the
preliminary prospectus or any such amendment or supplement thereto; provided,
--------
however, that the obligation of any Holder of Warrant Shares to indemnify the
- -------
Company under the provision of this Section 6(g) shall be limited to the excess
------
of (1) the product of (A) the number of Warrant Shares being sold by the selling
- --
Holder and (B) the price at which such Warrant Shares are sold over (2) the
----
aggregate amount paid to the Company by such Holder in connection with the
issuance of such Warrant Shares. Each selling Holder of Warrant Shares agrees
to pay any legal and other expenses for which it is liable under this Section
6(g) from time to time (but not more frequently than monthly) within 30 days
after receipt of a bill therefor.
(h) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Sections 6(f) or (g) (an "indemnified
party") in respect of which indemnity may be sought against a person granting
indemnification (an "indemnifying party") pursuant to such Sections, such
indemnified party shall promptly notify such indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
of any such action shall not release the indemnifying party from any liability
it may have to such indemnified party otherwise than on account of the indemnity
agreement contained in Section 6(f) or (g) hereof. In case any such action is
brought against an indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim is to be
made will be entitled to participate therein at its own expense and, to the
extent that it may wish, to assume at its own
-11-
<PAGE>
expense the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) if the defendants in any such
-------- -------
action include both the indemnified party and the indemnifying party, and the
indemnified party shall have reasonably concluded based upon advice of counsel
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party shall have the right to select
separate counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or parties and
(ii) in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the defense at
the expense of the indemnifying party. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel (which
approval shall not be unreasonably withheld), the indemnifying party will not be
liable to such indemnified party under the indemnification provisions of this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (x) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (y) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (z) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. An indemnified party shall not be liable for
any settlement of any action or proceeding effected without its written consent.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section 6(f) or
(g) hereof are unavailable in accordance with their respective terms, the
Company and any selling Holder of Warrant Shares shall contribute to the
aggregate losses, claims, damages and liabilities, of the nature contemplated by
said indemnity agreements, incurred by the Company and such selling Holder of
Warrant Shares, in such proportions as is appropriate to reflect the relative
fault of the Company on the one hand and of such selling Holder of Warrant
Shares on the other hand, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and such
selling Holder of Warrant Shares shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relate to
information supplied by the Company or such selling Holder of Warrant Shares and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that the
-------- -------
obligation of any Holder of Warrant Shares to contribute to the Company under
the provisions of this Section 6(i) shall be limited to the excess of (1) the
------ --
product of (A) the number of Warrant Shares being sold by the selling Holder and
(B) the price at which such Warrant Shares are sold over (2) the aggregate
----
amount paid to the Company by such Holder in connection with the issuance of
such Warrant Shares.
-12-
<PAGE>
(j) The respective indemnity and contribution agreements by the
Company and the selling Holder of Warrant Shares in this Section 6 shall remain
operative and in full force and effect regardless of (i) any investigation made
by any selling Holder of Warrant Shares or by or on behalf of any person who
controls such selling Holder or by the Company or any controlling person of the
Company or the director or any officer of the Company, (ii) payment for any of
the Warrant Shares or (iii) any termination of this Agreement, and shall survive
the delivery of the Warrant Shares, and any successor of the Company, or of any
selling Holder of Warrant Shares, or of any person who controls the Company or
of any selling Holder of Warrant Shares, as the case may be, shall be entitled
to the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
Holder of Warrant Shares contained in this Section 6 shall be in addition to any
liability which the company and the selling Holder of Warrant Shares may
otherwise have.
7. Limited Transferability. This Warrant may not be sold,
-----------------------
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act. Furthermore, this Warrant may be sold, transferred,
assigned or hypothecated only to an officer, director or affiliate of The Roman
Arch Fund II L.P., unless the Holder first obtains the prior written consent of
the Company (which shall not be unreasonably withheld). The Company may treat
the registered Holder of this Warrant as he or it appears on the Company's books
at any time as the Holder for all purposes. The Company shall permit any Holder
of a Warrant or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All Warrants issued upon the
transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the Holder thereof shall be identical to those of the
Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to
----------------------
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided
------------------------------
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
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<PAGE>
(a) if to the Company at1447 Cloverfield Avenue, Suite 100,
Santa Monica, California 90404, Att.: President, facsimile no. (310)
315-1369, or such other address as the Company has designated in
writing to the Holder, or
(b) if to the Holder at One New York Plaza, New York, New York
10292, Att.: Robert Willard, facsimile no. (212) 778-4677 or such
other address or facsimile number as the Holder has designated in
writing to the Company.
11. Headings. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed
--------------
in accordance with the law of the State of California without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, Latitude90, Inc. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 7th day of June, 1999.
LATITUDE90, INC.
By: /s/ John C. Bohan
______________________
John C. Bohan,
Chief Executive Officer
ATTEST:
/s/ C.J. Cardinali
_________________________
Secretary
[Corporate Seal]
-14-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: ____________________ Signature:___________________________
Address: ____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of _________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer that part of said Warrant on the books of
______________________________.
Dated: ____________________ Signature:___________________________
Address: ____________________________
-15-
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name_________________
(Please Print Name, Address and Social
Security No.)
Address ______________
______________
Social________________
Security Number
Signature_______________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date______________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
-16-
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares to:
Name ___________________
(Please Print Name, Address and Social
Security No.)
Address _________________
_________________
Social _________________
Security Number
Signature
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date_______________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
-17-
<PAGE>
LATITUDE90, INC.
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. IPO-99-1 60,000 Shares
June 7, 1999
FOR VALUE RECEIVED, LATITUDE90, INC., a California corporation (the
"Company"), hereby certifies that The Roman Arch Fund L.P. or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on the earlier of (i) December 7, 1999 or (ii) the closing of a
"Qualified IPO" (as hereinafter defined) and prior to 5:00 P.M., Los Angeles,
California time, on the earlier of (i) June 7, 2005 or (ii) the fifth
anniversary of the commencement of trading of the Company's common stock in
connection with an initial public offering with gross proceeds to the Company of
at least $20,000,000 (a "Qualified IPO"), Sixty Thousand (60,000) fully paid and
non-assessable shares of the common stock, $.01 par value per share, of the
Company for a purchase price equal to $1.60 per share; provided, however, that
(i) if, within six months of the date hereof, the Company closes a private
placement of equity securities to one or more independent third parties that
raises gross proceeds of at least $4,000,000 (a "Qualified Private Placement"),
the purchase price per share shall be adjusted to be equal to the product of (A)
the purchase price per share of common stock sold or the per share price at
which any convertible security is convertible into shares of common stock and
(B) 2.0; (ii) upon the closing of a Qualified IPO, the purchase price per share
shall be adjusted to be equal to the price per share in the Qualified IPO, but
only if such purchase price per share would be higher than that set forth in the
immediately preceding clause (i) of this paragraph; and (iii) if during the six
month period commencing on the date hereof the Company closes neither a
Qualified Private Placement nor a Qualified IPO, the purchase price per share
shall be $1.60 per share until a "Change of Control" (as hereinafter defined)
shall occur in which event the purchase price per share shall be reduced, but
not increased, to an amount equal to the product of (A) the price per share
received by stockholders of the Company in such Change of Control transaction
and (B) 0.5; provided, further, however that such price per share shall not be
reduced below $0.80 per share. All of the prices set forth in the preceding
sentence shall be subject to adjustment in accordance with Section 3.
Hereinafter, (i) said common stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price," (iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in exchange
or substitution for this Warrant or such similar Warrants are referred to as the
"Warrants" and (vi) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other
<PAGE>
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "Holders." "Change of Control" shall mean (i) a consolidation or
merger of the Company with or into any corporation or corporations that are
unaffiliated with the Company on the date hereof, (ii) a sale, lease or transfer
of all or substantially all of the assets of the Company, (iii) the sale of at
least 51% of the outstanding equity of the Company in a single transaction or
series of related transactions or (iv) the date on which John C. Bohan shall
fail to own more than 51% of the Company's common equity on a fully diluted
basis.
The Per Share Warrant Price is also subject to adjustment as hereinafter
provided in Section 3; in the event of any adjustment to the Per Share Warrant
Price pursuant to the provisions of Section 3, the number of Warrant Shares
shall be adjusted by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment. The Aggregate
Warrant Price shall not be adjusted as a result of the application of the
provisions of Section 3.
1. Exercise or Exchange of Warrant. (a) The Holder may exercise
-------------------------------
this Warrant, in whole or in part, as follows:
(i) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with the Subscription
Form annexed hereto (or a reasonable facsimile thereof) duly executed and
accompanied by payment of the Per Share Warrant Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company; or
(ii) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with a Cashless Exercise
Form annexed hereto (or a reasonable facsimile thereof) duly executed (a
"Cashless Exercise"). Such presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the
Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the then
current market price per share of the Common Stock and the Per Share
Warrant Price, and the denominator of which shall be the then current
market price per share of Common Stock. For purposes of any computation
under this Section 1(a)(ii), the then current market price per share of
Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing prices as reported by the Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("Nasdaq") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors.
-2-
<PAGE>
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (i) issue a certificate or certificates, in such denominations
as are requested for delivery by the Holder, in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercisable in part, pursuant to the provisions of this
Warrant. The Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(c) Simultaneously with the issuance of this Warrant and another
identical Warrant to an affiliated holder for 40,000 shares of Common Stock for
an aggregate of 100,000 shares of Common Stock, the Company is issuing other
warrants to such Holders to purchase an aggregate of 400,000 shares of Common
Stock (the "Private Placement Warrants"). The holders of the Private Placement
Warrants have the right, in their sole discretion and subject to the terms of
the Private Placement Warrants, to exchange the Private Placement Warrants for
Warrants to purchase a number of shares of Common Stock equal to twice the
number of shares subject to the Private Placement Warrants at the time of
exchange. If such exchange occurs, the Warrants issued in exchange for the
Private Placement Warrants shall be considered "Warrants" for purposes of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees that,
--------------------------------------
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange or on Nasdaq, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing.
3. Protection Against Dilution. (a) In case the Company shall
---------------------------
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be
-3-
<PAGE>
adjusted so that the Holder upon the exercise hereof shall be entitled to
receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "Special Dividend"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the five
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by the Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by Nasdaq, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
(c) Except as provided in Subsection 3(e), in case the Company shall
hereafter issue or sell any shares of Common Stock for a consideration per share
less than the Per Share Warrant Price on the date of such issuance or sale, the
Per Share Warrant Price shall be adjusted as of the date of such issuance or
sale so that the same shall equal the price determined by dividing (i) the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale, including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable, multiplied by the Per Share
Warrant Price plus (B) the consideration received by the Company upon such
issuance or sale by (ii) the total number of shares of Common Stock outstanding
after such issuance or sale including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable.
-4-
<PAGE>
(d) Except as provided in Subsections 3(b) and 3(e), in case the
Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into Common Stock entitling the holders thereof to
purchase Common Stock or to convert such securities into Common Stock at a price
per share (determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then current Per Share Warrant Price in effect on the date of such issuance
or sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale (including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable) multiplied by the Per Share
Warrant Price plus (B) the Total Consideration by (ii) the number of shares of
Common Stock outstanding on the date of such issuance or sale (including shares
of Common Stock issuable upon the exercise of options and warrants then
exercisable) plus the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities.
(e) No adjustment in the Per Share Warrant Price shall be required in
the case of (i) the issuance by the Company of options to purchase up to
2,500,000 shares of Common Stock reserved for issuance pursuant to the Company's
1999 Stock Incentive Plan (the "Plan"), and the exercise of such options, (ii)
the issuance by the Company of up to 935,000 shares of Common Stock upon the
exercise of options currently outstanding that were not granted under the Plan,
(iii) the issuance by the Company of up to 2,500,000 shares of Common Stock upon
the conversion of the Company's outstanding Series A Preferred Stock, (iv) the
issuance by the Company of up to 657,890 shares of Common Stock upon exercise of
warrants currently outstanding (other than the Warrants and the Additional
Warrants), and (v) the issuance by the Company of shares of the Common Stock
pursuant to the exercise of the Warrants or the Additional Warrants. The number
of shares of Common Stock set forth in this Subsection 3(e) is subject to
adjustment in accordance with any anti-dilution provisions existing on the date
hereof under the terms of the instruments governing their issuance.
(f) If the Company issues shares of Common Stock or securities
convertible or exchangeable for shares of Common Stock in connection with (a) a
strategic alliance or licensing agreement or (b) the acquisition (by merger or
otherwise) of all or substantially all of the capital stock or assets of another
entity or business organization, the issuance of shares of Common Stock in
connection with any such transaction shall require the adjustment of the Per
Share Warrant Price unless the value of the Company at the time of such
transaction, as determined in good faith by a committee comprised of the
independent directors of the Board of Directors or, if no such committee has
been appointed, in consultation with the Holder and a majority of the shares
held by shareholders who are not officers, directors or otherwise employees of
the Company, is equal to or greater than the Per Share Warrant Price.
-5-
<PAGE>
(g) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(g) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassifi cation,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 15 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(h) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which 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, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(i) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided, however, that any adjustments which by
-------- -------
reason of this Subsection 3(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided
--------
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<PAGE>
further, however, that adjustments shall be required and made in accordance with
- -------
the provisions of this Section 3 (other than this Subsection 3(i)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion the Company shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(j) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 3, the Company shall promptly obtain, at its
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) setting forth the Per Share Warrant Price and the number of Warrant
Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants.
(k) If the Board of Directors of the Company shall (i) declare any
dividend or other distribution with respect to the Common Stock, other than a
cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer
to the holders of shares of Common Stock any additional shares of Common Stock,
any securities convertible into or exercisable for shares of Common Stock or any
rights to subscribe thereto, or (iii) propose a dissolution, liquidation or
winding up of the Company, the Company shall mail notice thereof to the Holders
of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(l) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(m) If the Per Share Warrant Price shall be adjusted as a result of
one of the events set forth in the first paragraph of this Warrant, the
provisions of this Section 3 shall be applied as if such adjusted Per Share
Warrant Price had been in effect since the initial issuance of this Warrant.
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<PAGE>
4. Tag Along Rights. The Company understands that its controlling
----------------
stockholder, John Bohan, has agreed to grant "tag along" rights to the Holder if
he shall sell more than one-third of his equity interest in the Company. The
Company agrees to place stop-transfer instructions on Mr. Bohan's shares in
order to enforce this tag along right on behalf of the Holder.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
-----------------------
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
6. Registration Under Securities Act of 1933
-----------------------------------------
(a) The Company agrees that if, at any time and from time to time
during the period commencing on the closing of a Qualified IPO and ending on
June 7, 2007, the Board of Directors of the Company shall authorize the filing
of a registration statement (any such registration statement being hereinafter
called a "Subsequent Registration Statement") under the Securities Act of 1933
(the "Act") (other than a registration statement on Form S-4, Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities) in connection
with the proposed offer of any of its securities by it, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 6 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 15 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Subsequent Registration Statement to be sold or
otherwise disposed of, and will maintain such compliance with each such Federal
and state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or other
disposition.
(b) Notwithstanding any other provision of this Section 6, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Warrant Shares participating in such registration in writing that
in its good faith judgment the number of
-8-
<PAGE>
Warrant Shares and the other securities requested to be registered exceeds the
number of Warrant Shares and other securities which can be sold in such
offering, then (i) the number of Warrant Shares and other securities so
requested to be included in the offering shall be reduced to that number of
shares which in the good faith judgment of the managing underwriter can be sold
in such offering, except for shares to be issued by the Company, which shall
have priority over the Warrant Shares, and (ii) such reduced number of shares
shall be allocated among all participating Holders of Warrant Shares and the
holders of other securities in proportion, as nearly as practicable, to the
respective number of Warrant Shares and other securities held by such Holders
and other holders at the time of filing the registration statement.
(c) Whenever the Company is required pursuant to the provisions of
this Section 6 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request (except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified) and (iii) take such other actions as may be reasonably necessary or
advisable to enable such Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such Holders shall
have reasonably requested that the Warrant Shares be sold. Nothing contained in
this Warrant shall be construed as requiring a Holder to exercise its Warrant
prior to the closing of an offering pursuant to a registration statement
referred to in Subsection 6(a).
(d) To the extent otherwise required and delivered pursuant to an
underwriting agreement, the Company shall furnish to each Holder participating
in an offering pursuant to a registration statement under this Section 6 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company dated the date of the
closing under the underwriting agreement, and (ii) a "comfort" letter dated the
effective date of such registration statement and a letter dated the date of the
closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(e) The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 6, including the
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<PAGE>
reasonable fees and expenses of one counsel representing the Holders of Warrant
Shares included in any such registration statement, other than underwriting
discounts and applicable transfer taxes relating to the Warrant Shares.
(f) The Company agrees to indemnify and hold harmless each selling
Holder of Warrant Shares and each person who controls any such selling Holder
within the meaning of Section 15 of the Act, and each and all of them, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several, to which any selling Holder of Warrant Shares or they or any of them
may become subject under the Act or otherwise and to reimburse the persons
indemnified as above for any reasonable legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation or threatened litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities or
actions arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
pursuant to which Warrant Shares were registered under the Act (hereinafter
called a "Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any application or
document filed in connection therewith) or document executed by the Company
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement contained in
any representation or warranty made by the Company in an underwriting agreement
relating to such registration statement, or (iii) the employment by the Company
of any device, scheme or artifice to defraud, or the engaging by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit, or any conspiracy with respect thereto, in which the Company
shall participate, in connection with the issuance and sale of any of the
Warrant Shares; provided, however, that the indemnity agreement contained in
-------- -------
this Section 6(f) shall not extend to any selling Holder of Warrant Shares if
any such losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was based upon and
made in conformity with information furnished in writing to the Company by a
selling Holder of Warrant Shares specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The Company
agrees to pay any legal and other expenses for which it is liable under this
Section 6(f) from time to time (but not more frequently than monthly) within 30
days after its receipt of a bill therefor.
(g) Each selling Holder of Warrant Shares, severally and not jointly,
will indemnify and hold harmless the Company, its directors, its officers who
shall have signed the registration statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act to the same
extent as the foregoing indemnity from the Company set forth in Section 6(f)
hereof, but in each case to the extent, and only to the extent, that any
statement in or
-10-
<PAGE>
omission from or alleged omission from such registration statement, any final
prospectus, any preliminary prospectus or any amendment or supplement thereto
was made in reliance upon information furnished in writing to the Company by
such selling Holder specifically for use in connection with the preparation of
the registration statement, any final prospectus or the preliminary prospectus
or any such amendment or supplement thereto; provided, however, that the
-------- -------
obligation of any Holder of Warrant Shares to indemnify the Company under the
provision of this Section 6(g) shall be limited to the excess of (1) the product
------ --
of (A) the number of Warrant Shares being sold by the selling Holder and (B) the
price at which such Warrant Shares are sold over (2) the aggregate amount paid
----
to the Company by such Holder in connection with the issuance of such Warrant
Shares. Each selling Holder of Warrant Shares agrees to pay any legal and other
expenses for which it is liable under this Section 6(g) from time to time (but
not more frequently than monthly) within 30 days after receipt of a bill
therefor.
(h) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Sections 6(f) or (g) (an "indemnified
party") in respect of which indemnity may be sought against a person granting
indemnification (an "indemnifying party") pursuant to such Sections, such
indemnified party shall promptly notify such indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
of any such action shall not release the indemnifying party from any liability
it may have to such indemnified party otherwise than on account of the indemnity
agreement contained in Section 6(f) or (g) hereof. In case any such action is
brought against an indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim is to be
made will be entitled to participate therein at its own expense and, to the
extent that it may wish, to assume at its own expense the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
-------- -------
that (i) if the defendants in any such action include both the indemnified party
and the indemnifying party, and the indemnified party shall have reasonably
concluded based upon advice of counsel that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defenses
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties and (ii) in any event, the indemnified party shall
be entitled to have counsel chosen by such indemnified party participate in, but
not conduct, the defense at the expense of the indemnifying party. Upon receipt
of notice from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified party of
counsel (which approval shall not be unreasonably withheld), the indemnifying
party will not be liable to such indemnified party under the indemnification
provisions of this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(x) the indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (y) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the
-11-
<PAGE>
action or (z) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. An
indemnified party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section 6(f) or
(g) hereof are unavailable in accordance with their respective terms, the
Company and any selling Holder of Warrant Shares shall contribute to the
aggregate losses, claims, damages and liabilities, of the nature contemplated by
said indemnity agreements, incurred by the Company and such selling Holder of
Warrant Shares, in such proportions as is appropriate to reflect the relative
fault of the Company on the one hand and of such selling Holder of Warrant
Shares on the other hand, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and such
selling Holder of Warrant Shares shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relate to
information supplied by the Company or such selling Holder of Warrant Shares and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that the
-------- -------
obligation of any Holder of Warrant Shares to contribute to the Company under
the provisions of this Section 6(i) shall be limited to the excess of (1) the
------ --
product of (A) the number of Warrant Shares being sold by the selling Holder and
(B) the price at which such Warrant Shares are sold over (2) the aggregate
----
amount paid to the Company by such Holder in connection with the issuance of
such Warrant Shares.
(j) The respective indemnity and contribution agreements by the
Company and the selling Holder of Warrant Shares in this Section 6 shall remain
operative and in full force and effect regardless of (i) any investigation made
by any selling Holder of Warrant Shares or by or on behalf of any person who
controls such selling Holder or by the Company or any controlling person of the
Company or the director or any officer of the Company, (ii) payment for any of
the Warrant Shares or (iii) any termination of this Agreement, and shall survive
the delivery of the Warrant Shares, and any successor of the Company, or of any
selling Holder of Warrant Shares, or of any person who controls the Company or
of any selling Holder of Warrant Shares, as the case may be, shall be entitled
to the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
Holder of Warrant Shares contained in this Section 6 shall be in addition to any
liability which the company and the selling Holder of Warrant Shares may
otherwise have.
7. Limited Transferability. This Warrant may not be sold,
-----------------------
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act. Furthermore, this Warrant may be sold, transferred,
assigned or hypothecated only to an officer, director or affiliate of The Roman
Arch Fund L.P., unless the Holder first obtains the prior written consent of the
Company (which shall not be unreasonably withheld). The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the
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<PAGE>
Holder for all purposes. The Company shall permit any Holder of a Warrant or his
duly authorized attorney, upon written request during ordinary business hours,
to inspect and copy or make extracts from its books showing the registered
holders of Warrants. All Warrants issued upon the transfer or assignment of this
Warrant will be dated the same date as this Warrant, and all rights of the
Holder thereof shall be identical to those of the Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to
----------------------
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided
------------------------------
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
(a) if to the Company at1447 Cloverfield Avenue, Suite 100,
Santa Monica, California 90404, Att.: President, facsimile no. (310)
315-1369, or such other address as the Company has designated in
writing to the Holder, or
(b) if to the Holder at One New York Plaza, New York, New York
10292, Att.: Robert Willard, facsimile no. (212) 778-4677 or such
other address or facsimile number as the Holder has designated in
writing to the Company.
11. Headings. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed
--------------
in accordance with the law of the State of California without giving effect to
the principles of conflicts of law thereof.
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<PAGE>
IN WITNESS WHEREOF, Latitude90, Inc. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 7th day of June, 1999.
LATITUDE90, INC.
By: /s/ John C. Bohan
______________________
John C. Bohan,
Chief Executive Officer
ATTEST:
/s/ C.J. Cardinali
___________________
Secretary
[Corporate Seal]
-14-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: _____________________ Signature:___________________________
Address: ____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of _________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer that part of said Warrant on the books of
______________________________.
Dated: ______________________ Signature:___________________________
Address: ____________________________
-15-
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name___________________
(Please Print Name, Address and Social
Security No.)
Address _______________
_______________
Social__________________
Security Number
Signature ______________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date_____________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares to:
Name ___________________
(Please Print Name, Address and Social
Security No.)
Address __________________
__________________
Social____________________
Security Number
Signature
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date____________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
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<PAGE>
LATITUDE90, INC.
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. IPO-99-2 40,000 Shares
June 7, 1999
FOR VALUE RECEIVED, LATITUDE90, INC., a California corporation (the
"Company"), hereby certifies that The Roman Arch Fund II L.P. or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on the earlier of (i) December 7, 1999 or (ii) the closing of a
"Qualified IPO" (as hereinafter defined) and prior to 5:00 P.M., Los Angeles,
California time, on the earlier of (i) June 7, 2005 or (ii) the fifth
anniversary of the commencement of trading of the Company's common stock in
connection with an initial public offering with gross proceeds to the Company of
at least $20,000,000 (a "Qualified IPO"), Forty Thousand (40,000) fully paid and
non-assessable shares of the common stock, $.01 par value per share, of the
Company for a purchase price equal to $1.60 per share; provided, however, that
(i) if, within six months of the date hereof, the Company closes a private
placement of equity securities to one or more independent third parties that
raises gross proceeds of at least $4,000,000 (a "Qualified Private Placement"),
the purchase price per share shall be adjusted to be equal to the product of (A)
the purchase price per share of common stock sold or the per share price at
which any convertible security is convertible into shares of common stock and
(B) 2.0; (ii) upon the closing of a Qualified IPO, the purchase price per share
shall be adjusted to be equal to the price per share in the Qualified IPO, but
only if such purchase price per share would be higher than that set forth in the
immediately preceding clause (i) of this paragraph; and (iii) if during the six
month period commencing on the date hereof the Company closes neither a
Qualified Private Placement nor a Qualified IPO, the purchase price per share
shall be $1.60 per share until a "Change of Control" (as hereinafter defined)
shall occur in which event the purchase price per share shall be reduced, but
not increased, to an amount equal to the product of (A) the price per share
received by stockholders of the Company in such Change of Control transaction
and (B) 0.5; provided, further, however that such price per share shall not be
reduced below $0.80 per share. All of the prices set forth in the preceding
sentence shall be subject to adjustment in accordance with Section 3.
Hereinafter, (i) said common stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price," (iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in exchange
or substitution for this Warrant or such similar Warrants are referred to as the
"Warrants" and (vi) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other
<PAGE>
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "Holders." "Change of Control" shall mean (i) a consolidation or
merger of the Company with or into any corporation or corporations that are
unaffiliated with the Company on the date hereof, (ii) a sale, lease or transfer
of all or substantially all of the assets of the Company, (iii) the sale of at
least 51% of the outstanding equity of the Company in a single transaction or
series of related transactions or (iv) the date on which John C. Bohan shall
fail to own more than 51% of the Company's common equity on a fully diluted
basis.
The Per Share Warrant Price is also subject to adjustment as hereinafter
provided in Section 3; in the event of any adjustment to the Per Share Warrant
Price pursuant to the provisions of Section 3, the number of Warrant Shares
shall be adjusted by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment. The Aggregate
Warrant Price shall not be adjusted as a result of the application of the
provisions of Section 3.
1. Exercise or Exchange of Warrant. (a) The Holder may exercise
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this Warrant, in whole or in part, as follows:
(i) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with the Subscription
Form annexed hereto (or a reasonable facsimile thereof) duly executed and
accompanied by payment of the Per Share Warrant Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company; or
(ii) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 10(a) hereof, with a Cashless Exercise
Form annexed hereto (or a reasonable facsimile thereof) duly executed (a
"Cashless Exercise"). Such presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the
Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the then
current market price per share of the Common Stock and the Per Share
Warrant Price, and the denominator of which shall be the then current
market price per share of Common Stock. For purposes of any computation
under this Section 1(a)(ii), the then current market price per share of
Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing prices as reported by the Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("Nasdaq") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors.
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(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (i) issue a certificate or certificates, in such denominations
as are requested for delivery by the Holder, in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercisable in part, pursuant to the provisions of this
Warrant. The Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(c) Simultaneously with the issuance of this Warrant and another
identical Warrant to an affiliated holder for 60,000 shares of Common Stock for
an aggregate of 100,000 shares of Common Stock, the Company is issuing other
warrants to such Holders to purchase an aggregate of 400,000 shares of Common
Stock (the "Private Placement Warrants"). The holders of the Private Placement
Warrants have the right, in their sole discretion and subject to the terms of
the Private Placement Warrants, to exchange the Private Placement Warrants for
Warrants to purchase a number of shares of Common Stock equal to twice the
number of shares subject to the Private Placement Warrants at the time of
exchange. If such exchange occurs, the Warrants issued in exchange for the
Private Placement Warrants shall be considered "Warrants" for purposes of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees that,
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prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange or on Nasdaq, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing.
3. Protection Against Dilution. (a) In case the Company shall
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hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be
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adjusted so that the Holder upon the exercise hereof shall be entitled to
receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "Special Dividend"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the five
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by the Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by Nasdaq, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
(c) Except as provided in Subsection 3(e), in case the Company shall
hereafter issue or sell any shares of Common Stock for a consideration per share
less than the Per Share Warrant Price on the date of such issuance or sale, the
Per Share Warrant Price shall be adjusted as of the date of such issuance or
sale so that the same shall equal the price determined by dividing (i) the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale, including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable, multiplied by the Per Share
Warrant Price plus (B) the consideration received by the Company upon such
issuance or sale by (ii) the total number of shares of Common Stock outstanding
after such issuance or sale including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable.
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(d) Except as provided in Subsections 3(b) and 3(e), in case the
Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into Common Stock entitling the holders thereof to
purchase Common Stock or to convert such securities into Common Stock at a price
per share (determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then current Per Share Warrant Price in effect on the date of such issuance
or sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale (including shares of Common Stock issuable upon the
exercise of options and warrants then exercisable) multiplied by the Per Share
Warrant Price plus (B) the Total Consideration by (ii) the number of shares of
Common Stock outstanding on the date of such issuance or sale (including shares
of Common Stock issuable upon the exercise of options and warrants then
exercisable) plus the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities.
(e) No adjustment in the Per Share Warrant Price shall be required in
the case of (i) the issuance by the Company of options to purchase up to
2,500,000 shares of Common Stock reserved for issuance pursuant to the Company's
1999 Stock Incentive Plan (the "Plan"), and the exercise of such options, (ii)
the issuance by the Company of up to 935,000 shares of Common Stock upon the
exercise of options currently outstanding that were not granted under the Plan,
(iii) the issuance by the Company of up to 2,500,000 shares of Common Stock upon
the conversion of the Company's outstanding Series A Preferred Stock, (iv) the
issuance by the Company of up to 657,890 shares of Common Stock upon exercise of
warrants currently outstanding (other than the Warrants and the Additional
Warrants), and (v) the issuance by the Company of shares of the Common Stock
pursuant to the exercise of the Warrants or the Additional Warrants. The number
of shares of Common Stock set forth in this Subsection 3(e) is subject to
adjustment in accordance with any anti-dilution provisions existing on the date
hereof under the terms of the instruments governing their issuance.
(f) If the Company issues shares of Common Stock or securities
convertible or exchangeable for shares of Common Stock in connection with (a) a
strategic alliance or licensing agreement or (b) the acquisition (by merger or
otherwise) of all or substantially all of the capital stock or assets of another
entity or business organization, the issuance of shares of Common Stock in
connection with any such transaction shall require the adjustment of the Per
Share Warrant Price unless the value of the Company at the time of such
transaction, as determined in good faith by a committee comprised of the
independent directors of the Board of Directors or, if no such committee has
been appointed, in consultation with the Holder and a majority of the shares
held by shareholders who are not officers, directors or otherwise employees of
the Company, is equal to or greater than the Per Share Warrant Price.
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<PAGE>
(g) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(g) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(h) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which 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, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(i) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided, however, that any adjustments which by
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reason of this Subsection 3(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided
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<PAGE>
further, however, that adjustments shall be required and made in accordance with
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the provisions of this Section 3 (other than this Subsection 3(i)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion the Company shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(j) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 3, the Company shall promptly obtain, at its
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) setting forth the Per Share Warrant Price and the number of Warrant
Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants.
(k) If the Board of Directors of the Company shall (i) declare any
dividend or other distribution with respect to the Common Stock, other than a
cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer
to the holders of shares of Common Stock any additional shares of Common Stock,
any securities convertible into or exercisable for shares of Common Stock or any
rights to subscribe thereto, or (iii) propose a dissolution, liquidation or
winding up of the Company, the Company shall mail notice thereof to the Holders
of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(l) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(m) If the Per Share Warrant Price shall be adjusted as a result of
one of the events set forth in the first paragraph of this Warrant, the
provisions of this Section 3 shall be applied as if such adjusted Per Share
Warrant Price had been in effect since the initial issuance of this Warrant.
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<PAGE>
4. Tag Along Rights. The Company understands that its controlling
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stockholder, John Bohan, has agreed to grant "tag along" rights to the Holder if
he shall sell more than one-third of his equity interest in the Company. The
Company agrees to place stop-transfer instructions on Mr. Bohan's shares in
order to enforce this tag along right on behalf of the Holder.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
-----------------------
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
6. Registration Under Securities Act of 1933
-----------------------------------------
(a) The Company agrees that if, at any time and from time to time
during the period commencing on the closing of a Qualified IPO and ending on
June 7, 2007, the Board of Directors of the Company shall authorize the filing
of a registration statement (any such registration statement being hereinafter
called a "Subsequent Registration Statement") under the Securities Act of 1933
(the "Act") (other than a registration statement on Form S-4, Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities) in connection
with the proposed offer of any of its securities by it, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 6 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 15 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Subsequent Registration Statement to be sold or
otherwise disposed of, and will maintain such compliance with each such Federal
and state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or other
disposition.
(b) Notwithstanding any other provision of this Section 6, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Warrant Shares participating in such registration in writing that
in its good faith judgment the number of
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Warrant Shares and the other securities requested to be registered exceeds the
number of Warrant Shares and other securities which can be sold in such
offering, then (i) the number of Warrant Shares and other securities so
requested to be included in the offering shall be reduced to that number of
shares which in the good faith judgment of the managing underwriter can be sold
in such offering, except for shares to be issued by the Company, which shall
have priority over the Warrant Shares, and (ii) such reduced number of shares
shall be allocated among all participating Holders of Warrant Shares and the
holders of other securities in proportion, as nearly as practicable, to the
respective number of Warrant Shares and other securities held by such Holders
and other holders at the time of filing the registration statement.
(c) Whenever the Company is required pursuant to the provisions of
this Section 6 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request (except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified) and (iii) take such other actions as may be reasonably necessary or
advisable to enable such Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such Holders shall
have reasonably requested that the Warrant Shares be sold. Nothing contained in
this Warrant shall be construed as requiring a Holder to exercise its Warrant
prior to the closing of an offering pursuant to a registration statement
referred to in Subsection 6(a).
(d) To the extent otherwise required and delivered pursuant to an
underwriting agreement, the Company shall furnish to each Holder participating
in an offering pursuant to a registration statement under this Section 6 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company dated the date of the
closing under the underwriting agreement, and (ii) a "comfort" letter dated the
effective date of such registration statement and a letter dated the date of the
closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(e) The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 6, including the
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reasonable fees and expenses of one counsel representing the Holders of Warrant
Shares included in any such registration statement, other than underwriting
discounts and applicable transfer taxes relating to the Warrant Shares.
(f) The Company agrees to indemnify and hold harmless each selling
Holder of Warrant Shares and each person who controls any such selling Holder
within the meaning of Section 15 of the Act, and each and all of them, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several, to which any selling Holder of Warrant Shares or they or any of them
may become subject under the Act or otherwise and to reimburse the persons
indemnified as above for any reasonable legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation or threatened litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities or
actions arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
pursuant to which Warrant Shares were registered under the Act (hereinafter
called a "Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any application or
document filed in connection therewith) or document executed by the Company
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement contained in
any representation or warranty made by the Company in an underwriting agreement
relating to such registration statement, or (iii) the employment by the Company
of any device, scheme or artifice to defraud, or the engaging by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit, or any conspiracy with respect thereto, in which the Company
shall participate, in connection with the issuance and sale of any of the
Warrant Shares; provided, however, that the indemnity agreement contained in
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this Section 6(f) shall not extend to any selling Holder of Warrant Shares if
any such losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was based upon and
made in conformity with information furnished in writing to the Company by a
selling Holder of Warrant Shares specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The Company
agrees to pay any legal and other expenses for which it is liable under this
Section 6(f) from time to time (but not more frequently than monthly) within 30
days after its receipt of a bill therefor.
(g) Each selling Holder of Warrant Shares, severally and not jointly,
will indemnify and hold harmless the Company, its directors, its officers who
shall have signed the registration statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act to the same
extent as the foregoing indemnity from the Company set forth in Section 6(f)
hereof, but in each case to the extent, and only to the extent, that any
statement in or
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<PAGE>
omission from or alleged omission from such registration statement, any final
prospectus, any preliminary prospectus or any amendment or supplement thereto
was made in reliance upon information furnished in writing to the Company by
such selling Holder specifically for use in connection with the preparation of
the registration statement, any final prospectus or the preliminary prospectus
or any such amendment or supplement thereto; provided, however, that the
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obligation of any Holder of Warrant Shares to indemnify the Company under the
provision of this Section 6(g) shall be limited to the excess of (1) the product
------ --
of (A) the number of Warrant Shares being sold by the selling Holder and (B) the
price at which such Warrant Shares are sold over (2) the aggregate amount paid
----
to the Company by such Holder in connection with the issuance of such Warrant
Shares. Each selling Holder of Warrant Shares agrees to pay any legal and other
expenses for which it is liable under this Section 6(g) from time to time (but
not more frequently than monthly) within 30 days after receipt of a bill
therefor.
(h) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Sections 6(f) or (g) (an "indemnified
party") in respect of which indemnity may be sought against a person granting
indemnification (an "indemnifying party") pursuant to such Sections, such
indemnified party shall promptly notify such indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
of any such action shall not release the indemnifying party from any liability
it may have to such indemnified party otherwise than on account of the indemnity
agreement contained in Section 6(f) or (g) hereof. In case any such action is
brought against an indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim is to be
made will be entitled to participate therein at its own expense and, to the
extent that it may wish, to assume at its own expense the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
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that (i) if the defendants in any such action include both the indemnified party
and the indemnifying party, and the indemnified party shall have reasonably
concluded based upon advice of counsel that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defenses
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties and (ii) in any event, the indemnified party shall
be entitled to have counsel chosen by such indemnified party participate in, but
not conduct, the defense at the expense of the indemnifying party. Upon receipt
of notice from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified party of
counsel (which approval shall not be unreasonably withheld), the indemnifying
party will not be liable to such indemnified party under the indemnification
provisions of this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(x) the indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (y) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the
-11-
<PAGE>
action or (z) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. An
indemnified party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section 6(f) or
(g) hereof are unavailable in accordance with their respective terms, the
Company and any selling Holder of Warrant Shares shall contribute to the
aggregate losses, claims, damages and liabilities, of the nature contemplated by
said indemnity agreements, incurred by the Company and such selling Holder of
Warrant Shares, in such proportions as is appropriate to reflect the relative
fault of the Company on the one hand and of such selling Holder of Warrant
Shares on the other hand, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and such
selling Holder of Warrant Shares shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relate to
information supplied by the Company or such selling Holder of Warrant Shares and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that the
-------- -------
obligation of any Holder of Warrant Shares to contribute to the Company under
the provisions of this Section 6(i) shall be limited to the excess of (1) the
------ --
product of (A) the number of Warrant Shares being sold by the selling Holder and
(B) the price at which such Warrant Shares are sold over (2) the aggregate
----
amount paid to the Company by such Holder in connection with the issuance of
such Warrant Shares.
(j) The respective indemnity and contribution agreements by the
Company and the selling Holder of Warrant Shares in this Section 6 shall remain
operative and in full force and effect regardless of (i) any investigation made
by any selling Holder of Warrant Shares or by or on behalf of any person who
controls such selling Holder or by the Company or any controlling person of the
Company or the director or any officer of the Company, (ii) payment for any of
the Warrant Shares or (iii) any termination of this Agreement, and shall survive
the delivery of the Warrant Shares, and any successor of the Company, or of any
selling Holder of Warrant Shares, or of any person who controls the Company or
of any selling Holder of Warrant Shares, as the case may be, shall be entitled
to the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
Holder of Warrant Shares contained in this Section 6 shall be in addition to any
liability which the company and the selling Holder of Warrant Shares may
otherwise have.
7. Limited Transferability. This Warrant may not be sold,
-----------------------
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act. Furthermore, this Warrant may be sold, transferred,
assigned or hypothecated only to an officer, director or affiliate of The Roman
Arch Fund II L.P., unless the Holder first obtains the prior written consent of
the Company (which shall not be unreasonably withheld). The Company may treat
the registered Holder of this Warrant as he or it appears on the Company's books
at any time as the
-12-
<PAGE>
Holder for all purposes. The Company shall permit any Holder of a Warrant or his
duly authorized attorney, upon written request during ordinary business hours,
to inspect and copy or make extracts from its books showing the registered
holders of Warrants. All Warrants issued upon the transfer or assignment of this
Warrant will be dated the same date as this Warrant, and all rights of the
Holder thereof shall be identical to those of the Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to
----------------------
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided
------------------------------
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
(a) if to the Company at 1447 Cloverfield Avenue, Suite 100,
Santa Monica, California 90404, Att.: President, facsimile no. (310)
315-1369, or such other address as the Company has designated in
writing to the Holder, or
(b) if to the Holder at One New York Plaza, New York, New York
10292, Att.: Robert Willard, facsimile no. (212) 778-4677 or such
other address or facsimile number as the Holder has designated in
writing to the Company.
11. Headings. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed
--------------
in accordance with the law of the State of California without giving effect to
the principles of conflicts of law thereof.
-13-
<PAGE>
IN WITNESS WHEREOF, Latitude90, Inc. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 7th day of June, 1999.
LATITUDE90, INC.
By: /s/ John C. Bohan
______________________
John C. Bohan,
Chief Executive Officer
ATTEST:
/s/ C.J. Cardinali
_____________________
Secretary
[Corporate Seal]
-14-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: ____________________ Signature:___________________________
Address: ____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of _________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer that part of said Warrant on the books of
______________________________.
Dated: ____________________ Signature:___________________________
Address: ____________________________
-15-
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name_______________________
(Please Print Name, Address and Social
Security No.)
Address_____________________
_____________________
Social _____________________
Security Number
Signature __________________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
-16-
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares to:
Name __________________
(Please Print Name, Address and Social
Security No.)
Address ________________
________________
Social ________________
Security Number
Signature _______________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date_______________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
-17-
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made as
---------
of September 15, 1999 and is effective as of May 21, 1997 by JOHN BOHAN &
ASSOCIATES, LLC, a California limited liability company ("Assignee"), and John
--------
C. Bohan, doing business as AdNet Strategies, a sole proprietorship
("Assignor").
--------
RECITALS
--------
A. Assignor operates an Internet advertising sales business known as
"AdNet Strategies" (the "Business").
--------
B. Assignor desires to assign, convey, transfer and sell to
Assignee, and Assignee desires to accept and assume from Assignor, all of the
assets used or useful in connection with the Business (the "Assets") and all of
------
the liabilities, obligations, claims and expenses of the Business (collectively,
the "Liabilities"), under the terms and conditions hereof.
-----------
FOR VALUABLE CONSIDERATION, Assignor does hereby assign, convey,
transfer, sell and deliver to Assignee, and Assignee does hereby purchase,
accept and assume, all of the Assets and Liabilities. Without limiting the
generality of the foregoing:
1. The Assets shall include:
(a) the physical assets used in the Business;
(b) the personal property leases used in the Business;
(c) the real property leases used in the Business;
(d) the inventory of the Business;
(e) the intangible assets used in the Business, including
without limitation the name "AdNet Strategies";
(f) the operating systems and manuals, and other printed or
written materials used in the Business;
(g) all records and books of account relating to the Business;
(h) the receivables relating to the Business;
<PAGE>
(i) all goodwill associated with the Business;
(j) all permits used in connection with the Business; and
(k) all other tangible and intangible property relating to the
Business not specifically listed above, whether now existing
or hereafter acquired; and
2. The Liabilities shall include each and all of the liabilities,
obligations and responsibilities of Assignor arising out of the operation of the
Business or ownership of the Assets, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and due or to become due, of any nature whatsoever. Assignee
hereby accepts the assignment of the Liabilities as of the date hereof and
agrees that it will perform and observe all of Assignor's obligations under the
Liabilities.
3. The transfer of Assets contemplated by this Agreement shall occur
and be effective, and Assignee shall have full ownership of and power over all
of the Assets, as of the date of this Agreement.
4. Assignor, at any time after the date of this Agreement, shall
execute, acknowledge and deliver any further documents or instruments of
transfer requested by Assignee and shall take such further action consistent
with the terms of this Agreement that may be requested by Assignor for the
purpose of granting and confirming to Assignee, or reducing to Assignee's
possession, any or all of the Assets referred to in this Agreement.
5. Assignee hereby covenants and agrees with Assignor to sign, seal,
execute and deliver, or cause to be signed, sealed, executed and delivered, and
to make or cause to be done or made, upon the reasonable request of Assignor,
any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may reasonably be required by
Assignor for the purpose of, or in connection with, the assumption by Assignee
of the Liabilities.
6. Assignor hereby constitutes and appoints Assignee, and its
successors and assigns, the true and lawful attorney of Assignor, with full
power of substitution, for Assignor and in Assignor's name, place and stead by
and on behalf of and for the benefit of Assignee, and its successors and
assigns, to (i) demand and receive from time to time the Assets hereby assigned,
transferred and conveyed, and to give receipts and releases for and in respect
of the same and any part thereof, and (ii) to execute any instrument of
assignment necessary or advisable to accomplish the purposes of this Agreement.
Assignor hereby declares that the appointment made and the powers hereby granted
are coupled with an interest and are and shall be irrevocable by Assignor in any
manner or for any reason.
2
<PAGE>
7. Assignor warrants, and hereby covenants, at Assignor's sole cost
and expense, to defend Assignee's title to the Assets hereby assigned and
conveyed against all lawful claims and demands of all persons or entities
whomsoever which may now exist or which may have accrued as of the date of this
Agreement. Assignor hereby agrees to indemnify and hold Assignee free and
harmless from all liabilities, obligations, damages, causes of action,
judgments, costs and expenses (including reasonable attorneys' fees) which
Assignee may incur or suffer in connection with any breach by Assignor of the
preceding warranty and covenant.
8. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
9. This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without regard to any statutes or
principles of conflicts of laws.
10. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement
to be executed as of the date first written above.
ASSIGNOR: JOHN C. BOHAN, a sole proprietorship
doing business as AdNet Strategies
By: /s/ John C. Bohan
______________________________________
John C. Bohan, Owner
ASSIGNEE: JOHN BOHAN & ASSOCIATES, LLC, a California limited liability
company
By: /s/ John C. Bohan
______________________________________
John C. Bohan, Member
3
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made as
---------
of January 16, 1998 by ADNET STRATEGIES, INC., a California corporation
("Assignee"), and JOHN BOHAN & ASSOCIATES, LLC, a California limited liability
- ----------
company ("Assignor").
--------
RECITALS
--------
A. Assignor operates an Internet advertising sales business (the
"Business").
- ---------
B. Assignor desires to assign to Assignee, and Assignee desires to
assume from Assignor, all of the assets used or useful in connection with the
Business (the "Assets") and all of the liabilities, obligations, claims and
------
expenses of the Business (collectively, the "Liabilities"), under the terms and
-----------
conditions hereof.
FOR VALUABLE CONSIDERATION, Assignor does hereby assign to Assignee,
and Assignee does hereby accept and assume, all of the Assets and Liabilities.
Without limiting the generality of the foregoing:
1. The Assets shall include:
(a) the physical assets used in the Business;
(b) the personal property leases used in the Business;
(c) the real property leases used in the Business;
(d) the inventory of the Business;
(e) the intangible assets used in the Business;
(f) the operating systems and manuals, and other printed or
written materials used in the Business;
(g) all records and books of account relating to the Business;
(h) the receivables relating to the Business;
<PAGE>
(i) all goodwill associated with the Business;
(j) all permits used in connection with the Business; and
(k) all other tangible and intangible property relating to the
Business not specifically listed above, whether now existing
or hereafter acquired; and
2. The Liabilities shall include each and all of the liabilities,
obligations and responsibilities of Assignor arising out of the Operation of the
Business or ownership of the Assets, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and due or to become due, of any nature whatsoever.
The transfer of assets contemplated by this Agreement shall occur and
be effective, and Transferee shall have full ownership of and power over all of
the Assets, immediately upon delivery of this Agreement by Transferor.
Transferor, at any time after the date of this Agreement, shall
execute, acknowledge and deliver any further documents or instruments of
transfer requested by Transferee and shall take such further action consistent
with the terms of this Agreement that may be requested by Transferee for the
purpose of granting and confirming to Transferee, or reducing to Transferee's
possession, any or all of the assets referred to in this Agreement.
Assignee hereby covenants and agrees with Assignor to sign, seal,
execute and deliver, or cause to be signed, sealed, executed and delivered, and
to make or cause to be done or made, upon the reasonable request of Assignor,
any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may reasonably be required by
Assignor for the purpose of, or in connection with, the assumption by Assignee
of the Liabilities.
Transferor hereby constitutes and appoints Transferee, and its
successors and assigns, the true and lawful attorney of Transferor, with full
power of substitution, for Transferor and in Transferor's name, place and stead
by and on behalf of and for the benefit of Transferee, and its successors and
assigns, to (i) demand and receive from time to time the Assets hereby assigned,
transferred and conveyed, and to give receipts and releases for and in respect
of the same and any part thereof, and (ii) to execute any instrument of
assignment necessary or advisable to accomplish the purposes of this Agreement.
Transferor hereby
2
<PAGE>
declares that the appointment made and the powers hereby granted are coupled
with an interest and are and shall be irrevocable by Transferor in any manner or
for any reason.
Transferor warrants, and hereby covenants, at Transferor's sole cost
and expense, to defend Transferee's title to the assets hereby assigned against
all lawful claims and demands of all persons or entities whomsoever which may
now exist or which may have accrued as of the date of this Agreement.
Transferor hereby agrees to indemnify and hold Transferee free and harmless from
all liabilities, obligations, damages, causes of action, judgments, costs and
expenses (including reasonable attorneys' fees) which Transferee may incur or
suffer in connection with any breach by Transferor of the preceding warranty and
covenant.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without regard to any statutes or
principals of conflicts of laws.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement
to be executed as of the date first written above.
ASSIGNOR: JOHN BOHAN & ASSOCIATES, LLC, a California limited liability
company
By:__________________________________________________________
Its:_________________________________________________________
ASSIGNEE: ADNET STRATEGIES, INC., a California corporation
By:__________________________________________________________
Its: ________________________________________________________
4
<PAGE>
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into as of this ___ day of September,
1999 ("Agreement"), by and between L90, INC., a Delaware corporation (the
---------
"Corporation," which term shall include any one or more of its subsidiaries
- ------------
where appropriate), and ("Indemnitee"):
-------------------- ----------
WHEREAS, highly competent persons are becoming more reluctant to serve
corporations as directors or officers or in other capacities unless they are
provided with adequate protection through insurance and/or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, such corporations;
and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
-----
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Corporation's stockholders and that the
Corporation should act to assure such persons that there will be increased
certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
undertake additional service for or on behalf of the Corporation on the
condition that Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue
to serve as a director and/or officer of the Corporation for so long as
Indemnitee is duly elected or appointed and qualified or until such time as
Indemnitee (subject to any contractual obligation or any obligation imposed by
operation of law) tenders his resignation in writing or is removed as a director
and/or officer. This Agreement shall not impose any obligation on the
Indemnitee
<PAGE>
or the Corporation to continue the Indemnitee's position with the Corporation
beyond any period otherwise applicable.
2. General. The Corporation shall indemnify and hold harmless, and
shall advance Expenses (as hereinafter defined) to, Indemnitee as provided in
this Agreement and to the fullest extent permitted by law in effect on the date
hereof and to such greater extent as applicable law may thereafter from time to
time permit.
3. Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, wholly or partly by reason of his Corporate
Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a
party to or otherwise becomes involved (as a witness or otherwise) in any
threatened, pending or completed Proceeding (as hereinafter defined), other than
a Proceeding by or in the right of the Corporation. Pursuant to this Section 3,
Indemnitee shall be indemnified and held harmless against all Expenses,
liabilities and losses (including without limitation, judgments, fines, ERISA
excise taxes and penalties, amounts paid and to be paid in settlement, interest,
assessments or other charges imposed thereon, and any federal, state, local and
foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt
of any payments under this Section 3) actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any
claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful.
4. Proceedings by or in the Right of the Corporation. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be made, a party to any threatened, pending or completed Proceeding brought
by or in the right of the Corporation to procure a judgment in its favor.
Pursuant to this Section 4, Indemnitee shall be indemnified and held harmless
against Expenses (as well as against any federal, state, local and foreign taxes
imposed on Indemnitee as a result of the actual or deemed receipt of any
payments under this Section 4) actually and reasonably incurred by Indemnitee or
on Indemnitee's behalf in connection with such Proceeding if Indemnitee acted in
good faith and in a manner
2
<PAGE>
Indemnitee believed to be in or not opposed to the best interests of the
Corporation and its stockholders. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Corporation if such indemnification is not permitted by Delaware or other
applicable law; provided, however, that indemnification against Expenses shall
nevertheless be made by the Corporation in such event to the extent that the
Court of Chancery of the State of Delaware or the court in which such proceeding
shall have been brought or is pending, shall determine.
5. Indemnification for Expenses of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be
indemnified and held harmless against all Expenses (as well as against any
federal, state, local and foreign taxes imposed on Indemnitee as a result of the
actual or deemed receipt of any payments under this Section 5) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Corporation shall indemnify
and hold harmless Indemnitee against all Expenses (as well as against any
federal, state, local and foreign taxes imposed on Indemnitee as a result of the
actual or deemed receipt of any payments under this Section 5) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with
each successfully resolved claim, issue or matter. For purposes of this Section
5 and without limitation, the termination of any claim, issue or matter in such
a Proceeding by dismissal or withdrawal with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
6. Advance of Expenses. The Corporation shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty (20) days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or
3
<PAGE>
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnifica tion. The Secretary of the Corporation
shall, promptly upon receipt of such a request for indemnification, advise the
Board in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 7(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the specific
case: (i) if a Change in Control (as hereinafter defined) shall have occurred,
by Independent Counsel (as hereinafter defined) in a written opinion to the
Board, a copy of which shall be delivered to Indemnitee (unless Indemnitee shall
request that such determination be made by the Board or the stockholders, in
which case the determi nation shall be made in the manner provided below in
clause (ii) or (iii) of this Section 7(b)); (ii) if a Change of Control shall
not have occurred, (A) by the Board by a majority vote of the Disinterested
Directors (as hereinafter defined), even though less than a quorum, (B) if no
Disinterested Directors exist, or even if Disinterested Directors exist, if such
Disinterested Directors so direct, by Independent Counsel in a written opinion
to the Board, a copy of which shall be delivered to Indemnitee, or (C) by the
stockholders of the Corporation; or (iii) as provided in Section 8(b) of this
Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information that is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably
4
<PAGE>
necessary to such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating shall be borne
by the Corporation (irrespective of the determination as to Indemnitee's
entitlement to indemnification), and the Corporation hereby indemnifies and
agrees to hold harmless Indemnitee therefrom.
(c) If the determination of entitlement to indem nification is to
be made by Independent Counsel pursuant to Section 7(b) of this Agreement, the
Independent Counsel shall be selected as provided in this Section 7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising Indemnitee of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Corporation advising it
of the identity of the Independent Counsel so selected. In either event,
Indemnitee or the Corporation, as the case may be, may, within seven (7) days
after such written notice of selection shall have been given, deliver to the
Corporation or to Indemnitee, as the case may be, a written objection to such
selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirement of "Independent
Counsel" as defined in Section 14 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until a court has determined that such objection
is without merit. If, within twenty (20) days after submission by Indemnitee of
a written request for indemnification pursuant to Section 7(a) of this
Agreement, no Independent Counsel shall have been selected or, if selected,
shall have been objected to, in accordance with this Section 7(c), either the
Corporation or Indemnitee may petition the Court of Chancery of the State of
Delaware or other court of competent jurisdiction for resolution of any
objection that shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
favorably resolved or the person so appointed shall act as Independent Counsel
under Section
5
<PAGE>
7(b) of this Agreement. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 7(b) of this Agreement,
and the Corporation shall pay all reasonable fees and expenses incident to the
procedures of this Section 7(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 9(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60) days
after receipt by the Corporation of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made, and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such sixty-day
period may be extended for a reasonable time, not to exceed an additional thirty
(30) days, if the person, persons or entity making the determination with
respect to entitlement to indemnification in good faith requires such additional
time for the obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing
6
<PAGE>
provisions of this Section 8(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 7(b) of this Agreement and if (A) within fifteen (15) days after receipt
by the Corporation of the request for such determination the Board has resolved
to submit such determination to the stockholders for their consideration at an
annual meeting thereof to be held within seventy-five (75) days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification is
to be made by Indepen dent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presump tion that Indemnitee did not act in good
faith and in a manner that Indemnitee reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
9. Remedies of Indemnitee.
(a) If (i) a determination is made pursuant to Section 7 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 7(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within ninety (90) days after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Corporation of a
written request therefor or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 7 or 8 of this Agreement, Indem-
7
<PAGE>
nitee shall be entitled to an adjudication in the Court of Chancery of the State
of Delaware, or in any other court of competent jurisdiction, of his entitlement
to such indemni fication or advancement of Expenses. Alternatively, Indemnitee,
at Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator, pursuant to the rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within one hundred eighty (180) days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 9(a). The Corporation shall not oppose Indemnitee's
right to any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 9, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Section 7 or 8 of this Agreement that Indemnitee is
entitled to indemnifica tion, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 9, absent (i) a misstatement by Indemnitee of a material fact, or
an omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnifi cation or
(ii) a prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
8
<PAGE>
(e) If Indemnitee, pursuant to this Section 9, seeks a judicial
adjudication of or an award in arbitra tion to enforce Indemnitee's rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the types described in the
definition of Expenses in Section 14 of this Agreement) actually and reasonably
incurred by Indemnitee in such judicial adjudication or arbitration, but only if
Indemnitee prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of Expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
10. Security. To the extent requested by the Indemnitee and
approved by the Board, the Corporation may at any time and from time to time
provide security to the Indemnitee for the Corporation's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement; Insurance;
Subrogation.
(a) The rights to be indemnified and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Corporation's Certificate of Incorporation or Bylaws, any other
agreement, a vote of stockholders or a resolution of directors, or otherwise.
This Agreement shall continue until, and terminate upon, the later of: (a) ten
(10) years after the date that Indemnitee shall have ceased to serve as a
director and officer of the Corporation or fiduciary of any other domestic or
foreign corporation, partnership, joint venture, limited liability company,
trust, employee benefit plan or other enterprise that Indemnitee served at the
request of the Corporation; or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 9 of this Agreement relating thereto. This
Agreement shall be binding upon the Corporation and its successors and assigns
9
<PAGE>
and shall inure to the benefit of Indemnitee and Indemnitee's heirs, executors
and administrators.
(b) If the Corporation maintains an insurance policy or policies
providing liability insurance for directors or officers of the Corporation or
fiduciaries of any other domestic or foreign corporation, partnership, joint
venture, limited liability company, trust, employee benefit plan or other
enterprise that such person serves at the request of the Corporation, Indemnitee
shall be covered by such policy or policies in accordance with the terms thereof
to the maximum extent of the coverage available for any such director or officer
under such policy or policies.
(c) If any payment is made under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
12. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provi sion of this Agreement, Indemnitee shall not be
entitled to
10
<PAGE>
indemnification or advancement of Expenses under this Agreement with respect to
any Proceeding, or any claim, issue or matter therein, brought or made by
Indemnitee against the Corporation, except as may be provided in Section 9(e) of
this Agreement.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
-----------------
Corporation of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item
or any similar schedule or form) promulgated under the Securities Exchange Act
of 1934, as amended (the "Act"), whether or not the Corporation is then subject
---
to such reporting requirement; provided, however, that, without limitation, such
a Change in Control shall be deemed to have occurred if (i) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 20% or
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board in office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or (iii) during any
period of two (2) consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose any new director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" describes the status of a person who is
----------------
or was or has agreed to become a director of the Corporation, or is or was an
officer, employee, agent or fiduciary of the Corporation or of any other
domestic or foreign corporation, partnership, joint venture, limited liability
company, trust, employee benefit plan or other enterprise that such person is or
was serving at the request of the Corporation.
11
<PAGE>
(c) "Disinterested Director" means a director of the Corporation
----------------------
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees and
--------
expenses, retainers, court costs, transcript costs, fees and expenses of experts
and witnesses, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the type customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, being a witness in or investigating
a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a
-------------------
law firm, that is experienced in matters of corporation law and neither at the
time of designation is, nor in the five years immediately preceding such
designation was, retained to represent: (i) the Corporation or Indemnitee in any
matter material to either such party or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Corporation or Indemnitee
in an action to determine Indemnitee's rights under this Agreement arising on or
after the date of this Agreement, regardless of when the Indemnitee's act or
failure to act occurred.
(f) "Proceeding" includes any action, suit, arbitration,
----------
alternate dispute resolution mechanism, investigation, administrative hearing
and any other proceeding (including any appeals from any of the foregoing)
whether civil, criminal, administrative or investigative, except one initiated
by Indemnitee pursuant to Section 9 of this Agreement to enforce Indemnitee's
rights under this Agreement.
15. Headings. The headings of the sections of this Agreement are
inserted for convenience of reference only and shall not be deemed to constitute
part of this Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time
to time to reflect changes in Delaware law or for other reasons. No supplement,
modification or
12
<PAGE>
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter that may be subject to indemnification or advancement of Expenses
covered hereunder; provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, at the time of delivery, or (ii) if
mailed by certified mail (return receipt requested) with postage prepaid, on the
third business day after the date on which it is so mailed, and addressed:
(a) if to Indemnitee, to:
(b) if to the Corporation, to:
L90, Inc.
2020 Santa Monica Boulevard
Santa Monica, California 90404
or to such other address as may have been furnished by like notice to Indemnitee
by the Corporation or to the Corporation by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above set forth.
L90, INC.
By:
---------------------------------
An Authorized Officer
INDEMNITEE
------------------------------------
Name:
-------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
September __, 1999 between L90, Inc., a Delaware corporation (the "Company"),
-------
and _______________ (the "Employee").
--------
R E C I T A L
- - - - - - -
The Company desires to employ the Employee, and the Employee desires
to be so employed by the Company, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) the date which is two years from
the date hereof, provided that such initial term shall be automatically renewed
for successive one-year terms unless either party hereto otherwise notifies the
other in writing within 30 days prior to the end of such initial term or any
such successive term, or (ii) the date such employment is terminated pursuant to
Section 4 of this Agreement. During the Employee's employment under this
Agreement, the Employee shall perform such duties for the Company as may from
time to time be assigned to the Employee by the Board of Directors of the
Company (the "Board") [or the President of the Company (the "Designated
----- ----------
Officer")]. The Employee shall have the title of __________________ or such
- -------
other title or titles, if any, as from time to time may be assigned to the
Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
--------
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the [executive] [regional] offices of the Company located
at _____________________ _________________________________ or, as may be
requested by the Board, at any other office of the Company or any of its
affiliates currently or hereinafter located in the State of ___________;
provided, that at the direction of the Board [or the Designated Officer], the
- --------
Employee may from time to time be required to travel to various domestic and
foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee a base salary at
a monthly rate of $________, payable in accordance with the Company's standard
payroll practices. In any month in which the Employee shall be employed for
less than the entire number of days in such month, the compensation payable
under this Section 3(a) shall be prorated on the basis of the number of days
during which the Employee was actually employed divided by the number of days in
such month.
(b) The base salary described in subsection (a) hereof is a gross
amount, and the Company shall be required to withhold from such amount
-2-
<PAGE>
deductions with respect to Federal, state and local taxes, FICA, unemployment
compensation taxes and similar taxes, assessments or withholding requirements.
(c) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(d) The Employee shall be entitled to __ business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of [the Designated Officer], alter the intended
tax treatment of such plan; provided, however, that the Employee shall have no
-------- -------
right under this Agreement to participate in any stock option, stock purchase or
other plan relating to shares of capital stock of the Company or its affiliates,
which participation, if any, shall be governed by separate agreement. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(f) Other than as expressly set forth in this Section 3, the Employee
shall not receive any other compensation or benefits except to the extent
provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
-3-
<PAGE>
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the [Designated
Officer or the] Board, any duties assigned to the Employee by the [Designated
Officer or the] Board, (ii) committed a breach of the terms of this Agreement or
any other legal obligation to the Company, (iii) failed to perform any of the
Employee's obligations under the Confidentiality Agreement, (iv) demonstrated
gross negligence or willful misconduct in the execution of the Employee's
assigned duties, (v) been convicted of or pleaded nolo contendere to a felony or
---- ----------
other serious crime, (vi) repeatedly and intemperately used alcohol or drugs,
(vii) engaged in business practices which, in the opinion of the Board, are
unethical or reflect adversely on the Company, (viii) misappropriated assets of
the Company or (ix) been repeatedly absent from work during normal business
hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsection (f)(iii) below, he is an at-will
employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company, unless such at-will employment relationship is modified
by a specific, express written agreement signed by the Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) base salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
-4-
<PAGE>
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Employee's employment is terminated without cause
pursuant to subsection (e) above, the Company shall continue to pay to the
Employee the base salary described in Section 3(a) above until the termination
of the initial term or any successive term, as set forth in Section 1(a)(i) of
this Agreement, during which such termination occurs.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
Los Angeles or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and
-5-
<PAGE>
extraordinary character, and that irreparable injury will result to the Company
from any violation or continuing violation of the provisions of this Agreement
for which damages may not be an adequate remedy. Accordingly, the Employee
hereby agrees that in addition to the remedies available to the Company by law
or under this Agreement, the Company shall be entitled to obtain such equitable
relief as may be permitted by law in a court of competent jurisdiction
including, without limitation, injunctive relief from any violation or
continuing violation by the Employee of any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (without regard to
choice of law principles) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto being
herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement.
(b) This Agreement is personal in nature and the Employee shall not,
without the written consent of the Company, assign or transfer this Agreement or
any rights or obligations hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
-6-
<PAGE>
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
party by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), if to
the Company, sent to such party's addresses or telecopy number as are set forth
below such party's signature to this Agreement, and if to the Employee, to his
address as set forth in the records of the Company, or such other addresses or
telecopy numbers of which the parties have given notice pursuant to this Section
12. Each such notice, request or consent shall be deemed effective upon the
date of actual receipt, receipt signature or confirmation of transmission, as
applicable.
13. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party shall be entitled
to recover reasonable fees, costs and expenses incurred in connection therewith
including, without limitation, the fees, costs and expenses of attorneys,
accountants and experts, whether or not litigation is instituted, and including
such fees, costs and expenses of appeals.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
L90, INC.,
a Delaware corporation
By _________________________
An Authorized Officer
Address for Notices:
2020 Santa Monica Boulevard
Suite 400
Santa Monica, California 90404
Attention: Chairman of the Board
Telecopy: (310) 315-1369
EMPLOYEE:
______________________________
-8-
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and all references to our Firm) included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
Los Angeles, California
September 20, 1999
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> JUN-30-1998 JUN-30-1999
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<SECURITIES> 0 0
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<PP&E> 0 598,414
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0 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 235,189 2,111,852
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<DEPRECIATION> 6,455 37,340
<TOTAL-ASSETS> 969,968 3,936,165
<CURRENT-LIABILITIES> 474,658 1,623,295
<BONDS> 0 0
0 0
0 2,000,000
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<OTHER-EXPENSES> 852,581 2,495,693
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<INCOME-TAX> 0 800
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<NET-INCOME> 309,784 (289,569)
<EPS-BASIC> 0.00 (0.03)
<EPS-DILUTED> 0.00 (0.03)
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