<PAGE>
As filed with the Securities and Exchange Commission on April 7, 2000
Registration No. 333-xxxxx
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
---------------
WORLDRES.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 4724 94-3357972
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1510 Fashion Island Boulevard, Suite 100
San Mateo, CA 94404
(650) 372-1700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Gregory A. Jones
President and Chief Executive Officer
1510 Fashion Island Boulevard, Suite 100
San Mateo, CA 94404
(650) 372-1700
(Name, Address Including Zip Code, and Telephone Number Including Area Code,
of Agent for Service)
---------------
Copies to:
<TABLE>
<S> <C>
Alan Talkington, Esq. Gregory C. Smith, Esq.
Scott D. Elliott, Esq. Celeste E. Greene, Esq.
Orrick, Herrington & Sutcliffe LLP Skadden, Arps, Slate, Meagher & Flom LLP
400 Sansome Street 525 University Avenue
<CAPTION>
San Francisco, CA 94111 Palo Alto, CA 94301
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Title Of Each Class Of
Securities Proposed Maximum Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value
$0.001...................... $69,000,000 $18,216
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- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 7, 2000
[LOGO]
WORLDRES.COM
Shares
Common Stock
WorldRes.com, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "WRES." We anticipate that the initial public
offering price will be between $ and $ per share.
-----------
Investing in our common stock involves risks.
see "Risk Factors" beginning on page 6.
-----------
<TABLE>
<CAPTION>
Per
Share Total
------- -------
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to WorldRes.com....................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
WorldRes.com has granted the underwriters a 30-day option to purchase up to
an additional shares of our common stock to cover over-allotments.
Joint Lead Managers
Robertson Stephens J.P. Morgan & Co.
-----------
Prudential Volpe Technology
a unit of Prudential Securities
The date of this prospectus is , 2000
<PAGE>
[INSIDE FRONT COVER]
[Color Artwork]
WorldRes.com provides a leading business-to-business e-commerce solution
for online marketing and reservations to the highly fragmented global hotel
industry.
[Description of Graphics and Text on left front and right front
gatefold: WorldRes logo in center with lines on left side to different types
of distribution partners and on right side to member hotels.]
Distribution Partners: destination marketing organizations, activity-based
partners, internet-based partners, call centers, travel agents, hotel web
sites, WorldRes web sites.
Member Hotels: B&Bs, independent inns, resorts, hotel groups, representation
companies, hotel chains, independent hotels.
<TABLE>
<S> <C>
Travel Web Site Partners WorldRes.com Highlights
. Access to broad range of Lodging
inventory .1,075 travel web sites
. Offer rich content for leisure
travelers .11,500 hotel properties
. Process real time reservation .142 countries
. Share transaction revenue .over 325,000 reservations processed
</TABLE>
<TABLE>
<S> <C>
Participating Hotels
. Open to any property
. Differentiate through rich content
. Receive online reservations
. No sign-up fees, low cost channel
</TABLE>
[Description of graphics on right front gatefold page]
[Series of photos of various hotels available on our system]
----------------
WorldRes is a registered trademark and PlacesToStay is a trademark of
WorldRes.com. WorldRes.com, PlacesToStay.com and BedandBreakfast.com are each
trade names of WorldRes.com. All other brand names or trademarks appearing in
this prospectus are the property of their respective holders.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
Until , 2000, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Note on Forward-Looking Statements....................................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial and Operating Data....................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 33
Management............................................................... 43
Related Party Transactions............................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 64
Experts.................................................................. 64
Additional Information Available to You.................................. 64
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
Except as otherwise indicated, information in this prospectus assumes the
following:
. the reincorporation of WorldRes.com in Delaware before the
consummation of this offering;
. the conversion of all outstanding shares of our preferred stock
into shares of common stock upon the consummation of this
offering; and
. no exercise of the underwriters' over-allotment option.
Although we refer to travel web site and other distribution partners that
we have contracts with, we do not act as an agent or legal representative for
any of these entities. We do not have the power or authority to legally bind
any of these travel web site and other distribution partners and we do not have
the types of liabilities in relation to our partner entities that a general
partner of a partnership would have.
The terms "WorldRes.com," "WorldRes," "our," "we" and "us" as used in
this prospectus, refer to WorldRes.com, Inc. and its wholly owned subsidiaries,
except where it is made clear that such term means only the parent company, and
not to the underwriters. The term "BedandBreakfast.com" refers to Goldreyer
Incorporated doing business as BedandBreakfast.com.
<PAGE>
PROSPECTUS SUMMARY
This is only a summary and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully, including the "'Risk Factors" section and our
financial statements and the related notes included in this prospectus.
WorldRes.com
WorldRes.com provides a leading business-to-business e-commerce solution
for online marketing and reservations to the highly fragmented global hotel
industry. Our Internet-based reservation system connects hotels to travel web
sites creating an e-commerce network. This network enables these web sites to
provide travelers with the ability to collect information and make real-time,
confirmed hotel reservations online. Since inception, we have processed
approximately 325,000 reservations at a broad range of hotels globally. During
the three months ended March 31, 2000, we processed $31.1 million in gross
value of hotel bookings, compared to $16.4 million in the three months ended
December 31, 1999 and $9.3 million in the three months ended March 31, 1999. As
of February 29, 2000, our network consisted of approximately 11,500 hotel
properties in 142 countries and 1,075 travel web sites and call centers as well
as over 1,800 web sites that are part of our affiliate program managed by Be
Free. As of that date, we also had contracts in place to add approximately
12,900 additional properties to our network.
Our network includes large hotel chains such as Choice Hotels and Accor,
as well as many independent hotels and resorts including Vail Resorts and St.
Moritz. Our travel web site partners include broad travel sites such as Yahoo!
Lodging and Travelocity.com, as well as activity-based web sites such as Resort
Sport Network, SkiNet.com and MountainZone.com. Through our network, these
travel web site partners are able to offer their users the ability to check
availability on a real-time basis and book a room through their web sites at
any of the hotels that are part of our network. In addition, we maintain two
branded web sites, PlacesToStay.com and BedandBreakfast.com, which offer a
reservation solution to travel web sites desiring an established brand to
include on their web site.
The worldwide hotel industry is particularly well suited for business-to-
business e-commerce because it is large and fragmented, spends billions of
dollars on marketing and distribution, and still operates at significantly less
than full occupancy. The Internet has emerged as a more convenient, efficient
and cost-effective medium than either the phone or fax for hotels to distribute
inventory and for travelers to book accommodations. The Internet's
capabilities, however, remain underutilized in generating and processing online
reservations, particularly for the leisure market.
We believe that our network and reservation solution provide significant
benefits to hotels and travel web site partners. We enable hotels to reach more
customers and increase occupancy through our growing network of travel web
sites and other distribution partners. Additionally, our Internet-based
reservation system allows hotels to differentiate themselves by offering
descriptive content and photographs on our network. Hotels can easily and
continuously update their descriptive information, available inventory and
pricing across multiple web sites simply by accessing and updating our system.
Our solution aggregates a supply of hotel rooms and enables travel web sites to
provide their customers with the ability to search for rooms and make confirmed
reservations online. These online reservations generate additional transaction
revenue for travel web sites.
1
<PAGE>
Our objective is to be the leading business-to-business e-commerce
reservation solution for the global hotel industry. To reach our goal, we
intend to:
. increase reservations by increasing the number of hotels and travel
web site partners that comprise our network;
. increase reservations by actively managing hotel and travel web
site relationships;
. pursue acquisitions;
. expand our service offerings; and
. maintain our technological leadership.
We will encounter various risks and uncertainties in connection with the
implementation of our strategy. We have a limited operating history and have
incurred substantial losses. As of December 31, 1999, we had an accumulated
deficit of approximately $34.9 million. We expect to incur substantial losses
for the foreseeable future.
WorldRes.com, formerly WorldRes, Inc., was incorporated as Places To
Stay, Inc. in California in October 1995. Prior to the completion of this
offering, we intend to reincorporate under the laws of the State of Delaware.
Our principal executive offices are located at 1510 Fashion Island Boulevard,
Suite 100, San Mateo, California 94404. Our telephone number at that location
is (650) 372-1700. Our World Wide Web site is www.worldres.com. The information
contained on our web site is not a part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate
purposes, including
working capital to fund
anticipated operating
losses and expenses
associated with sales and
marketing efforts. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. WRES
</TABLE>
The common stock to be outstanding after this offering is based on the
number of shares outstanding as of February 29, 2000. The number of shares
outstanding excludes:
. 1,898,653 shares of common stock issuable as of February 29, 2000
upon the exercise of outstanding stock options issued under our
stock plans at a weighted average exercise price of $3.98 per
share;
. 765,961 shares of common stock available for future issuance under
our stock plans as of February 29, 2000; and
. 637,840 shares of common stock issuable upon the exercise of
warrants outstanding as of February 29, 2000 at a weighted average
exercise price of $3.31 per share.
3
<PAGE>
Summary Consolidated Financial and Operating Data
(in thousands, except per share data)
The tables below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the consolidated financial statements and related notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
October 10,
1995 Three Months
(inception) Fiscal Years Ended Ended
through September 30, December 31,
September 30, -------------------------- ----------------
1996 1997 1998 1999 1998 1999
------------- ------- ------- -------- ------- -------
(unaudited)
Consolidated Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Reservation............ $ 3 $ 71 $ 294 $ 1,322 $ 151 $ 479
Other.................. -- -- 162 406 105 179
------- ------- ------- -------- ------- -------
Total net revenue.... 3 71 456 1,728 256 658
Gross profit............. 3 67 398 1,496 226 566
Total operating
expenses................ 1,762 4,350 6,629 15,098 2,321 9,848
Loss from operations..... (1,759) (4,283) (6,231) (13,602) (2,095) (9,282)
Net loss................. $(1,796) $(4,350) $(6,147) $(13,489) $(2,075) $(9,170)
Basic and diluted net
loss per share.......... $(12.71) $(10.77) $(10.80) $ (18.03) $ (3.12) $ (4.31)
Shares used in computing
basic and diluted net
loss per share.......... 141 404 569 748 666 2,128
Pro forma basic and
diluted net loss per
share (unaudited)....... $ (1.96) $ (0.80)
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)....... 6,865 11,427
<CAPTION>
Supplemental Data:
<S> <C> <C> <C> <C> <C> <C>
Gross value of hotel
bookings................ $ 119 $ 1,748 $ 8,577 $ 41,368 $ 4,856 $16,401
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
(unaudited)
Consolidated Balance Sheet Data:
<S> <C> <C> <C>
Cash and cash equivalents........................... $24,242 $29,242 $
Working capital..................................... 21,939 26,939
Total assets........................................ 36,372 41,372
Long-term obligations less current portion.......... 642 642
Additional paid-in capital.......................... 71,459 76,457
Total shareholders' equity.......................... 31,016 36,016
</TABLE>
Gross value of hotel bookings equals the number of nights per stay times
the hotel room rate for all the reservations processed through our system.
Gross value of hotel bookings is not equivalent to and is not intended to
represent our revenue or backlog. Gross value of hotel bookings has not been
prepared or disclosed in accordance with generally accepted accounting
principles and should not be considered in isolation or as a
4
<PAGE>
substitute for other information prepared or disclosed in accordance with
generally accepted accounting principles. We use gross value of hotel bookings
as an indicator of general business activity, success of promotional efforts
and capacity to handle customer demand. In addition, we believe that gross
value of hotel bookings may provide a useful comparison between historical
periods, and year to year changes of this information may provide a useful
measure of market acceptance of our network.
The "Pro Forma" column reflects our summary consolidated balance sheet
data after giving effect to the conversion of all shares of outstanding
preferred stock into shares of common stock upon the consummation of this
offering and the sale to Accor of 430,293 shares of Series E preferred stock in
April 2000.
The "Pro Forma As Adjusted" column reflects our pro forma balance sheet
data as adjusted to reflect the receipt of the estimated net proceeds of
$ from the sale of shares of common stock in this offering
at an assumed initial public offering price of $ per share, after deducting
the underwriting discount and estimated offering expenses.
5
<PAGE>
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If any of the following risks actually
occur, our business, results of operations and financial condition would likely
suffer. In these circumstances, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
Risks Related To Our Business
Our limited operating history makes it difficult to evaluate our future
prospects.
We were formed in October 1995 and have a limited operating history,
which makes an evaluation of our future prospects very difficult. We initially
focused on offering our services through our branded web site PlacesToStay.com
and, in January 1998, we refined our business model to focus on creating the
WorldRes.com online reservation network. We will encounter risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets. Some of these risks and uncertainties are:
. we may be unable to significantly increase and maintain adoption
of our Internet-based reservation system by hotels and travel web
sites;
. we depend substantially on an Internet-based reservation solution
that has been present in the market for a limited time and may not
be successful;
. we may be unable to adapt to rapidly changing technologies and
developing markets;
. we may be unable to effectively manage our rapidly expanding
operations and increasing use of our services;
. we may be unable to attract, retain and motivate qualified
personnel; and
. we may be unable to compete in a highly competitive market
dominated by larger, more established companies with substantial
financial resources and significant customer relationships.
If we are unable to successfully address these risks and uncertainties, our
business would be seriously harmed.
Our business model is unproven and we may be unsuccessful.
Our strategy is based on an unproven business model, and we cannot be
certain that our reservation system will achieve broad market acceptance. Our
business model is based on the acceptance of our service by hotels and travel
web sites. We will be successful only if hotels and travel web sites join our
network. Many of the factors influencing hotels' and web sites' willingness to
use our network are outside our control, including Internet access and cost
issues. Hotels may continue to market their properties through existing methods
and may not adopt an Internet-based reservation solution because of security
and privacy concerns, or general reticence about technology or the Internet. We
cannot predict the degree to which hotels and travel web sites will join our
network. Hotels and travel web sites may not utilize our network to the degree
necessary for us to achieve profitability.
We have an accumulated deficit, are not currently profitable and expect to
incur future losses.
We have incurred substantial losses since our inception and we anticipate
continuing to incur substantial losses for the foreseeable future. As of
December 31, 1999, we had an accumulated deficit of approximately $34.9
million. Although revenue generated from our network has grown in recent
quarters, we may not be able to sustain these growth rates. In fact, we may not
have any revenue growth, and our revenues could decline. The extent of our
losses will also be contingent, in part, on the amount of growth in operating
6
<PAGE>
expenses. We expect to incur significant sales and marketing, technology and
development and general and administrative costs. In addition, in the future we
expect to incur non-cash costs relating to the amortization of deferred
compensation which will contribute to our net losses. As a result, if our
revenue fails to grow at anticipated rates, or our operating expenses increase
without a commensurate increase in our revenues, or we fail to adjust operating
expenses accordingly, our business would be harmed.
Our quarterly operating results are volatile and difficult to predict. If we
fail to meet the expectations of securities analysts or investors, the market
price of our common stock may suffer.
Our quarterly results of operations have varied significantly in the past
and are expected to fluctuate significantly in the future as a result of a
variety of factors, many of which are outside our control. You should be aware
that these factors make financial forecasting difficult. As a result of our
limited operating history and the emerging nature of the market for online
commerce, we believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as indicators of
future performance. Our operating results may fall below the expectations of
securities analysts or investors in some future quarter or quarters. The price
of our common stock may suffer if our financial performance falls below our
forecasts or the expectations of securities analysts or investors.
Factors that may adversely affect our quarterly operating results
include:
. success in maintaining and enhancing existing relationships with
hotels and travel web site and other distribution partners using
our network;
. ability to attract new hotels and travel web site and other
distribution partners to our network;
. ability to develop, introduce and market new services and
enhancements to our existing services on a timely basis;
. seasonality and other cyclical factors;
. success in maintaining current levels of gross margins on
commission revenue;
. announcement or introduction of new web sites, services and
products by our competitors;
. changes in our pricing policies or those of our competitors;
. ability to upgrade and develop our systems and infrastructure to
accommodate growth;
. ability to attract new personnel in a timely manner;
. technological changes in our markets and occurrences of technical
difficulties or service interruptions;
. amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations and
infrastructure; and
. general economic conditions and economic factors specific to the
Internet and online commerce industries, as well as the worldwide
travel and lodging industries.
As a result of entering into contracts with chain hotels, we have added
large numbers of properties to our network during certain quarters. These
additions have resulted in large percentage increases in the number of
properties available through our network when compared to prior periods. We do
not anticipate consistently adding chain hotels to our network in each quarter.
Accordingly, the percentage growth in the number of properties on our network
in subsequent periods may be lower because of the impact of adding these chain
hotels in prior periods. We expect this trend to continue which may cause our
quarterly results of operations to fluctuate.
Our reservation revenue historically has been derived from transactions
processed through our network for travel web site and other distribution
partners including tourism offices, convention and visitor bureaus, call
7
<PAGE>
centers and travel agents. Some travel web site and other distribution partners
may perceive that our branded sites will take consumers away from their sites,
causing them not to join at all. As a result, the timing of any terminations of
our relationships with travel web site and other distribution partners or a
determination by others not to join our network could harm our operating
results and also cause our quarterly operating results to fluctuate.
Our financial results may be subject to seasonal and cyclical factors.
Our limited operating history and rapid growth make it difficult for us
to assess the impact of seasonal factors on our quarterly results.
Nevertheless, we expect our business to be subject to seasonal fluctuations,
reflecting a combination of seasonality trends for lodging and travel services
offered through our network and seasonality affecting Internet use generally.
For example, demand for leisure travel may decrease after summer vacations and
holiday periods, while Internet usage may decline during the summer months. Our
results also may be affected by seasonal fluctuations in the hotel room
inventory made available to our network by participating properties. For
instance, hotels typically enjoy high demand for rooms during holiday and
vacation periods. As a result, during these periods hotels may not offer as
much inventory through our network. Our business may also be subject to
cyclical variations for the services offered; for example, leisure travel tends
to decrease during economic downturns. Moreover, as a result of seasonal and
cyclical factors we may process fewer reservations despite adding new hotels
and travel web site and other distribution partners to our network. Seasonal
and cyclical variations are beyond our control and may seriously harm our
business.
The success of our business depends on maintaining the existing number of
hotels and attracting new hotels to our network.
Our success depends in large part upon our ability to offer and deliver a
large number of hotels to travel web site and other distribution partners. We
rely on a wide variety of hotels to supply us with inventory to offer through
our network. To increase the breadth of our services we must establish
relationships with additional hotels. Some potential suppliers may view us as
detrimental to their business since hotels compete with one another for
customers. We may also encounter resistance from hotels who are reluctant to
replace their current electronic commerce solution and adopt our solution even
if our network is deemed to offer superior services. These hotels may have made
substantial up-front payments, and because the business-to-business e-commerce
market is new, they may be confused or uncertain about the relative merits of a
particular solution. This may prevent hotels from joining our network, which
would harm our business.
Our agreements with hotels are typically short-term and can be canceled
with little notice. We cannot assure you that these agreements will be renewed
beyond the initial term. In addition, hotels are not contractually required to
allocate rooms for distribution through our network. Accordingly, we depend on
our relationships with hotels for a continued supply of hotel inventory. If we
fail to secure inventory from hotels that comprise our network or if a
significant number of hotels do not renew their agreements with us, the breadth
of properties offered through our network would decrease. This could result in
decreased revenues, which would have a negative effect on our results of
operations.
The success of our business depends on our ability to maintain the existing
number of travel web site and other distribution partners and to attract new
travel web site and other distribution partners to our network.
Our success also depends in large part on our ability to offer a large
number of travel web site and other distribution partners through which hotels
can distribute their inventory. We rely on a wide variety of travel web site
and other distribution partners to distribute the online lodging inventory
through our network. Travel web site and other distribution partners may not
join our network because the business-to-business e-commerce market is new or
they may be confused or uncertain about the relative merits of a particular
solution. We will not be able to retain existing nor attract new travel web
site and other distribution partners if we do not have a sufficient number and
a wide variety of hotels. In addition, travel web site and other distribution
partners may view as inadequate the portion of lodging commissions that we
share with them. Our agreements with
8
<PAGE>
travel web site and other distribution partners are typically short-term and
can be canceled with little notice. We cannot assure you that these agreements
will be renewed beyond the initial term. If we fail to secure additional travel
web site and other distribution partners or if a significant number of travel
web site and other distribution partners do not renew their agreements with us,
the breadth of distribution through our network would decrease. This could
result in decreased revenues, which would harm our business.
You should not rely upon gross value of hotel bookings as an indication of
subsequent revenue or future prospects.
Gross value of hotel bookings equals the number of nights per stay times
the hotel room rate for all the reservations processed through our system.
Gross value of hotel bookings is not equivalent to and is not intended to
represent our revenue or backlog. Gross value of hotel bookings has not been
prepared or disclosed in accordance with generally accepted accounting
principles and should not be considered in isolation or as a substitute for
other information prepared and disclosed in accordance with generally accepted
accounting principles. You should not rely upon gross value of hotel bookings
as an indication of subsequent revenue or future prospects. We use gross value
of hotel bookings as an indicator of general business activity, success of
promotional efforts and capacity to handle customer demand. Reservations are
subject to cancellation at any time. Therefore, the amount of revenue
calculated using gross value of hotel bookings would be expected to exceed
actual reservation revenue realized by us from such bookings. In addition,
gross value of hotel bookings may or may not result in recognizable revenue for
us. Gross value of hotel bookings is also subject to significant fluctuations
due to changes or events that affect the hotel industry and leisure travel
generally. See "Economic changes in the hotel industry or a decline or
disruption in leisure travel may harm our business."
If we do not successfully manage any rapid growth we experience, the increased
strain on our resources could hinder our ability to provide quality services,
retain existing customers and become profitable.
We have rapidly and significantly expanded our operations and anticipate
further significant expansion. This expansion has placed, and we expect it will
continue to place, a significant strain on our management, operational and
financial resources. Our inability to manage any future growth effectively
could hurt our business. We have recently added a number of key managerial and
technical employees, and we expect to add additional key personnel in the
future. Our current database, information systems, procedures, personnel and
controls may not continue to support our operations and may hinder our ability
to increase reservations through our system. To manage the expected growth of
our operations and personnel, we plan to:
. improve and upgrade transaction-processing, operational, partner
service and financial systems, procedures and controls;
. maintain and improve our relationships with various hotel
properties, Internet portals and other travel web site companies
and other third parties necessary to our business;
. expand our finance, administrative and operations staff; and
. continue to attract, train and manage our employee base.
Even after we implement these initiatives, our database, information
systems, procedures, personnel and controls may be inadequate to support our
planned growth, and our management may not be able to identify, manage and
exploit existing and potential market opportunities successfully.
A large percentage of reservations on our system was made at one supplier and
the loss of this supplier could harm our business.
As of February 29, 2000, properties owned or operated by Choice Hotels
International, Inc. represented 37% of the total hotels available through our
system. In the month of February 2000, approximately 18% of the total
reservations made through our system were made at these properties. Revenue
generated from these reservations represented approximately 7% of our total net
revenue in this month. Accordingly, the loss of Choice Hotels as a lodging
supplier could harm our business.
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We may not be able to hire and retain sufficient sales, marketing and technical
personnel that we need to succeed because these personnel are limited in number
and in high demand.
We need to substantially expand our sales operations and marketing
efforts, both domestically and internationally, to increase market awareness
and revenue generated from our network and branded web sites. We will also need
to increase our technical staff to support the growth of our business. If we
fail to hire and retain sufficient numbers of sales, marketing and technical
personnel, our business could be harmed. Competition for qualified sales,
marketing and technical personnel is intense as these personnel are in limited
supply, and we might not be able to hire and retain sufficient numbers of such
personnel to grow our business.
We face competition that could limit our ability to expand our network of
hotels and travel web site partners.
The market for business-to-business e-commerce and Internet-based hotel
booking is new and rapidly evolving, and competition is intense and is expected
to increase significantly in the future. This increased level of competition
could reduce operating margins and profitability, and result in loss of market
share, any one of which could seriously harm our business. Competitors vary in
size and in the scope and breadth of the products and service offered. We face
competition from a number of areas:
. online lodging e-commerce web sites;
. traditional travel agencies, tour operators and wholesalers;
. global distribution systems and other related intermediaries;
. hotel chains;
. individual leisure properties; and
. broad travel, activity and destination based web sites.
Many of our competitors have significantly greater financial, technical,
marketing and other resources than us. These competitors include Expedia, Inc.
and Travelocity.com. We may not be able to maintain our competitive position
against current and potential competitors, especially those with significantly
greater resources. To remain competitive, we must respond promptly and
effectively to the challenges of technological change, evolving standards and
our competitors' innovations by enhancing our own system and service offerings,
as well as our sales and marketing programs. We believe that our ability to
compete depends in part on factors outside our control, including the
development by others of products and services that compete with our products
and services, the prices at which others offer their products and services, the
extent of competitors' responsiveness to customer needs and market conditions
affecting our ability to recruit and retain qualified personnel. Any pricing
pressures, reduced margins or loss of market share resulting from increased
competition, or our failure to compete effectively, could harm our business and
results of operations. See "Business--Competition in our Industry."
We intend to expand international operations and these efforts may not be
successful in generating additional revenues.
Although we have yet to generate any significant international revenues,
we are planning to significantly expand our international operations. We expect
to incur significant expenses in connection with these efforts. Revenue from
our international operations may prove inadequate to cover the expenses of
establishing and maintaining our international offices and marketing to
international clients.
There are risks inherent in doing business on an international level,
including:
. difficulties in staffing and managing foreign operations;
. trade barriers and potentially adverse tax consequences;
. political instability;
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<PAGE>
. the risks related to global economic turbulence and changing
economic conditions;
. fluctuations in currency exchange rates;
. exposure to different legal standards (particularly with respect
to intellectual property); and
. seasonal fluctuations in purchasing patterns.
If any of these risks occur, our international operations may suffer
causing our business to be harmed. We have only limited experience in managing
international offices and in marketing services to international clients. In
addition, usage of the Internet in international markets is typically
significantly lower than in the United States.
If our e-commerce services do not contain the features and functionality hotels
and travel web site and other distribution partners want, these hotels and
partners may not participate in our network.
Our success depends upon our ability to accurately determine the features
and functionality required by hotels and travel web site and other distribution
partners that enable their customers to make reservations online and to design
and implement business-to-business e-commerce services that meet these
requirements in a timely and efficient manner. If we fail to accurately
determine these feature and functionality requirements, enhance our existing
services and develop new services, our current and potential future
participants in our network will not continue to participate in our network. To
date, our solution has been based on our internal efforts and on feedback from
a limited number of existing and potential participants, including hotels and
travel web site and other distribution partners. We cannot assure you that we
have determined or will successfully determine all of these requirements or
that the features and functionality of our future services will adequately
satisfy current or future participants' demands.
We may not be able to develop new services in the future, which could prevent
us from benefiting fully from our growth strategy.
We plan to introduce new and expanded services. We may not be able to
offer such services in a cost-effective or timely manner, and our efforts may
not be successful. Our inability to generate revenues from such expanded
services sufficient to offset their development and other costs could harm our
business by delaying or preventing us from becoming profitable. Further, any
new service that is not favorably received by the participants in our network
could damage our business reputation or brand names. Expansion of our services
could also require significant additional expenses and may strain our
management, financial and operational resources. If we cannot develop such new
services in the future, we may not be able to benefit fully from our growth
strategy.
If we do not successfully develop and introduce new versions of our
reservations system in a timely manner, our business may be harmed.
We are currently in the process of developing and integrating new
technology into our Internet-based reservation system as part of our planned
release of several enhanced versions of our system. These new releases may
include enhancements to the user interfaces, database management, search
technology, application servers and security controls. Enhancing and
introducing new technology into our reservations system involves numerous
technical challenges and substantial personnel resources and may take many
months to complete. We cannot be certain that we will be successful at
enhancing or integrating this technology into our Internet-based reservations
system on a timely basis, or in accordance with our milestones or our timing
objectives. In addition, we cannot be certain that, once integrated, this
technology or our Internet-based reservations solution will function as
expected. If we are unable to enhance and integrate this new technology into
our reservations system on a timely basis, we may lose hotels and travel web
site and other distribution partners or experience difficulty attracting new
participants to our network, which could harm our business. Major enhancements
and new solutions and services often require long development and testing
periods. In addition, our Internet-based reservations system is complex and,
despite vigorous testing and quality control procedures, may contain
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<PAGE>
undetected errors or "bugs" when first introduced or updated. Inability to
deliver timely a quality solution and services could harm our business.
Economic changes in the hotel industry or a decline or disruption in leisure
travel may harm our business.
Since we derive most of our revenues either directly or indirectly from
the hotel industry, our revenues may be harmed by events that result in a
decrease in occupancy rates at hotels. In particular, because most of our
revenue consists of fees generated by leisure hotel bookings, our earnings are
especially sensitive to events that affect leisure travel. Leisure travel is
highly sensitive to personal discretionary spending levels and thus tends to
decline during general economic downturns and events such as recession,
inflation, fuel price escalation, travel-related accidents, bad weather,
airline or other travel related strikes, lockouts or other labor disturbances,
foreign political instability, armed hostilities or terrorism. If the
occurrence of such events causes a significant decline in the volume of leisure
travel or an overall downturn in the leisure travel industry, our business
could be harmed.
Our business could be harmed if we make acquisitions that are not successful.
We have in the past and may in the future broaden the scope and content
of our business through the acquisition of existing complementary businesses.
We may not be successful in overcoming problems encountered in connection with
such acquisitions, and our inability to do so could harm our business by
resulting in unforeseen costs and interfering in our business relationships and
operations. Although we are not currently contemplating any material
acquisitions, we may consider the acquisition of companies providing similar
services in complimentary markets or in other sectors of the travel or hotel
industries in the future. Future acquisitions may expose us to increased risks.
These include risks associated with:
. the assimilation of new operations, sites and personnel;
. the diversion of resources from our existing businesses, sites and
technologies;
. the inability to generate revenues from acquired companies
sufficient to offset associated acquisition costs;
. the maintenance of uniform standards, controls, procedures and
policies; and
. the impairment of relationships with employees and existing
participants that comprise our network as a result of integration
of new businesses.
If we consummate one or more significant acquisitions in which the
consideration consists of stock or other securities, your equity could be
significantly diluted. If we consummate one or more significant acquisitions in
which the consideration included cash, we could be required to use a
substantial portion of our available cash, including proceeds of this offering.
Acquisition financing may not be available on favorable terms, or at all.
Acquisitions may also result in additional expenses associated with
amortization of goodwill and other intangible assets of acquired businesses,
which may negatively impact our results of operations.
Any misappropriation of our intellectual property could deprive us of our
important competitive advantage and could seriously harm our business.
Infringement by us on the intellectual property rights of others could expose
us to substantial liabilities which would materially and adversely harm our
business.
Any misappropriation of our intellectual property could seriously harm
our business. We currently have no patents and we protect our proprietary
technology and information primarily through trade secret, copyright and
trademark laws, license agreements and employee and third-party non-disclosure
agreements. Existing trade secret and copyright laws offer only limited
protection. Moreover, the provisions of our license agreements, including
provisions protecting against unauthorized use, copying, transfer and
disclosure, may be unenforceable under the laws of some jurisdictions. We
cannot assure you that the steps taken by us to protect our proprietary
information will be adequate to prevent misappropriation of our intellectual
property. Any legal proceedings to protect and enforce our intellectual
property rights could be burdensome and expensive and may
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<PAGE>
not be resolved in our favor. We do not have in-house legal staff that monitors
our activities in foreign jurisdictions. In addition, the laws of some foreign
countries do not protect our proprietary information to the same extent as the
laws of the United States. The laws of many countries in which we sell our
products protect trademarks solely on the basis of registration. We possess and
have applied for foreign trademark registrations in only a few jurisdictions.
Accordingly, in certain foreign jurisdictions we may be unable to use
trademarks that are important to us, which could adversely affect our sales and
marketing efforts in those jurisdictions.
There has been a substantial amount of litigation in the Internet
industry regarding intellectual property rights. It is possible that in the
future third parties may claim that we or our current or potential future
services infringe their intellectual property. We expect that providers of
electronic commerce solutions will increasingly be subject to infringement
claims as the number of services and competitors in our industry segment grows
and the functionality of services in different industry segments overlaps. Any
claims, with or without merit, could be time consuming, result in costly
litigation, or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business. We may in
the future have to license or otherwise obtain access to intellectual property
of third parties and we may not be able to obtain any required third party
intellectual property in the future.
Our reservation system and operations may be vulnerable to computer viruses and
other disruptions that could cause our services to be interrupted and we may
lose data.
Although we believe we have taken precautions to protect our reservation
system and data facilities, computer viruses, physical or electronic break-ins,
natural or manmade disasters or other calamities, such as an earthquake or
fire, could cause significant damage to our systems or facilities.
Specifically, computer viruses, break-ins and other disruptions could lead to
interruptions, delays, loss of data or the inability to accept and confirm
reservations. Anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our
reservation system, or the operations of participants that comprise our
network. This could occur through the introduction of known or undetected
errors, bugs, or viruses or by other means. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or a significant loss of revenue. In addition, because both our data
centers are located in the same geographic region, we do not have as much
protection from disasters or calamities as might otherwise be the case. We also
rely on several communications companies in the United States and
internationally to provide network connections between our data center and our
partners' web sites. If any of the communications companies are unable to
provide the network connections and our contingency plans fail, our business
may suffer.
We may not be able to meet our future capital requirements, which would hinder
our ability to expand, develop and enhance our services or respond to
competitive pressures.
We may not be able to fund our expansion, develop or enhance our services
or respond to competitive pressures if we lack adequate funds. We cannot be
certain that additional financing will be available in the future to the extent
required or that, if available, it will be on acceptable terms. If we need to
obtain additional financing and are unable to do so, our business would be
harmed because of our inability to expand, develop or enhance our services or
respond to competitive pressures. Based on our current operating plan, we
anticipate that the net proceeds of this offering, together with our available
funds, will be sufficient to satisfy our anticipated needs for working capital,
capital expenditures and business expansion for at least the next twelve
months. After that time, we may need additional capital. Alternatively, we may
need to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced services, or to respond to competitive pressures. If we
raise additional funds by issuing equity or securities convertible into equity,
the percentage ownership of our stockholders will be diluted. Further, any new
securities could have rights, preferences and privileges senior to those of the
common stock. We currently do not have any commitments for additional
financing.
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Incorrect use of our network could impede the growth of our network, damage our
business reputation and potentially expose us to legal liability.
The incorrect use of our network by either travel web site or other
distribution partners, hotels or end-users could damage our reputation or
expose us to legal liability. The posting by hotels of accurate rates,
availability or other information is important to the growth of our business.
Hotels may submit to our network inaccurate information on their properties or
not accurately record reservations made through our network. These inaccuracies
could impede the growth of our network, damage our business reputation and
potentially expose us to legal liability.
Regulatory and legal uncertainties could harm our business.
Although there are currently few laws and regulations directly applicable
to the Internet and online commerce, it is likely that new laws and regulations
will be adopted in the United States and elsewhere covering issues such as
copyrights, privacy, pricing, content, advertising, taxation, distribution,
antitrust and characteristics and quality of Internet services. The adoption of
restrictive laws or regulations could slow Internet growth or expose us to
significant liabilities associated with our network. The application of
existing laws and regulations governing Internet issues such as property
ownership, defamation, obscenity and personal privacy is also subject to
substantial uncertainty. We are subject to federal regulations prohibiting
unfair and deceptive practices. However, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws. Current or new government laws and regulations, or the
application of existing laws and regulations, may expose us to significant
liabilities, significantly slow Internet growth and otherwise harm our
business.
In many states, there is currently great uncertainty whether or how
existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online
services. These issues may take years to resolve. For example, tax authorities
in a number of states, as well as a Congressional advisory commission, are
currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject us to additional
state sales and income taxes. Federal legislation imposing certain limitations
on the ability of states to impose taxes on Internet-based sales was enacted in
1998. The Internet Tax Freedom Act, as this legislation is known, imposes on
electronic commerce a three-year moratorium on state and local taxes imposed
after October 1, 1998, but only where such taxes are discriminatory on Internet
access. It is possible that the legislation could not be renewed when it
terminates in October 2001. Failure to renew the legislation could allow state
and local government to impose taxes on Internet-based sales, and such taxes
could hurt our business.
Although certain aspects of the travel industry are heavily regulated by
the United States and other governments, the services we currently offer are
not now subject to any material industry specific government regulation. Any
existing government regulations could affect any future services we propose to
offer, which could harm our business. Further, any future regulations
implemented by federal, state or foreign governmental authorities affecting one
or more of our current or future services could harm our business.
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Risks Related to the Internet and E-Commerce Industry
The success of our business will depend on continued growth of online commerce
and Internet infrastructure.
Our future revenues and profits depend, to a certain degree, upon the
widespread acceptance and use of the Internet and online services as a medium
for commerce by hotels and travel web site and other distribution partners. If
acceptance and growth of Internet use does not continue, our business may be
harmed. Rapid growth in the use of the Internet and online services is a recent
phenomenon. This growth may not continue. A sufficiently broad number of
potential consumers may not accept, or continue to use, the Internet as a
medium of commerce. Demand for and market acceptance of recently introduced
services over the Internet are subject to a high level of uncertainty. For us
to achieve significant growth, consumers who have historically used traditional
means of commerce will instead need to make hotel reservations online, and
hotels will need to accept or expand use of the Internet as a distribution
channel. Our revenues and profits depend on consumers visiting web sites and
actually making reservations. Consumers could potentially use these sites for
information only and then choose to book reservations directly with the hotels
or through another intermediary.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a
reliable network backbone with the necessary speed, data capacity and security,
and the timely development of complementary services, such as high-speed
modems, for providing reliable Internet access and services. Major online
service providers and the Internet itself have experienced outages and other
delays as a result of software and hardware failures and could face such
outages and delays in the future. Outages and delays are likely to affect the
level of Internet usage and the processing of transactions through our network.
It is unlikely that we could make up for the level of orders lost in those
circumstances by later online bookings. In addition, the Internet could lose
its viability by reason of delays in the development or adoption of new
standards to handle increased levels of activity or of increased government
regulation. The adoption of new standards or government regulation may require
us to incur substantial compliance costs.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems which may slow adoption of our Internet-based reservation
solution.
The growth of Internet traffic to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If
Internet usage continues to grow rapidly, the infrastructure of the Internet
and its users may be unable to support the demands of growing e-commerce usage,
and the Internet's performance and reliability may decline. If the existing or
potential participants that comprise our network experience frequent outages or
delays on the Internet, the adoption or use of our Internet-based, e-commerce
hotel reservation solution may grow more slowly than we expect or even decline.
Our ability to increase the speed and reliability of our Internet-based hotel
reservation solution is limited by and depends upon the reliability of both the
Internet and the internal networks of the existing and potential participants
that comprise our network. As a result, if improvements in the infrastructure
supporting both the Internet and such internal networks are not made in a
timely fashion, we may have difficulty obtaining new participants, or
maintaining our existing participants, either of which could reduce our
potential revenues and have a negative impact on our business, results of
operations and financial condition.
Online security breaches could hurt our business.
Concerns over the security of transactions conducted on the Internet and
the potential compromise of privacy may inhibit the growth of commercial online
services as a means of conducting commercial transactions. In our business,
secured transmission of confidential information over public networks is also
essential to maintain the confidence of the participants that comprise our
network. If any compromise of our
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security were to occur, it could hurt our business. We have expended
significant resources to protect against security breaches and to alleviate
problems caused by such breaches, and we may need to make further expenditures
for this purpose in the future. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to transmit securely confidential information, such as
credit card numbers. In addition, we maintain an extensive confidential
database of profiles and transaction information. Our current security measures
may not be adequate and advances in computer capabilities, new discoveries in
the field of cryptography, or other events or developments may result in a
compromise or breach of the methods we use to protect partner transaction and
personal data. A party who can circumvent our security might be able to
misappropriate proprietary information or cause interruptions in our
operations. Security breaches could also expose us to a risk of loss or
litigation and possible liability for failing to secure confidential
information.
We may not be able to keep up with the online industry's rapid technological
and other changes.
The online industry in which we compete is characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new service introductions embodying new technologies;
. the emergence of new industry standards and practices; and
. the emerging importance of the Internet and the proliferation of
companies offering Internet-based services.
These developments could quickly render our existing online network and
proprietary technology and systems obsolete. Our inability to modify or adapt
our infrastructure in a timely manner or the expenses incurred in making such
adaptations could hurt our business. As a result, we will be required to
continually improve the performance, features and reliability of our services,
particularly in response to competitive offerings. Our success will depend, in
part, on our ability to enhance our existing services and develop new services
in a cost-effective and timely manner. The expansion and maintenance of our
network and the development and maintenance of our proprietary technology
entails significant technical and business risks and requires substantial
expenditures and lead time. We may not be able to adapt successfully to the
requirements of participants that comprise our network or emerging industry
standards. We have already made a significant investment in our technology
infrastructure. As a result, our technology costs would remain relatively
constant even if our booking volumes were to decline. In addition, the
widespread adoption of Internet, networking or telecommunications technologies
or other technologies could require us to incur substantial expenditures to
modify or adapt our services or infrastructure in the future.
Interruptions in service from third parties could hurt our business.
We rely on certain third-party computer systems and third-party service
providers, including the computerized central reservation systems of the hotel
industry to make online hotel room reservations. We also rely on third parties
to host our network infrastructure, web and database servers. Any interruption
in these third-party services or a deterioration in their performance could
hurt our business. If our arrangement with any of these third parties is
terminated, we may not find an alternative source of systems support on a
timely basis or on commercially reasonable terms.
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Risks Related to the Offering
Internet-related stock prices are especially volatile and this volatility may
depress our stock price.
The stock market and, specifically, the stock prices of Internet-related
companies have been very volatile. This volatility is often not related to the
operating performance of the companies. This broad market volatility and
industry volatility may reduce the price of our common stock, without regard to
our operating performance. Due to this volatility, the market price of our
common stock could significantly decrease. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. The
institution of such litigation against us could result in substantial costs and
a diversion of our management's attention and resources, which could seriously
harm our business.
There has been no prior public market for our common stock.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. If such a market does not develop or is not
sustained, it may be difficult for you to sell your shares of common stock at a
price that is attractive to you. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of our common stock
after the offering. See "Underwriting."
The market price of our common stock could suffer because a significant portion
of our common stock is closely controlled.
Upon consummation of this offering, our officers and directors and their
affiliates will beneficially own approximately % of our outstanding common
stock ( % if the underwriters exercise the over-allotment option in full).
As a result, if they act together, they will have the ability to influence the
outcome of all matters requiring stockholder approval, including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets, and to control our management and affairs.
Such ownership concentration could discourage others from initiating potential
merger, takeover or other change of control transactions. For more information
on beneficial ownership of our stock, please refer to "Principal Stockholders."
There may be sales of a substantial amount of our common stock after this
offering, which could depress our stock price.
We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will depress the market price for
our common stock or our ability to raise capital by offering equity securities.
Sales of substantial amounts of common stock, or the perception that these
sales could occur, may depress prevailing market prices for the common stock.
After this offering, approximately shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradable.
The remaining 14,239,932 shares of common stock outstanding after this offering
will be restricted as a result of securities laws or lock-up agreements. These
remaining shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Availability
---------------- --------------------
<C> <S>
At the date of this prospectus
180 days after the date of this prospectus, if the sales
meet certain restrictions under the federal securities
laws
At various times thereafter, if the sales meet certain
restrictions under the federal securities laws
</TABLE>
Robertson Stephens may release all or a portion of the shares subject to
lock-up agreements at any time without notice. See "Underwriting" and "Shares
Eligible for Future Sale."
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Our management has broad discretion over the use of the proceeds and our
business could be hurt if management uses the proceeds of this offering
inappropriately.
The net proceeds of this offering are estimated to be approximately
$ million at an assumed initial public offering price of $ per
share and after deducting the underwriting discount and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, the
net proceeds are estimated to be approximately $ million. We intend
generally to use the net proceeds from this offering for general corporate
purposes, including working capital to fund anticipated operating losses and
expenses associated with sales and marketing efforts. We have not yet
determined the actual expected expenditures and thus cannot estimate the
amounts to be used for each specified purpose. Accordingly, our management will
retain broad discretion as to the allocation of the proceeds of this offering.
Failure to use the net proceeds in a manner beneficial to us would harm our
business. For more information on our use of proceeds from this offering,
please refer to "Use of Proceeds."
The net tangible book value of our common stock issued in this offering will be
less than the offering price.
The initial public offering price for this offering is substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in the
offering, you will incur immediate and substantial dilution in the amount of
$ per share. Dilution is a reduction in the net tangible book value per
share from the price you pay per share for our common stock. We also have a
large number of stock options and warrants to purchase common stock outstanding
with exercise prices significantly below the estimated initial public offering
price of the common stock. To the extent these options or warrants are
exercised, there will be further dilution. We intend to continue to grant
substantial stock options to our employees. See "Dilution."
We have adopted anti-takeover provisions that could delay or deter a change of
control.
Provisions of our certificate of incorporation and by-laws and provisions
of applicable Delaware law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. Upon completion of
this offering our board of directors will have the authority to issue up to
2,000,000 shares of preferred stock, par value $0.001 per share, and to
determine the price and the terms, including preferences and voting rights, of
those shares without stockholder approval. Although we have no current plans to
issue additional shares of our preferred stock, any such issuance could:
. have the effect of delaying, deferring or preventing a change in
control of our company;
. discourage bids for our common stock at a premium over the market
price; or
. adversely affect the market price of, and the voting and other
rights of the holders of, our common stock.
We are subject to certain Delaware laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management. These governance provisions also could hurt the market price
of our common stock. For more information on our capital stock, please refer to
"Description of Capital Stock."
18
<PAGE>
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events, including:
. implementing our growth strategies;
. attracting and retaining hotels and travel web site partners;
. increasing reservations through account management of existing
network participants;
. expanding our network and services through strategic acquisitions;
. expanding substantial resources to enhance and improve our
technology;
. our intention to introduce new services;
. forecasts of Internet usage and the size and growth of relevant
markets;
. anticipated trends in our businesses, including trends in the
market for e-commerce and leisure lodging industry; and
. competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements
and events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus. We
assume no obligation to update them or to explain the reasons why actual
results may differ.
19
<PAGE>
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital,
create a public market for the common stock and facilitate future access to
public markets. The net proceeds to us from the sale of the shares of
common stock offered hereby are estimated to be approximately $ million
(approximately $ million, if the underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per
share and after deducting estimated offering expenses and the underwriting
discount payable by us. We intend to use the net proceeds for general corporate
purposes, including working capital to fund anticipated operating losses, and
expenses associated with our various marketing efforts. We also could use a
portion of the net proceeds to acquire or invest in businesses, technologies,
products or services, although no specific acquisitions are planned and no
portion of the net proceeds has been allocated for any acquisition. As of the
date of this prospectus, we cannot specify with certainty the particular uses
for the net proceeds to be received upon the consummation of this offering.
Accordingly, our management will have broad discretion in the application of
the net proceeds. Pending such uses, we intend to invest the net proceeds from
this offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock
since our inception and do not expect to pay any cash dividends in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual, pro forma and pro forma as adjusted basis.
The "Pro Forma" column reflects our capitalization as of December 31,
1999, after giving effect to the conversion of all shares of outstanding
preferred stock into shares of common stock upon the consummation of this
offering and the sale of shares of Series E preferred stock in April 2000.
The "Pro Forma as Adjusted" column reflects our pro forma capitalization
as adjusted to reflect the receipt of the estimated net proceeds of
$ from the sale of shares of common stock in this offering
at an assumed initial public offering price of $ per share, after deducting
the underwriting discount and estimated offering expenses.
This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
consolidated financial statements and related notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Capital lease obligations--less current
portion....................................... $ 588 $ 588 $
-------- -------- ----
Stockholders' equity:
Preferred stock: $0.001 par value; none
authorized actual and pro forma and none
issued and outstanding, actual and pro forma;
2,000,000 shares authorized, none issued and
outstanding, pro forma as adjusted ........... -- --
Convertible preferred stock: $0.001 par
value--16,011,922 shares authorized, issuable
in series, and 9,676,098 shares issued and
outstanding, actual; no shares authorized,
none issued and outstanding, pro forma and
pro forma as adjusted........................ 10 --
Common stock: $0.001 par value--25,000,000
shares authorized, 3,162,596 shares issued
and outstanding actual; 25,000,000 shares
authorized, 14,882,008 shares issued and
outstanding, pro forma; 50,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted........... 3 15
Additional paid-in capital.................... 71,459 76,457
Note receivable from officers................. (1,862) (1,862)
Deferred compensation......................... (3,677) (3,677)
Accumulated deficit........................... (34,917) (34,917)
-------- -------- ----
Total shareholders' equity................... 31,016 36,016
-------- -------- ----
Total capitalization....................... $ 31,604 $ 36,604
======== ======== ====
</TABLE>
The number of shares outstanding in the actual, pro forma and pro forma
as adjusted columns excludes:
. 2,050,306 shares of common stock issuable as of December 31, 1999
upon the exercise of outstanding stock options issued under our
stock plans at a weighted average exercise price of $3.91 per share;
. 587,204 shares of common stock available for future issuance under
our stock plans as of December 31, 1999; and
. 600,658 shares of common stock issuable upon the exercise of
warrants outstanding as of December 31, 1999 at a weighted average
exercise price of $3.21 per share.
21
<PAGE>
DILUTION
The pro forma net tangible book value of WorldRes.com as of December 31,
1999 was $25.8 million or $ per share. Pro forma net tangible book value per
share is determined by dividing the net tangible book value of WorldRes.com
(total tangible assets less total liabilities) by the pro forma number of
outstanding shares of common stock. Pro forma assumes the conversion of all
outstanding shares of preferred stock into common stock and the sale of shares
Series E preferred stock in April 2000. After giving effect to the
shares of common stock offered in this offering at an assumed initial public
offering price of $ per share and after deducting the underwriting
discount and estimated offering expenses, the pro forma net tangible book value
of WorldRes.com as of December 31, 1999 would have been approximately $ ,
or $ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate and substantial dilution of $ per share to new investors
purchasing shares at the initial public offering price. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share as of
December 31, 1999....................................... $
Increase in pro forma net tangible book value per share
attributable to new investors...........................
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution per share to new investors........................ $
=======
</TABLE>
The following table summarizes as of December 31, 1999 on the pro forma
basis described above, the number of shares of capital stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and by investors purchasing shares of common stock in
this offering at an assumed initial public offering price of $ (before
deducting the underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New investors........................ % %
--- --- ---- ---
Total.............................. 100% $ 100%
=== === ==== ===
</TABLE>
The foregoing discussion and tables exclude:
. 2,050,306 shares of common stock issuable as of December 31, 1999
upon the exercise of outstanding stock options issued under our
stock plans at a weighted average exercise price of $3.91 per
share;
. 587,204 shares of common stock available for future issuance under
our stock plans as of December 31, 1999; and
. 600,658 shares of common stock issuable upon the exercise of
warrants outstanding as of December 31, 1999 at a weighted average
exercise price of $3.21 per share.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data should
be read together with the consolidated financial statements, the notes thereto
and the other information contained in this prospectus. The selected
consolidated balance sheet data as of September 30, 1998 and 1999, and the
selected consolidated statement of operations data for each of the three years
ended September 30, 1999, have been derived from the audited consolidated
financial statements of WorldRes.com presented elsewhere in this prospectus.
The selected consolidated balance sheet data as of September 30, 1996 and 1997
and the selected consolidated statement of operations data for the period from
October 10, 1995 (inception) through September 30, 1996 have been derived from
consolidated audited financial statements of WorldRes.com that are not included
in this prospectus. The selected consolidated balance sheet data as of December
31, 1999, and the selected consolidated statement of operations data for the
three months ended December 31, 1998 and 1999 have been derived from unaudited
consolidated financial statements presented elsewhere in this prospectus. We
have prepared this unaudited information on the same basis as the audited
consolidated financial statements and have included all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for these periods.
Historical results are not necessarily indicative of future results and
operating results for the three months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending September 30, 2000.
<TABLE>
<CAPTION>
October 10,
1995 Three Months
(inception) Fiscal Years Ended Ended
through September 30, December 31,
September 30, -------------------------- ----------------
1996 1997 1998 1999 1998 1999
------------- ------- ------- -------- ------- -------
(unaudited)
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net Revenue:
Reservation............. $ 3 $ 71 $ 294 $ 1,322 $ 151 $ 479
Other................... -- -- 162 406 105 179
------- ------- ------- -------- ------- -------
Total net revenue...... 3 71 456 1,728 256 658
------- ------- ------- -------- ------- -------
Cost of revenue:
Reservation............ -- 4 30 191 15 65
Other................... -- -- 28 41 15 27
------- ------- ------- -------- ------- -------
Total cost of revenue.. -- 4 58 232 30 92
------- ------- ------- -------- ------- -------
Gross profit............. 3 67 398 1,496 226 566
Operating expenses:
Technology and
development............ 591 1,123 1,531 3,178 667 2,005
Sales and marketing..... 665 2,461 3,948 8,588 1,322 5,511
General and
administrative......... 506 766 1,150 2,204 317 876
Deferred stock
compensation and
warrant expense........ -- -- -- 742 15 762
Amortization of goodwill
and other intangibles.. -- -- -- 386 -- 694
------- ------- ------- -------- ------- -------
Total operating
expenses.............. 1,762 4,350 6,629 15,098 2,321 9,848
------- ------- ------- -------- ------- -------
Loss from operations..... (1,759) (4,283) (6,231) (13,602) (2,095) (9,282)
Interest and other income
(expense), net.......... (1) 28 236 268 50 152
Interest expense......... (36) (95) (152) (155) (30) (40)
------- ------- ------- -------- ------- -------
Net loss................. $(1,796) $(4,350) $(6,147) $(13,489) $(2,075) $(9,170)
======= ======= ======= ======== ======= =======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
October 10,
1995
(inception) Fiscal Years Ended Three Months Ended
through September 30, December 31,
September 30, ------------------------- ------------------
1996 1997 1998 1999 1998 1999
------------- ------- ------- ------- ------ -------
(unaudited)
(in thousands, except per share data)
Consolidated Statement
of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Basic and diluted net
loss per share(1)...... $(12.71) $(10.77) $(10.80) $(18.03) $(3.12) $ (4.31)
======= ======= ======= ======= ====== =======
Shares used in
calculating basic and
diluted net loss per
share(1)............... 141 404 569 748 666 2,128
======= ======= ======= ======= ====== =======
Pro forma basic and
diluted net loss per
share (unaudited)(1)... $ (1.96) $ (0.80)
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)(1)... 6,865 11,427
<CAPTION>
Consolidated
Supplemental Data:
<S> <C> <C> <C> <C> <C> <C>
Gross value of hotel
bookings(2)............ $ 119 $ 1,748 $ 8,577 $41,368 $4,856 $16,401
</TABLE>
<TABLE>
<CAPTION>
September 30,
------------------------------- December 31,
1996 1997 1998 1999 1999
------ ------ ------- ------- -----------
(unaudited)
(in thousands)
Consolidated Balance
Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 88 $ 304 $ 4,873 $ 4,510 $24,242
Working capital
(deficit).............. (1,207) (826) 4,417 2,607 21,939
Total assets............ 407 780 6,217 14,266 36,372
Long term obligations,
less current portion... 162 268 505 690 642
Additional paid-in
capital................ 697 5,476 17,196 42,121 71,459
Total shareholders'
equity (net capital
deficiency)............ (1,098) (670) 4,909 10,411 31,016
</TABLE>
- --------
(1) See Note 1 of the notes to consolidated financial statements for an
explanation of the determination of the shares used to compute net loss per
share.
(2) Gross value of hotel bookings equals the number of nights per stay times
the hotel room rate for all the reservations processed through our system.
Gross value of hotel bookings is not equivalent to and is not intended to
represent our revenue or backlog. Gross value of hotel bookings has not
been prepared or disclosed in accordance with generally accepted accounting
principles and should not be considered in isolation or as a substitute for
other information prepared or disclosed in accordance with generally
accepted accounting principles. We use gross value of hotel bookings as a
key indicator of general business activity, success of promotional efforts,
and capacity to handle customer demand. In addition, we believe that gross
value of hotel bookings provides a useful comparison between historical
periods, and year to year changes in such information provide a useful
measure of market acceptance of our network.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including, but not limited to, those discussed under "Risk Factors," "Business"
and elsewhere in this prospectus. The following discussion should be read in
conjunction with our financial statements and unaudited pro forma condensed
combined financial information and related notes thereto included elsewhere in
this prospectus.
Overview
We provide a leading business-to-business e-commerce solution for online
marketing and reservations to the highly fragmented global hotel industry. Our
Internet-based reservation system connects hotels to travel web site and other
distribution partners creating an e-commerce network that enables these
entities to provide travelers with the ability to collect information and make
real-time, confirmed reservations online.
We were formed in October 1995 and initially focused on raising capital,
building our corporate infrastructure, developing relationships with hotels and
offering reservation services through our branded web site, PlacesToStay.com.
In January 1998, we refined our business model to focus on expanding our
distribution of hotel inventory by adding a broad array of travel web site
partners, creating the WorldRes.com online reservation network. Accordingly,
comparisons for the period from October 10, 1995 (inception) to September 30,
1996 and the years ended September 30, 1997, 1998 and 1999, may not be as
meaningful as our recent quarterly results of operations.
As of February 29, 2000, our network had grown to approximately 11,500
properties and 1,075 web sites and call centers. Through that date, we had
successfully processed approximately 325,000 reservations, of which 317,000 had
been processed since January 1998. Approximately 73,000 of these reservations
came through our own PlacesToStay.com web site, while approximately 252,000
came through our travel web site partners and other distribution partners.
During the three months ended December 31, 1999, approximately 84% of the
reservations came through our travel web site partners and 16% came through our
PlacesToStay.com web site.
We have incurred net losses and experienced negative cash flow from
operations since inception. As of December 31, 1999, we had an accumulated
deficit of approximately $34.9 million. Our ability to achieve profitability
and positive cash flow from operations will be dependent upon our ability to
grow revenue substantially and achieve other operating efficiencies. We
currently expect our losses to increase in the future and we may be unable to
achieve or sustain profitability.
From inception, we have continually increased our level of spending to
build our infrastructure and develop our network. We intend to continue to
increase our sales, marketing, technology, development and administrative
activities. We anticipate these expenses will significantly precede any revenue
generated by this increased spending.
Gross value of hotel bookings equals the number of nights per stay times
the hotel room rate for all the reservations processed through our system.
Gross value of hotel bookings does not represent our reservation revenue or
backlog. Our reservation revenue is the commission we charge hotels for
reservations made at their properties. Reservation revenue is recognized at the
scheduled check-out date, net of a provision for cancellations. We use gross
value of hotel bookings as a key indicator of general business activity,
success of promotional efforts and capacity to handle customer demand. In
addition, we believe that gross value of hotel bookings may provide a useful
comparison between historical periods insofar as such information provides a
useful measure of market acceptance of our network. Reservations are subject to
cancellation at any time.
25
<PAGE>
Therefore, the amount of revenue calculated using gross value of hotel bookings
would be expected to exceed actual reservation revenue realized by us from such
bookings. Accordingly, gross value of hotel bookings is not equivalent to
reservation revenue and should not be viewed as a substitute for revenue. Gross
value of hotel bookings has not been prepared or disclosed in accordance with
generally accepted accounting principles and should not be considered in
isolation or as a substitute for other information prepared or disclosed in
accordance with generally accepted accounting principles.
Our gross value of hotel bookings has increased significantly in all
quarters presented as compared to the prior year period due to the expansion of
our network of travel web site partners, the increase in supply of hotel rooms
on our network, the growth in repeat purchases by existing consumers and
increased customer acceptance of e-commerce generally. Reservation revenue has
grown consistent with the growth in gross value of hotel bookings in every
quarter. You should not, however, rely upon gross value of hotel bookings as an
indication of subsequent revenue or future prospects.
Reservation revenue consists of commissions we charge hotels for
reservations made at their properties using our system. Reservation revenue is
recognized at the scheduled check-out date, net of a provision for
cancellations. Prior to June 30, 1999, other revenue primarily consisted of
implementation fees for designing and developing seamless Internet-based links
into our reservation network for hotels and travel web site partners. These
fees are recognized ratably over the period during which a hotel or
distribution partner agrees to use our reservation network. For the quarter
ended December 31, 1999, other revenue primarily consisted of membership dues
paid by hotels for listing on our BedandBreakfast.com web site. Membership
revenue is recognized ratably over the membership term, which is generally one
year. Other revenue also includes advertising revenue on the
BedandBreakfast.com web site, which is recognized as earned on the basis of
impressions delivered to advertisers. In the future we expect other revenue to
include other types of fees derived from new service offerings.
Our cost of reservation revenue consists of the percentage of commissions
that we share with certain of our travel web site partners. Cost of reservation
revenue also includes payroll, software and hardware costs associated with
processing reservations. Our cost of other revenue consists of costs directly
related to agreements with hotels and travel web sites to provide them with
additional services. Subsequent to our acquisition of BedandBreakfast.com, cost
of other revenue also includes payroll, software and hardware costs associated
with operating BedandBreakfast.com's web site.
Technology and development expenses consist principally of payroll and
related expenses for designing and implementing our reservation system,
developing applications for our network and improving our technology
infrastructure and database. Sales and marketing expenses consist primarily of
personnel costs, advertising, placement fees, public relations and
participation in trade shows and other industry events as well as an allocation
of facility and related overhead costs. General and administrative expenses
primarily represent personnel costs, allocated facility and related overhead
costs as well as our legal and accounting expenses.
A key element of our strategy is to market our solution directly to the
sales and distribution managers of hotels that are the primary suppliers to our
Internet-based lodging distribution network. We devote significant sales,
marketing and management resources to this sales process, without any assurance
that the hotels will use our network for distribution of their inventory.
In August 1999, we acquired all of the outstanding stock of
BedandBreakfast.com in exchange for 1,462,106 shares of our common stock with
an estimated fair value of $7.8 million. We also assumed net liabilities of
$400,000 and incurred other acquisition-related expenses of $100,000. Of these
amounts, $5.7 million was accounted for as a purchase and allocated to
intangible assets, which will be amortized over their estimated useful lives of
24 to 30 months. The remaining $2.6 million was allocated to deferred stock
compensation, which will be amortized over four years using a graded vesting
method. This amortization will result in non-cash expenses, which will increase
our reported operating expenses over these future periods. Our results of
operations include the results of BedandBreakfast.com since the date of
acquisition.
26
<PAGE>
In connection with the grant of certain stock options primarily to
employees during the fiscal year ended September 30, 1999 and the three months
ended December 31, 1999, we recorded deferred stock compensation of $2.7
million representing the difference between the deemed fair value of the
underlying common stock for accounting purposes and the exercise price of these
options at the date of grant. These option grants will be amortized over their
corresponding vesting periods, which is generally four years, using a graded
vesting method. At December 31, 1999, we had approximately $3.7 million
remaining to be amortized with regard to these options and deferred stock
compensation relating to the BedandBreakfast.com acquisition.
Our fiscal year ends on September 30. References to fiscal 1996 refer to
the period from October 10, 1995 (inception) to September 30, 1996. References
to fiscal 1997, fiscal 1998 and fiscal 1999 refer to the fiscal years ended
September 30, 1997, 1998 and 1999, respectively.
Results of Operations
Three Months Ended December 31, 1999 and December 31, 1998
Net revenue
Net reservations revenue increased $328,000, or 217%, to $479,000 for the
quarter ended December 31, 1999 from $151,000 for the quarter ended December
31, 1998. The increase in net reservations revenue resulted primarily from an
increase in the number of hotel reservations made using our network. As a
result of signing significant contracts, we expanded the number of hotels
available on our network and increased the number of travel web site partners.
Other revenue increased $74,000, or 70%, to $179,000 for the quarter
ended December 31, 1999 from $105,000 for the quarter ended December 31, 1998.
The increase in other revenue resulted from the acquisition of
BedandBreakfast.com which contributed significant sources of non-reservation
based revenue.
Cost of revenue
Total cost of revenue increased $62,000, or 207%, to $92,000 for the
quarter ended December 31, 1999 from $30,000 for the quarter ended December 31,
1998. The increase in cost of revenue resulted primarily from an increase in
the number of reservations made through our travel web site partners. We expect
these costs to increase for the foreseeable future as we increase the absolute
number and percent of the total number of reservations made on our network
through our travel web site partners.
Operating expenses
Technology and development. Technology and development expenses increased
$1.3 million, or 200%, to $2.0 million for the quarter ended December 31, 1999
from $667,000 for the quarter ended December 31, 1998. This increase was
primarily due to an increase in personnel and related costs dedicated to the
design and development of our solution, as well as higher allocated
depreciation and amortization costs. We expect these costs to continue to
increase for the foreseeable future as we continue to increase the number of
our development personnel and increase our investment in technological
infrastructure.
Sales and marketing. Sales and marketing expenses increased $4.2 million,
or 316%, to $5.5 million for the three months ended December 31, 1999 from $1.3
million for the three months ended December 31, 1998. This increase was
primarily due to increased investments in sales and marketing infrastructure,
both domestically and internationally, which included personnel and related
expenses, recruiting fees, travel expenses, as well as increased marketing
activities, including trade shows, public relations, and special promotions. We
expect to significantly increase these expenditures in the future as we
aggressively seek to market our services.
27
<PAGE>
General and administrative. General and administrative expenses increased
$559,000, or 176%, to $876,000 for the three months ended December 31, 1999
from $317,000 for the three months ended December 31, 1998. This increase was
due to an increase in salaries and related expenses, and an increase in
overhead expenses related to moving our business to an expanded location. We
expect general and administrative expenses to increase as we expand our staff
and incur additional cost.
Deferred stock compensation and warrant expense. In connection with the
granting of certain stock options to our management and employees, we recorded
deferred stock-based compensation totaling approximately $309,000 for grants
made during the three months ended December 31, 1999. This amount represents
the difference between the exercise price and the deemed fair value of our
common stock for financial reporting purposes on the date these stock options
were granted and is being amortized to expense ratably over the four year
vesting period of the options granted. Amortization of deferred compensation
for stock options and for shares related to the acquisition of
BedandBreakfast.com was $743,000 during the three months ended December 31,
1999.
Amortization of goodwill and other intangibles. In connection with the
acquisition of BedandBreakfast.com, we recorded goodwill and other intangible
assets of approximately $5.7 million. Such amounts will be amortized ratably
over their estimated useful lives of 24 to 30 months. During the three months
ended December 31, 1999, we recorded $694,000 of amortization related to these
intangibles.
Interest and other income (expense), net
Interest and other income (expense), net, is comprised primarily of
interest income earned by the company on its cash and short-term investments.
Interest income increased $102,000, or 206%, to $152,000 for the three months
ended December 31, 1999 from $50,000 for the three months ended December 31,
1998. The increase was primarily due to investment of the proceeds of $29.3
million from the Company's sale of Series E preferred stock in November and
December of 1999. Interest expense increased $10,000 to $40,000 for the three
months ended December 31, 1999 from $30,000 for the three months ended December
31, 1998. This increase was due to the increase in capital lease obligations
entered into by the Company for the purpose of financing equipment and software
purchases. We expect interest income and expenses to fluctuate in future
periods as we undertake various investing and debt financing activities.
Fiscal Years Ended September 30, 1999, 1998 and 1997
Net Revenue
Total net revenue increased $1.3 million, or 279%, to $1.7 million in
fiscal 1999 from $456,000 in fiscal 1998, and increased $385,000, or 542%, from
$71,000 in fiscal 1997, and increased $68,000, or 2,267%, from $3,000 in fiscal
1996. In fiscal 1999, net reservation revenue and other revenue accounted for
77% and 23% respectively of total net revenue. In fiscal 1998, net reservation
revenue and other revenue accounted for 64% respectively and 36% respectively
of total net revenue. In fiscal 1997 and 1996, net reservation revenue
accounted for 100% of total net revenue.
Net reservation revenue increased $1.0 million, or 350%, to $1.3 million
in fiscal 1999 from $294,000 in fiscal 1998, and increased $223,000, or 314%,
from $71,000 in fiscal 1997, and increased $68,000, or 2,267%, from $3,000 in
fiscal 1996. The increase in net reservation revenue resulted from an increase
in the number of reservations made on our network.
Other revenue increased $244,000, or 150%, to $406,000 in fiscal 1999
from $162,000 in fiscal 1998 and from none in fiscal 1997 and 1996. This
increase was due primarily to increased design and development activities and
the acquisition of BedandBreakfast.com which contributed $80,000 of other
revenue.
28
<PAGE>
Cost of revenue
Total cost of revenue increased $174,000, or 300%, to $232,000 in fiscal
1999 from $58,000 in fiscal 1998 and from a negligible amount in fiscal 1997
and 1996. In fiscal 1999 cost of reservation revenue and cost of other revenue
accounted for 82% and 18%, respectively, of total cost of revenue. In fiscal
1998, cost of reservation revenue and cost of other revenue accounted for 52%
and 48%, respectively, of total cost of revenue. The increase in cost of
reservation revenue in 1998 resulted from the commencement of our partnerships
with travel web sites and resulting sharing of our commission revenue with
those web sites. The increase in cost of reservation revenue in 1999 resulted
from an increase in the reservations made through partner web sites. Cost of
other revenue increased to $41,000 in 1999 from $28,000 in 1998 due to
additional services provided to hotels.
Operating expenses
Technology and development. Technology and development expenses increased
$1.6 million, or 108%, to $3.2 million in fiscal 1999, and increased $408,000,
or 36%, to $1.5 million in fiscal 1998 from $1.1 million in fiscal 1997, and
increased $532,000, or 90%, from $591,000 in fiscal 1996. These increases were
primarily due to increases in personnel and related costs associated with the
development and enhancement of our reservation booking engine and redundant
capacities, depreciation of capital equipment, and facilities costs.
Sales and marketing. Sales and marketing expenses increased $4.7 million,
or 118%, to $8.6 million in fiscal 1999 from $3.9 million in fiscal 1998, and
increased $1.5 million, or 60%, from $2.5 million in fiscal 1997, and increased
$1.8 million, or 270%, from $665,000 in fiscal 1996. These increases were
primarily due to increases in personnel and related costs, including sales
commissions and bonuses, and increased investment in sales and marketing
infrastructure.
General and administrative. General and administrative expenses increased
$1.1 million, or 92%, to $2.2 million in fiscal 1999 from $1.1 million in
fiscal 1998, and increased $384,000, or 50%, from $766,000 in fiscal 1997, and
increased $260,000, or 51%, from $506,000 in fiscal 1996. This increase was
primarily due to increased personnel and related costs associated with the
expansion of our operations.
Deferred stock compensation and warrant expense. In fiscal 1999 we
recorded total deferred stock compensation of $2.4 million in connection with
stock options granted during the period. This amount represents the difference
between the exercise price of stock option grants and the deemed fair value of
our common stock at the time of such grants. In connection with the acquisition
of BedandBreakfast.com we recorded total deferred stock compensation of $2.6
million. This amount reflects the total shares owned by BedandBreakfast.com
employees subject to repurchase under employment agreements multiplied by the
acquisition price per share of $5.35. Amortization of deferred stock
compensation was $742,000 in fiscal year 1999, and none in prior periods.
Amortization of goodwill and other intangibles. In connection with the
acquisition of BedandBreakfast.com we also recorded $5.7 million of intangible
assets, which will be amortized over their estimated useful lives of 24 to 30
months. In fiscal year 1999 we recorded amortization of $386,000 related to
those assets.
Interest and other income (expense), net
Interest and other income (expense), net, increased $29,000, or 35%, to
$113,000 in fiscal 1999 from $84,000 in fiscal 1998, and increased $151,000,
from net expenses of $67,000 in fiscal 1997, and increased $30,000 from net
expense of $37,000 in fiscal 1996. The increases were primarily due to interest
earned on investment of the proceeds from sales of various series of preferred
stock.
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<PAGE>
Income Taxes
We incurred operating losses and accordingly did not record a provision
for income taxes for any of the periods presented. At September 30, 1999, we
had U.S. federal net operating loss carryforwards of approximately $24.5
million. These net operating loss carryforwards will expire at various dates
beginning in 2011 through 2019, if not utilized. Certain future changes in our
share ownership, as defined in the Tax Reform Act of 1986 and similar state
provisions, may restrict the utilization of carryforwards. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the assets due to our lack of
earnings history.
Quarterly Results of Operations
The following table sets forth certain unaudited consolidated statement
of operations data for the six quarters ended December 31, 1999, for the
periods indicated. The information for each of these quarters has been prepared
on substantially the same basis as the audited consolidated financial
statements included elsewhere in this prospectus and, in the opinion of our
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future, and the results of interim periods are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
Dec.
Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, 31,
1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------
(in thousands)
Consolidated Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Reservation.............. $ 167 $ 151 $ 245 $ 329 $ 597 $ 479
Other.................... 78 105 94 95 112 179
------- ------- ------- ------- ------- -------
Total net revenue....... 245 256 339 424 709 658
------- ------- ------- ------- ------- -------
Cost of revenue:
Reservation.............. 12 15 28 46 102 65
Other.................... 6 15 16 7 3 27
------- ------- ------- ------- ------- -------
Total cost of revenue... 18 30 44 53 105 92
------- ------- ------- ------- ------- -------
Gross profit.............. 227 226 295 371 604 566
Operating expenses:
Technology and
development............. 580 667 719 767 1,025 2,005
Sales and marketing...... 1,120 1,322 1,389 2,049 3,828 5,511
General and
administrative.......... 344 317 314 512 1,061 876
Deferred stock
compensation and warrant
expense................. -- 15 27 186 514 762
Amortization of
intangible assets....... -- -- -- -- 386 694
------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,044 2,321 2,449 3,514 6,814 9,848
------- ------- ------- ------- ------- -------
Loss from operations...... (1,817) (2,095) (2,154) (3,143) (6,210) (9,282)
Interest and other income
(expense), net........... 42 20 (3) 88 8 112
------- ------- ------- ------- ------- -------
Net loss.................. $(1,775) $(2,075) $(2,157) $(3,055) $(6,202) $(9,170)
======= ======= ======= ======= ======= =======
<CAPTION>
Supplemental Data:
<S> <C> <C> <C> <C> <C> <C>
Gross value of hotel
bookings................. $ 3,744 $ 4,856 $ 9,332 $12,466 $14,714 $16,401
</TABLE>
Our quarterly results of operations have varied significantly in the
past. Our limited operating history and rapid growth make it difficult for us
to assess the impact of seasonal factors on our financial results.
Nevertheless, we expect our business to be subject to seasonal fluctuations,
reflecting a combination of seasonality trends for hotel and travel services
offered through our network and seasonality affecting Internet use generally.
For example, demand for leisure travel may decrease after summer vacations and
holiday periods, while Internet usage may decline during the summer months. Our
results also may be affected by
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<PAGE>
seasonal fluctuations in the hotel inventory made available to our network by
participating hotels. For instance, hotels typically enjoy high demand for
rooms during holiday and vacation periods. As a result, during these periods
hotels may not offer as much inventory through our network. Our business may
also be subject to cyclical variations for the services offered; for example,
leisure travel tends to decrease during economic downturns. Moreover, as a
result of seasonal and cyclical factors, we may process fewer reservations
despite adding new hotels and travel web sites to our network. Seasonal and
cyclical variations are beyond our control and may seriously harm our
business. In fact, in the three months ended December 31, 1998 and 1999, our
reservation revenue decreased as compared to the prior fiscal quarters due to
these factors. We expect seasonality to continue to impact our reservation
revenue. We also experienced significant fluctuations between quarters in our
other revenue. These fluctuations were primarily the result of the timing of
achieving defined milestones in contracts with the participants on our
network.
Due to the foregoing factors, our quarterly revenue and operating results
are difficult to forecast. We believe that period-to-period comparisons of our
operating results may not be meaningful and should not be relied upon as an
indication of future performance. In addition, it is possible that in one or
more future quarters our operating results will fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would almost certainly be harmed.
Liquidity and Capital Resources
Through December 31, 1999, we have satisfied our liquidity needs
primarily from the net proceeds of approximately $63.2 million from private
sales of common and preferred stock, and to a lesser extent from the exercise
of warrants and stock options. We have also financed our operations through
capital lease obligations, of which $1.1 million in long- and short-term
principal balances were outstanding as of December 31, 1999. In addition, we
have used a bank facility and the issuance of convertible debt, neither of
which is outstanding as of December 31, 1999. As of December 31, 1999, our
principal sources of liquidity included $24.2 million of cash and cash
equivalents.
Cash used in operating activities totaled $11.7 million for fiscal 1999
and $6.2 million for fiscal 1998, primarily due to our net losses, which were
partially offset by non-cash charges of depreciation and amortization.
Cash used in investing activities totaled $1.5 million for fiscal 1999
and $225,000 for fiscal 1998. We have made investments in computer equipment,
computer software, office furniture and leasehold improvements. As of
September 30, 1999, we had non-cancelable commitments under our operating and
capital leases in the amount of $12.6 million.
Net cash provided by financing activities totaled $12.8 million for
fiscal 1999 and $11.0 million for fiscal 1998. Net cash provided by financing
activities has primarily resulted from the sale of preferred stock. We expect
to fund future operating expenses from revenue received from commissions on
hotel bookings, private financings and the proceeds of this offering.
In April 2000 we raised approximately $5.0 million through the sale of
our Series E preferred stock.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we devote to development of our
services and the resources we devote to sales and marketing. We have
experienced a substantial increase in our capital expenditures and operating
expenses since our inception, consistent with the growth in our operations and
staffing. We anticipate that this increase will continue for the foreseeable
future. Additionally, we expect to make further investments in technologies
and plan to expand our sales and marketing programs. We currently anticipate
that the net proceeds of this offering, together with our existing cash and
sources of liquidity, will be sufficient to meet our anticipated needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, we will need to raise additional capital, and we may elect to do
so earlier.
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<PAGE>
We intend to continue to consider our future financing alternatives,
which may include the incurrence of additional indebtedness, additional public
or private equity offerings or an equity investment by a strategic partner.
However, other than the bank facility, we have no present commitments or
arrangements assuring us of any future equity or debt financing, and additional
equity or debt financing may not be available to us on favorable terms, if at
all.
Recently Issued Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
entities to capitalize certain costs related to internal-use software once
certain criteria have been met. Costs required to be capitalized under SOP 98-1
have been insignificant to date and were expensed as incurred. Prior to the
adoption of SOP 98-1, costs incurred by us to develop, enhance, manage, monitor
and operate its web site were expensed as incurred.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting
for Derivative Financial Instruments and for Hedging Activities. SFAS 133
provides comprehensive and consistent standards for the recognition and
measurement of derivatives and hedging activities. In June 1999, FASB issued
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Financial Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133, or SFAS 137. As a result, we are required to adopt SFAS
133 in fiscal year 2001. We do not anticipate SFAS 133 to have an impact on our
results of operations or financial condition when adopted because we currently
do not hold any derivative financial instruments and do not expect to engage in
hedging activities in the near future.
In March 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 00-2, Accounting for Website Development Costs, ( the
"Issue") which addresses how an entity should account for costs incurred to
develop a website. The EITF developed a model that would account for specific
website development costs based on the nature of each cost. The Issue is
effective prospectively for all costs incurred for quarters beginning after
June 30, 2000, although early adoption is encouraged. Companies also have the
option of adopting by cumulative catch-up adjustment. We do not anticipate
adoption of the Issue will have a significant impact on our results of
operations or financial condition.
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) 101, "Revenue Recognition" to provide
guidance on the recognition, presentation and disclosure of revenues in
financial statements. We believe that our revenue recognition practices are in
conformity with SAB No. 101.
Market Risk
We are exposed to interest rate risk on investments of our excess cash.
The primary objective of our investment activities is to preserve capital. To
achieve this objective and minimize the exposure due to adverse shifts in
interest rates, we invest in money market funds operated by reputed financial
institutions in the United States and commercial papers of short maturities.
Due to the nature of our investments, management has concluded that it does not
have a material market risk exposure.
Exchange Rate Sensitivity
Although we expect to expand our international operations in the future,
to date we have operated primarily in the United States, and substantially all
revenues and assets and liabilities have been denominated in U.S. dollars.
Accordingly, we have had no material exposure to foreign currency fluctuations.
In the future, however, an increasing number of contracts may be denominated in
foreign currencies. Therefore, we may increasingly be subject to currency
fluctuations, which could harm our business.
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<PAGE>
BUSINESS
Overview
WorldRes.com provides a leading business-to-business e-commerce solution
for online marketing and reservations to the highly fragmented global hotel
industry. Our Internet-based reservation system connects hotels to travel web
sites creating an e-commerce network. This network enables these web sites to
provide travelers with the ability to collect information and make real-time,
confirmed hotel reservations online. Since inception, we have processed
approximately 325,000 reservations at a broad range of hotels globally. During
the three months ended March 31, 2000, we processed $31.1 million in gross
value of hotel bookings, compared to $16.4 million in the three months ended
December 31, 1999 and $9.3 million in the three months ended March 31, 1999. As
of February 29, 2000, our network consisted of approximately 11,500 hotel
properties in 142 countries and 1,075 travel web sites and call centers as well
as over 1,800 web sites that are part of our affiliate program managed by Be
Free. As of that date, we also had contracts in place to add approximately
12,900 additional properties to our network.
Industry Background
Growth of Business-to-Business Commerce on the Internet
The Internet is emerging as one of the most significant global
communications media in history, enabling millions of people to share
information and conduct business electronically. International Data Corporation
estimates that the number of users on the Internet will grow from 142 million
at the end of 1998 to over 500 million by the end of 2003. This growth in
users, combined with the unique functionality of the Internet, creates
tremendous opportunities for businesses to conduct e-commerce. Specifically,
the Internet enables businesses to reach other businesses without regard to
geographic or temporal limitations, to deliver detailed and interactive content
to one or more users on a real-time basis at little incremental cost and to
create trading networks among groups of fragmented customers, suppliers and
distributors.
With an increasing number of businesses migrating to the Internet to
leverage its flexibility, reach and cost-effectiveness, business-to-business e-
commerce is poised for rapid growth. Business-to-business e-commerce is
expected to be a significantly larger opportunity than business-to-consumer e-
commerce. According to Forrester Research, the business-to-business e-commerce
market in the U.S. alone was $43 billion in 1998, while the business-to-
consumer e-commerce market was $8 billion. Forrester Research further reports
that business-to-business e-commerce is expected to grow to $2.7 trillion in
2004.
The Worldwide Hotel Industry
The worldwide hotel industry is large and fragmented with international
hotel chains and independently owned hotels ranging in size from resorts to
smaller inns and bed and breakfasts. According to Smith Travel Research, $135
billion in hotel room revenue was generated in 1999 from 67,000 properties
worldwide with approximately 6.8 million rooms. The total market, however, is
significantly larger, with approximately 13 million rooms worldwide in 1997,
according to a study by the World Tourism Organization.
The hotel industry spends billions of dollars on marketing and
distribution annually and operates at significantly less than full capacity.
According to Horwarth International and Smith Travel Research, average
occupancy rates for chain hotels was 68% in 1998, while average occupancy rates
for independent hotels was even lower at 64%. Unsold hotel rooms represent tens
of billions of dollars in lost revenue opportunities. This low capacity
utilization, compounded by inefficient distribution practices, highlights the
need for a solution designed to more effectively connect the sources of supply
and demand for hotel inventory.
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<PAGE>
Legacy Hotel Distribution Channels
Hotels typically receive a majority of their reservations over the
telephone or fax. In order to sell to as large an audience as possible,
however, most hotels also allocate blocks of their inventory to a variety of
distribution channels, including:
. branded chains; . event managers;
. representation companies for . tour operators;
non-chain hotels; . government-backed
. proprietary electronic destination marketing
global distribution systems organizations (DMOs); and
(GDSs) and switch systems . wholesalers.
(switches);
To participate in these distribution channels, hotels often pay fixed-
fees as well as significant commissions to various intermediaries. We believe
that the transaction costs charged by these intermediaries can equal more than
20% of hotel room revenue generated by the booking. In addition, because
certain distribution channels, such as GDSs, do not work with properties on an
individual basis, many independent properties cannot access these distribution
channels unless they incur further costs to sign up with a chain or
representation company.
An additional limitation of GDSs is that they were initially built
primarily for travel agents to book airline and car reservations for business
travelers. They were later adapted so that travel agents could access hotel
inventory through an electronic interface called a "switch" to book
accommodations for business travelers at chain hotels. As a result, these
systems are not designed to help properties deliver descriptive information,
editorial content or rich images that are critical to the purchasing decisions
of many travelers, especially for leisure-oriented trips, which, according to a
worldwide hotel industry study conducted by Horwarth International, represents
approximately one-half of the total annual hotel market.
Internet-Enhanced Hotel Distribution Channels
The Internet has emerged as a more convenient, efficient and cost-
effective medium for hotels to distribute inventory and for travelers to book
accommodations than either the phone, fax or many of the other legacy
distribution channels. Moreover, online leisure hotel bookings are expected to
grow as a result of the rapid adoption of the Internet and the Internet's
ability to provide detailed lodging information, including comparisons of
available hotel accommodations, amenities and rates. Forrester Research
estimates that online leisure hotel bookings are expected to grow from
$1.1 billion in 1998 to $10 billion in 2003.
Limitations of Current Internet-Enhanced Distribution Channels
Use of the Internet represents a significant opportunity for both hotels
and travel web sites to provide access to real-time lodging information and
reservations. The vast majority of current implementations, however, are merely
web sites attached to existing legacy distribution channels. As a result, they
remain expensive for hotels to use and fail to solve the needs of properties
wishing to cost effectively expand distribution, especially to the leisure-
oriented travel market.
Hotels have used the following Internet-based options to enhance their
distribution:
. Create their own web sites. Many individual hotels have created
their own web sites to provide lodging information and, in some
cases, real-time reservations. A hotel must have the technological
expertise to create and maintain both a web site and online
reservation capabilities, and must incur significant marketing
costs to attract online travelers to its web site.
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<PAGE>
. Sell through third-party web sites. In order to gain broader
distribution, a hotel can join a hotel chain and be distributed on
the chain's web site as well as other third-party travel web
sites, such as Travelocity.com and Expedia, Inc., which generally
access hotel inventory through GDSs or switches. An independent
hotel must pay the fixed costs to affiliate with a chain or
representation company, and pay additional costs for each
transaction. Moreover, distributing inventory through GDSs or
switches limits the ability of hotels to present detailed
photographic or multimedia content, which hinders their ability to
effectively sell their inventory to leisure travelers.
Alternatively, an individual hotel can expand its Internet
distribution by creating and maintaining multiple technical links
and business relationships with multiple third-party web sites,
but at significant expense.
Similarly, many new online distribution sources (e.g., online travel
agents, travel web sites and other online intermediaries) have added online
reservations as a service on their sites. These travel web sites have used the
following Internet-based options to obtain a supply of lodging inventory:
. Link directly to multiple hotels. Travel web sites can link
directly to multiple hotels. This requires a travel web site to
develop a reservation booking engine, establish business
relationships and communication links between its web site or call
center and potentially up to tens of thousands of properties.
These activities are both costly and time-consuming.
. Link to GDSs or switches. Travel web sites can also link to GDSs
or switches for hotel inventory. We believe this provides access
to less than 20% of hotels worldwide, however, and an even smaller
percentage of leisure-oriented hotels. Moreover, in order for a
travel web site that links to GDSs or switches to provide rich
content and images around available room inventory, it must
identify and integrate the content from sources other than the
GDSs or switches, which is often costly and inefficient.
The fragmentation of the leisure hotel market and the limitations of
current web-enabled distribution create the opportunity for a business-to-
business Internet-based e-commerce solution that seamlessly links thousands of
hotels with multiple travel web sites and call centers, allowing them to
provide travelers with rich content and process real-time reservations online.
The WorldRes.com Solution
WorldRes.com provides a leading business-to-business e-commerce solution
for online marketing and reservations to the highly fragmented global hotel
industry. Our online hotel distribution network and reservation system comprise
an integrated e-commerce platform that connects hotels to a broad array of
travel web site and other distribution partners, including tourism offices,
convention and visitor bureaus, call centers and travel agents. For hotels, our
network provides a low-cost distribution channel to market, differentiate and
sell their room inventory. For travel web sites and other distribution
partners, our network provides information and real-time e-commerce booking
capabilities for a wide range of hotels. As of February 29, 2000, our network
consisted of approximately 11,500 hotel properties in 142 countries and 1,075
travel web sites and call centers as well as over 1,800 web sites that are part
of our affiliate program managed by Be Free. As of that date, we also had
contracts in place to add approximately 12,900 properties to our network.
Benefits to Hotels
We act as a marketing and distribution partner for hotels, making
information about their properties and room inventory available to a variety of
travel web site and other distribution partners through a single user
interface. This enables any hotel, whether independent or affiliated with a
chain or representation company, to reach more customers and increase
occupancy. Additionally, hotels can use the robust capabilities of our
Internet-based reservation system to differentiate themselves with descriptive
content and photographs. Hotels can easily and continuously update their
descriptive information, available inventory and pricing across multiple web
sites simply by accessing and updating our system. Hotels can also create
targeted e-mail promotions for us to distribute to generate additional
reservations and maximize occupancy.
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<PAGE>
Our solution provides a low-cost distribution channel for hotels to
market and sell their lodging inventory. A hotel pays us a commission only
after a guest checks out. A hotel pays no initial set-up or fixed monthly fees
to participate in our network, and needs to make little or no incremental
investment in information technology. In addition, our solution often bypasses
multiple traditional intermediaries, resulting in lower transaction costs
compared with legacy hotel distribution channels. Lastly, a hotel that links to
our network can reduce its operating costs by automating and streamlining
traditional manual paper-intensive processes.
Benefits to Travel Web Site and Other Distribution Partners
Our business-to-business e-commerce platform enables our travel web site
and other distribution partners that have traditionally processed hotel
bookings offline, to generate transaction revenue from real time online
bookings at any of our hotel properties. Through our system, all travel web
site and other distribution partners are able to provide their users with the
ability to search for rooms at any or all of our hotels using a variety of
criteria, including, price, availability, amenities, location and room type.
Such features and enhanced functionality are critical for enabling our
partners, with a minimum investment of time and capital, to convert site
visitors into actual purchasers of online hotel room inventory.
Growth Strategy
Our objective is to provide the leading business-to-business e-commerce
online marketing and reservation solution for the global hotel industry. Key
elements of our strategy to achieve this objective include:
Increase the number of hotels and travel web site partners that comprise
our network. We plan to increase the number of reservations made on our network
by increasing the number of domestic and international hotels that comprise our
network through strategic partnership initiatives and substantial sales and
marketing efforts. We intend to continue to work with a variety of government
tourism authorities as well as hotel and motel associations to help us sign up
a broad range of hotels in targeted markets. We also plan to focus on adding
travel web site partners in key sectors of the travel market.
Actively manage hotel and travel web site relationships. We plan to
increase the number of reservations made on our network through active account
management of hotels and travel web site partners. We will continue to work
with hotels to improve their occupancy rates by helping them better match
online inventory offerings with online demand through targeted promotions and
pricing strategies. We will continue to work with travel web site partners to
improve the integration of our Internet-based reservation system into their web
sites, thereby improving the conversion rates of browsing consumers. We intend
to continue to improve the quality of our two branded web sites,
PlacesToStay.com and BedandBreakfast.com, to add value to our co-branded and
affiliate partners and to improve conversion.
Pursue acquisitions. We intend to expand our network and the services we
offer through strategic acquisitions with the goal of increasing the number of
reservations booked and transaction revenue generated on our network. For
example, in August 1999, we acquired BedandBreakfast.com to enhance our
relationships with bed and breakfast properties and to accelerate the addition
of these types of properties to our network. BedandBreakfast.com historically
focused on building the dominant web-based brand in the bed and breakfast
industry and on compiling what we believe to be the largest electronic database
of bed and breakfast properties in the world. As of February 29, 2000, the
BedandBreakfast.com web site database included listings for over 24,000
properties worldwide, including approximately 80% of the bed and breakfast
properties and inns located in the United States. In October 1999, we acquired
a leading provider of software used by independent lodging properties at their
front desks to manage the reservation process and other key operating
functions. We provide this software free of charge to any bed and breakfast
providing us with bookable room inventory, and we believe this will assist us
in adding inventory from these properties to our network.
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<PAGE>
Expand our service offerings. We intend to use our system and network to
expand into complementary services. These services could include packaging of
non-lodging and activity-based travel services. In addition, we plan to enhance
our data reporting and analytical tools to enable hotels to better manage
inventory and provide hotels with insight into promising marketing
opportunities.
Maintain our technological leadership. We intend to continue to improve
our technology to meet the evolving needs of our hotels and travel web site
partners. For example, we provide our partners with multilingual booking
capabilities. We plan to continue to develop, purchase or license technological
advancements to our reservation system that enhance its reliability,
functionality, and ease of use. For example, we have partnered with a number of
property management software vendors to further automate the collection and
updating of rates and availability. In addition, as Internet broadband usage
and availability increases, we intend to improve the multimedia capabilities of
our system to further allow our suppliers to differentiate their hotel
properties.
The WorldRes.com Network
Our network enables hotels and travel web site partners to provide
travelers with the ability to collect travel information and make real-time,
confirmed reservations online.
Hotels
As of February 29, 2000, we offered the ability to make reservations at
approximately 11,500 properties, located in 142 countries. In addition, as of
February 29, 2000, we had contracts in place to add approximately 12,900
properties to our network. The properties in our network include hotel/motel
chains, independent properties, bed and breakfast properties, inns, resorts and
condominiums, providing our travel web site and other distribution partners
with access to a broad range of global lodging choices.
The following is a sample list of domestic and international properties
that can be accessed through our reservation system:
<TABLE>
<CAPTION>
Bed &
Hotel Chains Independents Breakfasts/Inns Resorts
- ------------ ------------ --------------- -------
<S> <C> <C> <C>
Accor Baldwin Hotel Inn at Pasetiempo Grand Wailea Resort
Choice Hotels Bay Park Hotel Larchwood Inn Sandestin
Hong Kong Hotel Beach House Inn Oxford Hotel South Seas Resorts
Association Inn by the Sea Roma Bed & Breakfast St. Moritz
Vagabond Inns Joie de Vivre Snow Cap Inn Vail Resort
</TABLE>
In addition, we have entered into contracts with several major hotel
chains, including one of our strategic partners Starwood Hotels & Resorts, to
add their properties to our network.
Travel Web Site and Other Distribution Partners
By accessing our network, travel web sites and other distribution
partners are able to offer their users detailed information on a wide range of
accommodations, as well as the ability to check availability and reserve a room
on a real-time basis. Our robust content capabilities allow travel-related web
sites to differentiate their sites and better feature available hotel inventory
and our real-time reservation system allows them to generate transaction
revenue on their sites. Our travel web site and other distribution partners
include:
. Activity-based sites. These web sites are dedicated to specific
activities, such as skiing, which often involve travel and
lodging. Web sites such as Resort Sports Network, MountainZone.com
and other activity-based web sites traditionally have offered rich
content, but have lacked access to lodging and other travel
packages. Our solution can provide these web sites with online
reservation capability for potentially all of the lodging
alternatives around a particular resort, which significantly
increase the value of these sites to their end-users.
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<PAGE>
. Destination marketing organizations. Destination marketing
organizations, or DMOs, promote tourism within specific geographic
regions through web sites, call centers and tourist information
centers. Our reservation system enables their customers to search
for available hotel inventory and book reservations which are
features traditionally not offered by DMOs. Some of our DMO
partners also use our system to enable their offline sources, such
as call centers and tourist information desks, to process real-
time reservations.
. SABRE system. The SABRE system is one of the four major GDSs. We
have built a link that enables over 190,000 SABRE-connected travel
agents to make reservations at some of the hotels that comprise
our network, which are not otherwise available through the SABRE
system.
. Online travel agents and other web sites. These web sites are
focused on providing either a broad range of travel services, such
as air, car and hotel reservations, or more narrowly focused
travel-related content. The broad travel sites, which include
Travelocity.com, Infoseek, GO Network, Yahoo! and Lycos, generally
use GDSs for access to lodging inventory. Our reservation system
supplies these sites with a broader and more unique range of
hotels specifically oriented towards leisure travelers then
otherwise would be available on these sites for online booking. We
provide other content-rich web sites, such as Frommer's and
MapBlast!, with inventory from all of the hotels that comprise our
network.
. Hotel web sites. Independent hotels and hotel chains on our
network often have their own web sites that are electronic
brochures without reservation capabilities. Many of these hotels
use our WebConnect service to process real-time room reservations
on their web sites.
We also maintain our PlacesToStay web site through which we process
reservations for hotels that comprise our network. In some cases we have co-
branded our PlacesToStay.com web site with our travel-related web site
partners, such as Lycos. In the year ended September 30, 1999, our
PlacesToStay.com web site was responsible for approximately 33,000
reservations, or 20% of our total reservations. For the three months ended
December 31, 1999, our PlacesToStay.com web site was responsible for
approximately 8,600 reservations or 16% of our total reservations. In addition,
we offer our PlacesToStay.com Affiliate Link in partnership with Be Free. As
part of this program, we offer smaller, content-rich web sites the opportunity
to provide their users with access to our system. This access enables travelers
to make online reservations, which is an effective way to strengthen customer
relationships and increase revenue. As of February 29, 2000, we had over 1,800
active affiliates capable of processing reservations and had received
applications from more than 2,800 additional potential affiliates.
Our travel web site partners include:
<TABLE>
<CAPTION>
Destination Marketing
Broad Travel Activity WebConnect Organizations
- ------------ -------- ---------- ---------------------
<S> <C> <C> <C>
Lycos American Skiing Company Amfac Resorts LLC Golden State Reservations
MapBlast! Booth Creek Grand Wailea Resort Monterey Marketing Venture
SABRE system Intrawest Pink Shell Beach Ohio Hotel & Lodging Association
Yahoo! Park City Suisse Chalet Suites Pocono Mountains Vacation Bureau
Hotel Reservation Vail Vagabond Inns Chicago Convention and Tourism
Network Bureau
</TABLE>
International Operations
As of February 29, 2000, approximately 5,000 properties in 141 countries
outside of the United States could be accessed through our network and we had
approximately an additional 5,300 international properties under contract.
WorldRes.com is targeting international expansion primarily in the European
market. We established our first international office in the United Kingdom in
1997, our European headquarters in Germany in August 1999 and opened an office
in France in October 1999. We are contemplating selling a minority interest in
our European subsidiaries to strategic investors to help grow our business in
Europe. We
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<PAGE>
believe that further international expansion represents a significant growth
opportunity for us because fewer international properties participate in GDSs
or switches, and the international leisure travel market is larger and more
fragmented than the domestic market.
Strategic Relationships
We have entered into strategic relationships to increase the number of
reservations made through our network. These strategic relationships include
hotels and travel web site and other distribution partners that are willing to
commit resources to expand our network and leverage the advantages of our
network to increase their revenues. In some instances we have granted strategic
partners warrants that vest based on achieving performance based milestones.
Additionally, some of our strategic partners, such as Accor, Micros Systems,
Sabre Inc., Times Mirror Company and Starwood Hotels & Resorts, have made
equity investments in WorldRes.com.
Sales and Marketing
We sell and market our solution through our sales staff located in
offices throughout the United States and in Europe. Our sales and marketing
functions are focused on selling to two distinct groups, hotels and travel web
site partners.
Our hotel sales channels include:
. direct sales to major hotel groups;
. telesales;
. agent sales; and
. online sales through our web sites.
We also have dedicated sales personnel focused on adding travel web site
and other distribution partners to our network. The primary targeted customers
are travel web site and other distribution partners that are broad travel,
activity-based or destination-based oriented. We also offer participants the
ability to join our network through an affiliate program that can be accessed
online.
We market our solution through a variety of methods, including trade
shows, print ads, online advertising, trade associations and promotional
events. We often speak at industry conferences and seminars to educate the
hotel and Internet industries about the benefits of distributing inventory
online.
Customer Support
Our customer support operations are centered around providing high-
quality support to the sales and marketing staffs of our hotel property
partners. Customer support is organized around three progressive phases:
. property activation;
. ongoing proactive support; and
. ongoing reactive support.
After a hotel has signed a definitive contract, been screened for
authenticity, enrolled, trained and activated on our network, it may then
receive online reservations.
We attempt to work with each hotel to help it develop its online content,
to create special promotions and to use our network to increase reservations.
In addition, we offer a hotel the ability to outsource its web design, content
or maintenance functions to us. Finally, we provide a global, 24 hours a day,
seven days a week help desk which is available to consumers, hotel properties
and partners via either phone, fax or e-mail to assist with questions and
problems.
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<PAGE>
Technology
Our reservation solution consists of an Internet-based reservation system
and our network of hotels and travel web site partners. Our Internet-based
reservation system resides entirely on our servers, is accessible by standard
browsers and requires minimal software installation for hotels. Our reservation
system enables travel web sites partners to display detailed lodging
information and inventory, and provides real-time hotel search and reservation
capabilities.
Systems Architecture
Our systems architecture provides the foundation for the scalable, high-
availability and fault tolerant characteristics of our online distribution
network. The system is designed to operate continuously, 24 hours a day, seven
days a week through both hardware and software failures and systems upgrades
and expansions. Each server is replicated and equipped to regulate the amount
of information passing through it, allowing a server to be removed without
interrupting service. Our database is also replicated in real time to eliminate
data loss. Database connections are pooled and shared to allow the database to
be removed for repair or upgrade without impacting the performance of the
system. Our data centers are housed at high-availability sites with multiple
power and data communication feeds and with diesel generators for emergency
power. Each data center is served by a different Internet service provider to
protect against service failures.
We have undertaken substantial measures to protect sensitive information
passing through our network. Firewalls are installed to limit the points of
interaction between the Internet and our system. Administrative access to the
site is controlled by group privileges and user identification and passwords.
Proprietary Software
The proprietary software components of our reservation system, together
with our robust systems architecture, enable us to effectively deliver our
reservation solution. The software components include transaction databases,
shopping servers, reservation engines, supply managers and a decision support
system.
. Transaction databases. Transaction databases form the core of our
online distribution system. These databases contain detailed hotel
property and room descriptions, photographs, hotel room inventory
availability and rate information. They also contain the
reservation rules and record the reservation transactions
including form-of-payment.
. Shopping servers. Shopping servers assist the search for hotel
room inventory. These servers are tailored to the needs of a
specific travel web site, permitting each to control the hotels
and inventory to be displayed. The shopping servers also allow
users to assess properties by providing detailed descriptions and
photographs.
. Reservation engines. Reservation engines allow the reservation of
hotel rooms and the receipt of reservation confirmations. They
also verify hotel inventory availability, validate the reservation
request against the reservation rules, confirm the price, and
remove hotel inventory from the system. The reservation engines
also collect the form of payment data and allow reservations to be
modified and cancelled. A direct message interface to the
reservation engine is supported to allow reservations to be made
directly from other systems such as the airline global
distributions systems or a travel agency's system.
. Supply managers. Supply managers refresh the reservation system
with available inventory and current room rates. Additionally,
supply managers automatically notify the hotels when inventory has
been reserved. These managers provide tools for describing
products using text and images, for setting rates, rules and
policies, and for controlling inventory. The supply managers
provide several means of supplier interaction to meet the needs of
hotels from the smallest bed and breakfast to the largest hotel
chain. The means of interaction include a supplier administration
web site, an email interface, a file transfer interface, and real-
time gateways connecting directly to the suppliers' central
reservation or property management systems.
40
<PAGE>
. Decision support system. The decision support system allows the
data collected by the online distribution system to be utilized to
increase reservation volume and to improve hotel and online hotel
distributor operations. This system employs a database, data
replication tools and data query tools. Data collected in the
transaction databases and in the web servers' log files are used
to populate the decision support database. Reports derived from
this data include inventory profiles, web traffic analysis, and
reservation summaries.
Our development organization is focused on designing, implementing and
supporting our reservations system, developing applications for and supporting
our network and maintaining and improving our technology, infrastructure and
database. To date, substantially all software development costs related to our
reservations system and network have been expensed as incurred.
We believe that significant investments in technology are required to
remain competitive. We are continuing to invest significant resources to
further improve our technology and add new services and enhancements. We
believe that our future performance will depend in large part on our ability to
maintain and enhance our current reservation system and network, develop new
offerings that achieve market acceptance, maintain technological
competitiveness and meet expanded hotel and travel web site partner
requirements.
Competition
Our primary source of competition comes from existing phone and fax-based
methods of booking reservations with the Internet accounting for less than 2%
of all hotel bookings in 1999 according to PhoCusWright, Inc. As a greater
percentage of lodging reservations move on-line over the next several years, we
expect increased competition from an array of sources including:
. online lodging e-commerce web sites;
. traditional travel agencies, tour operators and wholesalers;
. GDSs and other related intermediaries;
. hotel chains;
. individual leisure properties; and
. broad travel, activity and travel web site partners.
We believe that our system encompasses each of these segments and in many
cases we currently partner with companies within these categories in certain
circumstances while competing with them in others. While we compete with
companies within these categories, we believe there is no other single company
currently addressing all of the segments. Online lodging e-commerce web sites
include Expedia, Inc. and Travelocity.com. Traditional travel agencies include
American Express Travel Services and Carlson Wagonlit Travel. GDSs include the
SABRE system, Galileo and Apollo systems, AMADEUS and WORLDSPAN and related
intermediaries including switches owned by Pegasus and Cendant. There are
numerous hotel chains and individual hotels with web sites against which some
portion of our business competes. While there are numerous web sites competing
for leisure lodging bookings, there is no dominant player in this market. We
could face further competition in the future from any of the competitors listed
above or from new companies that enter into business-to-business e-commerce
over the Internet either on their own or by partnering with other companies.
Our current and potential competitors may develop superior Internet-based
reservation solutions that achieve greater market acceptance than our solution.
We believe that the principal competitive factors affecting our market include
a significant base of customers, breadth and depth of solution, critical mass
of hotel suppliers and web sites, system performance, customer service and
technology and system features. Although we believe that our solutions
currently compete favorably with respect to these factors, our market is
relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and
41
<PAGE>
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources.
Intellectual Property
We protect our proprietary rights by relying on copyright, trade secret,
trademark, confidentiality procedures and contractual provisions. Some of our
software, documentation and other written materials are protected under the
federal copyright law. We also rely on trade secret laws of the State of
California and the states in which we do business to protect our software
designs and other proprietary information. In addition, non-disclosure
agreements contained in our employment contracts protect our proprietary
information from disclosure by current and former employees.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around patents issued to us or our other
intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grow and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays
or require us to enter into royalty or licensing agreements. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all, which could seriously harm our business.
Employees
As of February 29, 2000, we had 176 employees located in the United
States and 23 employees located in Europe. Of the employees in the United
States, 66 were involved in business development, sales and marketing efforts,
33 in customer services and support, 49 in technical operations and 28 in
general and administrative functions. We have not experienced any work
stoppages and we consider our relations with our employees to be good.
Legal Proceedings
We are not currently subject to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of business.
Facilities
Our principal executive offices are located in San Mateo, California
where we lease approximately 46,000 square feet under a lease that expires in
July 2005. Our principal administrative, sales and marketing, customer service,
and product development facilities are also at this location.
BedandBreakfast.com is located in Denver, Colorado where we lease approximately
11,000 square feet under a lease that expires in April, 2010. Our European
headquarters are located in Dusseldorf, Germany where we lease approximately
4,500 square feet. We also lease sales offices and other small facilities in
the United States, the United Kingdom and France. We believe that our current
domestic facilities are adequate to meet our needs through the end of 2000, at
which time we may need to lease additional space. We anticipate opening at
least two additional facilities in Europe during calendar year 2000.
42
<PAGE>
MANAGEMENT
Executive Officers and Directors
The names and ages of WorldRes.com's executive officers and directors as
of April 4, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- ----------
<S> <C> <C>
Eric J. Christensen..... 40 Chairman of the Board of Directors
Gregory A. Jones(1)..... 39 Chief Executive Officer, President and Director
Gregory S. Curhan....... 38 Chief Financial Officer
Domenic A. Rinaldi...... 37 Chief Operating Officer
Paul N. Wyatt........... 53 Chief Technology Officer
Yen Lee................. 32 Executive Vice President of Business Development
Eric L Goldreyer........ 34 President of BedandBreakfast.com
Wolfgang Kitza.......... 38 Vice President and Managing Director of WorldRes Europe GmbH
Steven L. Eskenazi(2)... 37 Director
Gregory T.
George(1)(2)........... 51 Director
E. Stanton McKee(1)..... 55 Director
Thomas Unterman(2)...... 55 Director
</TABLE>
- --------
(1) Member of compensation committee
(2) Member of audit committee
Eric J. Christensen co-founded WorldRes.com in October 1995 and has
served as Chairman of the Board of Directors of WorldRes.com since then. Mr.
Christensen served as President of WorldRes Europe from March 1998 to July
1999. Mr. Christensen served as Chief Executive Officer of WorldRes.com from
October 1995 until February 1998. Prior to founding WorldRes.com, Mr.
Christensen served as an investment consultant with the investment management
firm of Cambridge Associates from 1993 until 1995. From 1987 until 1993, Mr.
Christensen served as Manager of Strategic Planning with Euro Disney in Paris,
France where he was responsible for hotel strategic planning and reservation
systems. From 1982 until 1985, Mr. Christensen served as a hotel consultant
with Laventhol & Horwath. Mr. Christensen holds a B.A. degree from Dartmouth
College and an M.B.A. degree from Stanford University.
Gregory A. Jones co-founded WorldRes.com in October 1995 and currently
serves as Chief Executive Officer, President and Director of WorldRes.com.
Prior to joining WorldRes.com, Mr. Jones served in various capacities at
Synopsys, a software company, from October 1991 to October 1995, including
Acting Vice President of Marketing and Director of the Advanced Technology
Group. Prior to joining Synopsys, Mr. Jones was a management consultant with
McKinsey & Co. Mr. Jones holds a B.A. degree from Dartmouth College and an
M.B.A. degree from Stanford University.
Gregory S. Curhan joined WorldRes.com in May 1999 and has served as Chief
Financial Officer since that time. Prior to joining WorldRes.com, Mr. Curhan
served as Director of Global Technology Research Marketing and Managing
Director Specialty Technology Institutional Equity Sales at Merrill Lynch & Co.
from May 1998 to May 1999. Prior to joining Merrill Lynch, Mr. Curhan was
Director of Equities and a research analyst at the investment banking firm of
Volpe Brown Whelan & Co. from May 1993 to May 1998. Mr. Curhan holds a B.A.
degree from Dartmouth College.
Domenic A. Rinaldi joined WorldRes.com in July 1997 and since February
2000 has served as Chief Operating Officer. From July 1997 through February
2000 Mr. Rinaldi served as Senior Vice President of Sales and Operations. Prior
to joining WorldRes.com, Mr. Rinaldi served in various management, sales and
operations positions at Sprint Corporation from 1984 to 1997, most recently as
Vice President of Sales for Sprint's Hospitality Division. Mr. Rinaldi holds an
A.A. degree from Skyline College.
43
<PAGE>
Paul N. Wyatt joined WorldRes.com in March 1998 and since April 2000 has
served as Chief Technology Officer. From March 1998 through April 2000 Mr.
Wyatt served as Vice President of Systems Development. Prior to joining
WorldRes.com, Mr. Wyatt served from December 1997 to March 1998 as Consultant
and Interim Vice President of Engineering at WebFlow Corporation, a software
company. Prior to WebFlow Corporation, Mr. Wyatt served from January 1997 to
November 1997 as Vice President of Engineering at Cygnus Solutions, a software
company. Prior to Cygnus Solutions, Mr. Wyatt served from February 1995 to
January 1997 as Vice President of Engineering at TravelNet, a software company.
Prior to TravelNet, he served from June 1993 to December 1994 as Vice
President, Research and Development for the software company the ASK Group.
Prior to the ASK Group, he served from November 1989 to June 1993 as Vice
President, Engineering and Chief Technology Officer for Covalent Systems, a
software company. Mr. Wyatt holds a B.S. degree from University of Cincinnati.
Yen Lee joined WorldRes.com in August 1997 and since January 2000 has
served as Executive Vice President of Business Development. From August 1997 to
December 1999 Mr. Lee served as Director of Business Development. Prior to
joining WorldRes.com, Mr. Lee served as Director of Operations at Ticketmaster-
CitySearch's first market in San Francisco from April 1996 to July 1997. Prior
to joining Ticketmaster-CitySearch, Mr. Lee was a consultant at McKinsey & Co.
from September 1990 to June 1993. Mr. Lee received his MBA degree in June 1996
from Massachusetts Institute of Technology and an honors degree from the
University of Western Ontario.
Eric L. Goldreyer founded BedandBreakfast.com in July 1995 and has served
as President of BedandBreakfast.com since that time. Prior to founding
BedandBreakfast.com, Mr. Goldreyer was Senior Account Executive of Southwestern
Bell Telephone from June 1990 to June 1995. Mr. Goldreyer holds a B.A degree
from Texas A&M University.
Wolfgang Kitza joined WorldRes.com in May 1999 as Vice President and
Managing Director of WorldRes Europe GmbH & Co. KG. Prior to joining WorldRes
Europe GmbH & Co. KG, Mr. Kitza was Managing Director of CityWeb Network from
January 1998 to October 1998. Prior to joining CityWeb Network, Mr. Kitza was
Managing Director of Bertelsmann's Internet technology division from November
1993 to November 1997. Mr. Kitza holds B.S. degrees from the University of
Cologne and the University of Bonn.
Steven L. Eskenazi has been a director of WorldRes.com since December
1997. Mr. Eskenazi has been a General Partner at Walden VC, a venture capital
firm, since March 1997. Prior to joining Walden VC, Mr. Eskenazi was Securities
Analyst and Managing Director of Alex. Brown, a stock brokerage firm, from
February 1990 to March 1997. Mr. Eskenazi is also a director of DigitalThink,
Inc. Mr. Eskenazi holds a B.S. degree from Union College and an M.B.A. degree
from Dartmouth's Amos Tuck School.
Gregory T. George has been a director of WorldRes.com since March 1998.
Mr. George has been a General Partner at Technology Funding Ltd. and Vice
President of Technology Funding Inc. since August 1986. Mr. George is presently
an officer or director of several privately held development stage companies.
From February 1987 to December 1997, Mr. George was a Director of Viewlogic
Systems, Inc. and Wasatch Education Systems Corp. Mr. George holds an A.B.
degree from Harvard College.
E. Stanton McKee has been a director of WorldRes.com since November 1998.
Mr. McKee has been Executive Vice President, Chief Financial and Administrative
Officer at Electronic Arts since July 1996. From March 1989 to July 1996, Mr.
McKee was Senior Vice President, Chief Financial and Administrative Officer of
Electronic Arts. Mr. McKee holds a B.A. degree from Stanford University and an
M.B.A. degree from Stanford University.
Thomas Unterman has been a director of WorldRes.com since March 1999. Mr.
Unterman is the Managing Partner and CEO of the Rustic Canyon Group, which is
the general partner of TMCT Ventures, a venture capital investment fund.
Previously, Mr. Unterman was Executive Vice President and Chief Financial
Officer at Times Mirror Company from 1998 through January 2000 and served in
various senior management positions, most recently as Senior Vice President and
Chief Financial Officer, at Times Mirror from 1992 to
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<PAGE>
1998. He also oversaw the management of Eagle New Media Investments, LLC and
Eagle Publishing, LLC, affiliates of Times Mirror. Prior to joining Times
Mirror, Mr. Unterman was a partner in the Los Angeles office of Morrison &
Foerster where he specialized in corporate and securities law. Mr. Unterman is
also a director of Ticketmaster Online-CitySearch, Hollywood, Inc. and several
privately-held companies. Mr. Unterman holds a B.A. degree from Princeton
University and a J.D. degree from the University of Chicago.
The Company has entered into a consulting agreement with Mr. Christensen
pursuant to which the Company has agreed to nominate him for reelection to the
board of directors. See "Certain Transactions--Consulting Agreement."
Board Composition
We currently have authorized six directors. Each director is elected for
a period of one year at our annual meeting of stockholders and serves until the
next annual meeting or until his successor is duly elected and qualified. The
executive officers serve at the discretion of the board of directors. There are
no family relationships among any of our directors or executive officers.
Our amended and restated certificate of incorporation and bylaws that
become effective upon completion of this offering provide for a board of
directors consisting of seven members. When we are no longer subject to the
provisions of Section 2115 of the California Corporations Code, the board of
directors will be divided into three classes, each class serving staggered
three-year terms. At the first annual meeting of stockholders after we
establish a classified board, the terms of the directors that are classified as
Class I directors will expire, and the stockholders will elect two Class I
directors for three year terms. At the second annual meeting of stockholders
after we establish a classified board, the terms of the directors that are
classified as Class II directors will expire, and the stockholders will elect
two Class II directors for three year terms. At the third annual meeting of
stockholders after we establish a classified board, the terms of the directors
that are classified as Class III directors will expire, and the stockholders
will elect two Class III directors for three year terms. As a result, at each
of the three annual meetings of stockholders that follow the date of the
establishment of a classified board of directors, only one class of directors
will be elected with the other classes continuing for the remainder of their
respective terms.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
WorldRes.com are eligible to participate in our 1995 Stock Plan and 1999
Executive Stock Plan. We have in the past granted to our employee directors
options to purchase common stock pursuant to our 1995 Stock Plan. Directors who
are not employees of WorldRes.com are eligible to participate in our 2000
Directors' Stock Option Plan. Under this plan, each person who is a non-
employee director on the completion of this offering will receive an automatic
initial grant of an option to purchase 10,000 shares of common stock and each
person who becomes a non-employee director after the completion of this
offering will receive an automatic initial grant of an option to purchase
20,000 shares of common stock upon appointment or election. The plan also
provides for annual grants, on the date of each annual meeting of our
stockholders, to each non-employee director who has served on our board of
directors for at least six months. The annual grant to non-employee directors
is an option to purchase 5,000 shares of common stock. See "Stock Plans."
Board Committees
In March 1998, the board established the audit committee. The audit
committee reviews our annual audit and meets with our independent auditors to
review our internal controls and financial management practices. The board's
audit committee currently consists of Thomas Unterman, Steven L. Eskenazi and
Gregory T. George. In February 1997, the board established the compensation
committee. The compensation committee recommends compensation for certain of
our personnel to the board and administers our stock plans. The compensation
committee currently consists of Gregory T. George, Gregory A. Jones and E.
Stanton McKee.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
currently Gregory T. George, Gregory A. Jones and E. Stanton McKee. No member of
the compensation committee of WorldRes.com serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. See "Executive Compensation" and "Related Party Transactions" for a
description of transactions between us and members of the compensation committee
and entities affiliated with them.
Executive Compensation
The following table provides summary information concerning the
compensation paid during the fiscal year ended September 30, 1999 to the Chief
Executive Officer and each of the other four most highly compensated executive
officers (the "Named Officers"), each of whose aggregate compensation during
our last fiscal year exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------- -------------------
Securities
Other Annual Underlying
Name and Principal Position Salary Bonus Compensation Options(#)
- --------------------------- -------- ------- ------------ -------------------
<S> <C> <C> <C> <C>
Gregory A. Jones
Chief Executive Officer,
President and Director...... $156,250 $22,442 385,000
Paul N. Wyatt
Vice President.............. 149,875 19,900 170,000
Eric J. Christensen
Chairman and Director....... 146,875 22,114 $60,900(1) 160,000
Scott Potter(2)
Former Executive Vice
President................... 137,500 20,909 242,500
Domenic A. Rinaldi
Senior Vice President....... 137,500 20,909 170,000
</TABLE>
- --------
(1) Mr. Christensen received $56,000 per year in foreign housing and cost of
living allowance for his relocation to the United Kingdom. He also
received $4,900 to offset lost rental income on his U.S. property, which
resulted from his relocation.
(2) Mr. Potter terminated his employment with us in December 1999.
Option Grants
The following table provides summary information regarding stock options
granted to the Named Officers during the fiscal year ended September 30, 1999.
In the fiscal year ended September 30, 1999, we granted options to purchase up
to an aggregate of 1,956,207 shares to employees, directors and consultants.
All of these options were granted under our 1995 Stock Plan and 1999 Executive
Stock Plan at exercise prices equal to the fair market value of our common
stock on the date of grant, as determined in good faith by the board of
directors. All options have a term of ten years. Generally option shares vest
over four years, with 25% of the option shares vesting one year after the
option grant date, and the remaining option shares vesting ratably each month
for the next 36 months.
The potential realizable values are based on an assumption that the
price of our common stock will appreciate at the compounded annual rate shown
from the date of grant until the end of the option term. These
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<PAGE>
values do not take into account amounts required to be paid as income taxes
under the Internal Revenue Code and any applicable state laws or option
provisions providing for termination of an option following termination of
employment, non-transferability or vesting. These amounts are calculated based
on the requirements promulgated by the Securities and Exchange Commission and
do not reflect our estimate of future stock price growth of the shares of our
common stock.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration ---------------------
Name Granted(#) Fiscal Year ($/Share) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Jones........ 200,000 10.2% $3.00 5/21/09 $ 377,337 $ 956,246
110,000 5.6 6.00 8/31/09 415,071 1,051,871
Paul N. Wyatt........... 45,000 2.3 3.00 5/21/09 84,903 215,156
35,000 1.8 6.00 8/31/09 132,068 334,753
Eric J. Christensen..... 95,000 4.9 3.00 5/21/09 179,235 445,220
Scott Potter............ 60,000 3.0 3.00 5/21/09 113,203 286,874
82,500 4.2 6.00 8/31/09 311,303 790,904
Domenic A. Rinaldi...... 55,000 2.8 3.00 5/21/09 103,768 262,968
35,000 1.7 6.00 8/31/09 132,068 344,753
</TABLE>
Mr. Potter terminated his employment with us in December 1999. Of the
142,500 securities underlying options shown above 83,139 vested and were
exercised by Mr. Potter.
47
<PAGE>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock acquired in the fiscal year ended September 30, 1999, the value
realized upon exercise of stock options in the fiscal year ended September 30,
1999, and the year-end number and value of unexercised options with respect to
each of the Named Officers as of September 30, 1999. The value of unexercised
options was calculated by determining the difference between the fair market
value of underlying securities of $6.00 for our common stock on September 30,
1999, as determined by our board of directors, and the exercise price. Options
may be exercised immediately pursuant to early exercise provisions contained in
the 1999 Executive Stock Plan. Any shares issued pursuant to such early
exercise provisions are subject to repurchase at the original exercise price
paid per share upon termination of employment. Such repurchase option
terminates at the rate of 25% after one year from the vesting commencement date
and thereafter at a rate of 1/48th of the original grant amount per month over
the remaining three years.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at September 30, 1999 September 30, 1999
Acquired on Value ----------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Jones........ 234,375 $785,625 111,562 39,063 $ 8,435 $210,940
Paul N. Wyatt........... 15,000 78,000 98,749 56,251 232,495 292,505
Eric J. Christensen..... 124,792 445,877 35,209 -- 190,129 --
Scott Potter............ 69,562 309,953 172,940 -- 412,309 --
Domenic A. Rinaldi...... 45,900 203,985 80,327 43,773 160,443 238,822
</TABLE>
- --------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
Employment Agreements
We have entered into the following arrangements with our executive
officers:
. In March 1998, we entered into an offer letter with Mr. Paul N.
Wyatt. The agreement entitles Mr. Wyatt to a salary of $145,000
per year. The offer letter provides for an initial stock option
grant to purchase 90,000 shares of common stock at an exercise
price equal to the fair market value of the common stock at the
date of grant. The option vests at the rate of 1/4th of the shares
one year after commencement of employment and 1/48th of the shares
each month thereafter of completed employment.
. In January 2000, we entered into an offer letter with Mr. Domenic
A. Rinaldi. The agreement entitles Mr. Rinaldi to a salary of
$175,000 per year. Mr. Rinaldi was also entitled to receive
bonuses of up to $150,000. The offer letter provides for
acceleration of previous grants of stock options of 6,875 and
3,394 so that on September 30, 2000 such shares are vested.
Consulting Agreement
In December 1999, the Company entered into a Consulting Agreement with
Eric Christensen. Pursuant to this agreement, Mr. Christensen's employment with
the Company terminated on December 31, 1999, although he remained Chairman of
the Board of Directors of the Company. Mr. Christensen serves as a consultant
on a month-to-month basis and has been paid a total of $22,580 for consulting
services pursuant to this agreement through March 31, 2000. In addition, in
connection with the termination of his employment, Mr. Christensen will receive
monthly severance payments through October 2000 totaling $180,000.
Mr. Christensen has agreed to serve as a member of the Board of Directors
through this offering, and the Company has agreed to nominate Mr. Christensen
for re-election to the board of directors for no less than two annual meetings,
or, if the board of directors has staggered terms, to a term of no less than
two years.
48
<PAGE>
Stock Plans
1995 Stock Plan. The 1995 Stock Plan was adopted by our board of
directors in November 1995. The 1995 Stock Plan was amended in April 2000 and
we will have submitted the amendment for approval by our stockholders prior to
completion of this offering. A total of 3,269,275 shares of common stock have
been reserved for issuance under the 1995 Stock Plan, as amended, of which
1,489,486 have been issued and are outstanding as of February 29, 2000. The
number of shares reserved for issuance under the 1995 Stock Plan, as amended,
will be increased on the first day of each of our fiscal years from 2001
through 2005 by the lesser of:
. 600,000 shares;
. 3% of the common stock outstanding on the last day of the
immediately preceding fiscal year; or
. a lesser number of shares as determined by our board of directors.
The 1995 Stock Plan, as amended, provides for the grant of incentive
stock options, as defined in Section 422 of the Internal Revenue Code, to
employees and the grant of nonstatutory stock options and stock purchase rights
to employees, non-employee directors and consultants. The plan may be
administered by our board or a committee appointed by the board. The
administrator of the 1995 Stock Plan, as amended, will determine number,
vesting schedule, and exercise price for options, or conditions for stock
purchase rights, granted under the 1995 Stock Plan, as amended, provided,
however, that an individual employee may not receive option grants and stock
purchase rights for more than 2,000,000 shares in any fiscal year. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value in excess of $100,000 as of the date the options
were granted, the excess options will be treated as nonstatutory stock options.
Incentive stock options granted under the 1995 Stock Plan, as amended,
must have an exercise price equal to at least 100% of the fair market value of
the common stock on the date of the grant, and at least 110% of the fair market
value in the case of incentive stock options granted to an employee who holds
more than 10% of the total voting power of all classes of our stock or the
stock of any parent or subsidiary. Nonstatutory stock options granted under the
1995 Stock Plan, as amended, will have an exercise price as determined by the
administrator of the 1995 Stock Plan, as amended; provided, however, that the
exercise price of a nonstatutory stock option granted to certain of our
executive officers must equal at least 100% of the fair market value of the
common stock on the date of grant in order for that grant to qualify as
performance-based compensation under applicable tax law. Payment of the
exercise price may be made in cash or other forms of consideration approved by
the administrator.
The administrator determines the term of options, which may not exceed 10
years, or 5 years in the case of an incentive stock option granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock or the stock of any parent or subsidiary. Generally an option may not
be transferred by the optionee other than by will or the laws of descent or
distribution and each option may be exercised during the lifetime of the
optionee only by such optionee. The administrator of the 1995 Stock Plan, as
amended, may grant nonstatutory stock options with limited transferability
rights under circumstances set forth in the plan.
Options granted under the 1995 Stock Plan, as amended, will generally
vest at the rate of 1/4th of the total number of shares subject to the options
twelve months after the date of grant and 1/48th of the total number of shares
subject to the options each month thereafter.
In addition to stock options, the administrator may issue stock purchase
rights under the 1995 Stock Plan, as amended, to employees, non-employee
directors and consultants. The administrator determines the number of shares,
price, terms, conditions and restrictions related to a grant of stock purchase
rights. The purchase price of a stock purchase right granted under the 1995
Stock Plan, as amended, will be as determined by the administrator. The period
during which the stock purchase right is held open is determined by the
49
<PAGE>
administrator, but in no case shall this period exceed 30 days. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting us an option to
repurchase unvested shares at cost upon termination of the recipient's
relationship with us.
In the event we sell all or substantially all of our assets or merge with
or into another corporation, then each option may be assumed or an equivalent
option substituted by the successor corporation. However, if the successor
corporation does not agree to this assumption or substitution, the option or
stock purchase right will terminate. Upon the closing of the transaction,
outstanding repurchase rights will terminate unless assigned to the successor
corporation. The board of directors may amend, modify or terminate the 1995
Stock Plan, as amended, at any time as long as any amendment, modification or
termination does not impair vesting rights of plan participants and provided
that stockholder approval shall be required for an amendment to the extent
required by applicable law. The 1995 Stock Plan, as amended, will terminate in
November 2005 unless the board of directors terminates it earlier.
1999 Executive Stock Plan. The 1999 Executive Stock Plan was adopted by
our board of directors in May 1999. A total of 1,099,725 shares of common stock
have been reserved for issuance under the 1999 Executive Stock Plan. As of
February 29, 2000, 409,167 options were issued and outstanding or committed for
issuance with a weighted average exercise price of $4.67 per share and 117,276
shares remained available for future option or stock purchase right grants. We
do not intend to grant any additional options or stock purchase rights under
the 1999 Executive Stock Plan after the date of this offering. Unless
terminated earlier, the 1999 Executive Stock Plan will terminate in May 2009.
The terms of options and stock purchase rights under the 1999 Executive
Stock Plan are generally the same as those that may be issued under the 1995
Stock Plan, as amended, except with respect to the following features. The 1999
Executive Stock Plan does not impose a limitation on the number of shares
subject to options and stock purchase rights that may be issued to any
individual employee. Nonstatutory stock options and stock purchase rights
granted under the 1999 Executive Stock Plan are nontransferable in all cases
and must generally be granted with an exercise price or purchase price equal to
at least 85% of the fair market value of our common stock on the date of grant.
In the event we sell all or substantially all of our assets or merge with
or into another corporation, then each option may be assumed or an equivalent
option substituted by the successor corporation. However, if the successor
corporation does not agree to this assumption or substitution, the option or
stock purchase right will terminate. Upon the closing of the transaction,
outstanding repurchase rights will terminate unless assigned to the successor
corporation. In addition, the stock option agreements issued to optionees under
the 1999 Executive Stock Plan provide for accelerated vesting of specified
percentages of outstanding unvested options in the event that the optionee is
involuntarily terminated by us or our successor corporation within 12 months
following an asset sale or merger in which over 50% of our securities are
exchanged. The board of directors may amend, modify or terminate the 1999
Executive Stock Plan at any time as long as any amendment, modification or
termination does not impair vesting rights of plan participants and provided
that stockholder approval shall be required for an amendment to the extent
required by applicable law.
2000 Directors' Stock Option Plan. The 2000 Directors' Stock Option Plan
was adopted by our board of directors in April 2000. We will have submitted it
for approval by our stockholders prior to completion of this offering. A total
of 300,000 shares of common stock have been reserved for issuance under the
2000 Directors' Stock Option Plan, none of which have been issued as of the
date of this offering.
Under the 2000 Directors' Stock Option Plan, each person who is a non-
employee director on the completion of this offering will receive an automatic
initial grant of an option to purchase 10,000 shares of common stock and each
person who becomes a non-employee director after the completion of this
offering will receive an automatic initial grant of an option to purchase
20,000 shares of common stock upon appointment or election. The plan also
provides for annual grants, on the date of each annual meeting of our
stockholders, to
50
<PAGE>
each non-employee director who has served on our board of directors for at
least six months. The annual grant to non-employee directors is an option to
purchase 5,000 shares of common stock. The initial options granted under the
plan will vest at the rate of 50% of the total number of shares subject to the
options on each of the first two anniversaries of the date of grant of the
initial options. The annual options granted under the plan will vest at the
rate of 100% of the number of shares subject to the options on the first
anniversary of the date of grant of the annual options. The exercise price of
all stock options granted under the 2000 Directors' Stock Option Plan shall be
equal to the fair market value of a share of our common stock on the date of
grant of the option. Options granted under this plan have a term of ten years.
However, options will terminate if they are not exercised within 12 months
after the director's death or disability or within 90 days after the director
ceases to serve as a director for any other reason.
In the event of a sale of all or substantially all of our assets or our
merger with or into another corporation, all outstanding options shall be
assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to this assumption or
substitution, the option will terminate. In the event that an asset sale or
merger transaction results in a change in the ownership of more than 50% of the
total combined voting power of our outstanding securities, all outstanding
options shall become immediately exercisable prior to the closing of such
transaction.
The 2000 Directors' Stock Option Plan is designed to work automatically
without administration. However, to the extent administration is necessary, it
will be performed by the board of directors other than the director or
directors who have a personal interest at stake. Although the board of
directors may amend or terminate the 2000 Directors' Stock Option Plan, it may
not take any action that may adversely affect any outstanding option without
the consent of the optionee. The 2000 Directors' Stock Option Plan will have a
term of ten years unless terminated earlier. We have not issued any options
under the 2000 Directors' Stock Option Plan to date.
51
<PAGE>
RELATED PARTY TRANSACTIONS
Since October 1, 1996, there has not been any transaction or series of
similar transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any of our directors or
executive officers, any holder of more than 5% of any class of our voting
securities or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than:
. compensation arrangements, which are described where required
under "Management," and
. the transactions described below.
Agreements with Management
We have entered into indemnification agreements with our officers and
directors containing provisions that may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.
Stock and Warrant Purchases
Common Stock
. In August 1999, we acquired all the outstanding stock of Goldreyer
Incorporated doing business as BedandBreakfast.com in exchange for
1,462,106 shares of our common stock. Of this amount, 523,987
shares of our common stock were transferred to Eric L. Goldreyer,
an executive officer, in exchange for his interest in Goldreyer
Incorporated.
. In September 1999, certain of our executive officers executed
promissory notes in connection with the exercise of options to
purchase our common stock held by them. The shares of common stock
acquired by these executive officers that had not vested are
subject to a repurchase option in our favor. Our repurchase option
lapses at the same rate the underlying options would have vested.
The interest rate on the notes is 5.89% per annum. The term of the
notes is four years. The notes are full recourse and secured by
pledges of common stock under a Pledge and Security Agreement. The
notes are for the following executive officers and amounts:
<TABLE>
<CAPTION>
Name Amount
---- --------
<S> <C>
Gregory A. Jones............................................... $600,000
Wolfgang Kitza................................................. 405,000
Eric L. Goldreyer.............................................. 328,350
Eric J. Christensen............................................ 283,110
Gregory S. Curhan.............................................. 99,999
Domenic A. Rinaldi............................................. 60,000
Scott Potter................................................... 85,560
</TABLE>
Series B Preferred Stock
. In October 1996, we entered into a Note and Warrant Purchase
Agreement and Subordinated Promissory Note with Gregory A. Jones,
a director and executive officer, in the principal amount of
$200,000. We paid this note in full in January 1997. Pursuant to
this agreement we issued Mr. Jones a warrant to purchase 11,834
shares of Series B preferred stock at an exercise price of $3.38
per share.
. In January 1997, we sold 1,422,481 shares of Series B preferred
stock for $3.38 per share to various investors, including 295,858
shares to Technology Funding Partners III, L.P. and its
affiliates, which are affiliated with Gregory T. George, one of
our directors.
52
<PAGE>
Series C Preferred Stock
. In October 1997, we issued warrants to purchase 60,724 shares of
Series C preferred stock at an exercise price of $3.70 per share
to various investors, including a warrant to purchase 10,134
shares to Technology Funding Partners III, L.P. and its
affiliates, which are affiliated with Gregory T. George, one of
our directors.
. In December 1997, we sold 1,764,479 shares of Series C preferred
stock for $3.70 per share to various investors, including the
following sales to entities affiliated with our directors:
- 253,377 shares to Technology Funding Partners III, L.P. and its
affiliates, which are affiliated with Gregory T. George, one of
our directors; and
- 810,809 shares to Walden Media and Information and Technology
Fund, L.P. and its affiliates, which are affiliated with Steven
L. Eskenazi, one of our directors.
. In March and April 1998, we sold 1,409,160 shares of Series C
preferred stock for $3.70 per share and issued warrants to
purchase 380,409 shares of Series C preferred stock at an exercise
price of $4.63 per share to various investors, including:
- warrants to purchase 30,371 shares to Technology Funding
Partners III, L.P. and its affiliates, which are affiliated
with Gregory T. George, one of our directors;
- 270,270 shares and a warrant to purchase 32,397 shares to Times
Mirror Company, an affiliate of Eagle New Media Investments,
LLC, both of which were affiliated with Thomas Unterman, one of
our directors; and
- warrants to purchase 97,189 shares to Walden Media and
Information and Technology Fund, L.P. and its affiliates, which
are affiliated with Steven L. Eskenazi, one of our directors.
. In March 1999, we sold 35,135 shares of Series C preferred stock
for $3.70 per share to E. Stanton McKee, one of our directors.
Series D Preferred Stock
. In March 1999, we sold 1,983,468 shares of Series D preferred
stock for $6.05 per share to various investors, including the
following sales to entities affiliated with our directors:
- 826,446 shares to Eagle New Media Investments, LLC, which was
affiliated with Thomas Unterman, one of our directors;
- 123,967 shares to Technology Funding Partners III, L.P. and its
affiliates, which are affiliated with Gregory T. George, one of
our directors; and
- 165,290 shares to Walden Media and Information and Technology
Fund, L.P. and its affiliates, which are affiliated with Steven
L. Eskenazi, one of our directors.
. In August 1999, we sold 25,000 shares of Series D preferred stock
to a family trust of Gregory S. Curhan, an executive officer and
trustee of the trust, for $6.05 per share.
. In September 1999, we sold 70,871 shares of Series D preferred
stock for $6.05 per share to various investors, including:
- 23,000 shares to Thomas Unterman, one of our directors;
- 30,871 shares to E. Stanton McKee, one of our directors; and
- 17,000 shares to Michael Song, who is affiliated with Eagle New
Media Investments, LLC.
53
<PAGE>
Series E Preferred Stock
. In November and December 1999, we sold 2,518,259 shares of Series
E preferred stock for $11.62 per share to various investors,
including the following sales to our directors or entities
affiliated with our directors:
- 143,626 shares to Eagle New Media Investments, LLC, which was
affiliated with Thomas Unterman, one of our directors;
- 45,932 shares to Technology Funding Partners V, L.P., which is
affiliated with Gregory T. George, one of our directors;
- 64,544 shares to Walden Media and Information and Technology
Fund, L.P. and its affiliates, which are affiliated with Steven
L. Eskenazi, one of our directors; and
- 8,605 shares to E. Stanton McKee, one of our directors.
The following table summarizes the shares of preferred stock purchased
by 5% stockholders affiliated with directors, other 5% shareholders of
WorldRes.com and persons and entities associated with them in private
placement transactions. Each share of each series of preferred stock converts
automatically upon closing of the offering into one share of common stock. See
"Principal Stockholders."
<TABLE>
<CAPTION>
Series B Series C Series D Series E
Entities Affiliated with Directors Preferred Preferred Preferred Preferred
- ---------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Walden Media and Information and
Technology Fund, L.P.(1)........... -- 907,998(2) 165,290 64,544
Technology Funding Partners III,
L.P.(3)............................ 295,858 293,882(4) 123,967 45,392
<CAPTION>
Other 5% Stockholders
- ---------------------
<S> <C> <C> <C> <C>
Eagle New Media Investments,
LLC(5)............................. -- 302,667(6) 826,446 143,626
Sandler Capital IV Partners, L.P.... -- 635,601(7) 148,760 86,058
Fayez Sarofim Investment Partnership
No. 5, L.P......................... 295,858 369,001(8) 82,644 172,117
Scripps Ventures, LLC............... 591,716 133,769(9) -- --
</TABLE>
- --------
(1) Includes shares held by Walden EDB Partners, L.P., Walden Japan Partners,
L.P., Walden-SBIC, L.P. and Walden Technology Ventures II, L.P.
(2) Includes 97,189 shares of Series C preferred stock issuable upon the
exercise of warrants.
(3) Includes shares held by Technology Funding Venture Partners IV, an
Aggressive Growth Fund, L.P., Technology Funding Venture Partners V, an
Aggressive Growth Fund, L.P. and Technology Funding Partners III, L.P.
(4) Includes 40,505 shares of Series C preferred stock issuable upon the
exercise of warrants.
(5) Includes shares held by the Times Mirror Company, which is an affiliate of
Eagle New Media Investments, LLC.
(6) Includes 32,397 shares of Series C preferred stock issuable upon the
exercise of warrants.
(7) Includes 68,034 shares of Series C preferred stock issuable upon the
exercise of warrants.
(8) Includes 48,547 shares of Series C preferred stock issuable upon the
exercise of warrants.
(9) Includes 32,418 shares of Series C preferred stock issuable upon the
exercise of warrants.
For descriptions of other transactions between management and us, see
executive compensation.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 29, 2000 and as adjusted to
reflect the sale of the common stock offered by WorldRes.com under this
prospectus by:
. each of our directors and Named Officers;
. all directors and executive officers as a group; and
. each person who is known to us to own beneficially more than 5% of
our common stock.
Except as otherwise noted, the address of each person listed in the table
is c/o WorldRes.com, 1510 Fashion Island Boulevard, Suite 100, San Mateo, CA
94404. The table includes all shares of common stock issuable within 60 days of
February 29, 2000 upon the exercise of options and other rights beneficially
owned by the indicated stockholders on that date. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
our knowledge, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 14,107,229 shares of
common stock outstanding as of February 29, 2000, together with applicable
options for that stockholder. Shares of common stock issuable upon exercise of
options and other rights beneficially owned are deemed outstanding for the
purpose of computing the percentage ownership of the person holding these
options and other rights, but are not deemed outstanding for computing the
percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering(1) Offering(1)
----------------- -----------------
Number Percent Number Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Gregory A. Jones(2)....................... 591,390 4.2% 591,390 %
Paul N. Wyatt(3).......................... 170,000 1.2 170,000
Scott Potter.............................. 83,139 0.6 83,139
Domenic A. Rinaldi(4)..................... 170,000 1.2 170,000
Eric J. Christensen(5).................... 534,667 3.8 534,667
Steven L. Eskenazi(6)..................... 1,137,832 8.1 1,137,832
Gregory T. George(7)...................... 1,043,507 7.4 1,043,507
E. Stanton McKee(8)....................... 100,378 0.7 100,378
Thomas Unterman........................... 23,000 0.2 23,000
Walden Media and Information and
Technology Fund, L.P.(9)
750 Battery Street, 7th Floor
San Francisco, CA 94111.................. 1,137,832 8.1 1,137,832
Technology Funding Partners III, L.P.(10)
2000 Alameda de las Pulgas
San Mateo, CA 94403...................... 1,043,507 7.4 1,043,507
Eagle New Media Investments, LLC(11)
220 W. 1st Street, 2nd Floor
Los Angeles, CA 90053.................... 1,272,739 9.0 1,272,739
Sandler Capital IV Partners, L.P.(12)
767 5th Avenue
New York, NY 10153....................... 870,419 6.2 870,419
Fayez Sarofim Investment Partnership No.
5, L.P. (13)
Two Houston Center, Suite 2907
Houston, TX 77010........................ 919,620 6.5 919,620
Scripps Ventures, LLC (14)
200 Madison Avenue
New York, NY 10016....................... 725,485 5.1 725,485
All directors and executive officers as a
group (12 persons) (15).................. 4,530,741 32.1 4,530,741
</TABLE>
55
<PAGE>
- --------
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) Includes options to purchase 347,500 shares and warrants to purchase 14,052
shares. Excludes 100,000 shares held by the Jones Family Revocable Trust of
which Mr. Jones is not the trustee.
(3) Includes options to purchase 115,625 shares exercisable within 60 days of
February 29, 2000.
(4) Includes options to purchase 127,946 shares exercisable within 60 days of
February 29, 2000.
(5) Includes options to purchase 127,500 shares exercisable within 60 days of
February 29, 2000.
(6) All shares are held by entities related to Walden Media and Information and
Technology Fund, L.P. Mr. Eskenazi is a manager and limited partner of
Walden Media and Information and Technology Fund, L.P. and disclaims
ownership of such shares in which he has no pecuniary interest. See Note
(9).
(7) All shares are held by entities related to Technology Funding Partners III,
L.P. Mr. George is managing general partner of Technology Funding Partners
III, L.P. and disclaims ownership of such shares in which he has no
pecuniary interest. See Note (10).
(8) Includes options to purchase 25,767 shares.
(9) Includes 702,374 shares and warrants to purchase 64,794 shares held by
Walden Media and Information and Technology Fund, L.P. ("Walden Media"),
34,680 shares and warrants to purchase 3,239 shares held by Walden EDB
Partners, L.P., 34,680 shares and warrant to purchase 3,239 shares held by
Walden Japan Partners, L.P., 216,856 shares and warrants to purchase 20,734
shares held by Walden-SBIC, L.P. and 52,053 shares and warrants to purchase
5,183 shares held by Walden Technology Ventures II, L.P., which are related
to Walden Media. Mr. Eskenazi, a director of WorldRes.com, is a manager and
limited partner of the general partnership of Walden Media and disclaims
ownership of such shares in which he has no pecuniary interest. See Note
(6).
(10) Includes 434,392 shares and warrants to purchase 24,305 shares held by
Technology Funding Partners III, L.P. ("Technology Funding III"), 268,210
shares and warrants to purchase 16,198 shares held by Technology Fund II
Pte Ltd, Singapore, 155,918 shares and warrants to purchase 9,721 shares
held by Technology Funding Venture Partners IV, an Aggressive Growth Fund,
L.P., 117,127 shares and warrants to purchase 6,479 shares held Technology
Funding Venture Partners V, an Aggressive Growth Fund, L.P. and 11,157
shares held by Technology Funding Venture Partners VI, L.L.C., which are
related to Technology Funding III. Mr. George, a director of WorldRes.com,
is a managing general partner of Technology Funding III, and disclaims
ownership of such shares in which he has no pecuniary interest. See Note
(7).
(11) Includes 970,072 shares held by Eagle New Media Investments, LLC and
302,667 shares held by The Times Mirror Company.
(12) Includes warrants to purchase 68,034 shares.
(13) Includes warrants to purchase 48,547 shares.
(14) Includes warrants to purchase 32,418 shares.
(15) Includes 3,251,513 shares and warrants to purchase shares held by entities
affiliated with certain directors as described in Notes (6) and (7) above
and 1,279,228 shares issuable pursuant to the exercise of outstanding
options and warrants.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, WorldRes.com will be authorized to
issue 50,000,000 shares of common stock, $0.001 par value per share, and
2,000,000 shares of undesignated preferred stock, $0.001 par value per share.
All currently outstanding shares of preferred stock will be converted into
common stock upon the closing of this offering.
Common Stock
As of February 29, 2000 there were 14,239,932 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
Series A preferred stock, Series B preferred stock, Series C preferred stock,
Series D preferred stock, and Series E preferred stock, and the conversion of
such shares into common stock held of record by 186 stockholders. Options to
purchase 1,898,653 shares of common stock were also outstanding. There will be
shares of common stock outstanding (assuming no exercise of the
underwriter's over-allotment option or exercise of outstanding options under
our stock plans after February 29, 2000) after giving effect to the sale of the
shares in this offering.
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of WorldRes.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to the
prior distribution rights of any outstanding preferred stock. The common stock
has no preemptive or conversion rights or other subscription rights. The
outstanding shares of common stock are, and the shares of common stock to be
issued upon completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into shares of common stock and automatically retired.
Thereafter, the Board of Directors will have the authority, without further
action by the stockholders, to issue up to 2,000,000 shares of preferred stock,
$0.001 par value, in one or more series. The Board of Directors will also have
the authority to designate the rights, preferences, privileges and restrictions
of each such series, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of WorldRes.com without further
action by the stockholders. The issuance of preferred stock with voting and
conversion rights may also adversely affect the voting power of the holders of
common stock. In certain circumstances, an issuance of preferred stock could
have the effect of decreasing the market price of the common stock. As of the
closing of the offering, no shares of preferred stock will be outstanding. We
currently have no plans to issue any shares of preferred stock.
Warrants
At February 29, 2000 there were warrants outstanding to purchase an
aggregate of 637,840 shares of capital stock. Generally, each warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications,
consolidations and certain dilutive issuances of securities at prices below the
then existing warrant exercise price.
Registration Rights
The holders of 9,676,817 shares of common stock (assuming the conversion
of all outstanding preferred stock upon completion of this offering) and
options and warrants to purchase 520,658 shares of
57
<PAGE>
common stock or their transferees are entitled to certain rights with respect
to the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between WorldRes.com and the holders
of these securities. Subject to limitations in the agreement, the holders of at
least 40% of these securities then outstanding may require, on two occasions
beginning 180 days after the date of this prospectus, that WorldRes.com use its
best efforts to register these securities for public resale if Form S-3 is not
available. If WorldRes.com registers any of its common stock either for its own
account or for the account of other security holders, the holders of these
securities are entitled to include their shares of common stock in that
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. The holders of these securities may also
require WorldRes.com, not more than twice in any twelve-month period, to
register all or a portion of these securities on Form S-3 when the use of that
form becomes available to WorldRes.com, provided, among other limitations, that
the proposed aggregate selling price, net of any underwriters' discounts or
commissions, is at least $1,000,000. WorldRes.com will be responsible for
paying all registration expenses, and the holders selling their shares will be
responsible for paying all selling expenses.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our charter documents could make the
acquisition of us and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of WorldRes.com to negotiate with us first.
We believe that the benefits of increased protection of our potential ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
We are subject to the provisions of Section 203 of the Delaware 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 that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, 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. These provisions may have
the effect of delaying, deferring or preventing a change in control of
WorldRes.com without further action by the stockholders.
Our charter and bylaws, that become effective upon the completion of this
offering, provide that stockholder action can be taken only at an annual or
special meeting of stockholders and may not be taken by written consent. Our
bylaws provide that special meetings of stockholders can be called only by the
Board of Directors, the Chairman of the Board, if any, the President and
holders of 50% of the votes entitled to be cast at a meeting. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting by the Board of Directors,
the Chairman of the Board, if any, the President or any such 50% holder. Our
Bylaws set forth an advance notice procedure with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to business to be brought before a
meeting of stockholders. In addition, our charter provides that when we are no
longer subject to the provisions of Section 2115 of the California Corporations
Code, the board of directors will be divided into three classes, each serving
staggered three-year terms. The classification of our board could have the
effect of making it more difficult for a third party to acquire control of us,
because it would typically take more than a year for our stockholders to elect
a majority of our board.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, LLC. The Transfer Agent's address and telephone number is
450 West 33rd Street, 10th Floor, New York, NY 10001, (212) 273-8040.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for WorldRes.com common
stock. We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will depress the market price for
our common stock or our ability to raise capital by offering equity securities.
Sales of substantial amounts of common stock, or the perception that these
sales could occur, may depress prevailing market prices for the common stock.
After this offering, approximately shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradable,
except for any shares purchased by affiliates of WorldRes.com. The remaining
shares of common stock outstanding after this offering are "restricted
securities" within the meaning of Rule 144 under the Securities Act or are
subject to lockup agreements. These remaining shares will be available for sale
in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Availability
---------------- --------------------
<C> <S>
As of the date of this prospectus
180 days after the date of this prospectus, if the sales
meet certain restrictions under the federal securities laws
At various times thereafter, if the sales meet certain
restrictions under the federal securities laws
</TABLE>
FleetBoston Robertson Stephens Inc. may release all or a portion of the
shares subject to these lockup agreements at any time without notice. See
"Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares
of our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then
outstanding, which will equal approximately shares
immediately after this offering; or
. the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to 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 us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period for any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
59
<PAGE>
their shares. However, substantially all Rule 701 shares are subject to lockup
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lockup agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of FleetBoston Robertson
Stephens Inc.
In addition, we intend to file registration statements on Form S-8 under
the Securities Act as promptly as possible after the effective date registering
shares of common stock subject to outstanding options or reserved for issuance
under our stock plans. As of February 29, 2000, options to purchase a total of
1,898,653 shares were outstanding under our stock plans. The S-8 registration
statement will become effective immediately upon filing, at which time subject
to the satisfaction of applicable exercisability periods, Rule 144 volume
limitations applicable to affiliates and, in certain cases, the agreements with
the underwriters referred to above, shares of Common Stock to be issued upon
exercise of outstanding options granted pursuant to our stock plans will be
available for immediate resale in the open market.
60
<PAGE>
UNDERWRITING
FleetBoston Robertson Stephens Inc., J.P. Morgan Securities Inc. and
Prudential Securities Incorporated are acting as representatives (the
"Representatives") of each of the underwriters named below. Subject to the
terms and conditions set forth in a purchase agreement (the "Purchase
Agreement") among us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from us, the number of shares of common stock set forth opposite
its name below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc...............................
J.P. Morgan Securities Inc. .....................................
Prudential Securities Incorporated...............................
------
Total.....................................................
======
</TABLE>
In the Purchase Agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to each such agreement if any of the shares of
common stock being sold pursuant to such agreement are purchased. In the event
of a default by an underwriter, the Purchase Agreement provides that, in
certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the Purchase Agreement may be terminated.
The Representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $
per share of common stock. The underwriters may allow, and such dealers may re-
allow, a discount not in excess of $ per share of common stock to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may change.
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of Common Stock offered hereby for
certain individuals who have expressed an interest in purchasing such shares of
Common Stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.
We have granted options to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise these options solely to cover over-allotments, if
any, made on the sale of the common stock offered hereby. To the extent that
the underwriters exercise these options, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
common stock proportionate to such underwriters initial amount reflected in the
foregoing table.
61
<PAGE>
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price................ $ $ $
Underwriting Discount................ $ $ $
Proceeds, before expenses, to us..... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount and
commissions) are estimated at $ and are payable by us.
Prudential Securities Incorporated facilitates the marketing of new
issues online through its PrudentialSecurities.com division. Clients of
Prudential AdvisorSM, a full service brokerage firm program, may view offering
terms and a prospectus online and place orders through their financial
advisors.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
We and our executive officers, directors and certain stockholders
beneficially owning in the aggregate [ ] shares of common stock have
agreed, subject to certain exceptions, not to directly or indirectly (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of or otherwise dispose of or transfer any shares of common stock or
securities convertible into or exchangeable or exercisable for or repayable
with common stock, whether now owned or thereafter acquired by the person
executing the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a registration
statement under the Securities Act with respect to the foregoing; (2) enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequence of ownership of the common stock whether any such swap or
transaction is to be settled by delivery of common stock or other securities,
in cash or otherwise; or (3) make any demand for, or exercise any right with
respect to, the registration of any share of common stock or any securities
convertible into or exchangeable for common stock, without the prior written
consent of FleetBoston Robertson Stevens Inc. on behalf of the underwriters for
a period of 180 days after the date of this prospectus. FleetBoston Robertson
Stevens Inc. may give its consent to do any of these things, and may release
all or a portion of the shares subject to these lockup agreements, at any time
without notice.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the Representatives. The factors to be considered
in determining the initial public offering price, in addition to prevailing
market conditions, are expected to be price-revenue and discounted price-
earnings ratios of publicly traded companies that the Representatives believe
to be comparable to us, certain of our financial information, the history of,
and the prospects for, us and the industry in which we compete, and an
assessment of our management, our past and present operations, the prospects
for, and timing of, our future revenues, and the present state of our
development. There can be no assurance that an active trading market will
develop for the common stock or that the common stock will trade in the public
market subsequent to this offering at or above the initial public offering
price.
The underwriters do not expect sales of the common stock to be made to
any accounts over which they exercise discretionary authority to exceed 5% of
the number of shares being offered hereby.
The underwriters do not intend to confirm sales of the common stock
offered hereby to any accounts over which they exercise discretionary
authority.
62
<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of this offering.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase the common stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering contemplated hereby, i.e., if they sell more
shares of common stock than are set forth on the cover page of this prospectus,
the Representatives may reduce that short position by purchasing common stock
in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment options described
above.
The Representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the Representatives purchase
shares of common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it discourages resales of the common stock.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued.
Entities affiliated with FleetBoston Robertson Stephens Inc. purchased an
aggregate of 99,751 shares and warrants to purchase 7,043 shares preferred
stock of WorldRes.com, on the same terms as other investors in private
placements by WorldRes.com. In addition, FleetBoston Robertson Stephens Inc.
received from us a fee of approximately $600,000 for acting as placement agent
in connection with the private placement of our Series E preferred stock.
63
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
WorldRes.com by Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Skadden, Arps, Slate, Meagher and Flom LLP, Palo Alto,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at September 30, 1998 and 1999, and for each of the three
years ended September 30, 1999, as detailed in their report. We have included
our consolidated financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The financial statements of Goldreyer Incorporated included in this
prospectus and elsewhere in the registration statement to the extent and for
the periods indicated in their report have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding Goldreyer Incorporated's ability to continue as a going
concern as discussed in Note 1 to the financial statements.
ADDITIONAL INFORMATION AVAILABLE TO YOU
WorldRes.com has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect 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. For further information with respect to WorldRes.com and the common
stock offered hereby, reference is made to the Registration Statement and to
the exhibits and schedules. Statements made in this prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and the exhibits and schedules
may be inspected without charge at the public reference facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, NY 10048, and the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement may be obtained from the SEC's offices upon payment of
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WORLDRES.COM
Consolidated Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets at September 30, 1998 and 1999, and December
31, 1999................................................................ F-3
Consolidated Statements of Operations for the years ended September 30,
1997, 1998, 1999, and three months ended December 31, 1998 and 1999..... F-4
Consolidated Statement of Shareholders' Equity for the years ended
September 30, 1996, 1997, 1998, 1999, and three months ended December
31, 1999................................................................ F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1998, 1999, and three months ended December 31, 1998 and 1999..... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Pro Forma Condensed Combined Consolidated Financial Information
Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended September 30, 1999........................ F-21
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
Audited Financial Information
Report of Independent Public Accountants................................. F-23
Balance Sheets at December 31, 1997 and 1998............................. F-24
Statements of Operations for the years ended December 31, 1996, 1997, and
1998.................................................................... F-25
Statement of Stockholders' Equity (Net Capital Deficiency) for the years
ended December 31, 1996, 1997, and 1998................................. F-26
Statements of Cash Flows for the years ended December 31, 1996, 1997, and
1998.................................................................... F-27
Notes to Financial Statements............................................ F-28
Unaudited Interim Financial Information
Unaudited Condensed Statements of Operations for the periods from January
1 to August 10, 1998 and 1999........................................... F-34
Unaudited Statements of Cash Flows for the periods from January 1 to
August 10, 1998 and 1999................................................ F-35
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
WorldRes.com
We have audited the accompanying consolidated balance sheets of WorldRes.com as
of September 30, 1998 and 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years
ended September 30, 1999. 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 auditing standards generally
accepted in the United States. 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 WorldRes.com at September 30,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years ended September 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
October 15, 1999,
except for the paragraphs under the caption "Convertible Preferred Stock" in
Note 6, as to which the date is
December 17, 1999
F-2
<PAGE>
WORLDRES.COM
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
September 30, December 31, Equity at
------------------ ------------ December 31,
1998 1999 1999 1999
-------- -------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 4,873 $ 4,510 $ 24,242
Accounts receivable, net of
allowance for doubtful
accounts of $17 and $58 at
September 30, 1998 and 1999,
and $64 at December 31,
1999......................... 142 562 548
Prepaid expenses and other
current assets............... 205 700 1,863
-------- -------- --------
Total current assets........ 5,220 5,772 26,653
Property and equipment, net..... 954 2,335 3,871
Intangible assets............... -- 5,283 5,041
Other assets.................... 43 876 807
-------- -------- --------
$ 6,217 $ 14,266 $ 36,372
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............. $ 227 $ 470 $ 1,851
Accrued liabilities........... 252 2,060 2,168
Deferred revenue.............. -- 175 227
Current portion of capital
lease obligations............ 324 460 468
-------- -------- --------
Total current liabilities... 803 3,165 4,714
Capital lease obligations and
other long term liabilities.... 505 690 642
Commitments
Shareholders' equity:
Preferred stock: $0.001 par
value; none authorized at
September 30, 1998 and 1999,
and December 31, 1999
(2,000,000 shares pro forma);
none issued and outstanding
at September 30, 1998 and
1999, December 31, 1999 and
pro forma.................... -- -- -- --
Convertible preferred stock:
$0.001 par value, issuable in
series, 10,882,024,
12,852,624 and 16,011,922
shares authorized at
September 30, 1998, 1999 and
December 31, 1999 (none pro
forma); 5,033,319, 7,157,839
and 9,676,098 shares issued
and outstanding at September
30, 1998, 1999 and December
31, 1999 (none pro forma);
aggregate liquidation
preference of $17,206,
$29,953 and $59,215 at
September 30, 1998, 1999 and
December 31, 1999 (none pro
forma)....................... 5 7 10 --
Common stock: $0.001 par
value; 24,000,000, 25,000,000
and 25,000,000 shares
authorized at September 30,
1998, 1999 and December 31,
1999 (50,000,000 pro forma);
775,567, 3,131,301 and
3,162,956 shares issued and
outstanding at September 30,
1998, 1999 and December 31,
1999 (14,214,193 pro forma).. 1 3 3 14
Additional paid-in capital.... 17,196 42,121 71,459 71,458
Notes receivable from
officers..................... -- (1,862) (1,862) (1,862)
Deferred stock compensation... -- (4,111) (3,677) (3,677)
Accumulated deficit........... (12,293) (25,747) (34,917) (34,917)
-------- -------- -------- --------
Total shareholders' equity.. 4,909 10,411 31,016 31,016
-------- -------- -------- --------
$ 6,217 $ 14,266 $ 36,372 $ 36,372
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
WORLDRES.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
September 30, December 31,
-------------------------- --------------------
1997 1998 1999 1998 1999
------- ------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
Reservation................ $ 71 $ 294 $ 1,322 $ 151 $ 479
Other...................... -- 162 406 105 179
------- ------- -------- --------- ---------
Total net revenue........ 71 456 1,728 256 658
------- ------- -------- --------- ---------
Cost of revenue:
Reservation................ 4 30 191 15 65
Other...................... -- 28 41 15 27
------- ------- -------- --------- ---------
Total cost of revenue.... 4 58 232 30 92
------- ------- -------- --------- ---------
Gross profit................. 67 398 1,496 226 566
Operating expenses:
Technology and
development............... 1,123 1,531 3,178 667 2,005
Sales and marketing........ 2,461 3,948 8,588 1,322 5,511
General and
administrative............ 766 1,150 2,204 317 876
Deferred stock compensation
and warrant expense....... -- -- 742 15 762
Amortization of intangible
assets.................... -- -- 386 -- 694
------- ------- -------- --------- ---------
Total operating expenses..... 4,350 6,629 15,098 2,321 9,848
------- ------- -------- --------- ---------
Loss from operations......... (4,283) (6,231) (13,602) (2,095) (9,282)
Interest and other income,
net......................... 28 236 268 50 152
Interest expense............. (95) (152) (155) (30) (40)
------- ------- -------- --------- ---------
Net loss..................... $(4,350) $(6,147) $(13,489) (2,075) $ (9,170)
======= ======= ======== ========= =========
Basic and diluted net loss
per share................... $(10.77) $(10.80) $ (18.03) $ (3.12) $ (4.31)
======= ======= ======== ========= =========
Shares used in computing
basic and diluted net loss
per share................... 404 569 748 666 2,128
======= ======= ======== ========= =========
Pro forma basic and diluted
net loss per share
(unaudited)................. $ (1.96) $ (0.80)
======== =========
Shares used in computing pro
forma basic and diluted net
loss per share (unaudited).. 6,865 11,427
======== =========
</TABLE>
Technology and development expenses exclude $155,000 in the year ended
September 30, 1999, and $103,000 in the three months ended December 31, 1999,
relating to and therefore included in deferred stock compensation and warrant
expense.
Sales and marketing expenses exclude $292,000 in the year ended September
30, 1999, and $228,000 in the three months ended December 31, 1999, relating to
and therefore included in deferred stock compensation and warrant expense.
General and administrative expenses exclude $295,000 in the year ended
September 30, 1999, and $15,000 and $431,000 in the three months ended December
31, 1998 and 1999, relating to and therefore included in deferred stock
compensation and warrant expense.
See accompanying notes.
F-4
<PAGE>
WORLDRES.COM
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Total
---------------- ---------------- Paid-In from Stock Accumulated Shareholders'
Shares Amount Shares Amount Capital Officers Compensation Deficit Equity
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996................... 437,199 $ 1 704,000 $ 1 $ 696 -- -- $ (1,796) $(1,098)
Issuance of common stock
to employees upon
exercise of stock
options................ -- -- 58,144 -- 18 -- -- -- 18
Issuance of Series B
convertible preferred
stock, net of issuance
costs.................. 1,422,481 1 -- -- 4,759 -- -- -- 4,760
Net loss................ -- -- -- -- -- -- -- (4,350) (4,350)
--------- --- --------- --- ------- ------- ------- -------- -------
Balance at September 30,
1997................... 1,859,680 2 762,144 1 5,473 -- -- (6,146) (670)
Issuance of common stock
to employees upon
exercise of stock
options................ -- -- 13,423 -- 2 -- -- -- 2
Issuance of Series C
convertible preferred
stock, net of issuance
costs.................. 3,173,639 3 -- -- 11,718 -- -- -- 11,721
Issuance of warrants.... -- -- -- -- 3 -- -- 3
Net loss................ -- -- -- -- -- -- -- (6,147) (6,147)
--------- --- --------- --- ------- ------- ------- -------- -------
Balance at September 30,
1998................... 5,033,319 5 775,567 1 17,196 -- -- (12,293) 4,909
Issuance of common stock
to employees upon
exercise of stock
options................ -- -- 893,628 1 2,006 $(1,862) -- -- 145
Issuance of Series C
convertible preferred
stock, net of issuance
costs.................. 35,726 -- -- -- 132 -- -- -- 132
Issuance of Series C
convertible preferred
stock upon exercise of
warrants............... 9,455 -- -- -- 39 -- -- -- 39
Issuance of Series D
convertible preferred
stock, net of issuance
costs.................. 2,079,339 2 -- -- 12,553 -- -- -- 12,555
Issuance of common stock
in exchange for
BedandBreakfast.com's
common stock........... -- -- 1,462,106 1 7,821 -- $(2,479) -- 5,343
Deferred stock
compensation related to
grant of stock
options................ -- -- -- -- 2,374 -- (2,374) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 742 -- 742
Currency translation
adjustment............. -- -- -- -- -- -- -- 35 35
Net loss................ -- -- -- -- -- -- -- (13,489) (13,489)
--------- --- --------- --- ------- ------- ------- -------- -------
Balance at September 30,
1999................... 7,157,839 7 3,131,301 3 42,121 (1,862) (4,111) (25,747) 10,411
Issuance of common stock
to employees upon
exercise of stock
options (unaudited).... -- -- 16,295 -- 31 -- -- -- 31
Issuance of Series E
convertible preferred
stock, net of issuance
costs.................. 2,518,259 3 -- -- 28,717 -- -- -- 28,720
Issuance of common stock
in exchange for
Munsenware common stock
(unaudited)............ -- -- 15,000 -- 114 -- -- -- 114
Deferred stock
compensation related to
grant of stock options
(unaudited)............ -- -- -- -- 309 -- (309) -- --
Issuance of warrants for
services (unaudited)... -- -- -- -- 167 -- -- -- 167
Amortization of deferred
stock compensation
(unaudited)............ -- -- -- -- -- -- 743 -- 743
Net loss (unaudited).... (9,170) (9,170)
--------- --- --------- --- ------- ------- ------- -------- -------
Balance at December 31,
1999 (unaudited) ...... 9,676,098 $10 3,162,596 $ 3 $71,459 $(1,862) $(3,677) $(34,917) $31,016
========= === ========= === ======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
WORLDRES.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
September 30, December 31,
-------------------------- --------------------
1997 1998 1999 1998 1999
------- ------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss..................... $(4,350) $(6,147) $(13,489) $(2,075) $ (9,170)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 129 259 636 117 357
Deferred stock compensation
and warrant expense....... -- -- 742 15 762
Amortization of intangible
assets.................... -- -- 386 -- 694
Changes in operating assets
and liabilities:
Accounts receivable...... (7) (132) (388) (104) 14
Prepaid expenses and
other current assets.... (2) (163) (463) 81 (1,015)
Other assets............. -- (17) (833) (1) 69
Accounts payable......... 151 (63) 40 (18) 1,381
Accrued liabilities...... 76 33 1,719 249 108
Deferred revenue......... -- -- (32) -- 52
------- ------- -------- --------- ---------
Net cash used in operating
activities.................. (4,003) (6,230) (11,682) (1,736) (6,748)
------- ------- -------- --------- ---------
Investing activities
Purchases of property and
equipment................... (14) (225) (1,466) (35) (1,893)
Payment for purchase of
Munsenware.................. -- -- -- -- (300)
------- ------- -------- --------- ---------
Net cash used in investing
activities.................. (14) (225) (1,466) (35) (2,193)
------- ------- -------- --------- ---------
Financing activities
Proceeds from issuance of
convertible preferred stock,
net......................... 3,952 10,598 12,725 -- 28,720
Proceeds from issuance of
common stock................ 18 2 146 2 31
Proceeds from issuance of
note payable to bank, net... 300 -- -- -- --
Repayment of note payable to
bank........................ -- (500) -- -- --
Proceeds from issuance of
note payable to officer..... 200 -- -- -- --
Repayment of note payable to
officer..................... (275) -- -- -- --
Proceeds from issuance of
convertible debt............ 100 1,123 -- -- --
Proceeds from issuance of
warrants.................... -- 3 -- -- --
Principal payments under
capital lease obligations... (62) (202) (86) (90) (78)
------- ------- -------- --------- ---------
Cash provided by financing
activities.................. 4,233 11,024 12,785 (88) 28,673
------- ------- -------- --------- ---------
Net increase (decrease) in
cash and cash equivalents... 216 4,569 (363) (1,859) 19,732
Cash and cash equivalents at
beginning of period......... 88 304 4,873 4,873 4,510
------- ------- -------- --------- ---------
Cash and cash equivalents at
end of period............... $ 304 $ 4,873 $ 4,510 $ 3,014 $ 24,242
======= ======= ======== ========= =========
Supplemental disclosure of
cash flow information
Cash paid for interest....... $ 110 $ 152 $ 153 $ 27 $ 39
======= ======= ======== ========= =========
Supplemental disclosure of
noncash transactions
Conversion of debt to
convertible preferred
stock....................... $ 808 $ 1,123 $ -- $ -- $ --
======= ======= ======== ========= =========
Equipment acquired under
capital lease arrangements.. $ 263 $ 590 $ 408 $ -- $ --
======= ======= ======== ========= =========
Deferred stock compensation.. $ -- $ -- $ 2,374 $ -- $ 309
======= ======= ======== ========= =========
Issuance of common stock in
exchange for
BedandBreakfast.com's common
stock....................... $ -- $ -- $ 5,343 $ -- $ --
======= ======= ======== ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
1. Organization and Summary of Significant Accounting Policies
Description of Business
WorldRes.com ("WorldRes" or the "Company"), formerly WorldRes, Inc., was
incorporated in California in July 1995. WorldRes provides a leading business-
to-business e-commerce solution for online marketing and reservations to the
highly fragmented global hotel industry. WorldRes' Internet-based reservation
system connects hotels to travel web sites creating an e-commerce network. This
network enables these web sites to provide travelers with the ability to
collect information and make real-time, confirmed hotel reservations online.
WorldRes has incurred operating losses from inception to date. WorldRes
had an accumulated deficit of $25.7 million at September 30, 1999, and $34.9
million at December 31, 1999. WorldRes' activities have been primarily financed
with the net proceeds from private placements of equity securities, such as a
$28.7 million Series E preferred stock issuance discussed in Note 6, as well as
capital equipment lease financing. WorldRes anticipates the need to raise
additional capital through the issuance of debt or equity securities. Such
financing may not be available on terms satisfactory to WorldRes, if at all.
Interim Financial Information
The financial information as of December 31, 1999 and for the three
months ended December 31, 1998 and 1999 are unaudited but include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. Results for
the three months ended December 31, 1999 are not necessarily indicative of
results to be expected for the entire year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of WorldRes
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Foreign Currency Translation
WorldRes translates the assets and liabilities of its foreign
subsidiaries stated in local functional currencies to U.S. dollars at the rates
of exchange in effect at the end of the period. Revenues and expenses are
translated using rates of exchange in effect during the period. Gains and
losses from currency translation are included in shareholders' equity. Currency
transaction gains or losses are recognized in current operations and have not
been significant to its operating results in any period.
Cash and Cash Equivalents
WorldRes considers all highly liquid investment securities with
maturities from date of purchase of three months or less to be cash
equivalents.
F-7
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
Concentrations
Financial instruments that potentially subject WorldRes to concentrations
of credit risk consist principally of investments in debt securities and
accounts receivable. WorldRes is exposed to credit risks in the event of
default by the financial institutions or issuers of investments to the extent
recorded on the balance sheet. WorldRes generally does not require collateral
from its customers. WorldRes maintains an allowance for potential credit losses
and such losses have been within management's expectations. No allowance for
doubtful debts was deemed necessary during fiscal 1997. There were no write-
offs of uncollectible accounts during fiscal 1997. During fiscal 1998, 1999,
and the quarter ended December 31, 1999, WorldRes increased its allowance for
doubtful accounts by $31,000, $177,000 and $8,000, respectively and write-offs
of uncollectible accounts totaled $14,000, $136,000 and $1,000, respectively.
No individual customer accounted for greater than 10% of the total
revenues during fiscal 1997, 1998, 1999, or during the three months ended
December 31, 1998 or 1999.
Fair Value of Financial Instruments
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to WorldRes for debt
instruments with similar terms, degrees of risk, and remaining maturities. The
carrying values of these obligations approximate their respective fair values.
Property and Equipment
Property and equipment, including equipment leased under capital leases,
are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided on a straight-line basis over the
lesser of the estimated useful life, generally three years, or the lease term
of respective assets.
Development Costs
Since October 1, 1999, WorldRes has accounted for internal use software
costs, including web site development costs, in accordance with Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). In accordance with SOP 98-1, WorldRes
capitalizes its costs to develop software for its web site and other internal
uses when preliminary development efforts are successfully completed and
management has authorized and committed project funding and it is probable that
the project will be completed and the software will be used as intended. Costs
incurred prior to meeting these criteria, together with costs incurred for
training and maintenance, are expensed. Costs incurred for upgrades and
enhancements that are probable to result in additional functionality are
capitalized. All capitalized costs are amortized to expense over their expected
useful lives. Costs required to be capitalized under SOP 98-1 have been
insignificant to date and were expensed. Prior to the adoption of SOP 98-1,
costs incurred by WorldRes to develop, enhance, manage, monitor and operate its
web site were expensed as incurred.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase price over the estimated
fair market value of tangible and intangible net assets acquired in a business
combination. Goodwill and other purchased intangible assets related to the
acquisition of Goldreyer Incorporated (doing business as BedandBreakfast.com)
are amortized on a straight-line basis over their estimated useful lives of 24
to 30 months.
F-8
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
Long-Lived Assets
WorldRes reviews for the impairment of long-lived assets and certain
identifiable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows expected
to result from use of the asset and its eventual disposition is less than its
carrying amount. No such impairment losses have been identified by WorldRes to
date.
Revenue Recognition
Reservation revenue consists of commissions WorldRes charges hotels for
reservations made at their properties using WorldRes' network. Reservation
revenue is recognized at the scheduled check-out date of a hotel guest's stay,
net of a provision for estimated cancellations. Such provisions were not
material during all the periods presented. Cost of reservation revenue consists
of commissions that WorldRes pays to certain travel web site partners, and
certain payroll, software and hardware costs associated with processing
reservations.
Prior to June 30, 1999 other revenue primarily consisted of
implementation fees for designing and developing seamless Internet-based links
into our reservation network for the hotels and travel web sites. These fees
are recognized ratably over the period during which a hotel or travel web site
partner agrees to use the reservation network. For the quarter ended December
31, 1999, other revenue primarily consisted of membership dues paid by hotels
for listing on the BedandBreakfast.com web site. Membership revenue is
recognized ratably over the membership term, generally one year. Other revenue
also includes advertising revenue on the BedandBreakfast.com's web site, which
is recognized as earned on the basis of impressions delivered to advertisers.
In the future WorldRes expects other revenue to include other types of fees
derived from new service offerings.
Advertising Expenses
Advertising expenses are expensed as incurred and are included in
marketing and sales expenses. Advertising expenses for fiscal 1997, 1998 and
1999, were approximately $133,000, $388,000, and $1,193,000.
Technology and Development
Technology and development expenses consist principally of payroll and
related expenses for designing and implementing the reservation system,
developing applications and improving the technology infrastructure and
database. To date, all such costs have been expensed as incurred.
Stock-Based Compensation
WorldRes accounts for its stock options and equity awards in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and has elected to follow the "disclosure only"
alternative prescribed by the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").
Net Loss Per Share
Basic and diluted net loss per share are presented in conformity with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("FAS 128"). Pursuant to SEC Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock issued
for nominal consideration, prior to the anticipated effective date of the
initial public offering, are included in the
F-9
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
calculation of basic and diluted net loss per share as if they had been
outstanding for all periods presented. To date, WorldRes has not had any
issuances or grants for nominal consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period less shares subject to repurchase. Pro forma
basic and diluted net loss per share as presented in the statement of
operations has been computed as described above and also gives effect, under
Securities and Exchange Commission guidance, to the conversion of the
convertible preferred stock that will automatically convert upon completion of
WorldRes' proposed initial public offering (using the if-converted method) from
the later of the beginning of the period presented or original date of
issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months
Ended December
Fiscal Years Ended September 30, 31,
----------------------------------- ----------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Net loss................ $ (4,350) $ (6,147) $ (13,489) $(2,075) $(9,170)
========== ========== =========== ======= =======
Basic and diluted:
Weighted-average
shares of common
stock outstanding.... 728 766 1,059 783 3,158
Less weighted-average
shares subject to
repurchase........... (324) (197) (311) (117) (1,030)
---------- ---------- ----------- ------- -------
Weighted-average
shares used in
computing basic and
diluted net loss per
share................ 404 569 748 666 2,128
========== ========== =========== ======= =======
Basic and diluted net
loss per share....... $ (10.77) $ (10.80) $ (18.03) $ (3.12) $ (4.31)
========== ========== =========== ======= =======
Pro forma:
Net loss.............. $ (13,489) $(9,170)
Shares used above..... 748 2,128
Pro forma adjustment
to reflect weighted
effect of assumed
conversion of
convertible preferred
stock (unaudited).... 6,117 9,299
----------- -------
Shares used in
computing pro forma
basic and diluted net
loss per share
(unaudited).......... 6,865 11,427
=========== =======
Pro forma basic and
diluted net loss per
share (unaudited).... $ (1.96) $ (0.80)
=========== =======
</TABLE>
WorldRes has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted loss per common share because all
such securities are antidilutive for all periods presented. The total numbers
of securities excluded from the calculations of diluted net loss per share were
2,554,359 for fiscal 1997, 6,642,187 for fiscal 1998, 10,564,608 for fiscal
1999, 6,905,515 for the three months ended December 31, 1998 and 14,657,766 for
the three months ended December 31, 1999. Such securities, had they been
dilutive, would have been included in the computations of diluted net loss per
share using the treasury stock method.
F-10
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
Unaudited Pro Forma Shareholders' Equity
If the offering contemplated by this prospectus is consummated under the
current terms, all of the convertible preferred stock outstanding will
automatically be converted into 11,051,237 shares of common stock. Unaudited
pro forma shareholders' equity at December 31, 1999, as adjusted for the
assumed conversion of convertible preferred shares based on the shares of
convertible preferred stock outstanding at December 31, 1999, is disclosed on
the balance sheet.
Comprehensive Income
Effective October 1, 1998, WorldRes adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). WorldRes has no material
components of other comprehensive income and accordingly the comprehensive loss
is materially the same as net loss for all periods presented.
Segment Information
Effective October 1, 1998, WorldRes adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 changes the way companies report financial and descriptive
information about reportable operating segments in annual financial statements
and interim financial reports issued to shareholders. WorldRes has been
organized solely in one segment of providing an online marketing and
reservation solution for the global hotel industry. Therefore, there was no
impact to WorldRes' financial statements upon adoption of FAS 131. The overseas
revenues, operations, and assets of WorldRes were immaterial in all periods
presented.
Recently Issued Accounting Standards
In March 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 00-2, Accounting for Website Development Costs, (the
"Issue") which addresses how an entity should account for costs incurred to
develop a web site. The EITF developed a model that would account for specific
web site development costs based on the nature of each cost. The Issue is
effective prospectively for all costs incurred for quarters beginning after
June 30, 2000, although early adoption is encouraged. Companies also have the
option of adopting by cumulative catch-up adjustment. When adopted the Issue is
not expected to have a significant impact on the results of operations or
financial condition.
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) 101, "Revenue Recognition" to provide
guidance on the recognition, presentation and disclosure of revenues in
financial statements. WorldRes' believes its revenue recognition practices are
in conformity with SAB No. 101.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("FAS 133") which provides
comprehensive and consistent standards for the recognition and measurement of
derivatives and hedging activities. In June 1999, Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Financial Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133" ("FAS 137") was issued. As a result, WorldRes is required to adopt FAS 133
in fiscal 2001. When adopted, FAS 133 is not anticipated to have an impact on
the results of operations or financial condition because WorldRes currently
does not hold any derivative financial instruments and does not expect to
engage in hedging activities in the near future.
F-11
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
2. Property and Equipment, Net
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
--------------- December 31,
1998 1999 1999
------ ------- ------------
(In thousands)
<S> <C> <C> <C>
Computer equipment and software............. $1,327 $ 3,065 $ 4,574
Furniture and fixtures...................... 55 300 684
------ ------- -------
1,382 3,365 5,258
Accumulated depreciation and amortization... (428) (1,030) (1,387)
------ ------- -------
Property and equipment, net................. $ 954 $ 2,335 $ 3,871
====== ======= =======
</TABLE>
Equipment with an aggregate cost of approximately $1.1 million $1.9
million and $1.9 million and accumulated amortization of approximately
$387,000, $807,000 and $940,000 on hand at September 30, 1998, 1999 and
December 31, 1999, respectively, is subject to capital lease arrangements.
WorldRes has the option to purchase the assets under these leases at the
conclusion of the lease term at a specified price.
3. Acquisition of BedandBreakfast.com
Effective August 10, 1999, WorldRes acquired BedandBreakfast.com, which
designs, develops, and markets online databases of bed-and-breakfast inns,
primarily in the United States and Canada. The acquisition was accounted for as
a purchase and, accordingly, the results of operations of BedandBreakfast.com
have been included in the consolidated financial statements since the date of
acquisition.
WorldRes issued 1,462,106 shares of common stock with an estimated fair
value, based on independent appraisal, of $7.8 million. WorldRes also assumed
net liabilities of approximately $400,000 and incurred other acquisition
related expenses of approximately $100,000 million, consisting primarily of
legal and other professional fees. Of these amounts, $5.7 million was accounted
for as a purchase and allocated to intangible assets, which will be amortized
over their estimated useful lives of 24 to 30 months. The remaining $2.6
million was allocated to deferred stock compensation as this consideration is
contingent upon continued employment of certain shareholders of
BedandBreakfast.com with WorldRes for four years. This deferred stock
compensation is being amortized over four years using a graded vesting method.
Intangible assets arising from the acquisition at September 30, 1999 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Goodwill........................................................... $1,664
Customer base...................................................... 3,336
Other.............................................................. 669
------
5,669
Less accumulated amortization...................................... (386)
------
$5,283
======
</TABLE>
F-12
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
The following table presents unaudited pro forma results assuming
WorldRes had merged with BedandBreakfast.com at the beginning of fiscal 1998.
These unaudited pro forma results have been prepared for illustrative purposes
only and are not necessarily indicative of the operating results that would
have resulted had the combination occurred on October 1, 1997, or of future
results of operations of the consolidated entities (in thousands, except per
share data):
<TABLE>
<CAPTION>
Fiscal Years
Ended September
30,
------------------
1998 1999
-------- --------
<S> <C> <C>
Revenue............................................... $ 594 $ 2,042
Net loss.............................................. $(12,369) $(18,251)
Basic and diluted net loss per share.................. $ (5.55) $ (7.88)
</TABLE>
4. Notes Receivable from Officers
As of September 30, 1999 and December 31, 1999 WorldRes had outstanding
notes receivable under full recourse terms from certain officers in the amount
of $1.9 million, for the issuance of 566,578 shares of common stock upon
exercise of the officer's stock options. These shares are subject to
repurchase. The right to repurchase the shares generally lapses over a period
of four years. As of September 30, 1999 503,280 shares were subject to
repurchase. Interest on notes receivable accrues at the rate of 5.89% per
annum. The entire principal balance, together with all accrued interest,
becomes due and payable during September 2003.
5. Commitments
WorldRes leases its facilities under an operating lease agreement. Total
rent expense was approximately $200,000, $466,000, $489,000 and $370,000 in
fiscal 1997, 1998, 1999, and the three months ended December 31, 1999,
respectively.
Future minimum lease payments under operating and noncancelable capital
leases at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
(In thousands)
<S> <C> <C>
Year ending September 30,
2000.................................................. $ 1,841 $ 635
2001.................................................. 1,832 516
2002.................................................. 1,887 239
2003.................................................. 1,943 --
2004.................................................. 1,998 --
Thereafter............................................ 1,703 --
------- ------
Total minimum payments required..................... $11,204 1,390
======= ------
Less: amount representing interest...................... (240)
------
Present value of future minimum lease payments.......... 1,150
Less current portion.................................... (460)
------
Long-term portion....................................... $ 690
======
</TABLE>
F-13
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
The total minimum rentals to be received in the future under non-
cancelable subleases as of September 30, 1999 was $397,000.
6. Shareholders' Equity
Convertible Preferred Stock
From October 1, 1999, through December 17, 1999, WorldRes issued
2,518,259 shares of Series E preferred stock for net proceeds of $28.7 million.
As of December 17, 1999, WorldRes' Articles of Incorporation provide for
the issuance of up to 16,011,922 shares of preferred stock, 463,865 of which
have been designated as Series A, 1,474,695 as Series B, 1,474,695 as Series B-
1, 3,658,011 as Series C, 3,658,011 as Series C-1, 2,082,645 as Series D, and
3,200,000 as Series E. Each share of preferred stock votes with WorldRes'
common stock on an as-converted basis.
Under the restated and amended investor's rights agreement, each share
Series A, B, B-1 C, C-1 D, and E preferred stock is automatically converted
into shares of common stock, at specified conversion price, upon the earlier
of:
. The closing of an underwritten public offering of common stock with
gross proceeds to WorldRes in excess of $20,000,000; or
. The consent of holders of not less than 60% of the then outstanding
shares of preferred stock, voting as single class, including consent of
the holders of at least a majority of Series E preferred stock.
For all classes of shares of preferred stock, the conversion price per
share is the original issue price adjusted for subsequent dilutive issuances
and stock splits. In addition, if WorldRes files a registration statement on
Form S-1 with the Securities and Exchange Commission in connection with its
initial public offering of common stock with a low end of the proposed range of
price to the public less than $23 per share, then the conversion price for the
Series E preferred stock is required to be adjusted to 50% of the low end of
that range. However, the conversion price can not be lower than $7.50 per
share. In accordance with Emerging Issues Task Force Abstract No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, the proceeds from the Series E
financing will be allocated between this contingent conversion feature and
preferred stock upon resolution of the contingency. WorldRes has estimated the
value of this contingent feature at approximately $2.6 million.
In the event of liquidation, dissolution, acquisition, or sale of all or
substantially all assets of WorldRes, the investors rights agreement provides
for the following rights:
. The holders of Series E preferred stock are entitled to receive $11.62
per share plus declared but unpaid dividends, prior to any distribution
of assets of WorldRes to the holders of Series A, B, B-1, C, C-1 and D
preferred stock and common stock;
. Thereafter, the holders of Series A, B, B-1, C, C-1 and D preferred
stock are entitled to receive $1.50, $3.38, $3.38, $3.70, $3.70, and
$6.05 per share, respectively, plus declared but unpaid dividends with
equal priority on a pro rata basis; and
. After completion of distributions stated above, any remaining assets are
required to be distributed to the holders of Series A, B, B-1, C, C-1,
D, and E preferred stock (assuming conversion to common stock) and
holders of common stock, with equal priority and pro rata basis.
However, after holders of
F-14
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
Series A, B, B-1, C, C-1, D, and E preferred stock have received in
aggregate $4.50, $10.14, $10.14, $11.10, $11.10, $18.15 and $34.86 per
share, they are not entitled to participate in any further distribution
of assets.
Series A, B, B-1, C, C-1, D and E preferred shareholders are entitled to
receive noncumulative annual dividends at a rate of 10% per annum. Dividends
will only be paid if, when, and as declared by the board of directors out of
legally available funds. No dividends have been declared as of December 31,
1999. WorldRes has reserved 9,676,098 shares of common stock for issuance upon
conversion of its Series A, B, B-1, C, C-1, D, and E preferred stock.
Stock Warrants
The following is a summary of warrants outstanding as of September 30,
1999:
<TABLE>
<CAPTION>
Fiscal Year Number Number Number Exercise Fiscal Year
Of Grant Issued Outstanding Exercisable Price Of Expiration
----------- ------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Series A preferred
stock warrants......... 1996 26,666 26,666 26,666 $1.50 2001
Series B preferred
stock warrants......... 1996 51,623 51,623 51,623 $3.38 2000
and through
1997 2005
Series C preferred
stock warrants......... 1998 449,237 439,063 439,063 $3.70 2001
and through through
1999 $4.63 2002
Series D preferred
stock warrants......... 1999 3,306 3,306 3,306 $6.05 2000
</TABLE>
The above stated warrants were issued in connection with certain
equipment and bridge loans and issuances of preferred stock. No amounts
reflecting the value of these warrants, using the Black-Scholes option pricing
model, have been recorded as these amounts were not significant.
As of September 30, 1999, WorldRes has reserved 26,666 shares of Series
A preferred stock, 51,623 shares of Series B preferred stock, 439,063 shares
of Series C preferred stock, and 3,306 shares of Series D preferred stock for
issuance upon exercise of stock warrants.
In December 1999, WorldRes entered into a distribution agreement with
Sabre Inc. This agreement provides for development by Sabre of an electronic
interface which will enable distribution of airline tickets sales and car
rental bookings through our network. In connection with this agreement,
WorldRes issued warrants to Sabre to purchase an aggregate of 80,000 shares of
its common stock at an exercise price of $1 per share. These warrants
automatically vest and become exercisable to purchase 13,333 shares on July 1,
2000, 13,333 on January 1, 2001 and 13,334 on July 1, 2001, provided that the
distribution agreement is not terminated. The remaining 40,000 warrants vest
and become exercisable if Sabre meets stated volume targets for reservations
processed using our network. The term of these warrants generally expire after
45 days following the date when they vest and become exercisable, or within 20
days of the termination of the agreement, whichever is earlier.
F-15
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
It is probable that warrants on 13,333 shares that automatically vest in
July 2000, and warrants on 6,667 shares that vest based on the initial
reservation target in July 2000 will be earned. Using the Black-Scholes option
pricing model, and assuming a term of 6 months, volatility of 75%, and an
interest rate of 6%,
the value of these warrants was estimated at $166,800. These warrants will be
revalued up to the date of their vesting. The value of these warrants is being
expensed ratably over their six month vesting period.
The remaining shares under the warrants will be valued and a charge will
be taken in a similar manner when it becomes probable that the warrants will be
earned.
Stock Plans
Under the 1995 Stock Plan, which was adopted in November 1995, and 1999
Executive Stock Plan, which was adopted in May 1999, options may be granted for
common stock pursuant to actions by the board of directors or a committee
appointed by the board, to employees, including officers and directors, and
consultants. Options granted are either incentive stock options or nonstatutory
stock options and become exercisable ratably generally over four years or a
term specified in each option agreement. Incentive stock options and
nonstatutory options granted under the plans are at prices not less than 100%
and 85%, respectively, of the fair value on the date of the grant, as
determined by the board of directors, and become exercisable upon vesting.
Options granted under the plans expire over periods specified for each grant,
not to exceed 10 years. Common stock reserved for future issuance under the
plans at September 30, 1999 was 2,653,805.
A summary of activity under the option plans is as follows:
<TABLE>
<CAPTION>
Weighted-
Options Average
Outstanding Exercise Price
----------- --------------
<S> <C> <C>
Balance at September 30, 1996.................. 292,900 $0.14
Options granted.............................. 207,693 $0.35
Options exercised............................ (58,144) $0.19
Options forfeited............................ (123,649) $0.14
---------
Balance at September 30, 1997.................. 318,800 $0.27
Options granted.............................. 653,300 $0.72
Options exercised............................ (13,423) $0.28
Options forfeited............................ (39,134) $0.38
---------
Balance at September 30, 1998.................. 919,543 $0.59
Options granted.............................. 1,956,207 $4.40
Options exercised............................ (893,628) $2.29
Options forfeited............................ (81,335) $0.98
---------
Balance at September 30, 1999.................. 1,900,787 $3.69
Options granted (unaudited).................. 177,983 $6.08
Options exercised (unaudited)................ (16,295) $0.46
Options forfeited (unaudited )............... (12,169) $5.02
---------
Balance at December 31, 1999 (unaudited) ...... 2,050,306 $3.91
=========
</TABLE>
F-16
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
The following table summarizes information about stocks options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -----------------------------
Weighted-
Options Average Options
Exercise Outstanding at Remaining Weighted- Exercisable at Weighted-
Price December 31, Contractual Average December 31, Average
Range 1999 Life Exercise Price 1999 Exercise Price
-------- -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.15-
$1.00 522,002 7.1 $ 0.61 237,364 $ 0.54
$1.00-
$4.00 517,320 8.7 $ 3.14 95,361 $ 2.63
$4.01-
$6.00 1,007,584 8.5 $ 6.00 91,728 $ 6.00
$6.01-
$10.00 3,400 9.8 $10.00 3,400 $10.00
--------- -------
2,050,306 8.2 $ 3.91 427,853 $ 2.25
========= =======
</TABLE>
At September 30, 1999, 744,476 and 8,542 common stock options were
available for grant under the 1995 Stock Plan and 1999 Executive Stock Plan.
Stock Compensation
WorldRes recorded deferred compensation of approximately $4.9 million
during fiscal 1999. These amounts represent the difference between the exercise
price and the deemed fair value of WorldRes' common stock during the period in
which such stock options were granted. WorldRes recorded amortization of
deferred compensation expense of approximately $742,000 during this period. At
September 30, 1999, WorldRes had a total of approximately $4.1 million
remaining to be amortized over the corresponding vesting period of each
respective option, generally four years.
Pro Forma Information--Disclosures of the effect of stock based compensation
Pro forma information regarding net loss and net loss per share is
required by FAS 123, and has been determined as if WorldRes had accounted for
its employee stock options under the fair value method as specified by that
statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes pricing method with the following weighted-average
assumptions: no dividends and volatility, an expected life of four years, and a
risk-free interest rate of approximately 6% for fiscal years 1997, 1998 and
1999.
The option valuation models were developed for use in the estimation of
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected life of the option.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-17
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to pro forma expense over the options' vesting periods.
Pro forma information follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
--------------------------
1997 1998 1999
------- ------- --------
(In thousands, except
per share amounts)
--------------------------
<S> <C> <C> <C>
Pro forma net loss................................. $(4,356) $(6,165) $(13,603)
Pro forma basic and diluted net loss per share..... $(10.78) $(10.83) $ (19.46)
</TABLE>
The weighted-average grant date fair value of options granted, which is
the value assigned to the options under FAS 123, was $0.07, $0.15, and $0.94
for options granted in fiscal 1997, 1998, and 1999, respectively.
The pro forma impact of options on the net loss for the years ended
September 30, 1997, 1998, and 1999 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
additional years of stock option grants.
7. Employee Benefit Plan
During 1997, WorldRes established a 401(k) tax-deferred savings plan,
whereby eligible employees may contribute a percentage of their eligible
compensation but not greater than 15% of their earnings. Company contributions
are discretionary; no such Company contributions have been made since inception
of the plan.
8. Income Taxes
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the years ended September
30, 1999, 1998 and 1997.
As of September 30, 1999, WorldRes had a federal net operating loss
carryforward of approximately $24,500,000. WorldRes also had federal research
and development credit carryforwards of approximately $400,000. The net
operating loss and credit carryforwards will expire at various dates beginning
in 2011 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-18
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the three months ended December
31, 1999 and 1998 are unaudited)
Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carryforwards and of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the deferred
tax assets and liabilities for federal and state income taxes were as follows
(in thousands):
<TABLE>
<CAPTION>
September 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 4,700 $ 9,000
Research credits......................................... 200 400
Capitalized research and development..................... 100 200
Other.................................................... -- 100
------- -------
Total deferred tax assets................................ 5,000 9,700
Valuation allowance for deferred tax assets.............. (5,000) (8,300)
------- -------
Net deferred tax assets.................................. -- 1,400
Deferred tax liabilities:
Other intangibles........................................ -- (1,400)
------- -------
$ -- $ --
======= =======
</TABLE>
Statement of Financial Accounting Standards No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more
likely than not. WorldRes has considered its historical operating performance
and cumulative net losses to date, and has provided a full valuation allowance
against its net deferred tax assets.
The net valuation allowance increased by $3,300,000 during the year
ended September 30, 1999.
9. Events Subsequent to December 31, 1999 (unaudited)
Equipment Loans
In February and March 2000, WorldRes obtained equipment loan facilities
totaling $3.5 million from two financial institutions. By March 31, 2000, $2.4
million of these facilities had been utilized. These equipment loans bear
interest at the U.S. Treasury note rate plus 2.5% per annum and are due and
payable in 36 equal monthly principal and interest payments through March
2003.
In connection with these equipment loans, WorldRes issued fully vested,
non-forfeitable and immediately exercisable warrants to purchase 14,682 shares
of common stock at $7.40 per share. These warrants expire in March 2010.
WorldRes has valued these warrants using the Black-Scholes pricing method and
the following assumptions: volatility of 75%, interest rate of 6%, dividend
yield of 0% and a life equal to the term of the warrants (10 years) at
approximately $130,000, which will be recorded as a debt discount and will be
amortized to interest expense over the 36 month term of the loans.
Reincorporation and Amendment to the Articles of Incorporation
In March 2000, WorldRes' board of directors authorized the
reincorporation of WorldRes in the state of Delaware. This reincorporation is
to be effective upon shareholder approval which is anticipated to occur prior
to WorldRes' initial public offering. Upon reincorporation, WorldRes will be
authorized to issue
F-19
<PAGE>
WORLDRES.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of December 31, 1999 and for the three months ended December 31,
1999 and 1998 are unaudited)
50,000,000 shares of common stock, $0.001 par value and 2,000,000 shares of
preferred stock, $0.001 par value. The Board of Directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
the preferred stock, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of WorldRes without further action by the stockholders. The
issuance of preferred stock with voting and conversion rights may also
adversely affect the voting power of the holders of common stock. In certain
circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding. WorldRes currently
has no plans to issue any shares of preferred stock.
Directors' Stock Option Plan
The 2000 Directors' Stock Option Plan (the Directors' Plan) was adopted
by the board of directors in April 2000. We will have it submitted for approval
to our stockholders prior to completion of this offering. A total of 300,000
shares of common stock have been reserved for issuance under the Directors'
Plan.
The Directors' Plan provides that each person who is a non-employee
director on the completion of this offering will receive an automatic initial
grant of an option to purchase 10,000 shares of common stock and each person
who becomes a non-employee director after the completion of this offering will
receive an automatic initial grant of an option to purchase 20,000 shares of
common stock upon appointment or
election. The Directors' Plan also provides for annual grants, on the date of
each annual meeting of our stockholders, to each non-employee director who has
served on our board of directors for at least six months. The annual grant to
non-employee directors is an option to purchase 5,000 shares of common stock.
The initial options granted under the plan will vest at the rate of 50% of the
total number of shares subject to the options on each of the first two
anniversaries of the date of grant of the initial options. The annual options
granted under the plan will vest at the rate of 100% of the number of shares
subject to the options on the first anniversary of the date of grant of the
annual options.
In the event that an asset sale or merger transaction results in a change
in the ownership of more than 50% of the total combined voting power of
WorldRes outstanding securities, all outstanding options shall become
immediately exercisable prior to the closing of that transaction.
We have not issued any options under the Directors' Plan to date.
Issuance of Series E Preferred Stock
In April 2000, WorldRes completed an additional closing of its Series E
convertible preferred stock financing, raising approximately $5 million by
issuing 430,293 shares in connection with this closing. The rights, preferences
and privileges of the holder of these shares are identical to those of the
holders of Series E convertible preferred stock issued in 1999.
F-20
<PAGE>
WORLDRES.COM
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
OVERVIEW
Effective August 10, 1999, WorldRes acquired all of the outstanding
capital stock of Goldreyer Incorporated (a Texas corporation d.b.a
BedandBreakfast.com) ("BedandBreakfast.com"), which designs, develops, markets,
and operates complete online databases of bed-and-breakfast inns, primarily
across the United States and Canada. The acquisition has been accounted for
using the purchase method of accounting and accordingly, the purchase price has
been allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The fair value of intangible assets was determined using a combination of
methods, including market approach for the relationships with bed-and-breakfast
inns, cost estimates for acquired workforce, and a variation of income approach
for tradename and covenants not to compete. WorldRes issued 1,462,106 shares of
its common stock with an estimated fair value of approximately $7.8 million.
WorldRes also assumed net liabilities of approximately $400,000 and incurred
other acquisition-related expenses of approximately $100,000 consisting
primarily of legal and other professional fees. Of these amounts $5.7 million
was accounted for as purchase and allocated to intangible assets, which will be
amortized over their estimated useful lives of 24 to 30 months. The remaining
$2.6 million was allocated to defined stock compensation as this consideration
is contingent upon continued employment of certain shareholders of
BedandBreakfast.com with WorldRes for four years. This deferred stock
compensation will be amortized over four years using a graded vesting method.
Prior to the acquisition, the fiscal years of WorldRes and
BedandBreakfast.com ended on September 30 and December 31, respectively. The
following unaudited pro forma condensed combined statements of operation gives
effect to this acquisition as if it had occurred on October 1, 1998. The
statement of operations has been prepared by combining the results of
operations of BedandBreakfast.com for the period from October 1, 1998 to August
10, 1999 (date of acquisition) with the results of operations of WorldRes for
the year ended September 30, 1999.
The unaudited pro forma condensed combined consolidated financial
information is not necessarily indicative of the operating results that would
have been achieved had the transaction been in effect as of the beginning of
the period presented and should not be construed as being representative of
future operating results. The historical financial statements of the WorldRes
and BedandBreakfast.com are included elsewhere in this prospectus and the
unaudited pro forma financial information presented herein should be read in
conjunction with those financial statements and related notes.
F-21
<PAGE>
WORLDRES.COM
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FISCAL YEAR 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
BedandBreakfast
WorldRes.com .com
Fiscal Year Ended October 1, 1998
September 30, to August 10, Pro Forma
1999 1999 Adjustment Total
----------------- --------------- ---------- --------
<S> <C> <C> <C> <C>
Net revenue:
Reservation........... $ 1,322 $ -- $ -- $ 1,322
Other................. 406 314 -- 720
-------- ------- ------- --------
Total net revenue... 1,728 314 -- 2,042
-------- ------- ------- --------
Cost of revenue:
Reservation........... 191 -- -- 191
Other................. 41 -- -- 41
-------- ------- ------- --------
Total cost of
revenue............ 232 -- -- 232
-------- ------- ------- --------
Gross profit............ 1,496 314 -- 1,810
Operating expenses:
Technology and
development.......... 3,178 563 -- 3,741
Sales and marketing... 8,588 1,086 -- 9,674
General and
administrative....... 2,204 733 -- 2,937
Deferred stock
compensation and
warrant expense...... 742 -- 1,257 1,999
Amortization of
goodwill and other
intangibles.......... 386 -- 2,390 2,776
-------- ------- ------- --------
Total operating
expenses............... 15,098 2,382 3,647 21,127
-------- ------- ------- --------
Loss from operations.... (13,602) (2,068) (3,647) (19,317)
Interest and other
income, net............ 268 -- -- 268
Interest expense........ (155) (6) -- (161)
-------- ------- ------- --------
Net loss................ $(13,489) $(2,074) $(3,647) $(19,210)
======== ======= ======= ========
Basic and diluted net
loss per share, actual
and pro forma.......... $(18.03) $ (9.58)
======== ========
Shares used in
calculating basic and
diluted net loss per
share, actual and pro
forma.................. 748 2,005
======== ========
</TABLE>
The pro forma adjustments in the unaudited pro forma condensed combined
consolidated financial statement of operations reflect amortization of goodwill
and other intangibles associated with the purchase of BedandBreakfast.com over
the estimated useful lives of the assets acquired, and amortization of deferred
stock compensation over a four year vesting period using a graded vesting
method.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Goldreyer Incorporated:
We have audited the accompanying balance sheets of GOLDREYER INCORPORATED
(a Texas corporation d.b.a. BedandBreakfast.com) as of December 31, 1997 and
1998, and the related statements of operations, stockholders' equity (net
capital deficiency) and cash flows for each of the three years in the period
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 Goldreyer
Incorporated (d.b.a. BedandBreakfast.com) as of December 31, 1997 and 1998, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern. On
June 18, 1999, the Company entered into an agreement whereby it would be
acquired by WorldRes, Inc. as discussed in Note 1.
/s/ Arthur Andersen LLP
Denver, Colorado,
July 9, 1999.
F-23
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................... $ 357,741 $ 25,145
Accounts receivable................................ 1,060 50
Other current assets............................... 4,722 27,764
----------- -----------
Total current assets............................. 363,523 52,959
Property and equipment, net.......................... 115,749 105,190
----------- -----------
Total assets..................................... $ 479,272 $ 158,149
=========== ===========
Liabilities and stockholders' equity (net capital
deficiency)
Current liabilities:
Line of credit..................................... $ -- $ 300,000
Accounts payable................................... 22,756 63,947
Other current liabilities.......................... 37,602 52,042
Executive compensation payable..................... 232,221 454,723
Deferred revenue................................... 68,897 68,087
Related-party notes payable........................ 105,626 105,626
----------- -----------
Total liabilities................................ 467,102 1,044,425
----------- -----------
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Common stock, $0.01 par value; 2,000,000 shares
authorized;
751,058 and 824,634 shares, respectively, issued
and outstanding................................... 7,510 8,246
Additional paid-in capital......................... 2,099,250 2,853,349
Deferred compensation.............................. (458,383) (125,190)
Accumulated deficit................................ (1,636,207) (3,622,681)
----------- -----------
Total stockholders' equity (net capital
deficiency)..................................... 12,170 (886,276)
----------- -----------
Total liabilities and stockholders' equity (net
capital deficiency) ................................ $ 479,272 $ 158,149
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-24
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Membership dues......................... $ -- $ 16,462 $ 129,788
Advertising............................. -- 8,940 8,044
Other................................... 5,415 6,446 --
--------- ----------- -----------
Total revenue......................... 5,415 31,848 137,832
Operating expenses:
General and administrative.............. 98,256 762,313 1,528,081
Technology and development.............. 134,493 190,758 405,899
Sales and marketing..................... 92,730 221,928 186,240
--------- ----------- -----------
Total operating expenses.............. 325,479 1,174,999 2,120,220
--------- ----------- -----------
Loss from operations...................... (320,064) (1,143,151) (1,982,388)
Other income (expense):
Interest and other income............... 1,357 -- 8,561
Interest expense........................ (4,839) (15,730) (12,647)
--------- ----------- -----------
Net loss.................................. $(323,546) $(1,158,881) $(1,986,474)
========= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-25
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
For The Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Total
Stockholders'
Common Stock Additional Stock Treasury Stock Equity
-------------- Paid-In Subscription ------------------ Deferred Accumulated (Net Capital
Shares Amount Capital Receivable Shares Amount Compensation Deficit Deficiency)
------- ------ ---------- ------------ ------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995............ 300,000 $3,000 $ 288,415 $(50,000) -- $ -- $ -- $ (153,780) $ 87,635
Payment of
subscription
receivable......... -- -- -- 50,000 -- -- -- -- 50,000
Receipt of shares
for treasury....... -- -- 50,000 -- (6,250) (50,000) -- -- --
Issuance of shares
from treasury in
November 1996 for
cash and
subscription
receivable......... -- -- -- (25,000) 6,250 50,000 -- -- 25,000
Net loss............ -- -- -- -- -- -- -- (323,546) (323,546)
------- ------ ---------- -------- ------- --------- --------- ----------- -----------
Balance at December
31, 1996............ 300,000 3,000 338,415 (25,000) -- -- -- (477,326) (160,911)
Payment of
subscription
receivable......... -- -- -- 25,000 -- -- -- -- 25,000
Issuance of common
stock in May 1997
for cash $8.00 to
$10.00 per share... 10,550 105 92,895 -- -- -- -- -- 93,000
Issuance of common
stock in July 1997
for cash of $4.17
per share.......... 120,044 1,200 498,800 -- -- -- -- -- 500,000
Issuance of common
stock in July 1997
for compensation at
$4.17 per share.... 161,234 1,612 670,733 -- -- -- (672,345) -- --
Issuance of common
stock in September
1997 for cash of
$5.11 per share.... 97,764 978 499,022 -- -- -- -- -- 500,000
Stock splits
effected through
the form of a
dividend........... 61,466 615 (615) -- -- -- -- -- --
Amortization of
deferred
compensation....... -- -- -- -- -- -- 213,962 -- 213,962
Net loss............ -- -- -- -- -- -- -- (1,158,881) (1,158,881)
------- ------ ---------- -------- ------- --------- --------- ----------- -----------
Balance at December
31, 1997............ 751,058 7,510 2,099,250 -- -- -- (458,383) (1,636,207) 12,170
Issuance of common
stock in January
1998 for employee
compensation at
$9.95 per share.... 3,261 33 32,414 -- -- -- (32,447) -- --
Issuance of common
stock in March 1998
for cash of $7.42
to $12.37 per
share.............. 54,562 546 534,017 -- -- -- -- -- 534,563
Issuance of common
stock in July 1998
for compensation at
$9.59 per share.... 4,343 43 41,626 -- -- -- (41,669) -- --
Issuance of common
stock in October
1998 for
compensation at
$7.51 per share.... 600 6 4,502 -- -- -- (4,508) -- --
Forfeiture of
unvested shares in
December 1998...... -- -- -- -- (38,586) (160,903) 160,903 -- --
Issuance of common
stock in December
1998 for
compensation at
$6.13 per share.... 6,550 65 115,490 -- 38,586 160,903 (2,756) -- 273,702
Issuance of common
stock in December
1998 for services
provided........... 4,260 43 26,050 -- -- -- -- -- 26,093
Amortization of
deferred
compensation....... -- -- -- -- -- -- 253,670 -- 253,670
Net loss............ -- -- -- -- -- -- -- (1,986,474) (1,986,474)
------- ------ ---------- -------- ------- --------- --------- ----------- -----------
Balance at December
31, 1998............ 824,634 $8,246 $2,853,349 $ -- -- $ -- $(125,190) $(3,622,681) $ (886,276)
======= ====== ========== ======== ======= ========= ========= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-26
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net loss................................. $(323,546) $(1,158,881) $(1,986,474)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation........................... 6,476 23,603 53,154
Deferred compensation.................. -- 213,962 253,670
Issuance of common stock for
compensation.......................... -- -- 273,702
Issuance of common stock for services.. -- -- 26,093
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... -- (1,060) 1,010
Increase in other current assets..... -- (4,722) (23,042)
Increase in accounts payable......... 22,645 111 41,191
Increase in executive compensation
payable............................. -- 232,221 222,502
Increase in other current
liabilities......................... 11,274 26,328 14,440
Increase (decrease) in deferred
revenue............................. -- 68,897 (810)
--------- ----------- -----------
Net cash used in operating activities.... (283,151) (599,541) (1,124,564)
--------- ----------- -----------
Investing activities
Purchases of property and equipment...... (26,943) (115,172) (42,595)
--------- ----------- -----------
Net cash used in investing activities.... (26,943) (115,172) (42,595)
--------- ----------- -----------
Financing activities
Proceeds from borrowings under line of
credit.................................. 100,000 -- 300,000
Repayments of borrowings under line of
credit.................................. -- (100,000) --
Proceeds from notes payable to related
parties................................. 58,537 47,089 --
Proceeds from issuance of common stock... 25,000 1,093,000 534,563
Proceeds from payment of stock
subscriptions receivable................ 50,000 25,000 --
--------- ----------- -----------
Net cash provided by financing
activities.............................. 233,537 1,065,089 834,563
--------- ----------- -----------
Net increase (decrease) in cash.......... (76,557) 350,376 (332,596)
Cash at beginning of year................ 83,922 7,365 357,741
--------- ----------- -----------
Cash at end of year...................... $ 7,365 $ 357,741 $ 25,145
========= =========== ===========
</TABLE>
Supplemental disclosure of cash flow information
The Company paid approximately $3,651, $13,881 and $12,647 for interest
for the year ended December 31, 1996, 1997 and 1998, respectively.
See accompanying notes.
F-27
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. Business and Organization
Goldreyer Incorporated (the "Company") was organized and incorporated as
an S Corporation in the state of Texas on April 15, 1994, and does business as
BedandBreakfast.com, an online community for innkeepers. The Company designs,
develops, markets and operates complete online databases of bed-and-breakfast
inns, primarily across the United States and Canada over the Internet's World
Wide Web.
The Company is subject to various risks and uncertainties frequently
encountered by companies in the early stages of development, particularly
companies in the new and rapidly evolving market for Internet-based products
and services. Such risks and uncertainties include, but are not limited to, its
limited operating history, an evolving technology and the management of rapid
growth. To address these risks, the Company must, among other things, raise
sufficient capital, maintain and increase its customer base, implement and
successfully execute its business and marketing strategy, continue to develop
and upgrade its technology, provide superior customer service and attract,
retain and motivate qualified personnel. There can be no guarantee that the
Company will be successful in addressing such risks.
To date, the Company has not generated net income or cash flow from
operations. Therefore, the Company has been primarily dependent upon private
equity and borrowings from a financial institution to fund its operations.
On June 18, 1999, the Company entered into an agreement for the merger of
the Company with WorldRes, Inc., an on-line provider of travel services. Shares
of the Company's common stock will be exchanged for shares of WorldRes, Inc.
common stock. As a result of the merger, stockholders of the Company's common
stock will own approximately 13% of the combined entity ("Newco"). The merger
had not closed as of July 9, 1999.
The Company has not been profitable since its inception, and its plans
call for significant growth, which will require additional capital. As such,
the Company will be dependent, even as a component of Newco should the merger
with Newco be consummated, on external financing to continue its business plan
execution. There is no guarantee that such external financing will be
forthcoming, which raises substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
After the merger, Newco, including the operations of the Company, plans
to continue significantly increasing its operating expenses in order to
increase its market presence and service capacity, and to expand into new
markets, products and industries. Newco expects that this growth of its
business and capacity will require significant external financing within the
next year. While the Company's management believes that Newco will be able to
obtain such external financing from third parties or from existing
shareholders, there can be no guarantee that it can do so at acceptable terms.
The failure to raise such financing could have a material adverse effect on
Newco.
2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the
F-28
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS--(Continued)
reported amounts of assets and liabilities and disclosure of contingent 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.
Revenue Recognition
The Company generates revenue primarily from membership fees from
innkeepers.
Membership revenue is generated from contracts, typically for a one-year
period, for the inclusion of the innkeeper's bed-and-breakfast in the Company's
online database. The Company typically receives a membership fee at the
inception of the contract, which it defers and recognizes ratably over the life
of the contract. Amounts received but not yet earned are shown as deferred
revenue in the accompanying balance sheets.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company has no significant off-balance sheet
concentrations of credit risk, such as foreign exchange contracts, option
contracts or other foreign currency hedging arrangements. The Company maintains
its cash balances in the form of bank demand deposits with financial
institutions that management believes are creditworthy. Accounts receivable are
typically unsecured and are derived from transactions with and from innkeepers
primarily located in the United States and Canada. The Company performs ongoing
credit evaluations of its customers and maintains reserves for potential credit
losses.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash equivalents, short-
term trade receivables and payables, and a note payable. The carrying values of
the cash equivalents and short-term receivables and payables approximate their
fair values. Based on borrowing rates currently used by the Company for
financing, the carrying value of the notes payable approximates estimated fair
value.
Property and Equipment
Property and equipment are stated at cost and depreciation is provided
using the straight-line method, generally over estimated useful lives of three
to five years.
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Computer equipment..................................... $129,397 $168,393
Office furniture and equipment......................... 18,966 22,565
-------- --------
Subtotal............................................... 148,363 190,958
Less--accumulated depreciation......................... (32,614) (85,768)
-------- --------
Net property and equipment............................. $115,749 $105,190
======== ========
</TABLE>
F-29
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Technology and Development
Costs incurred in the development of new technology and enhancements to
existing technology and services are charged to expense as incurred.
Advertising Costs
Advertising costs are expensed as incurred and are included in sales and
marketing expense in the accompanying statements of operations.
Income Taxes
The financial statements do not include a provision or benefit for income
taxes because as an S Corporation, the Company is treated as a pass-through
entity for tax purposes and therefore does not incur federal or state income
taxes. Instead, its taxable income or losses are included in the stockholders'
individual income tax returns.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. From its inception through December 31,
1998, the Company's comprehensive loss is the same as its net loss.
Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. In accordance with
the provisions of SFAS No. 131, the Company has determined that it has one
reportable operating segment at December 31, 1998.
Start-up Activities
Effective January 1, 1998, the Company adopted Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." In general, SOP
98-5 requires costs of start-up activities and organization costs to be
expensed as incurred, which the Company has done since its inception. As a
result, the adoption of SOP 98-5 did not have an impact on the Company's
financial position or results of its operations.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which provides guidance on accounting for the cost
of such software. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company believes that the adoption
of SOP 98-1 will not have a material impact on the Company's financial
statements.
F-30
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133." As a result, the Company is required to adopt SFAS
133 in the year ended December 31, 2001.
3. Stockholders' Equity
In November 1996, the president of the Company contributed 6,250 shares
back to the Company for no consideration. These shares were immediately
reissued to a third party for $50,000.
Consideration received for the reissuance of these shares consisted of
$25,000 in cash and a $25,000 subscription receivable which was repaid in 1997.
In May 1997, the Company issued 10,550 shares of common stock at prices
ranging from $8.00 to $10.00 per share. Per share prices were determined based
on the level of investment. Proceeds totaled $93,000. In July 1997, the Company
sold 120,044 shares of common stock for $500,000, or $4.17 per share. In
September 1997, the Company sold an additional 97,764 shares of common stock
for $500,000, or $5.11 per share. In March 1998, the Company issued
approximately 27,060 shares of common stock for $334,565, or $12.36 per share.
At the same time, the Company issued 26,963 shares of common stock to two
individuals for $199,998, or $7.42 per share. These shares were issued at a
discount in exchange for equity fundraising services. The Company also issued
539 shares of common stock to a separate individual in exchange for equity
fundraising services in March 1998.
In 1997, the Company effected several stock splits in the form of stock
dividends to the stockholders of the Company. As a result, the Company issued a
total of 61,466 shares of common stock to the Company's shareholders, excluding
certain executives of the Company. The Company did not change the par value of
its common stock in connection with the stock splits. Therefore, $615 has been
re-allocated from additional paid-in capital to the par value of common stock.
The Company has from time to time granted shares of common stock to
executive officers and employees of the Company as compensation. In July 1997,
the Company granted approximately 130,000 shares of restricted stock to an
executive. The shares vest over a 34-month period, retroactive to January 1997.
Based on the fair value of the Company's common stock at the time, the Company
recorded deferred compensation of approximately $547,000 that is being
amortized into compensation expense over the vesting period. In December 1998,
the officer's relationship with the Company was terminated and approximately
39,000 unvested shares were returned to the Treasury of the Company. At that
time, the Company granted these shares out of Treasury to the president of the
Company. The shares vested immediately. The Company recognized approximately
$236,000 of compensation expense in 1998 in connection with this grant.
The Company granted approximately 30,000 shares of common stock to an
officer of the Company in July 1997. The shares vest over a three-year period
from the date of grant. As a result, the Company recorded approximately
$125,000 of deferred compensation. In 1998, the Company granted approximately
50,000 shares of common stock to various employees of the Company.
Approximately $81,000 of deferred compensation has been recognized in
connection with these shares, and approximately $37,000 of compensation expense
was recognized in 1998. All shares issued in connection with these grants of
common stock to the officer and to
F-31
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS--(Continued)
employees vest over a three-year period from the date of grant. Deferred
compensation is being amortized into compensation expense over the related
vesting period.
Amortization of deferred compensation totaled $0, $213,962 and $253,670
for the years ended December 31, 1996, 1997 and 1998, respectively.
In December 1998, the Company issued approximately 4,000 shares of common
stock in exchange for services valued at approximately $26,000.
4. Line Of Credit
The Company has entered into a revolving line of credit agreement with a
bank (the "Agreement") to provide the Company with up to $300,000 in
borrowings at any time during the term of the Agreement. The line of credit
accrues interest at the bank's prime rate (7.75% at December 31, 1998). The
Agreement is personally guaranteed by the father-in-law of the Company's
president. All outstanding amounts, including accrued but unpaid interest, are
due upon maturity of the Agreement. Subsequent to yearend, the Agreement was
amended to provide up to $900,000 in borrowings, and the maturity was extended
from December 1, 1999 to March 25, 2000.
5. Notes Payable to Related Parties
As of December 31, 1996, 1997 and 1998, notes payable to related parties
consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Unsecured note payable to related party,
interest payable on a monthly basis at 8.5% per
annum, principal payments due December 31,
1999........................................... $58,537 $105,626 $105,626
======= ======== ========
</TABLE>
Interest expense for the years ended December 31, 1996, 1997 and 1998 was
$3,651, $8,442 and $8,978, respectively.
6. Commitments and Contingencies
Operating Lease Obligations
The Company leases certain space and equipment under long-term operating
leases. Aggregate future minimum annual rental commitments under
noncancellable operating leases as of December 31, 1998 are as follow:
<TABLE>
<S> <C>
Fiscal year ending:
1999............................................................ $102,236
2000............................................................ 88,349
2001............................................................ 44,377
2002............................................................ 11,007
2003............................................................ 2,890
Thereafter...................................................... --
--------
$248,859
========
</TABLE>
F-32
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Legal Matters
The Company is exposed to asserted and unasserted claims incurred in the
normal course of business. The Company believes that the ultimate resolution of
any such claims will not have a material impact on the Company's financial
position, results of operations or cash flows.
7. Subsequent Events
On June 18, 1999, the Company entered into an agreement for the merger of
the Company with WorldRes, Inc., an on-line provider of travel services. Shares
of the Company's common stock will be exchanged for shares of WorldRes, Inc.
common stock. As a result of the merger, stockholders of the Company's common
stock will own approximately 13% of the combined entity.
As discussed in Note 4, the Company's line-of-credit is personally
guaranteed by the father-in-law of the Company's President. Subsequent to
December 31, 1998, the line-of-credit was amended to allow for borrowings up to
$900,000. As consideration for his continued and extended personal guarantee,
the Company agreed to award him approximately 0.24% of the Company per $100,000
guaranteed.
Subsequent to December 31, 1998, the father of the Chief Financial
Officer loaned the Company $50,000. In return, the Company agreed to award him
approximately 0.24% of the Company per $100,000 loaned.
F-33
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the periods from January 1 to August 10,
1998 and 1999 is unaudited but includes all adjustments (consisting only of
normal recurring adjustments) BedandBreakfast.com considers necessary for fair
presentation of financial position at such date and the operating results and
cash flows for those periods. Results for the periods from January 1 to August
10, 1998 and 1999 are not necessarily indicative of results to be expected for
future periods. This financial information has been prepared solely for the
purpose of preparing pro forma combined interim financial information and
should be read in conjunction with audited financial statements of
BedandBreakfast.com, both included elsewhere in this prospectus.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 1 to
August 10,
--------------
1998 1999
----- -------
<S> <C> <C>
Revenue:
Membership dues.............................................. $ 63 $ 193
Advertising.................................................. -- 62
Other........................................................ -- 7
----- -------
Total revenue.............................................. 63 262
Operating expenses:
General and administrative................................... 848 841
Technology and development................................... 176 497
Sales and marketing.......................................... 5 226
----- -------
Total operating expenses................................... 1,029 1,564
----- -------
Loss from operations........................................... (966) (1,302)
Other income (expense):
Interest and other income.................................... 7 --
----- -------
Net loss....................................................... $(959) $(1,302)
===== =======
</TABLE>
F-34
<PAGE>
GOLDREYER INCORPORATED
(d.b.a. BedandBreakfast.com)
UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1 to
August 10,
--------------
1998 1999
----- -------
<S> <C> <C>
Operating activities
Net loss...................................................... $(959) $(1,302)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................ 31 36
Deferred compensation....................................... 72 125
Issuance of common stock for compensation................... 74 303
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................ 1 (30)
Increase in other current assets.......................... (3) (2)
Increase in accounts payable.............................. 38 39
Increase (decrease) in executive compensation payable..... 148 (455)
Increase in other current liabilities..................... 18 41
Increase in deferred revenue.............................. 6 138
----- -------
Net cash used in operating activities......................... (574) (1,107)
----- -------
Investing activities
Purchases of property and equipment........................... (37) (39)
----- -------
Net cash used in investing activities......................... (37) (39)
----- -------
Financing activities
Repayment of borrowings under line of credit.................. -- (300)
Repayment of notes payable to related parties................. -- (105)
Proceeds from issuance of common stock........................ 535 --
Proceeds from notes payable................................... -- 1,535
----- -------
Net cash provided by financing activities..................... 535 1,130
----- -------
Net decrease in cash.......................................... (76) (16)
Cash at beginning of year..................................... 357 25
----- -------
Cash at end of year........................................... $ 281 $ 9
===== =======
</TABLE>
F-35
<PAGE>
[Inside Back Cover]
[Color Artwork]
Description of graphics and text on inside back cover: WorldRes.com logo with
lines going up to logos representing various travel web sites that are
available on our network.
[Description graphics series of screen shots of web pages on our Places to Stay
web site]
<PAGE>
[WORLDRES.COM LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by WorldRes.com in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee................................................. $18,216
NASD filing fee...................................................... 7,400
Nasdaq National Market listing fee...................................
Printing and engraving expenses......................................
Legal fees and expenses.............................................. 550,000
Accounting fees and expenses.........................................
Blue Sky qualification fees and expenses............................. 10,000
Transfer Agent and Registrar fees....................................
Miscellaneous fees and expenses......................................
-------
Total.............................................................. *
=======
</TABLE>
- --------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers
The Delaware General Corporation Law authorizes a court to award, or a
corporation's Board of Directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Securities Act").
WorldRes.com's Bylaws provide that WorldRes.com shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including
circumstances in which indemnification is otherwise discretionary under
Delaware law. WorldRes.com has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require WorldRes.com, among
other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as officers and
directors (other than liabilities arising from willful misconduct of culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain officers' and
directors' insurance if available on reasonable terms. Article XIV of the
Registrant's Amended and Restated Articles of Incorporation (Exhibit 3.2
hereto) provides for indemnification of its directors and officers to the
maximum extent permitted by the Delaware General Corporation Law and
Section, 6.1 & 6.2 of Article VI of WorldRes.com's Bylaws (Exhibit 3.4 hereto)
provides for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by the Delaware General Corporation Law.
In addition, WorldRes.com has entered into Indemnification Agreements (Exhibit
10. hereto) with its directors and officers. Reference is also made to
Section of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of WorldRes.com against certain
liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since October 1, 1996, WorldRes.com has sold and issued the following
securities:
1. In late 1996 early 1997 we issued warrants to purchase a total of
51,623 shares of Series B preferred stock in connection with several Note and
Warrant Purchase Agreements.
2. In January 1997, we issued 1,422,481 shares of Series B preferred
stock to the Series B investors for an aggregate cash consideration of
$4,807,985.78.
3. In October 1997, in connection with a 1997 bridge financing, we issued
warrants to purchase 60,720 shares of Series C preferred stock at an exercise
price of $3.70 per share for an aggregate cash consideration of $224.69.
4. In December 1997, we issued 1,764,479 shares of Series C preferred
stock to an initial round of Series C investors for an aggregate consideration
of $6,528,572.30, comprised of converting $1,010,404.70 outstanding principal
amounts payable under convertible promissory notes in connection with the 1997
bridge financing and $5,518,167.60 in cash.
5. In March 1998, in connection with the December 1997 Series C
financing, we issued warrants to purchase 211,499 shares of Series C preferred
stock at an exercise price of $4.63 per share for an aggregate consideration of
$2,114.99.
6. In March 1998, we issued 519,171 shares of Series C preferred stock
and warrants to purchase 62,229 shares of Series C preferred stock at an
exercise price of $4.63 per share to a second round of Series C investors for
an aggregate consideration of $1,921,554.99, comprised of converting
$112,998.00 outstanding principal amounts payable under convertible promissory
notes in connection with the 1997 bridge financing and $1,808,556.99 in cash.
7. In April 1998, we issued 889,989 shares of Series C preferred stock
and warrants to purchase 106,681 shares of Series C preferred stock at an
exercise price of $4.63 per share to a third round of Series C investors for an
aggregate cash consideration of $3,294,026.11.
8. In September 1998, we issued warrants to purchase a total of 8,108
shares of Series C preferred stock in connection with entering into Master
Equipment Lease No. 300091.
9. In March 1999, we issued 1,983,468 shares of Series D preferred stock
to the Series D investors for an aggregate cash consideration of
$11,999,981.40.
10. In March 1999 we issued warrants to purchase a total of 3,306 shares
of Series D preferred stock to Pentech Financial Services, Inc.
11. In November and December 1999, we issued 2,518,259 shares of Series E
preferred stock to the Series E investors for an aggregate consideration of
$29,262,169.58.
12. In December 2000 we issued warrants to purchase a total of 80,000
shares of common stock to Sabre, Inc.
13. In February 2000 we issued warrants to purchase a total of 37,182
shares of common stock to certain vendors and strategic partners.
14. As of February 29, 2000, we have issued 998,986 shares of common
stock and options to purchase 1,898,653 shares of common stock to a number of
our employees, directors and consultants.
15. In April 2000, we issued 430,293 shares of Series E preferred stock
to Accor for cash consideration of $5,000,004.66
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Regulation
D of such Securities Act as transactions by an issuer not involving any public
offering. In addition, certain issuances described in Item 14 were deemed
exempt from registration under
II-2
<PAGE>
the Securities Act in reliance upon Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and
WorldRes.com, a California corporation.
3.1* Amended and Restated Articles of Incorporation of WorldRes.com, a
California corporation.
3.2* Certificate of Incorporation of the Registrant.
3.3* Amended and Restated Certificate of Incorporation of the Registrant,
to be filed prior to the completion of the offering.
3.4* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of the offering.
3.5 Bylaws of WorldRes.com, a California corporation.
3.6* Form of Bylaws of the Registrant, to be effective upon completion of
the offering.
4.1* Specimen Common Stock Certificate
5.1* Opinion of Orrick, Herrington & Sutcliffe LLP regarding the legality
of the common stock being registered.
10.1* Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.2* Amended and Restated 1995 Stock Plan.
10.3* 1999 Executive Stock Plan
10.4* 2000 Directors' Stock Option Plan
10.5 Lease Agreement between the Registrant and Mariners Center Limited
Partnership, dated May 21, 1999.
10.6* Fifth Amended and Restated Investor Rights Agreement, dated November
10, 1999, by and among the Registrant and certain holders of the
Registrant's capital stock.
10.7 Warrant to Purchase Shares of Series B Preferred Stock of the
Registrant, dated June 4, 1996, issued to Gregory Jones.
10.8 Warrant to Purchase Shares of Series B Preferred Stock, dated October
30, 1996, issued to Gregory Jones.
10.9 Note and Warrant Purchase Agreement, dated October 10, 1997, between
the Registrant and certain lenders mentioned therein.
10.10 Amended and Restated Series C Preferred Stock and Warrant Purchase
Agreement, dated March 16, 1998, by and between the Registrant and
certain holders of the Registrant's capital stock.
10.11 Series C Preferred Stock Purchase Agreement, dated March 5, 1999,
between the Registrant and E. Stanton McKee, Jr.
10.12 Series D Preferred Stock Purchase Agreement, dated March 18, 1999 by
and among the Registrant and certain holders of the Registrant's
capital stock.
10.13 Series D Preferred Stock Purchase Agreement, dated August 11, 1999, by
and among the Registrant and The Gregory S. Curhan and Randi E. Curhan
Revocable Trust.
10.14* Series D. Preferred Stock Purchase Agreement, dated September 13,
1999, by and among the Registrant and certain holders of the
Registrant's capital stock.
10.15* Series E Preferred Stock Purchase Agreement, dated December 7, 1999,
by and among the Registrant and certain holders of the Registrant's
capital stock.
10.16 Amendment to Series E Preferred Stock Purchase Agreement, dated April
5, 2000 by and among the Registrant and certain holders of the
Registrant's capital stock.
10.17** Multi-Property Participant Agreement, dated April 14, 1998 between the
Registrant and Choice Hotels International.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.18 Agreement and Plan of Merger, dated as of June 18, 1999 among the
Registrant, B&B Acquisition Corporation and Goldreyer Incorporated.
10.19* Offer Letter dated January 31, 2000 with Domenic A. Rinaldi.
10.20 Offer Letter dated March 9, 1998 with Paul N. Wyatt
10.21* Offer Letter dated May 1999 with Gregory S. Curhan
10.22* Offer Letter dated June 1999 with Wolfgang Kitza
10.23* Offer Letter dated August 1999 with Eric Goldreyer
10.24* Offer Letter dated December 31, 1999 with Yen Lee.
10.25** Wizcom Host Distribution Agreement between the Registrant and Wizcom
International, Ltd., dated June 6, 1997.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.3 Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit
5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
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 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 Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2)For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Mateo,
State of California on April 7, 2000.
WORLDRES.COM
By: /s/ Gregory A. Jones
-----------------------------------
Gregory A. Jones
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Gregory
A. Jones and Gregory S. Curhan, and each of them, as his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this Registration Statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gregory A. Jones President, Chief Executive April 7, 2000
____________________________________ Officer and Director
Gregory A. Jones (Principal Executive
Officer)
/s/ Gregory S. Chrhan Chief Financial Officer April 7, 2000
____________________________________ (Principal Financial and
Gregory S. Curhan Accounting Officer)
/s/ Eric J. Christensen Chairman of the Board of April 7, 2000
____________________________________ Directors
Eric J. Christensen
/s/ Steven L. Eskenazi Director April 7, 2000
____________________________________
Steven L. Eskenazi
/s/ Gregory T. George Director April 7, 2000
____________________________________
Gregory T. George
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ E. Stanton McKee Director April 7, 2000
____________________________________
E. Stanton McKee
/s/ Thomas Unterman Director April 7, 2000
____________________________________
Thomas Unterman
</TABLE>
II-6
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
WORLDRES, INC.
The undersigned, Joshua Pickus, hereby certifies that:
1. I am the duly elected and incumbent Secretary of WorldRes, Inc., a
California corporation (the "Company").
-------
2. By Action by Written Consent of the Shareholders as of December 17,
1997, Section 3.2 of the Bylaws of the Company was amended to read in its
entirety as follows:
"The number of directors of the corporation shall be not less than five (5)
nor more than seven (7). The exact number of directors shall be six (6)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders.
The indefinite number of directors may be changed, or a definite number may
be fixed without provision for an indefinite number, by a duly adopted
amendment to the articles of incorporation or by an amendment to this bylaw
duly adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number
less than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent (16-
2/3%) of the outstanding shares entitled to vote thereon. No amendment may
change the stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of directors minus one
(1)."
3. The matters set forth in this certificate are true and correct of my
own knowledge.
Date: December 17, 1997
/s/ Joshua Pickus
------------------------
Joshua Pickus, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
WORLDRES, INC.
The undersigned, Joshua Pickus, hereby certifies that:
1. I am the duly elected and incumbent Secretary of WorldRes, Inc., a
California corporation (the "Company").
-------
2. By action of the Board of Directors of the Company duly adopted at a
meeting on January 10, 1997, the second sentence of Article III, Section 3.2 of
the Bylaws of the Company was amended to read in its entirety as follows:
"The exact number of directors shall be five (5) until changed, within the
limits specified above, by a bylaw amending this Section 3.2, duly adopted
by the board of directors or by the shareholders."
3. The matters set forth in this certificate are true and correct of my
own knowledge.
Date: January 10, 1997
/s/ Joshua Pickus
-----------------------
Joshua Pickus,Secretary
<PAGE>
BYLAWS
OF
Places To Stay, Inc.
<PAGE>
BYLAWS
OF
Places To Stay, Inc.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................................................. 1
1.1 PRINCIPAL OFFICE................................................................................. 1
1.2 OTHER OFFICES.................................................................................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS...................................................................... 1
2.1 PLACE OF MEETINGS................................................................................ 1
2.2 ANNUAL MEETING................................................................................... 1
2.3 SPECIAL MEETING.................................................................................. 1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS................................................................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................................... 2
2.6 QUORUM........................................................................................... 3
2.7 ADJOURNED MEETING; NOTICE........................................................................ 3
2.8 VOTING........................................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................................................ 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................................... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS...................................... 6
2.12 PROXIES.......................................................................................... 6
2.13 INSPECTORS OF ELECTION........................................................................... 7
ARTICLE III DIRECTORS..................................................................................... 7
3.1 POWERS........................................................................................... 7
3.2 NUMBER OF DIRECTORS.............................................................................. 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS......................................................... 8
3.4 RESIGNATION AND VACANCIES........................................................................ 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................................... 9
3.6 REGULAR MEETINGS................................................................................. 9
3.7 SPECIAL MEETINGS; NOTICE......................................................................... 9
3.8 QUORUM........................................................................................... 10
3.9 WAIVER OF NOTICE................................................................................. 10
3.10 ADJOURNMENT...................................................................................... 10
3.11 NOTICE OF ADJOURNMENT............................................................................ 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................................ 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.13 FEES AND COMPENSATION OF DIRECTORS.............................................................. 11
3.14 APPROVAL OF LOANS TO OFFICERS*.................................................................. 11
ARTICLE IV COMMITTEES................................................................................... 11
4.1 COMMITTEES OF DIRECTORS......................................................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES............................................................... 12
ARTICLE V OFFICERS..................................................................................... 12
5.1 OFFICERS........................................................................................ 12
5.2 ELECTION OF OFFICERS............................................................................ 12
5.3 SUBORDINATE OFFICERS............................................................................ 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................................................. 13
5.5 VACANCIES IN OFFICES............................................................................ 13
5.6 CHAIRMAN OF THE BOARD........................................................................... 13
5.7 PRESIDENT....................................................................................... 13
5.8 VICE PRESIDENTS................................................................................. 14
5.9 SECRETARY....................................................................................... 14
5.10 CHIEF FINANCIAL OFFICER......................................................................... 14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS........................... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................................... 15
6.2 INDEMNIFICATION OF OTHERS....................................................................... 15
6.3 PAYMENT OF EXPENSES IN ADVANCE.................................................................. 15
6.4 INDEMNITY NOT EXCLUSIVE......................................................................... 15
6.5 INSURANCE INDEMNIFICATION....................................................................... 16
6.6 CONFLICTS....................................................................................... 16
ARTICLE VII REPORTS AND RECORDS.......................................................................... 16
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.................................................... 16
7.2 MAINTENANCE AND INSPECTION OF BYLAWS............................................................ 17
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS........................................... 17
7.4 INSPECTION BY DIRECTORS......................................................................... 17
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER........................................................... 18
7.6 FINANCIAL STATEMENTS............................................................................ 18
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................................................. 18
ARTICLE VIII REPORTS AND RECORDS.......................................................................... 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........................................... 19
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS....................................................... 19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.............................................. 19
8.4 CERTIFICATES FOR SHARES......................................................................... 20
8.5 LOST CERTIFICATES............................................................................... 20
8.6 CONSTRUCTION; DEFINITIONS....................................................................... 20
ARTICLE IX AMENDMENTS................................................................................... 20
9.1 AMENDMENT BY SHAREHOLDERS....................................................................... 20
9.2 AMENDMENT BY DIRECTORS.......................................................................... 21
</TABLE>
(iii)
<PAGE>
BYLAWS
OF
Places To Stay, Inc.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the first
Tuesday of April. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
<PAGE>
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such
-2-
<PAGE>
address appears on the corporation's books or is given, notice shall be deemed
to have been given if sent to that shareholder by mail or telegraphic or other
written communication to the corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders 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 shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
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<PAGE>
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the
-4-
<PAGE>
business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of these bylaws, the waiver of notice or consent or approval shall state the
general nature of the proposal. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
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<PAGE>
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
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<PAGE>
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (l) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (l) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (l) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to actions required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
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<PAGE>
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than three (3)
nor more than five (5). The exact number of directors shall be three (3) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
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<PAGE>
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
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<PAGE>
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed
with the minutes of the proceedings of the board.
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<PAGE>
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
-----------------------------
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
___________________
* This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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<PAGE>
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more 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
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment. Any contract of employment with an officer shall be
unenforceable unless in writing and specifically authorized by the board of
directors.
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<PAGE>
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
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<PAGE>
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, 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 meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and 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 of directors or these bylaws.
-14-
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of
-15-
<PAGE>
shareholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent that such additional rights to indemnification are
authorized in the articles of incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the articles of
incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
REPORTS AND RECORDS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as
-16-
<PAGE>
of a date specified by the shareholder after the date of demand. Such list shall
be made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or five (5) days after the
date specified in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
-17-
<PAGE>
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on
-18-
<PAGE>
behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VIII
REPORTS AND RECORDS
-------------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
-19-
<PAGE>
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
-20-
<PAGE>
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
-21-
<PAGE>
EXHIBIT 10.5
- --------------------------------------------------------------------------------
LEASE AGREEMENT
BETWEEN
MARINERS CENTER LIMITED PARTNERSHIP,
a Delaware limited partnership
AS LANDLORD
AND
WORLDRES, INC.,
a California corporation
AS TENANT
Dated May 21, 1999
Property:
Mariners Center
1500-1510 Fashion Island Boulevard
San Mateo, California 94404
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
BASIC LEASE INFORMATION
-----------------------
<S> <C>
Lease Date: May 21, 1999
Tenant: WorldRes, Inc., a California corporation
Landlord: Mariners Center Limited Partnership, a Delaware
limited partnership
Premises: Suite Nos. 100, 200 and 350 in the office building commonly known as Mariners Center
(the "Building"), and whose street address is 1510 Fashion Island Boulevard, San Mateo,
--------
California 94404. The Premises are outlined on the plan attached to the Lease as
Exhibit A. The land on which the Building is located (the "Land") is described on
--------- ----
Exhibit B. The term "Building" includes the related land, driveways, parking facilities,
---------
the building at 1500 Fashion Island Boulevard, and similar improvements.
Term: Approximately seventy-two (72) months, commencing on August 1, 1999 (the "Commencement
------------
Date") and ending at 5:00 p.m. on the last day of the seventy second full calendar month
----
following the Commencement Date (the "Term," which definition shall include all renewals
----
of the initial Term), subject to adjustment and earlier termination as provided in the
Lease.
Option: One (1) option for sixty (60) months
Basic Rent: Basic Rent shall be the following amounts for the following periods of time:
Lease Month Monthly Basic Rent
----------- ------------------
1-12 $147,299.20
13-24 $151,902.30
25-36 $156,505.40
37-48 $161,108.50
49-60 $165,711.60
61-72 $170,314.70
Basic Rent, Additional Rent and Tenant's Proportionate Share of Taxes shall be
conditionally abated during the first two calendar months of the Lease pursuant to
Section 27.
As used herein, the term "Lease Month" shall mean each calendar month during the Term
-----------
(and if the Commencement Date does not occur on the first day of a calendar month, the
period from the Commencement Date to the first day of the next calendar month shall be
included in the first Lease Month for purposes of determining the duration of the Term
and the monthly Basic Rent rate applicable for such partial month).
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Security Deposit $736,496.00; in lieu thereof, Tenant may provide a letter of credit pursuant to Section 6.2.
Rent: Basic Rent, Tenant's Proportionate Share of Taxes, Tenant's share of Additional Rent, and
all other sums that Tenant may owe to Landlord or otherwise be required to pay under the
Lease.
Permitted Use: General office use.
Tenant's Proportionate Share: 36.03 %, which is the percentage obtained by dividing the 46,031 rentable square feet in
the Premises by the 127,766 rentable square feet in the Building. Landlord and Tenant
stipulate that the number of rentable square feet in the Premises and in the Building set
forth above shall be binding upon them.
Expense Stop: Actual Operating Costs for calendar year 1999
Base Year: 1999
Initial Liability Insurance Amount: $3,000,000.00
Maximum Construction Allowance: N/A; See Exhibit D
---------
Guarantor: None
Tenant's Address:
</TABLE>
<TABLE>
<S> <C>
Following Commencement Date: With A Copy To:
---------------------------- ---------------
WorldRes, Inc. _________________________
1510 Fashion Island Boulevard, Suite 100 _________________________
San Mateo, California 94404 _________________________
Attn:________
Facsimile:________
Landlord's Address:
For All Notices: With A Copy To:
--------------- --------------
Mariners Center Limited Partnership Mariners Center Limited Partnership
c/o Archon Group c/o Trammell Crow Company
Two California Plaza 1241 East Hillsdale Boulevard, Suite 200
350 South Grand Avenue, 46th Floor Foster City, California 94404
Los Angeles, California 90071 Attn: Ramsey Shuayto
Attn: Nancy M. Haag Facsimile: (605) 345-2506
Facsimile: (213) 633-5870
For Rent Payments:
-----------------
Mariners Center Limited Partnership
c/o Trammell Crow Company
1241 East Hillsdale Boulevard, Suite 200
Foster City, California 94404
Attn: Ramsey Shuayto
</TABLE>
ii
<PAGE>
THE FOREGOING BASIC LEASE INFORMATION IS INCORPORATED INTO AND MADE A PART OF
THE LEASE IDENTIFIED ABOVE. IF ANY CONFLICT EXISTS BETWEEN ANY BASIC LEASE
INFORMATION AND THE LEASE, THEN THE LEASE SHALL CONTROL.
LANDLORD: MARINERS CENTER LIMITED
PARTNERSHIP, a Delaware limited partnership
By: NEW MARINERS CENTER
CORPORATION, a Delaware corporation,
its general partner
By: _______________________________
Name: Brian Ainsworth
Title: Assistant Vice President
TENANT: WORLDRES, INC,
a California corporation
By: _______________________________
Name: _______________________________
Title: _______________________________
By: _______________________________
Name: _______________________________
Title: _______________________________
iii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
Page
----
<S> <C>
BASIC LEASE INFORMATION.............................................................. i
1. Definitions And Basic Provisions...................................... 1
2. Lease Grant........................................................... 1
3. Term.................................................................. 1
4. Rent.................................................................. 1
4.1 Payment.......................................................... 1
4.2 Operating Costs; Taxes........................................... 2
5. Delinquent Payment: Handling Charges.................................. 4
6. Security.
6.1 Security Deposit................................................. 4
7. Landlord's Obligations................................................ 5
7.1 Services......................................................... 5
7.2 Excess Utility Use............................................... 5
7.3 Restoration of Services: Abatement............................... 6
8. Improvements; Alterations; Repairs: Maintenance....................... 6
8.1 Improvements; Alterations........................................ 6
8.2 Repairs: Maintenance............................................. 6
8.3 Performance of Work.............................................. 6
8.4 Mechanic's Liens................................................. 7
9. Use................................................................... 7
10. Assignment and Subletting............................................. 7
10.1 Transfers....................................................... 7
10.2 Consent Standards............................................... 7
10.3 Request For Consent............................................. 7
10.4 Conditions To Consent........................................... 8
10.5 Cancellation.................................................... 8
10.6 Additional Compensation......................................... 8
10.7 Permitted Transfers............................................. 8
11. Insurance; Waivers; Subrogation; Indemnity............................ 9
11.1 Insurance....................................................... 9
11.2 Waiver of Negligence; No Subrogation............................ 9
11.3 Indemnity....................................................... 9
12. Subordination; Attornment: Notice to Landlord's Mortgagee............. 10
12.1 Subordination................................................... 10
12.2 Attornment...................................................... 10
12.3 Notice to Landlord's Mortgagee.................................. 10
12.4 Landlord's Mortgagee's Protection Provisions.................... 10
13. Rules and Regulations................................................. 10
14. Condemnation.......................................................... 11
14.1 Total Taking.................................................... 11
14.2 Partial Taking Tenant's Rights.................................. 11
14.3 Partial Taking-Landlord's Rights................................ 11
14.4 Award........................................................... 11
15. Fire or Other Casualty................................................ 11
15.1 Repair Estimate................................................. 11
15.2 Landlord's and Tenant's Rights.................................. 11
15.3 Landlord's Rights............................................... 11
15.4 Repair Obligation............................................... 12
15.5 Waiver of Statutory Provisions.................................. 12
16. Personal Property Taxes............................................... 12
17. Events of Default..................................................... 12
18. Remedies.............................................................. 13
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
18.1 Termination..................................................... 13
18.2 Enforcement of Lease............................................ 13
18.3 Sublessees of Tenant............................................ 14
18.4 Efforts to Relet................................................ 14
19. Payment by Tenant; Non-Waiver......................................... 14
19.1 Payment by Tenant............................................... 14
19.2 No Waiver....................................................... 14
20. Landlord's Lien....................................................... 14
21. Surrender of Premises................................................. 14
22. Holding Over.......................................................... 15
23. Certain Rights Reserved by Landlord................................... 15
25. Miscellaneous......................................................... 16
25.1 Landlord Transfer............................................... 16
25.2 Landlord's Liability............................................ 16
25.3 Force Majeure................................................... 16
25.4 Brokerage....................................................... 16
25.5 Estoppel Certificates........................................... 16
25.6 Notices......................................................... 16
25.7 Separability.................................................... 16
25.8 Amendments; and Binding Effect.................................. 16
25.9 Quiet Enjoyment................................................. 17
25.10 No Merger....................................................... 17
25.11 No Offer........................................................ 17
25.12 Entire Agreement................................................ 17
25.13 Waiver of Jury Trial............................................ 17
25.14 Governing Law................................................... 17
25.15 Joint and Several Liability..................................... 17
25.16 Financial Reports............................................... 17
25.17 Landlord Fees................................................... 17
25.18 Attorney Fees................................................... 18
25.19 Telecommunications.............................................. 18
25.20 Confidentiality................................................. 18
25.21 Hazardous Materials............................................. 18
25.22 Signage......................................................... 18
25.23 Parking......................................................... 18
25.24 List Of Exhibits................................................ 19
26. Extension Option...................................................... 19
26.1 Grant of Option.................................................. 19
26.2 Basic Rent....................................................... 19
26.3 Definition....................................................... 19
26.4 Procedure for Determining the Extension FMRV..................... 19
26:5 Conditions to Exercise of the Extension Option................... 20
27. Rent Abatement........................................................ 20
TABLE OF EXHIBITS:
------------------
Exhibit A Outline of Premises
Exhibit B Description of Building
Exhibit C Building Rules and Regulations
Exhibit D Tenant Finish-Work
Exhibit E First Amendment to Lease
Exhibit F Form of Tenant Estoppel Certificate
</TABLE>
v
<PAGE>
LIST OF DEFINED TERMS
---------------------
<TABLE>
<S> <C>
Additional Rent......................................................... 2
Affiliate............................................................... 1
Basic Lease Information................................................. 1
Building................................................................ i
Casualty................................................................ 11
Collateral.............................................................. 14
Commencement Date....................................................... i
Damage Notice........................................................... 11
Event of Default........................................................ 12
Expiration Date......................................................... 19
Extension FMRV.......................................................... 19
Extension Notice........................................................ 19
Extension Option........................................................ 19
Extension Term.......................................................... 19
Extension Term Basic Annual Rent........................................ 19
GAAP.................................................................... 9
Hazardous Materials..................................................... 18
HVAC.................................................................... 5
Including............................................................... 1
Interest Rate........................................................... 4
Land.................................................................... i
Landlord................................................................ 1
Landlord's Extension Rent Notice........................................ 19
Landlord's Mortgagee.................................................... 10
Law..................................................................... 1
Laws.................................................................... 1
Lease................................................................... 1
Lease Month............................................................. i
Loss.................................................................... 9
Market.................................................................. 19
Operating Costs......................................................... 2
Operating Costs and Tax Statement....................................... 3
Parking Area............................................................ 18
Rent.................................................................... 1
Taking.................................................................. 11
Tangible Net Worth...................................................... 9
Taxes................................................................... 3
Tenant.................................................................1, 13
Tenant Party............................................................ 1
Tenant's Extension Response Noti........................................ 19
Term.................................................................... i
Transfer................................................................ 7
UCC..................................................................... 14
</TABLE>
vi
<PAGE>
LEASE
-----
THIS LEASE AGREEMENT (this "Lease") is entered into as of May 21, 1999,
-----
between MARINERS CENTER LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and WORLDRES, INC, a California corporation ("Tenant").
-------- ------
1. Definitions And Basic Provisions. The definitions and basic provisions
--------------------------------
set forth in the Basic Lease Information (the "Basic Lease Information")
-----------------------
executed by Landlord and Tenant contemporaneously herewith are incorporated
herein by reference for all purposes. Additionally, the following terms shall
have the following meanings when used in this Lease: "Laws" means all federal,
----
state, and local laws, rules and regulations, all court orders, governmental
directives, and governmental orders, and all restrictive covenants affecting the
Property, and "Law" shall mean any of the foregoing; "Affiliate" means any
--- ---------
person or entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
party in question; "Tenant Party" means any of the following persons: Tenant;
------------
any assignees claiming by, through, or under Tenant; any subtenants claiming by,
through, or under Tenant; and any of their respective agents, contractors,
employees, and invitees; and "including" means including, without limitation.
---------
2. Lease Grant. Subject to the terms of this Lease, Landlord leases to
-----------
Tenant, and Tenant leases from Landlord, the Premises.
3. Term. If the Premises are not ready for occupancy by Tenant on the
----
scheduled Commencement Date for any reason other than Tenant Delay Days (defined
in Exhibit D attached hereto), then (a) Tenant's obligation to pay Basic Rent
---------
and Additional Rent (as defined in Section 4) shall be waived until Landlord
tenders possession of the Premises to Tenant (less any Tenant Delay Days), (b)
Landlord shall not be in default hereunder or be liable for damages therefor,
and (c) Tenant shall accept possession of the Premises when Landlord tenders
possession thereof to Tenant, which date (less any Tenant Delay Days) shall be
the Commencement Date. Notwithstanding the foregoing, if Landlord fails to
tender possession of the Premises to Tenant within one hundred twenty (120) days
of the scheduled Commencement Date, and if such failure to tender possession of
the Premises is not caused by a Tenant Party, then Tenant may, as its exclusive
remedy therefor, terminate this Lease by delivering written notice thereof
before Landlord tenders possession of the Premises to Tenant; however, any such
notice must be delivered to Landlord before the earlier of (A) one hundred
thirty (130) days after the scheduled Commencement Date, or (B) the date on
which Landlord tenders possession of the Premises to Tenant. By occupying the
Premises, Tenant shall be deemed to have accepted the Premises in their
condition as of the date of such occupancy, subject to the performance of punch,
list items that remain to be performed by Landlord, if any. Tenant shall execute
and deliver to Landlord, within ten days after Landlord has requested the
same, an amendment substantially in the form of Exhibit E hereto confirming the
---------
Commencement Date and the expiration date of the initial Term, that Tenant has
accepted the Premises, and that Landlord has performed all of its obligations
with respect to the Premises (except for punch-list items specified in such
letter).
4. Rent.
-----
4.1 Payment. Subject to the conditional abatement of Basic Rent
-------
contained in Section 27 herein, Tenant shall timely pay to Landlord Basic Rent
and all additional sums to be paid by Tenant to Landlord under this Lease
(collectively, the "Rent"), without deduction or set off, at Landlord's address
----
provided for in this Lease or as otherwise specified by Landlord, and shall be
accompanied by all applicable state and local sales or use taxes. Basic Rent,
adjusted ~ herein provided, shall be payable monthly in advance. One monthly
installment of Basic Rent shall be payable contemporaneously with the execution
of this Lease and shall be applied to the Basic Rent due for the third full
calendar month of the Term; thereafter, Basic Rent shall be payable on the first
day of each month beginning on the first day of the fourth full calendar month
of the Term. The monthly Basic Rent for any partial month at the beginning of
the Term shall equal the product of 1/365 of the annual Basic Rent in effect
during the partial month and the number of days in the
1
<PAGE>
partial month from and after the Commencement Date, and shall be due on the
Commencement Date.
4.2 Operating Costs; Taxes,
-----------------------
4.2.1 Tenant shall pay an amount (per each rentable square foot
in the Premises) ("Additional Rent") equal to the difference between the
---------------
Operating Costs (defined below) per rentable square foot in the Building, and
the Expense Stop (calculated on a per rentable square foot basis). Landlord may
make a good faith estimate of the Additional Rent to be due by Tenant for any
calendar year or part thereof during the Term, and Tenant shall pay to Landlord,
on the Commencement Date and on the first day of each calendar month thereafter,
an mount equal to the estimated Additional Rent for such calendar year or part
thereof divided by the number of months therein. From time to time, Landlord may
estimate and re-estimate the Additional Rent to be due by Tenant and deliver a
copy of the estimate or re-estimate to Tenant. Thereafter, the monthly
installments of Additional Rent payable by Tenant shall be appropriately
adjusted in accordance with the estimations so that, by the end of the calendar
year in question, Tenant shall have paid all of the Additional Rent as estimated
by Landlord. Any amounts paid based on such an estimate shall be subject to
adjustment as herein provided when actual Operating Costs are available for each
calendar year.
4.2.2 The term "Operating Costs" shall mean all expenses and
---------------
disbursements (subject to the limitations set forth below) that Landlord incurs
in connection with the ownership, operation, and maintenance of the Building,
determined in accordance with sound accounting principles consistently applied,
including, but not limited to, the following costs: (A) wages and salaries
(including management fees) of all employees engaged in the operation,
maintenance, and security of the Building, including taxes, insurance and
benefits relating thereto; (B) all supplies and materials used in the operation,
maintenance, repair, replacement, and security of the Building; (C) costs for
improvements made to the Building which, although capital in nature, are
expected to reduce the normal operating costs of the Building (including all
utility costs), as well as capital improvements made in order to comply with any
law hereafter promulgated by any governmental authority, with all such costs to
be amortized over the useful economic life of such improvements in accordance
with generally accepted accounting principles; (D) cost of all utilities, except
the cost of other utilities reimbursable to Landlord by the Building's tenants
other than pursuant to a provision similar to this Section 4.2; (E) insurance
expenses; (F) repairs, replacements, and general maintenance of the Building;
and (G) service or maintenance contracts with independent contractors for the
operation, maintenance, repair, replacement, or security of the Building
(including, without limitation, alarm service, window cleaning, and elevator
maintenance). All expenditures by either party under this Lease, for which such
party is entitled to reimbursement from the other party hereunder, shall be
reasonably incurred and shall be competitive with the cost of similar goods or
services in the market where the Building is located.
Operating Costs shall not include costs for (i) capital improvements made
to the Building, other than capital improvements described in Section 4.2.2(C)
and except for items which are generally considered maintenance and repair
items, such as painting of common areas, replacement of carpet in elevator
lobbies, and the like; (ii) repair, replacements and general maintenance paid by
proceeds of insurance or by Tenant or other third parties; (iii) interest,
amortization or other payments on loans to Landlord; (iv) depreciation; (v)
leasing commissions; (vi) legal expenses for services, other than those that
benefit the Building tenants generally (e.g., tax disputes); (vii) renovating or
otherwise improving space for occupants of the Building or vacant space in the
Building; (viii) Taxes (defined below); (ix) federal income taxes imposed on or
measured by the income of Landlord from the operation of the Building; (x) any
and all costs of Landlord in complying with Laws regarding Hazardous Materials
including, but not limited to, the costs and expenses of clean-up, remediation,
environmental surveys/assessments, compliance with environmental Laws,
consulting fees, treatment and monitoring charges, transportation expenses and
disposal fees, except if such costs are a result of Tenant's use of or
activities in or on the Building; (xi) advertising and promotional costs; (xii)
costs, fines or penalties incurred due to Landlord's violation of any Law;
(xiii) costs of services or other benefits of a type which are not available to
Tenant but which are available to other tenants or occupants of the Building;
and (xiv) costs for
2
<PAGE>
which Landlord is reimbursed by other tenants of the Building other than through
payment of such tenants' Additional Rent and Proportionate Share of Taxes.
Tenant shall have no obligation to pay for renovations performed by Landlord
during calendar year 1999 to the common areas of the buildings at 1500 and 1510
Fashion Island Boulevard.
4.2.3 Tenant shall also pay its Proportionate Share of any
increase in Taxes for each year and partial year falling within the Term over
the Taxes for the Base Year. Tenant shall pay its Proportionate Share of Taxes
in the same manner as provided above for Additional Rent with regard to
Operating Costs. "Taxes" shall mean taxes, assessments, and governmental charges
-----
whether federal, state, county or municipal, and whether they be by taxing
districts or authorities presently taxing or by others, subsequently created or
otherwise, and any other taxes and assessments attributable to the Building (or
its operation), excluding, however, penalties and interest thereon and federal
and state taxes on income (if the present method of taxation changes so that in
lieu of the whole or any part of any Taxes, there is levied on Landlord a
capital tax directly on the rents received therefrom or a franchise tax,
assessment, or charge based, in whole or in part, upon such rents for the
Building, then all such taxes, assessments, or charges, or the part thereof so
based, shall be deemed to be included within the term "Taxes" for purposes
-----
hereof). Taxes shall include the costs of consultants retained in an effort to
lower taxes and all costs incurred in disputing any taxes or in seeking to lower
the tax valuation of the Building. For property tax purposes, Tenant waives all
rights to protest or appeal the appraised value of the Premises, as well as the
Building, and all rights to receive notices of reappraisement.
4.2.4 [INTENTIONALLY DELETED]
4.2.5 By April 1 of each calendar year, or as soon thereafter as
practicable, Landlord shall furnish to Tenant a statement of Operating Costs for
the previous year, in each case adjusted as provided in Section 4.2.6, and of
the Taxes for the previous year (the "Operating Costs and Tax Statement"). If
---------------------------------
the Operating Costs and Tax Statement reveals that Tenant paid more for
Operating Costs than the actual amount for the year for which such statement was
prepared, or more than its actual share of Taxes for such year, then Landlord
shall promptly credit or reimburse Tenant for such excess; likewise, if Tenant
paid less than Tenant's actual Proportionate Share of Additional Rent or share
of Taxes due, then Tenant shall promptly pay Landlord such deficiency.
4.2.6 With respect to any calendar year or partial calendar year
in which the Building is not occupied to the extent of ninety-five percent (95%)
of the rentable area thereof, the Operating Costs for such period shall, for the
purposes hereof, be increased to the amount which would have been incurred had
the Building been occupied to the extent of ninety-five percent (95%) of the
rentable area thereof.
4.3 Tenant's Inspection Right. After giving Landlord thirty (30)
-------------------------
days prior written notice thereof, Tenant may inspect or audit Landlord's
records relating to Operating Costs and Taxes for any periods of time within one
(1) year before the audit or inspection; however, no audit or inspection shall
extend to periods of time before the Commencement Date. If Tenant fails to
object to the calculation of Operating Costs and Taxes on an annual Operating
Costs and Tax Statement within thirty (30) days after the statement has been
delivered to Tenant, then Tenant shall have waived its right to object to the
calculation of Operating Costs and Taxes for the year in question and the
calculation of Operating Costs and Taxes set forth on such statement shall be
final. Tenant's audit or inspection shall be conducted only during business
hours reasonably designated by Landlord. Tenant shall pay the cost of such audit
or inspection unless the total Operating Costs and Taxes for the time period in
question is determined to be in error by more than five percent (5%) in the
aggregate, in which case Landlord shall pay the audit cost. Tenant may not
conduct an inspection or have an audit performed more than once during any
calendar year. If such inspection or audit reveals that an error was made in the
Operating Costs and Taxes previously charged to Tenant, then Landlord shall
refund to Tenant any overpayment of any such costs, or Tenant shall pay to
Landlord any underpayment of any such costs, as the case may be, within thirty
(30) days after notification thereof. Provided Landlord's accounting for
Operating Costs and Taxes is consistent with the terms of this Agreement,
Landlord's good faith judgment regarding the proper interpretation of this
Agreement and the proper accounting for Operating Costs and Taxes shall be
binding on
3
<PAGE>
Tenant in connection with any such audit or inspection. Tenant shall maintain
the results of each such audit or inspection confidential and shall not be
permitted to use any third party to perform such audit or inspection, other than
an independent firm of certified public accountants (A) reasonably acceptable to
Landlord, (B) which is not compensated on a contingency fee basis or in any
other manner which is dependent upon the results of such audit or inspection
(and Tenant shall deliver the fee agreement or other similar evidence of such
fee arrangement to Landlord upon request), and (C) which agrees with Landlord in
writing to maintain the results of such audit or inspection confidential.
5. Delinquent Payment; Handling Charges. All past due payments required
------------------------------------
of Tenant hereunder shall bear interest from the date due until paid at the
lesser of ten percent (10%) per annum (the "Interest Rate") or the maximum
-------------
lawful rate of interest; additionally, Landlord may charge Tenant a fee equal to
five percent (5%) of the delinquent payment to reimburse Landlord for its cost
and inconvenience incurred as a consequence of Tenant's delinquency. In no
event, however, shall the charges permitted under this Section 5 or elsewhere in
this Lease, to the extent they are considered to be interest under applicable
Law, exceed the maximum lawful rate of interest.
6. Security.
--------
6.1 Security Deposit. Contemporaneously with the execution of this
----------------
Lease, Tenant shall pay to Landlord the Security Deposit, which shall be held by
Landlord to secure Tenant's performance of its obligations under this Lease. The
Security Deposit is not an advance payment of Rent or a measure or limit of
Landlord's damages upon an Event of Default (defined in Section 17). Landlord
may, from time to time following an Event of Default and without prejudice to
any other remedy, use all or a part of the Security Deposit to perform any
obligation Tenant fails to perform hereunder. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount.
Provided that Tenant has performed all of its obligations hereunder, Landlord
shall, within thirty (30) days after the Term ends, return to Tenant the portion
of the Security Deposit which was not applied to satisfy Tenant's obligations.
The Security Deposit may be commingled with other funds, and no interest shall
be paid thereon. If Landlord transfers its interest in the Premises and the
transferee assumes Landlord's obligations under this Lease, then Landlord may
assign the Security Deposit to the transferee and Landlord thereafter shall have
no further liability for the return of the Security Deposit.
Provided Tenant is not in default at the end of the twenty fourth
(24th) month of the Term, Landlord shall apply $294,598.40 of the Security
Deposit to the Monthly Basic Rent due for the twenty fifth (25th) and twenty
sixth (26th) months of the Term, and provided Tenant is not in default at the
end of the forty eighth (48th) month of the Term, Landlord shall apply an
additional $294,598.40 of the Security Deposit to the Monthly Basic Rent due for
the forth ninth (49th) and fiftieth (50th) months of the Term. Thereafter, the
Security Deposit held by Landlord shall be in the amount of $147,299.20.
6.2 Letter of Credit. In lieu of delivering the Security Deposit,
----------------
Tenant may, concurrently with the execution of this Lease, deliver to Landlord
an irrevocable letter of credit as hereinafter described (the "Letter of
Credit"). The Letter of Credit shall (i) be an irrevocable standby letter of
credit, (ii) be issued by a reputable bank reasonably approved by Landlord,
(iii) name Landlord as beneficiary, (iv) be payable on sight draft accompanied
only by Landlord's statement that it is entitled to payment thereon because an
Event of Default under the Lease has occurred, (v) be for an initial term of at
least twelve (12) months and shall be renewed for four (4) twelve (12) month
periods immediately thereafter (for a total term of five (5) years), and (vi)
assure payment in the amount of $736,496.00. The following provisions shall
govern the parties' rights and obligations with respect to the Letter of Credit.
6.2.1 Landlord shall be entitled to recourse against the Letter
of Credit to recover any loss or damage it may suffer as a result of any breach
or default by Tenant under this Lease. Partial draws shall be permitted under
the Letter of Credit.
4
<PAGE>
6.2.2 Tenant shall keep the Letter of Credit in effect during
the entire initial Term; Tenant's failure to do same or Tenant's failure to
furnish written evidence to Landlord of the renewal of the Letter of Credit
shall be an Event of Default hereunder. Provided Tenant is not in default at the
end of the twenty fourth (24th) or forty eighth (48th) months, respectively, of
the Term, Tenant may reduce the amount of the Letter of Credit at the end of
each of such months as follows:
<TABLE>
<CAPTION>
Lease Months Letter of Credit Amount
------------ -----------------------
<S> <C>
1-24 $736,496.00
25-48 $441,897.60
49-72 $147,299.20
</TABLE>
6.2.3 Tenant shall pay, as Additional Rent under this Lease, any
and all costs or fees charged in connection with the Letter of Credit that arise
due to: (i) Landlord's sale or transfer of all or a portion of the Building; or
(ii) the addition, deletion or modification of any beneficiaries under the
Letter of Credit.
7. Landlord's Obligations.
-----------------------
7.1 Services. Landlord shall use all reasonable efforts to furnish to
--------
Tenant (1) water at those points of supply provided for general use of tenants
of the Building; (2) heated and refrigerated air conditioning ("HVAC") as
----
appropriate, at such temperatures and in such amounts as are standard for
comparable buildings in the vicinity of the Building; (3) janitorial service to
the Premises on weekdays, other than holidays, for Building-standard
installations and such window washing as may from time to time be reasonably
required; (4) elevators for ingress and egress to the floor on which the
Premises are located, in common with other tenants, provided that Landlord may
reasonably limit the number of operating elevators during non-business hours and
holidays; and (5) electrical current during normal business hours for equipment
that does not require more than 110 volts and whose electrical energy
consumption does not exceed normal office usage. Landlord shall maintain the
common areas of the Building in reasonably good order and condition, except for
damage caused by a Tenant Party. If Tenant desires any of the services specified
in Section 7.1(2): (A) at any time other than between 8:00 a.m. and 6:00 p.m. on
weekdays, and between 9:00 a.m. and 12:00 p.m. on Saturdays (in each case other
than holidays), or (B) on Sundays or holidays observed by Landlord, then such
services shall be supplied to Tenant upon the written request of Tenant
delivered to Landlord before 3:00 p.m. on the business day preceding such extra
usage, and Tenant shall pay to Landlord the cost of such services within ten
(10) days after Landlord has delivered to Tenant an invoice therefor. The costs
incurred by Landlord in providing after-hour HVAC service to Tenant shall
include costs for electricity, water, sewage, water treatment, labor, metering,
filtering, and maintenance reasonably allocated by Landlord to providing such
service, which is currently $40.00 per hour and is subject to change over the
Term. Upon the Commencement Date, Landlord shall deliver all Building systems
and components in good working order and repair, including, but not limited to,
HVAC, electrical, mechanical, plumbing, elevator and fire protection systems.
7.2 Excess Utility Use. Landlord shall not be required to furnish
------------------
electrical current for equipment that requires more than 110 volts or other
equipment whose electrical energy consumption exceeds normal office usage. If
Tenant's requirements for or consumption of electricity exceed the electricity
to be provided by Landlord as described in Section 7.1, Landlord shall, at
Tenant's expense, make reasonable efforts to supply such service through the
then-existing feeders and risers serving the Building and the Premises, and
Tenant shall pay to Landlord the cost of such service within ten (10) days after
Landlord has delivered to Tenant an invoice therefor. Landlord may determine the
amount of such additional consumption and potential consumption by any
verifiable method, including installation of a separate meter in the Premises
installed, maintained, and read by Landlord, at Tenant's expense. Tenant shall
not install any electrical equipment requiting special wiring or requiting
voltage in excess of 110 volts or otherwise exceeding Building capacity unless
approved in advance by Landlord. The use of electricity in the Premises shall
not exceed the capacity of existing feeders and risers to or wiring in the
Premises. Any risers or wiring required to meet Tenant's excess electrical
requirements shall, upon Tenant's written request, be installed by Landlord, at
Tenant's cost, if, in Landlord's judgment, the same are necessary and shall not
cause permanent damage to the Building or the Premises, cause or create a
5
<PAGE>
dangerous or hazardous condition, entail excessive or unreasonable alterations,
repairs, or expenses, or interfere with or disturb other tenants of the
Building. If Tenant uses machines or equipment in the Premises which affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the Premises, and the cost thereof, including
the cost of installation, operation, use, and maintenance, shall be paid by
Tenant to Landlord within ten (10) days after Landlord has delivered to Tenant
an invoice therefor.
7.3 Restoration of Services; Abatement. Landlord shall use reasonable
----------------------------------
efforts to restore any service required of it that becomes unavailable; however,
such unavailability shall not render Landlord liable for any damages caused
thereby, be a constructive eviction of Tenant, constitute a breach of any
implied warranty, or, except as provided in the next sentence, entitle Tenant to
any abatement of Tenant's obligations hereunder. If, however, Tenant is
prevented from using the Premises for more than twenty-five (25) consecutive
business days because of the unavailability of any such service and such
unavailability was not caused by a Tenant Party, then Tenant shall, as its
exclusive remedy be entitled to a reasonable abatement of Rent for each
consecutive day (after such twenty-five (25) day period) that Tenant is so
prevented from using the Premises.
8. Improvements; Alterations; Repairs; Maintenance.
-----------------------------------------------
8.1 Improvements; Alterations. Improvements to the Premises shall be
-------------------------
installed at Tenant's expense only in accordance with plans and specifications
which have been previously submitted to and approved in writing by Landlord. No
alterations or physical additions in or to the Premises may be made without
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed; however, Landlord may withhold its consent to any alteration or
addition that would affect the Building's structure or its HVAC, plumbing,
electrical, or mechanical systems. Tenant shall not paint or install lighting or
decorations, signs, window or door lettering, or advertising media of any type
on or about the Premises without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed; however, Landlord may withhold
its consent to any such painting or installation which would affect the
appearance of the exterior of the Building or of any common areas of the
Building. All alterations, additions, and improvements shall be constructed,
maintained, and used by Tenant, at its risk and expense, in accordance with all
Laws; Landlord's approval of the plans and specifications therefor shall not be
a representation by Landlord that such alterations, additions, or improvements
comply with any Law.
8.2 Repairs: Maintenance. Tenant shall maintain the Premises in a
--------------------
clean, safe, and operable condition, and shall not permit or allow to remain any
waste or damage to any portion of the Premises. Tenant shall repair or replace,
subject to Landlord's direction and supervision, any damage to the Building
caused by a Tenant Party. If Tenant fails to make such repairs or replacements
within fifteen (15) days after the occurrence of such damage, then Landlord may
make the same at Tenant's cost. If any such damage occurs outside of the
Premises, then Landlord may elect to repair such damage at Tenant's expense,
rather than having Tenant repair such damage. The cost of all repair or
replacement work performed by Landlord under this Section 8 shall be paid by
Tenant to Landlord within ten (10) days after Landlord has invoiced Tenant
therefor. Tenant hereby waives and releases its right to make repairs at
Landlord's expense under Sections 1941 and 1942 of the California Civil Code or
under any similar law, statute, or ordinance now or hereafter in effect.
8.3 Performance of Work. All work described in this Section 8
-------------------
shall be performed only by Landlord or by contractors and subcontractors
approved in writing by Landlord. Tenant shall cause all contractors and
subcontractors to procure and maintain insurance coverage naming Landlord as an
additional insured against such risks, in such amounts, and with such companies
as Landlord may reasonably require. All such work shall be performed in
accordance with all Laws and in a good and workmanlike manner so as not to
damage the Building (including the Premises, the structural elements, and the
plumbing, electrical lines, or other utility transmission facility). All such
work which may affect the Building's HVAC, electrical, plumbing, other
mechanical systems, or structural elements must be approved by the Building's
engineer of record,
6
<PAGE>
at Tenant's expense and, at Landlord's election, must be performed by Landlord's
usual contractor for such work.
8.4 Mechanic's Liens. Tenant shall not permit any mechanic's liens to
----------------
be filed against the Premises or the Building for any work performed, materials
furnished, or obligation incurred by or at the request of Tenant. If such a lien
is filed, then Tenant shall, within ten (10) days after Landlord has delivered
notice of the filing thereof to Tenant, either pay the amount of the lien or
diligently contest such lien and deliver to Landlord a bond or other security
reasonably satisfactory to Landlord. If Tenant fails to timely take either such
action, then Landlord may pay the lien claim, and any amounts so paid, including
expenses and interest, shall be paid by Tenant to Landlord within ten (10) days
after Landlord has invoiced Tenant therefor.
9. Use. Tenant shall continuously occupy and use the Premises only for
---
the Permitted Use, and shall comply with all Laws relating to the use,
condition, access to, and occupancy of the Premises. The population density
within the Premises as a whole shall at no time exceed one person for each 250
rentable square feet in the Premises. Tenant shall not conduct second or third
shift operations within the Premises; however, Tenant may use the Premises after
normal business hours, so long as Tenant is not generally conducting business
from the Premises after normal business hours. The Premises shall not be used
for any use which is disreputable, creates extraordinary fire hazards, or
results in an increased rate of insurance on the Building or its contents, or
for the storage of any Hazardous Materials. If, because of a Tenant Party's
acts, the rate of insurance on the Building or its contents increases, then such
acts shall be an Event of Default, Tenant shall pay to Landlord the amount of
such increase on demand, and acceptance of such payment shall not waive any of
Landlord's other rights. Tenant shall conduct its business and control each
other Tenant Party so as not to create any nuisance or unreasonably interfere
with other tenants or Landlord in its management of the Building. To the best of
Landlord's actual knowledge, the Building substantially complies with the
requirements of the Americans with Disabilities Act as of the date of this
Lease.
10. Assignment and Subletting.
-------------------------
10.1 Transfers. Except as provided in Section 10.7, Tenant shall not,
---------
without the prior written consent of Landlord, (1) assign, transfer, or encumber
this Lease or any estate or interest herein, whether directly or by operation of
law, (2) permit any other entity to become Tenant hereunder by merger,
consolidation, or other reorganization, (3) if Tenant is an entity other than a
corporation whose stock is publicly traded, permit the transfer of an ownership
interest in Tenant so as to result in a change in the current control of Tenant,
(4) sublet any portion of the Premises, (5) grant any license, concession, or
other right of occupancy of any portion of the Premises, or (6) permit the use
of the Premises by any parties other than Tenant (any of the events listed in
Sections 10.1 (1) through 10.1 (6) being a "Transfer").
--------
10.2 Consent Standards. Landlord shall not unreasonably withhold its
-----------------
consent to any assignment or subletting of the Premises, provided that the
proposed transferee is creditworthy, does not have a poor reputation in the
business community, will use the Premises for the Permitted Use (thus,
excluding, without limitation, uses for credit processing and telemarketing) and
will not use the Premises in any manner that would conflict with any exclusive
use agreement or other similar agreement entered into by Landlord with any other
tenant of the Building, is not a governmental entity, or subdivision or agency
thereof, and is not another occupant of the Building or person or entity with
whom Landlord is negotiating to lease space in the Building, unless such
occupant wishes to expand within the Building and Landlord is unable to
accommodate such expansion; otherwise, Landlord may withhold its consent in its
sole discretion.
10.3 Request For Consent. If Tenant requests Landlord's consent to a
-------------------
transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to determine
the proposed transferee's creditworthiness and character. Concurrently with
Tenant's notice of any request for consent to a
7
<PAGE>
Transfer, Tenant shall pay to Landlord a fee of $500.00 to defray Landlord's
expenses in reviewing such request, and Tenant shall also reimburse Landlord
immediately upon request for its reasonable attorney fees incurred in connection
with considering any request for consent to a Transfer.
10.4 Conditions To Consent. If Landlord consents to a proposed
---------------------
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes Tenant's obligations hereunder; however,
any transferee of less than all of the space in the Premises shall be liable
only for obligations under this Lease that are properly allocable to the space
subject to the Transfer for the period of the Transfer. No Transfer shall
release Tenant from its obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent Transfers.
If an Event of Default occurs while the Premises or any part thereof are subject
to a Transfer, then Landlord, in addition to its other remedies, may collect
directly from such transferee all rents becoming due to Tenant and apply such
rents against Rent. Tenant authorizes its transferees to make payments of rent
directly to Landlord upon receipt of notice from Landlord to do so. Tenant shall
pay for the cost of any demising walls or other improvements necessitated by a
proposed subletting or assignment.
10.5 Cancellation. Landlord may, within thirty (30) days after
------------
submission of Tenant's written request for Landlord's consent to an assignment
or subletting, cancel this Lease as to the portion of the Premises proposed to
be sublet or assigned as of the date the proposed Transfer is to be effective.
If Landlord cancels this Lease as to any portion of the Premises, then this
Lease shall cease for such portion of the Premises and Tenant shall pay to
Landlord all Rent accrued through the cancellation date relating to the portion
of the Premises covered by the proposed Transfer. Thereafter, Landlord may lease
such portion of the Premises to the prospective transferee (or to any other
person) without liability to Tenant. Notwithstanding the foregoing to the
contrary, (i) in the event Tenant requests Landlord's consent to a Transfer of
the Premises, Tenant may, upon receipt of notice from Landlord of Landlord's
intent to cancel this Lease pursuant to this Section 10.5, withdraw its request
for consent to the Transfer, and Landlord's right to cancel this Lease based on
such request shall terminate; and (ii) with respect to Tenant's written request
for Landlord's consent to a subletting of all or a portion of the Premises,
Landlord shall have the right to cancel pursuant to this Section 10.5 only those
proposed subleases that are for the entire length of the Term then remaining at
the time of such request for consent from Tenant.
10.6 Additional Compensation. Tenant shall pay to Landlord,
-----------------------
immediately upon receipt thereof, sixty percent (60%) of the excess of (1) all
compensation received by Tenant for a Transfer less the costs reasonably
incurred by Tenant with unaffiliated third parties in connection with such
Transfer (i.e., brokerage commissions, tenant finish work, and the like) over
(2) the Rent allocable to the portion of the Premises covered thereby.
10.7 Permitted Transfers. Notwithstanding Section 10.1, Tenant may
-------------------
Transfer all or part of its interest in this Lease or all or part of the
Premises (a "Permitted Transfer") to the following types of entities (a
------------------
"Permitted Transferee") without the written consent of Landlord:
- ---------------------
10.7.1 An Affiliate of Tenant;
10.7.2 Any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity in which or with
which Tenant, or its corporate successors or assigns, is merged or consolidated,
in accordance with applicable statutory provisions governing merger and
consolidation of business entities, so long as (A) Tenant's obligations
hereunder are assumed by the entity surviving such merger or created by such
consolidation; and (B) the Tangible Net Worth of the surviving or created entity
is not less than the Tangible Net Worth of Tenant as of the date hereof; or
10.7.3 Any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity acquiring all or
substantially all of Tenant's assets if such entity's Tangible Net Worth after
such acquisition is not less than the Tangible Net Worth of Tenant as of the
date hereof.
8
<PAGE>
Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant
shall remain liable for the performance of all of the obligations of Tenant
hereunder, or if Tenant no longer exists because of a merger, consolidation, or
acquisition, the surviving or acquiring entity shall expressly assume in writing
the obligations of Tenant hereunder. Additionally, the Permitted Transferee
shall comply with all of the terms and conditions of this Lease, including the
Permitted Use, and the use of the Premises by the Permitted Transferee may not
violate any other agreements affecting the Premises, the Building, Landlord or
other tenants of the Building. At least thirty (30) days after the effective
date of any Permitted Transfer, Tenant agrees to furnish Landlord with copies of
the instrument effecting any of the foregoing Transfers and documentation
establishing Tenant's satisfaction of the requirements set forth above
applicable to any such Transfer. The occurrence of a Permitted Transfer shall
not waive Landlord's rights as to any subsequent Transfers. "Tangible Net Worth"
------------------
means the excess of total assets over total liabilities, in each case as
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP"), excluding, however, from the determination of
----
total assets all assets which would be classified as intangible assets under
GAAP including, without limitation, goodwill, licenses, patents, trademarks,
trade names, copyrights, and franchises. Any subsequent Transfer by a Permitted
Transferee shall be subject to Landlord's prior written consent (which Landlord
may grant or deny in its sole discretion).
11. Insurance; Waivers; Subrogation; Indemnity.
------------------------------------------
11.1 Insurance. Tenant shall maintain throughout the Term the
---------
following insurance policies: (1) commercial general liability insurance in
amounts of $3,000,000.00 per occurrence, or such other mounts as Landlord may
from time to time reasonably require, insuring Tenant, Landlord, Landlord's
agents and their respective Affiliates against all liability for injury to or
death of a person or persons or damage to property arising from the use and
occupancy of the Premises; (2) insurance coveting the full value of Tenant's
property and improvements, and other property (including property of others) in
the Premises; (3) contractual liability insurance sufficient to cover Tenant's
indemnity obligations hereunder (but only if such contractual liability
insurance is not already included in Tenant's commercial general liability
insurance policy); (4) worker's compensation insurance, containing a waiver of
subrogation endorsement acceptable to Landlord; and (5) business interruption
insurance. Tenant's insurance shall provide primary coverage to Landlord when
any policy issued to Landlord provides duplicate or similar coverage, and in
such circumstance Landlord's policy will be excess over Tenant's policy. Tenant
shall furnish to Landlord certificates of such insurance and such other evidence
satisfactory to Landlord of the maintenance of all insurance coverages required
hereunder, and Tenant shall obtain a written obligation on the part of each
insurance company to notify Landlord at least thirty (30) days before
cancellation or a material change of any such insurance policies. All such
insurance policies shall be in form, and issued by companies, reasonably
satisfactory to Landlord.
11.2 Waiver of Negligence: No Subrogation. Landlord and Tenant each
------------------------------------
waives any claim it might have against the other for any injury to or death of
any person or persons or damage to or their, destruction, loss, or loss of use
of any property (a "Loss"), to the extent the same is insured against under any
insurance policy that covers the Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements, or business, or, in the
ease of Tenant's waiver, is required to be insured against under the terms
hereof, regardless of whether the negligence of the other party caused such
Loss; however, Landlord's waiver shall not include any deductible amounts on
insurance policies carried by Landlord. Each party shall cause its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party.
11.3 Indemnity. Subject to Section 11.2, Tenant shall defend,
---------
protect, indemnify, and hold harmless Landlord and its representatives and
agents from and against all claims, demands, liabilities, causes of action,
suits, judgments, damages, and expenses (including attorney fees) arising from
(1) any Loss arising from any occurrence on the Premises during the Term of this
Lease (other than any Loss arising out of a breach of Tenant's obligations under
Section 25.21, which shall be subject to the indemnity in such section), or (2)
Tenant's failure to perform its obligations under this Lease during the Term of
this Lease, even though caused or alleged to be caused by the negligence
9
<PAGE>
or fault of Landlord or its agents (other than a Loss arising from the sole or
gross negligence of Landlord or its agents) This indemnity is intended to
indemnify. Landlord and its agents against the consequences of their own
negligence when Landlord or its agents are jointly, comparatively,
contributively, or concurrently negligent with Tenant but does not cover losses
arising from the gross negligence of Landlord or its agents. This indemnity
provision shall survive termination or expiration of this Lease. If any
proceeding is filed for which indemnity is required hereunder, Tenant agrees,
upon request therefor, to defend the indemnified party in such proceeding at its
sole cost utilizing counsel reasonably satisfactory to the indemnified party.
12. Subordination; Attornment; Notice to Landlord's Mortgagee.
---------------------------------------------------------
12.1 Subordination. This Lease shall be subordinate to any deed of
-------------
trust, mortgage, or other security instrument, or any ground lease, master
lease, or primary lease, that now or hereafter covers all or any part of the
Premises (the mortgagee under any such mortgage or the lessor under any such
lease is referred to herein as a "Landlord's Mortgagee"). Any Landlord's
--------------------
Mortgagee may elect, at any time, unilaterally, to make this Lease superior to
its mortgage, ground lease, or other interest in the Premises by so notifying
Tenant in writing.
12.2 Attornment. Tenant shall attorn to any party succeeding to
----------
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, and shall execute such agreements confirming such
attornment as such party may reasonably request.
12.3 Notice to Landlord's Mortgagee. Tenant shall not seek to enforce
------------------------------
any remedy it may have for any default on the part of Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlord's Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
12.4 Landlord's Mortgagee's Protection Provisions. If Landlord's
--------------------------------------------
Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord's
Mortgagee shall not be: (1) liable for any act or omission of any prior lessor
(including Landlord); (2) bound by any rent or additional rent or advance rent
which Tenant might have paid for more than the current month to any prior lessor
(including Landlord), and all such rent shall remain due and owing,
notwithstanding such advance payment; (3) bound by any security or advance
rental deposit made by Tenant which is not delivered or paid over to Landlord's
Mortgagee and with respect to which Tenant shall look solely to Landlord for
refund or reimbursement; (4) bound by any termination, amendment or modification
of this Lease made without Landlord's Mortgagee's consent and written approval,
except for those terminations, amendments and modifications permitted to be made
by Landlord without Landlord's Mortgagee's consent pursuant to the terms of the
loan documents between Landlord and Landlord's Mortgagee; (5) subject to the
defenses which Tenant might have against any prior lessor (including Landlord);
and (6) subject to the offsets which Tenant might have against any prior lessor
(including Landlord) except for those offset rights which (A) are expressly
provided in this Lease, (B) relate to periods of time following the acquisition
of the Building by Landlord's Mortgagee, and (C) Tenant has provided written
notice to Landlord's Mortgagee and provided Landlord's Mortgagee a reasonable
opportunity to cure the event giving rise to such offset event. Landlord's
Mortgagee shall have no liability or responsibility under or pursuant to the
terms of this Lease or otherwise after it ceases to own an interest in the
Building. Nothing in this Lease shall be construed to require Landlord's
Mortgagee to see to the application of the proceeds of any loan, and Tenant's
agreements set forth herein shall not be impaired on account of any modification
of the documents evidencing and securing any loan.
13. Rules and Regulations. Tenant shall comply with the roles and
---------------------
regulations of the Building which are attached hereto as Exhibit G. Landlord
---------
may, from time to time, change such roles and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and will not unreasonably
interfere with Tenant's use of the Premises. Tenant shall be responsible for the
compliance with such roles and regulations by each Tenant Party.
10
<PAGE>
14. Condemnation.
------------
14.1 Total Taking. If the entire Building or Premises are taken by
------------
right of eminent domain or conveyed in lieu thereof (a "Taking"), this Lease
------
shall terminate as of the date of the Taking.
14.2 Partial Taking-Tenant's Rights. If any part of the Building
------------------------------
becomes subject to a Taking and such Taking will prevent Tenant from conducting
its business in the Premises in a manner reasonably comparable to that conducted
immediately before such Talking for a period of more than one hundred eighty
(180) days, then Tenant may terminate this Lease as of the date of such Taking
by giving written notice to Landlord within thirty (30) days after the Taking,
and Rent shall be apportioned as of the date of such Taking. If Tenant does not
terminate this Lease, then Rent shall be abated on a reasonable basis as to that
portion of the Premises rendered untenantable by the Taking.
14.3 Partial Taking-Landlord's Right. If any material portion, but
-------------------------------
less than all, of the Building becomes subject to a Taking, or if Landlord is
required to pay any of the proceeds received for a Taking to a Landlord's
Mortgagee, then Landlord may terminate this Lease by delivering written notice
thereof to Tenant within thirty (30) days after such Taking, and Rent shall be
apportioned as of the date of such Taking. If Landlord does not so terminate
this Lease, then this Lease will continue, but if any portion of the Premises
has been taken, Rent shall abate as provided in the last sentence of Section
14.2. Tenant hereby waives any and all rights it might otherwise have pursuant
to Section 1265.130 of The California Code of Civil Procedure.
14.4 Award. If any Taking occurs, then Landlord shall receive the
-----
entire award or other compensation for the land on which the Building is
situated, the Building, and other improvements taken, and Tenant may separately
pursue a claim (to the extent it will not reduce Landlord's award) against the
condemnor for the value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs and loss of business.
15. Fire or Other Casualty.
----------------------
15.1 Repair Estimate. If the Premises or the Building are damaged by
---------------
fire or other casualty (a "Casualty"), Landlord shall, within ninety (90) days
--------
after such Casualty, deliver to Tenant a good faith estimate (the "Damage
------
Notice") of the time needed to repair the damage caused by such Casualty.
- ------
15.2 Landlord's and Tenant's Rights. If a material portion of the
------------------------------
Premises or the Building is damaged by Casualty such that Tenant is prevented
from conducting its business in the Premises in a manner reasonably comparable
to that conducted immediately before such Casualty and Landlord estimates that
the damage caused thereby cannot be repaired within two hundred seventy (270)
days after the Casualty, then Tenant may terminate this Lease by delivering
written notice to Landlord of its election to terminate within thirty (30) days
after the Damage Notice has been delivered to Tenant. If Tenant does not so
timely terminate this Lease, then (subject to Section 15.3) Landlord shall
repair the Building or the Premises, as the case may be, as provided below, and
Rent for the portion of the Premises rendered untenantable by the damage shall
be abated on a reasonable basis from the date of damage until the completion of
the repair, unless a Tenant Party caused such damage, in which case, Tenant
shall continue to pay Rent without abatement.
15.3 Landlord's Rights. If a Casualty damages a material portion of
-----------------
the Building, and Landlord makes a good faith determination that restoring the
Premises would be uneconomical, or if Landlord is required to pay any insurance
proceeds arising out of the Casualty to a Landlord's Mortgagee, then Landlord
may terminate this Lease by giving written notice of its election to terminate
within thirty (30) days after the Damage Notice has been delivered to Tenant,
and Basic Rent and Additional Rent shall be abated as of the date of the
Casualty.
11
<PAGE>
15.4 Repair Obligation. If neither party elects to terminate this
-----------------
Lease following a Casualty, then Landlord shall, within a reasonable time after
such Casualty, begin to repair the Building and the Premises and shall proceed
with reasonable diligence to restore the Building and Premises to substantially
the same condition as they existed immediately before such Casualty; however,
Landlord shall not be required to repair or replace any of the furniture,
equipment, fixtures, and other improvements which may have been placed by, or at
the request of, Tenant or other occupants in the Building or the Premises, and
Landlord's obligation to repair or restore the Building or Premises shall be
limited to the extent of the insurance proceeds actually received by Landlord
for the Casualty in question.
15.5 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 15, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises or the Building and any statute or regulation of the State of
California, including, without limitation, Sections 1932(2) and 1933(4) of the
California Civil Code, with respect to any rights or obligations concerning
damage or destruction in the absence of an express agreement between the
parties, and any other statute or regulation, now or hereafter in effect, shall
have no application to this Lease or any damage or destruction to all or any
part of the Premises or the Building.
16. Personal Property Taxes. Tenant shall be liable for all taxes levied
-----------------------
or assessed against personal property, furniture, or fixtures placed by Tenant
in the Premises. If any taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord's property and Landlord elects to pay the same, or
if the assessed value of Landlord's property is increased by inclusion of such
personal property, furniture or fixtures and Landlord elects to pay the taxes
based on such increase, then Tenant shall pay to Landlord, upon demand, the part
of such taxes for which Tenant is primarily liable hereunder; however, Landlord
shall not pay such amount if Tenant notifies Landlord that it will contest the
validity or amount of such taxes before Landlord makes such payment, and
thereafter diligently proceeds with such contest in accordance with law and if
the non-payment thereof does not pose a threat of loss or seizure of the
Building or interest of Landlord therein or impose any fee or penalty against
Landlord.
17. Events of Default. Each of the following occurrences shall be an
-----------------
"Event of Default:"
-------- -------
17.1 Tenant fails to pay Rent within five (5) days after Landlord has
delivered notice to Tenant that the same is due (any such notice shall be in
lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law); however, an Event
of Default shall occur hereunder without any obligation of Landlord to give any
notice if Landlord has given Tenant written notice under this Section 17.1 on
more than one occasion during the twelve (12) month interval preceding such
failure by Tenant;
17.2 Tenant (1) abandons or vacates the Premises or any substantial
portion thereof without the payment of Rent, or (2) fails to continuously
operate its business in the Premises;
17.3 Tenant fails to comply with the Permitted Use set forth herein
and such failure continues for a period of five (5) days after Landlord has
delivered to Tenant written notice thereof;
17.4 Tenant fails to provide any estoppel certificate within the time
period required under Section 25.5 and such failure continues for five (5) days
after written notice thereof from Landlord to Tenant;
17.5 Tenant fails to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and such failure continues
for a period of more than thirty (30) days after Landlord has delivered to
Tenant written notice thereof (any such notice shall be in lieu of; and not in
addition to, any notice required under California Code of Civil Procedure
Section 1161 or any similar or successor law); and
12
<PAGE>
17.6 The filing of a petition by or against Tenant (the term "Tenant"
------
shall include, for the purpose of this Section 17.6, any guarantor of Tenant's
obligations hereunder) (1) in any bankruptcy or other insolvency proceeding; (2)
seeking any relief under any state or federal debtor relief law; (3) for the
appointment of a liquidator or receiver for all or substantially all of Tenant's
property or for Tenant's interest in this Lease; or (4) for the reorganization
or modification of Tenant's capital structure; however, if such a petition is
filed against Tenant, then such filing shall not be an Event of Default unless
Tenant fails to have the proceedings initiated by such petition dismissed within
ninety (90) days after the filing thereof.
18. Remedies. Upon any Event of Default, Landlord may, in addition to all
--------
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions, each and all of which shall be cumulative and non-
exclusive, without notice or demand whatsoever:
18.1 Termination. Terminate this Lease, in which event Tenant shall
-----------
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and. Landlord may recover from Tenant the following:
18.1.1 The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
18.1.2 The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
18.1.3 The worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
18.1.4 Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including, but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
18.1.5 At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Section 18.1 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant, pursuant to the
terms of this Lease, whether to Landlord or to others. As used in Sections
18.1.1 and 18.1.2 above, the "worth at the time of award" shall be computed by
allowing interest at the Interest Rate set forth in Section 5 of this Lease, but
in no case greater than the maximum amount of such interest permitted by law. As
used in Section 18.1.3 above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
18.2 Enforcement of Lease. Landlord shall have the remedy described in
--------------------
California Civil Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has the right to sublet or assign, subject only to reasonable limitations).
Accordingly, Landlord may, from time to time, without terminating this Lease,
enforce all of its rights and remedies under this Lease, including the right to
recover all rent as it becomes due.
13
<PAGE>
18.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
--------------------
this Lease 7 on account of any default by Tenant, as set forth in this Section
18, Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
18.4 Efforts to Relet. For the purposes of this Section 18; Tenant's
----------------
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
19. Payment by Tenant; Non-Waiver.
-----------------------------
19.1 Payment by Tenant. Upon any Event of Default, Tenant shall pay to
-----------------
Landlord all costs incurred by Landlord (including court costs and reasonable
attorney fees and expenses) in (1) obtaining possession of the Premises, (2)
removing and storing Tenant's or any other occupant's property, (3) repairing,
restoring, altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (4) performing Tenant's obligations which
Tenant failed to perform, and (5) enforcing, or advising Landlord of, its
rights, remedies, and recourses arising out of the Event of Default. To the full
extent permitted by law, Landlord and Tenant agree the federal and state courts
of the state in which the Premises are located shall have exclusive jurisdiction
over any matter relating to or arising from this Lease and the parties' rights
and obligations under this Lease.
19.2 No Waiver. Landlord's acceptance of Rent following an Event of
---------
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such
term. Landlord's acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the Rent that is due,
regardless of any endorsement or other statement on any instrument delivered in
payment of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute an
accord and satisfaction of the full amount of the Rent that is due.
20. Landlord's Lien. In addition to the statutory landlord's lien, Tenant
---------------
grants to Landlord, to secure performance of Tenant's obligations hereunder, a
security interest in all goods (including equipment and inventory), fixtures,
and other personal property of Tenant situated on the Premises, and all proceeds
thereof (the "Collateral"), and the Collateral shall not be removed from the
----------
Premises without the prior written consent of Landlord (other than in Tenant's
ordinary course of business) until all obligations of Tenant have been fully
performed. Upon the occurrence of an Event of Default, Landlord may, in addition
to all other remedies, without notice or demand except as provided below,
exercise the rights afforded to a secured party under the Uniform Commercial
Code of the state in which the Premises are located (the "UCC"). To the extent
---
the UCC requires Landlord to give to Tenant notice of any act or event and such
notice cannot be validly waived before a default occurs, then five (5) days
prior written notice thereof shall be reasonable notice of the act or event.
Tenant grants to Landlord a power of attorney to execute and file any financing
statement or other instrument necessary to perfect Landlord's security interest
under this Section 20, which power is coupled with an interest and is
irrevocable during the Term. Landlord may also file a copy of this Lease as a
financing statement to perfect its security interest in the Collateral.
21. Surrender of Premises. No act by Landlord shall be deemed an
---------------------
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord. At the expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises with all improvements located therein in good repair
and
14
<PAGE>
condition, free of Hazardous Materials placed on the Premises during the Term,
broom-clean, reasonable wear and tear (and condemnation and Casualty damage not
caused by Tenant, as to which Sections 14 and 15 shall control) excepted, and
shall deliver to Landlord all keys to the Premises. Provided that Tenant has
performed all of its obligations hereunder, Tenant may remove all unattached
trade fixtures, furniture, and personal property placed in the Premises or
elsewhere in the Building by Tenant (but Tenant may not remove any such item
which was paid for, in whole or in part, by Landlord or any wiring or cabling
unless Landlord requires such removal). Additionally, at Landlord's option,
Tenant shall remove such alterations, additions, improvements, trade fixtures,
personal property, equipment, wiring, cabling, and furniture as Landlord may
request; however, Tenant shall not be required to remove any addition or
improvement to the Premises if Landlord has specifically agreed in writing that
the improvement or addition in question need not be removed. Tenant shall repair
all damage caused by such removal. All items not so removed shall, at Landlord's
option, be deemed to have been abandoned by Tenant and may be appropriated,
sold, stored, destroyed, or otherwise disposed of by Landlord without notice to
Tenant and without any obligation to account for such items; any such
disposition shall not be considered a strict foreclosure or other exercise of
Landlord's rights in respect of the security interest granted under Section 20.
The provisions of this Section 21 shall survive the end of the Term.
22. Holding Over. If Tenant fails to vacate the Premises at the end of the
------------
Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rent equal to one
hundred fifty percent (150%) of the daily Basic Rent payable during the last
month of the Term. The provisions of this Section 22 shall not be deemed to
limit or constitute a waiver of any other rights or remedies of Landlord
provided herein or at law. If Tenant fails to surrender the Premises upon the
termination or expiration of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold
Landlord harmless from all loss, costs (including reasonable attorney fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
23. Certain Rights Reserved by Landlord. Provided that the exercise of
-----------------------------------
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
23.1 To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in and
about the Building, or any part thereof; to enter upon the Premises (after
giving Tenant reasonable notice thereof, which may be oral notice, except in
cases of real or apparent emergency, in which case no notice shall be required)
and, during the continuance of any such work, to temporarily close doors,
entryways, public space, and corridors in the Building; to interrupt or
temporarily suspend Building services and facilities; to change the name of the
Building; and to change the arrangement and location of entrances or
passageways, doors, and doorways, corridors, elevators, stairs, restrooms, or
other public parts of the Building;
23.2 To take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily denying access to the
Building; and closing the Building after normal business hours and on Sundays
and holidays, subject, however, to Tenant's right to enter when the Building is
closed after normal business hours under such reasonable regulations as Landlord
may prescribe from time to time; and
23.3 To enter the Premises at reasonable hours to show the Premises to
prospective purchasers, lenders, or, during the last twelve (12) months of the
Term, tenants.
24. INTENTIONALLY DELETED
15
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25. Miscellaneous.
-------------
25.1 Landlord Transfer. Landlord may transfer any portion of the
-----------------
Building and any of its rights under this Lease. If Landlord assigns its rights
under this Lease, then Landlord shall thereby be released from any further
obligations hereunder arising after the date of transfer, provided that the
assignee assumes Landlord's obligations hereunder in writing.
25.2 Landlord's Liability. The liability of Landlord to Tenant for any
--------------------
default by Landlord under the terms of this Lease shall be limited to Tenant's
actual direct, but not consequential, damages therefor and shall be recoverable
only from the interest of Landlord in the Building, and neither Landlord nor its
partners shall be personally liable for any deficiency. This Section shall not
limit any remedies which Tenant may have for Landlord's defaults which do not
involve the personal liability of Landlord.
25.3 Force Majeure. Other than for Tenant's obligations under this
-------------
Lease that can be performed by the payment of money (e.g., payment of Rent and
maintenance of insurance), whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, dots, acts of God, shortages of labor
or materials, war, governmental laws, regulations, or restrictions, or any other
causes of any kind whatsoever which are beyond the control of such party.
25.4 Brokerage. Neither Landlord nor Tenant has dealt with any broker
---------
or agent in connection with the negotiation or execution of this Lease, other
than Landlord's Broker (Grubb & Ellis Company - J. Igra/N. Morse), and Tenant's
Broker (BT Commercial Real Estate - T. Snider), whose commission shall be paid
by Landlord pursuant to a separate agreement. Tenant and Landlord shall each
indemnify the other against all costs, expenses, attorney fees, and other
liability for commissions or other compensation claimed by any broker or agent
claiming the same by, through, or under the indemnifying party.
25.5 Estoppel Certificates. From time to time, Tenant shall furnish to
---------------------
any party designated by Landlord, within ten (10) days after Landlord has made a
request therefor, a certificate signed by Tenant confirming and containing such
factual certifications and representations as to this Lease as Landlord may
reasonably request. Unless otherwise required by Landlord's Mortgagee or a
prospective purchaser or mortgagee of the Building, the initial form of estoppel
certificate to be signed by Tenant is attached hereto as Exhibit F.
---------
25.6 Notices. All notices and other communications given pursuant to
-------
this Lease shall be in writing and shall be (1) mailed by first class, United
States Mail, postage prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in the Basic Lease
Information, (2) hand delivered to the intended address, (3) sent by a
nationally recognized overnight courier service, or (4) sent by facsimile
transmission during normal business hours followed by a confirmatory letter sent
in another manner permitted hereunder. All notices shall be effective upon
delivery to the address of the addressee. The parties hereto may change their
addresses by giving notice thereof to the other in conformity with this
provision.
25.7 Separability. If any clause or provision of this Lease is
------------
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby and in lieu of such clause
or provision, there shall be added as a part of this Lease a clause or provision
as similar in terms to such illegal, invalid, or unenforceable clause or
provision as may be possible and be legal, valid, and enforceable.
25.8 Amendments; and Binding Effect. This Lease may not be amended
------------------------------
except by instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by Landlord unless such waiver is
in writing signed by Landlord, and no custom or practice which may evolve
between the parties in the administration of the terms hereof shall waive or
diminish the right of Landlord to insist upon the performance by Tenant in
strict accordance with the terms hereof. The terms and conditions contained in
this Lease shall inure to
16
<PAGE>
the benefit of and be binding upon the parties hereto, and upon their respective
successors in interest and legal representatives, except as otherwise herein
expressly provided. This Lease is for the sole benefit of Landlord and Tenant,
and, other than Landlord's Mortgagee, no third party shall be deemed a third
party beneficiary hereof.
25.9 Quiet Enjoyment. Provided Tenant has performed all of its
---------------
obligations hereunder, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term, without hindrance from Landlord or any party claiming by,
through, or under Landlord, but not otherwise, subject to the terms and
conditions of this Lease.
25.10 No Merger. There shall be no merger of the leasehold estate
---------
hereby created with the fee estate in the Premises or any part thereof if the
same person acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
25.11 No Offer. The submission of this Lease to Tenant shall not be
--------
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
25.12 Entire Agreement. This Lease constitutes the entire agreement
----------------
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The normal role of
construction that any ambiguities be resolved against the drafting party shall
not apply to the interpretation of this Lease or any exhibits or amendments
hereto.
25.13 Waiver of Jury Trial. To the maximum extent permitted by law,
--------------------
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
25.14 Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the State in which the Premises are located.
25.15 Joint and Several Liability. If Tenant is comprised of more
---------------------------
than one party, each such party shall be jointly and severally liable for
Tenant's obligations under this Lease.
25.16 Financial Reports. Within fifteen (15) days after Landlord's
-----------------
request, Tenant will furnish Tenant's most recent audited financial statements
(including any notes to them) to Landlord, or, if no such audited statements
have been prepared, such other financial statements (and notes to them) as may
have been prepared by an independent certified public accountant or, failing
those, Tenant's internally prepared financial statements. If Tenant is a
publicly traded corporation, Tenant may satisfy its obligations hereunder by
providing to Landlord Tenant's most recent annual and quarterly reports. Tenant
will discuss its financial statements with Landlord and will give Landlord
access to Tenant's books and records in order to enable Landlord to verify the
financial statements. Landlord will not disclose any aspect of Tenant's
financial statements that Tenant designates to Landlord as confidential except
(1) to Landlord's Mortgagee or prospective purchasers of the Building, (2) in
litigation between Landlord and Tenant, or (3) if required by court order.
Tenant shall not be required to deliver the financial statements required under
this Section 25.16 more than once in any twelve (12) month period unless
requested by Landlord's Mortgagee or a prospective buyer or lender of the
Building or an Event of Default occurs.
25.17 Landlord's Fees. Whenever Tenant requests Landlord to take any
---------------
action not required of it hereunder or give any consent required or permitted
under this Lease, Tenant will reimburse Landlord for Landlord's reasonable, out-
of-pocket costs payable to third parties and incurred by Landlord in reviewing
the proposed action or consent, including without limitation reasonable
attorney, engineers' or architects' fees, within ten (10) days after Landlord's
delivery to
17
<PAGE>
Tenant of a statement of such costs. Tenant will be obligated to make such
reimbursement without regard to whether Landlord consents to any such proposed
action.
25.18 Attorney Fees. In the event that either Landlord or Tenant
-------------
should bring suit for the possession of the Premises, for the recovery of any
sum due under this Lease, or because of the breach of any provision of this
Lease or for any other relief against the other, then all costs and expenses,
including reasonable attorney fees, incurred by the prevailing party therein
shall be paid by the other party, which obligation on the part of the other
party shall be deemed to have accrued on the date of the commencement of such
action and shall be enforceable whether or not the action is prosecuted to
judgment.
25.19 Telecommunications. Tenant and its telecommunications
------------------
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies shall have no right
of access to and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent.
25.20 Confidentiality. Tenant acknowledges that the terms and
---------------
conditions of this Lease are to remain confidential for Landlord's benefit, and
may not be disclosed by Tenant to anyone, by any manner or means, directly or
indirectly, without Landlord's prior written consent. The consent by Landlord to
any disclosures shall not be deemed to be a waiver on the part of Landlord of
any prohibition against any future disclosure.
25.21 Hazardous Materials. The term "Hazardous Materials" means any
------------------- -------------------
substance, material, or waste which is now or hereafter classified or considered
to be hazardous, toxic, or dangerous under any Law relating to pollution or the
protection or regulation of human health, natural resources or the environment,
or poses or threatens to pose a hazard to the health or safety of persons on the
Premises or in the Building. Tenant shall not use, generate, store, or dispose
of, or permit the use, generation, storage or disposal of Hazardous Materials on
or about the Premises or the Building except in a manner and quantity necessary
for the ordinary performance of Tenant's business, and then in compliance with
all Laws. If Tenant breaches its obligations under this Section 25.21, Landlord
may immediately take any and all action reasonably appropriate to remedy the
same, including taking all appropriate action to clean up or remediate any
contamination resulting from Tenant's use, generation, storage or disposal of
Hazardous Materials. Tenant shall protect, defend, indemnify, and hold harmless
Landlord and its representatives and agents from and against any and all claims,
demands, liabilities, causes of action, suits, judgments, damages and expenses
(including reasonable attorney fees and cost of clean up and remediation)
arising from Tenant's failure to comply with the provisions of this Section
25.21. This indemnity provision shall survive termination or expiration of the
Lease.
25.22 Signage. Subject to the approvals required in this Section
-------
25.22, Tenant shall have the right, at its sole cost and expense, to (i) place
its name on the monument sign located in front of the Building, and (ii) install
identification signage on the exterior fascia of the Building facing Highway 92.
Tenant shall not erect or maintain any other temporary or permanent sign on or
about the Premises or the Building or visible from the exterior without
obtaining prior written approval from Landlord, Which may be granted or withheld
in Landlord's sole and absolute discretion. Any request for approval of a sign
shall be made in such detail as Landlord shall request. All signs, whether
erected by Landlord or Tenant, shall conform to Landlord's building standard
signage and to all laws, ordinances, rules, regulations, permits, covenants,
conditions, restrictions, and easements pertaining to signs. In the event of a
violation of the foregoing by Tenant, Landlord may remove same without any
liability, and may charge the expense incurred in such removal to Tenant. Tenant
shall remove all approved signs which it has erected upon the termination of the
Lease and repair all damage caused by such removal.
25.23 Parking. Tenant shall have the right to the nonexclusive use of
-------
157 unreserved parking spaces in the parking garage/area associated with the
Building (the "Parking
-------
18
<PAGE>
Area") during the initial term free of charge and subject to such terms,
- ----
conditions and regulations as are from time to time applicable to patrons of the
Parking Area.
25.24 List Of Exhibits. All exhibits and attachments attached hereto
----------------
are incorporated herein by this reference.
Exhibit A Outline of Premises
Exhibit B Legal Description of Building
Exhibit C Building Rules and Regulations
Exhibit D Tenant Finish-Work
Exhibit E First Amendment to Lease
Exhibit F Form of Tenant Estoppel Certificate
26. Extension Option.
----------------
26.1 Grant of Option. Tenant shall have one option (the "Extension
---------------
Option") to extend the term of this Lease as to the entire premises then subject
to this Lease for an additional term of sixty (60) months (the "Extension
Term"), subject to and upon the terms and conditions contained in this Section
26. The Extension Term shall commence upon the day immediately following the
first scheduled date for expiration of the term ("Expiration Date") and shall
end at noon on the day preceding the fifth anniversary of the commencement of
the Extension Term. The Extension Term shall be upon the same terms and
conditions as are provided for in this Lease, as then amended, except that (a)
there shall be no further option to extend the term pursuant to this Section 26
or otherwise, Co) the Expense Stop and Base Year shall be as specified in the
Basic Lease Information, and (c) the Basic Rent payable for the Extension Term
shall be determined pursuant to Section 26.2. Subject to the provisions of
Section 26.5, the Extension Option may be exercised only by Tenant giving
written notice of exercise (the "Extension Notice") to Landlord on or before the
date that is nine (9) months prior to the original scheduled Expiration Date.
26.2 Basic Rent. The Basic Rent per annum payable for the Premises
----------
during the Extension Term (the "Extension Term Basic Rent") shall be equal to
(i) the rentable area of the Premises then subject to this Lease, multiplied by
(ii) the yearly Extension FMRV (defined below) of the Premises as of the first
day of the Extension Term, as determined in accordance with Section 26.3.
26.3 Definition. The "Extension FMRV" of the Premises during the
----------
Extension Term shall be equal to the yearly base rent per square foot of
rentable area (taking into account any base year operating costs or expense stop
applicable thereto) at which Landlord or landlords of comparable buildings in
the market area (the "Market") determined by Landlord to be the local
competitive market for the Building are leasing comparable space (in size,
quality, use, improvements and location) to renewal tenants, for a term equal to
the Extension Term and commencing as of the first day of the Extension Term.
26.4 Procedure for Determining the Extension FMRV. For purposes of
--------------------------------------------
determining the Extension FMRV, the following procedure shall apply:
26.4.1 If Tenant has timely given the Extension Notice, Landlord
shall within thirty (30) days thereafter deliver to Tenant a written notice of
Landlord's determination of what the Extension FMRV would be during the
Extension Term ("Landlord's Extension Rent Notice"). Within ten (10) days after
Tenant's receipt of Landlord's Extension Rent Notice, Tenant shall give Landlord
a written notice ("Tenant's Extension Response Notice") electing either (i) to
accept the Extension FMRV set forth in Landlord's Extension Rent Notice, in
which case the Extension FMRV shall be the Extension FMRV set forth in
Landlord's Extension Rent Notice, or (ii) to not accept Landlord's determination
of the Extension FMRV, in which case Landlord and Tenant shall endeavor to agree
upon the Extension FMRV on or before the date that is ten (10) days after
Landlord's receipt of Tenant's Extension Response Notice. If Landlord and Tenant
are unable to agree upon the Extension FMRV within such ten (10) day period,
then the Extension FMRV shall be determined by arbitration pursuant to paragraph
26.4.2 below. If Tenant fails to deliver Tenant's Extension
19
<PAGE>
Response Notice within the ten (10) day period following its receipt of
Landlord's Extension Rent Notice, Tenant shall conclusively be deemed to have
accepted Landlord's determination of the Extension FMRV as set forth in
Landlord's Extension Rent Notice.
26.4.2 If Landlord and Tenant shall fail to agree upon the
Extension FMRV within ten (10) days of the date of Landlord's receipt of
Tenant's Extension Response Notice, then, within ten (10) days thereafter,
Landlord and Tenant each shall give notice to the other setting forth the name
and address of an arbitrator designated by the party giving such notice, which
arbitrator shall be an independent real estate appraiser or consultant having at
least five (5) years continuous experience in appraising or determining the
value of office space in the Market. If either party shall fail to give notice
of such designation within such ten (10) day period, then the other arbitrator
chosen shall make the determination alone. If two (2) arbitrators have been
designated, such two (2) arbitrators may consult with each other and shall, not
later than the thirtieth (30th) day after Landlord's receipt of Tenant's
Extension Response Notice make their determinations of the Extension FMRV in
writing and give notice thereof to each other and to each of Landlord and
Tenant. Such two (2) arbitrators shall have ten (10) days after the receipt of
notice of each other's determination to confer with each other and to attempt to
reach agreement as to the determination of the Extension FMRV. If such two (2)
arbitrators shall concur as to the determination of the Extension FMRV, such
determination shall be final and binding upon Landlord and Tenant. If such two
(2) arbitrators shall fail to concur within such ten (10) day period, then such
two (2) arbitrators shall, within the next ten (10) days, designate a third
arbitrator meeting the above requirements for arbitrators. If the two (2)
arbitrators shall fail to agree upon the designation of such third arbitrator
within such ten (10) day period, then either party may apply to the AAA for the
designation of such arbitrator. The third arbitrator shall conduct such hearings
and investigations on an expedited basis as such arbitrator may deem appropriate
and shall, within fifteen (15) days after its designation, choose one of the
determinations (and no other) of the two (2) arbitrators originally selected by
the parties by simultaneously delivering to Landlord and Tenant signed and
acknowledged original counterparts of his or her determination. The costs and
expenses of the arbitration and of the third arbitrator shall be shared equally
by Landlord and Tenant and each party shall be responsible for the costs and
expenses of its designated arbitrator and its own witnesses and counsel. The
arbitrators shall have the right to consult experts in the matter under
arbitration; provided, however, that any such consultation shall be made only
after five (5) days prior notice to Landlord and Tenant and only in their
presence, with full right on their part to cross-examine such experts. The
arbitrators' final decision and award shall be in writing, shall be binding on
Landlord and Tenant and shall be non-appealable, and counterpart copies thereof
shall be delivered to Landlord and Tenant. A judgment or order based upon such
award may be entered in any court of competent jurisdiction. In rendering their
decision and award, the arbitrators shall have no power to vary, modify or amend
any provision of this Lease.
26.5 Conditions to Exercise of the Extension Option. Notwithstanding
----------------------------------------------
any provisions of this Section 26 to the contrary, Tenant may not exercise the
Extension Option on any date on which (a) Tenant is in default under this Lease
beyond any applicable grace, notice and cure period, or Co) there is in effect
an assignment pursuant to which this Lease has been assigned (other than an
assignment which is a Permitted Transfer) and any exercise of such Extension
Option shall be deemed null and void and of no force and effect, at the election
of Landlord. If Tenant does not timely send the Extension Notice pursuant to the
provisions of Section 26.1 within the applicable time period, time being of the
essence, then Tenant shall be deemed to have forever waived and relinquished its
right to extend the term, and any other options or rights to renew or extend the
term effective after the expiration of this Extension Option shall terminate.
27. Rent Abatement.
--------------
27.1 Basic Rent, Additional Rent and Tenant's Proportionate Share of
Taxes shall be conditionally abated during the first and second full calendar
months of the Term. Commencing with the third full calendar month of the Term,
Tenant shall make Basic Rent Payments as otherwise provided in the Lease.
Notwithstanding such abatement of Basic Rent, Additional Rent and Tenant's
Proportionate Share of Taxes, any increases in Basic Rent set forth in the Lease
shall occur on the dates scheduled therefor.
20
<PAGE>
27.2 The abatement of Basic Rent, Additional Rent and Tenant's
Proportionate Share of Taxes provided for in this Section is conditioned upon
Tenant's full and timely performance of all of its obligations under the Lease.
If at any time during the Term an Event of Default by Tenant occurs, then the
abatement of Basic Rent, Additional Rent and Tenant's Proportionate Share of
Taxes provided for in this Section shall immediately become void, and Tenant
shall promptly pay to Landlord, in addition to all other amounts due to Landlord
under this Lease, the full amount of all Basic Rent, Additional Rent and
Tenant's Proportionate Share of Taxes herein abated.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE
PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT
ABATEMENT, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS
DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
Dated as of the date first above written.
TENANT: WORLDRES, INC., a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
LANDLORD: MARINERS CENTER LIMITED
PARTNERSHIP, a Delaware limited partnership
By: NEW MARINERS CENTER
CORPORATION, a Delaware corporation,
General Partner
/s/ Brian Ainsworth
By:________________________________________
Name: Brian Ainsworth
Title: Assistant Vice President
21
<PAGE>
EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION.
WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK OF
PLACES TO STAY, INC.
This certifies that Greg Jones or assigns (the "Holder"), for value received,
is entitled to purchase from PLACES TO STAY, INC., a California corporation (the
"Company"), a number of fully paid and nonassessable shares of the Company's
Series B Preferred Stock equal to $7,500 divided by the per share purchase price
of such shares in the next Venture Capital Financing (as defined below) at a per
share purchase price equal to the per share purchase price of such shares in the
next Venture Capital Financing. The shares of the Company's Series B Preferred
Stock for which this Warrant is exercisable are referred to herein as the
"Warrant Shares" and the per share purchase price of such Warrant Shares is
referred to herein as the "Stock Purchase Price." This Warrant may be exercised
at any time or from time to time up to and including 5:00 p.m. (Pacific time) on
the fourth anniversary of the date hereof ("Expiration Date"), unless this
Warrant is earlier terminated pursuant to Section 5 hereof, upon surrender to
the Company at its principal office at 66 Bovet, Suite 100, San Mateo, CA 94402
(or at such other location as the Company may advise Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and upon payment in cash or by check of the aggregate Stock
Purchase Price for the number of Warrant Shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the Warrant Shares are subject to adjustment as provided in
Section 3 of this Warrant. This Warrant shall constitute a "Warrant," as such
term is defined in the Note and Warrant Purchase Agreement (the "Agreement")
among the Company and Holder of even date herewith. For purposes of this
Warrant, a "Venture Capital Financing" shall mean a sale of shares of the
Company's Series B Preferred Stock to venture capital, corporate, institutional
or private investors after the date of this Warrant (and not in connection with
equipment financing transactions).
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. This Warrant is
------------------------------------------------------
exercisable at the option of the Holder of record hereof, at any time or from
time to time, up to the Expiration Date for all and any part of the Warrant
Shares (but not for a fraction of a share). The Company agrees that the Warrant
Shares purchased under this Warrant shall be and are deemed to be issued to the
Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for
such shares.
<PAGE>
Certificates for the Warrant Shares so purchased, together with any other
securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
Warrant Shares, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase to the Holder
hereof within a reasonable time. Each stock certificate so delivered shall be in
such denominations of Series B Preferred Stock, as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder.
2. Conversion of Warrant.
---------------------
2.1 Right to Convert. In addition to, and without limiting, the other
----------------
rights of the Holder hereunder, the Holder shall have the right (the "Conversion
Right") to convert this Warrant or any part hereof into Warrant Shares at any
time and from time to time during the term hereof. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder, without payment by
the Holder of any Stock Purchase Price or any cash or other consideration, that
number of Warrant Shares computed using the following formula:
X=Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
A= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Stock Purchase Price
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant to the Company at its principal office
at the address indicated on the first paragraph of this Warrant, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon exercise
of the Conversion Right. Such conversion shall be effective upon the Company's
receipt of this Warrant, together with the conversion notice, or on such later
date as is specified in the conversion notice (the "Conversion Date") and, at
the Holder's election, may be made contingent upon the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act").
Certificates for the Warrant Shares so acquired shall be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) days after the Conversion
Date. If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares which Holder is entitled to purchase
hereunder.
-2-
<PAGE>
2.3 Fair Market Value. "Fair Market Value" of a share of Series B
-----------------
Preferred Stock, or Common Stock (issued upon conversion thereof) as of a
particular date means: (a) if traded on an exchange or quoted on The Nasdaq
National Market, then the prior trading day's closing price, (b) if conversion
is effective as of the closing of the Company's initial public offering of any
securities pursuant to a registration statement under the Securities Act, the
"price to public" specified for such shares in the final prospectus for such
public offering, (c) if listed by the National Daily Quotation Service "Pink
Sheets," then the average of the most-recently reported bid and ask prices and
(d) otherwise, the price as determined in good faith by the Board of Directors
of the Company.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
-------------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise or
conversion of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 3. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting from
such adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company shall at
-----------------------------------
any time subdivide its outstanding shares of Series B Preferred into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Series B Preferred of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 Dividends, Reclassification. If at any time or from time to time
---------------------------
the holders of Series B Preferred Stock shall have received or become entitled
to receive, without payment thereof,
(A) any shares of the Company's, Series B Preferred Stock,
Common Stock or any shares of stock or other securities which are at any time
directly or indirectly convertible into or exchangeable for Common Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution;
(B) any cash paid or payable otherwise than as a regular
periodic cash dividend at a rate which is substantially consistent with past
practice (or, in the case of an initial dividend, at a rate which is
substantially consistent with industry practice); or
(C) any shares of the Company's, Series B Preferred Stock,
Common Stock or other or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement; (other than shares of Series B
Preferred Stock issued as a stock split, adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise or conversion of this Warrant, be
entitled to receive, in addition to the
-3-
<PAGE>
number of shares of such Preferred Stock receivable thereupon, and without
payment of any additional consideration thereof, the amount of stock and other
securities and property (including cash in the cases referred to in clauses (B)
and (C) above) which such Holder would hold on the date of such exercise or
conversion had he or it been the Holder of record of such Series B Preferred
Stock as of the date on which holders of such Preferred Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
3.3 Conversion or Redemption. Should all of the Company's Series B
------------------------
Preferred Stock be, or if outstanding would be, at any time prior to the
expiration of this Warrant or any portion thereof, redeemed or converted into
shares of the Company's Common Stock, then this Warrant shall immediately become
exercisable or convertible for that number of shares of the Company's Common
Stock equal to the number of shares of the Common Stock that would have been
received if this Warrant had been exercised in full and the Series B Preferred
Stock received thereupon had been simultaneously converted immediately prior to
such event, and the Stock Purchase Price shall be immediately adjusted to equal
the quotient obtained by dividing (x) the aggregate Stock Purchase Price of the
maximum number of shares of Series B Preferred Stock for which this Warrant was
exercisable or convertible immediately prior to such conversion or redemption,
by (y) the number of shares of Common Stock for which this Warrant is
exercisable or convertible immediately after such conversion or redemption.
4. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company.
No dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised or
converted. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Series B Preferred Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its creditors.
5. Expiration. This Warrant shall expire upon the earlier to occur of (a)
----------
5:00 PM on the fourth anniversary of the date hereof, (b) the effective date of
any merger in which the Company is not the surviving entity or in which
shareholders of the Company prior to the merger hold less than 50% of the voting
power of the capital stock of the Company before the merger or sale of all or
substantially all of the Company's assets, or (c) the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended.
6. Warrants Transferable. Subject to the provisions of the Agreement,
---------------------
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Holder hereof (except for transfer taxes), upon surrender
of this Warrant properly endorsed. Each Holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the Holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this
-4-
<PAGE>
Warrant as the absolute owner hereof for any purpose and as transfer hereof on
the books of the Company any notice to the contrary notwithstanding, but, until
such transfer on such books, the Company may treat the registered owner hereof
as the owner for all purposes.
7. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
amended, waived or modified upon written consent of the Company and the Holder
hereof.
8. Notices. Any notice, request or other document required or permitted to
-------
be given or delivered to the Holder hereof or the Company shall be delivered or
shall be sent by certified or registered mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated on the first paragraph of this Warrant.
9. Descriptive Headings and 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. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California, without giving effect to
the conflict of laws principles thereof.
10. Lost Warrants of Stock Certificates. The Company represents and warrants
-----------------------------------
to the Holder hereof that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of any Warrant or
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company at its expense will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon exercise of
-----------------
this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its duly authorized officers, effective as of June 4, 1996.
THE COMPANY: PLACES TO STAY, INC.
By: /s/ Eric J. Christensen
------------------------------
Name: Eric J. Christensen
----------------------------
Title: C.E.O.
---------------------------
-5-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:_______________
The undersigned, the Holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _____________ ____________________________ (_____________) shares of
Series B Preferred Stock of Places To Stay, Inc. and herewith makes payment of
____________________ Dollars ($__________) thereof, and requests that the
certificates for such shares by issued in the name of, and delivered to
________________________________, whose address is _____________________________
_________________________________.
The undersigned represents that it is acquiring such Series B Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED: ___________________
____________________________________________
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
____________________________________________
____________________________________________
(Address)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the Holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Series B Preferred Stock
covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED: ___________________
_________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
<PAGE>
EXHIBIT 10.8
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION.
WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK OF
PLACES TO STAY, INC.
This certifies that Greg Jones or assigns (the "Holder"), for value received,
is entitled to purchase from PLACES TO STAY, INC., a California corporation (the
"Company"), a number of fully paid and nonassessable shares of the Company's
Series B Preferred Stock equal to Forty Thousand Dollars ($40,000.00) divided by
the per share purchase price of such shares in the next Venture Capital
Financing (as defined in the Note and Warrant Purchase Agreement) (the
"Agreement") at a per share purchase price equal to the per share purchase price
of such shares in the next Venture Capital Financing. The shares of the
Company's Series B Preferred Stock for which this Warrant is exercisable are
referred to herein as the "Warrant Shares" and the per share purchase price of
such Warrant Shares is referred to herein as the "Stock Purchase Price." This
Warrant may be exercised at any time or from time to time up to and including
5:00 p.m. (Pacific time) on the fourth anniversary of the date hereof
("Expiration Date"), unless this Warrant is earlier terminated pursuant to
Section 5 hereof, upon surrender to the Company at its principal office at 66
Bovet, Suite 100, San Mateo, CA 94402 (or at such other location as the Company
may advise Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of Warrant
Shares for which this Warrant is being exercised determined in accordance with
the provisions hereof. The Stock Purchase Price and the Warrant Shares are
subject to adjustment as provided in Section 3 of this Warrant. This Warrant
shall constitute a "Warrant," as such term is defined in the Agreement.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. This Warrant is
------------------------------------------------------
exercisable at the option of the Holder of record hereof, at any time or from
time to time, up to the Expiration Date or the date of earlier termination
pursuant to Section 5 hereof for all and any part of the Warrant Shares (but not
for a fraction of a share). The Company agrees that the Warrant Shares
purchased under this Warrant shall be and are deemed to be issued to the Holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's
<PAGE>
expense within a reasonable time after the rights represented by this Warrant
have been so exercised. In case of a purchase of less than all the Warrant
Shares, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase to the Holder
hereof within a reasonable time. Each stock certificate so delivered shall be in
such denominations of Series B Preferred Stock, as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder.
2. Conversion of Warrant.
---------------------
2.1 Right to Convert. In addition to, and without limiting, the other
----------------
rights of the Holder hereunder, the Holder shall have the right (the "Conversion
Right") to convert this Warrant or any part hereof into Warrant Shares at any
time and from time to time during the term hereof. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder, without payment by
the Holder of any Stock Purchase Price or any cash or other consideration, that
number of Warrant Shares computed using the following formula:
X=Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
A= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Stock Purchase Price
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant to the Company at its principal office
at the address indicated on the first paragraph of this Warrant, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon exercise
of the Conversion Right. Such conversion shall be effective upon the Company's
receipt of this Warrant, together with the conversion notice, or on such later
date as is specified in the conversion notice (the "Conversion Date") and, at
the Holder's election, may be made contingent upon the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act").
Certificates for the Warrant Shares so acquired shall be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) days after the Conversion
Date. If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares which Holder is entitled to purchase
hereunder.
2.3 Fair Market Value. "Fair Market Value" of a share of Series B
-----------------
Preferred Stock, or Common Stock (issued upon conversion thereof) as of a
particular date means: (a) if traded on an exchange or quoted on The Nasdaq
National Market, then the prior trading day's
-2-
<PAGE>
closing price, (b) if conversion is effective as of the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act, the "price to public" specified for such shares in the
final prospectus for such public offering, (c) if listed by the National Daily
Quotation Service "Pink Sheets," then the average of the most-recently reported
bid and ask prices and (d) otherwise, the price as determined in good faith by
the Board of Directors of the Company.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
-------------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise or
conversion of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 3. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting from
such adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company shall at
-----------------------------------
any time subdivide its outstanding shares of Series B Preferred into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Series B Preferred of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 Dividends, Reclassification. If at any time or from time to time
---------------------------
the holders of Series B Preferred Stock shall have received or become entitled
to receive, without payment thereof,
(A) any shares of the Company's, Series B Preferred Stock, Common
Stock or any shares of stock or other securities which are at any time directly
or indirectly convertible into or exchangeable for Common Stock, or any rights
or options to subscribe for, purchase or otherwise acquire any of the foregoing
by way of dividend or other distribution;
(B) any cash paid or payable otherwise than as a regular periodic
cash dividend at a rate which is substantially consistent with past practice
(or, in the case of an initial dividend, at a rate which is substantially
consistent with industry practice); or
(C) any shares of the Company's, Series B Preferred Stock, Common
Stock or other or additional stock or other securities or property (including
cash) by way of spinoff, split-up, reclassification, combination of shares or
similar corporate rearrangement; (other than shares of Series B Preferred Stock
issued as a stock split, adjustments in respect of which shall be covered by the
terms of Section 3.1 above), then and in each such case, the Holder hereof
shall, upon the exercise or conversion of this Warrant, be entitled to receive,
in addition to the number of shares of such Preferred Stock receivable
thereupon, and without payment of any additional consideration thereof, the
amount of stock and other securities and property (including cash in the cases
referred to in clauses (B) and (C) above) which such Holder would hold on the
-3-
<PAGE>
date of such exercise or conversion had he or it been the Holder of record of
such Series B Preferred Stock as of the date on which holders of such Preferred
Stock received or became entitled to receive such shares and/or all other
additional stock and other securities and property.
3.3 Conversion or Redemption. Should all of the Company's Series B
------------------------
Preferred Stock be, or if outstanding would be, at any time prior to the
expiration of this Warrant or any portion thereof, redeemed or converted into
shares of the Company's Common Stock, then this Warrant shall immediately become
exercisable or convertible for that number of shares of the Company's Common
Stock equal to the number of shares of the Common Stock that would have been
received if this Warrant had been exercised in full and the Series B Preferred
Stock received thereupon had been simultaneously converted immediately prior to
such event, and the Stock Purchase Price shall be immediately adjusted to equal
the quotient obtained by dividing (x) the aggregate Stock Purchase Price of the
maximum number of shares of Series B Preferred Stock for which this Warrant was
exercisable or convertible immediately prior to such conversion or redemption,
by (y) the number of shares of Common Stock for which this Warrant is
exercisable or convertible immediately after such conversion or redemption.
4. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company.
No dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised or
converted. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Series B Preferred Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its creditors.
5. Expiration. This Warrant shall expire upon the earlier to occur of (a)
----------
5:00 PM on the fourth anniversary of the date hereof, (b) the effective date of
any merger in which the Company is not the surviving entity or in which
shareholders of the Company prior to the merger hold less than 50% of the voting
power of the capital stock of the Company before the merger or sale of all or
substantially all of the Company's assets, or (c) the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended.
6. Warrants Transferable. Subject to the provisions of the Agreement, this
---------------------
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder hereof (except for transfer taxes), upon surrender of this
Warrant properly endorsed. Each Holder of this Warrant, by taking or holding the
same, consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable, and that the Holder hereof, when this Warrant shall have been
so endorsed, may be treated by the Company and all other persons dealing with
this Warrant as the absolute owner hereof for any purpose and as transfer hereof
on the books of the Company any notice to the contrary notwithstanding, but,
until such transfer on such books, the Company may treat the registered owner
hereof as the owner for all purposes.
-4-
<PAGE>
7. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
amended, waived or modified upon written consent of the Company and the Holder
hereof.
8. Notices. Any notice, request or other document required or permitted to
-------
be given or delivered to the Holder hereof or the Company shall be delivered or
shall be sent by certified or registered mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated on the first paragraph of this Warrant.
9. Descriptive Headings and 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. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California, without giving effect to
the conflict of laws principles thereof.
10. Lost Warrants of Stock Certificates. The Company represents and
-----------------------------------
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its duly authorized officers, effective as of October 30, 1996.
THE COMPANY: PLACES TO STAY, INC.
By: /s/ Eric J. Christensen
-----------------------
Name: Eric J. Christensen
-----------------------
Title: C.E.O.
-----------------------
-5-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:_____________________________
The undersigned, the Holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _____________ ____________________________ (_____________) shares of
Series B Preferred Stock of Places To Stay, Inc. and herewith makes payment of
____________________ Dollars ($__________) thereof, and requests that the
certificates for such shares by issued in the name of, and delivered to
____________________________, whose address is ___________________________.
The undersigned represents that it is acquiring such Series B Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED: ___________________
________________________________________
(Signature must conform in all respects
to name of Holder as specified on the face
of the Warrant)
________________________________________
________________________________________
(Address)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the Holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Series B Preferred
Stock covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED: ___________________________
__________________________________
(Signature must conform in all respects
to name of Holder as specified on the face
of the Warrant)
<PAGE>
EXHIBIT 10.9
NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement (this "Agreement") is made and
---------
entered into as of October 10, 1997 between WorldRes, Inc., a California
corporation (the "Company") located at 66 Bovet, Suite 100, San Mateo, CA 94402
-------
and the persons (the "Purchasers") listed on Exhibit A attached hereto (the
---------- ---------
"Schedule of Purchasers").
----------------------
SECTION 1
Authorization and Sale of the Securities
----------------------------------------
1.1 Authorization. The Company has authorized the sale and issuance of
-------------
(i) convertible subordinated promissory notes in the form attached hereto as
Exhibit B (the "Notes") in an aggregate principal amount of up to $1,300,000,
- --------- -----
and (ii) warrants in the form attached hereto as Exhibit C (the "Warrants") to
--------- --------
purchase shares of capital stock of the Company issued in the Company's next
Equity Financing (as defined below) at a per share exercise price equal to the
per share purchase price of the securities issued in such financing. The shares
of capital stock issuable upon conversion of the Notes are referred to as the
"Conversion Shares." The shares of capital stock issuable upon exercise of the
-----------------
Warrants are referred to herein as the "Warrant Shares." The Notes, the
--------------
Warrants, the Conversion Shares and the Warrant Shares are hereinafter
collectively referred to as the "Securities." For purposes of this Agreement,
----------
an "Equity Financing" shall mean a sale after the date hereof of shares of the
----------------
Company's equity securities which results in gross proceeds to the Company of
not less than $4,000,000 (inclusive of the proceeds received by the Company from
the sale of the Notes), in a single transaction or series of related
transactions, to venture capital, corporate, institutional or private investors,
including at least one institutional investor that was not a shareholder of the
Company prior to the closing of such transaction.
1.2 Sale of Notes and Warrants. Subject to the terms and conditions
--------------------------
hereof, the Company will issue and sell to the Purchasers, and the Purchasers
will buy from the Company, Notes in the respective amounts specified opposite
each Purchaser's name on the Schedule of Purchasers for the respective
consideration specified next to each Purchaser's name. Further, the Company
will issue and sell to each Purchaser, and each Purchaser will buy from the
Company, a Warrant exercisable for a number of Warrant Shares equal to twenty
percent (20%) of the outstanding principal balance of the Note held by such
Purchaser (the "Warrant Coverage") divided by the per share purchase price of
----------------
the securities issued in the next Equity Financing. The purchase price for each
Warrant shall be equal to $100.00 per $100,000 of Warrant Coverage.
1.3 Equity Financing. If an Equity Financing is completed while any Note
----------------
remains outstanding, then (a) all interest owing under any outstanding Note
shall be paid by the Company, at its option, in cash or capital stock of the
Company issued in the next Equity Financing and (b) each Purchaser shall cancel
the then outstanding principal amount of all Notes then held by such Purchaser,
in whole, at the closing of the next Equity Financing in payment of the purchase
price for the Conversion Shares, and convert such indebtedness into such
Conversion Shares at the same purchase price and upon the same terms as shares
of capital stock are sold to purchasers in the next Equity Financing. At the
closing of the next Equity Financing,
<PAGE>
each Purchaser shall execute a stock purchase agreement substantially similar to
that executed by other purchasers in the next Equity Financing.
1.4 Conditions to Closing of Equity Financing; Registration Rights. The
--------------------------------------------------------------
obligations of the Company to issue Conversion Shares, and the rights of each
Purchaser to purchase such shares as described in Section 1.3 above, are subject
to the conditions that:
(a) The Company shall have obtained all requisite approvals of and
made all required filings with applicable federal and state securities and
corporate law authorities;
(b) The Company shall have obtained all appropriate Board and
shareholder consents, waivers and approvals required in connection with the
transaction;
(c) Each Purchaser and the Company shall have executed a stock
purchase agreement covering the sale of the Conversion Shares substantially
similar to that executed by the other purchasers in the next Equity Financing;
and
(d) Such stock purchase agreement (or other agreement executed
concurrently therewith) shall grant each Purchaser rights with respect to
registration under the Securities Act of 1933, as amended, of shares of Common
Stock issued or issuable to such Purchaser upon conversion of the Conversion
Shares and the Warrant Shares, which registration rights shall be substantially
identical to those granted to the other purchasers in the next Equity Financing;
provided that the Company and the Purchaser will use their respective best
efforts to ensure that the conditions set forth in this Section 1.4 are timely
satisfied.
1.5 Issuance of Securities on Conversion. As soon as practicable after
------------------------------------
conversion of each Note, the Company at its expense will cause to be issued in
the name of and delivered to the holder of the Note, a certificate or
certificates for the number of fully paid and non-assessable Conversion Shares
to which that holder shall be entitled on such conversion. No fractional shares
will be issued on conversion of the Note. If on conversion of the Note a
fraction of a share results, the Company will pay the cash value of that
fractional share, calculated on the basis of the applicable conversion price.
SECTION 2
Closing Date: Delivery
----------------------
2.1 Closing Date of Note Financing. The closing of the transactions
------------------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
-------
Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, concurrently
with the execution and delivery of this Agreement or at such other place and
time as the Company and a majority of the Purchasers mutually agree upon orally
or in writing.
2.2 Delivery. At the Closing, the Company will deliver to each Purchaser
--------
a Note in the principal amount designated in the Schedule of Purchasers and a
Warrant as set forth on the Schedule of Purchasers. Each Purchaser shall deliver
to the Company by check or wire the
-2-
<PAGE>
amount designated in the Schedule of Purchasers. Warrants will be issued to the
Purchasers in the manner set forth in Section 1.2.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents, warrants and covenants to the Purchasers as
follows:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized and existing under, and by virtue of, the laws of the State of
California and is in good standing under such laws.
3.2 Corporate Power. The Company has, and will have as of the Closing,
---------------
all requisite legal and corporate power to execute and deliver this Agreement,
to sell and issue (or reserve for issuance) the Securities hereunder and to
carry out and perform it obligations under the terms of this Agreement.
3.3 Capitalization. Immediately prior to the Closing, and other than as
--------------
represented by the Notes, the Conversion Shares, the Warrants and the Warrant
Shares, the authorized capital stock of the Company will consist of 10,000,000
shares of Common Stock, of which 762,144 shares are issued and outstanding,
550,000 shares have been reserved under the Company's 1995 Stock Plan, of which
options to purchase 318,800 shares are outstanding under the Plan and options to
purchase 173,056 shares are available for future grant, 4,165,840 shares of
Preferred Stock, of which 474,536 shares are designated as Series A Preferred
Stock, of which 437,199 shares are issued and outstanding and warrants to
purchase 26,666 shares of Series A Preferred Stock are outstanding, and of which
1,845,652 shares are designated as Series B Preferred Stock, of which 1,422,481
shares are issued and outstanding and warrants to purchase 72,565 shares of
Series B Preferred Stock are outstanding.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
sale, issuance and delivery of the Notes and the Warrants and the performance of
the Company's obligations hereunder has been taken or will be taken prior to the
Closing. This Agreement, the Warrants, and the Notes, when executed and
delivered by the Company, shall constitute valid and binding obligations of the
Company enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The Warrant Shares and the Conversion Shares, when issued in
compliance with the provisions of this Agreement (assuming the Purchasers
exercise the Warrants and convert the Conversion Shares pursuant to their
terms), will be validly issued, fully paid and nonassessable, and will be free
of any liens or encumbrances created by the Company, provided, however, that the
Securities may be subject to restrictions on transfer under state and or federal
securities laws as set forth herein or otherwise required at the time a transfer
is proposed.
-3-
<PAGE>
SECTION 4
Investment Representations
--------------------------
Each of the Purchasers severally represents and warrants to the Company
with respect to the purchase of the Securities that the Purchaser has the right
and authority to enter into this Agreement and further represents as follows:
4.1 Experience. The Purchaser has sufficient knowledge and experience in
----------
investments of this type that it is capable of understanding and evaluating the
merits and risks of this investment and has the ability to bear a complete loss
of the investment. It has a preexisting relationship with one or more of the
Company's directors or officers which enables it to judge the business and
financial acumen of the person(s) with whom such relationship exists. The
Purchaser is an "Accredited Investor" within the meaning of Securities and
-------------------
Exchange Commission Rule 501 of Regulation D, as presently in effect.
4.2 Investment. The Purchaser is acquiring the Securities for investment
----------
for his or its own account and not with the view to, or for resale in connection
with, any distribution thereof. It understands that the securities to be
purchased have not been registered under the Securities Act of 1933 (the
"Securities Act") or qualified under the California Corporate Securities Law of
--------------
1968 in reliance on specific exemptions from the registration and qualification
provisions, respectively, thereunder which depend upon, among other things, the
bona fide nature of the investment intent as expressed herein.
4.3 Rule 144. The Purchaser acknowledges that the Securities must be held
--------
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions including, among other things, the existence of a public
market for the Securities, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being make
through a "broker's transaction" or in transactions directly made with a "market
maker" (as provided by Rule 144 (f)) and the number of shares being sold during
any three-month period not exceeding specified limitations. The Purchaser is
further aware that Rule 144(k) permits persons who have not been affiliates (as
defined in Rule 144(a)) of the Company for at least three months and who have
beneficially owned their shares for at least two years after full payment for
such shares, to sell such shares without regard to the current public
information, manner of sale and volume limitations described above.
4.4 No Public Market. The Purchaser understands that no public market now
----------------
exists for any of the Securities and that it is unlikely that any such public
market will ever exist.
4.5 Access to Data. The Purchaser has had an opportunity to discuss the
--------------
Company's business, operations and objectives with the Company's management.
The Purchaser understands that such discussions, as well as the written
information given to the Purchaser by the Company, were intended to describe the
aspects of the Company's business and prospects
-4-
<PAGE>
which the Company believes to be material but were not necessarily a thorough or
exhaustive description.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
The Purchasers' obligations to complete the transactions contemplated by
this Agreement at the Closing are subject to the fulfillment on or prior to the
Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of said date.
5.2 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
SECTION 6
Restrictions on Transferability of Securities: Compliance with Securities Act
-----------------------------------------------------------------------------
6.1 Restrictions on Transferability. The Securities shall be transferable
-------------------------------
only in accordance with the conditions specified in this Section 6, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each holder of Securities will cause a proposed transferee of
any of the Securities held by such holder to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in this
Section 6.
6.2 Restrictive Legend. Each certificate or instrument representing the
------------------
Securities shall (unless otherwise permitted by the provisions of Section 6.3
below) be stamped or otherwise imprinted with a legend in substantially the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION.
In the event that a Purchaser satisfies the requirements of Rule 144(k),
the Company will, upon request, remove the legend set forth above from such
Purchaser's certificate; provided, however, that if the Company reasonably
believes that an opinion of counsel for such Purchaser
-5-
<PAGE>
is necessary in order to determine that the requirements of Rule 144(k) have
been satisfied, the Company shall request, and the Purchaser shall provide, such
opinion prior to the removal of the legend.
6.3 Notice of Proposed Transfers. The holder of each certificate or
----------------------------
instrument representing Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 6.3. Prior to any proposed transfer
of any Securities, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, and shall be accompanied (except in
transactions in compliance with Rule 144) by either (i) an unqualified written
opinion of legal counsel, who shall be reasonably satisfactory to the Company,
in form and substance reasonably satisfactory to the Company's counsel, to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Securities and Exchange Commission (the "Commission") to the effect that the
----------
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such securities shall be entitled to transfer
such securities in accordance with the terms of the notice delivered by the
holder to the Company. Each certificate evidencing the Securities transferred
as above shall bear the appropriate restrictive legend set forth in Section 6.2
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for the Company such legend is not required (under Rule
144(k) or otherwise) in order to establish compliance with any provisions of the
Securities Act. Notwithstanding the foregoing, no legal opinion or no-action
letter need be obtained with respect to a transfer to (a) a partner, a partner
of a partner or an affiliate of a partner, active or retired, of a holder of
Securities, or (b) the estate of any such holder, if (i) the Company is notified
in writing prior to such transfer and given such information regarding the
transfer as it or its legal counsel may reasonably request, and (ii) the
transferee agrees to be subject to the terms of this Agreement.
SECTION 7
Miscellaneous
-------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California, without giving effect to the
principles of conflict of laws thereof.
7.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided however, that the rights of a Purchaser to purchase Securities shall
not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the exhibits hereto
---------------------------
constitute the full and entire understanding and agreement between the parties
with regard to the
-6-
<PAGE>
subject hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought; provided, however, that holders of in excess
of 50% of the outstanding principal amount represented by the Notes may, with
the consent of the Company, waive or amend, on behalf of all Purchasers, any
provisions hereof.
7.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address set forth in the
Company's records, or (b) if to any other holder of Securities purchased
hereunder, at such address as such holder shall have furnished to the Company in
writing in the manner provided in this Section, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Securities who has so furnished an address to the Company, or (c)
if to the Company, to its address set forth on the cover page of this Agreement
and addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Purchasers by first class mail.
7.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any Purchaser, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such Purchaser, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under the
Agreement, or by law or otherwise afforded to any holder shall be cumulative and
not alternative.
7.7 Expenses. The Company and each Purchaser shall bear its or his own
--------
expenses and legal fees incurred on its or his behalf with respect to this
Agreement and the transactions contemplated hereby.
7.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
7.9 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue to full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
-7-
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By: /s/ Gregory A. Jones
-------------------------------
Name: Gregory A. Jones
-----------------------------
Title: President
----------------------------
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:_____________________________
Name:___________________________
Title:__________________________
THE PURCHASERS: Bayview Investors, Ltd
By: /s/ Molly Barger Wuthrich
------------------------------
Name: Molly Barger Wuthrich
----------------------------
Title: Managing Director
---------------------------
-8-
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:_____________________________
Name:___________________________
Title:__________________________
THE PURCHASERS:
/s/ John Elliott, Jr.
--------------------------------
John Elliott, Jr.
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
THE PURCHASERS:
/s/ Matthew A. Gohd
-----------------------------------
Matthew A. Gohd
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS: Fayez Sarofim Investment Partnership No. 5, L.P.
By: /s/ Raye G. White
----------------------------------
Name: Raye G. White
--------------------------------
Title: Executive Vice President,
-------------------------------
Secretary-Treasurer
FSI No. 2 Corporation, General Partner
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS:
/s/ Daniel C. Lynch
-------------------------------------
Daniel Lynch
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS:
/s/ Philip J. Monego
-------------------------------------
Philip J. Monego, Sr.
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS: Scripps Ventures, LLC
By: /s/ Doug Stern
----------------------------------
Name: Doug Stern
--------------------------------
Title: CEO
-------------------------------
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS: Technology Funding Partners III, L.P.
By: Technology Funding Inc.,
Managing General Partner
By: /s/ Peter H. Gardner
---------------------------
Name: Peter H. Gardner
-------------------------
Title: Vice President
------------------------
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS: Technology Funding Venture Partners IV, an
Aggressive Growth Fund, L.P.
By: Technology Funding Inc.,
Managing General Partner
By: /s/ Peter H. Gardner
----------------------------------
Name: Peter H. Gardner
--------------------------------
Title: Vice President
-------------------------------
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS: Technology Funding Venture Partners V, an
Aggressive Growth Fund, L.P.
By: Technology Funding Inc.,
Managing General Partner
By: /s/ Peter H. Gardner
----------------------------------
Name: Peter H. Gardner
--------------------------------
Title: Vice President
-------------------------------
<PAGE>
The foregoing Note and Warrant Purchase Agreement is hereby executed as of
the date first above written.
THE COMPANY: WORLDRES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
THE PURCHASERS:
/s/ Steve Zuckerman
-------------------------------------
Steve Zuckerman
<PAGE>
EXHIBIT A
---------
Schedule of Purchasers
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Amount of Warrant Warrant
Convertible Coverage Purchase Total
Purchaser Promissory Note Amount Price Amount Due
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bayview Investors, Ltd. $ 36,364.00 $ 7,272.80 $ 7.27 $ 36,371.27
- -----------------------------------------------------------------------------------------------------------------------
John H. Elliott, Jr. $ 100,000.00 $ 20,000.00 $ 20.00 $ 100,020.00
- -----------------------------------------------------------------------------------------------------------------------
Fayez Sarofim Investment Partnership $ 187,500.00 $ 37,500.00 $ 37.50 $ 187,537.50
No. 5, L.P.
- -----------------------------------------------------------------------------------------------------------------------
Matthew A. Gohd $ 13,000.00 $ 2,600.00 $ 2.60 $ 13,002.60
- -----------------------------------------------------------------------------------------------------------------------
Dan Lynch $ 120,000.00 $ 24,000.00 $ 24.00 $ 120,024.00
- -----------------------------------------------------------------------------------------------------------------------
Philip J. Monego, Sr. $ 100,000.00 $ 20,000.00 $ 20.00 $ 100,020.00
- -----------------------------------------------------------------------------------------------------------------------
Scripps Ventures, LLC $ 375,000.00 $ 75,000.00 $ 75.00 $ 375,075.00
- -----------------------------------------------------------------------------------------------------------------------
Technology Funding Partners III, L.P. $ 140,625.00 $ 28,125.00 $ 28.13 $ 140,653.13
- -----------------------------------------------------------------------------------------------------------------------
Technology Funding Venture Partners IV, $ 42,187.50 $ 8,437.50 $ 8.44 $ 42,195.94
an Aggressive Growth Fund, L.P.
- -----------------------------------------------------------------------------------------------------------------------
Technology Funding Venture partners V, $ 4,687.50 $ 937.50 $ 0.94 $ 4,688.44
an Aggressive Growth Fund, L.P.
- -----------------------------------------------------------------------------------------------------------------------
Steve Zuckerman $ 4,046.17 $ 809.23 $ 0.81 $ 4,046.98
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $1,123,410.17 $224,682.03 $224.69 $1,123,634.86
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
Form of Promissory Note
<PAGE>
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS NOTE TO THE
SECRETARY OF THE CORPORATION.
$((NoteAmount)) WorldRes, Inc.
October 10, 1997
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
WorldRes, Inc., a California corporation (the "Maker"), for value received,
-----
promises to pay to ((Name)) (the "Creditor") the principal sum of
--------
((NoteAmountSpelled)) ($((NoteAmount))) together with interest from the date of
this Note on the unpaid principal balance at a rate equal to 8.0% per annum,
computed on the basis of the actual number of days elapsed and a year of 365
days. Except as may be prohibited by the forms of subordination agreement
requested by holders of Senior Indebtedness (as defined below), all principal
and interest hereunder is payable on the earlier of (i) February 10, 1998, or
(ii) the closing date of the Maker's next Equity Financing (as that term is
defined in that certain Note and Warrant Purchase Agreement of even date
herewith between Maker, Creditor and certain others (the "Note Agreement")).
--------------
The holder of this Note is entitled to the benefits and subject to certain
obligations under the Note Agreement (including certain rights and obligations
to convert this Note into securities of the Maker) and may enforce the
agreements of the Maker contained therein and exercise the remedies provided for
thereby. The benefits and rights of the holder are subject to certain
conditions and restrictions also set forth in the Note Agreement, which
conditions and restrictions may be enforced against the holder hereof.
Payment shall be made in lawful tender of the United States and shall be
credited first to accrued interest then due and payable with the remainder
applied to principal. Prepayment of the principal, in whole or in part together
with accrued interest, may be made at any time without penalty or premium,
provided the Maker shall provide ten (10) business days prior written notice to
the Creditor of the Maker's intent to prepay this Note and the Creditor shall
have the right to convert this Note within such ten (10) business day period as
provided above.
Except as permitted in the forms of subordination agreement requested by
holders of Senior Indebtedness, (i) no amount shall be paid by the Maker in
respect of the principal of and interest on this Note at the time outstanding,
and (ii) no other action prohibited by such subordination agreements shall be
taken.
This Note shall be subject to customary forms of subordination agreement
requested from time to time by holders of Senior Indebtedness, and as a
condition to the Creditor's rights hereunder, the Maker may require that the
Creditor execute such forms of subordination agreement.
<PAGE>
"Senior Indebtedness" as used herein shall mean the principal of (and
-------------------
premium, if any) and unpaid interest on, (i) indebtedness of the Maker or with
respect to which the Maker is a guarantor to banks, insurance companies, lease
financing institutions or other lending institutions regularly engaged in the
business of lending money, which is for money borrowed (or purchase or lease of
equipment in the case of lease financing) by the Maker, whether or not secured,
under agreements in effect as of the date of this Note or amendments thereof,
and (ii) such additional indebtedness as may subsequently be approved by the
Board of Directors, including the approval of at least one director who has been
designated as such by a "Purchaser," as such term is defined under the Note
Agreement.
No indebtedness which does not constitute Senior Indebtedness shall be
senior in any respect to this Note.
Subject to the payment in full of all Senior Indebtedness, the holder of
this Note shall be subrogated to the rights of holders of Senior Indebtedness as
set forth in the forms of subordination agreement requested by holders of Senior
Indebtedness.
If action is instituted to collect this Note, the Maker promises to pay all
costs and expenses, including reasonable attorneys' fees, incurred in connection
with such action. The Maker hereby waives notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
Neither this Note nor any of the rights, interests or obligations hereunder
may be assigned, by operation of law or otherwise, in whole or in part, by the
Maker without the prior written consent of the holder except in connection with
an assignment in whole to a successor corporation to the Maker in a merger of
the Maker or a sale of all or substantially all of the Maker's property and
assets and then only if the holder's rights hereunder are not impaired.
This Note shall be construed in accordance with the laws of the state of
California, without regard to the conflicts of law provisions of the state of
California or of any other state.
-2-
<PAGE>
IN WITNESS WHEREOF, Maker and Creditor have each caused this Note to be
signed in their respective names on the date first set forth above.
MAKER: WORLDRES, INC.
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
Address:
66 Bovet, Suite 100
San Mateo, CA 94402
CREDITOR: ((SignatureBlock))
Address:
___________________________________________
___________________________________________
___________________________________________
-3-
<PAGE>
EXHIBIT C
---------
Form of Warrant
<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THIS WARRANT AND
RESTRICTING ITS TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS WARRANT TO THE
SECRETARY OF THE CORPORATION.
WORLDRES, INC.
STOCK PURCHASE WARRANT
This certifies that ((Name)) or assigns (the "Holder"), for value received,
------
is entitled to purchase from WorldRes, Inc., a California corporation (the
"Company"), a number of fully paid and nonassessable shares of the Company's
-------
capital stock issuable in the next Equity Financing (as that term is defined in
that certain Note and Warrant Purchase Agreement of even date herewith between
Holder, the Company and certain others (the "Agreement")) equal to
---------
((WarrantAmountSpelled)) ($((WarrantAmount))) divided by the per share purchase
price of such shares in the next Equity Financing at a per share purchase price
equal to the per share purchase price of such shares in the next Equity
Financing. The shares of the Company's capital stock for which this Warrant is
exercisable are referred to herein as the "Warrant Shares" and the per share
--------------
purchase price of such Warrant Shares is referred to herein as the "Stock
-----
Purchase Price." This Warrant may be exercised at any time or from time to time
- --------------
up to and including 5:00 p.m. (Pacific time) on the fifth anniversary of the
date hereof (the "Expiration Date"), unless this Warrant is earlier terminated
---------------
pursuant to Section 8 hereof, upon surrender to the Company at its principal
office at 66 Bovet, Suite 100, San Mateo, CA 94402 (or at such other location as
the Company may advise Holder in writing) of this Warrant properly endorsed with
the Form of Subscription attached hereto duly filled in and signed and upon
payment in cash or by check of the aggregate Stock Purchase Price for the number
of Warrant Shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Stock Purchase Price and the Warrant
Shares are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. This Warrant
------------------------------------------------------
is exercisable at the option of the Holder of record hereof, at any time or from
time to time, up to the Expiration Date or the date of earlier termination
pursuant to Section 8 hereof for all and any part of the Warrant Shares (but not
for a fraction of a share). The Company agrees that the Warrant Shares
purchased under this Warrant shall be and are deemed to be issued to the Holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
Warrant Shares, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase to
<PAGE>
the Holder hereof within a reasonable time, not exceeding fifteen (15) days
after the date of such surrender. Each stock certificate so delivered shall be
in such denominations as may be requested by the Holder hereof and shall be
registered in the name of such Holder or such other name as shall be designated
by such Holder.
2. Conversion of Warrant.
---------------------
2.1 Right to Convert. In addition to, and without limiting, the
----------------
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
----------------
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Stock Purchase Price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
X=Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
A= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Stock Purchase Price
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant to the Company at its principal office
at the address indicated on the first paragraph of this Warrant, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon exercise
of the Conversion Right. Such conversion shall be effective upon the Company's
receipt of this Warrant, together with the conversion notice, or on such later
date as is specified in the conversion notice (the "Conversion Date") and, at
---------------
the Holder's election, may be made contingent upon the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
Certificates for the Warrant Shares so acquired shall be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) days after the Conversion
Date. If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares which Holder is entitled to purchase
hereunder.
2.3 Fair Market Value. "Fair Market Value" of a share of Warrant
----------------- -----------------
Shares or Common Stock (issued upon conversion thereof) as of a particular date
means: (a) if traded on an exchange or quoted on The Nasdaq National Market,
then the prior trading day's closing price, (b) if conversion is effective as of
the closing of the Company's initial public offering of any securities pursuant
to a registration statement under the Securities Act, the "price to public"
specified for such shares in the final prospectus for such public offering, (c)
if listed by the National Daily Quotation Service "Pink Sheets," then the
average of the most-recently reported
-2-
<PAGE>
bid and ask prices and (d) otherwise, the price as determined in good faith by
the Board of Directors of the Company.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all Warrant Shares (and shares of its Common Stock reserved for
issuance upon conversion of such Warrant Shares) which may be issued upon the
exercise or conversion of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised or converted, the Company will use its best efforts to
cause a sufficient number of shares of authorized but unissued capital stock
(and shares of its Common Stock for issuance on conversion of such capital
stock, if any) to be authorized when and as required to provide for the exercise
or conversion of the rights represented by this Warrant. The Company will take
all such action as may be necessary to assure that such shares of capital stock
(and shares of Common Stock for issuance on conversion of such capital stock, if
any) may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the stock may be listed. The Company will not take any action which would
result in any adjustment of the Stock Purchase Price (as described in Section 4
hereof) if the total number of shares of capital stock issuable after such
action upon exercise or conversion of all outstanding warrants, together with
all shares of capital stock of the same class and series as such capital stock
then outstanding and all shares of capital stock of the same class and series as
such capital stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of capital stock of the same class and series as the
Warrant Shares then authorized by the Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock
-------------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise or
conversion of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 4. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting from
such adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall
-----------------------------------
at any time subdivide any of its outstanding shares of the same class and series
as the Warrant Shares into a greater number of shares, the Stock Purchase Price
in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case any outstanding shares of the same class and
series as the Warrant Shares shall be combined into a smaller number of shares,
the Stock Purchase Price in effect immediately prior to such combination shall
be proportionately increased.
-3-
<PAGE>
4.2 Dividends, Reclassification. If at any time or from time to time
---------------------------
any holders of securities of the same class and series as the Warrant Shares
shall have received or become entitled to receive, without payment thereof,
(A) any shares of the Company's Preferred Stock, Common Stock or
any shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Common Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing by
way of dividend or other distribution;
(B) any cash paid or payable otherwise than as a regular
periodic cash dividend at a rate which is substantially consistent with past
practice (or, in the case of an initial dividend, at a rate which is
substantially consistent with industry practice); or
(C) any shares of the Company's Preferred Stock, Common Stock or
other or additional stock or other securities or property (including cash) by
way of spinoff, split-up, reclassification, combination of shares or similar
corporate rearrangement; (other than shares of the same class and series as the
Warrant Shares issued as a stock split, adjustments in respect of which shall be
covered by the terms of Section 4.1 above), then and in each such case, the
Holder hereof shall, upon the exercise or conversion of this Warrant, be
entitled to receive, in addition to the number of shares of such capital stock
receivable thereupon, and without payment of any additional consideration
thereof, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (B) and (C) above) which such Holder would
hold on the date of such exercise or conversion had he or it been the Holder of
record of such capital stock as of the date on which holders of such capital
stock received or became entitled to receive such shares and/or all other
additional stock and other securities and property.
4.3 Conversion or Redemption. Should all of the Company's capital
------------------------
stock of the same class and series as the Warrant Shares be, or if outstanding
would be, at any time prior to the expiration of this Warrant or any portion
thereof, redeemed or converted into shares of the Company's Common Stock, then
this Warrant shall immediately become exercisable or convertible for that number
of shares of the Company's Common Stock equal to the number of shares of the
Common Stock that would have been received if this Warrant had been exercised in
full and the capital stock received thereupon had been simultaneously converted
immediately prior to such event, and the Stock Purchase Price shall be
immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Stock Purchase Price of the maximum number of shares of capital stock
for which this Warrant was exercisable or convertible immediately prior to such
conversion or redemption, by (y) the number of shares of Common Stock for which
this Warrant is exercisable or convertible immediately after such conversion or
redemption.
4.4 Other Notices. If at any time:
-------------
(1) the Company shall declare any cash dividend upon its shares of
the same class and series as the Warrant Shares;
(2) the Company shall declare any dividend upon its shares of the
same class and series as the Warrant Shares payable in stock or make any special
dividend or other distribution to the holders of its shares of the same class
and series as the Warrant Shares;
-4-
<PAGE>
(3) the Company shall offer for subscription pro rata to the holders
of its shares of the same class and series as the Warrant Shares any additional
shares of stock of any class or other rights;
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(6) the Company shall take or propose to take any other action,
notice of which is actually provided to or is required to be provided, pursuant
to any written agreement, to holders of its shares of the same class and series
as the Warrant Shares,
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown of the books of the Company, (a) at least 20 days prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividends, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 20
days prior written notice of the date when the same shall take place. Any
notice given in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of shares of the same class and series as the Warrant Shares
shall be entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of shares of the
same class and series as the Warrant Shares shall be entitled to exchange their
stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be.
5. Issue Tax. The issuance of certificates for shares of the Warrant
---------
Shares shall be made without charge to the Holder of the Warrant for any issue
tax in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being transferred.
6. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Warrant Shares in any
manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company.
No dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that,
-5-
<PAGE>
this Warrant shall have been exercised or converted. No provisions hereof, in
the absence of affirmative action by the Holder to purchase shares of capital
stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Stock Purchase
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by its creditors.
8. Expiration. This Warrant shall expire upon the earlier to occur of (a)
----------
5:00 PM on the fifth anniversary of the date hereof, (b) the effective date of
any merger in which the Company is not the surviving entity or in which
shareholders of the Company prior to such merger hold less than 50% of the
voting power of the capital stock of the Company after such merger, or the sale
of all or substantially all of the Company's assets, or (c) the Company's sale
of its Common Stock in a firm commitment underwritten public offering pursuant
to a registration statement under the Securities Act of 1933, as amended, at a
public offering price of at least $10.00 per share (appropriately adjusted for
stock dividends, stock splits, reverse stock splits, recapitalizations or
similar transactions) with gross proceeds to the Company in excess of
$15,000,000.
9. Warrants Transferable. Subject to the provisions of the Agreement,
---------------------
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Holder hereof (except for transfer taxes), upon surrender
of this Warrant properly endorsed. Each Holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the Holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
transfer hereof on the books of the Company any notice to the contrary
notwithstanding, but, until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
10. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
amended, waived or modified upon written consent of the Company and holders of
in excess of 50% in interest of the Warrants issued pursuant to the Agreement,
provided that all such Warrants are amended, waived or modified in a like
manner.
11. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated on the first paragraph of this Warrant.
12. Descriptive Headings and 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. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California, without giving effect to
the conflict of laws principles thereof.
13. Lost Warrants of Stock Certificates. The Company represents and
-----------------------------------
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock
-6-
<PAGE>
certificate, the Company at its expense will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
14. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its duly authorized officers, effective as of October __, 1997.
THE COMPANY: WORLDRES, INC.
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
-8-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ____________________
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________________________________________ (_____________)
shares of ____________ Stock of WorldRes, Inc. and herewith makes payment of
____________________ Dollars ($__________) thereof, and requests that the
certificates for such shares by issued in the name of, and delivered to
________________________________, whose address is ___________________________
_________________________________.
The undersigned represents that it is acquiring such ________________ Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED: ___________________
_____________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
_____________________________________
_____________________________________
(Address)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the Holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of ________________
Stock covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED: ___________________
_______________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
<PAGE>
EXHIBIT 10.10
WORLDRES, INC.
AMENDED AND RESTATED
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SERIES C PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT (this "Agreement") is made as of the 16th day of March, 1998, by and
among WorldRes, Inc., a California corporation (the "Company"), and the
purchasers listed on Schedule A hereto, each of whom is herein referred to as a
----------
"Purchaser."
RECITALS
A. The Company and certain of the Purchasers (the "Initial Purchasers")
entered into a Series C Preferred Stock Purchase Agreement dated December 30,
1997 (the "Prior Agreement").
B. The Company and the Initial Purchasers wish to amend and restate the
Prior Agreement to provide for the issuance of the Warrants (as defined below)
to all Purchasers, among other things.
C. Section 9.7 of the Prior Agreement provides that the Prior Agreement
may be amended with the written consent of the Company and the holders of at
least sixty percent (60%) of the Common Stock issued or issuable upon the
conversion of the Series C Preferred Stock (as defined in the Prior Agreement).
D. The Company and the undersigned holders of not less than sixty percent
(60%) of the Series C Preferred Stock hereby amend and restate the Prior
Agreement in its entirety as follows:
AGREEMENT
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
---------------------------------------
1.1 Sale and Issuance of Series C Preferred Stock and Warrants.
----------------------------------------------------------
(a) The Company adopted and filed with the Secretary of State of
California on or before the Initial Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A-1
-----------
(the "Restated Articles"). The Company shall adopt and file with the Secretary
of State of California on or before any Subsequent Closing (as defined below)
the Certificate of Amendment of Amended and Restated Articles of Incorporation
in the form attached hereto as Exhibit A-2 (the "Certificate of Amendment").
-----------
<PAGE>
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees, severally, to purchase at the Closing and the Company agrees
to sell and issue to each Purchaser at the Closing (i) that number of shares of
the Company's Series C Preferred Stock set forth opposite such Purchaser's name
on Schedule A hereto under the heading "No. Shares" at a purchase price of $3.70
----------
per share, for an aggregate purchase price set forth on Schedule A, and (ii) a
----------
warrant in the form attached hereto as Exhibit B (each, a "Warrant" and
---------
collectively, the "Warrants") to purchase that number of shares of Series C
Preferred Stock of the Company set forth opposite such Purchaser's name on
Schedule A hereto under the heading "No. Warrant Shares" at an exercise price of
- ----------
$4.63 per share. The purchase price for each Warrant shall be equal to $0.01
per share of Series C Preferred Stock issuable upon exercise of such Warrant.
Collectively, the shares of Series C Preferred Stock and the Warrants are
referred to herein as the "Securities."
1.2 Closing.
-------
(a) The initial closing of the purchase and sale of the Series C
Preferred Stock (the "Initial Closing") took place at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, California (the "VLG Offices"), on
December 30, 1997 (the "Initial Closing Date"). The purchase and sale of the
Warrants issuable to the Initial Purchasers shall take place on the date of this
Agreement at the VLG Offices. Subsequent closing(s) of the purchase and sale of
the Securities under this Agreement (the "Subsequent Closing(s)") may take place
at a time agreed upon by the Company and the Purchasers participating in a
particular Subsequent Closing (each such date, a "Subsequent Closing Date"),
which shall occur in any event no later than April 15, 1998. As used herein, the
term "Closing" shall refer collectively to the Initial Closing and each
Subsequent Closing and the term "Closing Date" shall refer collectively to the
Initial Closing Date and each Subsequent Closing Date, as applicable.
(b) At the Initial Closing the Company delivered a stock
certificate representing the Series C Preferred Stock and, if applicable, at
each Subsequent Closing, the Company shall deliver to each Purchaser a stock
certificate representing the Series C Preferred Stock and a warrant certificate
representing the Warrant being purchased thereby, in each case against payment
of the purchase price therefor by check, wire transfer, or conversion of
outstanding indebtedness and the execution and delivery by such Purchaser of
signature pages to this Agreement, the Investor Rights Agreement, the Co-Sale
Agreement and the Voting Agreement (each as defined below). Those purchasing in
any Subsequent Closing will be added to Schedule A, and shall be deemed
----------
"Purchasers" hereunder, "Investors" under the Investor Rights Agreement and the
Co-Sale Agreement, and "Shareholders" under the Voting Agreement. The shares of
Series C Preferred Stock purchased hereunder and issuable upon exercise of the
Warrants shall be considered "Series C Preferred Stock" for purposes of this
Agreement, the Co-Sale Agreement and the Voting Agreement, and "Stock" for
purposes of the Investor Rights Agreement. Purchasers in any Subsequent Closing
will receive an addendum to the Schedule of Exceptions (as defined below) dated
the date of such Subsequent Closing, which addendum shall amend the Schedule of
Exceptions as of such date as set forth in Section 2.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, as of the applicable Closing
Date, except as set forth on a
-2-
<PAGE>
Schedule of Exceptions (the "Schedule of Exceptions") attached hereto as
Schedule B, as the same may be amended in connection with each Closing, which
- ----------
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California, has all requisite corporate power and authority to
carry on its business as now conducted and to enter into this Agreement and all
agreements related thereto. The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
financial condition or results of operations.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists, or will consist immediately prior to the Closing, of:
(i) Preferred Stock. 8,165,840 shares of Preferred Stock (the
---------------
"Preferred Stock"), 474,536 of which shares have been designated Series A
Preferred Stock, 437,199 of which are issued and outstanding, 1,545,652 of which
shares have been designated Series B Preferred Stock, 1,422,481 of which are
issued and outstanding, 1,545,652 of which shares have been designated Series B-
1 Preferred Stock, none of which are issued and outstanding, 2,300,000 of which
shares have been designated Series C Preferred Stock, none of which are issued
and outstanding and 2,300,000 of which shares have been designated Series C-1
Preferred Stock, none of which are issued and outstanding. The rights,
privileges and preferences of the Series A Preferred Stock, Series B Preferred
Stock, Series B-1 Preferred Stock, Series C Preferred Stock and Series C-1
Preferred Stock will be as stated in the Company's Restated Articles, in the
case of the Initial Closing, or in the Restated Articles as amended by the
Certificate of Amendment, in the case of any Subsequent Closing.
(ii) Common Stock. 22,000,000 shares of Common Stock, 764,144 of
------------
which are issued and outstanding.
(iii) The outstanding shares of Common Stock, Series A Preferred
Stock and Series B Preferred Stock are owned by the shareholders and in the
numbers specified in the Capitalization Table attached hereto as Schedule C, as
----------
the same may be amended in connection with each Closing.
(iv) The outstanding shares of Common Stock, Series A Preferred
Stock and Series B Preferred Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the "Act") and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(v) Except for (A) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and Series C-1 Preferred Stock, (B) 26,666 shares of Series A
Preferred Stock reserved for issuance pursuant to a warrant issued to Venture
Lending with an exercise price of $1.50 per share,
-3-
<PAGE>
(C) 19,526 shares of Series B Preferred Stock reserved for issuance pursuant to
a warrant issued to Venture Leasing with an exercise price of $3.38 per share,
(D) 4,733 shares of Series B Preferred Stock reserved for issuance pursuant to a
warrant issued to Venture Lending with an exercise price of $3.38 per share, (E)
an aggregate of 43,869 shares of Series B Preferred Stock reserved for issuance
pursuant to warrants issued to certain individuals with an exercise price of
$3.38 per share, (F) 4,437 shares of Series B Preferred Stock reserved for
issuance pursuant to a warrant issued to Silicon Valley Bank, (G) an aggregate
of 303,620 shares of Series C Preferred Stock to be issued at the Closing upon
conversion of Convertible Subordinated Promissory Notes in the aggregate
principal amount of $1,123,410, (H) an aggregate of 60,720 shares of Series C
Preferred Stock reserved for issuance pursuant to warrants issued to certain
individuals with an exercise price of $3.70 per share, and (I) the rights set
forth in the Investor Rights Agreement (as defined below), there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition to the foregoing, the Company has
reserved (A) 1,050,000 shares of its Common Stock for purchase upon exercise of
options reserved for grant under the Company's 1995 Stock Plan, of which 308,300
shares are subject to options outstanding or committed for issuance, and (B)
sufficient shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock,
the Series C Preferred Stock and the Series C-1 Preferred Stock. Except for the
Second Amended and Restated Voting Agreement of even date herewith, the form of
which is attached hereto as Exhibit C (the "Voting Agreement"), the Company is
---------
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any partnership.
2.4 Authorization. All corporate action on the part of the
-------------
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Voting Agreement,
the Third Amended and Restated Investor Rights Agreement of even date herewith,
the form of which is attached hereto as Exhibit D (the "Investor Rights
---------
Agreement"), the Second Amended and Restated Co-Sale and First Refusal Agreement
of even date herewith, the form of which is attached hereto as Exhibit E (the
---------
"Co-Sale Agreement"), the performance of all obligations of the Company
hereunder and thereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of Securities being sold hereunder, the Series C-1
Preferred Stock and the Common Stock issuable upon conversion or exercise
thereof (the "Conversion Shares") has been taken or will be taken prior to the
Closing, and this Agreement, the Investor Rights Agreement, the Voting Agreement
and the Co-Sale Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, (iii) to the extent
the indemnification provisions contained in the Investor Rights Agreement may be
limited by applicable federal or state securities laws and
-4-
<PAGE>
(iv) with respect to the Voting Agreement, to the extent such agreements
generally are unenforceable under the laws of the State of California.
2.5 Valid Issuance of Preferred Stock, Common Stock and Warrants.
------------------------------------------------------------
The Securities being purchased by the Purchasers hereunder, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investor Rights Agreement,
the Co-Sale Agreement and the Voting Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the
Series C Preferred Stock purchased under this Agreement or upon conversion of
the Series C Preferred Stock issuable upon exercise of the Warrants has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Articles, or in the case of any Subsequent Closing, the
terms of the Restated Articles, as amended by the Certificate of Amendment, or
the terms of the Warrants, as the case may be, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Investor Rights
Agreement, the Co-Sale Agreement and the Voting Agreement and under applicable
state and federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of the Restated Articles
and, in the case of any Subsequent Closing, the Certificate of Amendment, with
the California Secretary of State, the filing pursuant to Section 25102(f) of
the California Corporate Securities Law of 1968, as amended, and the rules
thereunder and the filing under Regulation D under the Act.
2.7 Offering Valid. Assuming the truth and accuracy of the
--------------
representations and warranties of the Purchasers contained in Section 3 hereof,
the offer, sale and issuance of the Shares and the Conversion Shares will be
exempt from the registration requirements and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Shares to any person or persons so as to bring the sale
of such Shares by the Company within the registration provisions of the
Securities Act.
2.8 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company that questions
the validity of this Agreement, the Investor Rights Agreement, the Co-Sale
Agreement or the Voting Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that would result, either individually or in the aggregate, in any material
adverse changes in the financial condition or results of operations of the
Company. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court
-5-
<PAGE>
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 Proprietary Information and Assignment of Inventions Agreements.
---------------------------------------------------------------
Each employee, officer and consultant of the Company has executed a Proprietary
Information and Assignment of Inventions Agreement. The Company is not aware
that any of its officers, directors, consultants or employees is in violation
thereof and will use its best efforts to prevent any such violation.
2.10 Patents and Trademarks. The Company owns and possesses or is
----------------------
licensed under all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the Company's intellectual
property rights, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed to be conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, the
Investor Rights Agreement, the Co-Sale Agreement or the Voting Agreement nor the
carrying on of the Company's business by the employees of the Company will, to
the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provision of its Restated Articles or, in the case
of any Subsequent Closing, its Restated Articles as amended by the Certificate
of Amendment, or its Bylaws, or in any material respect of any instrument,
judgment, order, writ, decree or material contract to which it is a party or by
which it is bound. The execution, delivery and performance of this Agreement,
the Investor Rights Agreement, the Co-Sale Agreement and the Voting Agreement
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
-6-
<PAGE>
2.12 Agreements; Action.
------------------
(a) There are no instruments, judgments, orders, writs,
agreements, decrees or contracts to which the Company is a party or by which it
is bound (including purchase orders to the Company or placed by the Company)
that may involve (i) obligations (contingent or otherwise) of, or payments to
the Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, or (iii)
provisions restricting the development or distribution of the Company's products
or services, except those set forth on the Schedule of Exceptions, copies of
which have been provided to special counsel to the Purchasers (the "Contracts").
All of the Contracts are valid, binding and in full force and effect in all
material respects and enforceable by the Company in accordance with their
respective terms in all material respects, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies. The Company is not in material default
under any of such Contracts. To the best knowledge of the Company, no other
party to any of the Contracts is in material default thereunder.
(b) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.13 Related-Party Transactions. Except as set forth in the
--------------------------
Schedule of Exceptions, no employee, officer, director, or, to the Company's
best knowledge, shareholder of the Company or member of his or her immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee credit) to any of them. To the best of the
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company, except that employees, officers, or directors of the
Company and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No employee, officer, or director
of the Company or member of his or her immediate family is directly or
indirectly interested in any material contract with the Company. The Company is
not guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
-7-
<PAGE>
2.14 Permits. The Company has all franchises, permits, licenses,
-------
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
financial condition or results of operations of the Company, and the Company
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as proposed to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.15 Title to Property and Assets. The Company owns its property
----------------------------
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens that arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property or
assets and such property and assets are in good working condition. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of any liens, claims or encumbrances. Subject to ordinary wear and tear, all
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used.
2.16 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
as amended.
2.17 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the
financial condition or results of operations of the Company, nor is the Company
aware of any labor organization activity involving is the employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company and the Company has no Employment
Agreements with any officer or employee.
2.18 Registration Rights. Except as provided in the Investor
-------------------
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.19 Financial Statements. The Company has made available to each
--------------------
Purchaser the Company's audited balance sheet as of September 30, 1997, and its
audited profit and loss statement for the fiscal year ended September 30, 1997
(the "Financial Statements"). To the Company's knowledge, the Financial
Statements are true and correct in all material respects. Such Financial
Statements have been prepared in good faith in accordance with generally
accepted accounting principles (consistently followed throughout the period
indicated). The
-8-
<PAGE>
Financial Statements present fairly the Company's financial position and results
of operations and reflect all material liabilities, contingent or otherwise, at
the date thereof subject where appropriate to normal year-end adjustments.
2.20 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. The Company has paid all taxes and other
assessments shown to be due thereon, except for those for which extensions have
been obtained that are listed in the Schedule of Exceptions.
2.21 Full Disclosure. This Agreement, the Exhibits hereto, the Co-
---------------
Sale Agreement, the Investor Rights Agreement, the Voting Agreement and all
other documents delivered by the Company to the Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, as amended for each Closing, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. The Company has fully provided each Purchaser with all
the information which such Purchaser has requested for deciding whether to
purchase the Securities and all information that the Company believes is
reasonably necessary to make such decision.
2.22 Compliance with Laws. To its knowledge, the Company is not in
--------------------
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Conversion Shares, except such as has been duly
and validly obtained or filed, or with respect to any filings that must be made
after the Closing, as will be filed in a timely manner.
2.23 Obligations of Management. Each officer of the Company is
-------------------------
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the company planning to work less than full time at the
Company in the future.
2.24 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies and insurance against other hazards, risks and
liabilities to persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated.
2.25 Qualified Small Business. The Company qualifies as a "Qualified
------------------------
Small Business" as defined in Section 1202(d) of the Internal Revenue Code of
1986, as amended (the "Code").
2.26 Small Business Concern. The Company, together with its
----------------------
affiliates (as that term is defined in 13 C.F.R. (S)121.103), is a "small
business concern" within the meaning of
-9-
<PAGE>
the Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder (the "Small Business Investment Act") and Part 121 of
Title 13 of the United States Code of Federal Regulations ("CFR"). The
information provided by the Company to each Purchaser that is a licensed Small
Business Investment Company (each, an "SBIC Purchaser") on Small Business
Administration ("SBA") Forms 480, 652 and 1031 delivered in connection herewith
is accurate and complete in all material respects.
2.27 Not An Investment Company. The Company is not an investment
-------------------------
company within the meaning of the Investment Company Act of 1940, as amended.
2.28 Changes in Conditions. Since September 30, 1997, and other than
---------------------
as provided in the Schedule of Exception, there has not been to the Company's
knowledge:
a. Any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition or operations of
the Company;
b. Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
c. Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
d. Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
e. Any waiver by the Company of a material right or of a
material debt owed to it;
f. Any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
g. Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
h. Any declaration or payment of any dividend or other
distribution of the assets of the Company;
-10-
<PAGE>
i. Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
j. Any change in any material agreement to which the Company is
a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
k. Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
2.29 Corporate Documents, Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Restated Articles, Certificate of Amendment and Bylaws of the Company are in the
form provided to the Purchasers upon their request. The minute books of the
Company provided to the Purchasers upon their request contain a complete summary
of all meetings of directors and shareholders since the time of incorporation of
the Company.
2.30 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants, severally, that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement, the Investor Rights Agreement, the Co-Sale Agreement
and the Voting Agreement and each such Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investor Rights Agreement
may be limited by applicable federal or state securities laws and (iv) with
respect to the Voting Agreement, to the extent such agreements generally are
unenforceable under the laws of the State of California.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Purchaser in reliance upon such Purchaser's representation to the Company,
which by such Purchaser's execution of this Agreement such Purchaser hereby
confirms, that the Securities, the Series C Preferred Stock issuable upon
exercise of the Warrants and the Common Stock issuable upon conversion of the
Series C Preferred Stock purchased hereunder or issuable upon conversion of the
Series C Preferred Stock issuable upon exercise of the Warrants (collectively,
the "Shares") will be acquired for investment for such Purchaser's own account,
not as a
-11-
<PAGE>
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that such Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Purchaser further represents that such Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
3.3 Disclosure of Information. Such Purchaser believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Securities. Such Purchaser further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects, financial condition and results of operations
of the Company.
3.4 Investment Experience. Such Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that he is
able to fend for himself, can bear the economic risk of his investment, and has
such knowledge and experience in financial or business matters that he is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, Purchaser also represents it has not been organized
for the purpose of acquiring the Securities.
3.5 Accredited Investor. Such Purchaser is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D under the Act, as presently in effect.
3.6 Restricted Securities. Such Purchaser understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, such
Purchaser represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, such Purchaser further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3, the Investor Rights Agreement, the Co-Sale Agreement and the
Voting Agreement and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company, if reasonably
requested by the Company, with an opinion of counsel, reasonably satisfactory to
the Company that such
-12-
<PAGE>
disposition will not require registration of such shares under the Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Purchaser that is a partnership to an affiliated partnership
or to a partner of such partnership or affiliated partnership or a retired
partner of such partnership or affiliated partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Purchaser hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Shares may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE
------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Purchaser's Obligations at Closing. The obligations of
------------------------------------------------
each Purchaser under this Agreement are subject to the fulfillment on or before
the applicable Closing Date of each of the following conditions:
5.1 Representations and Warranties. Subject to any Schedule of
------------------------------
Exceptions delivered to Purchasers in connection with each applicable Closing,
the representations and warranties of the Company contained in Section 2 shall
be true on and as of the applicable
-13-
<PAGE>
Closing Date with the same effect as though such representations and warranties
had been made on and as of such Closing Date.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the applicable
Closing Date.
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Purchaser at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the applicable Closing Date.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the applicable Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers or to the Purchasers' special counsel, and they
shall have received all such counterpart original and certified or other copies
of such documents as they may reasonably request.
5.6 Restated Articles. The Company shall have filed the Restated
-----------------
Articles with the Secretary of State of California and, in the case of any
Subsequent Closing, the Company shall have filed the Certificate of Amendment
with the Secretary of State of California.
5.7 Board of Directors. The directors of the Company shall consist
------------------
of two members to be elected by the holders of a majority of the Common Stock,
whose initial designees shall be Eric Christensen and Gregory A. Jones, one
member to be elected by the holders of a majority of the Series A Preferred
Stock, whose initial designee shall be Dwight Morita, two members to be elected
by the holders of a majority of the Series B and B-1 Preferred Stock, whose
initial designees shall be Gregory George and Douglas Stern and one member to be
elected by the holders of a majority of the Series C and C-1 Preferred Stock,
whose initial designee shall be Steven Eskenazi.
5.8 Opinion of Company Counsel. Each Purchaser shall have received
--------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
applicable Closing Date, in the form attached hereto as Exhibit F.
5.9 Investor Rights Agreement. The Purchasers shall have been added
-------------------------
as "Investors" under the Investor Rights Agreement.
5.10 Co-Sale Agreement. The Purchasers shall have been added as
-----------------
"Investors" under the Co-Sale Agreement.
5.11 Voting Agreement. The Purchasers shall have been added as
----------------
"Parties" under the Voting Agreement.
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<PAGE>
5.12 SBA Documents. The Company shall have executed and delivered to
-------------
each SBIC Purchaser a Size Status Declaration on SBA Form 480 and an Assurance
of Compliance on SBA Form 652, and shall have provided to each such Purchaser
information necessary for the preparation of a Portfolio Financing Report on SBA
Form 1031.
5.13 Settlement Agreement. The Company and the Initial Purchasers
--------------------
shall have executed and delivered the Settlement Agreement, Release and Covenant
Not to Sue in the form attached hereto as Exhibit G (the "Settlement
Agreement").
6. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Purchaser under this Agreement are subject Company's
Obligations at to the fulfillment on or before the applicable Closing Date of
each of the following Closing conditions by that Purchaser:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Section 3 shall be true on and as of
the applicable Closing Date with the same effect as though such representations
and warranties had been made on and as of the applicable Closing Date.
6.2 Payment of Purchase Price. The Purchaser shall have delivered
-------------------------
the purchase price specified in Section 1.1 .
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the applicable Closing Date.
6.4 Settlement Agreement. Each of the Initial Purchasers shall have
--------------------
executed and delivered the Settlement Agreement.
7. Covenants of Company.
--------------------
7.1 Board Observer Rights. The holders of at least 750,000 shares of
---------------------
Series C Preferred Stock (appropriately adjusted for stock dividends, stock
splits, reverse stock splits, and capitalizations or similar transactions) shall
each be entitled to designate a representative to attend all meetings of the
Company's Board of Directors in a non-voting observer capacity, and, in this
respect, the Company shall give each of them copies of all notices, minutes,
consents and other materials that it provides to its directors; provided,
however, that each such holder agrees to hold in confidence and trust all
information so provided and to execute standard confidentiality agreements with
respect to such information if requested to do so by the Company. Holders of at
least 250,000 shares of Series C Preferred Stock (appropriately adjusted for
stock dividends, stock splits, reverse stock splits, recapitalizations or
similar transactions) shall be entitled to receive copies of all materials
distributed to the Board of Directors; provided, however, that each such holder
agrees to hold in confidence and trust all information so provided and to
execute standard confidentiality agreements with respect to such information if
requested to do so by the Company.
-15-
<PAGE>
7.2. Compliance with Small Business Investment Act. The Company agrees
---------------------------------------------
to provide each SBIC Purchaser with sufficient information to permit each such
Purchaser to comply with its obligations under the Small Business Investment
Act; provided however, each SBIC Purchaser agrees that it will protect any
information which the Company labels as confidential. Within 90 days following
each Closing and within 90 days after the end of each calendar year during which
the proceeds from the sale of the Securities are being applied, the Company
shall provide to each SBIC Purchaser upon request a certificate of its chief
financial officer describing the use of such proceeds is in accordance with
Section 7.5 below. The Company shall provide each SBIC Purchaser and the SBA
reasonable access to the Company's books and records for the purpose of
confirming the use of the proceeds received hereunder.
7.3 Use of Proceeds. The Company agrees to use the investment proceeds
---------------
from each SBIC Purchaser for working capital purposes or to otherwise finance
the anticipated growth of the Company, and not for any purpose for which a small
business concern is prohibited from providing funds pursuant to 13 CFR Part
107.720. If the Company shall, without the consent of each SBIC Purchaser, use
the proceeds from the securities purchased hereunder for a purpose not described
above, each SBIC Purchaser may demand that the Company repurchase its securities
purchased hereunder at a price equal to the purchase price paid for such
securities as required by SBA Regulation Section 107.305.
7.4 Business Activity. For a period of one year following the Initial
-----------------
Closing, the Company shall not change the nature of its business activity if
such change would render the Company ineligible as a small business concern. The
Company acknowledges and agrees that upon any breach of the covenant set forth
in this Section 7.4, each SBIC Purchaser shall be entitled (in addition to all
of its other rights and remedies, including the right to sue for damages) to
require rescission of this Agreement and immediate repayment in full of the
purchase price for the securities purchased by such SBIC Purchaser hereunder.
7.5 Non-Discrimination Compliance. So long as an SBIC Purchaser holds
-----------------------------
any securities of the Company, the Company will at all times comply with the
non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117.
7.6 Qualified Small Business Stock. The Company covenants that so long
------------------------------
as any of Securities or the Series C-1 Preferred Stock or Common Stock into
which such Securities are converted or exercised, as the case may be, are held
by a SBIC Purchaser (or a transferee in whose hands such Securities, Series C-1
Preferred Stock or Common Stock are eligible to qualify as Qualified Small
Business Stock as defined in Section 1202(c) of the Code), it will use its
reasonable efforts (including complying with any applicable filing or reporting
requirements imposed by the Code on issuers of Qualified Small Business Stock)
to cause the Securities, Series C-1 Preferred Stock or the Common Stock into
which such shares are converted or exercised, as the case may be, to qualify as
Qualified Small Business Stock; provided, however, that "reasonable efforts" as
used in this Section 7.6 shall not be construed to require the Company to
operate its business in a manner which would adversely affect its business,
limit its future prospects or alter the timing or resource allocation related to
its planned operations or financing activities.
-16-
<PAGE>
8. Finder's Fee. Each Purchaser agrees to indemnify and to hold harmless
------------
the Company from any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which such Purchaser or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Purchasers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
9.2 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices.
-------
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith shall be given to or made upon
the respective parties as follows:
To the Company: WorldRes, Inc.
66 Bovet, Suite 100
San Mateo, CA 94402
Telephone: (650) 372-1700
Telecopy: (650) 372-1701
-17-
<PAGE>
Attention: Gregory A. Jones
with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Telephone: (650) 854-4488
Telecopy: (650) 233-8386
Attention: Joshua Pickus
To a Purchaser: At such Purchaser's address as provided to the Company.
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed.
(c) Any party may, by written notice (in accordance with this
Section 9.6) to the other, alter its address.
9.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least sixty percent (60%) of the Common Stock issued or issuable upon
conversion of the issued shares of Series C Preferred Stock; provided, however,
that no such waiver or amendment shall reduce the aforesaid proportion of Series
C Preferred Stock, the holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the record holders of all of the
issued shares of Series C Preferred Stock. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the record holders of the issued shares of Series C Preferred Stock who have not
previously consented thereto in writing. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
9.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
-18-
<PAGE>
9.9 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
9.10 Expenses. The Company and each Purchaser shall each bear its
--------
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby provided that the Company shall pay the
reasonable fees and expenses of one counsel to the Purchasers not to exceed
Fifteen Thousand Dollars ($15,000).
9.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company or to any holder of any securities
issued or to be issued hereunder shall impair any such right, power or remedy of
the Company or such holder, nor shall it be construed to be a waiver of any
breach or default under this Agreement, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any delay or
omission to exercise any right, power or remedy or any waiver of any single
breach or default be deemed a waiver of any other right, power or remedy or
breach or default theretofore or thereafter occurring. All remedies, either
under this Agreement, or by law otherwise afforded to the Company or any holder,
shall be cumulative and not alternative.
[SIGNATURE PAGES FOLLOW]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WORLDRES, INC.
By: /s/ Gregory A. Jones
--------------------------
Gregory A. Jones, President
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Apax Partners & Co. Beteiligungsberatung AG
Printed Name:
Max Burger-Calderon
---------------------------------------------
Signature: /s/ Max Burger-Calderon
----------------------------------
Title (if applicable): Partner
----------------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Printed Name:
Bayview Investors, Ltd
---------------------------------------------
Signature: /s/ Illegible
-----------------------------------
Title (if applicable): Chief Financial Officer
-----------------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Printed Name:
Dr. Heister Beteiligungsgesellschaft HBG
----------------------------------------
Signature: /s/ Illegible
-----------------------------
Title (if applicable): Pres.
-----------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Printed Name:
John Elliott
--------------------------------------
Signature: /s/ John Elliott
---------------------------
Title (if applicable):________________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Printed Name:
Fayez Sarofim Investment Partnership No. 5, L.P.
------------------------------------------------
Signature: /s/ Raye G. White
-------------------------------------
Ray G. White
Title (if applicable): Executive Vice President,
-------------------------
Secretary-Treasurer
FSI No. 2 Corporation,
General Partner
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
Printed Name:
Matt Gohd
--------------------------------------
Signature: /s/ M. Gohd
---------------------------
Title (if applicable):________________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
DAN LYNCH
------------------------------------
Signature: /s/ Dan Lynch
-------------------------
Title (if applicable):______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
Dr. PETER MAY
------------------------------------
Signature: /s/ Dr. Peter May
-------------------------
Title (if applicable):______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
PHILIP J. MONEGO, Sr.
------------------------------------
Signature: /s/ Philip J. Monego
-------------------------
Title (if applicable):______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Net Partners Limited
Printed Name:
FAUSTO BONI
----------------------------------------
Signature: /s/ Fausto Boni
-----------------------------
Title (if applicable): Managing Director
-----------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
NOMINA S.A.
----------------------------------------
Signature: /s/ Eric Isaac
-----------------------------
Title (if applicable): Managing Director
-----------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
JOSHUA PICKUS
------------------------------------
Signature: /s/ Joshua Pickus
-------------------------
Title (if applicable):______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
GARY BLAUER
-------------------------------------------
Signature: /s/ Gary Blauer
--------------------------------
Title (if applicable): Vice President
--------------------
Piper Jaffray Technology Capital SBIC, L.P.
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
PRESTON ROPER
------------------------------------
Signature: /s/ Preston Roper
-------------------------
Title (if applicable):______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
DOUGLAS STERN
--------------------------------------------
Signature: /s/ Douglas Stern
---------------------------------
Title (if applicable): CEO, Scripps Ventures
---------------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Technology Fund II Pte Ltd
Printed Name:
TAN TAHN JOO
------------------------------------
Signature: /s/ Tan Tahn Joo
-------------------------
Title (if applicable): Director
-------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Technology Funding Partners III, L.P.
By: Technology Funding Inc.,
Its: Managing General Partner
By: /s/ Gregory T. George
---------------------------------
Gregory T. George, Vice President
Technology Funding Partners IV,
an Aggressive Growth Fund, L.P.
By: Technology Funding Inc.,
Its: Managing General Partner
By: /s/ Gregory T. George
---------------------------------
Gregory T. George, Vice President
Technology Funding Partners V,
an Aggressive Growth Fund, L.P.
By: Technology Funding Inc.,
Its: Managing General Partner
By: /s/ Gregory T. George
---------------------------------
Gregory T. George, Vice President
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
____________________________________
Signature:
__________________________
Title (if applicable):______________
VLG Investments 1997
By: /s/ Mark Silverman
--------------------------------
Mark L. Silverman
Title: Partner
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Printed Name:
LIP-BU TAN
------------------------------------
Signature: /s/ Lip-Bu Tan
-------------------------
Title (if applicable):______________
<PAGE>
PURCHASERS
Walden Media Information and Technology Fund, L.P.
Walden Technology Ventures II, L.P.
Walden-SBIC, L.P.
Printed Name:
ARTHUR S. BERLINER
--------------------------------------
Signature: /s/ Arthur S. Berliner
----------------------------
Title (if applicable): GP
----------------
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS
Printed Name:
STEVEN A. ZUCKERMAN
-------------------------------------
Signature: /s/ Steven A. Zuckerman
---------------------------
Title (if applicable):_______________
SIGNATURE PAGE TO WORLDRES, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
----------
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------
Initial Closing on December 30, 1997 CONSIDERATION
- ----------------------------------------------------------------------------------------------------------------------------
NO. WARRANT
NO. WARRANT PURCHASE
PURCHASER SHARES SHARES NOTES/(1)/ CASH PRICE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bayview Investors, Ltd. 9,828 1,178 $ 36,363.60 $ 0 $ 11.78 $ 36,375.38
c/o Robertson Stephens & Co.
Attn: Jennifer Sherrill
555 California Street, 26th Floor
San Francisco, CA 94104
- ----------------------------------------------------------------------------------------------------------------------------
Fayez Sarofim Investment 252,887 30,313 $ 187,500.00 $ 748,181.90 $ 303.13 $ 935,985.03
Partnership No. 5, L.P.
c/o Fayez Sarofim & Co.
Attn: David Pesikoff
2 Houston Center, Suite 2907
Houston, TX 77010
- ----------------------------------------------------------------------------------------------------------------------------
Dan Lynch 32,432 3,887 $ 119,998.40 $ 0 $ 38.87 $ 120,037.27
c/o Lynch Enterprises
25660 LaLanne Court
Los Altos Hills, CA 94022
- ----------------------------------------------------------------------------------------------------------------------------
Philip J. Monego, Sr. 27,027 3,239 $ 99,999.90 $ 0 $ 32.39 $ 100,032.29
811 Revere Way
[P.O. Box 620065]
Redwood City, CA 94062
- ---------------------------------------------------------------------------------------------------------------------------
Joshua Pickus 1,351 161 $ 0 $ 4,998.70 $ 1.61 $ 5,000.31
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
- ---------------------------------------------------------------------------------------------------------------------------
Piper Jaffray Technology Capital 270,270 32,397 $ 0 $ 999,999.00 $ 323.97 $1,000,322.97
SBIC, L.P.
c/o Piper Jaffray Ventures
Attn: Gary J. Blauer
222 South Ninth Street
Minneapolis, MN 55402
- ---------------------------------------------------------------------------------------------------------------------------
Scripps Ventures, LLC 101,351 12,148 $ 374,998.70 $ 0 $ 121.48 $ 375,120.18
Attn: Adam Rothstein
200 Madison Avenue
New York, NY 10016
- ---------------------------------------------------------------------------------------------------------------------------
Technology Funding Partners III, 139,358 16,704 $ 140,625.00 $ 374,999.60 $ 167.04 $ 515,791.64
L.P.
Attn: Gregory George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- ---------------------------------------------------------------------------------------------------------------------------
Technology Funding Venture 62,077 7,441 $ 42,187.50 $ 187,497.40 $ 74.41 $ 229,759.31
Partners IV, an Aggressive Growth
Fund, L.P.
Attn: Gregory George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- ---------------------------------------------------------------------------------------------------------------------------
Technology Funding Venture 51,942 6,226 $ 4,687.50 $ 187,497.90 $ 62.26 $ 192,247.66
Partners V, an Aggressive Growth
Fund, L.P.
Attn: Gregory George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
__________________________________
(1)Consideration listed in this column represents conversion of outstanding
principal amounts payable under Convertible Promissory Notes dated October 10,
1997.
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Initial Closing on December 30, 1997 CONSIDERATION
- ----------------------------------------------------------------------------------------------------------------------------
NO. WARRANT
NO. WARRANT PURCHASE
PURCHASER SHARES SHARES NOTES/(1)/ CASH PRICE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VLG Investments 1997 4,054 485 $ 0 $ 14,999.80 $ 4.85 $ 15,004.65
c/o Venture Law Group
Attn: Linda Glisson
2800 Sand Hill Road
Menlo Park, CA 94025
- ---------------------------------------------------------------------------------------------------------------------------
Walden EDB Partners, L.P. 27,027 3,239 $ 0 $ 99,999.90 $ 32.39 $ 100,032.29
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------------------------
Walden Japan Partners, L.P. 27,027 3,239 $ 0 $ 99,999.90 $ 32.39 $ 100,032.29
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------------------------
Walden Media Information and 540,540 64,794 $ 0 $1,999,998.00 $ 647.94 $2,000,645.94
Technology Fund, L.P.
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------------------------
Walden Technology Ventures II, L.P. 43,243 5,183 $ 0 $ 159,999.10 $ 51.83 $ 160,050.93
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------------------------
Walden-SBIC, L.P. 172,972 20,734 $ 0 $ 639,996.40 $ 207.34 $ 640,203.74
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------------------------
Steven A. Zuckerman 1,093 131 $ 4,044.10 $ 0 $ 1.31 $ 4,045.41
c/o McCown Deleeuw & Co.
3000 Sand Hill Road
Menlo Park, CA 94025
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL: 1,764,479 211,499 $1,010,404.70 $5,518,167.60 $2,114.99 $6,530,687.29
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
Subsequent Closing on March 16, 1998 CONSIDERATION
- ------------------------------------------------------------------------------------------------------------------------------
WARRANT
NO. NO. WARRANT PURCHASE
PURCHASER SHARES SHARES NOTES /(2)/ CASH PRICE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apax Partners & Co. 67,559 8,098 $ 0 $ 249,968.30 $ 80.98 $ 250,049.28
Beteiligungsberatung AG
Attn: Max Burger-Calderon and
Peter Blumenwitz
Bahnhofstrasse 17
CH-8702 Zollikon
Zurich, Switzerland
- ------------------------------------------------------------------------------------------------------------------------------
Bayview Investors, Ltd. 8,326 998 $ 0 $ 30,806.20 $ 9.98 $ 30,816.18
c/o Robertson Stephens & Co.
Attn: Jennifer Sherrill
555 California Street, 26th Floor
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------------
Dr. Heister 41,887 5,021 $ 0 $ 154,981.90 $ 50.21 $ 155,032.11
Beteiligungsgesellschaft mbH&Co
KG (HBG)
Nordkanalallee 74
41464 Neuss
Germany
- ------------------------------------------------------------------------------------------------------------------------------
John H. Elliott, Jr. 27,027 3,239 $ 99,999.90 $ 0 $ 32.39 $ 100,032.29
135 Ridgeview Road
Columbus, NC 28722
- ------------------------------------------------------------------ ---------------------------------------------------------
Fayez Sarofim Investment 67,567 8,099 $ 0 $ 249,997.90 $ 80.99 $ 250,078.89
Partnership No. 5, L.P.
c/o Fayez Sarofim & Co.
Attn: David Pesikoff
2 Houston Center, Suite 2907
Houston, TX 77010
- ------------------------------------------------------------------------------------------------------------------------------
Matthew A. Gohd 3,513 421 $ 12,998.10 $ 0 $ 4.21 $ 13,002.31
3 Deadman's Point
Glenbrook, NV 89413
- ------------------------------------------------------------------------------------------------------------------------------
Dr. Peter May 13,509 1,619 $ 0 $ 49,983.30 $ 16.19 $ 49,999.49
c/o Intes,
Mirbachstr. 2
53173 Bonn-Bad Godesberg
Germany
- ------------------------------------------------------------------------------------------------------------------------------
Net Partners Limited 135,135 16,198 $ 0 $ 499,999.50 $161.98 $ 500,161.48
c/o Citco Fund Services
World Trade Center
Tower B 17th Floor Strawinskylaan
1725
1077 XX Amsterdam
The Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Nomina SA (Luxemburg) 13,513 1,619 $ 0 $ 49,998.10 $ 16.19 $ 50,014.29
Attn: Eric Isaac
PO Box 761
L-2017 Luxemburg
- ------------------------------------------------------------------------------------------------------------------------------
Preston Roper 6,000 719 $ 0 $ 22,200.00 $ 7.19 $ 22,207.19
656 Palm Avenue
Los Altos, CA 94022
- ------------------------------------------------------------------------------------------------------------------------------
Technology Fund II Pte Ltd, 135,135 16,198 $ 0 $ 499,999.50 $161.98 $ 500,161.48
Singapore
Attn: Tahn Joo Chin
21 Science Park Road
#02-01 The Aquarius
Science Park II
Singapore 117628
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL: 519,171 62,229 $112,998.00 $1,807,934.70 $622.29 $1,921,554.99
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
___________________________
(2) Consideration listed in this column represents conversion of outstanding
principal amounts payable under Convertible Promissory Notes dated October 10,
1997 and October 27, 1997.
-3-
<PAGE>
EXHIBIT B
FORM OF WARRANT
---------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THIS
WARRANT AND RESTRICTING ITS TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS WARRANT
TO THE SECRETARY OF THE CORPORATION.
WORLDRES, INC.
WARRANT TO PURCHASE
SERIES C PREFERRED STOCK
Warrant No.: (Cert No) Issue Date: (Issue Date)
WorldRes, Inc. (the "Company"), for value received, hereby certifies that
-------
(Holder), or its assigns ("Holder"), is entitled to purchase from the Company,
------
at any time after the date hereof and on or before the Expiration Date (as
defined in Section 8), up to (No Shares) ("No Shares Spelled") shares of Series
C Preferred Stock of the Company (the "Preferred Stock"), at a purchase price of
---------------
$4.63 per share. The shares of the Company's Series C Preferred Stock for which
this Warrant is exercisable are referred to herein as the "Warrant Shares" and
--------------
the per share purchase price of such Warrant Shares is referred to herein as the
"Stock Purchase Price." This Warrant may be exercised at any time, or from time
--------------------
to time, after the date hereof and on or before the Expiration Date. The Stock
Purchase Price and the Warrant Shares are subject to adjustment as provided in
Section 4. This Warrant is one of a series of warrants issued pursuant to that
certain Amended and Restated Series C Preferred Stock and Warrant Purchase
Agreement dated March 16, 1998 (the "Agreement").
---------
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. This Warrant
------------------------------------------------------
is exercisable at the option of Holder, at any time or from time to time, on or
before the Expiration Date, for all or any part of the Warrant Shares (but not
for a fraction of a share), upon surrender to the Company at its principal
office at 66 Bovet, Suite 100, San Mateo, CA 94402 (or at such other location as
the Company may advise Holder in writing) of this Warrant properly endorsed with
the Form of Subscription attached hereto as Exhibit A duly completed and signed
---------
and upon payment in cash or by check (unless this Warrant is being converted
pursuant to Section 2) of the aggregate Stock Purchase Price for the number of
Warrant Shares for which this Warrant is being exercised. The Company agrees
that the Warrant Shares purchased under this Warrant shall be and are deemed to
be issued to Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment shall have been made for such shares. Certificates for the Warrant
Shares so purchased, together with any other securities or property to which
Holder is entitled upon such exercise, shall be delivered to Holder by the
Company at the Company's expense within a reasonable time after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the
<PAGE>
Warrant Shares, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase to Holder within a
reasonable time after the date of such surrender. Each stock certificate so
delivered shall be in such denominations as may be requested by Holder and shall
be registered in the name of Holder or such other name as shall be designated by
Holder.
2. Conversion of Warrant.
---------------------
2.1 Right to Convert. In addition to, and without limiting, the
----------------
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
----------------
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Stock Purchase Price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
X=Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
A= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Stock Purchase Price
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant to the Company at its principal office
at the address indicated on the first paragraph of this Warrant, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon exercise
of the Conversion Right. Such conversion shall be effective upon the Company's
receipt of this Warrant, together with the conversion notice, or on such later
date as is specified in the conversion notice (the "Conversion Date") and, at
---------------
the Holder's election, may be made contingent upon the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
Certificates for the Warrant Shares so acquired shall be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) days after the Conversion
Date. If applicable, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares which Holder is entitled to purchase
hereunder.
2.3 Fair Market Value. "Fair Market Value" of a share of Warrant
----------------- -----------------
Shares or Common Stock (issued upon conversion thereof) as of a particular date
means: (a) if traded on an exchange or quoted on The Nasdaq National Market,
then the prior trading day's closing price, (b) if conversion is effective as of
the closing of the Company's initial public offering of any securities pursuant
to a registration statement under the Securities Act, the "price to public"
specified for such shares in the final prospectus for such public offering, (c)
if listed by the National Daily Quotation Service "Pink Sheets," then the
average of the most-recently reported
-2-
<PAGE>
bid and ask prices and (d) otherwise, the price as determined in good faith by
the Board of Directors of the Company.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all Warrant Shares (and shares of its Common Stock reserved for
issuance upon conversion of such Warrant Shares) which may be issued upon the
exercise or conversion of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised or converted, the Company will use its best efforts to
cause a sufficient number of shares of authorized but unissued capital stock
(and shares of its Common Stock for issuance on conversion of such capital
stock, if any) to be authorized when and as required to provide for the exercise
or conversion of the rights represented by this Warrant. The Company will take
all such action as may be necessary to assure that such shares of capital stock
(and shares of Common Stock for issuance on conversion of such capital stock, if
any) may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the stock may be listed. The Company will not take any action which would
result in any adjustment of the Stock Purchase Price (as described in Section 4)
if the total number of shares of capital stock issuable after such action upon
exercise or conversion of all outstanding warrants, together with all shares of
capital stock of the same class and series as such capital stock then
outstanding and all shares of capital stock of the same class and series as such
capital stock then issuable upon exercise of all options and upon the conversion
of all convertible securities then outstanding, would exceed the total number of
shares of capital stock of the same class and series as the Warrant Shares then
authorized by the Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock
-------------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise or
conversion of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 4. Upon each
adjustment of the Stock Purchase Price, Holder shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall
-----------------------------------
at any time subdivide any of its outstanding shares of the same class and series
as the Warrant Shares into a greater number of shares, the Stock Purchase Price
in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case any outstanding shares of the same class and
series as the Warrant Shares shall be combined into a smaller number of shares,
the Stock Purchase Price in effect immediately prior to such combination shall
be proportionately increased.
-3-
<PAGE>
4.2 Dividends, Reclassification. If at any time or from time to time
---------------------------
any holders of securities of the same class and series as the Warrant Shares
shall have received or become entitled to receive, without payment thereof,
(A) any shares of the Company's Preferred Stock, Common Stock or
any shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Common Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing by
way of dividend or other distribution;
(B) any cash paid or payable otherwise than as a regular
periodic cash dividend at a rate which is substantially consistent with past
practice (or, in the case of an initial dividend, at a rate which is
substantially consistent with industry practice); or
(C) any shares of the Company's Preferred Stock, Common Stock or
other or additional stock or other securities or property (including cash) by
way of spinoff, split-up, reclassification, combination of shares or similar
corporate rearrangement; (other than shares of the same class and series as the
Warrant Shares issued as a stock split, adjustments in respect of which shall be
covered by the terms of Section 4.1),
then and in each such case, Holder shall, upon the exercise or conversion of
this Warrant, be entitled to receive, in addition to the number of shares of
such capital stock receivable thereupon, and without payment of any additional
consideration thereof, the amount of stock and other securities and property
(including cash in the cases referred to in clauses (B) and (C) above) which
Holder would hold on the date of such exercise or conversion had he or it been
the holder of record of such capital stock as of the date on which holders of
such capital stock received or became entitled to receive such shares and/or all
other additional stock and other securities and property.
4.3 Conversion or Redemption. Should all of the Company's capital
------------------------
stock of the same class and series as the Warrant Shares be, or if outstanding
would be, at any time prior to the expiration of this Warrant or any portion
thereof, redeemed or converted into shares of the Company's Common Stock, then
this Warrant shall immediately become exercisable or convertible for that number
of shares of the Company's Common Stock equal to the number of shares of the
Common Stock that would have been received if this Warrant had been exercised in
full and the capital stock received thereupon had been simultaneously converted
immediately prior to such event, and the Stock Purchase Price shall be
immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Stock Purchase Price of the maximum number of shares of capital stock
for which this Warrant was exercisable or convertible immediately prior to such
conversion or redemption, by (y) the number of shares of Common Stock for which
this Warrant is exercisable or convertible immediately after such conversion or
redemption.
4.4 Other Notices. If at any time:
-------------
(1) the Company shall declare any cash dividend upon its shares of
the same class and series as the Warrant Shares;
-4-
<PAGE>
(2) the Company shall declare any dividend upon its shares of the
same class and series as the Warrant Shares payable in stock or make any special
dividend or other distribution to the holders of its shares of the same class
and series as the Warrant Shares;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(5) the Company shall take or propose to take any other action,
notice of which is actually provided to or is required to be provided, pursuant
to any written agreement, to holders of its shares of the same class and series
as the Warrant Shares,
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown of the books of the Company, (a) at least 20 days prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividends or distribution or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, at least 20 days prior written
notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend or distribution, the date on which the holders of shares of the
same class and series as the Warrant Shares shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify the
date on which the holders of shares of the same class and series as the Warrant
Shares shall be entitled to exchange their stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be.
5. Issue Tax. The issuance of certificates for shares of the Warrant
---------
Shares shall be made without charge to the Holder of the Warrant for any issue
tax in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being transferred.
6. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Warrant Shares in any
manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon Holder the right
to vote or to consent or to receive notice as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until, and
only to the extent that, this
-5-
<PAGE>
Warrant shall have been exercised or converted. No provisions hereof, in the
absence of affirmative action by the Holder to purchase shares of capital stock,
and no mere enumeration herein of the rights or privileges of Holder, shall give
rise to any liability of such Holder for the Stock Purchase Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by its creditors.
8. Expiration. This Warrant shall expire upon the earlier to occur of (a)
----------
5:00 PM on the third anniversary of the date hereof; (b) the effective date of
any (i) acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Company); or (ii)
sale of all or substantially all of the assets of the Company; unless the
Company's shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for the Company's acquisition or sale or
otherwise) hold at least 50% of the voting power of the surviving or acquiring
entity; or (c) the Company's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, at a public offering price of at least
$10.00 per share (appropriately adjusted for stock dividends, stock splits,
reverse stock splits, recapitalizations or similar transactions) with gross
proceeds to the Company in excess of $15,000,000 (the "Expiration Date").
---------------
9. Warrants Transferable. Subject to the provisions of the Agreement,
---------------------
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to Holder (except for transfer taxes), upon surrender of this
Warrant properly endorsed by the completion of the Form of Assignment attached
hereto as Exhibit B. Each Holder of this Warrant, by taking or holding the
---------
same, consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable, and that such Holder, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as transfer hereof on
the books of the Company any notice to the contrary notwithstanding, but, until
such transfer on such books, the Company may treat the registered owner hereof
as the owner for all purposes.
10. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
amended, waived or modified upon written consent of the Company and holders of
in excess of 50% in interest of the Warrants issued pursuant to the Agreement,
provided that all such Warrants are amended, waived or modified in a like
manner.
11. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to Holder or the Company shall be delivered or shall be
sent by certified or registered mail, postage prepaid, to each such Holder at
its address as shown on the books of the Company or to the Company at the
address indicated on the first paragraph of this Warrant.
12. Descriptive Headings and 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. This Warrant shall be
construed and enforced in accordance
-6-
<PAGE>
with, and the rights of the parties shall be governed by, the laws of the State
of California, without giving effect to the conflict of laws principles thereof.
13. Lost Warrants of Stock Certificates. The Company represents and
-----------------------------------
warrants to Holder that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of any Warrant or stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company at its expense will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
14. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by a duly authorized officer of the Company, effective as of the date first
written above.
THE COMPANY: WORLDRES, INC.
By: _______________________________
Gregory A. Jones, President
-8-
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: WorldRes, Inc.
66 Bovet, Suite 100
San Mateo, CA 94402
The undersigned, Holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ___________________________________________________________
(_____________) shares of Series C Preferred Stock of WorldRes, Inc. and
herewith makes payment of ___________________________________________________
Dollars ($______________) thereof, and requests that the certificates for such
shares by issued in the name of, and delivered to
_________________________________________________________________________, whose
address is _____________________________________________________________
___________________________________________________________________________.
The undersigned represents that it is acquiring such Series C Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED: _____________________
____________________________________________
(Signature must conform in all respects to
name of Holder as set forth on the face of
the Warrant)
Address:
____________________________________________
____________________________________________
____________________________________________
<PAGE>
Exhibit B
--------
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, Holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Series C Preferred Stock
covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED: ___________________
____________________________________________
(Signature must conform in all respects to
name of Holder as set forth on the face of
the Warrant)
<PAGE>
Exhibit 10.11
WORLDRES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series C Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of March 5, 1999, by and between WorldRes, Inc., a California corporation
(the "Company"), and E. Stanton McKee, Jr. ("Purchaser").
------- ---------
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 35,135 shares of
the Company's Series C Preferred Stock (the "Shares") at a purchase price of
------
$3.70 per Share for a total purchase price of $129,999.50. The term "Shares"
------
refers to the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by a check or wire transfer
from Purchaser to the Company.
3. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser has received all the information he considers necessary
or appropriate for deciding whether to purchase the Shares and has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Shares and the business, properties,
prospects, financial condition and results of operations of the Company.
Purchaser is aware of the Company's business affairs and financial condition and
has acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares.
(b) Purchaser is an investor in securities of companies in the
development stage and acknowledges that he is able to fend for himself, can bear
the economic risk of his investment, and has such knowledge and experience in
financial or business matters that he is capable of evaluating the merits and
risks of the investment in the Shares.
(c) Purchaser is purchasing the Shares for investment for his own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act, and has no
present intention of selling, granting any participation
<PAGE>
in, or otherwise distributing the Shares. By executing this Agreement, Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Shares.
(d) Purchaser is an "accredited investor" within the meaning of
Securities and Exchange Commission ("SEC") Rule 501 of Regulation D under the
---
Act, as presently in effect.
(e) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
4. Restrictive Legends.
-------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such act or an opinion of counsel
satisfactory to the company that such registration is not required or unless
sold pursuant to Rule 144 of such act."
(ii) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
5. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in
-2-
<PAGE>
writing signed by the parties to this Agreement. The failure by either party to
enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. All notices, requests, demands and other communications
-------
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed, as follows:
To the Company: WorldRes, Inc.
--------------
66 Bovet, Suite 100
San Mateo, CA 94402
Attention: Gregory A. Jones
Telephone: (650) 372-1700
Facsimile: (650) 372-1701
with a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Joshua Pickus
Telephone: (650) 854-4488
Facsimile: (650) 233-8386
To Purchaser: c/o Electronic Arts Inc.
------------
209 Redwood Shores Pkwy.
Redwood City, CA 94065
Telephone: (650) 628-7345
Facsimile: (650) ___________________
or to such other address that Purchaser or the Company may designate by written
notice (in accordance with this Section 5(e)) to the other party.
-3-
<PAGE>
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: WORLDRES, INC.
By: /s/ Gregory A. Jones
--------------------------------
Gregory A. Jones, President
PURCHASER:
/s/ E. Stanton McKee
--------------------------------
E. Stanton McKee
-5-
<PAGE>
EXHIBIT 10.12
WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT is made as of the 18th
day of March, 1999, by and between WorldRes, Inc., a California corporation (the
"Company"), and the purchasers listed on Schedule A hereto, each of whom is
----------
herein referred to as a "Purchaser."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Initial Closing (as defined below) the Amended
and Restated Articles of Incorporation in the form attached hereto as Exhibit A
---------
(the "Restated Articles").
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees, severally, to purchase at the Closing and the Company agrees
to sell and issue to each Purchaser at the Closing that number of shares of the
Company's Series D Preferred Stock set forth opposite each Purchaser's name on
Schedule A hereto at a purchase price of $6.05 per share, for an aggregate
- ----------
purchase price set forth on Schedule A.
----------
1.2 Closing.
-------
(a) The initial closing of the purchase and sale of the
Series D Preferred Stock (the "Initial Closing") shall take place at the offices
of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, on March 18,
1999, or at such other time and place as the Company and the Purchasers mutually
agree upon, orally or in writing (such date, the "Initial Closing Date").
Subsequent closing(s) of the purchase and sale of the Series D Preferred Stock
under this Agreement (the "Subsequent Closing(s)") may take place at a time
agreed upon by the Company and the Purchasers participating in a particular
Subsequent Closing (each such date, a "Subsequent Closing Date"), which shall
occur in any event no later than March 31, 1999. As used herein, the term
"Closing" shall refer collectively to the Initial Closing and each Subsequent
Closing as applicable and the term "Closing Date" shall refer collectively to
the Initial Closing Date and each Subsequent Closing Date, as applicable.
(b) At the Initial Closing and, if applicable, each
Subsequent Closing, the Company shall deliver to each Purchaser a certificate
representing the Series D Preferred Stock being purchased thereby against
payment of the purchase price therefor by check, wire transfer, or conversion of
outstanding indebtedness and the execution and delivery by such Purchaser of
signature pages to this Agreement, the Investor Rights Agreement, the Co-Sale
Agreement and the Voting Agreement (each as defined below). Those purchasing in
any Subsequent Closing will be added to Schedule A, and shall be deemed
----------
"Purchasers" hereunder,
<PAGE>
"Investors" under the Investor Rights Agreement and the Co-Sale Agreement, and
"Shareholders" under the Voting Agreement. The shares of Series D Preferred
Stock purchased by such Purchasers shall be considered "Series D Preferred
Stock" for purposes of this Agreement, the Co-Sale Agreement and the Voting
Agreement, and "Stock" for purposes of the Investor Rights Agreement.
Purchasers in any Subsequent Closing shall receive an addendum to the Schedule
of Exceptions (defined below) dated as of the date of such Subsequent Closing,
which addendum shall amend the Schedule of Exceptions as of such date as set
forth in Section 2.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") attached hereto as
Schedule B, as the same may be amended in connection with each Closing, which
- ----------
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California, has all requisite corporate power and authority to
carry on its business as now conducted and to enter into this Agreement and all
agreements related thereto. The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
financial condition or results of operations.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists, or will consist immediately prior to the Closing, of:
(i) Preferred Stock. 12,852,624 shares of Preferred Stock (the
---------------
"Preferred Stock"), 463,865 of which shares have been designated Series A
Preferred Stock, 437,199 of which are issued and outstanding, 1,495,046 of which
shares have been designated Series B Preferred Stock, 1,422,481 of which are
issued and outstanding, 1,495,046 of which shares have been designated Series B-
1 Preferred Stock, none of which are issued and outstanding, 3,658,011 of which
shares have been designated Series C Preferred Stock, 3,208,774 of which are
issued and outstanding, 3,658,011 of which shares have been designated Series C-
1 Preferred Stock, none of which are issued and outstanding, and 2,082,645 of
which shares have been designated Series D Preferred Stock, none of which are
issued and outstanding. The rights, privileges and preferences of the Series A
Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock and the Series D Preferred Stock
will be as stated in the Company's Restated Articles.
(ii) Common Stock. 25,000,000 shares of Common Stock, 793,362 of
------------
which are issued and outstanding.
(iii) The outstanding shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are owned by the
shareholders and in the numbers specified in the Capitalization Table attached
hereto as Schedule C.
----------
-2-
<PAGE>
(iv) The outstanding shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act"), and any relevant state securities laws or
pursuant to valid exemptions therefrom.
(v) Except for (A) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, (B)
26,666 shares of Series A Preferred Stock reserved for issuance pursuant to a
warrant issued to Venture Lending with an exercise price of $1.50 per share, (C)
19,526 shares of Series B Preferred Stock reserved for issuance pursuant to a
warrant issued to Glen McLaughlin with an exercise price of $3.38 per share, (D)
4,733 shares of Series B Preferred Stock reserved for issuance pursuant to a
warrant issued to Venture Lending with an exercise price of $3.38 per share, (E)
an aggregate of 43,869 shares of Series B Preferred Stock reserved for issuance
pursuant to warrants issued to certain individuals with an exercise price of
$3.38 per share, (F) 4,437 shares of Series B Preferred Stock reserved for
issuance pursuant to a warrant issued to Silicon Valley Bank, (G) an aggregate
of 60,720 shares of Series C Preferred Stock reserved for issuance pursuant to
warrants issued to certain individuals with an exercise price of $3.70 per
share, (H) an aggregate of 380,409 shares of Series C Preferred Stock reserved
for issuance pursuant to warrants issued to certain individuals with an exercise
price of $4.63 per share, (I) 8,108 shares of Series C Preferred Stock reserved
for issuance pursuant to a warrant issued to Pentech Financial Services, Inc.
("Pentech"), and (J) the rights set forth in the Investor Rights Agreement (as
defined below), there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. In addition to the
foregoing, the Company has reserved 1,120,000 shares of its Common Stock for
issuance upon exercise of options reserved for grant under the Company's 1995
Stock Option Plan, of which 995,792 shares are subject to options outstanding or
committed for issuance, and sufficient shares of Common Stock for issuance upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock, Series
B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred
Stock and the Series D Preferred Stock. Except for the Third Amended and
Restated Voting Agreement of even date herewith, the form of which is attached
hereto as Exhibit B (the "Voting Agreement"), the Company is not a party or
---------
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any partnership.
2.4 Authorization. All corporate action on the part of the
-------------
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Voting Agreement,
the Fourth Amended and Restated Investor Rights Agreement of even date herewith,
the form of which is attached hereto as Exhibit C (the
---------
-3-
<PAGE>
"Investor Rights Agreement"), the Third Amended and Restated Co-Sale and First
Refusal Agreement of even date herewith, the form of which is attached hereto as
Exhibit D (the "Co-Sale Agreement"), the performance of all obligations of the
- ---------
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series D Preferred Stock
being sold hereunder and the Common Stock issuable upon conversion thereof (the
"Conversion Shares") has been taken or will be taken prior to the Closing, and
this Agreement, the Investor Rights Agreement, the Voting Agreement and the Co-
Sale Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, (iii) to the extent the
indemnification provisions contained in the Investor Rights Agreement may be
limited by applicable federal or state securities laws and (iv) with respect to
the Voting Agreement, to the extent such agreements generally are unenforceable
under the laws of the State of California.
2.5 Valid Issuance of Preferred and Common Stock. The Series D
--------------------------------------------
Preferred Stock that is being purchased by the Purchasers hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investor Rights Agreement,
the Co-Sale Agreement and the Voting Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
D Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investor Rights Agreement,
the Co-Sale Agreement and the Voting Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of the Restated Articles
with the California Secretary of State, the filing pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder and the filing under Regulation D under the Act.
2.7 Offering Valid. Assuming the truth and accuracy of the
--------------
representations and warranties of the Purchasers contained in Section 3 hereof,
the offer, sale and issuance of the Shares and the Conversion Shares will be
exempt from the registration requirements and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Shares to any person or persons so as to bring the sale
of such Shares by the Company within the registration provisions of the Act.
-4-
<PAGE>
2.8 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company that questions
the validity of this Agreement, the Investor Rights Agreement, the Co-Sale
Agreement or the Voting Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that would result, either individually or in the aggregate, in any material
adverse changes in the financial condition or results of operations of the
Company. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Confidentiality and Assignment of Inventions Agreement. Each
------------------------------------------------------
employee, officer and consultant of the Company has executed a Confidentiality
and Assignment of Inventions Agreement. The Company is not aware that any of its
officers, directors, consultants or employees is in violation thereof and will
use its best efforts to prevent any such violation.
2.10 Patents and Trademarks. The Company owns and possesses or is
----------------------
licensed under all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the Company's intellectual
property rights, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed to be conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, the Investor
Rights Agreement, the Co-Sale Agreement or the Voting Agreement nor the carrying
on of the Company's business by the employees of the Company will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provision of its Restated Articles or Bylaws, or in
any material respect of any instrument, judgment, order, writ, decree or
material contract to which it is a party or by which it is bound. The execution,
delivery and performance of this Agreement, the Investor Rights Agreement, the
Co-Sale Agreement and the Voting Agreement and the consummation of the
-5-
<PAGE>
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
------------------
(a) There are no instruments, judgments, orders, writs,
agreements, decrees or contracts to which the Company is a party or by which it
is bound (including purchase orders to the Company or placed by the Company)
that may involve (i) obligations (contingent or otherwise) of, or payments to
the Company in excess of $50,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, or (iii)
provisions restricting the development or distribution of the Company's products
or services, except those set forth on the Schedule of Exceptions, copies of
which contracts have been made available to special counsel to the Purchasers
(the "Contracts"). All of the Contracts are valid, binding and in full force and
effect in all material respects and enforceable by the Company in accordance
with their respective terms in all material respects, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies. The Company is not in material
default under any of such Contracts. To the best knowledge of the Company, no
other party to any of the Contracts is in material default thereunder.
(b) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, (iv) sold, exchanged or otherwise
disposed of any of its assets or rights; or (v) incurred any obligation,
contingent or otherwise, to redeem or repurchase any equity securities or any
security that is a combination of debt and equity, except as set forth in this
Agreement or in the Restated Articles.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.13 Related-Party Transactions. Except as set forth in the
--------------------------
Schedule of Exceptions, no employee, officer, director, or, to the Company's
best knowledge, shareholder of the Company or member of his or her immediate
family is indebted to the Company, nor is the
-6-
<PAGE>
Company indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of the Company's knowledge, none of such persons has
any direct or indirect ownership interest in any firm or corporation with which
the Company is affiliated or with which the Company has a business relationship,
or any firm or corporation that competes with the Company, except that
employees, officers, or directors of the Company and members of their immediate
families may own stock in publicly traded companies that may compete with the
Company. No employee, officer, or director of the Company or member of his or
her immediate family is directly or indirectly interested in any material
contract with the Company. The Company is not guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.14 Permits. The Company has all franchises, permits, licenses,
-------
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
financial condition or results of operations of the Company, and the Company
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as proposed to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.15 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets
and such property and assets are in good working condition. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances. Subject to ordinary wear and tear, all
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used.
2.16 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
as amended.
2.17 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the
financial condition or results of operations of the Company, nor is the Company
aware of any labor organization activity involving is the employees. The Company
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment
-7-
<PAGE>
of each officer and employee of the Company is terminable at the will of the
Company and the Company has no Employment Agreements with any officer or
employee.
2.18 Registration Rights. Except as provided in the Investor Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.19 Financial Statements. The Company has made available to each
--------------------
Purchaser the Company's (a) audited balance sheet as of September 30, 1998, (b)
audited profit and loss statement for the fiscal year ended September 30, 1998,
(c) unaudited balance sheet as of February 28, 1999, and (d) unaudited profit
and loss statement for the five (5) month period ended February 28, 1999
(collectively, the "Financial Statements"). To the Company's knowledge, the
Financial Statements are true and correct in all material respects. Such
Financial Statements have been prepared in good faith in accordance with
generally accepted accounting principles (consistently followed throughout the
period indicated). The Financial Statements present fairly the Company's
financial position and results of operations and reflect all material
liabilities, contingent or otherwise, at the date thereof subject where
appropriate to normal year-end adjustments.
2.20 Tax Returns and Payments. The Company has filed all tax
------------------------
returns and reports as required by law. The Company has paid all taxes and other
assessments shown to be due thereon, except for those for which extensions have
been obtained that are listed in the Schedule of Exceptions.
2.21 Full Disclosure. This Agreement, the Co-Sale Agreement, the
---------------
Investor Rights Agreement, the Voting Agreement and all other documents
delivered by the Company to the Purchasers or their attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, do not contain any untrue statement of a material fact nor, to the
Company's knowledge, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. The Company has fully
provided each Purchaser with all the information which such Purchaser has
requested for deciding whether to purchase the Series D Preferred Stock and all
information that the Company believes is reasonably necessary to make such
decision.
2.22 Compliance with Laws. To its knowledge, the Company is not in
--------------------
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares or the Conversion Shares, except such as has been duly
and validly obtained or filed, or with respect to any filings that must be made
after the Closing, as will be filed in a timely manner.
-8-
<PAGE>
2.23 Obligations of Management. Each officer of the Company is
-------------------------
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the company planning to work less than full time at the
Company in the future.
2.24 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies and insurance against other hazards, risks and
liabilities to persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated.
2.25 Qualified Small Business. The Company qualifies as a "Qualified
------------------------
Small Business" as defined in Section 1202(d) of the Internal Revenue Code of
1986, as amended (the "Code").
2.26 Small Business Concern. The Company, together with its
----------------------
affiliates (as that term is defined in 13 C.F.R. (S)121.103), is a "small
business concern" within the meaning of the Small Business Investment Act of
1958, as amended, and the regulations promulgated thereunder (the "Small
Business Investment Act") and Part 121 of Title 13 of the United States Code of
Federal Regulations ("CFR"). The information provided by the Company to each
Purchaser that is a licensed Small Business Investment Company (each, an "SBIC
Purchaser") on Small Business Administration ("SBA") Forms 480, 652 and 1031
delivered in connection herewith is accurate and complete in all material
respects.
2.27 Not An Investment Company. The Company is not an "investment
-------------------------
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended (the "1940 Act"). In addition,
the Company agrees that it shall not become an "investment company" or a company
"controlled" by an "investment company," within the meaning of the 1940 Act.
2.28 Changes in Conditions. Since September 30, 1998, and other than
---------------------
as provided in the Schedule of Exceptions, there has not been to the Company's
knowledge:
a. Any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition or operations of
the Company;
b. Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
c. Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
-9-
<PAGE>
d. Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
e. Any waiver by the Company of a material right or of a
material debt owed to it;
f. Any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
g. Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
h. Any declaration or payment of any dividend or other
distribution of the assets of the Company;
i. Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
j. Any change in any material agreement to which the Company is
a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
k. Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
2.29 Corporate Documents, Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Restated Articles and Bylaws of the Company are in the form made available to
the Purchasers upon their request. The minute books of the Company provided to
the Purchasers upon their request contain a complete summary of all meetings of
directors and shareholders since the time of incorporation of the Company.
2.30 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended.
2.31 Year 2000 Issues. To the Company's knowledge, each of the
----------------
software and other products produced, offered or under development by the
Company will record, process, store, calculate and present dates at any time on
and after January 1, 2000, and will calculate any information dependent upon or
relating to such dates in the same manner and with the same performance,
functionality and data integrity as such products record, process, store,
calculate
-10-
<PAGE>
and present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Y2K
Compliant"). The Company believes that its Web sites will continue to operate in
the same manner and with the same performance, functionality and data integrity
on and after January 1, 2000 as they operate on December 31, 1999. To the
Company's knowledge, all of the internal computer systems of the Company,
including without limitation, its accounting systems, and, to the Company's
knowledge, all software licensed by the Company and used in its business, are
Y2K Compliant.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants, severally, that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement, the Investor Rights Agreement, the Co-Sale Agreement
and the Voting Agreement and each such Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investor Rights Agreement
may be limited by applicable federal or state securities laws and (iv) with
respect to the Voting Agreement, to the extent such agreements generally are
unenforceable under the laws of the State of California.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Purchaser in reliance upon such Purchaser's representation to the Company,
which by such Purchaser's execution of this Agreement such Purchaser hereby
confirms, that the Series D Preferred Stock to be received by such Purchaser and
the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Purchaser's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, such Purchaser further represents that such Purchaser does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
3.3 Disclosure of Information. Such Purchaser believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series D Preferred Stock. Such Purchaser further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series D Preferred Stock and the business, properties, prospects, financial
condition and results of operations of the Company.
3.4 Investment Experience. Such Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that he is
able to fend for himself, can bear the economic risk of his investment, and has
such knowledge and experience in financial or business matters that he is
capable of evaluating the merits and risks of the investment in the
-11-
<PAGE>
Series D Preferred Stock. If other than an individual, Purchaser also represents
it has not been organized for the purpose of acquiring the Series D Preferred
Stock.
3.5 Accredited Investor. Such Purchaser is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D under the Act, as presently in effect.
3.6 Restricted Securities. Such Purchaser understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, such
Purchaser represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Purchaser further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3, the Investor Rights Agreement, the Co-Sale Agreement and the
Voting Agreement and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) Such Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company, if reasonably
requested by the Company, with an opinion of counsel, reasonably satisfactory to
the Company that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Purchaser that is a partnership to an affiliated partnership
or to a partner of such partnership or affiliated partnership or a retired
partner of such partnership or affiliated partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Purchaser hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an
-12-
<PAGE>
opinion of counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4. California Commissioner of Corporations.
----------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Purchaser's Obligations at Closing. The obligations of
------------------------------------------------
each Purchaser under this Agreement are subject to the fulfillment on or before
the applicable Closing Date of each of the following conditions:
5.1 Representations and Warranties. Subject to any Schedule of
Exceptions delivered to Purchasers in connection with each applicable Closing,
the representations and warranties of the Company contained in Section 2 shall
be true on and as of the applicable Closing Date with the same effect as though
such representations and warranties had been made on and as of such Closing
Date.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the applicable
Closing Date.
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Purchaser at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Series D Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the applicable Closing Date.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the applicable Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers or to the
-13-
<PAGE>
Purchasers' special counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
5.6 Restated Articles. The Company shall have filed the Restated
----------------
Articles with the Secretary of State of California.
5.7 Board of Directors. The directors of the Company shall consist
-----------------
of two members to be elected by the holders of a majority of the Common Stock,
whose initial designees shall be Eric Christensen and Gregory A. Jones, two
members to be elected by the holders of a majority of the Series B and B-1
Preferred Stock, whose initial designees shall be Gregory T. George and E.
Stanton McKee, one member to be elected by the holders of a majority of the
Series C and C-1 Preferred Stock, whose initial designee shall be Steve
Eskenazi, and one member to be elected by the holders of a majority of the
Series D Preferred Stock, whose initial designee shall be Tom Unterman.
5.8 Opinion of Company Counsel. Each Purchaser shall have received
--------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
applicable Closing Date, in the form attached hereto as Exhibit E.
5.9 Investor Rights Agreement. The Purchasers shall have been added
-------------------------
as "Investors" under the Investor Rights Agreement.
5.10 Co-Sale Agreement. The Purchasers shall have been added as
-----------------
"Investors" under the Co-Sale Agreement.
5.11 Voting Agreement. The Purchasers shall have been added as
----------------
"Parties" under the Voting Agreement.
5.12 SBA Documents. The Company shall have executed and delivered to
-------------
each SBIC Purchaser a Size Status Declaration on SBA Form 480 and an Assurance
of Compliance on SBA Form 652, and shall have provided to each such Purchaser
information necessary for the preparation of a Portfolio Financing Report on SBA
Form 1031.
6. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Purchaser under this Agreement are subject to the
fulfillment on or before the applicable Closing Date of each of the following
conditions by that Purchaser:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Section 3 shall be true on and as of
the applicable Closing Date with the same effect as though such representations
and warranties had been made on and as of the applicable Closing Date.
6.2 Payment of Purchase Price. The Purchaser shall have delivered
-------------------------
the purchase price specified in Section 1.1.
-14-
<PAGE>
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required to be obtained by the Purchaser in connection with
the lawful issuance and sale of the Series D Preferred Stock pursuant to this
Agreement shall be duly obtained and effective as of the applicable Closing
Date.
7. Covenants of Company.
--------------------
7.1. Compliance with Small Business Investment Act. The Company
---------------------------------------------
agrees to provide each SBIC Purchaser with sufficient information to permit each
such Purchaser to comply with its obligations under the Small Business
Investment Act; provided however, each SBIC Purchaser agrees that it will
protect any information which the Company labels as confidential. Within 90 days
following each Closing and within 90 days after the end of each calendar year
during which the proceeds from the sale of the Series D Preferred Stock are
being applied, the Company shall provide to each SBIC Purchaser upon request a
certificate of its chief financial officer describing the use of such proceeds
is in accordance with Section 7.2 below. The Company shall provide each SBIC
Purchaser and the SBA reasonable access to the Company's books and records for
the purpose of confirming the use of the proceeds received hereunder.
7.2 Use of Proceeds. The Company agrees to use the investment
---------------
proceeds from each SBIC Purchaser for working capital purposes or to otherwise
finance the anticipated growth of the Company, and not for any purpose for which
a small business concern is prohibited from providing funds pursuant to 13 CFR
Part 107.720. If the Company shall, without the consent of each SBIC Purchaser,
use the proceeds from the securities purchased hereunder for a purpose not
described above, each SBIC Purchaser may demand that the Company repurchase its
securities purchased hereunder at a price equal to the purchase price paid for
such securities as required by SBA Regulation Section 107.305.
7.3 Business Activity. For a period of one year following the Initial
-----------------
Closing, the Company shall not change the nature of its business activity if
such change would render the Company ineligible as a small business concern. The
Company acknowledges and agrees that upon any breach of the covenant set forth
in this Section 7.3, each SBIC Purchaser shall be entitled (in addition to all
of its other rights and remedies, including the right to sue for damages) to
require rescission of this Agreement and immediate repayment in full of the
purchase price for the securities purchased by such SBIC Purchaser hereunder.
7.4 Non-Discrimination Compliance. So long as an SBIC Purchaser holds
-----------------------------
any securities of the Company, the Company will at all times comply with the
non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117.
7.5 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as any of the Series D Preferred Stock or Common Stock into which such
shares are converted, are held by a SBIC Purchaser (or a transferee in whose
hands such Series D Preferred Stock or Common Stock are eligible to qualify as
Qualified Small Business Stock as defined in Section 1202(c) of the Code), it
will use its reasonable efforts (including complying with any
-15-
<PAGE>
applicable filing or reporting requirements imposed by the Code on issuers of
Qualified Small Business Stock) to cause the Series D Preferred Stock or the
Common Stock into which such shares are converted, to qualify as Qualified Small
Business Stock; provided, however, that "reasonable efforts" as used in this
Section 7.5 shall not be construed to require the Company to operate its
business in a manner which would adversely affect its business, limit its future
prospects or alter the timing or resource allocation related to its planned
operations or financing activities.
8. Finder's Fee. Each Purchaser agrees to indemnify and to hold
------------
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Purchaser or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
---------------------
covenants of the Company and Purchasers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
9.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-16-
<PAGE>
9.6 Notices.
-------
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith shall be given to or made upon
the respective parties as follows:
To the Company: WorldRes, Inc.
66 Bovet, Suite 100
San Mateo, CA 94402
Telephone: (650) 372-1700
Telecopy: (650) 372-1701
Attention: Gregory A. Jones
with a copy to: Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Telephone: (650) 854-4488
Telecopy: (650) 233-8386
Attention: Patrick Barry
To a Purchaser: At such Purchaser's address as provided to the Company.
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed.
(c) Any party may, by written notice (in accordance with this
Section 9.6) to the other, alter its address.
9.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least sixty percent (60%) of the Common Stock issued or issuable upon
conversion of the Series D Preferred Stock; provided, however, that no such
waiver or amendment shall reduce the aforesaid proportion of Series D Preferred
Stock, the holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the record holders of all of the
Series D Preferred Stock. Upon the effectuation of each such waiver or
amendment, the Company shall promptly give written notice thereof to the record
holders of the Series D Preferred Stock who have not previously consented
thereto in writing. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
-17-
<PAGE>
9.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.9 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
9.10 Expenses. The Company and each Purchaser shall each bear its
--------
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby provided that the Company shall pay the
reasonable fees and expenses of one counsel to the Purchasers not to exceed
Fifteen Thousand Dollars ($15,000).
9.11 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.
9.12 Disclosure; Press Releases. No press release or other public
--------------------------
announcement regarding the transactions contemplated by this Agreement or any
other document entered into in connection herewith shall be issued by the
Company or any Purchaser without the prior consent of the Company and Purchasers
holding at least 60% of the outstanding Securities, and no announcement
regarding or referring to any specific Purchaser in a press release,
advertisement, trade publication, conference, mass marketing materials or
otherwise to the general public may be made by the Company or any other
Purchaser without such Purchaser's prior written consent.
9.13 Confidential Information. Notwithstanding anything to the
------------------------
contrary contained herein, each Purchaser's obligation to hold information
confidential as provided in this Agreement, the Investor Rights Agreement, the
Co-Sale Agreement and the Voting Agreement shall not prohibit the Purchaser from
disclosing such information to (i) its board of directors, investment advisers,
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with Purchaser's investment in
the Company, or (ii) any of Purchaser's affiliates, provided in all instances,
that such persons agree to hold such information confidential as provided in
this Agreement, the Investor Rights Agreement, the Co-Sale Agreement and the
Voting Agreement, as the case may be. Furthermore, each Purchaser's obligation
to hold information confidential as provided in this Agreement, the Investor
Rights Agreement, the Co-Sale Agreement and the Voting Agreement shall not
prohibit
-18-
<PAGE>
the Purchaser from disclosing such information as required by applicable law or
regulation, regulatory body, stock exchange, or court or administrative order.
[SIGNATURE PAGES FOLLOW]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
WORLDRES, INC.
By: /s/ Gregory A. Jones
---------------------------------------
Gregory A. Jones,
President and Chief Executive Officer
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
EAGLE NEW MEDIA INVESTMENTS, LLC
By: /s/ Thomas Unterman
------------------------------
Name: E. Thomas Unterman
----------------------------
Title: President & CEO
---------------------------
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
FAYEZ SAROFIM INVESTMENT
PARTNERSHIP NO. 5, L.P.
By: FSI No. 2 Corporation
Its: General Partner
By: /s/ Raye G. White
--------------------------------
Raye G. White,
Executive Vice President
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
Dr. Heister Beteiligungsgesellschaft mbH&Co KG
(HBG)
By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------
Name: HEISTER
----------------------------
Title: Pres. & CEO
---------------------------
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
/s/ Gregory A. Jones
--------------------------------------
Gregory A. Jones
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
/s/ Peter May
---------------------------------
Dr. Peter May
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
/s/ Philip J. Monego
---------------------------------
Philip J. Monego, Sr.
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
Dwight & Cynthia Morita, TTEES FBO
Dwight & Cynthia Morita Trust
/s/ Dwight Morita
-----------------------------------
Dwight Morita, Trustee
/s/ Cynthia Morita
-----------------------------------
Cynthia Morita, Trustee
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
/s/ Joshua Pickus
-----------------------------------
Joshua Pickus
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
PIPER JAFFRAY TECHNOLOGY CAPITAL
SBIC, L.P.
By: PIPER VENTURES CAPITAL, INC.
----------------------------
Its: General Partner
By: /s/ Gary Blauer
----------------------------
Gary Blauer, Vice President
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
SANDLER CAPITAL IV PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
-----------------------------------
Edward G. Grinacoff, President
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
---------------------------------
Edward G. Grinacoff, President
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
SELIGMAN COMMUNICATIONS AND
INFORMATION FUND, INC.
By: J. & W. Seligman & Co. Incorporation, its
investment advisor
By: /s/ Paul H. Wick
--------------------------
Name: Paul Wick
-------------------------
Title: Managing Director
------------------------
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
TECHNOLOGY FUND II PTE LTD,
SINGAPORE
By: /s/ Chin Tahn Joo
--------------------------
Name: Chin Tahn Joo (Mrs)
-------------------------
Title: Director
-----------------------
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
TECHNOLOGY FUNDING PARTNERS III,
L.P.
A Delaware Limited Partnership
By: Technology Funding Inc.
Its: Managing General Partner
By: /s/ Gregory T. George
----------------------------------
Gregory T. George, Vice President
TECHNOLOGY FUNDING PARTNERS IV,
an Aggressive Growth Fund, L.P.
A Delaware Limited Partnership
By: Technology Funding Inc.
Its: Managing General Partner
By: /s/ Gregory T. George
-----------------------------------
Gregory T. George, Vice President
TECHNOLOGY FUNDING PARTNERS V,
an Aggressive Growth Fund, L.P.
A Delaware Limited Partnership
By: Technology Funding Inc.
Its: Managing General Partner
By: /s/ Gregory T. George
-----------------------------------
Gregory T. George, Vice President
TECHNOLOGY FUNDING VENTURE
CAPITAL FUND VI, LLC
A Delaware Limited Liability Company
By: Technology Funding Inc.
Its: Investment Manager
By: /s/ Gregory T. George
----------------------------------
Gregory T. George, Vice President
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASER:
WALDEN MEDIA INFORMATION AND
TECHNOLOGY FUND, L.P.
By: /s/ Arthur Berliner
-------------------------------
Name: Arthur Berliner
----------------------------
Title: General Partner
WALDEN TECHNOLOGY VENTURES II,
L.P.
By: /s/ Arthur Berliner
------------------------------
Name: Arthur Berliner
-----------------------------
Title: General Partner
WALDEN-SBIC, L.P.
By: /s/ Arthur Berliner
-------------------------------
Name: Arthur Berliner
-----------------------------
Title: General Partner
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WALDEN EDB PARTNERS, L.P.
By: /s/ Lip-Bu Tan
---------------------------
Name: Lip-Bu Tan
--------------------------
Title: General Partner
WALDEN JAPAN PARTNERS, L.P.
By: /s/ Lip-Bu Tan
----------------------------
Name: Lip-Bu Tan
--------------------------
Title: General Partner
SIGNATURE PAGE TO WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Initial Closing:
- ------------------------------------------------------------------------------------------------------
TOTAL PURCHASE
PURCHASER NO. SHARES PRICE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eagle New Media Investments, LLC 826,446 $ 4,999,998.30
220 West 1st St., 2nd floor
Los Angeles, CA 90012
- ------------------------------------------------------------------------------------------------------
Fayez Sarofim Investment Partnership No. 5, L.P. 82,644 $ 499,996.20
c/o Fayez Sarofim & Co.
Attn: David Pesikoff
2 Houston Center, Suite 2907
Houston, TX 77010
- ------------------------------------------------------------------------------------------------------
Gregory A. Jones 4,013 $ 24,278.65
c/o WorldRes, Inc.
66 Bovet, Suit 100
San Mateo, CA 94402
- ------------------------------------------------------------------------------------------------------
Dwight & Cynthia Morita, TTEES FBO Dwight 33,057 $ 199,994.85
& Cynthia Morita Trust
252 Liebre Court
Sunnyvale, CA 94086
- ------------------------------------------------------------------------------------------------------
Joshua Pickus 403 $ 2,438.15
1690 Oak
Menlo Park, CA 94025
- ------------------------------------------------------------------------------------------------------
Piper Jaffray Technology Capital SBIC, L.P. 41,322 $ 249,998.10
c/o Piper Jaffray Ventures
Attn: Gary J. Blauer
222 South Ninth Street
Minneapolis, MN 55402
- ------------------------------------------------------------------------------------------------------
Sandler Capital IV Partners, L.P. 148,760 $ 899,998.00
Attn: Samantha McCuen
767 Fifth Avenue
45th Floor
New York, NY 10153
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Initial Closing:
- --------------------------------------------------------------------------------
TOTAL PURCHASE
PURCHASER NO. SHARES PRICE
- --------------------------------------------------------------------------------
Seligman Communications and Information 413,223 $2,499,999.15
Fund, Inc.
c/o J. & W. Seligman & Co. Incorporated
Attn: Paul Wick
100 Park Avenue
New York, NY 10017
WITH A COPY TO:
G. David Brinton, Esq.
Roger & Wells LLP
200 Park Avenue
New York, NY 10166
- --------------------------------------------------------------------------------
Technology Funding Partners III, L.P. 73,140 $ 442,497.00
Attn: Gregory T. George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- --------------------------------------------------------------------------------
Technology Funding Venture Partners IV, an 27,273 $ 165,001.65
Aggressive Growth Fund, L.P.
Attn: Gregory T. George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- --------------------------------------------------------------------------------
Technology Funding Venture Partners V, an 12,397 $ 75,001.85
Aggressive Growth Fund, L.P.
Attn: Gregory T. George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- --------------------------------------------------------------------------------
Technology Funding Venture Capital Fund 11,157 $ 67,499.85
VI, LLC
Attn: Gregory T. George
2000 Alameda de las Pulgas
San Mateo, CA 94403
- --------------------------------------------------------------------------------
Walden Media Information and Technology 110,199 $ 666,703.95
Fund, L.P.
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- --------------------------------------------------------------------------------
-2-
<PAGE>
- --------------------------------------------------------------------------------
Initial Closing:
- --------------------------------------------------------------------------------
TOTAL PURCHASE
PURCHASER NO. SHARES PRICE
- --------------------------------------------------------------------------------
Walden-SBIC, L.P. 35,273 $ 213,401.65
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- --------------------------------------------------------------------------------
Walden Technology Ventures II, L.P. 8,810 $ 53,300.50
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- --------------------------------------------------------------------------------
Walden EDB Partners, L.P. 5,504 $ 33,299.20
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- --------------------------------------------------------------------------------
Walden Japan Partners, L.P. 5,504 $ 33,299.20
c/o Walden
Attn: Shirley Chan
750 Battery Street, 7th Floor
San Francisco, CA 94111
- --------------------------------------------------------------------------------
TOTAL: 1,839,125 $11,126,706.25
- --------------------------------------------------------------------------------
-3-
<PAGE>
- --------------------------------------------------------------------------------
Second Closing:
- --------------------------------------------------------------------------------
TOTAL PURCHASE
PURCHASER NO. SHARES PRICE
- --------------------------------------------------------------------------------
Dr. Heister Beteiligungsgesellschaft mbH&Co 16,528 $ 99,994.40
KG (HBG)
Nordkanalallee 74
41464 Neuss
Germany
- --------------------------------------------------------------------------------
Dr. Peter May 4,029 $ 24,375.45
c/o Intes,
Mirbachstr. 2
53173 Bonn-Bad Godesberg
Germany
- --------------------------------------------------------------------------------
Philip J. Monego, Sr. 16,528 $ 99,994.40
P.O. Box 620065
Redwood City, CA 94062
- --------------------------------------------------------------------------------
Technology Fund II Pte Ltd, Singapore 107,258 $648,910.90
Attn: Tahn Joo Chin
21 Science Park Road
#02-01 The Aquarius
Science Park II
Singapore 117628
- --------------------------------------------------------------------------------
TOTAL: 144,343 $873,275.15
- --------------------------------------------------------------------------------
-4-
<PAGE>
EXHIBIT 10.13
WORLDRES, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series D Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of August 11, 1999, by and between WorldRes, Inc., a California corporation
(the "Company"), and The Gregory S. Curhan and Randi E. Curhan Revocable Trust
-------
("Purchaser").
---------
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 25,000 shares of
the Company's Series D Preferred Stock (the "Shares") at a purchase price of
------
$6.05 per Share for a total purchase price of $151,250.00. The term "Shares"
------
refers to the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by a check or wire transfer
from Purchaser to the Company.
3. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser has received all the information he considers necessary
or appropriate for deciding whether to purchase the Shares and has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Shares and the business, properties,
prospects, financial condition and results of operations of the Company.
Purchaser is aware of the Company's business affairs and financial condition and
has acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares.
(b) Purchaser is an investor in securities of companies in the
development stage and acknowledges that he is able to fend for himself, can bear
the economic risk of his investment, and has such knowledge and experience in
financial or business matters that he is capable of evaluating the merits and
risks of the investment in the Shares.
(c) Purchaser is purchasing the Shares for investment for his own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act, and has no
present intention of selling, granting any participation
<PAGE>
in, or otherwise distributing the Shares. By executing this Agreement, Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Shares.
(d) Purchaser is an "accredited investor" within the meaning of
Securities and Exchange Commission ("SEC") Rule 501 of Regulation D under the
---
Act, as presently in effect.
(e) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
4. Restrictive Legends.
-------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such act or an opinion of counsel satisfactory to the
company that such registration is not required or unless sold pursuant to Rule
144 of such act."
(ii) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
5. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in
-2-
<PAGE>
writing signed by the parties to this Agreement. The failure by either party to
enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. All notices, requests, demands and other communications
-------
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed, as follows:
To the Company: WorldRes, Inc.
--------------
66 Bovet, Suite 100
San Mateo, CA 94402
Attention: Gregory A. Jones
Telephone: (650) 372-1700
Facsimile: (650) 372-1701
with a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Joshua Pickus
Telephone: (650) 854-4488
Facsimile: (650) 233-8386
To Purchaser: Gregory S. Curhan
------------
7 Verona Place
Corte Madera, CA 94925
Telephone: 415/927-2711
Facsimile: 415/945-9810
or to such other address that Purchaser or the Company may designate by written
notice (in accordance with this Section 5(e)) to the other party.
-3-
<PAGE>
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: WORLDRES, INC.
By:/s/ Gregory A. Jones
--------------------------------
Gregory A. Jones, President
PURCHASER: The Gregory S. Curhan and Randi E.
Curhan Revocable Trust
/s/ Gregory S. Curhan
-----------------------------------
Gregory S. Curhan, Trustee
-5-
<PAGE>
EXHIBIT 10.17
[CONFIDENTIAL TREATEMENT REQUESTED]
Group Name: Choice Hotels International, Inc.
WORLDRES, INC.
MULTI-PROPERTY PARTICIPANT AGREEMENT
This Multi-Property Participant Agreement (this "Agreement"), entered into
as of April 14, 1998 (the "Effective Date"), is between WorldRes, Inc., a
California corporation ("WorldRes"), with offices at 66 Bovet Road; Suite 100,
San Mateo, CA 94402; fax (650) 372-1701; Internet address at www.worldres.com
and Choice Hotels International, Inc., a Delaware corporation ("Choice"), with
principal offices at 10750 Columbia Pike, Silver Springs, Maryland 20801; fax
(301) 979-6269; Internet address at www.choicehotels.com.
WHEREAS, among other things, Choice is in the business of managing a
central reservation system (the "CRS") for certain groups of hotels, motels and
other lodging establishments, via franchise or other arrangements ("Hotels"),
which Hotels operate under several brands throughout the United States and other
countries, including COMFORT(R), CLARION(R), QUALITY(R), SLEEP(R), ECONO
LODGE(R), RODEWAY(R), and MAINSTAY(R);
WHEREAS, WorldRes owns and operates a real-time, online reservation network
service for hotels, motels and other accommodations and lodging establishments
(the "WorldRes System"), that allows end users to check availability and make
real-time reservations at hotels activated on the WorldRes System;
WHEREAS, WorldRes and Choice desire to work together to add the Hotels to
the WorldRes System, through means of a communications connection, which will
permit electronic transfer of information and data concerning the Hotels, real-
time availability/room status updating, and real-time reservation capabilities
(the "Connection") between the WorldRes System and the CRS;
NOW, THEREFOR, in consideration of the promises and mutual covenants
contained herein, the parties agree as follows:
1. WorldRes' Obligations.
During the Term, WorldRes will be solely responsible for the performance of
the following obligations concerning the services to be provided via the
WorldRes System:
1.1 The Connection. After development of the Connection, WorldRes will
perform the final testing of the Connection and deliver written notice to Choice
upon the date the Connection is fully operational ("Connection Date").
1.2 Available Information. WorldRes agrees to: (i) within 45 days from the
.Connection Date, activate each Hotel, for which WorldRes has received all
content data
1
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
from Choice pursuant to Section 2.1, which data shall include, without
limitation, descriptive text and photos of the Hotel and guest rooms, and
pricing and availability of rooms ("Hotel Content"); and (ii) store the Hotel
Content on the WorldRes System and make it available to the public via the
Internet, for the duration of the Term, unless and until WorldRes receives the
appropriate notice from Choice, pursuant to Section 2.3 below, to delete certain
Hotel Content or there is a breach of this Agreement by Choice.
1.3 Accept Reservations. WorldRes will accept reservations, via the
Internet on WorldRes' web site, currently called "Places To Stay", and on other
WorldRes partner web sites and call centers under contract with WorldRes,
("WorldRes Call Centers") for all Hotels then activated on the WorldRes System.
1.4 Connection Development and Maintenance. WorldRes will with Choice
develop and maintain the Connection between the WorldRes System and the CRS,
which Connection will permit WorldRes System end users to access updated
inventory and to book rooms at the Hotels. WorldRes also will develop, as
commercially reasonable, any related interfaces with the CRS and will maintain
any interface with the WorldRes System.
1.5 Relationship with Third Parties. WorldRes acknowledges Choice's
discretion and right to determine Hotel rates and participation within the
WorldRes System. WorldRes will not change the fees, obligations, or links to
Choice set forth in this Agreement, as a result of WorldRes' contracts with or
obligations to third parties, unless both parties agree to the change in
writing.
2. Choice's Obligations.
During the Term, Choice will be solely responsible for the performance of
the following obligations concerning the delivery, entry, maintenance,
timeliness and accuracy of all data concerning the Hotels to be included in the
WdrldRes System:
2.1 Initial Data Entry. Choice will transfer from the CRS into the WorldRes
System in an appropriate electronic format, all Hotel Content relating to all
Hotels that are enrolled on its CRS as of the Connection Date, Choice shall
begin the process of inputting Hotel Content to the WorldRes System as soon as
possible after the Effective Date, and shall complete such process within 14
days from the Connection Date.
2.2 Maintenance of Data. Choice will, on a real-time basis during the Term,
update Hotel Content pertaining to room pricing and availability for each Hotel
on the WorldRes System. Choice also will, once a week during the Term, update
accurately all other Hotel Content for each Hotel on the WorldRes System,
including without limitation, any new Hotel added after the Connection Date.
2.3 Adding and Deleting Hotels. Once each week during the Term, Choice will
input into the WorldRes System additions to Hotel Content for those Hotels added
to the
2
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
CRS during the previous week, and deletions to Hotel Content for those Hotels
deleted. Choice will give WorldRes 24 hour fax or e-mail notice of these
additions and/or deletions.
2.4 Connection Development and Maintenance. Choice will, with WorldRes
develop and maintain the Connection between the WorldRes System and the CRS,
which Connection will permit WorldRes System end users to access updated
inventory and to book rooms at the Hotels. Choice also will develop, as
commercially reasonable, any related interfaces with the WorldRes System and
will maintain any interface with the CRS.
2.5 Inventory. Choice will maintain access, via the WorldRes system, to
Hotel room inventory available on the CRS for selected rate plates and programs.
2.6 [*]
3. Fees.
3.1 Transaction Fees. Choice will pay WorldRes, monthly during the Term, a
fee of [*] of revenue received by Hotels, including reservation deposits, from
reservations made through the WorldRes System ("Transaction Fee"). Choice will
not pay Transaction Fees on any reservations canceled by WorldRes, the guest,
the Hotel or Choice, but will pay Transaction Fees on reservations not resulting
in Hotel revenue due to overbooking by a Hotel.
3.2 [*] Choice also will pay WorldRes, monthly during the Term, a fee of
[*] of revenue received by Hotels, including reservation deposits from
reservations made through WorldRes Call Centers ("[*]"). WorldRes will not
charge Choice additional commissions or fees for the WorldRes Call Centers'
services without WorldRes seeking Choice's written consent. Unless Choice
provides written consent within 15 days of receiving WorldRes' request, WorldRes
will not add the additional fees.
3.3 [*]. [*] will also pay to any [*] [*] Choice's then-current [*] for
reservations made at a Hotel via WorldRes' consumer web site, WorldRes partner
web sites or a WorldRes Call Center ("[*]"). Neither Choice or WorldRes need
report to the other [*] paid.
[*]=Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with regard to the
omitted portions.
3
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
3.4 Payment. Choice will pay WorldRes all Transaction Fees and Resale
Transaction Fees invoiced by WorldRes in U.S. Dollars within 30 days of
receiving such invoice, along with a report on the number and type of Hotels
reservations made for the previous month ("Report"). Choice must notify WorldRes
during the same period of any cancellations or changes not reflected on the
Report, or pay the full amounts invoiced.
4. Ownership and Intellectual Property.
4.1 Ownership. As between WorldRes and Choice: (i) WorldRes shall own all
right, title, and interest in and to the WorldRes System and any interface it
develops in connection therewith; and (ii) Choice shall own all right, title,
and interest in and to the CRS and any interface it develops, independently of
WorldRes, in connection therewith.
4.2 Intellectual Property. Both parties to this Agreement acknowledge the
other party's exclusive ownership of, and right to use, its own trademarks,
service marks, trade names and copyrighted materials. Neither party to this
Agreement acquires any rights in the other party's trademarks, service marks,
trade names or copyrighted materials. Neither party will use or sell services
or goods bearing, or comprised of, the other party's trademarks, service marks,
trade names or copyrighted materials without the owner's prior written consent.
5. Resell and Work Direct.
WorldRes may resell to any WorldRes partner web site or WorldRes Call
Center, travel services provided via the WorldRes System, including without
limitation, Hotel and reservation information. WorldRes may charge Choice
additional fees fur such reselling. In addition, WorldRes may also work directly
with a Hotel that contacts WorldRes directly; or with whom WorldRes executed a
contract for WorldRes' services on or before the Effective Date.
6. Term and Termination.
6.1 Term. This Agreement begins on the Effective Date and will terminate,
except, with those obligations identified in this Agreement as surviving
termination, [*] from the Connection Date ("Initial Term"). The parties
agree to automatically renew the Agreement for successive periods of 1 year
("Renewal Term"), unless either party sends the other written notice of its
intent not to renew the Agreement, not less than 90 days nor more than 120 days
before the end of the Initial Term or the Renewal Term, as applicable. As used
herein, "Term" shall mean the Initial Term plus any applicable Renewal Term(s).
6.2 Termination for Cause. Notwithstanding the foregoing, this Agreement
may be terminated by either party upon written notice if the other party: (i)
breaches any of its obligations under this Agreement in any material respect,
which breach is not remedied within 30 days following receipt of written notice
thereof by such other party; (ii) ceases to do business in the normal course;
(iii) becomes or is declared insolvent or
[*]=Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with regard to the
omitted portions.
4
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
bankrupt; (iv) is the subject of any proceeding relating to its liquidation or
insolvency that is not dismissed within 90 calendar days of commencement; or (v)
makes an assignment for the benefit of its creditors; or (vi) is convicted in a
court of competent jurisdiction of fraud that reflects adversely on the other
party's intellectual property or goodwill.
6.3 Post-Termination. Unless also breaching this Agreement, the terminating
party will not be liable or obligated to the other party through terminating the
Agreement. If Choice breaches this Agreement, WorldRes may immediately remove or
hold Hotel Content or other Hotel information from the WorldRes System without
further notice to Choice pending resolution of whether Choice breached. Upon
termination of this Agreement for any reason, both parties will cease claiming
affiliation with the other and return or destroy, at the other party's option,
any of the other party's intellectual property obtained under this Agreement.
Notwithstanding any other Term, the provisions of Sections 4, 6.3, 10, 11 and 13
along with any payment obligations accruing prior to the effective date of
termination, shall survive any termination or expiration of this Agreement.
7. Right To Use Information Regarding the WorldRes System.
Choice acknowledges that WorldRes will compile certain information related
to the usage of the WorldRes System ("Compiled Data"). Such Compiled Data may
include, without limitation, the volume of reservations booked on the WorldRes
System for a particular geographic region or class of accommodation, seasonal
fluctuations in bookings, and demographic profiles of the WorldRes System's end
users. Choice agrees, that WorldRes is authorized to use, reproduce and
generally make such Compiled Data, available to users of the WorldRes System,
provided that the source of any data in the Compiled Data is not specifically
attributed to Choice or any Hotel.
8. Right To Use Information Regarding Choice and Hotels.
Choice acknowledges and agrees that WorldRes has the right to use,
reproduce, display and transmit on the WorldRes web site and on or through any
WorldRes partner web site or WorldRes Call Center, any Hotel Content provided by
Choice or any of the Hotels for inclusion in the WorldRes System, and that
Choice shall secure for WorldRes such right from the Hotels.
9. Representations and Warranties.
Each party to this Agreement represents and warrants to the other party
that: (i) such party has the full corporate right, power and authority to enter
into this Agreement and perform the acts required of it hereunder; (ii) the
execution of this Agreement by such party, and the performance by such party of
its obligations and duties hereunder, do not and will not violate any agreement
to which such party is a party or by which it is otherwise bound; and (iii) when
executed and delivered by such party, this Agreement will constitute the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with its terms.
5
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
10. Indemnification
10.1 Indemnification by WorldRes. WorldRes will indemnify Choice, its
parent, subsidiaries, affiliates, successors and assigns, and their respective
directors, officers, employees, and agents from and against any claim, suit, or
proceeding and any damages, liability, or other expenses (including but not
limited to reasonable attorneys' fees and court costs) which arise out of or
result from: (i) gross negligence or intentional wrongful acts of employees or
contractors of WorldRes while performing the services of WorldRes hereunder; and
(ii) any material breach of any representation or warranty by WorldRes.
WorldRes' obligations under this Section 10.1 are subject to the following
conditions and obligations of Choice: (i) Choice will notify WorldRes by
certified mail, return receipt requested, immediately upon knowledge of any
claim, suit, action, or proceeding for which it may be entitled to
indemnification under this Agreement; (ii) Choice shall permit WorldRes to have
the sole right to control the defense of any such claim; (iii) Choice will
provide reasonable assistance to WorldRes at WorldRes' expense, in the defense
of same; and (iv) Choice will not enter into any settlement agreement or
otherwise settle any such claim without WorldRes' express prior consent or
request.
10.2 Indemnification by Choice. Choice will indemnify WorldRes, its
subsidiaries, affiliates, successors and assigns, and their respective
directors, officers, employees, and agents from and against any claim, suit, or
proceeding and any damages, liability, or other expenses (including but not
limited to reasonable attorneys' fees and court costs) which arise out of or
result from: (i) gross negligence or intentional wrongful acts of employees,
contractors, or agents of Choice; (ii) any material breach of any representation
or warranty by Choice; or (iii) any information, data or materials, including
without limitation Hotel Content, or the use or inclusion in the WorldRes System
of any information, data or materials, including without limitation Hotel
Content, provided by Choice, or any Hotels hereunder. Choice's obligations under
this Section 10.2 are subject to the following conditions and obligations of
WorldRes: (i) WorldRes will notify Choice by certified mail, return receipt
requested, immediately upon knowledge of any claim, suit, action, or proceeding
for which it may be entitled to indemnification under this Agreement; (ii)
WorldRes shall permit Choice to have the sole right to control the defense of
any such claim; (iii) WorldRes will provide reasonable assistance to Choice at
Choice's expense, in the defense of same; and (iv) WorldRes will not enter into
any settlement agreement or otherwise settle any such claim without Choice's
express prior consent or request.
10.3 Limitation of Liability. Subject to Sections 10.1, 10.2 and 13 herein,
neither party will be liable to the other for incidental, consequential,
special, punitive or indirect damages, including loss of profit, loss of
business or business opportunity, unless such loss results from a willful breach
of obligations.
11. Disclaimer.
Choice acknowledges that it is responsible for-the delivery, entry,
maintenance, timeliness and accuracy of all data relating to the Hotels provided
to WorldRes, and for
6
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
any updating of data during the Term. WORLDRES WILL NOT BE RESPONSIBLE OR LIABLE
IN ANY MANNER FOR SUCH DATA OR INFORMATION INCLUDED IN THE WORLDRES SYSTEM,
INCLUDING WITHOUT LIMITATION ANY INACCURACIES, UNLESS ANY SUCH INACCURACY WAS
DIRECTLY CAUSED BY THE' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF WORLDRES.
Choice is solely and exclusively responsible for the protection of any and all
of its intellectual property and/or the intellectual property of any Hotels,
including, but not limited to, the inclusion on Choice's or any Hotel's web
pages of any and all statutory or other notices customarily used or required for
purposes of providing notice of ownership or protection of Choice's and/or any
Hotel's trademarks, trade names, service marks, logos or copyrights.
12. Complimentary Rooms.
Choice shall encourage its Hotels to participate in mutually determined
promotional events. In addition, Choice will use its best efforts to make a
predetermined number of free rooms available to WorldRes for use as promotional
awards to WorldRes users.
13. Confidential and Proprietary Information.
During the Term, the parties acknowledge that each may receive confidential
and proprietary information of the other party, including without limitation,
information concerning proprietary technology and products, technical data,
WorldRes System programming, software, processes, ideas, concepts, formulas,
designs, engineering, trade secrets, know-how, research, marketing plans,
strategies and client information identified at the time of disclosure as
confidential or proprietary information ("Confidential Information"). All such
Confidential Information will be treated as confidential and proprietary by the
receiving party, and shall not be disclosed by the receiving party to third
parties unless required by law. The receiving party will only disclose the
Confidential Information of the disclosing party to those of its employees: (i)
with a need to know in order to perform this Agreement; (ii) who are informed of
the nondisclosure obligations imposed by this Agreement; and (iii) who are
parties to appropriate confidentiality agreements sufficient to comply with the
obligations imposed by this Agreement. The receiving party shall use at least
the same degree of care it takes to protect the confidentiality of the
disclosing party's Confidential Information that the receiving party normally
exercises with respect to its own Confidential Information, but in no event
shall the receiving party use less than its reasonable efforts to protect the
confidentiality of the disclosing party's Confidential Information.
Confidential Information shall not include any information which: (i) is now or
hereafter becomes available to the public through no wrongful actions of the
receiving party; (ii) is known to, or in the-possession of, the receiving party
before its disclosure hereunder, as demonstrated by documented evidence; (iii)
is disclosed to the receiving party by a third party not under any obligation of
secrecy or confidentiality to the disclosing party; (iv) can be shown by written
evidence was independently developed by the receiving party; or (v) the
receiving party is required by law to disclose; provided, however, in that
-------- -------
instance, that the receiving party provides the disclosing party with sufficient
prior notice for the disclosing party to take any legal or other steps it deems
necessary to protect its
7
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
Confidential Information. The provisions of this Section 13 will remain binding
and in full force and effect, notwithstanding the expiration or termination of
this Agreement at any time.
14. Miscellaneous.
14.1 This Agreement shall be interpreted in accordance with the laws of the
State of California, without regard to California conflicts of laws principles.
14.2 This Agreement will be binding on and will inure to the benefit of the
legal representatives, successors and assigns of the parties hereto. Neither
party to this Agreement may assign, hypothecate, pledge or sublicense any of its
rights or obligations hereunder without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however, that
-------- -------
either party may assign this Agreement without such consent in connection with
any merger, consolidation, any sale of all or substantially all of such party's
assets or any other transaction in which more than 50% of such party's voting
securities are transferred.
14.3 This Agreement constitutes the entire agreement between WorldRes and
Choice with respect to the subject matter hereof, and Choice has not relied upon
any promises or representations by WorldRes with respect to the subject matter
except as set forth herein.
14.4 If any provision of this Agreement is found invalid or unenforceable,
that provision shall be enforced to the maximum extent permissible, and the
other provisions of this Agreement will remain in full force and effect.
14.5 The waiver by either party of a breach of or a default under any
provision of this Agreement, shall not be-construed as a waiver of any
subsequent breach of the same or any other provision of this Agreement, nor
shall any delay or omission on the part of either party to exercise or avail
itself of any right or remedy that it has or may have hereunder operate as a
waiver of any right or remedy.
14.6 Neither party will disclose the terms of this Agreement to any third
party, unless required by law, and will treat such terms as proprietary and
confidential information pursuant to the provisions of Section 13.
14.7 With respect to translations of this Agreement into a language other
than English, the English version shall govern any conflicts that may arise
concerning the interpretation of any terms or conditions of this Agreement.
14.8 The parties may modify this Agreement, but only in writing signed by
both parties.
8
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
14.9 This Agreement does not make the parties partners, joint venturers, or
agents of one another. Both parties are acting as independent contractors.
Neither party may hold itself out in any manner as an agent of the other, make
any express or implied agreements, warranties, guarantees or representations for
the other, incur any debt or become obligated or liable under any agreements in
the name of or on behalf of the other party, unless expressly authorized by the
other party in writing.
14.10 If any provision of this Agreement is held by a court of competent
jurisdiction to be unenforceable, then a court may rewrite that provision with
the least modification necessary to render the provision valid, and the
remaining Agreement provisions will remain in full force and effect.
14.11 Both parties will send any notices required under this Agreement via
registered or certified mail, return receipt requested, to the other party at
the address above, or to such other address as a party may indicate by like
notice. Notice is effective on receipt or five days after deposit of the notice
with the U.S. Postal Service.
14.12 Neither party to this Agreement will be liable to the other should
its performance under this Agreement be prevented, restricted or interfered
with, during any period in which such performance is delayed by fire, flood,
war, riot, embargo, organized labor stoppage, earthquake, acts of civil and
military authorities, or any other acts beyond its reasonable control, provided
that the party suffering such delay immediately notifies the other party of the
delay and uses its best efforts to continue, resume or substantially resume
performance promptly upon the end of the circumstance or event preventing
performance. Either party may terminate this Agreement upon 60 days prior
written notice if the delay of the other party due to any of the above-mentioned
causes continues for a period of 90 days.
9
<PAGE>
[CONFIDENTIAL TREATEMENT REQUESTED]
Executed by a duly authorized representative of the parties hereto:
WORLDRES, INC.
By: /s/ Dominic Rinaldi
---------------------------
Title: Vice President Sales
------------------------
Date: 4/14/98
-------------------------
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Donald H. Dempsey
---------------------------
Title: Executive V.P. & C.F.O
------------------------
Date: 4/9/98
-------------------------
1
<PAGE>
EXHIBIT 10.18
AGREEMENT AND PLAN OF MERGER
dated as of June 18, 1999
among
WORLDRES, INC.,
B&B ACQUISITION CORPORATION
and
GOLDREYER INCORPORATED
<PAGE>
<TABLE>
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Page
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<S> <C>
ARTICLE I - THE MERGER......................................................... 2
Section 1.1 Effective Time of the Merger................................. 2
Section 1.2 Closing...................................................... 2
Section 1.3 Effects of the Merger........................................ 2
Section 1.4 Directors and Officers....................................... 3
ARTICLE II - CONVERSION OF SECURITIES.......................................... 3
Section 2.1 Conversion of Capital Stock.................................. 3
Section 2.2 Escrow Agreement............................................. 4
Section 2.3 Dissenting Shares............................................ 5
Section 2.4 Exchange of Certificates..................................... 5
Section 2.5 Distributions with Respect to Unexchanged Shares............. 6
Section 2.6 No Fractional Shares......................................... 7
Section 2.7 Tax and Accounting Consequences.............................. 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF TARGET......................... 7
Section 3.1 Organization of Target....................................... 7
Section 3.2 Target Capital Structure..................................... 8
Section 3.3 Authority; No Conflict; Required Filings and Consents........ 8
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities..... 10
Section 3.5 Tax Matters.................................................. 10
Section 3.6 Absence of Certain Changes or Events......................... 12
Section 3.7 Title and Related Matters.................................... 13
Section 3.8 Proprietary Rights........................................... 14
Section 3.9 Employee Benefit Plans....................................... 15
Section 3.10 Bank Accounts............................................... 17
Section 3.11 Contracts................................................... 17
Section 3.12 Orders, Commitments and Returns............................. 19
Section 3.13 Compliance with Law......................................... 19
Section 3.14 Labor Difficulties; No Discrimination....................... 20
Section 3.15 Trade Regulation............................................ 20
Section 3.16 Insider Transactions........................................ 20
Section 3.17 Employees, Independent Contractors and Consultants.......... 21
Section 3.18 Insurance................................................... 21
Section 3.19 Litigation.................................................. 21
Section 3.20 Governmental Authorizations and Regulations................. 22
Section 3.21 Subsidiaries................................................ 22
Section 3.22 Compliance with Environmental Requirements.................. 22
Section 3.23 Corporate Documents......................................... 22
Section 3.24 No Brokers.................................................. 22
Section 3.25 Advertisers, Customers, Content Distributors and Suppliers.. 23
</TABLE>
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<TABLE>
<S> <C>
Section 3.26 Target Action............................................... 23
Section 3.27 Offers...................................................... 23
Section 3.28 Disclosure.................................................. 23
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB................ 23
Section 4.1 Organization of Acquiror and Sub............................. 24
Section 4.2 Acquiror Capital Structure................................... 24
Section 4.3 Sub Capital Structure........................................ 26
Section 4.4 Valid Issuance of Acquiror Common Stock...................... 26
Section 4.5 Authority; No Conflict; Required Filings and Consents........ 26
Section 4.6 Financial Statements; Absence of Undisclosed Liabilities..... 27
Section 4.7 Tax Matters.................................................. 28
Section 4.8 Absence of Certain Changes or Events......................... 30
Section 4.9 Title and Related Matters.................................... 31
Section 4.10 Proprietary Rights........................................... 31
Section 4.11 Employee Benefit Plans....................................... 33
Section 4.12 Contracts.................................................... 34
Section 4.13 Compliance with Law.......................................... 36
Section 4.14 Labor Difficulties; No Discrimination........................ 37
Section 4.15 Trade Regulation............................................. 37
Section 4.16 Litigation................................................... 37
Section 4.17 Governmental Authorizations and Regulations.................. 38
Section 4.18 Subsidiaries................................................. 38
Section 4.19 Compliance with Environmental Requirements................... 38
Section 4.20 Corporate Documents.......................................... 38
Section 4.21 No Brokers................................................... 39
Section 4.22 Advertisers, Customers, Content Distributors and Suppliers... 39
Section 4.23 Acquiror Action.............................................. 39
Section 4.24 Interim Operations of Sub.................................... 39
Section 4.25 Disclosure................................................... 39
Section 4.26 Insider Transactions......................................... 39
Section 4.27 Insurance.................................................... 40
ARTICLE V - PRECLOSING COVENANTS OF TARGET..................................... 40
Section 5.1 Approval of Target Shareholders.............................. 40
Section 5.2 Notification of Changes...................................... 41
Section 5.3 Operation of Business........................................ 41
Section 5.4 Access to Information........................................ 44
Section 5.5 Satisfaction of Conditions Precedent......................... 44
Section 5.6 Proprietary Information and Invention Assignment Agreements.. 44
Section 5.7 Other Negotiations........................................... 45
ARTICLE VI - PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB................ 45
Section 6.1 Notification of Changes...................................... 45
Section 6.2 Reservation of Acquiror Common Stock......................... 45
</TABLE>
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<TABLE>
<S> <C>
Section 6.3 Satisfaction of Conditions Precedent......................... 46
Section 6.4 Certain Employee Benefit Matters............................. 46
Section 6.5 Director and Officer Liability............................... 46
Section 6.6 Change of Control of Acquiror................................ 46
Section 6.7 Access to Information........................................ 46
Section 6.8 Assumption of Guarantees..................................... 47
ARTICLE VII - OTHER AGREEMENTS................................................. 47
Section 7.1 Confidentiality.............................................. 47
Section 7.2 Regulatory Filings; Consents; Reasonable Efforts............. 47
Section 7.3 Further Assurances........................................... 47
Section 7.4 Escrow Agreement............................................. 47
Section 7.5 FIRPTA....................................................... 47
Section 7.6 Blue Sky Laws................................................ 48
Section 7.7 Other Filings................................................ 48
Section 7.8 Continuity of Business Enterprise............................ 48
ARTICLE VIII - CONDITIONS TO MERGER............................................ 48
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger... 48
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub..... 49
Section 8.3 Additional Conditions to Obligations of Target............... 50
ARTICLE IX - TERMINATION AND AMENDMENT......................................... 51
Section 9.1 Termination.................................................. 51
Section 9.2 Effect of Termination........................................ 52
Section 9.3 Fees and Expenses............................................ 52
ARTICLE X - ESCROW AND INDEMNIFICATION......................................... 52
Section 10.1 Indemnification............................................. 52
Section 10.2 Claims for Damages.......................................... 53
Section 10.3 Damage Threshold............................................ 54
Section 10.4 Indemnification Term........................................ 54
Section 10.5 Payment of Claims........................................... 54
Section 10.6 Valuation................................................... 55
Section 10.7 Objections to Claims........................................ 55
Section 10.8 Resolution of Conflicts..................................... 56
Section 10.9 Shareholders' Agent......................................... 56
Section 10.10 Actions of the Shareholders' Agent......................... 57
Section 10.11 Third Party Claims......................................... 57
ARTICLE XI - MISCELLANEOUS..................................................... 57
Section 11.1 Survival of Representations, Warranties and Covenants....... 57
Section 11.2 Notices..................................................... 58
Section 11.3 Interpretation.............................................. 59
Section 11.4 Counterparts................................................ 59
</TABLE>
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<TABLE>
<S> <C>
Section 11.5 Entire Agreement; No Third Party Beneficiaries.............. 59
Section 11.6 Governing Law............................................... 59
Section 11.7 Assignment.................................................. 59
Section 11.8 Amendment................................................... 59
Section 11.9 Extension; Waiver........................................... 60
Section 11.10 Specific Performance....................................... 60
</TABLE>
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<PAGE>
EXHIBITS
- --------
EXHIBIT A - VOTING AGREEMENT
EXHIBIT B - NONCOMPETITION AGREEMENT
EXHIBIT C - SHAREHOLDERS AGREEMENT
EXHIBIT D - STOCK RESTRICTION AGREEMENT
EXHIBIT E - ESCROW AGREEMENT
EXHIBIT F - INVESTOR REPRESENTATION STATEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER dated as of June 18, 1999 (this
"Agreement"), is entered into by and among WorldRes, Inc., a California
corporation ("Acquiror"), B&B Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Acquiror ("Sub"), and Goldreyer Incorporated, a
Texas corporation ("Target").
RECITALS:
--------
A. The Boards of Directors of Acquiror, Sub and Target deem it advisable
and in the best interests of each corporation and their respective shareholders
that Acquiror and Target combine in order to advance the long-term business
interests of Acquiror and Target;
B. The combination of Acquiror and Target shall be effected by the terms
of this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of Acquiror and the
shareholders of Target will become shareholders of Acquiror (the "Merger");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase transaction;
E. As a condition and inducement to Acquiror's willingness to enter into
this Agreement, certain Target shareholders holding in the aggregate no less
than seventy percent (70%) of the issued and outstanding voting stock of Target
have, concurrently with the execution of this Agreement, executed and delivered
Voting Agreements in the form attached hereto as Exhibit A (the "Voting
---------
Agreements"), pursuant to which such shareholders have, among other things,
agreed to vote their shares of Target capital stock in favor of the Merger and
to grant Acquiror irrevocable proxies to vote such shares;
F. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, Eric Goldreyer, David Hansen, and Brian Ball have,
concurrently with the execution of this Agreement, executed and delivered
Noncompetition Agreements in the form attached hereto as Exhibit B (the
---------
"Noncompetition Agreements"), which agreements shall only become effective at
the Effective Time (as defined in Section 1.1 below);
G. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, certain shareholders of Target have, concurrently
with the execution of this Agreement, executed and delivered to Acquiror
Shareholders Agreements in the form attached hereto as Exhibit C (the
---------
"Shareholders Agreements");
<PAGE>
H. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, Eric Goldreyer and David Hansen have, concurrently
with the execution of this Agreement, executed and delivered Stock Restriction
Agreements in the form attached hereto as Exhibit D (the "Stock Restriction
---------
Agreements").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
----------
Section 1.1 Effective Time of the Merger.
----------------------------
(a) Subject to the provisions of this Agreement, articles of
merger (the "Articles of Merger") in such mutually acceptable form as is
required by the relevant provisions of the Texas Business Corporation Act
("Texas Law") shall be duly executed and delivered by the parties hereto and
thereafter delivered to the Secretary of State of the State of Texas for filing
on the Closing Date (as defined in Section 1.2).
(b) Subject to the provisions of this Agreement, a certificate of
merger (the "Certificate of Merger") in such mutually acceptable form as is
required by the relevant provisions of the Delaware General Corporation Law
("Delaware Law") shall be duly executed and delivered by the parties hereto and
thereafter delivered to the Secretary of State of the State of Delaware for
filing on the Closing Date (as defined in Section 1.2).
(c) The Merger shall become effective upon the due and valid
filing of the Articles of Merger with the Secretary of State of the State of
Texas and the due and valid filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Agreement or the Articles of Merger (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
-------
place at 10:00 a.m., California time, on a date to be specified by Acquiror and
Target, which shall be no later than the second business day after satisfaction
or waiver of the latest to occur of the conditions set forth in Article VIII
(other than the delivery of the officers' certificates referred to therein) (the
"Closing Date"), at the offices of Venture Law Group, A Professional
Corporation, 2775 Sand Hill Road, Menlo Park, California, unless another date,
time or place is agreed to in writing by Acquiror and Target.
Section 1.3 Effects of the Merger.
---------------------
(a) At the Effective Time (i) the separate existence of Sub shall
cease and Sub shall be merged with and into Target (Sub and Target are sometimes
referred to herein as the
-2-
<PAGE>
"Constituent Corporations" and Target following consummation of the Merger is
sometimes referred to herein as the "Surviving Corporation"), (ii) the Articles
of Incorporation of Target shall be the Articles of Incorporation of the
Surviving Corporation, and (iii) the Bylaws of Target as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of Texas Law and Delaware Law. Without
limiting the generality of the foregoing, at and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises, and be subject to all the restrictions, disabilities and duties of
each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately
----------------------
prior to the Effective Time shall become the directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of Sub
immediately prior to the Effective Time shall become the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
------------------------
Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue
---------------------------
of the Merger and without any action on the part of the holder of any shares of
Common Stock, $0.01 par value, of Target ("Target Common Stock") or capital
stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
--------------------
the capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.001 par value, of the Surviving
Corporation.
(b) Cancellation of Acquiror-Owned and Target-Owned Stock. Any
-----------------------------------------------------
shares of Target Common Stock that are owned by Acquiror, Sub, Target or any
other direct or indirect wholly-owned Subsidiary (as defined below) of Acquiror
or Target shall be canceled and retired and shall cease to exist and no stock of
Acquiror or other consideration shall be delivered in exchange. As used in this
Agreement, the word "Subsidiary" means, with respect to any other party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership), or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization or a majority of the profit interests in
such other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one or
more of its Subsidiaries.
-3-
<PAGE>
(c) Exchange Ratio.
--------------
(i) Subject to Sections 2.2 and 2.4, each issued and
outstanding share of Target Common Stock (other than shares to be canceled in
accordance with Section 2.1(b) and any Dissenting Shares as defined in and to
the extent provided in Section 2.3) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive a fraction of a fully paid and nonassessable share of Acquiror Common
Stock (as defined in Section 4.4) equal to the "Exchange Ratio" as defined in
and determined in accordance with the provisions of this Section 2.1(c). All
such shares of Target Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Acquiror Common Stock upon the surrender of such certificate in accordance
with Section 2.4, without interest.
(ii) The "Total Consideration Shares" shall be equal to
1,661,136 shares of Acquiror Common Stock. The "Exchange Ratio" shall be equal
to (x) the number of the Total Consideration Shares divided by (y) the number of
shares of Target Common Stock outstanding as of the Effective Time, which number
assumes conversion of all outstanding Target Debt (as defined in Section 2.1(d)
below) plus a number of shares equal to 12% of the total issued and outstanding
Common Stock of Target as of the Effective Time (assuming conversion in full of
all Target Debt). In no event will the total number of shares of Acquiror Common
Stock issuable by Acquiror pursuant to the Merger exceed or be less than the
Total Consideration Shares. The allocation of the Total Consideration Shares
among each holder of Target capital stock is set forth in the Target Disclosure
Schedule (as defined in Article III).
(iii) If, on or after the date of this Agreement and prior to the
Effective Time, the outstanding shares of Acquiror capital stock or Target
Common Stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, split-up, stock dividend or
stock combination, then the Exchange Ratio shall be correspondingly adjusted.
(d) Target Debt. Immediately prior to the Effective Time, all
-----------
outstanding debt of Target, excluding debt incurred in connection with capital
lease lines ("Target Debt"), shall be converted into Target Common Stock. All
Target Debt is listed on Schedule 2.1(d) attached hereto, the principal amount
of which shall not exceed, without the prior written consent of Acquiror,
$1,750,000 in the aggregate. An updated Schedule 2.1(d) of Target Debt shall be
delivered by Target to Acquiror on the Closing Date.
(e) Restricted Shares. Shares of Target Common Stock which are
-----------------
subject to repurchase by Target in the event the holder thereof ceases to be
employed by Target ("Target Restricted Shares") shall be converted into Acquiror
Common Stock on the same basis as provided in subsection (c) above and shall be
registered in such holder's name, but shall be held by Target or Acquiror
pursuant to the existing agreements in effect on the date of this Agreement.
Holders of the Target Restricted Shares are identified on Schedule 2.1(e)
together with the vesting schedules associated with such shares.
-4-
<PAGE>
Section 2.2 Escrow Agreement. At the Effective Time or such later time as
----------------
determined in accordance with Section 2.3(b), Acquiror will deposit in escrow
certificates representing ten percent (10%) of the Total Consideration Shares.
Such shares shall be held in escrow on behalf of the persons who are the holders
of Target Common Stock in the Merger immediately prior to the Effective Time
(the "Former Target Shareholders"), on a pro rata basis, in accordance with each
such Former Target Shareholders' percentage ownership of Target Common Stock
rounded down to the nearest whole share immediately prior to the Merger (the
"Pro Rata Portion"). Such shares (the "Escrow Shares") shall be held and
applied pursuant to the provisions of an escrow agreement (the "Escrow
Agreement") to be executed pursuant to Section 7.4 in substantially the form
attached hereto as Exhibit E.
---------
Section 2.3 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Target Common Stock held by a holder who has exercised
such holder's dissenter's rights in accordance with Sections 5.11 and 5.12 of
Texas Law, and who, as of the Effective Time, has not effectively withdrawn or
lost such dissenter's rights ("Dissenting Shares"), shall not be converted into
or represent a right to receive Acquiror Common Stock pursuant to Section 2.1,
but the holder of the Dissenting Shares shall only be entitled to such rights as
are granted by Sections 5.11 and 5.12 of Texas Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any
holder of shares of Target Common Stock who demands his dissenter's rights with
respect to such shares under Section 2.1 shall effectively withdraw or lose
(through failure to perfect or otherwise) his rights to receive payment for the
fair market value of such shares under Texas Law, then, as of the later of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Acquiror
Common Stock and payment for fractional shares as provided in Section 2.1(c),
without interest, upon surrender of the certificate or certificates representing
such shares; provided that if such holder effectively withdraws or loses his
--------
right to receive payment for the fair market value of such shares after the
Effective Time, then, at such time Acquiror will deposit in escrow certificates
representing such holder's Pro Rata Portion of the Escrow Shares.
(c) Target shall give Acquiror (i) prompt notice of any written
demands for payment with respect to any shares of capital stock of Target
pursuant to Section 5.12 of Texas Law, withdrawals of such demands, and any
other instruments served pursuant to Texas Law and received by the Target and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for dissenter's rights under Texas Law. Target shall not,
except with the prior written consent of Acquiror, voluntarily make any payment
with respect to any demands for dissenter's rights with respect to Target Common
Stock or offer to settle or settle any such demands.
Section 2.4 Exchange of Certificates.
------------------------
(a) From and after the Effective Time, each holder of an
outstanding certificate or certificates which represented shares of Target
Common Stock immediately prior to
-5-
<PAGE>
the Effective Time ("Certificates") shall have the right to surrender each
Certificate to Acquiror (or at Acquiror's option, an exchange agent to be
appointed by Acquiror), and receive promptly in exchange for all Certificates
held by such holder a certificate representing the number of whole shares of
Acquiror Common Stock (other than the Escrow Shares) into which the Target
Common Stock evidenced by the Certificates so surrendered shall have been
converted pursuant to the provisions of Article II of this Agreement. The
surrender of Certificates shall be accompanied by duly completed and executed
Letters of Transmittal in such form as may be reasonably specified by Acquiror.
Until surrendered, each outstanding Certificate which prior to the Effective
Time represented shares of Target Common Stock shall be deemed for all corporate
purposes to evidence ownership of the number of whole shares of Acquiror Common
Stock into which the shares of Target Common Stock have been converted but
shall, subject to applicable dissenter's rights under Texas Law and Section 2.3,
have no other rights. Subject to applicable dissenter's rights under Texas Law
and Section 2.3, from and after the Effective Time, the holders of shares of
Target Common Stock shall cease to have any rights in respect of such shares and
their rights shall be solely in respect of the Acquiror Common Stock into which
such shares of Target Common Stock have been converted. From and after the
Effective Time, there shall be no further registration of transfers on the
records of Target of shares of Target Common Stock outstanding immediately prior
to the Effective Time.
(b) If any shares of Acquiror Common Stock are to be issued in the
name of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Acquiror, or its exchange agent,
any transfer or other taxes payable by reason of the foregoing or establish to
the satisfaction of Acquiror that such taxes have been paid or are not required
to be paid. Notwithstanding the foregoing, neither Acquiror nor Target shall be
liable to a holder of shares of Target Common Stock for shares of Acquiror
Common Stock issuable to such holder pursuant to the provisions of Article II of
this Agreement that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Acquiror shall issue in
exchange for such lost, stolen or destroyed Certificate the shares of Acquiror
Common Stock issuable in exchange therefor pursuant to the provisions of Article
II of the Agreement. The Board of Directors of Acquiror may in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificate to provide to Acquiror an indemnity
agreement against any claim that may be made against Acquiror with respect to
the Certificate alleged to have been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares. No
------------------------------------------------
dividends or other distributions declared or made after the Effective Time with
respect to Acquiror capital stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Acquiror capital stock represented thereby until the
-6-
<PAGE>
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Acquiror capital stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole shares of Acquiror capital stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Acquiror
capital stock.
Section 2.6 No Fractional Shares. No certificate or scrip representing
--------------------
fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of Acquiror.
The total number of shares of Acquiror Common Stock issuable to any single
holder of Target Common Stock shall be rounded down to the nearest whole share.
Section 2.7 Tax and Accounting Consequences.
-------------------------------
(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall
qualify for accounting treatment as a purchase transaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
Target represents and warrants to Acquiror and Sub that the statements
contained in this Article III, subject to any exceptions set forth in the
disclosure schedule delivered by Target to Acquiror on or before the date of
this Agreement (the "Target Disclosure Schedule"), are true and correct. The
Target Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and shall deem to
cross-reference to the other numbered or lettered paragraphs to which the
representation and warranty with respect to which disclosure is made is
reasonably related on the face of such disclosure without reference to extrinsic
documentation to an objective third party reviewing such disclosure. Moreover,
the disclosures made on the Target Disclosure Schedule shall not, by the fact of
their disclosure, be deemed to acknowledge that disclosure of such information
is required to be disclosed under this Article III.
Section 3.1 Organization of Target. Target is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
Texas, has all requisite corporate power to own, lease and operate its property
and to carry on its business as now being conducted, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
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in each jurisdiction in which the nature of its business or ownership or leasing
of properties makes such qualification or licensing necessary and where the
failure to be so qualified or licensed could reasonably be expected to result in
a material adverse effect on the business, assets (including intangible assets),
liabilities, condition (financial or otherwise), property or results of
operations (a "Material Adverse Effect") of Target. The Target Disclosure
Schedule contains a true and complete listing of the locations of all sales
offices, manufacturing facilities, and any other offices or facilities of Target
and a true and complete list of all states in which Target maintains any
employees. The Target Disclosure Schedule contains a true and complete list of
all states in which Target is duly qualified or licensed to transact business as
a foreign corporation.
Section 3.2 Target Capital Structure.
------------------------
(a) The authorized capital stock of Target consists of 2,000,000
shares of Target Common Stock. As of the date of this Agreement there are
824,146 shares of Target Common Stock issued and outstanding, all of which are
validly issued, fully paid and nonassessable and none of which are subject to
repurchase rights. The issued and outstanding shares of Target Common Stock are
held of record by the shareholders of Target as set forth and identified in the
shareholder list attached as Schedule 3.2(a) to the Target Disclosure Schedule.
All shares of Target Common Stock are duly authorized, validly issued, fully
paid and nonassessable. All shares of Target Common Stock issuable upon
conversion of the Target Debt will be duly authorized, validly issued, fully
paid and nonassessable. All outstanding shares of Target Common Stock and
Target Debt (collectively "Target Securities") were issued in compliance with
applicable federal and state securities laws. Except as set forth in the Target
Disclosure Schedule, there are no obligations, contingent or otherwise, of
Target to repurchase, redeem or otherwise acquire any shares of Target Common
Stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. An updated Schedule 3.2(a) reflecting changes
permitted by this Agreement in the capitalization of Target between the date
hereof and the Effective Time shall be delivered by Target to Acquiror on the
Closing Date.
(b) Except as set forth in this Section 3.2, there are no equity
securities of any class or series of Target, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.2, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Target or obligating Target to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Target is not in active
discussion, formal or informal, with any person or entity regarding the issuance
of any form of additional Target equity that has not been issued or committed to
prior to the date of this Agreement. Except as provided in this Agreement and
the other Transaction Documents (as defined in Section 3.3(a)) or any
transaction contemplated hereby or thereby, there are no voting trusts, proxies
or other agreements or understandings with respect to the voting of the shares
of capital stock of Target.
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Section 3.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Target has all requisite corporate power and authority to
enter into this Agreement and all Transaction Documents to which it is or will
become a party and to consummate the transactions contemplated by this Agreement
and such Transaction Documents. The execution and delivery of this Agreement and
such Transaction Documents and the consummation of the transactions contemplated
by this Agreement and such Transaction Documents have been duly authorized by
all necessary corporate action on the part of Target, subject only to the
approval of the Merger by Target's shareholders under the provisions of Texas
Law and Target's Articles of Incorporation and Bylaws. This Agreement has been
and such Transaction Documents have been or, to the extent not executed by
Target as of the date hereof, will be duly executed and delivered by Target.
This Agreement and each of the Transaction Documents to which Target is a party
constitutes, and each of the Transaction Documents to which Target will become a
party, when executed and delivered by Target, will constitute, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
the valid and binding obligation of Target, enforceable against Target in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity. For purposes of this Agreement,
"Transaction Documents" means all documents or agreements required to be
delivered by any party under this Agreement including the Articles of Merger,
the Certificate of Merger, the Escrow Agreement, the Voting Agreements, the
Shareholders Agreements and the Noncompetition Agreements.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not, and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Target, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Target is a party or by which it or
any of its properties or assets may be bound, or (iii) conflict or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets, except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not
reasonably be expected to have a Material Adverse Effect on Target.
(c) None of the execution and delivery by Target of this Agreement
or of any other Transaction Document to which Target is or will become a party
or the consummation of the transactions contemplated by this Agreement or such
Transaction Document or the continuation of the business activities of Target
following consummation of the Merger will require any consent, approval, order
or authorization of, or registration, declaration or filing with,
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any court, administrative agency or commission or other governmental authority
or instrumentality ("Governmental Entity"), except for (i) the filing of the
Articles of Merger with the Texas Secretary of State, (ii) the filing of the
Certificate of Merger with the Delaware Secretary of State, (iii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, could be expected to have a Material Adverse Effect on
Target.
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
(a) Target has delivered to Acquiror copies of (i) Target's
unaudited balance sheet as of April 30, 1999 (the "Most Recent Balance Sheet"),
and the related statements of operations for the four-month period then ended,
and (ii) unaudited balance sheets as of December 31, 1998 and 1997, and the
related unaudited statements of operations for the fiscal years ended December
31, 1998 and 1997 and the related unaudited statement of cash flows for the
fiscal year ended December 31 1998, respectively (collectively, the "Target
Financial Statements").
(b) The Target Financial Statements are in accordance with the
books and records of Target and present fairly in all material respects the
financial position, results of operations and cash flows of Target as of their
historical dates and for the periods indicated. Except as disclosed on Schedule
3.4 of the Target Disclosure Schedule, the Target Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods. The reserves, if any, reflected on the
Target Financial Statements are adequate in light of the contingencies with
respect to which they were made.
(c) Target has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the Most Recent Balance
Sheet, except for those that may have been incurred after the date of the Most
Recent Balance Sheet or that would not reasonably be required, in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods, to be included in a balance sheet or the notes thereto. All
debts, liabilities, and obligations incurred after the date of the Most Recent
Balance Sheet were incurred in the ordinary course of business and are not
material both individually and in the aggregate to Target or its business.
Section 3.5 Tax Matters.
-----------
(a) For purposes of this Section 3.5 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the
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generality of the foregoing, all income or profits taxes (including but not
limited to, federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property taxes,
stamp taxes, environmental taxes, ozone depleting chemicals taxes, transfer
taxes, workers' compensation and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(b) All Returns required to be filed by or on behalf of Target have
been duly filed on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Target under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis or have been accrued on the Most Recent Balance Sheet, and no
other Taxes are payable by Target with respect to items or periods covered by
such Returns (whether or not shown on or reportable on such Returns). Target
has withheld and paid over all Taxes required to have been withheld and paid
over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. There are no liens on any of the assets of
Target with respect to Taxes, other than liens for Taxes not yet due and payable
or for Taxes that Target is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established on the Most
Recent Balance Sheet. Target has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired. The Target has since
its inception been, and will continue through the Closing Date to be, an S
corporation under Section 1361 of the Code and all applicable state tax laws.
(c) The Most Recent Balance Sheet reflects proper accrual in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods of all liabilities for Taxes payable after the
date of the Most Recent Balance Sheet attributable to transactions and events
occurring prior to such date. No liability for Taxes has been incurred (or
prior to Closing will be incurred) since such date other than in the ordinary
course of business.
(d) Target has furnished Acquiror, or will furnish Acquiror prior to
Closing, with true and complete copies of (i) relevant portions of income tax
audit reports, statements of
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deficiencies, closing or other agreements received by or on behalf of Target
relating to Taxes, (ii) all federal and state income or franchise tax Returns
and state sales and use tax Returns for or including Target for all periods
since the inception of Target, and (iii) S Corporation election forms filed with
the Internal Revenue Service and applicable state tax authorities and documents
from such tax authorities acknowledging receipt of and acceptance of such forms.
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor, to the knowledge of Target, is any such
audit in process, pending or threatened. No deficiencies exist or have been
asserted, and Target has not received notice that it has not filed a Return or
paid Taxes required to be filed or paid. Target is neither a party to any
action or proceeding for assessment or collection of Taxes, nor has such event
been asserted or threatened against Target or any of its assets. No waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Returns of Target.
(f) Target is not, nor has it ever been, a party to any tax sharing
agreement.
(g) Target is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and
Acquiror is not required to withhold tax by reason of Section 1445 of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Target pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Target has not
agreed to, nor is it required to make any adjustment under Code Section 481(a)
by reason of, a change in accounting method. Target is not, nor has it been, a
"reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder.
Target is in compliance with the terms and conditions of any applicable tax
exemptions, agreements or orders of any foreign government to which it may be
subject or which it may have claimed, and the transactions contemplated by this
Agreement will not have any adverse effect on such compliance.
(h) The Target Disclosure Schedule sets forth accurate and complete
information regarding Target's net operating losses for federal and each
applicable state tax purposes. Except as a result of the transactions
contemplated hereby, Target has no net operating losses and credit carryovers or
other tax attributes currently subject to limitation under Sections 382, 383, or
384 of the Code.
Section 3.6 Absence of Certain Changes or Events. Since April 30, 1999,
------------------------------------
Target has not:
(a) suffered any material adverse change in its business, assets
(including intangible assets), liabilities, condition (financial or otherwise)
or results of operations ("Material Adverse Change").
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(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to result,
in a Material Adverse Effect on Target;
(c) except in the ordinary course of business consistent with past
practice, granted or agreed to make any increase in the compensation payable or
to become payable by Target to its officers or employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Target or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by Target of such shares;
(e) issued any shares of capital stock of Target or any warrants,
rights, options or entered into any commitment relating to the shares of Target,
except for the shares of Target Common Stock issuable upon the conversion of
outstanding Target Debt;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein, or made any material tax
elections;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property with an individual net
book value in excess of $10,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset;
(i) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment individually in excess
of $10,000 or in the aggregate in excess of $25,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates (as defined in Section 3.16), officers, directors or
shareholders or any affiliate or associate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
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(m) agreed to take any action described in this Section 3.6 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
Section 3.7 Title and Related Matters. Target has good and valid title to
-------------------------
all its properties, interests in properties and assets, real and personal, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character, except the lien of current taxes not yet due and payable and minor
imperfections of and encumbrances on title, if any, as do not materially detract
from the value of or interfere with the present use of the property affected
thereby. The equipment of Target used in the operation of its business is,
taken as a whole, (i) adequate for the business conducted by Target and (ii) in
good operating condition and repair, ordinary wear and tear excepted. All
personal property leases to which Target is a party are valid, binding,
enforceable against Target and in effect in accordance with their respective
terms. To the knowledge of Target, there is not under any of such leases any
existing default or event of default or event which, with notice or lapse of
time or both, would constitute a default. The Target Disclosure Schedule
contains a description of all items of personal property with an individual net
book value in excess of $10,000 and real property leased or owned by Target,
describing its interest in said property. True and correct copies of Target's
real property and personal property leases have been provided to Acquiror or its
representatives.
Section 3.8 Proprietary Rights.
------------------
(a) Target owns all right, title and interest in and to, or otherwise
possesses legally enforceable rights, or is licensed to use, all patents,
copyrights, technology, software, software tools, know-how, processes, trade
secrets, trademarks, service marks, trade names, Internet domain names and other
proprietary rights used in the conduct of Target's business as conducted to the
date of this Agreement, including, without limitation, the technology,
information, databases, data lists, data compilations, and all proprietary
rights developed or discovered or used in connection with or contained in all
versions and implementations of Target's World Wide Web sites (including
www.bbchannel.com and www.bedandbreakfast.com) or any product which has been or
is being distributed or sold by Target (collectively, including such Web sites,
the "Target Products"), free and clear of all liens, claims and encumbrances
(including without limitation licensing and distribution rights) (all of which
are referred to as "Target Proprietary Rights"). The Target Disclosure Schedule
contains an accurate and complete (i) description of all patents, trademarks
(with separate listings of registered and unregistered trademarks), trade names,
Internet domain names and registered copyrights in or related to the Target
Products or otherwise included in the Target Proprietary Rights and all
applications and registration statements therefor, including the jurisdictions
in which each such Target Proprietary Right has been issued or registered or in
which any such application of such issuance and registration has been filed,
(ii) list of all licenses and other agreements with third parties (the "Third
Party Licenses") relating to any material patents, copyrights, trade secrets,
software, inventions, technology, know-how, processes or other proprietary
rights that Target is licensed or otherwise authorized by such third parties to
use, market, distribute or incorporate in Target Products (such patents,
copyrights, trade secrets, software, inventions, technology, know-how, processes
or other proprietary rights are collectively referred to as the "Third Party
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Technology") and (iii) list of all licenses and other agreements with third
parties relating to any material information, compilations, data lists or
databases that Target is licensed or otherwise authorized by such third parties
to use, market, disseminate distribute or incorporate in Target Products. All
of Target's patents, copyrights, trademarks, trade names or Internet domain name
registrations related to or in the Target Products are valid and in full force
and effect; and consummation of the transactions contemplated by this Agreement
will not alter or impair any such rights. No claims have been asserted or
threatened against Target (and Target is not aware of any claims which are
likely to be asserted or threatened against Target or which have been asserted
or threatened against others relating to Target Proprietary Rights or Target
Products) by any person challenging Target's use, possession, manufacture, sale
or distribution of Target Products under any Target Proprietary Rights
(including, without limitation, the Third Party Technology) or challenging or
questioning the validity or effectiveness of any material license or agreement
relating thereto (including, without limitation, the Third Party Licenses) or
alleging a violation of any person's or entity's privacy, personal or
confidentiality rights. Target knows of no valid basis for any claim of the
type specified in the immediately preceding sentence which could in any material
way relate to or interfere with the continued enhancement and exploitation by
Target of any of the Target Products. To Target's knowledge, none of the Target
Products nor the use or exploitation of any Target Proprietary Rights in
Target's current business infringes on the rights of or constitutes
misappropriation of any proprietary information or intangible property right of
any third person or entity, including without limitation any patent, trade
secret, copyright, trademark or trade name, and Target has not been sued or
named in any suit, action or proceeding which involves a claim of such
infringement, misappropriation or unfair competition.
(b) Except as set forth in the Target Disclosure Schedule, Target has
not granted any third party any right to reproduce, distribute, market or
exploit any of the Target Products or any adaptations, translations, or
derivative works based on the Target Products or any portion thereof.
(c) Target has at all times used commercially reasonable efforts
customary in its industry to treat the Target Proprietary Rights related to
Target Products as containing trade secrets and has not disclosed or otherwise
dealt with such items in such a manner as intended or reasonably likely to cause
the loss of such trade secrets by release into the public domain.
(d) To Target's knowledge no past or present employee, contractor or
consultant of Target is in violation in any material respect of any term of any
written employment contract, patent disclosure agreement or any other written
contract or agreement relating to the relationship of any such employee,
consultant or contractor with Target or any other party because of the nature of
the business conducted by Target or proposed to be conducted by Target. The
Target Disclosure Schedule lists all past and present employees, contractors and
consultants who have participated in any way in the development of the Target
Products or the Target Proprietary Rights.
(e) No product liability or warranty claims have been communicated in
writing to or, to the knowledge of Target, threatened against Target.
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(f) To Target's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Target Proprietary Rights by
any third party, including any employee or former employee of Target. Target has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Target Proprietary Rights.
Section 3.9 Employee Benefit Plans.
----------------------
(a) The Target Disclosure Schedule lists, with respect to Target and
any trade or business (whether or not incorporated) which is treated as a single
employer with Target (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (ii) each loan to a non-officer employee, loans to officers
and directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any present or former employee, consultant or director of Target
as to which (with respect to any of items (i) through (v) above) any potential
liability is borne by Target (together, the "Target Employee Plans").
(b) Target has delivered to Acquiror or its representatives, or will
deliver to Acquiror or its representatives no later than 10 days prior to
Closing, a copy of each of the Target Employee Plans and related plan documents
(including trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the extent
still in its possession, any material employee communications relating thereto)
and has, with respect to each Target Employee Plan which is subject to ERISA
reporting requirements, provided copies of any Form 5500 reports filed for the
last three plan years. Any Target Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Target has also furnished
Acquiror, or will furnish Acquiror no later than 10 days prior to Closing, with
the most recent Internal Revenue Service determination letter issued with
respect to each such Target Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Target Employee Plan subject to Code
Section 401(a).
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(c) (i) None of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Target Employee Plan; (iii) each
Target Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), and Target and each subsidiary or
ERISA Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default, under or violation
of, and have no knowledge of any material default or violation by any other
party to, any of the Target Employee Plans; (iv) neither Target nor any
subsidiary or ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Target Employee Plans; (v) all contributions required to be made by
Target or any subsidiary or ERISA Affiliate to any Target Employee Plan have
been made on or before their due dates and a reasonable amount has been accrued
for contributions to each Target Employee Plan for the current plan years; (vi)
with respect to each Target Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA
has occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to incur
any material liability under Title IV of ERISA or Section 412 of the Code. With
respect to each Target Employee Plan subject to ERISA as either an employee
pension plan within the meaning of Section 3(2) of ERISA or an employee welfare
benefit plan within the meaning of Section 3(1) of ERISA, Target has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Target Employee Plan. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder, (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder, and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
("HIPAA") and the temporary regulations thereunder.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase
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or accelerate any benefits or the amount of compensation due any such employee
or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in the Target Financial Statements.
Section 3.10 Bank Accounts. The Target Disclosure Schedule sets forth the
-------------
names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
---------
(a) Except as set forth on the Target Disclosure Schedule:
(i) Target has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Target of any Target Products
or Target Proprietary Rights. Without limiting the foregoing, Target has not
granted to any third party (including, without limitation, original equipment
manufacturers and site-license customers) any rights to reproduce, manufacture
or distribute any of the Target Products, nor has Target granted to any third
party any exclusive rights of any kind (including, without limitation,
exclusivity with regard to categories of advertisers on Target's World Wide Web
site, territorial exclusivity or exclusivity with respect to particular
versions, implementations or translations of any of the Target Products), nor
has Target granted any third party any right to market any of the Target
Products under any private label or "OEM" arrangements, nor has Target granted
any license of any Target trademarks or servicemarks.
(ii) Target has no Third Party Licenses except for shrink wrap
licenses entered into in the ordinary course of business.
(iii) Target has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to Target in excess
of $5,000.
(iv) Target has no advertising or revenue sharing agreements,
contracts, commitments, or arrangements.
(v) Target has no outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which Target has allowed third
parties to advertise on or otherwise be included in Target's World Wide Web
sites) that Target currently expects to result in any loss to Target upon
completion or performance thereof.
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(vi) Target has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, independent
contractors, advisors, salesmen, sales representatives, distributors or dealers
that are not cancelable by Target "at will" with less than 90 days' notice and
without liability, penalty or premium, including, without limitation, severance
or termination pay.
(vii) Target has no currently effective collective bargaining or
union agreements, contracts or commitments.
(viii) Target is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world.
(ix) Target has not guaranteed any obligations of other persons
or made any agreements to acquire or guarantee any obligations of other persons.
(x) Target has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort which would permit the borrowing
by Target of any sum.
(xi) Target has no agreements pursuant to which Target has
agreed to manufacture for, supply to or distribute to any third party any Target
Products or Target Components.
(xii) Target has no binding agreements that restrict Target from
relocating or closing any of its operations.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) (the "Material Contracts")
have been provided to Acquiror or its representatives.
(b) All of the Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by Target
in accordance with their respective terms. No Material Contract contains any
liquidated damages, penalty or similar provision. To the knowledge of Target,
no party to any such Material Contract intends to cancel, withdraw, modify or
amend such contract, agreement or arrangement.
(c) Target is not in default under or in breach or violation of, nor,
to Target's knowledge, is there any valid basis for any claim of default by
Target under, or breach or violation by Target of, any material provision of any
Material Contract. To Target's knowledge, no other party is in default under or
in breach or violation of, nor is there any valid basis for any claim of default
by any other party under or any breach or violation by any other party of, any
Material Contract.
(d) Except as specifically indicated on the Target Disclosure
Schedule, none of the Material Contracts provides for indemnification by Target
of any third party. No claims have been made or threatened that would require
indemnification by Target, and Target has not
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paid any amounts to indemnify any third party as a result of indemnification
requirements of any kind.
Section 3.12 Orders, Commitments and Returns. All accepted advertising
-------------------------------
arrangements entered into by Target, and all material agreements, contracts, or
commitments for the purchase of supplies by Target, were made in the ordinary
course of business. There are no oral contracts or arrangements for the sale of
advertising or any other product or service by Target.
Section 3.13 Compliance with Law. Target and the operation of its
-------------------
business are in compliance in all material respects with all applicable laws and
regulations material to the operation of its business. Neither Target nor, to
Target's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. Target has not participated directly or indirectly in any
boycotts or other similar practices affecting any of its customers. Target has
complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products except for such
noncompliances as would not in the aggregate reasonably be expected to have a
Material Adverse Effect.
Section 3.14 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Target is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. There is no
unfair labor practice complaint against Target actually pending or, to the
knowledge of Target, threatened before the National Labor Relations Board. There
is no strike, labor dispute, slowdown, or stoppage actually pending or, to the
knowledge of Target, threatened against Target. To the knowledge of Target, no
union organizing activities are taking place with respect to the business of
Target. No grievance, nor any arbitration proceeding arising out of or under
any collective bargaining agreement is pending and, to the knowledge of Target,
no claims therefor exist. Target has not experienced any material work stoppage
or other material labor difficulty.
(b) There is and has not been any claim against Target or its officers
or employees, or to Target's knowledge, threatened against Target or its
officers or employees, based on actual or alleged race, age, sex, disability or
other harassment or discrimination, or similar tortious conduct, or based on
actual or alleged breach of contract with respect to any person's employment by
Target, nor, to the knowledge of Target, is there any basis for any such claim.
(c) There are no pending claims against Target or any of its
Subsidiaries under any workers compensation plan or policy or for long term
disability. Neither Target nor any of its subsidiaries has any material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of
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Target, threatened, between Target and any of its employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.15 Trade Regulation. No claims have been communicated or
----------------
threatened in writing against Target with respect to wrongful termination of any
dealer, distributor or any other marketing entity, discriminatory pricing, price
fixing, unfair competition, false advertising, or any other violation of any
laws or regulations relating to anti-competitive practices or unfair trade
practices of any kind, and to Target's knowledge, no specific situation, set of
facts, or occurrence provides any basis for any such claim.
Section 3.16 Insider Transactions. The Target Disclosure Schedule lists
--------------------
all agreements and arrangements currently in effect or entered into since the
date of the Most Recent Balance Sheet, and currently proposed agreements and
arrangements, by or between Target, on the one hand, with or for the benefit of
any current or former shareholder, director, officer or other affiliate
("Affiliate") as defined in Rule 12b-2 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), on the other hand. The Target Disclosure
Schedule lists all payments of any kind since January 1, 1998, from Target, to
or for the benefit of any current or former shareholder, officer, director or
other Affiliate of Target. All debts of any of Target's shareholders, officers,
directors or their respective Affiliates owed or owing to the Target are
reflected on the Most Recent Balance Sheet.
Section 3.17 Employees, Independent Contractors and Consultants. The
--------------------------------------------------
Target Disclosure Schedule lists all currently effective written or oral and all
past written consulting, independent contractor and/or employment agreements and
other material agreements concluded with individual employees, independent
contractors or consultants to which Target is a party. True and correct copies
of all such written agreements have been provided to Acquiror or its
representatives. To the knowledge of Target, all independent contractors have
been properly classified as independent contractors for the purposes of federal
and applicable state tax laws, laws applicable to employee benefits and other
applicable law. All salaries and wages paid by Target are in compliance in all
material respects with applicable federal, state and local laws. The Target
Disclosure Schedule lists all persons presently employed by Target, setting
forth for each person his or her position, salary or rate of pay (including
bonuses), and if any such employee is currently on leave, sets forth the reason
for the leave, the date the leave commenced and the date the employee is
expected to return to active work.
Section 3.18 Insurance.
---------
(a) The Target Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability and workers' compensation coverage and bond and
surety arrangements) to which Target is a party, a named insured or otherwise
the beneficiary of coverage: (i) the name of the insurer, the name of the
policyholder and the name of each covered insured; (ii) the policy number and
the period of coverage; (iii) the scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; (iv) a description of any retroactive premium
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adjustments or other loss-sharing arrangements; and (v) a description of all
material claims made by Target under such policies.
(b) With respect to each such insurance policy, (i) the policy is
legal, valid, binding, enforceable and in full force and effect, and (ii)
neither Target nor, to the knowledge of Target, any other party to the policy is
in breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time or both, would constitute such a breach or default, or permit termination,
modification or acceleration, under the policy.
Section 3.19 Litigation. There is no private or governmental action,
----------
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target,
threatened against Target or any of its properties or any of its officers or
directors (in their capacities as such). There is no judgment, decree or order
against Target, or, to the knowledge of Target, any of its directors or officers
(in their capacities as such). To Target's knowledge, no circumstances exist
that could reasonably be expected to result in a material claim against Target
as a result of the conduct of Target's business (including, without limitation,
any claim of infringement of any intellectual property right).
Section 3.20 Governmental Authorizations and Regulations. Target has
-------------------------------------------
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Target's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except when the failure to obtain such authorization could not
be reasonably expected to have a Material Adverse Effect.
Section 3.21 Subsidiaries. Target has no Subsidiaries. Target does not
------------
own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Target does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
Section 3.22 Compliance with Environmental Requirements. Target is in
------------------------------------------
compliance in all material respects with all terms and conditions of all
permits, licenses and authorizations which are required under federal, state and
local laws applicable to Target and relating to pollution or protection of the
environment, including laws or provisions relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or hazardous or
toxic materials, substances, or wastes into air, surface water, groundwater, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or hazardous or toxic materials, substances, or wastes or which are intended to
assure the safety of employees, workers or other persons, except where the
failure to obtain such authorizations could not be reasonably expected to have a
Material Adverse Effect on Target. There are no conditions, circumstances,
activities, practices, incidents, or
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<PAGE>
actions known to Target which could reasonably be expected to form the basis of
any claim, action, suit, proceeding, hearing, or investigation of, by, against
or relating to Target, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic substance, material or waste.
Section 3.23 Corporate Documents. Target has furnished to Acquiror or its
-------------------
representatives, or will furnish to Acquiror or its representatives before
Closing: (a) copies of its Articles of Incorporation and Bylaws, as amended to
date; (b) its minute book containing consents, actions, and meetings of the
shareholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all applications for such
permits, orders, and consents; and (d) the stock transfer books of Target
setting forth all transfers of any capital stock. The corporate minute books,
stock certificate books, stock registers and other corporate records of Target
are complete and accurate, and the signatures appearing on all documents
contained therein are the true or facsimile signatures of the persons purporting
to have signed the same.
Section 3.24 No Brokers. Neither Target nor, to Target's knowledge, any
----------
Target shareholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of this
Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 3.25 Advertisers, Customers, Content Distributors and Suppliers.
----------------------------------------------------------
As of the date hereof, no advertiser or other customer which individually
accounted for more than 5% of Target's gross revenues during the 12-month period
preceding the date hereof, and no material content distributor or supplier of
Target, has canceled or otherwise terminated, or, to the knowledge of Target,
made any threat to Target to cancel, materially limit or otherwise terminate its
relationship with Target, or has at any time on or after April 30, 1999,
decreased materially its services or supplies to Target in the case of any such
supplier, or decreased materially the scope of its distribution of Target's
content in the case of any content distributor, or its usage of the services or
products of Target in the case of such customer, and to Target's knowledge, no
such supplier, content distributor or customer intends to cancel, materially
limit or otherwise terminate its relationship with Target or to decrease
materially its services or supplies to Target, its distribution of Target's
content, or its usage of the services or products of Target, as the case may be.
Section 3.26 Target Action. The Board of Directors of Target, by
-------------
unanimous written consent or at a meeting duly called and held, has by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of Target and its shareholders, (ii) approved the Merger and
this Agreement in accordance with the provisions of Texas Law, and (iii)
directed that this Agreement and the Merger be submitted to Target shareholders
for their approval and resolved to recommend that Target shareholders vote in
favor of the approval of this Agreement and the Merger.
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Section 3.27 Offers. Target has suspended or terminated, and has the
------
legal right to terminate or suspend, all negotiations and discussions of
Acquisition Transactions (as defined in Section 5.6) with parties other than
Acquiror.
Section 3.28 Disclosure. No statements by Target contained in this
----------
Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Target to Acquiror or Sub under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Target has disclosed to
Acquiror all material information of which it is aware relating specifically to
the operations and business of Target as of the date of this Agreement or the
transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
--------------------------------------------------
Acquiror and Sub jointly and severally represent and warrant to Target that
the statements contained in this Article IV, subject to any exceptions set forth
in the disclosure schedule delivered by Acquiror to Target on or before the date
of this Agreement (the "Acquiror Disclosure Schedule"), are true and correct.
The Acquiror Disclosure Schedule shall be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Article IV and shall
deem to cross-reference to the other numbered or lettered paragraphs to which
the representation and warranty with respect to which disclosure is made is
reasonably related on the face of such disclosure without reference to extrinsic
documentation to an objective third party reviewing such disclosure. Moreover,
the disclosures made on the Acquiror Disclosure Schedule shall not, by the fact
of their disclosure, be deemed to acknowledge that disclosure of such
information is required to be disclosed under this Article IV.
Section 4.1 Organization of Acquiror and Sub. Each of Acquiror and Sub is
--------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and the laws of the State of Delaware,
respectively, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business or
ownership or leasing of properties makes such qualification or licensing
necessary and where the failure to be so qualified or licensed could reasonably
be expected to result in a material adverse effect of Acquiror or Sub. The
Acquiror Disclosure Schedule contains a true and complete listing of the
locations of all sales offices, manufacturing facilities, and any other offices
or facilities of Acquiror and Sub and a true and complete list of all states in
which Acquiror and Sub maintains any employees. The Acquiror Disclosure
Schedule contains a true and complete list of all states in which Acquiror and
Sub are duly qualified or licensed to transact business as foreign corporations.
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Section 4.2 Acquiror Capital Structure. The authorized capital of the
--------------------------
Acquiror consists, or will consist immediately prior to the Closing, of:
(a) Acquiror Capital Stock.
----------------------
(i) Preferred Stock. 12,852,624 shares of Preferred Stock (the
---------------
"Preferred Stock"), 463,865 of which shares have been designated Series A
Preferred Stock, 437,199 of which are issued and outstanding, 1,495,046 of which
shares have been designated Series B Preferred Stock, 1,422,481 of which are
issued and outstanding, 1,495,046 of which shares have been designated Series B-
1 Preferred Stock, none of which are issued and outstanding, 3,658,011 of which
shares have been designated Series C Preferred Stock, 3,209,195 of which are
issued and outstanding, 3,658,011 of which shares have been designated Series C-
1 Preferred Stock, none of which are issued and outstanding, and 2,082,645 of
which shares have been designated Series D Preferred Stock, 1,983,468 of which
are issued and outstanding (collectively, "Acquiror Preferred Stock"). The
rights, privileges and preferences of the Series A Preferred Stock, Series B
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-
1 Preferred Stock and the Series D Preferred Stock will be as stated in the
Acquiror's Amended and Restated Articles of Incorporation (the "Restated
Articles").
(ii) Common Stock. 25,000,000 shares of Common Stock, 804,448 of
------------
which are issued and outstanding.
(iii) The outstanding shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock, Series C-1 Preferred Stock, and Series D Preferred Stock are owned by the
shareholders and in the numbers specified in Schedule 4.2(c) attached hereto.
(iv) The outstanding shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock, Series C-1 Preferred Stock and Series D Preferred Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Securities Act"), and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(v) Except for (A) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, (B)
26,666 shares of Series A Preferred Stock reserved for issuance pursuant to a
warrant issued to Venture Lending with an exercise price of $1.50 per share, (C)
19,526 shares of Series B Preferred Stock reserved for issuance pursuant to a
warrant issued to Glen McLaughlin with an exercise price of $3.38 per share, (D)
4,733 shares of Series B Preferred Stock reserved for issuance pursuant to a
warrant issued to Venture Lending with an exercise price of $3.38 per share, (E)
an aggregate of 43,869 shares of Series B Preferred Stock reserved for issuance
pursuant to warrants issued to certain individuals with an exercise price of
$3.38 per share, (F) 4,437 shares of Series B Preferred Stock reserved for
issuance pursuant to a warrant issued to Silicon Valley Bank, (G) an aggregate
of 60,720 shares of Series C Preferred Stock reserved for issuance pursuant to
warrants issued to certain individuals
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<PAGE>
with an exercise price of $3.70 per share, (H) an aggregate of 379,988 shares of
Series C Preferred Stock reserved for issuance pursuant to warrants issued to
certain individuals with an exercise price of $4.63 per share, (I) 8,108 shares
of Series C Preferred Stock reserved for issuance pursuant to a warrant issued
to Pentech Financial Services, Inc. with an exercise price of $3.70 per share,
(J) 3,306 shares of Series D Preferred Stock reserved for issuance pursuant to a
warrant issued to Pentech Financial Services, Inc. with an exercise price of
$6.05 per share (the warrants referred to in Section 4.2(a)(v)(B) through (J)
are collectively referred to as "Acquiror Warrants") and (K) the rights set
forth in the Investor Rights Agreement (as defined below), there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Acquiror of any
shares of its capital stock. In addition to the foregoing, the Acquiror has
reserved 2,320,000 shares of its Common Stock for issuance upon exercise of
options reserved for grant under the Acquiror's 1995 Stock Plan (the "Acquiror
Option Plan"), of which 1,764,312 shares are subject to options outstanding or
committed for issuance ("Acquiror Options"), and sufficient shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock, Series B-1 Preferred Stock, the Series C Preferred Stock, the
Series C-1 Preferred Stock and the Series D Preferred Stock. Except for the
Third Amended and Restated Voting Agreement dated as of March 18, 1999, the
Acquiror is not a party or subject to any agreement or understanding, and, to
the best of the Acquiror's knowledge, there is no agreement or understanding
between any persons and/or entities, which affects or relates to the voting or
giving of written consents with respect to any security or by a director of the
Acquiror. As of the date of this Agreement, each issued and outstanding share of
Acquiror Preferred Stock and each share of Acquiror Preferred Stock issuable
upon the exercise of Acquiror Warrants is convertible into one share of Acquiror
Common Stock.
(b) Except as set forth in this Section 4.2, there are no equity
securities of any class or series of Acquiror, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 4.2, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Acquiror is a party or by which it is bound obligating
Acquiror to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of Acquiror or obligating Acquiror to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Acquiror is not in active
discussion, formal or informal, with any person or entity regarding the issuance
of any form of additional Acquiror equity that has not been issued or committed
to prior to the date of this Agreement. Except as provided in this Agreement
and the other Transaction Documents or any transaction contemplated hereby or
thereby, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the shares of capital stock of
Acquiror.
(c) All Acquiror Options have been issued in accordance with the terms
of the Acquiror Option Plan and pursuant to the standard forms of option
agreement previously provided to Target or its representatives. No option will
by its terms require an adjustment in connection with the Merger. Neither the
consummation of transactions contemplated by this Agreement or the other
Transaction Documents nor any action taken by Acquiror in connection
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with such transactions will result in (i) any acceleration of vesting in favor
of any optionee under any Acquiror Option; (ii) any additional benefits for any
optionee under any Acquiror Option; or (iii) the inability of Acquiror after the
Effective Time to exercise any right or benefit held by Acquiror prior to the
Effective Time with respect to any Acquiror Option, including, without
limitation, the right to repurchase an optionee's unvested shares on termination
of such optionee's employment.
Section 4.3 Sub Capital Structure. The authorized capital stock of Sub
---------------------
consists of 1,000 shares of common stock, par value $0.001 per share, all of
which are issued and outstanding and are held by Acquiror.
Section 4.4 Valid Issuance of Acquiror Common Stock. The shares of
---------------------------------------
Acquiror's Common Stock, par value of $0.001 per share ("Acquiror Common
Stock"), to be issued pursuant to the Merger will be duly authorized, validly
issued, fully paid, non-assessable and issued in compliance with all applicable
federal or state securities laws, and are free and clear of any liens, third-
party rights of any nature or other encumbrances.
Section 4.5 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Acquiror and Sub have all requisite corporate power and authority
to enter into this Agreement and all Transaction Documents to which they are or
will become a party and to consummate the transactions contemplated by this
Agreement and such Transaction Documents. The execution and delivery of this
Agreement and such Transaction Documents and the consummation of the
transactions contemplated by this Agreement and such Transaction Documents have
been duly authorized by all necessary corporate action on the part of Acquiror
and Sub. This Agreement has been and such Transaction Documents have been or,
to the extent not executed by Acquiror or Sub as of the date hereof, will be
duly executed and delivered by Acquiror and Sub. This Agreement and each of the
Transaction Documents to which Acquiror or Sub are a party constitutes, and each
of the Transaction Documents to which Acquiror or Sub will become a party, when
executed and delivered by Acquiror or Sub, will constitute, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
the valid and binding obligation of Acquiror or Sub, as the case may be,
enforceable against Acquiror or Sub in accordance with their respective terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
(b) The execution and delivery by Acquiror and Sub of this Agreement
and the Transaction Documents to which they are or will become a party does not,
and the consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which they are or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Restated Articles or Bylaws of Acquiror or the Certificate of Incorporation or
Bylaws of Sub, (ii) result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit) under any of the
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terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Acquiror or Sub
is a party or by which they or any of their properties or assets may be bound,
or (iii) conflict or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Acquiror or Sub or any of its properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not reasonably be expected to have a
Material Adverse Effect on Acquiror or Sub.
(c) None of the execution and delivery by Acquiror or Sub of this
Agreement or of any other Transaction Document to which Acquiror or Sub is or
will become a party or the consummation of the transactions contemplated by this
Agreement or such Transaction Document or the continuation of the business
activities of Acquiror following consummation of the Merger will require any
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, except for (i) the filing of the Articles
of Merger with the Texas Secretary of State, (ii) the filing of the Certificate
of Merger with the Delaware Secretary of State, (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws, and (iv) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, could be expected to have a Material Adverse Effect on
Acquiror or Sub.
Section 4.6 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
(a) Acquiror has delivered to Target copies of (i) Acquiror's
unaudited balance sheet as of April 30, 1999 (the "Acquiror's Most Recent
Balance Sheet"), and the related statements of operations, shareholders' equity
and cash flow for the seven-month period then ended, and (ii) a draft form of
Acquiror's proposed audited balance sheet as of September 30, 1998, and the
related statements of operations, shareholders' equity and cash flow for the
fiscal year then ended (collectively, the "Acquiror Financial Statements").
(b) The Acquiror Financial Statements are in accordance with the books
and records of Acquiror and present fairly in all material respects the
financial position, results of operations and cash flows of Acquiror as of their
historical dates and for the periods indicated. The Acquiror Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods. The reserves, if
any, reflected on the Acquiror Financial Statements are adequate in light of the
contingencies with respect to which they were made.
(c) Neither Acquiror nor Sub has any debt, liability, or obligation of
any nature, whether accrued, absolute, contingent, or otherwise, and whether due
or to become due, that is not reflected or reserved against in the Acquiror's
Most Recent Balance Sheet, except for those that may have been incurred after
the date of the Acquiror's Most Recent Balance Sheet or that would not
reasonably be required, in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods, to be included in a
balance sheet or the notes thereto. All debts, liabilities, and obligations
incurred after the date of the Acquiror's Most
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Recent Balance Sheet were incurred in the ordinary course of business and are
not material both individually and in the aggregate to Acquiror, Sub or their
businesses.
Section 4.7 Tax Matters.
-----------
(a) All Returns required to be filed by or on behalf of Acquiror or
Sub have been duly filed on a timely basis and such Returns are true, complete
and correct. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Acquiror or Sub under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis or have been accrued on the Acquiror's Most Recent Balance Sheet,
and no other Taxes are payable by Acquiror or Sub with respect to items or
periods covered by such Returns (whether or not shown on or reportable on such
Returns). Acquiror and Sub have withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
any of the assets of Acquiror or Sub with respect to Taxes, other than liens for
Taxes not yet due and payable or for Taxes that Acquiror or Sub is contesting in
good faith through appropriate proceedings and for which appropriate reserves
have been established on the Acquiror's Most Recent Balance Sheet. Neither
Acquiror nor Sub has at any time been (i) a member of an affiliated group of
corporations filing consolidated, combined or unitary income or franchise tax
returns, or (ii) a member of any partnership or joint venture for a period for
which the statue of limitations for any Tax potentially applicable as a result
of such membership has not expired.
(b) The Acquiror's Most Recent Balance Sheet reflects proper accrual
in accordance with generally accepted accounting principles applied on a basis
consistent with prior periods of all liabilities for Taxes payable after the
date of the Acquiror's Most Recent Balance Sheet attributable to transactions
and events occurring prior to such date. No liability for Taxes has been
incurred (or prior to Closing will be incurred) since such date other than in
the ordinary course of business.
(c) Target has been furnished by Acquiror, or will be furnished by
Acquiror prior to Closing, with true and complete copies of (i) relevant
portions of income tax audit reports, statements of deficiencies, closing or
other agreements received by or on behalf of Acquiror or Sub relating to Taxes,
and (ii) all federal and state income or franchise tax Returns and state sales
and use tax Returns for or including Acquiror or Sub for all periods since the
inception of Acquiror or Sub, as the case may be.
(d) The Returns of or including Acquiror or Sub have never been
audited by a government or taxing authority, nor, to the knowledge of Acquiror
or Sub, is any such audit in process, pending or threatened. No deficiencies
exist or have been asserted, and neither Acquiror nor Sub has received notice
that it has not filed a Return or paid Taxes required to be filed or paid.
Neither Acquiror nor Sub is a party to any action or proceeding for assessment
or collection of Taxes, nor has such event been asserted or threatened against
Acquiror or Sub or
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any of their assets. No waiver or extension of any statute of limitations is in
effect with respect to Taxes or Returns of Acquiror or Sub.
(e) Neither Acquiror nor Sub is, nor has it ever been, a party to any
tax sharing agreement.
(f) Neither Acquiror nor Sub is, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code,
and neither Acquiror nor Sub is required to withhold tax by reason of Section
1445 of the Code. Neither Acquiror nor Sub is a "consenting corporation" under
Section 341(f) of the Code. Neither Acquiror nor Sub has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to Acquiror or Sub
pursuant to Section 280G of the Code or an excise tax to the recipient of such
payment pursuant to Section 4999 of the Code. Neither Acquiror nor Sub has
agreed to, nor are they required to, make any adjustment under Code Section
481(a) by reason of a change in accounting method. Neither Acquiror nor Sub is,
nor have they been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder. Acquiror and Sub are in compliance with the terms and
conditions of any applicable tax exemptions, agreements or orders of any foreign
government to which they may be subject or which they may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect on
such compliance.
(g) The Acquiror Disclosure Schedule sets forth accurate and complete
information regarding Acquiror's and Sub's net operating losses for federal and
each applicable state tax purposes. Except as a result of the transactions
contemplated hereby, neither Acquiror nor sub has net operating losses and
credit carryovers or other tax attributes currently subject to limitation under
Sections 382, 383, or 384 of the Code.
Section 4.8 Absence of Certain Changes or Events. Since April 30, 1999,
------------------------------------
neither Acquiror nor Sub has:
(a) suffered any Material Adverse Change;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to result,
in a Material Adverse Effect on Acquiror or Sub;
(c) except in the ordinary course of business consistent with past
practice, granted or agreed to make any increase in the compensation payable or
to become payable by Acquiror or Sub to their respective officers or employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Acquiror or
Sub or declared any direct or indirect redemption, retirement, purchase or other
acquisition by Acquiror or Sub of such shares;
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(e) issued any shares of capital stock of Acquiror or Sub or any
warrants, rights, options or entered into any commitment relating to the shares
of Acquiror or Sub, except for the issuance of shares of Acquiror capital stock
pursuant to the exercise of Acquiror Options and Acquiror Warrants listed in the
Acquiror Disclosure Schedule and the conversion of outstanding Acquiror
Preferred Stock;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein, or made any
material tax elections;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property with an
individual net book value in excess of $10,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of
any patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset;
(i) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind (except those permitted under Section 4.7);
(j) made any capital expenditure or commitment individually in excess
of $25,000 or in the aggregate in excess of $100,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates, officers, directors or shareholders or any
affiliate or associate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if not
so amended or terminated, would be required to be disclosed on the Acquiror
Disclosure Schedule; or
(m) agreed to take any action described in this Section 4.8 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
Section 4.9 Title and Related Matters. Acquiror and Sub have good and
-------------------------
valid title to all their properties, interests in properties and assets, real
and personal, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except the lien of current taxes not yet
due and payable and minor imperfections of and encumbrances on title, if any, as
do not materially detract from the value of or interfere with the present use of
the property affected thereby. The equipment of Acquiror and Sub used in the
operation of their businesses is, taken as a whole, (i) adequate for the
business conducted by Acquiror or Sub, as the case may be, and (ii) in good
operating condition and repair, ordinary wear and tear excepted.
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All personal property leases to which Acquiror is a party are valid, binding,
enforceable against Acquiror and in effect in accordance with their respective
terms. To the knowledge of Acquiror, there is not under any of such leases any
existing default or event of default or event which, with notice or lapse of
time or both, would constitute a default. The Acquiror Disclosure Schedule
contains a description of all items of personal property with an individual net
book value in excess of $1,000 and real property leased or owned by Acquiror or
Sub, describing their respective interests in said property. True and correct
copies of Acquiror's real property and personal property leases have been
provided to Acquiror or its representatives.
Section 4.10 Proprietary Rights.
------------------
(a) Acquiror owns all right, title and interest in and to, or
otherwise possesses legally enforceable rights, or is licensed to use, all
patents, copyrights, technology, software, software tools, know-how, processes,
trade secrets, trademarks, service marks, trade names, Internet domain names and
other proprietary rights used in the conduct of Acquiror's business as conducted
to the date of this Agreement, including, without limitation, the technology,
information, databases, data lists, data compilations, and all proprietary
rights developed or discovered or used in connection with or contained in all
versions and implementations of Acquiror's World Wide Web sites (including
www.worldres.com) or any product which has been or is being distributed or sold
by Acquiror (collectively, including such Web sites, the "Acquiror Products"),
free and clear of all liens, claims and encumbrances (including without
limitation licensing and distribution rights) (all of which are referred to as
"Acquiror Proprietary Rights"). All of Acquiror's patents, copyrights,
trademarks, trade names or Internet domain name registrations related to or in
the Acquiror Products are valid and in full force and effect; and consummation
of the transactions contemplated by this Agreement will not alter or impair any
such rights. No claims have been asserted or threatened against Acquiror (and
Acquiror is not aware of any claims which are likely to be asserted or
threatened against Acquiror or which have been asserted or threatened against
others relating to Acquiror Proprietary Rights or Acquiror Products) by any
person challenging Acquiror's use, possession, manufacture, sale or distribution
of Acquiror Products under any Acquiror Proprietary Rights (including, without
limitation, the Acquiror Third Party Technology) or challenging or questioning
the validity or effectiveness of any material license or agreement relating
thereto (including, without limitation, the Acquiror Third Party Licenses) or
alleging a violation of any person's or entity's privacy, personal or
confidentiality rights. Acquiror knows of no valid basis for any claim of the
type specified in the immediately preceding sentence which could in any material
way relate to or interfere with the continued enhancement and exploitation by
Acquiror of any of the Acquiror Products. To Acquiror's knowledge, none of the
Acquiror Products nor the use or exploitation of any Acquiror Proprietary Rights
in Acquiror's current business infringes on the rights of or constitutes
misappropriation of any proprietary information or intangible property right of
any third person or entity, including without limitation any patent, trade
secret, copyright, trademark or trade name, and Acquiror has not been sued or
named in any suit, action or proceeding which involves a claim of such
infringement, misappropriation or unfair competition. For purposes of this
Agreement, "Acquiror Third Party Licenses" shall mean all licenses and other
agreements that Acquiror has with third parties relating to any material
patents, copyrights, trade secrets, software, inventions, technology, know-how,
processes or other proprietary rights that Acquiror
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is licensed or otherwise authorized by such third parties to use, market,
distribute or incorporate in Acquiror Products (such patents, copyrights, trade
secrets, software, inventions, technology, know-how, processes or other
proprietary rights are collectively referred to as the "Acquiror Third Party
Technology").
(b) Except as set forth in the Acquiror Disclosure Schedule, Acquiror
has not, except in accordance with ordinary and customary industry practice,
granted any third party any right to reproduce, distribute, market or exploit
any of the Acquiror Products or any adaptations, translations, or derivative
works based on the Acquiror Products or any portion thereof.
(c) Acquiror has at all times used commercially reasonable efforts
customary in its industry to treat the Acquiror Proprietary Rights related to
Acquiror Products as containing trade secrets and has not disclosed or otherwise
dealt with such items in such a manner as intended or reasonably likely to cause
the loss of such trade secrets by release into the public domain.
(d) To Acquiror's knowledge, no employee, contractor or consultant of
Acquiror is in violation in any material respect of any term of any written
employment contract, patent disclosure agreement or any other written contract
or agreement relating to the relationship of any such employee, consultant or
contractor with Acquiror or any other party because of the nature of the
business conducted by Acquiror or proposed to be conducted by Acquiror.
(e) No product liability or warranty claims have been communicated in
writing to or, to the knowledge of Acquiror, threatened against Acquiror.
(f) To Acquiror's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Acquiror Proprietary Rights
by any third party, including any employee or former employee of Acquiror.
Acquiror has not entered into any agreement to indemnify any other person
against any charge of infringement of any Acquiror Proprietary Rights.
Section 4.11 Employee Benefit Plans.
----------------------
(a) The Acquiror Disclosure Schedule lists, with respect to Acquiror
and any trade or business (whether or not incorporated) which is treated as a
single employer with Acquiror within the meaning of Section 414(b), (c), (m) or
(o) of the Code, (i) all employee benefit plans (as defined in Section 3(3) of
ERISA), (ii) each loan to a non-officer employee, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Acquiror and that do not
generally apply to all employees, and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, for the
benefit of, or relating to, any present or former employee, consultant or
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director of Acquiror as to which (with respect to any of items (i) through (v)
above) any potential liability is borne by Acquiror (together, the "Acquiror
Employee Plans").
(b) Acquiror has delivered to Target or its representatives, or will
deliver to Target or its representatives prior to Closing, a copy of each of the
Acquiror Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and, to the extent still in its possession, any
material employee communications relating thereto) and has, with respect to each
Acquiror Employee Plan which is subject to ERISA reporting requirements,
provided copies of any Form 5500 reports filed for the last three plan years.
Any Acquiror Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service a favorable
determination letter as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has applied to the Internal Revenue Service for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Acquiror has also furnished
Target, or will furnish Target prior to Closing, with the most recent Internal
Revenue Service determination letter issued with respect to each such Acquiror
Employee Plan, and nothing has occurred since the issuance of each such letter
which could reasonably be expected to cause the loss of the tax-qualified status
of any Acquiror Employee Plan subject to Code Section 401(a).
(c) (i) None of the Acquiror Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Acquiror Employee Plan;
(iii) each Acquiror Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), and Acquiror and
each subsidiary or ERISA Affiliate have performed all material obligations
required to be performed by them under, are not in any material respect in
default, under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Acquiror Employee Plans; (iv)
neither Acquiror nor any subsidiary or ERISA Affiliate is subject to any
liability or penalty under Sections 4976 through 4980 of the Code or Title I of
ERISA with respect to any of the Acquiror Employee Plans; (v) all contributions
required to be made by Acquiror or any subsidiary or ERISA Affiliate to any
Acquiror Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Acquiror Employee
Plan for the current plan years; (vi) with respect to each Acquiror Employee
Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no
Acquiror Employee Plan is covered by, and neither Acquiror nor any subsidiary or
ERISA Affiliate has incurred or expects to incur any material liability under
Title IV of ERISA or Section 412 of the Code. With respect to each Acquiror
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA,
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Acquiror has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Acquiror
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Acquiror is threatened, against or with
respect to any such Acquiror Employee Plan, including any audit or inquiry by
the IRS or United States Department of Labor. Neither Acquiror nor any ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multi-employer plan" as defined in Section 3(37) of
ERISA.
(d) With respect to each Acquiror Employee Plan, Acquiror has
complied with (i) the applicable health care continuation and notice provisions
of COBRA and the proposed regulations thereunder, (ii) the applicable
requirements of the Family Leave Act of 1993 and the regulations thereunder, and
(iii) the applicable requirements of HIPAA and the temporary regulations
thereunder.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Acquiror or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase or accelerate any benefits or the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Acquiror or other ERISA Affiliate
relating to, or change in participation or coverage under, any Acquiror Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in the Acquiror Financial Statements.
Section 4.12 Contracts.
---------
(a) Except as set forth on the Acquiror Disclosure Schedule:
(i) Neither Acquiror nor Sub has any agreements, contracts or
commitments that provide for the sale, licensing or distribution by Acquiror or
Sub of any Acquiror Products or Acquiror Proprietary Rights. Without limiting
the foregoing, Acquiror has not granted to any third party (including, without
limitation, OEM's and site-license customers) any rights to reproduce,
manufacture or distribute any of the Acquiror Products, nor has Acquiror or Sub
granted to any third party any exclusive rights of any kind (including, without
limitation, exclusivity with regard to categories of advertisers on Acquiror's
World Wide Web site, territorial exclusivity or exclusivity with respect to
particular versions, implementations or translations of any of the Acquiror
Products), nor has Acquiror or Sub granted any third party any right to market
any of the Acquiror Products under any private label or OEM arrangements, nor
has Acquiror or Sub granted any license of any Acquiror trademarks or
servicemarks.
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(ii) Neither Acquiror nor Sub has any Acquiror Third Party
Licenses except for shrink wrap licenses entered into in the ordinary course of
business.
(iii) Neither Acquiror nor Sub has any agreements, contracts or
commitments that call for fixed and/or contingent payments or expenditures by or
to Acquiror or Sub in excess of $10,000 (including, without limitation, any
advertising or revenue sharing arrangement).
(iv) Neither Acquiror nor Sub has any outstanding sales or
advertising contract, commitment or proposal (including, without limitation,
insertion orders, slotting agreements or other agreements under which Acquiror
has allowed third parties to advertise on or otherwise be included in Acquiror's
World Wide Web sites) that Acquiror currently expects to result in any loss to
Acquiror or Sub upon completion or performance thereof.
(v) Neither Acquiror nor Sub has any outstanding agreements,
contracts or commitments with officers, employees, agents, independent
contractors, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by Acquiror "at will" with less
than 90 days' notice and without liability, penalty or premium, including,
without limitation, severance or termination pay.
(vi) Neither Acquiror nor Sub has any currently effective
collective bargaining or union agreements, contracts or commitments.
(vii) Neither Acquiror nor Sub is restricted by agreement from
competing with any person or from carrying on its business anywhere in the
world.
(viii) Neither Acquiror nor Sub has guaranteed any obligations of
other persons or made any agreements to acquire or guarantee any obligations of
other persons.
(ix) Neither Acquiror nor Sub has outstanding loans or advances
to any person; nor are they a party to any line of credit, standby financing,
revolving credit or other similar financing arrangement of any sort which would
permit the borrowing by Acquiror or Sub of any sum.
(x) Neither Acquiror nor Sub has any agreements pursuant to
which Acquiror or Sub has agreed to manufacture for, supply to or distribute to
any third party any Acquiror Products or Acquiror Components.
True and correct copies of each document or instrument listed on the Acquiror
Disclosure Schedule pursuant to this Section 4.12(a) (the "Acquiror Material
Contracts") have been provided to Acquiror or its representatives.
(b) All of the Acquiror Material Contracts listed on the Acquiror
Disclosure Schedule are valid, binding, in full force and effect, and
enforceable by Acquiror or Sub, as the case may be, in accordance with their
respective terms. No Acquiror Material Contract contains any liquidated
damages, penalty or similar provision. To the knowledge of Acquiror and Sub, no
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party to any such Acquiror Material Contract intends to cancel, withdraw, modify
or amend such contract, agreement or arrangement.
(c) Neither Acquiror nor Sub is in default under or in breach or
violation of, nor, to Acquiror's or Sub's knowledge, is there any valid basis
for any claim of default by Acquiror or Sub under, or breach or violation by
Acquiror or Sub of, any material provision of any Acquiror Material Contract.
To Acquiror's knowledge, no other party is in default under or in breach or
violation of, nor is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any Acquiror
Material Contract.
(d) Except as specifically indicated on the Acquiror Disclosure
Schedule, none of the Acquiror Material Contracts, except in accordance with
ordinary and customary industry practice, provides for indemnification by
Acquiror or Sub of any third party. No claims have been made or threatened that
would require indemnification by Acquiror or Sub, and neither Acquiror nor Sub
have paid any amounts to indemnify any third party as a result of
indemnification requirements of any kind.
Section 4.13 Compliance with Law. Acquiror and Sub and the operation of
-------------------
their businesses are in compliance in all material respects with all applicable
laws and regulations material to the operation of their businesses. Neither
Acquiror nor Sub nor, to Acquiror's or Sub's knowledge, any of its employees
has directly or indirectly paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party in the United States or any other country,
that was or is in violation of any federal, state, or local statute or law or of
any statute or law of any other country having jurisdiction. Neither Acquiror
nor Sub has participated directly or indirectly in any boycotts or other similar
practices affecting any of its customers. Acquiror and Sub have complied in all
material respects at all times with any and all applicable federal, state and
foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products except for such noncompliances as
would not in the aggregate reasonably be expected to have a Material Adverse
Effect.
Section 4.14 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Neither Acquiror nor Sub is engaged in any unfair labor practice
and is not in material violation of any applicable laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours. There is no unfair labor practice complaint against Acquiror or Sub
actually pending or, to the knowledge of Acquiror or Sub, threatened before the
National Labor Relations Board. There is no strike, labor dispute, slowdown, or
stoppage actually pending or, to the knowledge of Acquiror or Sub, threatened
against Acquiror or Sub. To the knowledge of Acquiror and Sub, no union
organizing activities are taking place with respect to the business of Acquiror
or Sub. No grievance, nor any arbitration proceeding arising out of or under
any collective bargaining agreement is pending and, to the knowledge of Acquiror
and Sub, no claims therefor exist. No collective bargaining agreement that is
binding on Acquiror or Sub restricts either of them from relocating or closing
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any of their operations. Neither Acquiror nor Sub has experienced any material
work stoppage or other material labor difficulty.
(b) There is and has not been any claim against Acquiror or Sub or
their respective officers or employees, or to Acquiror's or Sub's knowledge,
threatened against Acquiror or Sub or their respective officers or employees,
based on actual or alleged race, age, sex, disability or other harassment or
discrimination, or similar tortious conduct, or based on actual or alleged
breach of contract with respect to any person's employment by Acquiror or Sub,
nor, to the knowledge of Acquiror or Sub, is there any basis for any such claim.
(c) There are no pending claims against Acquiror, Sub or any of their
Subsidiaries under any workers compensation plan or policy or for long term
disability. Neither Acquiror, Sub, nor any of their Subsidiaries has any
material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no proceedings pending or, to
the knowledge of Acquiror or Sub, threatened, between Acquiror or Sub and any of
their respective employees, which proceedings have or could reasonably be
expected to have a Material Adverse Effect on Acquiror or Sub.
Section 4.15 Trade Regulation. All of the prices charged by Acquiror in
----------------
connection with the marketing or sale of any products or services have been in
compliance with all applicable laws and regulations. No claims have been
communicated or threatened in writing against Acquiror with respect to wrongful
termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind, and to Acquiror's knowledge, no
specific situation, set of facts, or occurrence provides any basis for any such
claim.
Section 4.16 Litigation. There is no private or governmental action,
----------
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Acquiror or Sub,
threatened against Acquiror or Sub or any of their respective properties or any
of their respective officers or directors (in their capacities as such). There
is no judgment, decree or order against Acquiror or Sub, or, to the knowledge of
Acquiror and Sub, any of their respective directors or officers (in their
capacities as such). To Acquiror's and Sub's knowledge, no circumstances exist
that could reasonably be expected to result in a material claim against Acquiror
or Sub as a result of the conduct of Acquiror's or Sub's business (including,
without limitation, any claim of infringement of any intellectual property
right).
Section 4.17 Governmental Authorizations and Regulations. Acquiror and
-------------------------------------------
Sub have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which Acquiror and Sub currently operate or hold any interest in
any of their respective properties, or (ii) that is required for the operation
of Acquiror's or Sub's business or the holding of any such interest, and all of
such authorizations are in full force and effect, except when the failure to
obtain such authorization could not be reasonably expected to have a Material
Adverse Effect.
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Section 4.18 Subsidiaries. Acquiror has one Subsidiary, Sub, and Sub has
------------
no Subsidiaries. Neither Acquiror (except for Sub) nor Sub owns or controls
(directly or indirectly) any capital stock, bonds or other securities of, and
does not have any proprietary interest in, any other corporation, general or
limited partnership, firm, association or business organization, entity or
enterprise, and Acquiror does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
Section 4.19 Compliance with Environmental Requirements. Acquiror and Sub
------------------------------------------
are in compliance in all material respects with all terms and conditions of all
permits, licenses and authorizations which are required under federal, state and
local laws applicable to Acquiror and Sub and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes or which are intended to assure the safety of employees,
workers or other persons, except where the failure to obtain such authorizations
could not be reasonably expected to have a Material Adverse Effect on Acquiror
or Sub. There are no conditions, circumstances, activities, practices,
incidents, or actions known to Acquiror or Sub which could reasonably be
expected to form the basis of any claim, action, suit, proceeding, hearing, or
investigation of, by, against or relating to Acquiror or Sub, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste.
Section 4.20 Corporate Documents. Acquiror and Sub have furnished to
-------------------
Target or its representatives, or will furnish Target or its representatives
prior to Closing: (i) copies of their charters and Bylaws, as amended to date;
and (ii) their minute books containing consents, actions, and meetings of the
shareholders, the board of directors and any committees thereof. The corporate
minute books and other corporate records of Acquiror and Sub are complete and
accurate, and the signatures appearing on all documents contained therein are
the true or facsimile signatures of the persons purporting to have signed the
same.
Section 4.21 No Brokers. Neither Acquiror nor Sub nor, to Acquiror's or
----------
Sub's knowledge, any Acquiror or Sub shareholder is obligated for the payment of
fees or expenses of any broker or finder in connection with the origin,
negotiation or execution of this Agreement or the other Transaction Documents or
in connection with any transaction contemplated hereby or thereby.
Section 4.22 Advertisers, Customers, Content Distributors and Suppliers.
----------------------------------------------------------
As of the date hereof, no advertiser or other customer which individually
accounted for more than 5% of Acquiror's gross revenues during the 12-month
period preceding the date hereof, and no material content distributor or
supplier of Acquiror, has canceled or otherwise terminated, or, to the knowledge
of Acquiror, made any threat to Acquiror to cancel, materially limit or
otherwise
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terminate its relationship with Acquiror, or has at any time on or after April
30, 1999, decreased materially its services or supplies to Acquiror in the case
of any such supplier, or decreased materially the scope of its distribution of
Acquiror's content in the case of any content distributor, or its usage of the
services or products of Acquiror in the case of such customer, and to Acquiror's
knowledge, no such supplier, content distributor or customer intends to cancel,
materially limit or otherwise terminate its relationship with Acquiror or to
decrease materially its services or supplies to Acquiror, its distribution of
Acquiror's content or its usage of the services or products of Acquiror, as the
case may be.
Section 4.23 Acquiror Action. The Board of Directors of Acquiror and Sub,
---------------
by unanimous written consent or at a meeting duly called and held, has by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of Acquiror and Sub and their respective shareholders, (ii)
approved the Merger and this Agreement in accordance with the provisions of
California and Delaware Law, and (iii) directed that this Agreement and the
Merger be submitted to Sub stockholders for their approval and resolved to
recommend that Sub stockholders vote in favor of the approval of this Agreement
and the Merger.
Section 4.24 Interim Operations of Sub. Sub was formed solely for the
-------------------------
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.25 Disclosure. No statements by Acquiror or Sub contained in
----------
this Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Acquiror or Sub to Target under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Acquiror and Sub have
disclosed to Target all material information of which they are aware relating
specifically to the operations and business of Acquiror and Sub as of the date
of this Agreement or the transactions contemplated by this Agreement.
Section 4.26 Insider Transactions. The Acquiror Disclosure Schedule lists
--------------------
all agreements and arrangements currently in effect or entered into since the
date of the Acquiror's Most Recent Balance Sheet, and currently proposed
agreements and arrangements, by or between Acquiror or Sub, on the one hand,
with or for the benefit of any current or former shareholder, officer, director
or other Affiliate of the Acquiror or Sub, on the other hand. The Acquiror
Disclosure Schedule lists all payments of any kind since January 1, 1998, from
Acquiror or Sub, to or for the benefit of any current or former officer,
director, shareholder or other Affiliate of Acquiror or Sub. All debts of any
of Acquiror's or Sub's shareholders, officers, directors or their respective
Affiliates owed or owing to the Acquiror or Sub are reflected on the Acquiror's
Most Recent Balance Sheet.
Section 4.27 Insurance.
---------
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(a) Acquiror maintains insurance policies of a type and with limits
(subject to reasonable deductibles) that are reasonable and customary for
businesses in the Acquiror's industry.
(b) With respect to each such insurance policy, (i) the policy is
legal, valid, binding, enforceable and in full force and effect, and (ii)
neither Acquiror, Sub nor, to the knowledge of Acquiror, any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time or both, would constitute such a breach or default, or
permit termination, modification or acceleration, under the policy.
ARTICLE V
PRECLOSING COVENANTS OF TARGET
------------------------------
Section 5.1 Approval of Target Shareholders. The information supplied by
-------------------------------
Target for inclusion in the information statement to be sent to the shareholders
of Target in connection with the meeting of Target shareholders to consider the
Merger (the "Target Shareholders Meeting") or in connection with any written
consent of shareholders of Target (such information statement as amended or
supplemented is referred to herein as the "Information Statement") shall not, on
the date the Information Statement is first mailed to Target shareholders, at
the time of the Target Shareholders Meeting, or written consent of shareholders
and at the Effective Time, contain any statement which is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they are made, not false or misleading. Notwithstanding the
foregoing, Target makes no representation, warranty or covenant with respect to
any information supplied by Acquiror or Sub which is contained in any of the
foregoing documents, whether such information is incorporated directly into the
foregoing documents or forms the basis for information provided by Target.
Prior to the Closing Date and at the earliest practicable date following the
date hereof, Target will solicit written consents from its shareholders seeking,
or hold a Target Shareholders Meeting for the purpose of seeking, approval of
this Agreement, the Merger and related matters, and any payments that would
otherwise be treated as excess parachute payments under Section 280G of the
Code. If Target holds a Target Shareholders Meeting, the Board of Directors of
Target will solicit proxies from Target's shareholders to vote such
shareholders' shares at the Target Shareholders Meeting. In soliciting such
written consent or proxies, the Board of Directors of Target will (subject to
satisfying its fiduciary obligations to the shareholders of Target) recommend to
the shareholders of Target that they approve this Agreement and the Merger and
shall use its reasonable efforts to obtain the approval of the shareholders of
Target entitled to vote on or consent to this Agreement and the Merger in
accordance with Texas Law and Target's Articles of Incorporation and Bylaws.
Target will prepare as soon as reasonably practicable the Information Statement
in form and substance reasonably acceptable to Acquiror, with respect to the
solicitation of written consents and/or proxies from the shareholders of Target
to approve this Agreement, the Merger and related matters. The Information
Statement shall be in such form and contain such information that the Acquiror
believes meets the requirements of Section 4(2) and/or Regulation D under the
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Securities Act in connection with the issuance of shares of Acquiror Common
Stock in the Merger and that Acquiror believes will comply in all material
respects with all applicable requirements of law and the rules and regulations
promulgated thereunder. The Information Statement shall include as an
attachment an Investor Representation Statement, in substantially the form
attached hereto as Exhibit F (an "Investor Representation Statement"), to be
---------
completed by each shareholder of Target and delivered to Acquiror for purposes
of confirming the availability of an exemption from registration under the
Securities Act for the issuance by Acquiror of shares of Acquiror Common Stock
in the Merger. As soon as practicable after the execution of this Agreement,
Target will distribute the Information Statement to the shareholders of Target.
Whenever any event occurs which should be set forth in an amendment or
supplement to the Information Statement, Target or Acquiror, as the case may be,
will promptly inform the other of such occurrence and cooperate in making any
appropriate amendment or supplement, and/or mailing to shareholders of Target,
such amendment or supplement. The Information Statement will include the
recommendation of the Board of Directors of Target in favor of adoption and
approval of this Agreement and approval of the Merger.
Section 5.2 Notification of Changes. Target shall, after determining that
-----------------------
any fact, circumstance, situation or development causes any of the
representations and warranties set forth in this Agreement to be false, deliver
to Acquiror, as soon as reasonably practicable after determination thereof,
written amendments to the Target Disclosure Schedule disclosing the same. Upon
receipt of any one or more such supplements, Acquiror must either (i) within ten
(10) days following receipt thereof, terminate this Agreement or (ii) complete
the Closing, with aforesaid Target Disclosure Schedule as supplemented,
whereupon this Agreement shall automatically be deemed to be properly
supplemented and therefore not breached by any such fact, circumstance,
situation or development or correction disclosed thereby.
Section 5.3 Operation of Business. During the period from the date of
---------------------
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Target agrees (except to the extent that
Acquiror shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes when due, subject to good faith
disputes over such debts or Taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses would be unimpaired at the
Effective Time. Target shall promptly notify Acquiror of any event or
occurrence not in the ordinary course of business of Target. Except as
expressly contemplated by this Agreement, Target shall not, without the prior
written consent of Acquiror:
(a) accelerate, amend or change the period of exercisability or the
vesting schedule of restricted stock granted under any employee stock plan or
agreements or authorize cash payments in exchange for any options granted under
any of such plans except as specifically required by the terms of such plans or
any related agreements or any such agreements in effect as of the date of this
Agreement and disclosed in the Target Disclosure Schedule;
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(b) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service by such
party;
(c) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of shares of Target Common
Stock issuable upon conversion of Target Debt which is outstanding on the date
of this Agreement pursuant to terms acceptable to Acquiror, (ii) the repurchase
of shares of Common Stock from terminated employees pursuant to the terms of
outstanding stock restriction or similar agreements, and (iii) up to an
aggregate of 2,000 shares of Target Common Stock issuable to Bernard David at
the rate of 226 shares per month for services rendered as a director of Target.
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets;
(e) sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of Target, except in the ordinary course of business;
(f) (i) increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for non-material increases
in salary or wages of non-officer employees in accordance with past practices,
(ii) except as set forth on Schedule 5.3, grant any additional severance or
termination pay to, or enter into any employment or severance agreements with,
officers, (iii) grant any severance or termination pay to, or enter into any
employment or severance agreement, with any non-officer employee, except in
accordance with past practices, (iv) enter into any collective bargaining
agreement, or (v) establish, adopt, enter into or amend in any material respect
any bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(g) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others;
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(i) amend or propose to amend its Articles of Incorporation or
Bylaws;
(j) incur or commit to incur any capital expenditures in excess of
$25,000 in the aggregate or in excess of $10,000 as to any individual matter;
(k) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, Target Proprietary Right or other property associated with
the business of Target (including sales or transfers to Affiliates of Target);
(l) enter into any lease or contract for the purchase or sale of any
property, real or personal except in the ordinary course of business;
(m) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(n) change accounting methods except as required by generally
accepted accounting principles or applicable law;
(o) amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business;
(p) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(q) waive or release any material right or claim, except in the
ordinary course of business;
(r) cease to qualify as an S corporation for federal and all
applicable state income tax purposes or make or change any Tax or accounting
election, change any annual accounting period, adopt or change any accounting
method, file any amended Return, enter into any closing agreement, settle any
Tax claim or assessment relating to Target, surrender any right to claim refund
of Taxes, consent to any extension or waiver of the limitation period applicable
to any Tax claim or assessment relating to Target, or take any other action or
omit to take any action, if any such action or omission would have the effect of
increasing the Tax liability of Target or Acquiror;
(s) take any action or fail to take any action that would cause there
to be a Material Adverse Change with respect to Target;
(t) enter into any agreement in which the obligation of Target
exceeds $10,000 or shall not terminate or be subject to termination for
convenience within 90 days following execution;
(u) enter into any agreement not in the ordinary course of business
(including without limitation any material licenses to information or databases,
any OEM agreements, any
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exclusive agreements of any kind, or any agreements providing for obligations
that would extend beyond six months of the date of this Agreement); or
(v) take, or agree in writing or otherwise to take, any of the
actions described in Sections (a) through (u) above, or any action which is
reasonably likely to make any of Target's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on the
date made (to the extent so limited) or as of the Effective Time.
Notwithstanding any of the foregoing, in the event the Closing does not occur by
August 1, 1999, Target and Acquiror shall negotiate a new budget relating to
interim operation of Target and specific actions that may need to be taken by
Target mutually acceptable to both parties.
Section 5.4 Access to Information. Until the Closing, Target shall allow
---------------------
Acquiror and its agents reasonable free access during normal business hours upon
reasonable notice to its files, books, records, and offices, including, without
limitation, any and all information relating to taxes, commitments, contracts,
leases, licenses, and personal property and financial condition. Until the
Closing, Target shall cause its accountants to cooperate with Acquiror and its
agents in making available all financial information requested, including
without limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants. No information or
knowledge obtained in any investigation pursuant to this Section shall affect or
be deemed to modify any representation or warranty contained in this Agreement
or its exhibits and schedules. All such access shall be subject to the terms of
the Confidentiality Agreement (as defined in Section 7.1).
Section 5.5 Satisfaction of Conditions Precedent. Target will use its
------------------------------------
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.2, and Target will use its
reasonable best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
by this Agreement. Target shall use its best efforts to obtain any and all
consents necessary with respect to those Material Contracts listed on Schedule
5.5 of the Target Disclosure Schedule in connection with the Merger (the
"Material Consents").
Section 5.6 Proprietary Information and Invention Assignment Agreements.
-----------------------------------------------------------
Target shall use its best efforts to have each person presently employed by
Target (including consultants and independent contractors, if any) to execute,
in a form reasonably acceptable to Acquiror, a proprietary information and
invention assignment agreement and/or a confidentiality and non-disclosure
agreement prior to Closing.
Section 5.7 Other Negotiations.
------------------
(a) Target will not (and it will not permit any of its officers,
directors, employees, agents and Affiliates on its behalf to) take any action to
solicit, initiate, seek, encourage or support any inquiry, proposal or offer
from, furnish any information to, or
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participate in any negotiations with, any corporation, partnership, person or
other entity or group (other than Acquiror) regarding any acquisition of Target,
any merger or consolidation with or involving Target, or any acquisition of any
material portion of the stock or assets of Target or any material license of
Target Proprietary Rights (any of the foregoing being referred to in this
Agreement as an "Acquisition Transaction") or enter into an agreement concerning
any Acquisition Transaction with any party other than Acquiror; provided,
--------
however, that Target may respond to unsolicited proposals or offers if the Board
- -------
of Directors of Target concludes in good faith, after consultation with its
outside legal counsel, that such response is required in order for the Board of
Directors of Target to comply with its fiduciary obligations to Target's
shareholders under applicable law.
(b) If between the date of this Agreement and the termination of this
Agreement pursuant to Section 9.1, Target receives from a third party any offer
or indication of interest regarding any Acquisition Transaction, or any request
for information regarding any Acquisition Transaction, Target shall (i) notify
Acquiror immediately (orally and in writing) of such offer, indication of
interest or request, including the identity of such party and the full terms of
any proposal therein, and (ii) notify such third party of Target's obligations
under this Agreement.
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB
--------------------------------------------------
Section 6.1 Notification of Changes. Acquiror shall, after determining
-----------------------
that any fact, circumstance, situation or development causes any of its or Sub's
representations and warranties set forth in this Agreement to be false, deliver
to Target, as soon as reasonably practicable after determination thereof,
written amendments to the Acquiror Disclosure Schedule disclosing the same.
Upon receipt of any one or more such supplements, Target must either (i) within
ten (10) days following receipt thereof, terminate this Agreement or (ii)
complete the Closing, with aforesaid Acquiror Disclosure Schedule as
supplemented, whereupon this Agreement shall automatically be deemed to be
properly supplemented and therefore not breached by any such fact, circumstance,
situation or development or correction disclosed thereby.
Section 6.2 Reservation of Acquiror Common Stock. Acquiror shall reserve
------------------------------------
for issuance, out of its authorized but unissued capital stock, the maximum
number of shares of Acquiror Common Stock as may be issuable upon consummation
of the Merger.
Section 6.3 Satisfaction of Conditions Precedent. Acquiror and Sub will
------------------------------------
use their reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Sections 8.1 and 8.3, and Acquiror
and Sub will use their reasonable best efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
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Section 6.4 Certain Employee Benefit Matters. From and after the
--------------------------------
Effective Time, employees of Target at the Effective Time will be provided with
employee benefits by the Surviving Corporation or Acquiror which in the
aggregate are no less favorable to such employees than those provided from time
to time by Acquiror to similarly situated employees. If any employee of Target
becomes a participant in any employee benefit plan, program, policy or
arrangement of Acquiror, such employee shall be given credit for all service
prior to the Effective Time with Target to the extent permissible under such
plan, program, policy or arrangement (except that no such credit shall be given
for purposes of determining the vesting of any options, stock purchase rights,
or other rights granted to such employee under Acquiror's equity incentive plans
or programs).
Section 6.5 Director and Officer Liability. For five (5) years after the
------------------------------
Effective Time, Acquiror will cause the Surviving Corporation to indemnify and
hold harmless the present and former officers, directors, employees and agents
of Target (the "Indemnified Parties") in respect of acts or omissions occurring
on or prior to the Effective Time to the extent provided under Target's Articles
of Incorporation and Bylaws in effect on the date hereof; provided, that such
--------
indemnification shall be subject to any limitation imposed from time to time
under applicable law.
Section 6.6 Change of Control of Acquiror. Until the earlier of Closing
-----------------------------
or termination of this Agreement pursuant to Section 9.1, Acquiror shall not,
without the prior written consent of the holders of a majority of Target Common
Stock, sell, convey, or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of Acquiror is disposed of, provided that this Section
--------
6.6 shall not apply to a merger effected solely for the purpose of changing the
domicile of Acquiror.
Section 6.7 Access to Information. Until the Closing, Acquiror and Sub
---------------------
shall allow Target and its agents reasonable free access during normal business
hours upon reasonable notice to its files, books, records, and offices,
including, without limitation, any and all information relating to Taxes,
commitments, contracts, leases, licenses, and personal property and financial
condition. Until the Closing, Acquiror and Sub shall cause its accountants to
cooperate with Target and its agents in making available all financial
information requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants. No information or knowledge obtained in any investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty contained in this Agreement or its exhibits and schedules. All such
access shall be subject to the terms of the Confidentiality Agreement (as
defined in Section 7.1).
Section 6.8 Assumption of Guarantees. Prior to Closing, the Acquiror
------------------------
shall assume all obligations and liabilities arising pursuant to guarantees set
forth on Schedule 6.8, which have been executed for the benefit of Target.
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ARTICLE VII
OTHER AGREEMENTS
----------------
Section 7.1 Confidentiality. Each party acknowledges that Acquiror and
---------------
Target have previously executed a Mutual Non-Disclosure Agreement (the
"Confidentiality Agreement"), which agreement shall continue in full force and
effect in accordance with its terms.
Section 7.2 Regulatory Filings; Consents; Reasonable Efforts. Subject to
------------------------------------------------
the terms and conditions of this Agreement, Target and Acquiror shall use their
respective reasonable good faith efforts to (i) make all necessary filings with
respect to the Merger and this Agreement under applicable blue sky or similar
securities laws and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection therewith;
(ii) make merger notification or other appropriate filings with federal, state
or local governmental bodies or applicable foreign governmental agencies and
obtain required approvals and clearances with respect thereto and supply all
additional information requested in connection therewith; (iii) obtain all
consents, waivers, approvals, authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger; and (iv) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by this Agreement
as promptly as practicable.
Section 7.3 Further Assurances. Prior to and following the Closing, each
------------------
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
Section 7.4 Escrow Agreement. On or before the Effective Time, Acquiror
----------------
shall, and the parties hereto shall exercise their reasonable good faith efforts
to cause the Escrow Agent (as defined in Section 10.2) and the Shareholders'
Agent (as defined in Section 10.9), to enter into an Escrow Agreement
substantially in the form attached hereto as Exhibit E.
---------
Section 7.5 FIRPTA. Target shall, prior to the Closing Date, provide
------
Acquiror with a properly executed Foreign Investment and Real Property Tax Act
of 1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of
capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such FIRPTA Notification Letter,
Target shall provide to Acquiror, as agent for Target, a form of notice to the
Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2), along with written authorization for Acquiror
to deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.
Section 7.6 Blue Sky Laws. Acquiror shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the
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issuance of the Acquiror Common Stock in connection with the Merger. Target
shall use its reasonable good faith efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
Section 7.7 Other Filings. As promptly as practicable after the date of
-------------
this Agreement, Target and Acquiror will prepare and file any other filings
required under the Securities Act or any other Federal, foreign or state
securities or blue sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). The Other Filings will
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the Other Filings,
Target or Acquiror, as the case may be, will promptly inform the other of such
occurrence and cooperate in making any appropriate amendment or supplement,
and/or mailing to shareholders of Target, such amendment or supplement.
Section 7.8 Continuity of Business Enterprise. Acquiror will continue the
---------------------------------
historic business line of Target, or use at least a significant portion of
Target's historic business assets in a business, in each case within the meaning
of Treasury Regulation (S) 1.368-1(d).
ARTICLE VIII
CONDITIONS TO MERGER
--------------------
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The shareholders of each of Target and
--------------------
Acquiror entitled to vote on or consent to this Agreement and the Merger shall
have approved this Agreement and the Merger.
(b) Approvals. Other than the filings provided for by Section 1.1,
---------
all authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
shall have been filed, occurred or been obtained, including, without limitation,
any antitrust clearances, if any.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
the conduct or operation of the business of Target by Acquiror after the Merger
shall have been issued, nor shall any proceeding brought by a domestic
administrative agency or commission or other domestic Governmental Entity or
other third party, seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal.
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Section 8.2 Additional Conditions to Obligations of Acquiror and Sub. The
--------------------------------------------------------
obligations of Acquiror and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Acquiror and Sub:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Target set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for changes
contemplated by this Agreement; and Acquiror shall have received a certificate
signed on behalf of Target by the chief executive officer and the chief
financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have
------------------------------------
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date; and Acquiror shall have received a certificate
signed on behalf of Target by the chief executive officer and the chief
financial officer of Target to such effect.
(c) Audited Financial Statements. Acquiror shall have received
----------------------------
Target's final, unaudited balance sheet as of April 30, 1999, and the related
statements of operations for the four-month period then-ended and Target's
final, audited balance sheets as of December 31, 1998, and the related audited
statements of operations, shareholders' equity and cash flows for the fiscal
years ended December 31, 1996, 1997, and 1998, respectively, none of which shall
materially differ from the Target Financial Statements delivered to Acquiror
pursuant to Section 3.4(a).
(d) Blue Sky Laws. Acquiror shall have received all state securities
-------------
or "Blue Sky" permits and other authorizations necessary to issue shares of
Acquiror Common Stock pursuant to the Merger.
(e) Dissenting Shareholders. Holders of not more than five percent
-----------------------
(5%) of Target's issued and outstanding capital stock as of the Closing shall
have elected to exercise dissenter's rights under Texas Law as to such shares.
(f) Escrow Agreement. The Escrow Agent and Shareholders' Agent shall
----------------
have executed and delivered to Acquiror the Escrow Agreement and such agreement
shall remain in full force and effect.
(g) Ancillary Agreements. Each of the Voting Agreements,
--------------------
Shareholders Agreements, Stock Restriction Agreements and Noncompetition
Agreements shall have been executed and delivered concurrently with the
execution of this Agreement and shall remain in full force and effect.
(h) Target Debt. All outstanding Target Debt shall have been
-----------
converted into Target Common Stock effective prior to the Effective Time.
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(i) Opinion of Target's Counsel. Acquiror shall have received an
---------------------------
opinion dated the Closing Date of Hogan & Hartson L.L.P., counsel to Target, in
a form reasonably acceptable to Acquiror.
(j) Approvals. All authorizations, consents (including the Material
---------
Consents), or approvals of, or notifications to any third party, required by
Target's contracts, agreements or other obligations in connection with the
consummation of the Merger shall have occurred or been obtained.
(k) Board Resignations. Target shall have received written letters
------------------
of resignation from the Target Board of Directors from each of the current
members of such Board, in each case effective at the Effective Time.
(l) No Material Adverse Change. Target shall not have suffered any
--------------------------
Material Adverse Change since the date of this Agreement.
Section 8.3 Additional Conditions to Obligations of Target. The
----------------------------------------------
obligation of Target to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Target:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except to
the extent such representations speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Target shall have
received a certificate signed on behalf of Acquiror by the chief executive
officer and the chief financial officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and Sub
----------------------------------------------
shall have performed all obligations required to be performed by them under this
Agreement at or prior to the Closing Date; and Target shall have received a
certificate signed on behalf of Acquiror by the chief executive officer and the
chief financial officer of Acquiror to such effect.
(c) Opinion of Acquiror's Counsel. Target shall have received an
-----------------------------
opinion dated the Closing Date of Venture Law Group, A Professional Corporation,
counsel to Acquiror, in a form reasonably acceptable to Target.
(d) Audited Financial Statements. Target shall have received
----------------------------
Acquiror's final, unaudited balance sheet as of April 30, 1999, and the related
statements of operations for the seven-month period then-ended and Target's
final, audited balance sheets as of September 30, 1998, and the related audited
statements of operations, shareholders' equity and cash flows for the fiscal
year ended September 30, 1998, respectively, none of which shall materially
differ from the Acquiror Financial Statements delivered to Target pursuant to
Section 4.6(a).
(e) No Material Adverse Change. Acquiror shall not have suffered any
--------------------------
Material Adverse Change since the date of this Agreement.
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ARTICLE IX
TERMINATION AND AMENDMENT
-------------------------
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target, by giving written notice to the
other party, if a court of competent jurisdiction or other Governmental Entity
shall have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if such party relying on
such order, decree or ruling or other action shall not have complied with its
respective obligations under Sections 5.5 or 6.3 of this Agreement, as the case
may be;
(c) by Acquiror or Target, by giving written notice to the other
party, if the other party is in material breach of any representation, warranty,
or covenant of such other party contained in this Agreement, which breach shall
not have been cured, if subject to cure, within 10 business days following
receipt by the breaching party of written notice of such breach by the other
party;
(d) by Acquiror, by giving written notice to Target, if the Closing
shall not have occurred on or before August 15, 1999, by reason of the failure
of any condition precedent under Section 8.1 or 8.2 (unless the failure results
primarily from a breach by Acquiror of any representation, warranty, or covenant
of Acquiror contained in this Agreement or Acquiror's failure to fulfill a
condition precedent to closing or other default);
(e) by Target, by giving written notice to Acquiror, if the Closing
shall not have occurred on or before August 15, 1999, by reason of the failure
of any condition precedent under Section 8.1 or 8.3 (unless the failure results
primarily from a breach by Target of any representation, warranty, or covenant
of Target contained in this Agreement or Target's failure to fulfill a condition
precedent to closing or other default); or
(f) by Acquiror, by giving written notice to Target, if the required
approvals of the shareholders of Target contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required consents or
votes upon a vote taken by written consent or at a meeting of shareholders, duly
convened therefor or at any adjournment thereof.
(g) by Target, by giving written notice to Acquiror, if the required
approvals of the shareholders of Acquiror contemplated by this Agreement shall
not have been obtained by reason of the failure to obtain the required consents
or votes upon a vote taken by written consent or at a meeting of shareholders,
duly convened therefor or at any adjournment thereof.
Section 9.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no
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liability or obligation on the part of Acquiror, Target, Sub or their respective
officers, directors, shareholders or Affiliates, except as set forth in Section
9.2, 9.3, 11.2, 11.3 and 11.6 and further except to the extent that such
termination results from the willful breach by any such party of any of its
representations, warranties or covenants set forth in this Agreement.
Section 9.3 Fees and Expenses.
-----------------
(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated. Target has submitted a budget to Acquiror for completion
of the Merger. Target shall use its best efforts to consummate the Merger within
such budget and shall not enter into any agreement inconsistent with such
budget.
(b) If the Merger is consummated, all legal, accounting, investment
banking, broker's and finder's fees and expenses incurred by Target or its
shareholders in connection with the Merger shall be deemed expenses of the
shareholders of Target to the extent such fees and expenses exceed $100,000 and
any amounts expended in excess of $100,000 shall be borne by the shareholders of
Target to such extent and will not become obligations of Target. Target will
make arrangements for the payments of such fees acceptable to Acquiror. Any such
fees and expenses in excess of $100,000 incurred by Target shall be recoverable
from the Escrow Fund (as defined in Section 10.2) as Damages (as defined in
Section 10.1) without regard to the damage threshold as contemplated by Section
10.3.
ARTICLE X
ESCROW AND INDEMNIFICATION
--------------------------
Section 10.1 Indemnification.
---------------
(a) From and after the Effective Time and subject to the limitations
contained in Section 10.2, the Former Target Shareholders will, severally and
pro rata, in accordance with their Pro Rata Portion, indemnify and hold Acquiror
harmless against any loss, expense, liability or other damage, including
attorneys' fees, to the extent of the amount of such loss, expense, liability or
other damage (collectively "Damages") that Acquiror has incurred by reason of
the breach or alleged breach by Target of any representation, warranty, covenant
or agreement of Target contained in this Agreement that occurs or becomes known
to Acquiror during the Escrow Period (as defined in Section 10.4 below).
Acquiror, Target and Sub acknowledge and agree, and the Former Target
Shareholders, by their approval of this Agreement, agree that notwithstanding
anything to the contrary contained in this Agreement or any other Transaction
Document, such indemnification under this Article X shall be the sole and
exclusive remedy for any such claim of breach by Target, except for Damages
based upon a claim of fraud.
(b) From and after the Effective Time and subject to the limitations
contained in Section 10.2, the Acquiror will indemnify and hold Former Target
Shareholders harmless against any Damages that Former Target Shareholders have
incurred by reason of the breach or alleged
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<PAGE>
breach by Acquiror or Sub of any representation, warranty, covenant or agreement
of Acquiror or Sub contained in this Agreement that occurs or becomes known to
Former Target Shareholders during the Escrow Period (as defined in Section 10.4
below); provided, however, that such indemnification shall be capped at
-------- -------
$1,000,000, and shall, at Acquiror's sole election, be payable in cash or
Acquiror Common Stock; provided, further, that if Acquiror elects to pay any
-------- -------
Damages in Acquiror Common Stock, then the number of shares issuable to Former
Target Shareholders pursuant to such claim shall be determined by dividing (x)
the dollar amount of the claim by (y) the fair market value of one share of
Acquiror Common Stock as determined by the good faith estimate and unanimous
consent of the non-employee directors on Acquiror's Board of Directors, which
determination of fair market value shall be final; provided, further, that if
-------- -------
Acquiror elects to pay any Damages in Acquiror Common Stock at a time when
Acquiror's Common Stock is listed on the Nasdaq National Market or similar
national exchange, then the fair market value of one share of Acquiror Common
Stock shall be the average closing price of Acquiror Common Stock for the five
consecutive trading days preceding the date of payment. Acquiror, Target and Sub
acknowledge and agree, and Former Target Shareholders, by their approval of this
Agreement, agree that notwithstanding anything to the contrary contained in this
Agreement or any other Transaction Document, such indemnification under this
Article X shall be the sole and exclusive post-Closing remedy for any such claim
of breach by Acquiror or Sub, except for Damages based upon a claim of fraud.
Section 10.2 Claims for Damages.
------------------
(a) As security and the sole and exclusive recourse for the
indemnities in Section 10.1(a), as soon as practicable after the Effective Time,
the Escrow Shares shall be deposited with U.S. Bank Trust, National Association
(or such other institution selected by Acquiror with the reasonable consent of
Target) as escrow agent (the "Escrow Agent"), such deposit to constitute the
Escrow Fund (the "Escrow Fund") and to be governed by the terms set forth in
this Article X and in the Escrow Agreement. Notwithstanding the foregoing or
anything to the contrary contained in this Agreement or in any Transaction
Document, the indemnification obligations of the Former Target Shareholders
pursuant to this Article X or otherwise shall be limited to the amount and
assets deposited and present in the Escrow Fund and Acquiror shall not be
entitled to pursue any claims for indemnification under this Article X or
otherwise against the Former Target Shareholders directly or personally, and the
sole recourse of Acquiror shall be to make claims against the Escrow Fund in
accordance with the terms of the Escrow Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any Transaction Document, the indemnification obligations of
Acquiror pursuant to this Article X or otherwise shall be limited to $1,000,000,
and Former Target Shareholders shall not be entitled to pursue any claims for
indemnification under this Article X or otherwise against Acquiror in excess of
such amount or against Acquiror's officers or directors, either personally or in
their capacities as officers or directors, and the sole recourse of Former
Target Shareholders shall be to make claims, acting through the Shareholders'
Agent (as defined in Section 10.9 below), in accordance with the procedures
contained in Section 10.5(b).
Section 10.3 Damage Threshold.
----------------
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(a) Notwithstanding the foregoing, the Former Target Shareholders
shall have no liability under Section 10.1(a) and Acquiror may not receive any
shares from the Escrow Fund unless and until an Officer's Certificate or
Certificates (as defined in Section 10.5 below) for an aggregate amount of
Acquiror's Damages in excess of $100,000 has been delivered to the Shareholders'
Agent and to the Escrow Agent; provided, however, that after an Officer's
-------- -------
Certificate or Certificates for an aggregate of $100,000 in Damages has been
delivered, Acquiror shall be entitled to receive Escrow Shares equal in value to
the full amount of Damages identified in such Officer's Certificate or
Certificates.
(b) Notwithstanding the foregoing, Acquiror shall have no liability
under Section 10.1(b) and the Former Target Shareholders may not receive any
Damages unless and until an Agent's Certificate or Certificates for an aggregate
amount of Former Target Shareholders' Damages in excess of $100,000 has been
delivered to Acquiror; provided, however, that after an Agent's Certificate or
-------- -------
Certificates for an aggregate of $100,000 in Damages has been delivered, the
Former Target Shareholders shall be entitled to receive cash or Acquiror Common
Stock, in accordance with Section 10.1(b), equal in value to the full amount of
Damages identified in such Agent's Certificate or Certificates.
Section 10.4 Indemnification Term. The Escrow Fund and Acquiror's
--------------------
obligation to indemnify the Former Target Shareholders shall terminate upon the
first anniversary date of the Closing Date (the period from the Closing Date to
such date referred to as the "Escrow Period"), provided, however, that the
-------- -------
number of Escrow Shares, which, in the reasonable judgment of Acquiror, subject
to the objection of the Shareholders' Agent and the subsequent resolution of the
matter in the manner provided in Section 10.8, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Shareholders' Agent prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
Section 10.5 Payment of Claims.
-----------------
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any appropriately authorized officer of
Acquiror (an "Officer's Certificate"):
(i) Stating the aggregate amount of Acquiror's Damages or an
estimate thereof, in each case to the extent known or determinable at such time;
and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of Sections 10.3 and 10.8 hereof and of the Escrow Agreement, deliver
to Acquiror out of the Escrow Fund, as promptly as practicable, Escrow Shares
having a value equal to such Damages all in accordance with the Escrow Agreement
and Section 10.6 below. Amounts paid or distributed from the Escrow Fund shall
be
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<PAGE>
paid or distributed pro rata among the Holders (as defined in the Escrow
Agreement) based upon their respective percentage interests therein at the time.
(b) Upon receipt by the Acquiror on or before the last day of the
Escrow Period of a certificate signed by the Shareholders' Agent (an "Agent's
Certificate"):
(i) Stating the aggregate amount of Former Target Shareholders'
Damages or an estimate thereof, in each case to the extent known or determinable
at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related, the Acquiror shall, subject to the
provisions of Sections 10.3 and 10.8 hereof, deliver to the Former Target
Shareholders, as promptly as practicable, cash or Acquiror Common Stock, as the
case may be, having a value equal to such Damages all in accordance with
Sections 10.1(b). Amounts paid or distributed shall be paid or distributed pro
rata among the Former Target Shareholders based upon their respective percentage
interests therein at the time.
Section 10.6 Valuation. For the purpose of compensating Acquiror for its
---------
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Acquiror in respect of a claim for Damages shall be
the fair market value of one share of Acquiror Common Stock as determined by the
good faith estimate and unanimous consent of the non-employee directors on
Acquiror's Board of Directors, which determination of fair market value shall be
final; provided, however, that if such determination is made at a time when
-------- -------
Acquiror's Common Stock is listed on the Nasdaq National Market or similar
national exchange, then the fair market value of one share of Acquiror Common
Stock shall be the average closing price of Acquiror Common Stock for the five
consecutive trading days preceding the date of payment.
Section 10.7 Objections to Claims.
--------------------
(a) At the time of delivery of any Officer's Certificate to the
Escrow Agent, a duplicate copy of such Officer's Certificate shall be delivered
to the Shareholders' Agent (as defined in Section 10.9 below) and for a period
of thirty (30) days after such delivery, the Escrow Agent shall make no delivery
of Escrow Shares pursuant to Section 10.4 unless the Escrow Agent shall have
received written authorization from the Shareholders' Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of the Escrow Shares in the Escrow Fund in accordance with
Section 10.4, provided that no such delivery may be made if the Shareholders'
--------
Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
and to Acquiror prior to the expiration of such thirty (30) day period.
(b) For a period of thirty (30) days after delivery of any Agent's
Certificate to the Acquiror, Acquiror shall have the right to object to the
claim made in the Agent's Certificate,
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provided that such objection is in writing and is delivered to the Shareholders'
Agent prior to the expiration of such thirty (30) day period.
Section 10.8 Resolution of Conflicts.
-----------------------
(a) In case the Shareholders' Agent shall object in writing to any
claim or claims by Acquiror made in any Officer's Certificate, Acquiror shall
have thirty (30) days to respond in a written statement to the objection of the
Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Acquiror shall attempt in
good faith for thirty (30) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Escrow Shares from the Escrow Fund in accordance with the terms
of the memorandum.
(b) In case Acquiror shall object in writing to any claim or claims
by Former Target Shareholders made in any Agent's Certificate, the Shareholders'
Agent shall have thirty (30) days to respond in a written statement to the
objection of Acquiror. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Acquiror shall attempt in
good faith for thirty (30) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties.
Section 10.9 Shareholders' Agent.
-------------------
(a) Eric Goldreyer shall be constituted and appointed as agent (the
"Shareholders' Agent") for and on behalf of the Former Target Shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of the Escrow Shares or other property from the Escrow Fund in satisfaction of
claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of and comply with orders of courts and awards
of arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Shareholders' Agent for the accomplishment of
the foregoing. Such agency may be changed by the holders of a majority in
interest of the Escrow Shares from time to time upon not less than ten (10)
days' prior written notice to Acquiror. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for services. Notices or communications to or from the Shareholders' Agent
shall constitute notice to or from each of the Former Target Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Former Target Shareholders shall severally and pro
rata, in accordance with their Pro Rata Portion, indemnify the Shareholders'
Agent and hold him harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Shareholders' Agent and
arising
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out of or in connection with the acceptance or administration of his duties
hereunder under this Agreement or the Escrow Agreement.
(c) The Shareholders' Agent shall have reasonable access to
information about Target and Acquiror and the reasonable assistance of Target's
and Acquiror's officers and employees for purposes of performing his duties and
exercising his rights under this Article X, provided that the Shareholders'
--------
Agent shall treat confidentially and not disclose any nonpublic information from
or about Target or Acquiror to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
Section 10.10 Actions of the Shareholders' Agent. A decision, act,
----------------------------------
consent or instruction of the Shareholders' Agent shall constitute a decision of
all of the Former Target Shareholders for whom shares of Acquiror Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Shareholder, and the Escrow
Agent and Acquiror may rely upon any decision, act, consent or instruction of
the Shareholders' Agent as being the decision, act, consent or instruction of
each and every such Former Target Shareholder. The Escrow Agent and Acquiror
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the
Shareholders' Agent.
Section 10.11 Third-Party Claims. In the event Acquiror becomes aware of
------------------
a third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Shareholders' Agent of such
claim, and the Shareholders' Agent and the Former Target Shareholders for whom
shares of Acquiror Common Stock otherwise issuable to them are deposited in the
Escrow Fund shall be entitled, at their expense, to participate in any defense
of such claim. Acquiror shall have the right in its sole discretion to settle
any such claim; provided, however, that Acquiror may not effect the settlement
-------- -------
of any such claim without the consent of the Shareholders' Agent, which consent
shall not be unreasonably withheld. In the event that the Shareholders' Agent
has consented to any such settlement, the Shareholders' Agent shall have no
power or authority to object to the amount of any claim by Acquiror against the
Escrow Fund for indemnity with respect to such settlement in the amount agreed
to.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties, covenants and agreements of Target contained in
this Agreement shall survive the Closing and any investigation at any time made
by or on behalf of Acquiror or the Shareholders' Agent until the end of the
Escrow Period. If Escrow Shares or other assets are retained in the Escrow Fund
beyond expiration of the period specified in the Escrow Agreement, then
(notwithstanding the expiration of such time period) the representation,
warranty, covenant or agreement applicable to such claim shall survive until,
but only for purposes of, the resolution of the claim to which such retained
Escrow Shares or other assets relate. All representations, warranties,
covenants and agreements of Acquiror and Sub contained in this Agreement shall
survive the Closing and any investigation at any time made by or on behalf of
Target until the
-58-
<PAGE>
end Escrow Period; provided that the covenants and agreements contained in
--------
Section 9.3 shall survive the Closing and shall continue in full force and
effect. Notwithstanding anything to the contrary contained in this Agreement,
all representations and warranties of Target and Acquiror relating to Taxes and
all representations and warranties made by Target in Section 3.2 shall survive
for a period of two (2) years from the Closing Date.
Section 11.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or two business days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Acquiror or Sub:
WorldRes, Inc.
66 Bovet, Suite 100
San Mateo, CA 94402
Attention: Gregory A. Jones
Fax No: (650) 372-1701
Telephone No: (650) 372-1700
with a copy at the same address to the attention of the General
Counsel and Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Joshua L. Green
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
(b) if to Target, to:
Goldreyer Incorporated
13949 W. Colfax Ave., Suite 140
Golden, Colorado 80401-3209
Attention: President
Fax No: (303) 274-2900
Telephone No: (303) 274-3465
-59-
<PAGE>
with a copy to:
Hogan & Hartson L.L.P.
One Tabor Center
Suite 1500
1200 17th Street
Denver, CO 80202
Attention: Steven A. Cohen
Fax No: (303) 899-7333
Telephone No: (303) 899-7324
Section 11.3 Interpretation. When a reference is made in this Agreement
--------------
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." Whenever the words "to the
knowledge of Target" or "known to Target" or similar phrases are used in this
Agreement, they mean to the actual knowledge, after reasonable inquiry, of Eric
Goldreyer, David Hansen, Brian Ball, and Bernard David.
Section 11.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto
(including without limitation any Target employees) any rights or remedies
hereunder.
Section 11.6 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of California without regard
to any applicable conflicts of law.
Section 11.7 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 11.8 Amendment. This Agreement may be amended by the parties
---------
hereto, at any time before or after approval of matters presented in connection
with the Merger by the shareholders of Target, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further
-60-
<PAGE>
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 11.9 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
Section 11.10 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Signature Page Follows]
-61-
<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
WORLDRES, INC.
By: /s/ Scott Potter
-------------------------------
Name: Scott Potter
-----------------------------
Title: Executive Vice President
----------------------------
B&B ACQUISITION CORPORATION
By: /s/ Scott Potter
-------------------------------
Name: Scott Potter
-----------------------------
Title: Executive Vice President
----------------------------
GOLDREYER INCORPORATED
By: ______________________________
Title: ___________________________
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
WORLDRES, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
B&B ACQUISITION CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
GOLDREYER INCORPORATED
By: /s/ Eric Goldreyer
-------------------------------
Title: President & Founder
----------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE>
Exhibit 10.20
[WORLDRES LETTERHEAD APPEARS HERE]
3/9/98
Dear Mr. Wyatt,
On behalf on WorldRes, Inc., (the "Company"), I am pleased to offer
you the position of Vice President of Systems Development, reporting to the
Chief Executive Officer. The terms of your relationship with the Company will be
as indicated herein.
1. Position. You will become the Vice President of Systems Development.
--------
As such, you will have responsibilities as determined by Chief Executive
Officer. Your start date will be no later than 3/30/98.
2. Base Salary. You will be paid a base salary of $6041.66 twice monthly
-----------
(i.e. $145,000 annual salary). Your salary will be payable in accordance with
the Company's standard payroll policies (subject to normal required
withholding). You will be entitled to 17 days of personal time off per year.
3. Benefits. You will be entitled to standard medical and dental
--------
insurance and other benefits provided generally to employees of the Company,
when such benefits become available. You will also have the option to
participate in the Company's 401K plan.
4. Stock Option. Subject to the approval of the Board of Directors of
------------
the Company, you will be granted an option to purchase 90,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of
the Common Stock at the date of grant, which shall be execrable at the rate of
1/4 of the shares one year after commencement of employment and 1/48th of the
shares each month thereafter of completed employment (so that at the end of four
years, your option will be fully vested).
5. Standard Employee Agreement. Like all employees, you will be required
---------------------------
to sign the Company's standard confidentiality agreement relating to the
protection of the Company's proprietary and confidential information and
assignment of inventions. In addition, you will abide by the Company's strict
policy that prohibits any new employee from using or bringing with him or her
from any previous employer any confidential information, trade secrets, or
proprietary materials or processes of such former employer.
6. Federal Immigration Law. For purposes of federal immigration law, you
-----------------------
will be required to provide to the Company documentary evidence of your identity
and eligibility for
<PAGE>
Page 2
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
7. At-Will Employment. As is true for all employees, you will be an
------------------
employee-at-will, where employment may be terminated at any time by either
party, with or without notice, and with or without cause.
8. Entire Agreement. This Agreement, together with your Stock Option
----------------
Agreement, constitutes the entire agreement between the parties and supersedes
all other agreements or understandings.
Again, let me indicate how pleased we all are to extend this offer, and how
much we look forward to working together. Please indicate your acceptance by
signing and returning a copy of this letter. This offer is valid until 3/29/98
and will terminate if not accepted by such date.
Very truly yours,
WorldRes, Inc.
/s/ Gregory A. Jones
-------------------------
Gregory A. Jones, CEO
The foregoing terms and conditions are hereby accepted:
Signed: /s/ Paul N. Wyatt
----------------------
Date: 11 March 1998
----------------------
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT 10.25
WIZCOM HOST DISTRIBUTION AGREEMENT
BETWEEN
WIZCOM INTERNATIONAL, LTD.
AND
WORLDRES
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C>
1. Master Network Services Agreement..................................... 1
2. Network Access Services............................................... 1
3. Network Participant Access............................................ 3
4. Network Participant Termination....................................... 3
5. Termination........................................................... 3
6. Monthly Status Report................................................. 3
7. Designation of Contact Persons, Notices............................... 4
8. Security Disclaimer................................................... 4
9. Price Schedule........................................................ 5
10. Independent Contractors; Third Party Beneficiaries.................... 5
11. Trademarks and Tradename.............................................. 6
12. Confidential Information.............................................. 6
13. Several Obligations; Limitation of Liability.......................... 6
14. Indemnity............................................................. 7
15. Effectiveness; Term................................................... 7
16. Severability.......................................................... 8
17. Waiver................................................................ 8
18. Controlling Law....................................................... 8
19. Entire Agreement...................................................... 8
20. Survival.............................................................. 8
</TABLE>
ATTACHMENTS:
SCHEDULE A: IMPLEMENTATION SERVICES
SCHEDULE B: IMPLEMENTATION SCHEDULE
-i-
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
WIZCOM HOST DISTRIBUTION AGREEMENT
This HOST DISTRIBUTION AGREEMENT (hereinafter "Agreement"), dated as
of June 6, 1997 (the "Effective Date") is entered into by and between WizCom
International, Ltd. ("WizCom") having an office at 900 Old Country Road, Garden
City, NY 11530 and WorldRes ("WorldRes") having an office at 66 Bovet Road,
Suite 100, San Mateo, CA 94402.
W I T N E S S E T H
WHEREAS, WizCom has developed an information and travel management
Host Distribution System (the "Network") for Travel Industry and/or WizCom
clients (collectively, "Network Participants") who connect to the Network with
outside host systems of the Network, using proprietary computer software
developed by WizCom, including, without limitation, proprietary electronic
message interpreting interfaces developed by WizCom, to link such Network
Participants through the telecommunications lines, equipment and network of a
network provider;
WHEREAS, the Network will enable Network Participants to enter
reservations, modifications and cancellations for execution and confirmation by
the network provider who is linked through the Network;
WHEREAS, WizCom wishes WorldRes to be the network provider for the
Network and WorldRes wishes to be such network provider;
NOW THEREFORE, the parties, in consideration of the promises
hereinafter set forth, agree as follows:
1. Master Network Services Agreement. The parties agree that this
---------------------------------
Agreement sets forth the terms and provisions pursuant to which WorldRes agrees
to provide network services to WizCom and those Travel Industry and/or WizCom
clients who become participants in the Network. The terms and conditions
contained in this Agreement shall be deemed to be incorporated into, and shall
supersede all other agreements (whether heretofore or hereafter entered into)
between WorldRes and WizCom to provide Services (as hereinafter defined) in
connection win the Network.
2. Network Access Services. (a) WorldRes hereby agrees to provide WizCom
-----------------------
and those Network Participants in the Network in accordance with the procedures
set forth herein, with access to the Network through WorldRes's network., by
appropriate means (including modems, software, operating instructions, passwords
and IDs) solely as determined by WorldRes, permitting Network Participants to
facilitate the updating of availability and pricing information, and the
receiving of reservations, modifications and cancellations to Network
Participants to which they are linked through the Network, and also with the
monitoring and maintenance services provided by WorldRes in its sole discretion.
All Services shall be performed by WizCom in a professional, workmanlike manner
and shall meet and conform to
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
the specifications and standards to be provided by WizCom and set forth in
Schedule A attached hereto and made a part hereof. The Services shall be defined
as WizCom providing WorldRes and/or Network Participants with access to the
Network which contains various travel information, availability updating,
automatic rate updating and seamless connectivity.
(b) WizCom agrees to offer to license to WorldRes a non exclusive,
non-transferable right to use the Network, and through the Network, provided GDS
services set forth herein and to which the scope of the GDS services as been
approved by WorldRes. The Network, as described herein, is offered at the fees
outlined in Schedule A. WizCom shall also provide such other customization work,
additional testing, training or other services, other than set forth in Schedule
A, as maybe requested from time to time by WorldRes and agreed to by WizCom.
WizCom shall provide WorldRes with a written customization work requested
hereunder and associated development and license fees. Testing, training,
customization and other services will be charged at WizCom's then current
standard rates for services and will be provided in no less than half the
increments. Usage of up to four (4) hours of service time will constitute one
half day of service. Usage of between four (4) and eight (8) services time will
constitute one day of service.
(c) Services. WizCom will provide the following Services to WorldRes
--------
to the extent that the Services exist with the particular Network Participant:
(i) Availability Updating - WizCom will provide the ability to
electronically update room availability information from customer's central
reservation system ("CRS") to WorldRes.
(ii) Automatic Rate Updating - WizCom will provide the ability to
electronically update rate information from customer's CRS to WorldRes.
(iii) Seamless Connectivity - Provide the travel agency community
the ability to view hotel, room, rate, etc. information directly from customer's
CRS through WorldRes.
(d) Milestones and Deliverables. In accordance with the milestone
---------------------------
date(s) mutually agreed to and outlined in Schedule B hereto, WizCom agrees that
if WizCom is unable to meet a milestone date in the Schedule for reasons solely
and exclusively within its control, then WorldRes has the right to receive a
credit against its monthly processing payments. That is, for each week that a
scheduled milestone date is postponed by WizCom, the credit amount to WorldRes
will equal the sum of one (1) month of processing fees. If a scheduled milestone
date is postponed less than a week, the credit will be prorated based on five
(5) business days per week.
Conversely, if WorldRes postpones a scheduled milestone date then WizCom has the
right to postpone or shift the other milestone dates by an equal amount.
3. Network Participant Access. On or after the Effective Date of this
--------------------------
Agreement and from time to time thereafter, both parties may provide each other
with a notice (each, an "Installation Notice") setting forth the names of
customer's wishing to participate in the Network (each, an "Applicant"),
including the name, address, telephone and fax number of an authorized
2
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
contact person for each such Applicant. The Installation Notice shall set forth
the requested installation date for each Applicant, which shall be no less than
thirty (30) days from the date a party has received such notice referencing such
Applicant and an executed purchase order referencing this Agreement from each
such Applicant. Within five (5) business days after receipt of an Installation
Notice and order(s) with respect to any Applicant, WorldRes shall notify such
Applicant in writing (with a copy to WizCom) either (a) of WizCom's acceptance
of such order, in which event such acceptance notice shall be accompanied by a
copy of such order signed by WizCom; or (b) that such Installation Notice and/or
order does not comply with the terms and conditions of this Agreement (such
notice to specify the respects in which the order fails to comply with this
Agreement), in which event the Applicant shall promptly resubmit such notice
and/or order so as to make it compliant with the terms of this Agreement.
4. Network Participant Termination. If any Network Participant wishes to
-------------------------------
terminate any specified Network links, it shall notify, in writing, WizCom to
which link it seeks to terminate.
5. Termination. Either party may at any time upon no less that fifteen
-----------
(15) days' prior written notice to the other party terminate any Network
Participant's access to the Network by written notices to that party (with a
copy to such terminated Network Participant) strictly in accordance with the
provisions of such Network Participant's agreement with the parties. Either
WizCom or WorldRes shall follow the instructions it receives from authorized
representatives of the other party regarding Network Participant terminations
and shall not be liable therefore to any Network Participant it shall so
terminate.
6. Monthly Status Report. Within thirty (30) days after the beginning of
---------------------
each calendar month, WorldRes shall provide WizCom with a Network status report
in a format to be agreed upon between WizCom and WorldRes within thirty (30)
days from the date thereof, such report to indicate the identity of the then-
current Network Participants, any requests for changes in or termination of
service made in such prior month by any Network Participant and such other
information as WorldRes and WizCom shall agree from tume to time.
7. Designation of Contact Persons, Notices. (a) Each of WizCom and
---------------------------------------
WorldRes shall designate one employee and one alternate to act as the primary
contact person for communications regarding this Agreement and the Network
within ten (10) days after the execution of this Agreement.
(b) Notice to the parties of dispute arising under this Agreement
shall be sent by regular mail or by telecopier.
Notices to WorldRes shall be to:
WorldRes
66 Bovet Rd., Ste. 100
San Mateo, CA 94402
Attn: President
3
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
Notice to WizCom shall be to:
WizCom International, Ltd.
900 Old Country Road
Garden City, NY 11530
Attn: General Manager - Sales
All notices required to be sent by either party under this Agreement shall be
deemed given: (i) when sent by confirmed facsimile or telecopy; (ii) one
business day after being sent by commercial overnight courier with written
verification of receipt; or (iii) when received after being mailed postage
prepaid by certified or registered mail, return receipt requested, to the party
to be notified, at the respective addresses set forth below, or at such other
address which may hereinafter be designated in writing.
8. Security Disclaimer. WizCom is not responsible for providing security
-------------------
for WorldRes's Local Area Network ("LAN"). WorldRes acknowledges that there is
the possibility of security risks when one LAN interfaces with, is connected to
or otherwise linked to another LAN through standard telecommunications networks
or circuits, that WorldRes has made its own independent decision hereunder, and
that subject to the provisions of Section 13 hereto, WorldRes accepts any
liability that might result.
9. Price Schedule. (a) Commencement. In consideration for the Services
-------------- ------------
provided by WizCom, WorldRes will pay WizCom the one-time fees and the monthly
services and additional charges set forth in Schedule A. Commencing the earlier
of the date WorldRes begins processing reservations or ninety (90) days from the
Effective Date of this Agreement, WizCom will begin invoicing WorldRes for the
minimum monthly fee or the actual transaction fee, whichever is greater.
(b) Payment Terms. All one-time fees shall be due upon execution of
-------------
this Agreement. All other invoices from WizCom shall be payable in full within
thirty (30) days of invoice date, without set-off, counterclaim or recoupment.
Further, WorldRes hereby consents to WizCom's offsetting any monies due WorldRes
pursuant to separate agreement with WizCom or its affiliates against any amounts
unpaid hereunder for more than thirty (30) days. Nothing herein shall limit any
rights or remedies that WizCom may have under this Agreement or otherwise, which
shall be cumulative.
(c) Schedule of Charges . WorldRes agrees to the schedule of Network
-------------------
access fees and other charges specified in Schedule A ("Schedule of Charges").
Such fees shall be payable regardless of whether any software, code or other
information provided to WorldRes in connection herewith is publicly available.
Such fees and charges are due and payable to WizCom within thirty (30) days from
the date of Subscriber's receipt of WizCom's invoice.
(d) Late Fees. All fees and charges are exclusive of, and WorldRes is
---------
responsible for, applicable federal, state, or local sales, use, excise or other
applicable taxes other than taxes on the net income of Wizcom. Late payments
shall be subject to a late charge of 1-1/2% per month from the due date.
4
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
(e) Price Increase. WizCom upon thirty (30) days prior written notice
--------------
may increase the fees up to 10% annually with a maximum of 30% over the initial
term. WizCom has the right to increase WorldRes's monthly communications line
charges at any time in the event charges are increased by the telecommunications
supplier solely to the same extent that the charges are increased by the
telecommunications supplier.
10. Independent Contractors; Third Party Beneficiaries. In all matters
--------------------------------------------------
pertaining to this Agreement and to the Schedules and any Schedules issued by
WizCom or any other Network Participant, the relationship of WizCom and each
Network Participant with WorldRes shall be that of independent contractors, and
none of WizCom, any Network Participant or WorldRes shall make any
representations or warranties that their relationship is other than that of
independent contractors. This Agreement shall not be construed to create, any
partnership, joint venture, employment or agency relationship between or among
WizCom, any other Network Participant or WorldRes, and none of such parties
shall have the power to bind or obligate any of the others. Each Network
Participant shall be financially and otherwise responsible, as an independent
contractor, only for its own purchases of Equipment and Services under the
respective purchase order issued by it. No party hereto or to any purchase
order shall be liable for the payment or performance of any debts, obligations,
or liabilities of any other party.
11. Trademarks and Tradename. None of WorldRes, WizCom or any other
------------------------
Network Participant shall be deemed by anything contained in or done pursuant to
this Agreement to acquire any right, title or interest in any WorldRes, WizCom
or any other Network Participant's of the other party's tradename, trademark,
service mark (including the use of the same).
12. Confidential Information. WizCom and WorldRes agree to hold in the
------------------------
strictest confidence and not use or disclose to any person, firm or corporation,
- --------------------
without the written authorization of the other party, except as required by law,
any "Confidential Information" (as defined below). Each party and their
respective employees, officers, directors, shareholders and agents agree not to
use any of the Confidential Information for the purpose of competing with the
other party either directly or indirectly or to assist third persons or entities
to compete with the other party. For purposes of this Agreement, "Confidential
Information" means all information, documents and materials provided by one
party to the other party before or during the term of this Agreement relating to
or in connection with the Project, including, without limitation, technical
data, specifications, communication protocols, trade information, customer or
client lists and records, business and marketing plans, schematics, reports, and
technical and marketing data; provided, however, that neither party shall be
-------- -------
under any obligation to maintain in confidence any portion of the information it
has received which (a) is now, or which becomes hereafter, through no act or
failure to act on the part of the recipient party, generally known or available
to the public, (b) is known by the recipient party at the time of the disclosure
of such information, provided that the source of such information was not known
by the receiving party to be prohibited from disclosing such information by a
contractual, legal or fiduciary obligation or (c) is hereafter furnished to the
recipient party by a source other than the other party, provided that such
source is not known by the receiving party to be prohibited from disclosing such
information by a contractual, legal or fiduciary obligation. Neither party
shall disclose the Confidential Information of the other party to its employees
except on a need-to-know basis, and
5
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
the recipient party shall be responsible for the unauthorized disclosures of
Confidential Information by its employees.
No express or implied rights or license is granted by any disclosure
of Confidential Information to the recipient party in connection with this
Agreement. The recipient party understand that the disclosing party makes no
representations or warranties, expressed or implied (including those of
MERCHANTABILlTY AND FITNESS FOR PURPOSE) with respect to the Confidential
Information.
13. Several Obligations; Limitation of Liability. Limitation of Liability.
-------------------------------------------- -----------------------
NOTWITHSTANDING ANYTHING CONTAINED HEREIN OR IN ANY SCHEDULE, EXHIBIT OR
ATTACHMENT HERETO TO THE CONTRARY, IN NO EVENT SHALL WORLDRES OR WIZCOM BE
LIABLE TO THE OTHER OR ANY THIRD PARTY, INCLUDING WITHOUT LIMITATION, ANY
NETWORK PARTICIPANT, FOR ANY LOSS OR DAMAGE OF ANY NATURE, INCLUDING WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LOSS OF USE, LOSS OF DATA, LOSS OF
PROFITS, LOSS OF BUSINESS OR GOODWILL, BUSINESS INTERRUPTION OR OTHER ECONOMIC
DAMAGE, OR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES, ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT, THE NETWORK, OR
NETWORK SERVICES PROVIDED IN CONNECTION THEREWITH, EVEN IF WORLDRES OR WIZCOM
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE HOWEVER CAUSED WHETHER BY THE
NEGLIGENCE OF WORLDRES OR WIZCOM OR OTHERWISE, EACH OF WORLDRES'S AND WIZCOM'S
TOTAL LIABILITY HEREUNDER TO EACH OTHER AND/OR ANY NETWORK PARTICIPANT, OR
ANYONE CLAIMING ON BEHALF OF OR THROUGH THE OTHER OR ANY SUCH NETWORK
PARTICIPANT, INCLUDING BUT NOT LIMITED TO THE ALLEGED GROSS NEGLIGENCE OR
OTHERWISE, SHALL BE LIMITED TO A MAXIMUM OF $40,000 (INCLUDING ATTORNEYS' FEES
AND EXPENSE). This limitation of liability will apply regardless of the form of
action, whether in contract or tort, including negligence. Any action against
WizCom or any of its affiliates must be brought within twelve (12) months after
the cause of action accrues.
14. Indemnity. Subject to the limitations provided in Section 13, each of
---------
the parties will indemnify and hold harmless the other party hereto, its owners,
directors, employees, agents, controlling persons, successors and assigns from
and against any liability, claim, loss, damage or expense (including reasonable
attorneys' fees) to which the indemnified party or parties may become subject to
the extent arising out of or in connection with, or based upon or for, (a) the
gross negligence, bad faith or willful misconduct of the indemnifying party in
connection with the providing of services as contemplated by this Agreement, and
(b) personal injury or property damage caused by any employee, agent or
subcontractor of such party; provided that such indemnification shall not
include any claim arising from injury or damage caused by the willful misconduct
or gross negligence of any indemnified party. Each party's obligations under
this section shall survive expiration or earlier termination of this Agreement.
Additionally, WizCom warrants and represents that all software, programs, and
other deliverable made to or for WorldRes under this Agreement does not and will
not infringe any patent, copyright, or trademark rights or misappropriate trade
secret rights of a third party.
6
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
15. Effectiveness; Term. (a) This Agreement shall be effective as of the
-------------------
first day WorldRes shall provide (or shall have provided) services to any
Network Participant.
(b) The term of this Agreement shall commence as of the Effective
Date and shall continue for a period of [*] from the Effective Date (the
"Initial Term") and shall automatically renew for successive one (1) year
renewal terms until terminated by sixty (60) days notice prior to the end of the
renewal term then in effect.
16. Severability. If any provision of this Agreement, or application
------------
thereof to any person, place, or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable, or void, the remainder of
this Agreement and such provision as applied to other persons, places, and
circumstances shall remain in full force.
17. Waiver. Except as otherwise provided in this Agreement, any failure
------
of any of the parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefit thereof only
by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
representation, warranty, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other failure.
18. Controlling Law. This Agreement shall be construed and interpreted
---------------
according to the laws of the State of New York and of the United States of
America.
19. Entire Agreement. The terms and conditions including all attachments
----------------
and/or documents, incorporated by reference herein, constitute the entire
Agreement between WizCom and WorldRes and supersede any prior written agreement
or understanding which is not incorporated herein. In the event that conflict
or inconsistency exist between the terms and conditions of this Agreement and
any attachment and/or documents herein, the terms and conditions of this
Agreement shall prevail.
20. Survival. The parties agree that the following Sections shall survive
--------
the termination or expiration of this Agreement: Sections 8, 10, 11, 12, 13,
14, 16, 17, 18, 19 and 20.
[*] = Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with regard to
the omitted portions.
INTENTIONALLY LEFT BLANK BY BOTH PARTIES
7
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and do each hereby warrant and represent that their respective
signatory whose signature appears below has been and is on the date of this
Agreement duly authorized by all necessary and appropriate corporate action to
execute this Agreement.
WORLDRES WIZCOM INTERNATIONAL, LTD.
By: /s/ Eric J. Christensen By: /s/ Thomas H. Murphy
-------------------------------- ------------------------------
Name: Eric J. Christensen Name: Thomas H. Murphy
------------------------------ ----------------------------
Title: C.E.O. Title: Vice President
----------------------------- ---------------------------
Date: 6/12/97 Date: 6/12/97
----------------------------- ---------------------------
8
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
SCHEDULE A
IMPLEMENTATION SERVICES
In consideration for the System Development and Implementation, WorldRes shall
pay WizCom [*] which is due within ten (10) business days after the Effective
Date of this Agreement. Such System Development and Implementation shall consist
of:
A. Administration
WizCom will provide WorldRes with twenty-eight (28) days of application and
communication programming and development, implementation and support associated
with developing and interface between the WorldRes Network and the WizCom
Network which includes the following:
B. Communication Implementation and Certification
1. Order Circuit With Tele-communications Carrier
2. Order, Configure, Test Modems
3. Coordinate Instation of Circuit
4. Test Circuit
5. Certify Circuit
C. WizCom Host Application
1. Test WizCom Host System - WizCom
2. Certify WizCom Host Application
3. Implement WizCom Host Application
D. TYPE B Processing
1. Test TYPE B Application
2. Implement TYPE B Processing
E. TYPE A Processing - Interactive Sell, Cancel and Modify
1. Programming and Test TYPE A Application
2. Implement Availability Updating
G. Automatic Availability Updating Processing - Open, Close, Request, Close-
to-Arrival Transactions
1. Programming and Test Availability Updating Application
2. Implement Availability Updating
H. Automatic Rate Updating Processing - Add and Modify Transactions
1. Programming and Test Rate Updating Application
2. Implement Rate Updating
I. Seamless Processing - General and Specific Display Transactions
1. Programming and Test Seamless Application
2. Implement Seamless
[*] = Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with regard to
the omitted portions.
11
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
MONTHLY FEES:
Reservation Processing: [*] Whichever is Greater.
For the purposes of this Agreement a "Net Reservation Fee" is defined as
aggregate bookings reported through the WizCom System during such monthly period
minus aggregate cancellations recorded through the WizCom System during such
monthly period.
Communications Network Services
(i) WorldRes's monthly line charges shall begin immediately upon the
successful installation of the Communication line.
[*]
(ii) WizCom's network services include a 24 hour a day, 7 days a
week, 800 telephone services that consists of:
(a) WizCom shall be responsibility for providing and managing a
communication circuit(s) and facilities between WorldRes and WizCom at a level
sufficient to perform the obligations of this Agreement.
(b) WizCom will troubleshoot and isolate any problems that occur in
Wizcom supplied communications equipment. Additional WizCom commits to respond
to phone calls placed by WorldRes within one hour from the time a telephone call
is received by WizCom.
(c) Scheduling and coordination of communication vendors to resolve
problems in the operational network, including follow-up and escalation of
repair services.
(iii) WorldRes is responsible for all costs associated with
maintaining the business telephones for dial back up including, without
limitation, installation, usage charges and monthly fees. In addition, WorldRes
will be responsible for the line utilization charges during dial back up
situations.
(iv) WorldRes is responsible for all costs associated with
relocating, canceling or upgrading of the communication line including but not
limited to de-installation, monthly fees and any penalties charged by the
communication provider.
[*]= Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with regard to the
omitted portions.
12
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
Additional Support
Should WorldRes require additional support for training, equipment moves,
consulting (to resolve minor problems),. programming or network services in
excess of that covered under this Agreement, WizCom shall charge the following
fees:
[*]
[*]
[*]
[*]
In consideration for the System Development and Implementation, WorldRes or
WizCom Customer (to be determined by WorldRes at time of order) shall pay WizCom
[*] which is due upon ordering of service. Such System Development and
Implementation shall consist of:
A. Administration
WizCom will provide WorldRes with five (5) man days of communication, software
development, implementation and support which includes the following:
B. TYPE B Processing
1. Test TYPE B Application - WizCom/WorldRes/Customer
2. Implement TYPE B Processing - WizCom/WorldRes/Customer
C. TYPE A Processing - Interactive Sell, Cancel and Modify
1. Programming and Test TYPE A Application- WizCom/WorldRes/Customer
2. Implement TYPE A Processing - WizCom/WorldRes/Customer
D. Automatic Availability Updating Processing - Open, Close, Request, Close-
to-Arrival Transactions
1. Programming and Test Availability Updating Application -
WizCom/WorldRes/Customer
2. Implement Availability Updating - WizCom/WorldRes/Customer
E Automatic Rate Updating Processing - Add and Modify Transactions
1. Programming and Test Rate Updating Application -
WizCom/WorldRes/Customer
2. Implementing Rate Updating - WizCom/WorldRes/Customer
F. Seamless Processing - General and Specific Display Transactions
1. Programming and Test Seamless Application - WizCom/WorldRes/Customer
2. Implement Seamless - WizCom/WorldRes/Customer
[*]= Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with regard to the
omitted portions.
13
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
Schedule B
WorldRes and WizCom
Communication and System Interface
Implementation Schedule
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MILESTONE DATES COMMUNICATION DEVELOPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
April 4, 1997 - Start 1. Develop system interface specification
- WorldRes & WizCom
- ------------------------------------------------------------------------------------------------------------------------------------
June 2, 1997 - Start 1. Determine WorldRes communication 1. Load hotel database information -
requirements - WizCom WorldRes
- ------------------------------------------------------------------------------------------------------------------------------------
June 6, 1997 - Start 1. Order communication line with
telecommunications carrier - WizCom
2. Order Cisco Router for installation at
WorldRes - WizCom
- ------------------------------------------------------------------------------------------------------------------------------------
June 16, 1997 - Start 1. Develop supporting WizCom interface -
June 27, 1997 - Complete WizCom
- ------------------------------------------------------------------------------------------------------------------------------------
July 17, 1997 - Complete 1. Define WorldRes within WizCom host
system (System Gen) - WizCom
- ------------------------------------------------------------------------------------------------------------------------------------
July 25, 1997 - Complete 1. Communications testing - WizCom & 1. Applications testing - WizCom &
WorldRes WorldRes
- ------------------------------------------------------------------------------------------------------------------------------------
August 4, 1997 - Complete 1. Implement Interface - WizCom & WorldRes
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
Subsidiaries
- ------------
Worldres Europe GmbH and Co. KG.
Worldres U.K. Ltd.
Worldres France S.A.R.L.
Goldreyer Inc. (dba BedandBreakfast.com)
Munsenware Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated October 15, 1999, except for the paragraphs
under the caption "Convertible Preferred Stock" in Note 6, as to which the date
is December 17, 1999 in the Registration Statement (Form S-1) and related
Prospectus of WorldRes.com for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
April 5, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado,
April 5, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
WORLDRES.COM, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-2000
<PERIOD-START> OCT-01-1998 OCT-01-1999
<PERIOD-END> SEP-30-1999 DEC-31-1999
<CASH> 4,510,000 24,242,000
<SECURITIES> 0 0
<RECEIVABLES> 562,000 548,000
<ALLOWANCES> 58,000 64,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,772,000 26,653,000
<PP&E> 3,365,000 5,258,000
<DEPRECIATION> 1,030,000 1,387,000
<TOTAL-ASSETS> 14,266,000 36,372,000
<CURRENT-LIABILITIES> 3,165,000 4,714,000
<BONDS> 0 0
0 0
7,000 10,000
<COMMON> 3,000 3,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 14,266,000 36,372,000
<SALES> 1,728,000 658,000
<TOTAL-REVENUES> 1,728,000 658,000
<CGS> 232,000 92,000
<TOTAL-COSTS> 15,098,000 9,848,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 13,489,000 9,170,000
<INTEREST-EXPENSE> 155,000 40,000
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,489,000) (9,170,000)
<EPS-BASIC> (18.03) (4.31)
<EPS-DILUTED> (18.03) (4.31)
</TABLE>
